the true value of wealth
TRANSCRIPT
Volume 4: The True Value of Wealth
In co-operation with the Economist Intelligence Unit
Barclays Wealth Insights
Barclays Wealth, the UK's leading wealth manager with £126.8 billion client assets globally at 30 June 2007, serves affluent, high
net worth and intermediary clients worldwide. It provides international and private banking, fiduciary services, investment
management and brokerage. Thomas L. Kalaris, the Chief Executive of Barclays Wealth, joined the business at the start of 2006.
Barclays Wealth is part of the Barclays Group, a major global financial services provider engaged in retail and commercial banking,
credit cards, investment banking, wealth management and investment management services with an extensive international
presence in Europe, the USA, Africa and Asia. It is one of the largest financial services companies in the world by market
capitalisation. With over 300 years of history and expertise in banking, Barclays operates in over 50 countries and employs over
127,000 people. Barclays moves, lends, invests and protects money for over 27 million customers and clients worldwide.
For further information about Barclays Wealth, please visit our website www.barclayswealth.com.
About Barclays Wealth
For information or permission to reprint, please contact Barclays Wealth at:Barclays Wealth Insights, Barclays Wealth, 1 Churchill Place, London, E14 5HPTelephone: 0800 851 851 or dial internationally on +44 (0) 141 352 3952 or visit www.barclayswealth.com
Written by the Economist Intelligence Unit (EIU) on behalf of Barclays Wealth, this fourth volume of Barclays Wealth Insights
examines what it means to be wealthy today. We look at the factors beyond money that the wealthy consider important, and
explore the changing patterns of behaviour that are being driven by the ongoing democratisation of wealth. We also look at how the
wealthy spend their money, and explore the challenges and opportunities facing the luxury goods and services sectors as they
adapt their offering to suit their rapidly changing customer base.
It is based on three main strands of research. First, the Economist Intelligence Unit conducted a survey of 790 individuals with
investable assets ranging between at least US$20,000 and those with in excess of US$3 million. Respondents were spread across a
number of key international markets, with the highest numbers of respondents from the United States, United Arab Emirates,
Singapore, Hong Kong, United Kingdom, Spain and Switzerland. The survey took place between January and September 2007. This
was supplemented with a series of in depth interviews with experts on wealth; and a number of case studies. Our thanks are due to
the survey respondents and interviewees for their time and insight.
About this report
At Barclays Wealth, we are dedicated to providing our clients with the means to manage their wealth successfully and are continually
striving to better understand individual needs, objectives, aspirations and goals.
In partnership with the Economist Intelligence Unit, we have this year published a series of in-depth reports entitled ‘Barclays Wealth
Insights’. The reports set out to stimulate debate and provide a definitive picture of what being wealthy really means in the 21st century.
Our first report, ‘The Future of Wealth 2006-2016’, emphasised the unprecedented levels of growth in wealth and its global
implications. ‘A Question of Gender’ explored the differences in attitudes to wealth creation between women and men, and
addressed some of the key challenges facing women today in the context of that wealth. And the third volume of Insights
investigated how wealthy individuals consider ‘Risk, Return and Reward’ throughout their lives and the role that each plays in their
approach to investment and planning their legacy.
Finally, in this fourth publication, we examine the true value of wealth and the choices wealthy individuals make in seeking to enjoy it.
We also consider how luxury brands are responding to the changing requirements and expectations of an ever expanding customer
base for whom time in particular is becoming an increasingly precious commodity.
As well as consulting with close to 800 wealthy individuals around the world, the Economist Intelligence Unit has once again worked
with a panel of experts drawn from academia, industry and financial circles, who add their own unique perspective.
We hope that you find this final chapter in the 2007 series an interesting and illuminating read, and we look forward to bringing you
new Insights in 2008.
Thomas L. Kalaris
Chief Executive
Barclays Wealth
Foreword
1
2
Our Insights PanelGerard Aquilina, Head of International Private Banking, Barclays Wealth
Jean-Christophe Bedos, Chairman and Chief Executive Officer, Boucheron
Radha Chadha, Author, The Cult of the Luxury Brand: Inside Asia’s Love Affair with Luxury
Luc Delaflosse, General Manager, Burj Al Arab Hotel
Chadwick Delaney, Sales Director, Justerini & Brooks
Kenny Dichter, Chief Executive Officer, Marquis Jet
Sebastian Dovey, Managing Partner, Scorpio Partnership
Kenneth Fang, Owner, knitwear company Pringle
Milton Pedraza, Chief Executive, the Luxury Institute
Russ Prince, President, Prince & Associates
Our thanks also to
Nick Candy, Co-founder, Candy & Candy
Joseph Ettedgui, Owner, Connolly
A millionaire is not what itused to be• The term ‘millionaire’ used to be the gold standard for wealth,
but it has long since lost its cachet. Today, US$10 million is
the sum that is often talked about as the threshold for being
considered a high net worth individual. Among our survey
respondents, more than one-third think that this is the
amount of liquid assets required to be considered wealthy.
(See page 5)
Increased wealth is a boonfor charitable causes• Support for charitable causes has long been part and parcel
of being wealthy, and our survey suggests that it is strongest
among the most wealthy sections of society. When asked
what proportion of their estate they planned to leave to
charitable causes, 26 per cent of respondents with assets
under US$1 million said that they planned to leave more than
10 per cent of their estate to charitable causes. This figure
rose to 37 per cent, however, among those respondents with
wealth in excess of US$3 million - each of whom would therefore
be leaving a minimum of US$300,000 to charity. (See page 10)
Exclusivity is the new luxury• With many luxury goods companies now catering for the
mainstream market as well as the wealthy, exclusivity is
becoming the new touchstone for the wealthy. In our survey, 34
per cent of respondents with wealth in excess of US$3 million
say that they consider exclusivity as an important factor when
making purchasing decisions, compared with only 18 per cent of
respondents with assets below US$1 million. Exclusivity is a
particularly important consideration for respondents in the
United Arab Emirates, Singapore and Hong Kong. (See page 15)
Appetite for luxury goodsremains strong• Luxury goods companies can be confident about their future
prospects, especially in Asia. Asked if they agreed that luxury
goods were a waste of money, only 31 per cent of
respondents agreed. Respondents from the Asian centres of
Singapore and Hong Kong were least likely to agree with this
statement, and were also the group most likely to focus on
brand as a criterion for purchasing decisions. (See page 18)
A bright future for‘time-substitute’ services• Time is often described as the ultimate luxury, and evidence
from our research suggests that this is one commodity that is
at an increasing premium as individuals climb the wealth
ladder. Demand for ‘time-substitute’ services among the
wealthy is growing rapidly. When asked which services they
currently use, those that could be grouped under the heading
of time substitutes, such as cleaners, concierges, personal
shoppers and travel search agencies, were almost always
most popular among the wealthiest band of respondents
(US$3 million plus in liquid assets). By point of comparison,
the difference in extent of usage is much less marked
between the wealth bands when we look at health and
grooming services, such as personal trainers, personal stylists
and alternative health practitioners. (See page 28)
3
Key findings
4
Robert Kennedy once remarked that metrics of economic progress, such as gross
domestic product, measure “everything except that which makes life worthwhile”. In
other words, the essential qualities of a healthy society, including family relationships,
happiness and friendships, are not accounted for by such a blunt measure, and we
should seek other measures to determine our well-being.
One can make the same analogy when discussing the meaning of wealth. Just as GDP
is a crude measure of economic progress, so too the size of an individual’s bank
balance is an overly simplistic measure of what it means to be wealthy. The things that
make life worthwhile - family, friendships, health, happiness and many other factors -
are simply not captured by such a narrow definition.
This discussion is further complicated by the fact that wealth - unlike GDP - is a
relative measure. There are many millionaires who do not consider themselves to be
wealthy and just as many with a mere fraction of those assets who think that they are.
Wealth, in other words, is determined by environment, and also incorporates a range of
other qualities that are less easy to measure than money.
