ET Insider – December 4, 2007

Elite Traveler Insider –

December 4, 2007

Elite Traveler Insider

By Douglas D. Gollan, President and Editor-in-Chief, Elite Traveler Magazine  

Welcome to the latest issue of Elite Traveler Insider, the bi-weekly newsletter designed to update our top partners on trends in the private jet lifestyle. This information is provided to offer a better understanding of how to target these globetrotting elite travelers, their impact on your business and other trends that affect you. Remember, private jet travelers are paying up to $10,000 per hour to fly by private jet, so these super rich consumers could be and should be your best customer. We talk about them and how you can get more of them and more from them.

CONTENTS:

1. Report from IHT Supreme Luxury Moscow Conference: Presenting “King” Bernard

2. What Keeps Tom Ford Up at Night?

3. Graff on Graff

4. What’s Next? Ethical Luxury or Mind Your Own Business

5. Angeloni on The Consumer Every Luxury Brand Needs

6. If I Could Choose Any Three People in the World to Have Dinner With

7. On The Subject of Moscow, Private Jet Travel is Booming

8. A Couple of Final Thoughts from Moscow

YOUR BEST CUSTOMERS ARE HERE:Elite Traveler delivers more readers (318,000) with a $1 million + Household Income than Departures (34,000), Robb Report (30,000), Town and Country (47,000), Vanity Fair (44,000) and The Wall Street Journal (128,000) combined. Source: Prince & Associates, MMR

1. Report from IHT Supreme Luxury Moscow Conference: Presenting “King” Bernard

My first trip to Russia turned out to be like most of my trips, with my time largely spent in the confines of meeting rooms. However, the legendary Suzy Menkes delivered what I would describe as two days of “must have” content for anyone involved in the luxury industry, hosting The International Herald Tribune’s Supreme Luxury Conference in Moscow. I did get a chance to experience a bit of Moscow: an opulent vodka- and caviar-laden dinner at hot spot Most; some shopping at GUM, where, on the day before the conference opened, entrepreneur extraordinaire Swatch Chairman Nicolas G. Hayek opened a Breguet boutique (there was a line-up of people waiting for his autograph) appropriately next to the mall’s VIP entrance; and of course, spectacular views of The Kremlin, adjacent churches, GUM and Red Square from atop the newly opened, uber-luxurious Ritz-Carlton.

The first IHT Luxury Conference I attended was in Hong Kong four years ago (Dubai and Istanbul have made my calendar since) where the keynote speaker was LVMH Moet Hennessy Louis Vuitton Chairman Bernard Arnault, so it was intriguing to see him in the same role here. Several times I have been told by different LVMH executives that Elite Traveler is one of his favorite publications; I can only say that if it’s true, it is as high a compliment as we could receive. After all, he is a tremendous representative of our target reader, flying by private jet and the owner of a rather nice mega-yacht.

I have to say though, that the Menkes-described “luxury’s king” would not make a very good weatherman, as he predicted a “fifty-fifty” chance of an economic slowdown or recession in the U.S. My advice would be to grab a raincoat from fellow speaker and Burberry CEO Angela Ahrendt and some of LVMH’s own Glenmorangie scotch and settle in for a downpour.

Lehman Brothers Chairman of European Luxury Goods in the Investment Banking Division Roberto Vedovotto described the current situation as “a big earthquake where you don’t see the extent of the damage until it settles down. And this hasn’t settled down.”

Frank Petitgas, Head of International Banking at Morgan Stanley, like Vedovotto said most optimism as it relates to the U.S. is that “High Net Worth Individuals keep growing very fast” and he urged luxury companies to “dig deeper” to build their business with the Super Rich.

Melanie Flouquet, Head Analyst of JPMorgan’s European Luxury Group, provided an interesting analysis that showed “emerging markets will not be enough to offset a deceleration” in the U.S.

The next day’s IHT lead story, “U.S. Credit Drying Up, Raising Fear of Recession” aside, Arnault hit on a very strong theme that provided an excellent backdrop for the two day conference, noting that there is “no definite business model that leads to success” in luxury goods. While Arnault was speaking specifically about LVMH, the all-star line up of speakers made it apparent that this is true for the industry where leader after leader talked about very different paths to the pinnacle of their industry.

With regard to the business prospects for LVMH, Arnault made it clear that during previous crises such as SARS, the Asian financial crisis, the Gulf War and so on, his company has turned these potential black holes into “opportunities,” gaining market share each time by continuing with their business plans, continuing to invest in their brands and maintain advertising. He certainly seemed like he has his group prepared for any coming storm, be it a hurricane or passing showers. Could it be that it will rain on the opposite side of the street from the King’s amazing line-up of over 50 luxury brands? I wouldn’t bet against it.

Globally, Arnault noted spending on luxury is expected to double to over €300 billion in the next five years, based on creation of new high net worth individuals and new luxury consumers in new markets.

While Arnault spoke from prepared remarks, I thought there were several points he made that would be good advice for virtually any business executive. First and foremost, he noted if something needs to be done, it is worth spending the time to do it properly, “even if it takes years.” It is truly a breath of fresh air to see the head of a publicly traded company with the confidence to manage his business for the long term as opposed to quarter-by-quarter.

He also talked of the joy that luxury goods bring to consumers, calling it “natural human instinct to want to own unique products . . . not greed or excess.” I liked his comment about the consumer’s “excitement of owning a brand that is truly global” and that the Russian consumers’ buying of branded luxury goods marked “a sign of Russia’s re-entry to the world.”

Certainly nobody can ever say Arnault doesn’t walk the walk in terms of taking a long term view. He brought Louis Vuitton to Russia in the 80’s and to China in 1992 so the payoff he is enjoying now has literally been decades in the making. Five thousand of the group’s 66,000 employees are in the two countries, and business is strong enough that worldwide employment grew by 14,000 in the past year alone. Long live the King. I hope I don’t have to wait four more years to hear him speak again, and I hope next time he takes audience questions as he did in Hong Kong.

SUPREME LUXURY: 91% of Elite Traveler readers consider us “higher quality” than other magazines. Source: Prince & Associates

 

2. What Keeps Tom Ford Up at Night?

What keeps Tom Ford – the Man – up at night? Judging by the wide variety of provocative images as part of the video that introduced Tom Ford – the Brand, it could be a lot of things that we won’t cover in this family-friendly newsletter. Needless to say, even this fashion forward audience buzzed and sat up, shaking off their jet lag as the Tom Ford slideshow enlivened everyone’s senses. Was there a slide with full front male nudity? I never got the chance to ask the source.

So what keeps the legend awake during the dark hours? Apparently the correct answer has less to do with any potential debauchery and is quite common with your garden variety of Fortune 500 CEOs. For example, “How do we stay relevant?” From the man Menkes cited as being a leader in spotting consumer trends, Ford noted, “Just when we think we are in the clear,” obstacles appear, or as he put it, “you can’t count on something to remain in fashion forever.”

Saying the history of luxury goods started when one caveman first “coveted” the skin a tribe mate was wearing and “to covet is primal – fundamental to our species” the man who rescued Gucci predicted “the future of our industry is sure; however, how the future will unfold is unsure.”

If one thinks about Ford’s words, it gives great context to the various paths executives will be choosing if Arnault’s projections of luxury sales growth are indeed met.

Among the top list of concerns Ford senses is the overused word “luxury” noting that there are now luxury studio apartments, luxury coffee and according to his most recent foray to a supermarket in Los Angeles “frozen luxury fried chicken.” In his words, it has gone “from sublime to ridiculous.”

Asking, “How can we ensure luxury doesn’t go out of fashion?” Ford noted, “Prior to the ’90s, luxury was outside the trends,” but in less than a generation it has gone “from hard to find to hard to miss” in what he says has “diluted the authority of luxury brands.”