In this report, we examine what it means to be wealthy today. We look at the factors
beyond money that the wealthy consider important, and explore the changing patterns
of behaviour that are being driven by the ongoing democratisation of wealth. We also
look at how the wealthy spend their money, and explore the challenges and
opportunities facing the luxury goods and services sectors as they adapt their offering
to suit their rapidly changing customer base.
Introduction
5
In the UK alone, there are 405,000 households with financial
wealth in excess of US$1 million, according to research conducted
by the Economist Intelligence Unit for Barclays Wealth. And the
news that the Securities and Exchange Commission, the chief US
financial regulator, has proposed to increase the level of assets
required to be an ‘accredited investor’ - someone allowed to invest
in certain types of higher-risk investments - from US$1 million
net worth to US$2.5 million in investable assets is further
evidence that true wealth is now about much bigger numbers.
Inflation is clearly a factor in the increase in wealth in recent
decades. “A billion dollars isn’t worth what it used to be,” as
J. Paul Getty famously quipped in 1957. When Fortune Magazine
recently recalculated the wealthiest Americans - on the basis of
wealth as a fraction of economic activity (GDP), Bill Gates, the
wealthiest person in the world, was assessed at number five
behind John Jacob Astor, Cornelius Vanderbilt and others - many
of whose wealth was a fraction of Gates in absolute terms.
As overall levels of wealth have increased worldwide, so also has
the cost of living for the rich. Forbes magazine calculates what it
calls the ‘Price of Living Well’ index. It has found that, over the past
year, the cost of a basket of luxury goods climbed by 6 per cent,
more than double the rate of inflation in the US. Moreover,
these figures probably understate the real level of inflation faced
by the wealthy as they experience increased competition for
positional and prestige goods, properties and so on.
Society pays a huge amount of attention to how much money
the wealthy spend, but is being wealthy more than just a
question of money and spending? What other dimensions, in
terms of motivations, behaviour and personal values, should one
take into account?
What does it mean to be
wealthy?As the amount of wealth in the world increases, and as the number of millionaires,
centi-millionaires and billionaires soars, what does it mean to be wealthy today?
The term ‘millionaire’ - once almost a gold standard of wealth - has lost its cachet in
a world that is experiencing considerable wealth generation.
“This issue has significant implications from a behavioural and
credit perspective,” says Gerard Aquilina, Head of International
Private Banking at Barclays Wealth. “In absolute terms, global
wealth is so wrapped up in real estate - some of it perhaps
overvalued or at the top of the cycle - that many individuals
believe they are wealthier than they really are and will spend
or invest accordingly. Liquid or investable wealth may be a
safer definition of wealth. But it goes beyond a monetary
definition; it is a state of mind.”
Many bankers, financial advisors and wealth management
professionals use their own classification for bands of wealth.
With wealth increasingly widespread on a global basis, and the
dramatic rise in the number of billionaires, coupled with an
increasingly weaker dollar, the thresholds that many leading
private banks are using have probably grown from US$1 million
to US$10 million in liquid investable wealth to be considered a
"high net worth individual".
However useful this classification, the big question is: how do the
wealthy view their own financial standing? Roughly 50 per cent
of the individuals questioned for the EIU/Barclays Wealth survey,
whose investable assets ranged from a bottom threshold of
US$20,000 to US$3 million plus, consider themselves to be
wealthy. As one might expect, the proportion of respondents
who consider themselves to be wealthy is much higher among
those from the higher asset bands. Some 78 per cent of
respondents with investable assets in excess of US$3 million
consider themselves to be wealthy, compared with 70 per cent
of those with assets between US$1 million and US$3 million and
just 31 per cent of those with assets of less than US$1 million.
And 35 per cent of respondents with investable assets in excess
of US$3 million think that you need assets in excess of US$10
million in order to be considered wealthy.
This figure of US$10 million turns out to be one that chimes
with the views of other wealth experts. Russ Prince, President
of Prince & Associates, sees US$10 million as the threshold to
being wealthy today. “Our research shows that affluent
individuals who have assets of more than US$10 million act
and spend differently from their less wealthy counterparts,”
he says. “They are in fact closer in mindset to people with
US$50 million than those with US$5 million.”
Milton Pedraza, Chief Executive of the Luxury Institute, agrees
that US$10 million is a figure that signifies wealth today. “This
is a level of wealth where people feel protected from the
hazards of the world,” he says.
6
Table 1 - Percentage of respondents who consider themselves tobe wealthy by assets (US$)
Table 2 - Minimum threshold to be considered wealthy by asset (US$)
Yes 31 70 78
No 69 30 22
Total 100 100 100
Assets: lessthan 1m (%)
Assets: 1mto 3m (%)
Assets: morethan 3m (%)
100,000 25 12 3
1m 43 51 26
3m 14 19 37
Assets: lessthan 1m (%)
Assets: 1mto 3m (%)
Assets: morethan 3m (%)
10m 12 13 25
30m 2 5 10
Total 100 100 100
When looking at how people see their own wealth, it is
important also to consider the relative dimension of how people
compare themselves with others. Recent research by Glenn
Firebaugh at Pennsylvania State University confirms that people
do indeed consider their peers when evaluating their own
income. The researchers suggest that, in the US, relative income
is more important than absolute income in determining an
individual’s happiness. This has the potential to create what
economists call a ‘hedonic treadmill’ where people are
continually trying to catch up their wealthier peers.
“It’s always surprising to see affluent
individuals, with what we would think of
as sizeable assets, who still don’t feel that
they are truly wealthy because they are
comparing themselves with people who
are wealthier than they are.”
“We see this all the time,” says Sebastian Dovey, Managing Partner
of Scorpio Partnership, a UK wealth management and consultancy
company. “It’s always surprising to see affluent individuals, with
what we would think of as sizeable assets, who still don’t feel that
they are truly wealthy because they are comparing themselves
with people who are wealthier than they are.”
Indeed, in a recent wealth survey of New Yorkers, the individuals
most likely to agree with the statement “rich people make them
feel poor” were the highest earners - those who earned at least
US$200,000 a year. And this question of relativity may explain
the results of the Worth-Roper Starch Survey, a US research
project that found that the majority of Americans in the highest-
earning one per cent of the population did not consider
themselves to be rich.
Geographical location will also have a significant influence on
relative perceptions of wealth. “Clearly what it means to be wealthy
depends very much on the country in which you live, economic
factors, concentration of wealth, wages and cost of living, and so
on,” says Mr Aquilina. “US$10 million on a purchasing power parity
basis is different in the US as compared to India or Chile."
Even within a city these differences can be substantial. The
recent survey of wealth in New York found that respondents in
the outer boroughs believe that you can be rich on US$200,000
a year or less. In Manhattan, 40 per cent of respondents said
that you needed more than US$500,000.
7
The relativedimension of wealth
“People often tend to think about wealth in terms of assets and
money,” says Mr Aquilina. “But being wealthy is not just about the
money; and certainly that is not the way that the wealthy think
about it. There are many other dimensions. For some, it can be
political power or influence; for others, it’s about their role in the
community. Certainly status is important for many while for
others, it’s about freedom. There are many aspects and nuances.”
Mr Dovey believes that power, prestige and influence are key
facets of wealth. “Our research and work with wealthy
individuals makes it clear that money itself is a catalyst to
attaining goals in people’s lives beyond money,” he says.
“Wealthy individuals are often very driven by confirming their
role among their business or society peers. Others seek to drive
change in their world through the fact that their wealth allows
them to move agendas. We have come to term this as P.P.I. -
money leads to enhanced power, prestige and influence.”
8
Wealthmeans more than money
The word wealth comes from the Old English words “weal” (well-being) and “th”
(condition). While we traditionally classify wealth primarily in financial terms, it is
clear that “wealth” is a term that means different things to different people. It does
not necessarily refer only to the simple notion of money in the bank, the size of
one’s investment portfolio or any other financial measure. Time, family, health and
influence can all be part of the meaning of wealth.
Our survey shows a close connection between time and wealth.
Almost two-thirds (62 per cent) of all respondents believe their
wealth has brought them more (or better) leisure time, while
more than half of respondents believe that it has allowed them
to spend more (or better) time with their family.