Acknowledging the conference name, Ford said, “Supreme Luxury has to have longevity” and then, as if talking about why private jet travel has boomed, he noted that with “free time to enjoy life” at a premium, “any product that frees up time with as little effort as possible” will be luxurious.

Ford predicted successful luxury brands of the “post-hype” future need strong credibility that he described as “products made with deep expertise.” In a market of celebrity fragrances, the “artisan parfumeur has great value.”

He advised brands to “edit, sharpen and focus” their messages in “an overcrowded marketplace.”

As for Tom Ford – the Brand’s path, he described his “new business model” as “catering to the top end” which, he said, is big enough to create a significantly sized company by tapping into the fast growing Super Rich market, but also giving “if that doesn’t work we will have established the top of the pyramid” and can then move down.

Anyway, Tom Ford is definitely on my list of speakers I will make a point of trying to see in the future. He has 18 stores opening this spring and growth plans call for about 100 worldwide in the next couple years, so I’m hoping he will present at other conferences as he spreads the word.

OUR READERS LIKE WHAT THEY SEE: 88% of Elite Traveler readers like our “design and format”. Source: Prince & Associates

 

3. Graff on Graff

I didn’t mention this to Laurence Graff when I had the chance to spend some time with him in Moscow (the first time I’ve met him and hopefully not the last), but the way I came to know his company was through his advertising. The thing that struck me was the unique green color and the consistency of having a presence in the same media in the same spots month after month and year after year.

One of my personal interests is marketing, and I am afraid to say, too many times I see good campaigns shuffled to the side by the desire to do “something new” or media selection swing from “financial books” to “lifestyle” to “epicurean” or some other flavor of the day.

I believe that one of the two best marketers, in terms of using advertising as a tool, is Singapore Airlines, which has kept and evolved its iconic Singapore Girl from its first campaign through multiple managements (and even ad agencies) during four decades. The other is Carnival Cruise Lines, where “the Fun Ships” have been plying and multiplying on the seas for over three decades by consumers for whom the tagline has convinced that they wanted to have fun while on vacation. With their legendary president Bob Dickinson retiring, I will watch with interest to see if their new management has the discipline to avoid fixing what’s not broken.

Anyway, back to Laurence Graff, who I not only admire as a marketer, but I also came to admire as a salesman watching and listening to him speak. Impeccably dressed with the crisp and concise use of the Queen’s English, he reminded me of the quintessential British gentleman of a past era.

I could just imagine him on a mega-yacht in the Med, reaching into his pocket to pull out a spectacular gem as he told the audience of some 600 plus, “to own and possess the best – the ultimate dream of the wealthy.” The stone would pass from his pocket into the possession of some billionaire with a tale about its amazing history.

The understated Graff called his company a “family business in a fragmented industry.” He would later tell me after considerable pressing that his family of companies has about $1 billion in annual sales, so it’s not exactly your local delicatessen.

He described diamonds as “portable, storable and wearable,” with due emphasis on the final word, and told a fascinating story about how the rich used diamonds to survive during World War II, selling them one by one to pay for food and shelter. Doubtless after hearing Graff, a few moguls in the audience may have thought it couldn’t be a bad idea to have enough diamond jewelry in the safe just in case.

With 26 stores worldwide, Graff is a testament to what I call “the private jet lifestyle,” saying that it was “not unusual to see the same clients at various locations.” He noted, “The world is getting smaller” and there are “more people with more money.”

His salesmanship was on stage later, when he described the thrill of having “five, ten or twenty million dollars in your hand,” and again I could imagine him sitting as easily in the desert with a Sheik as with a Vegas casino owner thousands of miles away, making the sale.

He closed by telling the audience, “Whatever you pay for a Graff diamond, it is never expensive.” I would later throw that back at him when he asked me about Elite Traveler’s advertising rates. It will be a line I will definitely use again in the future!

Anyway, in the lobby of The Ritz-Carlton I saw him later in the day on his cell phone (perhaps with a Sheik or Casino Boss) sitting with his son. I took the opportunity to ask if he would have time to do an interview, and he motioned me to sit down and get started. It was a no-nonsense start, but it reminded me a bit of my Scottish father whose years in the Royal Air Force gave him the same direct demeanor. Luckily, I had been thinking about interviewing Graff for a while so most of my questions were already top of mind.

Despite a global empire, Graff said his success comes from keeping Graff “a family business multiplied by 26.” He told me, “Integrity is very important” when he hires, claiming “there is no such thing as a spectacular salesperson unless you’re selling something somebody wants.”

While Menkes described Graff as “the King of diamonds,” Graff noted that not all his sales are of the six and seven figure variety, with opening price points at $10,000 and $15,000. He again said that “quality of staff behind the counter” is a key to his success and noted that what would be a “small sale” for Graff would be considered a large transaction at “other shops on the street,” which he cited as one of the reasons fashion brands are slicing into the world of jewelry and watches.

Back to Graff’s marketing acumen and the green coloration of his ads. The self-made Graff, it turns out, is self-taught as well. “When you start a business, you have to understand everything, from business law to public relations to advertising.” Green came “totally by accident” as “nobody else was using green,” which he noticed after making a study of various ad campaigns by luxury brands.

In an era where more of the big luxury conglomerates are stocking up their research and intelligence departments, hiring strings of consultants and branding experts, Graff says, “We’re small enough to be hands on,” and I sense he would like to keep it that way.

Graff hasn’t gone the celebrity route in terms of endorsers. He says that some of his clients would be offended if he loaned out jewels he was asking them to buy. I thought it was a very personal way of thinking.

Despite his dapper old-school image, Graff is clearly in tune with today’s Super Rich, noting that “inherited money is the most difficult to spend.” He told me, “We’re in a young world. It’s not the old man who is buying the big diamonds.” Like others, Graff also says it is virtually impossible today to tell the really rich from the pauper when “people in jeans and sneakers walk into his stores, and they’re the billionaires.”

With the benefit of four decades in the diamond business, Graff seems to take the rise of new markets and the supposed fall of others in stride. “I saw the rich Americans in Texas, the Japanese, the Arabs” come on to the buying scene. He says a common denominator is that “the affluent people travel” which means meeting them wherever they happen to be. Certain customers have his cell phone number, perhaps even on speed dial. He says the same customer he sees in Dubai, he will see again in Monte Carlo and then New York or Asia.

Graff is a self-described “pioneer” when it comes to private jet travel. His first private jet was a Learjet (classic, but short range) in 1985 which necessitated “many stops, I didn’t know what I had bought” when he wanted to use it for long-haul trips. He is now comfortably ensconced with a Global Express with nonstop range from New York to Tokyo and then Tokyo to London. Graff does admit he was a bit concerned twenty years ago when private jets were relatively rare, visiting clients who didn’t fly by private jet, but as “most” of his clients are entrepreneurial, Graff’s jet was probably aspirational for them and perhaps spurred quite a few jet sales among his Super Rich customers.

He noted he frequently sees Elite Traveler during his private jet travels, which I was glad to hear, as will our stellar team that has gotten Elite Traveler aboard private jets and mega-yachts in over 90 countries.

I enjoyed a comment Graff made about diamond cutters, saying that unlike Michaelangelo they can’t just get a new piece of stone. Hearing him talk about the process of mining diamonds to cutting and polishing them brings a sort of Indiana Jones- type image to the process, although he says most of his customers “have no idea the time or skill” that is involved in creating the finished product, a process he calls “giving birth.”

I liked his story about a 600-carat rough diamond that he cut into 26 stones making up some 224 carats. When I asked what happened to the rest of the fragments, he said it ends up as virtual dust with no value. It makes cutting stones even trickier as Graff said rough stones are sold based on how many finished and cut stones the seller believes the buyer will get.

Aside from his diamond business, Graff is working on a winery “under reconstruction” in South Africa that will have a small hotel with 16 suites, a spa and restaurant. He said the winery intrigues him as the vines come out of the ground like diamonds. However, at a time when many brands are doing all sort of extensions of which he says, “Some of our competitors have gone overboard,” Laurence Graff remains, as Menkes declared, the “King of diamonds.”