It is arguable whether the wealthy really have more leisure time
or get to spend more time with their families - time is usually at
a premium for these individuals. What is more likely, and may be
at the heart of this finding, is that the time they have can be
better spent, because greater wealth provides more
opportunities and options.
“Wealthy people tend to lead very
complex and busy lives and many
do experience serious time pressure
and stress.”
Wealthier respondents - those with assets in excess of
US$3 million - are more likely than those in other wealth bands
to say that increased wealth has brought them more time with
the family. However, respondents in the higher wealth brackets
are also more likely to say that increased wealth has brought
them more stress in their lives.
This reflects the experience of many professionals who work
closely with the wealthy and their families. “Wealthy people
tend to lead very complex and busy lives,” says Mr Pedraza.
“And many do experience serious time pressure and stress. This
is one reason why the wealthy use the internet intensively, as we
discovered in our recent research. And this is why the wealthy
are increasingly likely to consume services that help save time
and make their lives easier.”
9
Timeis the ultimate luxury
There has always been a school of thought that sees time, the scarcest resource, as
wealth. Recent research by the Conference Board in the US entitled Global Luxury
Market: Exploring the Mindset of Luxury Consumers in Seven Countries found that
time is viewed as the ultimate luxury.
The link between
wealth andhappiness
What about the relationship between wealth and happiness? In
the EIU/Barclays Wealth survey, 78 per cent of respondents said
that their wealth had made them happier. More respondents
with assets in excess of US$3 million (87 per cent) are likely to
think that increased wealth has brought them greater happiness
than those with assets between US$1 million and US$3 million
(78 per cent) and assets below US$1 million (75 per cent).
The positive relationship is supported by research from Robert
Frank, a Professor of economics at Cornell University, in a paper
for the American Academy of Arts & Sciences. "When we plot
average happiness versus average income for clusters of people
in a given country at a given time, we see that rich people are in
fact much happier than poor people," he writes.
However, research by Ed Diener, a Professor of psychology at the
University of Illinois, raises questions about the relationship
between wealth and happiness. Mr Diener found the Forbes list
of the 400 richest Americans had about the same level of well-
being as the Maasai of East Africa, a traditional herding people
who live in huts with no electricity or running water.
The point is not that wealthier people are less happy than those
leading a simpler life - many wealthy individuals report very high
levels of well-being. The authors point out, however, that
increasing wealth is associated with only a slight rise in well-
being once nations have a moderate level of income. Other
factors, such as interpersonal relationships and the cultural
context, are also extremely important. For example, the research
found that homeless people in Fresno, California, who may have
similar “wealth” to the Maasai in purely monetary terms,
reported very low levels of well-being. The environment in which
the individual finds him or herself, and whether or not basic
needs are met, is therefore crucial.
Social responsibility is another, increasingly important dimension
of wealth. More than half of the respondents in EIU/Barclays
Wealth survey say that being able to help people through
philanthropy is important or very important. In addition,
10
Table 3 - Percentage that says increased personal wealth hasbrought greater happiness by assets (US$)
More/better 25 12 3
Less/worse 25 12 3
Total 14 19 37
Assets: lessthan 1m (%)
Assets: 1mto 3m (%)
Assets: morethan 3m (%)
47 per cent of respondents say that the ability to help others is
an important driver for them to amass and protect their wealth.
This figure rises to 55 per cent among those respondents with
assets in excess of US$3 million.
When asked what proportion of their estate they planned to
leave to charitable causes, there was also a notable difference
between the wealth bands. In the case of respondents with
assets under US$1 million, just over a quarter (26 per cent) said
that they planned to leave more than 10 per cent of their estate
to charitable causes. This figure rose to 37 per cent among
those respondents with wealth in excess of US$3 million.
Wealth is about having peace of mind
and the opportunity to fulfil personal
goals such as charitable causes.
Many wealth experts note that there are generational issues to
consider, with younger individuals more likely to make the link
between wealth and responsibility. This is not to say that older
generations are not exploring ideas of social responsibility, but
certainly younger generations are becoming more vocal in their
need to demonstrate that their wealth has a positive impact.
How do these different aspects of wealth vary around the
world? Not as much as you would think, says Mr Dovey.
“Regional and national differences are often overemphasised
while similarities are overlooked,” he says. “You may be told not
to discuss legacy and tax issues in Asia, because talking about
death is taboo; or that the family is hugely important to Indians.
People often extrapolate from a limited experience with a few
wealthy families in a particular culture. But when you conduct
surveys and interviews across a wide range of countries, you see
similar patterns and trends. There are subtleties in language and
in how people approach these questions, but the meaning of
wealth turns out to be remarkably consistent.”
11
The meaning of wealth varies enormously among ourclients. However, one constant is that the amount ofmoney you need to be considered wealthy has gone upconsiderably in the past decade. Rising inflation meansyou need more money to be wealthy as the cost of travel,school fees, hospitality and leisure, and even refurbishinga home continues to rise.
As people work harder to achieve and sustain their wealth,attitudes to prosperity are shifting. People are lessembarrassed by wealth than they used to be and they aremore overt in their enjoyment of wealth, without being brash.
This is creating a revolutionary change in people’slifestyles. For instance, more wealthy individuals are nowhiring private jets, not so they can be overtly extravagantbut because these are becoming less expensive than afirst-class plane ticket. The superior service and quality ofthe experience is also something they appreciate. Jetcompanies have responded to this demand by introducingshort leases and part-ownership.
Other investments include boats and second or thirdhomes abroad. The pursuit of sailing is now so popularthat it is almost impossible to find a good crew for a boatbecause the chances are they will have already been hired.Conversely, buying a home abroad is becoming easier withcompanies dedicated to handling every aspect of lifebetween several countries. Money is more transferablewith fewer obstacles to moving capital across borders.And even with threats such as terrorism, living overseas isgenerally safer and easier than it has been in the past,enabling wealthy individuals to be more adventurous.
So, does wealth simply mean money and indulgence? Whileour clients certainly enjoy the rewards of their investments,for them wealth is also about much more than that. It isabout having peace of mind and the opportunity to fulfilpersonal goals such as charitable causes. Many wealthypeople are now giving their energy and insight, as well asfinancial support, through philanthropy. Being wealthy alsoenriches the experience of travel, enabling people toventure to places that are far from the madding crowdwhere they and their families can find serenity.
But there is often a gap between the things that peoplewant to do and the time they have available. Nearly everyclient laments the lack of time. No matter how wealthysomebody is, there are still only 24 hours in a day.
The Barclays Wealth privatebanker perspective
12
“While we traditionally classify wealth primarily in
financial terms, it is clear that “wealth” is a term
that means different things to different people”
Gerard Aquilina, Head of International Private Banking at Barclays Wealth
13
Exclusivity andgrowth - having it all
14
Few industries have to grapple with the changing nature of
wealth, and the way in which the wealthy behave, quite so
keenly as the luxury goods and services sector. Over the past
decade, the explosion in the number of wealthy consumers
worldwide has irrevocably changed the relationship between
these companies and their clients. Previously, companies could
count on knowing their clients, often for generations, and might
have had a market of just thousands. Now, they are faced with
many newly wealthy clients and their potential client base can
be counted in tens of millions.
Few industries have to grapple with
the changing nature of wealth, and the
way in which the wealthy behave, quite
so keenly as the luxury goods and
services sector.
Luxury companies face a dilemma. On the one hand, the market
opportunities created by this new customer demographic are
immense; on the other, companies risk diluting the exclusivity of
their brand by taking advantage of those market opportunities.
“Exclusivity and uniqueness matter enormously to the wealthy,”
says Milton Pedraza, Chief Executive Officer of the Luxury
Institute. “When luxury brands are widely available, sooner or
later, they lose their cachet of exclusivity.”