BULLSEYE FOR YOUR AD DOLLARS: Only Elite Traveler delivers to luxury advertisers the Super Rich wherever in the world they happen to be via BPA audited distribution aboard private jets and mega-yachts in over 100 countries worldwide!

 

4. What’s Next? Ethical Luxury or Mind Your Own Business

The question of green luxury, or possibly ethical luxury was touched on by a number of speakers, who with most things at Supreme Luxury, had surprisingly different takes.

LVMH Chairman Bernard Arnault, opening the conference, talked about the “ethical viewpoint” and “spiritual mindset,” noting “just to have is no longer accessible.”

While Tom Ford brought a marketing angle by predicting “an item with a small detail that conveys the owner has a conscience and ethics is the ultimate status symbol.”

He talked about looking for more opportunities to make the production of luxury goods even more eco-friendly while Louis Vuitton Chairman and CEO Yves Carcelle pointed to ultra-modern workshops and storage facilities that are environmentally friendly. Laurence Graff cited the diamond industry for making that realm “99 percent” free of conflict diamonds.

However, Former Brioni CEO Umberto Angeloni, whom I have always considered to be one of the best thinkers in the luxury business, sounded a note of caution by warning the packed audience not to make ethical luxury and green its “next sales pitch.” Defining the new global segment of self made Super Rich as the “Modern Rich” he said, “the modern rich does so much for these causes he doesn’t and won’t be told” that he needs to buy goods with some stamp of green or ethical approval.

WOW: The Average Annual Household Income of the Elite Traveler reader is $5.3 million and Average Age is 41. Source: Prince & Associates

 

5. Angeloni on The Consumer Every Luxury Brand Needs

I first met Umberto Angeloni about five years ago over lunch in New York. I had previously heard him speak at a conference of The Leading Hotels of the World at what was then The Beverly Regent, and both meetings were impressive. I recall him talking about the global customer database he set up as CEO of Brioni where salespeople would constantly gather relevant information about clients from newspapers and personal interaction. The information was then used to form a strong and personal bond with the customer that hopefully resulted in a long-term relationship with significant sales. At the same time, he was working on a book about a personal passion – spas.

Soft-spoken, he was able to change subjects knowledgeably, never missing a beat. In any case, I was sad to see him leave his post atop Brioni where, in my opinion, he did an amazing job branding the company in the lifestyle arena.

Speaking in his normal professorial way, he told the audience “old money” is no longer relevant, and the aspirational segment is “not loyal, doesn’t understand value and is fragile in a recession.”

However, he took the unflattering Nouveau Riche label off the 90 percent-plus of the Super Rich (typically defined as having at least $10 million Net Worth if not $25 million and more).

He said that by using the term, the luxury industry was portraying their best customer as “unrefined – ostentatious – a luxury glutton.” It really struck a chord with me as in launching Elite Traveler seven years ago with distribution aboard private jets, I came across this attitude from a number of luxury houses, many of which I am glad to say have seen the light.

According to Angeloni, “what we are witnessing is a new breed of luxury customer” who he calls the Modern Rich.

The Modern Rich, Angeloni stated, are “inspirational” to both their compatriots and the Mass Affluent; they are “luxury’s most relevant consumers;” and because they made the money themselves, they have high “self esteem” and don’t need to prove their self worth. He said these elite individuals “want to learn and challenge” and make buying decisions “they way he runs his business.”

Citing a Harrison study, he said the Modern Rich can be divided into three groups based on how long they have had their money – Apprentices who have been Super Rich five years or less, Journeymen who have had great wealth for five to 14 years and Masters who have been at the pinnacle of wealth for at least 14 years.

According to Angeloni, the Modern Rich want authenticity through excellence in core products; value from quality and functionality; knowledge from useful, technical information, and “respect beyond service.” He “wants loyalty from the brand,” an interesting turn on “brands that are always searching for loyal customers.” He also wants an “apology” when there is a problem.