A loss of exclusivity was the fate that befell Pierre Cardin and
Gucci in the 1980s. More recently, brands like Calvin Klein and
Ralph Lauren have also suffered as a result of their efforts to
target the wealthy market. When US jewellers Tiffany started
selling US$110 silver charms for younger buyers, they were
inundated with teenagers buying bracelets, to the concern of
Tiffany’s traditional, wealthier clients. And in the UK, Burberry
suffered from its popularity with a more ‘down market’ audience.
15
Any discussion of the meaning of wealth needs to factor in the way in which the
wealthy spend their time, and enjoy their money. For example, how important is
the traditional concept of ‘luxury’ to this group, and how are luxury brands
adapting to meet the changing needs and aspirations of the wealthy? And how
is this reflected internationally? Further, what are the services emerging to fulfil
the needs of the wealthier individuals in our society to whom having ‘time’ itself
is part of being wealthy?
“Over the past decade or so, the luxury industry has focused
on developing derivative goods - like lower-priced accessories -
to make a brand and its products more attainable to a wider
audience,” he said. “I think this business model can, and
should, be challenged.” His answer: to focus ‘on the upper
echelons of luxury’.
Claudia D’Arpizio, a Partner in Bain & Company’s consumer
products practice, is not convinced, however, that large luxury
goods companies can afford to rely only on the top end of the
market. “Smaller niche brands may have success focusing on
the very top end of the market,” she says, “but it won’t work for
the big luxury companies because there just aren’t enough
customers. Large luxury companies tend to have a large fixed
costs base. Profitability is driven by top line revenue growth - it’s
all about gross margins.”
The so-called affordable luxury, or mass affluent market - Ralph
Lauren Polo rather than Hermes - is immense. Boston
Consulting Group, the consulting firm, estimates that the
“trading-up industry”, whereby consumers will pay more to feel
special, last year amounted to US$720 billion in the US alone.
So how should luxury goods companies take advantage of these
market opportunities while still maintaining the prestige of their
brand? And how do they ensure that their offering meets the
needs of the wealthy who are, after all, their core market?
“Companies need to cater to the top end of the market with
specially targeted brands and offerings, and unique or distinct
distribution,” says Ms D’Arpizio. “The real challenge for luxury
companies is to listen to their customers and to find out what they
want - a relatively new idea for many luxury goods companies.”
16
The challenge for theluxury
Balancing growth with exclusivity is clearly one of the biggest challenges facing
luxury companies today. Francois Pinault, Chief Executive Officer of French luxury
goods company PPR, whose exclusive brands include Gucci, Bottega Veneta and
Boucheron, outlined his opinions on this issue during his speech at last year’s
International Herald Tribune luxury conference.
17
This is exactly what some luxury companies are doing. For
example, Tiffany has been focusing on its traditional, wealthy, core
clients by separating stores into mass-affluent and “fine jewellery”
sections, and providing private viewings for its wealthier
customers. Meanwhile Coach, the leather goods and accessories
brand, has successfully focused on building the relationship with
its customers, allowing it to maintain its brand prestige while still
providing affordable luxury. “Coach has been successful because it
is excellent at listening to its customers,” says Mr Pedraza. “It tests
out new products on them and gets feedback on the right
products to develop. In addition, it has a truly excellent approach to
service that is better than most luxury companies. And that
matters enormously to the wealthy consumer.”
The scale of the opportunities in the “upper echelons of luxury”
can be seen in Lamborghini’s recent launch of the US$1.4
million Lamborghini Reventón. The company announced a
limited edition of 20 cars - all of which were sold within four
days of being announced. (Lamborghini management believe
that they could easily have sold twice as many).
goods industry
18
Despite the problems that can befall luxury brands, there clearly
remains an appetite among the wealthy to purchase them.
When asked whether they thought that buying designer clothes
and other luxury goods was a waste of money, only 31 per cent
of respondents to the EIU/Barclays Wealth survey agreed. The
results were broadly the same irrespective of how much wealth
respondents held. Looking at specific countries, respondents
from US and Canada appeared least enthralled by luxury goods,
while the Asian centres of Singapore and Hong Kong appeared
to find them most appealing.
“Asian customers value and appreciate
international luxury brands for their
exclusivity, sophistication and quality.”
“Asian customers value and appreciate international luxury
brands for their exclusivity, sophistication and quality,” says
Kenneth Fang, the Hong-Kong based owner of knitwear
company Pringle. “Many of them travel extensively and are well
exposed to the wide offering these international luxury brands
have in other parts of the world. Such well informed customers,
in today's globalised setting, have greatly accelerated the
growth of these international brands in the Asian markets.”
Asia is a region that is seeing rapid economic development and
wealth creation, brand and exclusivity are important signifiers of
status, and demonstrate that the bearer has benefited from the
creation of new wealth. By contrast, in countries such as the US
and Canada, where the economy is now developing more slowly
after a prolonged period of growth, such signals do not have quite
the same potency. Indeed, other social signifiers - philanthropy, for
example - may be perceived as more revealing of status.
The survey also shows the importance of exclusivity as a buying
criterion, with almost 30 per cent of respondents citing it as one of
the top three factors influencing their buying decisions. Wealthier
individuals are more likely to cite exclusivity as an important
criterion than the less wealthy - only 18 per cent of respondents
with assets below US$1 million cite it as a factor, compared with
35 per cent of respondents with assets above that threshold.
Value for money as a purchasing criterion remains consistently
important across the wealth bands, with the very wealthiest
members of the survey considering it just as important as the
least wealthy. Clearly, the possession of great wealth does
nothing to undermine the universal requirement for purchases
to be worth what they cost.
Luxury, exclusivityand other purchasing criteria
19
Percentage who disagree that designer clothes and otherluxury goods are a waste of money by country
64%South Africa
64%Dubai
66%Italy
84%Hong Kong
68%France
67%Switzerland
76%Spain
79%Singapore
Portugal77%
UK77%
Availability online 4 13 14
Ethical considerations 9 12 13
Fashion 7 12 12
Endorsement by celebrity 2 7 8
Country of origin 5 5 7
Table 4 - Factors that guide purchasing decisions by assets (US$)
Product quality 78 56 60
Value for money 44 34 41
Exclusivity 18 37 35
Brand 42 42 34
Purchasing experience 35 40 26
Recommendations from friends and family 15 23 26
Assets: lessthan 1m (%)
Assets: 1mto 3m (%)
Assets: morethan 3m (%)
59%US & Canada
Value for money 76
UK Product quality 80
Brand 26
Value for money 74
US/Canada Product quality 79
Brand 32
Value for money 53
France Product quality 56
Brand 44
Exclusivity 39
Purchasing experience 41
Product quality 44
South Africa Brand 56
Purchasing experience 50
Hong Kong Product quality 65
Brand 48
Exclusivity 39
Brand 44
Factors such as celebrity endorsement are rated as very
insignificant by respondents, although interestingly, this criterion
is seen as a slightly more important factor by those from the
highest wealth band. Overall, though, it is not seen as significant,
which might call into question the effectiveness of campaigns for
luxury goods that rely on the endorsement of celebrities.
There are also notable regional differences between the purchasing
criteria that are seen as significant. While product quality is usually
regarded as the most important factor when guiding buying
decisions, factors such as brand and exclusivity are seen as
particularly important in Middle Eastern and Asian centres, such as
the United Arab Emirates, Singapore and Hong Kong.
The survey also shows the importance
of exclusivity as a buying criterion, with
almost 30 per cent of respondents citing
it as one of the top three factors
influencing their buying decisions.
Singapore Product quality 62
Purchasing experience 59
20
Table 5 - Top three purchasing criteria by country
UAE Product quality 62
Country Criteria %
Exclusivity 39
Brand 39
Switzerland Product quality 51
Value for money 39
Product quality 42
Brand 42
Portugal Purchasing experience 48
Brand 56
Spain Product quality 58
Purchasing experience 51
Exclusivity 34
Brand 53
Italy Product quality 61
Purchasing experience 34
21
22
Chinese demographics are key to understanding this
phenomenon. The liberalisation of the Chinese economy has
rapidly given birth to a super-rich capitalist class. There are
estimated to be some 350,000 US dollar millionaires in China.
Just how quickly wealth is growing can be seen from the most
recent “China Rich List”, compiled by Hurun, which shows a
sevenfold increase in US dollar billionaires in the past year.
So it is no surprise that luxury car makers, hotel groups and a
roll call of elite brands are racing to expand their presence in
China. Whereas previously they would have focused on the
major urban centres, such as Beijing and Shanghai, they are
increasingly turning their attention to smaller cities, such as
Shenyang, Jinan and Chengdu, as the market for luxury goods
expands into previously unexploited parts of urban China.
“The Chinese market will eventually be like ten Japans,” says
Radha Chadha, author of The Cult of the Luxury Brand: Inside
Asia’s Love Affair with Luxury. “So far luxury brands have only
touched the surface of this market.” Ms Chadha believes that
luxury markets in Asia develop according to a five-step model.
China, she argues, has completed phase one (which she refers
to as subjugation, characterised by authoritarian rule,
deprivation and poverty, which build a hunger or a desire for
luxury) and phase two (economic growth), and is currently at
phase three, which she terms “the show-off stage”, where
status is the key focus. Phase four is reached when this trend
for displaying wealth becomes widespread, and phase five is
when luxury becomes a “way of life”.
Patience is a virtuefor investors in ChinaCountry case study
Luxury goods companies are currently in thrall with China. It is
estimated that there are around 10 million to 13 million customers of
luxury goods on the mainland, and this figure is likely to climb as
wealth spreads across the country.
23
“Wealthy Chinese want to telegraph in a simple, clear manner
that they have money,” she explains. “And luxury brands tell the
world how well you’ve done and your status in society. The huge
changes brought about by economic liberalisation have
reinforced the need for status validation.”
“Luxury brands tell the world how well
you’ve done and your status in society.
The huge changes brought about by
economic liberalisation have reinforced
the need for status validation.”
Indeed, in the Conference Board’s Global Luxury Market: Exploring
the Mindset of Luxury Consumers in Seven Countries, China was
the only country surveyed in which a majority of wealthy
consumers agreed that luxury is defined by brand. China was also
one of the countries identified in the report where individuals are
most likely to own “status” luxury goods.
Currently, success in China for luxury goods companies depends
on being a “top” brand. The top ten brands in China for the ultra
wealthy, according to Hurun Report, are: BMW, Louis Vuitton,
Mercedes-Benz, Rolex, Giorgio Armani, Ferrari, Rolls-Royce,
Bentley, Cartier and Vacheron Constatin. Beyond this elite, lesser
brands may find it a struggle to win clients in China.
As they pursue their growth strategies in the region, luxury
companies in China also face a number of specific problems:
intense competition, a proliferation of brands and luxury goods
companies, together with spiralling costs, a shortage of skilled
workers, steep import duties and value added taxes, to name a few.
Although attempts are being made to curb the problem,
counterfeiting also remains a major problem. “It is difficult to
pinpoint particular strategies to fight counterfeiting since its
ramifications are so wide,” says Mr Fang, the owner of Pringle.
“The good news is that Asian governments have come to realise
how damaging it is even for their own economies in the long
run and are starting to adhere to international controls and
standards. We are now starting to see much more attention in
some markets. That said, unfortunately the problem is not
solved yet.”
What will it take for luxury goods companies to succeed in
China? Experts say a long-term perspective is essential. Recent
research by Boston Consulting Group suggested that only about
one in ten overseas luxury brands were profitable in mainland
China. Earlier this year, Nigel Luk, Cartier’s Managing Director for
China, revealed that the company is barely breaking even after
15 years on the mainland, despite being the best-selling luxury
jewellery brand in the country.
Ms Chadha believes that it will take 15 to 20 years for China to
reach phase five, where a ‘culture of luxury’ is well-established,
like in Japan. “Luxury brands need to continue to build
relationships with consumers over this time. Those who build
the right foundations will reap great rewards,” she says.
But however spectacular and extraordinary future projects in Dubai
might be, there is one structure that will undoubtedly remain its
most iconic - the Burj Al Arab hotel, which is managed by the
Jumeirah Group. Built on a man-made island and connected to the
mainland by a short causeway, the Burj Al Arab is, at 321 metres
above sea level, the world’s tallest all-suites hotel and calls itself the
world’s most luxurious. The ratio of staff to guests is eight to one
and each floor has its own reception and butler, who will carry out
check-in in the privacy of the suite.
To prevent an invasion of gawping tourists, non-residents can
only visit if they have booked at one of the hotel’s restaurants.
Certain parts of the hotel, such as the pools and private beach,
are entirely off limits to non-residents.
In the eight years that the hotel has been open, the customer
base has become more broadly international in line with the
democratisation of wealth. “The highest proportion of guests
comes from Europe, and primarily the UK,” says Luc Delaflosse,
General Manager of the Burj Al Arab, “but visitors from countries
such as China, the Middle East, the Commonwealth of
Independent States, North America and others are rapidly
becoming more commonplace. Our customer demographic
tends to be centred around those countries for whom luxury is
an important consideration.”
Burj Al ArabAn icon of luxury in a dynamic city
Case study
Visitors to Dubai rapidly become accustomed to superlatives. Home to the
world’s largest shopping and entertainments complex, the world’s largest
indoor ski slope and, in a few months’ time, the world’s tallest skyscraper,
this is a city that wears its ambition to be the biggest and best on its sleeve.
24
25
Keeping track of a changing customer demographic requires
careful monitoring and analysis of customer feedback to ensure
that the expectations of a demanding clientele continue to be
met. Mr Delaflosse says that the Burj Al Arab, and the Jumeirah
Group as a whole, uses this feedback to guide new innovations
and services at the hotel. He cites as an example a new
authentic Asian restaurant, called Junsui, which opened at the
Burj Al Arab in November 2007. “Our decision to open this
restaurant was guided in part by customer feedback that we
received, and in part because we recognise that Asia is becoming
an increasingly important market for us. We expect to see 100
per cent growth in Asian guests over the next two years.”
“Our customer demographic tends
to be centred around those countries
for whom luxury is an important
consideration.”
In billing itself as the world’s most luxurious hotel and awarding
itself seven stars, the Burj Al Arab certainly sets the bar for
service high. To meet these exacting standards, the hotel
invests heavily in training and management education. It has
developed its own e-learning modules to provide guidance for
customer-facing employees, and grooms future managers at
the Emirates Academy, a hotel management training college
operated by the Jumeirah Group. The company also uses an
intranet-based tool, called Voices, to solicit suggestions from
employees for improving the customer experience. “This
generates around 5,000 suggestions a month,” says Mr
Delaflosse, “of which we aim to implement around 20 per cent
of ideas considered.”
It is impossible not to be impressed by a first-time visit to the
Burj Al Arab. The scale and innovation of the building itself, with
its towering lobby and sail-like structure, along with an opulent
interior that combines traditional Arabian elements with a
futuristic sheen, are enough to impress even the most jaded
consumer of luxury.
“The biggest challenge for us is to deliver on our promise to
guests each and every time,” says Mr Delaflosse. As one
measure of success in that regard, he points to the hotel’s
repeat occupancy rate, which runs at about 25 per cent on
average, but can rise to 80 per cent at certain times of the year,
such as during the Dubai World Cup. In the notoriously fickle
world of luxury services, this is a statistic that the Jumeirah
Group will certainly find reassuring.
Pierre Cardin and Diane von Furstenberg are two brands that
the authors single out as having implemented unsuccessful
brand extension strategies and seen revenues and profits
plummet as a result.
The authors argue that Diane von Furstenberg did not translate
well into non-adjacent categories, such as eyewear, luggage and
jeans, and so the brand lost its premium as a result. They also
describe how Pierre Cardin granted more than 800 licences to
goods as unlikely as baseball caps and cigarettes, which had no
fit with the original brand and thus devalued it.
For a brand to be transferred successfully to ‘nonadjacent’
categories, much depends upon its core value in the eyes of
consumers, according to Reddy and Terblanche. They say that
some luxury brands, such as Louis Vuitton, are valued for their
lifestyle, or symbolic aspect. Symbolic brands can, they argue, be
successfully transferred into “nonadjacent” categories - so long
as they are positioned in line with their key ‘symbolic’ qualities.
The authors cite Bulgari’s expansion into the luxury hotel market
as a successful example of brand extension. Bulgari licensed its
name to the upscale hotel division of Marriott International to
create a chain of luxury hotels. They attribute the success of this
venture because “customers bought into the concept because
of the symbolic value of the Bulgari name, not because they
thought Bulgari had engineering skills that it brought to bear on
the design and installation of Marriott’s bath towel holders.”
26
Brand extensionthe price of diversification
Luxury companies often use brand extension as a means to expand into newmarkets and reach new audiences. However, research by Mergen Reddy and NicTerblanche, which was published in a Harvard Business Review article entitled“How Not to Extend Your Luxury Brand”, shows how risky a strategy this can be.
Founded in 1878, the business built a reputation as a prestigious
tannery and finishers, known for the unique aroma and quality
of its upholstery leather.
The influence of new owner Joseph Ettedgui, founder of the
Joseph clothing label who bought the company in 1999, has
discreetly given Connolly a new, more fashionable direction and
attracted a more international clientele without losing their long-
standing traditional British and European fans.
Ettedgui recognised that in particular Russians, Italians, Japanese
and Americans were attracted by the brand’s history and
prestige. He successfully branched out from its leather
upholstery heritage to making stylish luggage and classic
clothing as well as rally jackets that sport the logo “Connolly GB”
and quirky products such as a leather-bound travel espresso set
and a Krug champagne case designed for yachts and private jets.
“Connolly sells gifts for the person who has everything,”
Ettedgui said. “We sell the products that other luxury goods
companies haven’t thought of. For example, travelling now is
very serious and stressful so we sell products that make people’s
lives easier - and make you smile.”
"Wealthy individuals are not just looking for elegant and unusual
items, they are looking for exclusivity, value and quality in the
finish, packaging and service of goods, and a real sense of
history, not a marketing trick," Ettedgui said.
“With the clothing, we don’t produce big quantities of every
garment that we sell and we are not easy to find,” he said. “We
find that our customers love the personal attention of our
garments being sold in only one store, not by lots of different
retailers. The products that they buy and the way they buy
them may change, but their attitude to quality and service will
not. There is a 1930's poster advertising the motor races at
Goodwood, which I love. It says ' the right crowd and no
crowding' - something I hope we achieve at Connolly."
“Connolly sells gifts for the person
who has everything, we sell the
products that other luxury goods
companies haven’t thought of.”
27
ConnollyExclusivity in brand extensionCase study
Connolly, a luxury leather goods company whose famous hides covered the
seats of Concorde, the Queen Elizabeth II yacht and luxury cars including
Rolls-Royce and Aston Martin, is a quintessentially English brand.
“Services are increasingly important for luxury consumers,” says
Mr Pedraza. “It’s not that they are not interested in luxury
products but many have as many products as could possibly
satisfy them. You can only own so many houses. Wealthy
consumers are looking for services and experiences that deliver
a great experience that they will remember forever. Another key
factor here is that many wealthy consumers are increasingly
time-constrained.”
The Conference Board report Global Luxury Market: Exploring
the Mindset of Luxury Consumers in Seven Countries points to a
global trend whereby the wealthy are focusing less on material
things and more on what it terms “how one experiences life, a
sense of happiness and satisfaction.”
The EIU/Barclays Wealth survey provides some interesting
insights into the demand for services among the wealthy. The
survey assessed past, present and future uses of a wide range
of luxury services. Splitting services into ‘time substitute’
services (cleaner, concierge, personal shopper, travel consultant,
chef, butler and property search agency) and ‘health and
grooming’ services (personal trainer, life coach, alternative
health practitioner, dietician, beautician, personal stylist and
personal image consultant), we find that the ‘time substitute’
services are almost always most popular among the wealthiest
band of respondents (US$3 million plus in liquid assets). In the
case of health and grooming services, the difference in extent of
usage is much less marked between the wealth bands.
28
New luxury servicesand service models are emerging
Luxury goods companies are not the only ones dealing with a new anddemanding business environment. The luxury services sector is also changingdramatically, with innovative new services and business models, which werealmost unheard of a decade ago, rapidly becoming well established. In thefuture, experts believe that luxury services will be one of the fastest-growingand profitable segments of the luxury goods industry.
29
The rising popularity of concierge service companies, which help
the wealthy to manage their time more effectively, is a reflection
of these time constraints. Concierge companies have been
around for some time, and the EIU/Barclays Wealth survey
found that the demand for these services is likely to increase
substantially in the future. The survey also shows concierge
services tend to be most popular among the more wealthy.
Research conducted by Russ Prince and Hannah Shaw Grove on
the ultra wealthy (with an average of almost US$90 million in
assets), and recently published in a book entitled The Sky is the
Limit, found that just over one-quarter of the ultra-wealthy
surveyed are already using concierge services with two-thirds
likely to do so over the next three years. “Concierge services are
proving very popular with the wealthy,” says Mr Prince.
Mr Pedraza from the Luxury Institute believes that this market is
evolving as it grows. “We are starting to see the emergence of a
new type of service provider - like Quincy Consulting in the US,
a mix of management consulting and lifestyle management -
a kind of BCG or McKinsey for lifestyle management, who can
look after a wealthy individual’s personal goals, as well as dealing
with their different business objectives.”
Among the ultra-wealthy, the exclusivity of a given service is
highly important. In the mountains of Montana, US, the private
ski and golf resort community of the Yellowstone Club is one
such example. Membership is by invitation only and is only open
to those with a minimum of US$3 million in liquid assets. The
initial joining fee is US$250,000, and members must also
purchase a property in the complex, which costs between
US$1 million and US$10 million. Members include Microsoft
founder Bill Gates and former US Vice-President Dan Quayle.
Table 6 - Those who use ‘Time substitute’ services (US$)
Personal image consultant 14 55 35
Table 7 - Those who use ‘Health and grooming’ services (US$)
Personal trainer 28 55 56
Life coach 28 53 30
Alternative health practitioner 32 50 49
Dietician 31 53 55
Beautician 49 67 51
Personal stylist 36 71 76
Assets: lessthan 1m (%)
Assets: 1mto 3m (%)
Assets: morethan 3m (%)
Butler 21 63 79
Cleaner 66 85 85
Personal concierge service 21 43 39
Personal shopper 19 50 54
Travel consultant 31 53 58
Property search agency 22 51 68
Chef 26 69 78
Assets: lessthan 1m (%)
Assets: 1mto 3m (%)
Assets: morethan 3m (%)
30
For clients, luxury is about having private amenities at home, be it
a home spa with beauty and hairdressing facilities or a
subterranean gym and swimming pool, according to Nicholas
Candy. Today’s ultra-luxury consumer often prefers the comfort of
their own home, so the services they want are brought in-house
and a trained hairdresser, beautician or masseuse comes to them.
“It’s important to know minute details; if they like to fold their
socks or not, if they hang their belts or roll them, if their kitchen
has to accommodate a left - or right-handed chef,” he said. “We
get to know our clients well and become so close that we often
recommend everything to them, from bespoke luggage for their
private jets and helicopters, to arranging an exclusive party for
100 people - a complete lifestyle.”
Many of their clients have a ‘been there and done that’ approach,
so it essential for Candy & Candy to always be one step ahead and
constantly adapt its operation to reflect this. Its designers travel
frequently, sourcing the globe for new materials and innovations
that can be adapted and remodelled for clients. For Candy &
Candy it is about pushing boundaries to create something unique.
“It’s not just about bespoke, it’s also about creating a ‘wow’
factor - our clients want something that is totally ‘out there’ in
terms of design, something that no one else has, that’s
impressive to their friends and business contacts” he said.
“However, unlocking the ‘wow’ factor is hugely challenging,
since function is as important as form to these clients.”
As international wealth has spread, so has Candy & Candy’s
client base. They now cater to people across the world, including
UK, Monaco, Russia, Qatar and the US. The age of their clients
has also broadened. As people make impressive returns at
younger ages, clients now range from mid 20’s upwards. But
interestingly, Candy points out clients are mainly first generation
wealthy, who tend to be more creative in how they spend their
assets. “Our clients demand an increasingly high level of
bespoke detail and exclusivity and are prepared to spend money
creating their own ultimate luxury lifestyle,” Candy concludes.
Candy & CandyDesigning a lifestyleCase study
Award-winning interior designers and development managers Candy & Candy,
owned by brothers Christian and Nicholas Candy, has designed some of the most
sought after homes, private jets and even a yacht for clients. But for the ultra-
wealthy clients they service, it goes beyond interior design. It is about getting
inside their lifestyles to create something that complements the way they live.
As the number of wealthy individuals around the world increases,
a number of new business models, such as fractional ownership,
are starting to emerge. Fractional ownership is a service model
that allows the wealthy to enjoy the benefits of an asset without
the need to own it outright; instead, customers buy a share in the
asset. For example, the wealthy can now buy a fraction of a jet
with companies such as NetJets, a super-yacht designed by Lord
Foster through YachtPlus, or a share in an exotic car through the
Otto Club. They can even buy a fraction of a vineyard.
As the number of wealthy individuals
around the world increases, a number of
new business models, such as fractional
ownership, are starting to emerge.
The growth in fractional ownership can be seen as part of an
ongoing process of the democratisation of wealth and luxury.
It also reflects a trend whereby wealthy consumers are opting
for lifestyle experiences over ownership of expensive prestige
or positional assets.
Some 12 per cent of the ultra wealthy surveyed for The Sky is
the Limit are members of an exotic car fractional ownership
club, and about double that number are planning to join such a
club in the future. Members of such clubs cite several benefits,
such as being able to enjoy a variety of vehicles, and freedom
from the time constraints and prohibitive costs associated with
outright ownership.
In a further evolution of this model, companies like Marquis Jets
(see Case Studies, page 32) provide a prepaid card that entitles
holders to a certain number of hours’ access to a jet. Here,
ownership of an asset is turned into a pure service.
31
32
At the time, in the late 1990s, there were essentially three
private aviation options: you could buy a jet, charter a jet, or buy
a share in a jet (called “fractional ownership”). With fractional
ownership, owners purchase a share in a jet, typically consisting
of a three to five year commitment with guaranteed access to
50 or more hours of flight time annually. Mr Dichter wanted to
take it one step further. His idea was to allow people to access
the quality and consistency of fractional ownership but with
smaller blocks of time and no long-term commitment, rather like
buying a pre-paid phone card.
He soon set about turning this idea into reality. An experienced
marketer, Mr Dichter felt comfortable dealing with the
marketing and customer service elements of the new business
concept. But he would need a partner with the assets and
infrastructure to provide the aviation service. Mr Dichter and his
partners believed that NetJets, the market leader and pioneer in
the fractional ownership arena, was the only company with the
infrastructure and financial backing to provide the right level of
service they were seeking.
Marquis JetA new model for private air travelCase study
Kenny Dichter fell in love with private aviation on his first private jet flight, a trip
from LA to New York, while working in the entertainment industry. “We were
driven straight up to the jet, climbed aboard, sat down and took off a few minutes
later. I was amazed it was so simple, hassle-free and convenient - a million miles
away from the experience of normal commercial flights. I felt that if there was a
way to bring this service to a broader audience, it would be a huge success.”
33
Unfortunately, NetJets was not initially interested. But Mr Dichter
persisted and returned half a dozen times before Richard Santulli,
NetJets Chairman and CEO, finally gave the green light to the idea.
The Marquis Jet Card programme, backed by NetJets, was
launched in February 2001. The card provided guaranteed access
to the NetJets fleet 24 hours a day, 365 days a year, and access to
thousands of airports in North America and Europe. The initial
pricing was US$109,900 (plus government fees and taxes) for 25
hours on one of NetJets’ Citation V Ultra aircraft. Today, customers
can purchase a Marquis Jet Card for 25 hours on nine different
NetJets aircraft types, up to the Gulfstream 450, with pricing from
US$119,900 to US$339,900, depending on the aircraft type.
The business took off quickly. By the end
of the first year, Marquis Jets had 273 card
owners and, by the end of the second
year, this had risen to 850.
The business took off quickly. By the end of the first year,
Marquis Jets had 273 card owners and, by the end of the
second year, this had risen to 850. Much of Marquis Jet’s early
growth came from what Mr Dichter calls “concept fliers” -
individuals that had never used private aviation before.
Mr Dichter believes Marquis Jet’s relationship with NetJets has
been vital in helping the company to grow. “It is enormously
powerful to be able to tell our customers that we have NetJets
handling all flight operations. NetJets’ commitment to safety and
security, and the consistency of the service, is first rate.”
Interestingly, 10 to 15 per cent of Marquis Jet Card Owners
eventually go on to become NetJets fractional owners.
“Over the next three years, we aim
to become a billion-dollar business.”
Marquis Jet is growing at 15 to 20 per cent a year and will
achieve revenues in excess of US$700 million in 2007, according
to Mr Dichter. “Over the next three years, we aim to become a
billion-dollar business,” he says. “Once our card owners get used
to private aviation, it’s very difficult to go back to mainstream
commercial aviation.”
Boucheron went on to pioneer diamond engraving, and later
became renowned for designing Art Nouveau nature jewellery
designs such as snakes and butterflies, birds and dragonflies.
Boucheron’s main offering is jewellery and watches from
US$7,000 to US$70,000 (the product ranges’ prices are not fixed
scales and can change from collection and year). It presents a
wide and varied range of new jewellery in two collections a year;
and there are singular additions from time to time.
Boucheron is probably most famous for its fine jewellery (Haute
Joaillerie), which consists of unique jewellery pieces made from
gold or precious stones of exceptional weight and quality. Priced
from US$70,000 upwards, these collections are highly
aspirational one-offs with the same ethos as Haute Couture.
Boucheron’s illustrious clients have included film stars and
royalty, from Greta Garbo to the Queen of Jordan.
By the end of the 20th century, the market for bespoke fine
jewellery was effectively moribund. Jean-Christophe Bedos,
Chairman and Chief Executive Officer of Boucheron believes that
this reflects the development of the luxury industry during this
time. “Over the past 20 years, we have seen a lot of
standardisation in the luxury industry. This approach was totally
contradictory to the spirit and essence of luxury jewellery and was
a slap in the face for the old traditional luxury goods companies.”
In recent years, however, there has been renewed interest in
bespoke fine jewellery as wealthy buyers seek unique and
distinct jewellery pieces. “We are seeing customers crying out
for bespoke,” says Mr Bedos. “It’s a return to the human
dimension. I also think many people are getting tired of the fast-
moving consumer culture, where things change every season.
Bespoke jewellery has a different dimension of time and space.”
Boucheron JewelleryBespoke is backCase study
34
Frédéric Boucheron opened his first jewellery shop in Paris in 1858. In 1893 he
became the first jeweller to open his doors in the city’s Place Vendôme - in
the brightest shop in the square according to legend, all the better to show off
its intricate jewellery designs.
This renewed interest in bespoke jewellery is also being driven by
a new kind of client. “The old cliché about the “nouveaux riche”-
just doesn’t hold any water any more,” says Mr Bedos. “We are
now seeing a new, very well-educated wealthy clientele, many
wealthy for the first time, who have a growing interest in
jewellery. These clients can be very discriminating - with a
strong sense of what they do and don’t want.”
Boucheron rarely receives a request for bespoke jewellery from a
first-time customer - such commissions usually grow from an
existing relationship. Occasionally, the jeweller will propose a
bespoke piece, but most often it is the clients that come to
Boucheron with the idea. The company aspires to provide the
ultimate bespoke jewellery service: luxurious creations of master
craftsmen and designers that at once reflect the client’s
personal desires and “the spirit of their time.”
“In recent years, however, there has been
renewed interest in bespoke fine jewellery
as wealthy buyers seek unique and
distinct jewellery pieces.”
“It is a most intimate and personal experience,” says Mr Bedos.
“The Boucheron designer or master craftsman meets with the
client, often at their home. As the client shares his vision, our
designer starts visualising the client’s dreams, creating a life
expression for a piece of jewellery. Sometimes we will send the
clients more designs to consider later. Some clients like to follow
the creation process closely; more often the client prefers only to
see the final creation.”
Just as Boucheron has been revitalising a highly traditional skill,
it also has one eye to the future in the form of a new website
where customers will be able to purchase the company’s entire
product offering. This is a bold step in an industry that has
typically been reluctant to embrace the internet. “Selling on the
internet has been a taboo for the fine jewellery companies,” says
Mr Bedos. “Our online service allows our clients to engage with
Boucheron whenever they want, however they want, in the
most private and intimate way.”
At the Boucheron website, www.boucheron.com, clients can
access the wide range of Boucheron jewellery, watches and
perfumes; they can also access a made-to-measure and
customised jewellery service. The made-to-measure option
allows clients to create their unique ring online, selecting gems
that can be mixed and matched with the client’s preferred
setting and precious metal band. Boucheron’s customised
service allows clients to customise a unique Boucheron
chameleon broach online selecting and mixing an array of
coloured precious gems (diamond, ruby, emerald or sapphire).
Boucheron will celebrate its 150th anniversary in 2008. Mr
Bedos is optimistic about the future of the Boucheron online
service. “So far the reaction has been very good and exceeds
expectations. Of course in some cases there is no substitute for
the sensual sensation and feeling of the jewellery itself. Our
internet site can, however, be a first point of contact - offering
discretion and privacy, key services that our wealthy clients look
for - and the beginning of a long relationship.”
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For most of its 258-year history, the client base of Justerini &
Brooks has been the British landed classes. But in the past ten
years, the nature of the wine merchant’s customers has
changed dramatically. Although the firm continues to supply the
aristocracy, it now has a much broader demographic, with
40 per cent of its customers based overseas.
The expansion began with the new breed of wealthy making their
money in the City of London. “There has been a huge explosion,”
says Chadwick Delaney, the firm’s Sales Director. “A decade ago,
we hardly did anything with people in the financial industries, and
now we have one salesman purely focused on them.”
The expansion continued when some of those new clients moved
abroad: “Lawyers and bankers got sent out to Hong Kong and
Singapore, and they continued to build their cellars while out there.”
With the economy booming in the countries of Asia-Pacific, the
development of an indigenous client base quickly followed.
According to Mr Delaney, Justerini’s clients in these countries are
at the top of the economic tree. “They are CEOs of
multinationals - very intelligent, successful people, and all we’re
doing is building their cellars for them,” he says.
He adds that the new customers are just as knowledgeable
about wine as Justerini’s traditional client base. “There is a
preconception that these guys don’t know what they’re doing.
They might not have done 20 years ago, but they certainly do
now. Wine merchants listen to what our best customers are
saying because these guys are drinking top wines probably on a
more regular basis than we are.”
Justerini & BrooksRoyal wine merchant goes international Case study
36
Justerini & Brooks has a pedigree that other wine merchants can only envy:
established in 1749, it has supplied wine to the past eight consecutive
monarchs, and its current chairman is Clerk of the Royal Cellars - the individual
who is charged with selecting the wines that are drunk in Buckingham Palace.
Justerini & Brooks now makes regular visits to its clients in Asia,
although it does not have offices there. “We are geared to look
after big collectors,” says Mr Delaney. “We haven’t needed to have
a permanent presence, because we send someone out regularly
with updates on whether they’ve just been to Bordeaux or a
vintage report, and that is what our customers out there want,
much more than having a daily presence in the shop.”
While the market expansion has not changed the firm’s
relationship with its customers, Mr Delaney believes that it has
had an impact on suppliers. “The wine they are now making is
far superior and also far more expensive than it was before,” he
says. “I think there is a growing realisation, certainly in Bordeaux,
that their wines are demanded in ever increasing markets.” With
demand rising for a highly scarce product, this has meant big
increases in price for the top wines, with many traditional
buyers being priced out of the market.
“In the space of a decade, Justerini &
Brooks has successfully managed to
become a global supplier while
maintaining its traditional client base,
the British aristocracy.”
Mr Delaney points to two other important areas of expansion for
the firm. One is young people: traditionally, the average Justerini
& Brooks customer has been in his 50s, but the introduction of a
website a few years ago has drawn in many in their 30s and
40s. The other is Eastern Europe, and especially Russia where
there is an explosion of new oil and gas wealth. Future plans
include expansion into China, and also into India if the
government abolishes what Mr Delaney describes as its
“punitive” duty laws.
At a time of increasing demand for luxury wines, greater
competition from newer wine merchants is inevitable. But Mr
Delaney believes that Justerini’s age and pedigree gives it an
advantage. “We have some ancient trading relationships with
the estates, and therefore get very big allocations,” he explains.
In the space of a decade, Justerini & Brooks has successfully
managed to become a global supplier while maintaining its
traditional client base, the British aristocracy. But as Mr Delaney
points out: “I think any company that survives over a quarter of
a millennium has probably evolved many, many times.”
37
First, wealth is relative: it depends on the environment in which
an individual finds him or herself, and any consideration of what
it means to be wealthy will be driven as much by comparisons
with peers as by the number of zeroes on a bank statement.
Second, other factors will usually be considered a component of
wealth: time; health, happiness, and friendship may all be
perceived to play a role, as without them, mere possession of
money loses its lustre.
As wealth spreads around the world into a growing number of
demographic groups, it is becoming more difficult to draw
general conclusions about the behaviour and expectations of
the wealthy. For luxury goods companies, the opportunities
afforded by wealth generation are, in part at least, offset by the
complexity of serving an increasingly diverse customer base.
Many are grappling with the challenge of capitalising on these
opportunities without diluting the values of their brand, and not
all will emerge successful.
The shift from goods to services in the broader economies of
developed countries is a trend that is mirrored in the world of
luxury. Experience, exclusivity and time substitution are the
watchwords for these services, and any company that can meet
these needs in an innovative way is likely to have a bright future.
38
ConclusionIt is a simplistic view to consider that wealth is an absolute measure, referring only
to money in the bank.
Written by the Economist Intelligence Unit (EIU) on behalf of
Barclays Wealth, the report examines what it means to be
wealthy today.
It is based on three main strands of research conducted by the
EIU: a global survey of 790 individuals with investable assets
ranging between at least US$20,000 and those with in excess of
US$3 million; a series of in-depth interviews with experts on
wealth and luxury, and a number of case studies.
Please note that in some cases percentages used in the report
may not equal 100, as survey participants were asked to select
three choices.
39
AppendixMethodology
The 790 survey respondents were recruited from EIU
databases of individuals around the world. The survey was
undertaken between January and September 2007 by the EIU.
Geography: The highest number of respondents came from
Hong Kong, Singapore, United Arab Emirates and United
States (100 each). France, Italy, Portugal, South Africa, Spain
and Switzerland were represented by between 30 and 50
respondents each. An additional 116 respondents were
generated from elsewhere in the world.
Net worth: 20 per cent between US$20,000 and US$500,000
in liquid assets; 20 per cent between US$500,000 and US$1
million; 30 per cent between US$1 million and US$2 million;
20 per cent have more than US$2 million in liquid assets; 10
per cent have more than US$3 million in liquid assets.
Survey demographic
This document is intended solely for informational purposes,
and is not intended to be a solicitation or offer, or
recommendation to acquire or dispose of any investment or to
engage in any other transaction, or to provide any investment
advice or service.
Any information within the report pertaining to individuals has
been published with their express permission.
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Whilst every effort has been taken to verify the accuracy of this
information, neither The Economist Intelligence Unit Ltd. nor
Barclays Wealth can accept any responsibility or liability for
reliance by any person on this report or any of the information,
opinions or conclusions set out in the report.
Legal note
Contact us
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