Angeloni said the Modern Rich consumer does not want to be patronized, taken for granted or “educated and told what glamour is.” He “has his own glamour and ethics” and doesn’t need them from the luxury brands he chooses to buy.

In closing he warned the audience to be wary of labeling products as “exclusive” and “bespoke” when they are not. Most of all, the Modern Rich consumer “does not want to be cheated,” Angeloni said.

HAPPY HOLIDAYS:Our readers will be spending $152,000 per household on jewelry for the holidays…

 

6. If I Could Choose Any Three People in the World to Have Dinner With

One of them would be without doubt Fawaz Gruosi. Having had dinner with him, I know Fawaz would guarantee a fun and entertaining evening. The President, Owner and Founder of DeGrisogono entertained the group by saying “I’ve never looked at statistics or research – create what I would want to wear if I were a woman.”

Asked if he designed jewelry for specific countries, he again said, “I do what I like,” noting that at the highest end of the market where he targets tastes are surprisingly similar around the world.

Part of Gruosi’s success has been his early and extensive use of Black Diamonds, but he noted that until other companies followed his lead the business didn’t really take off.

His success, he said, is to “try to go against what’s been done. People love something different.”

DeGrisogono took that approach with watches, noting, “I try to do uncomplicated watches that are easy to use.” Talking about watch complications, he said, “the client pretends he understands as the salesperson tries to explain it.”

When he started his line-up of innovative watches, it was a “joke” between him and a friend since “I have no idea about what is inside the watch.” Gruosi’s watches are “all about the aesthetics” and when he took his first prototypes to the Basel Watch and Jewelry Fair he expected to get “60 or 70 orders.” Instead, he came back with over 1,000 orders for a line that started at $35,000!

As usual Gruosi was unscripted, which a nice break from a number of highly scripted presentations.

SPIRIT OF THE SEASON: Elite Traveler readers will spend over $31,000 on spirits for holiday parties…

 

7. On The Subject of Moscow, Private Jet Travel is Booming

The Owner of Bosco di Ciliegi Group of Companies Mikhail Kusnirovich owns and operates more than 100 luxury points of sale in Moscow alone, including MaxMara, Moschino, Etro, La Perla, Pomellato and Corneliani, as well at the iconic GUM megastore on Red Square.

He noted that on an average day in Moscow there could be up to a dozen luxury events, so I guess it wasn’t just by chance that Swatch Chairman Nicolas G. Hayek was in town this same week to open his Breguet store, and Peter Edwards, CEO of Jet Aviation was at Moscow’s private jet airport, Vnukovo, to sign a deal making his company the first global business aviation company to provide maintenance services in Russia.

Of course, the deal is based on the demand of 50 percent per annum growth and the fact that Vnukovo handles some 70 percent of Russia’s total private jet movements.

One of the themes of the conference was that Russia’s Super Rich elite are often out of the country shopping, so I thought I would ask Edwards for the list of top destinations for private jet travel from Russia. Here’s what he said: London, Paris, Nice, Cannes, Milan, Olbia and Dubai. I am glad to say that all of these places including Vnukovo are places that the Super Rich can also find the latest copies of Elite Traveler via our BPA audited circulation that now spans over 90 countries!

WATCH OUT FOR A GREAT GIFT: Elite Traveler readers will spend $66,000 per household buying timepieces for the holidays…

 

8. A Couple of Final Thoughts from Moscow

Or actually en route to Asia. When you read this, I will be somewhere between Hong Kong and Honolulu. Of course with this group I was hardly alone in jetting off to someplace other than home. Christian Dior CEO Sidney Toledano was headed to Tokyo, Louis Vuitton Chairman Yves Carcelle was headed to St. Petersburg then Bucharest to open the brand’s first boutique in Romania.

The places we jet to today are certainly different from a mere twenty years ago. Multiple cities beyond Beijing and Shanghai are frequent stops for elite travelers; the former Soviet bloc countries and states are booming and important business destinations. One presentation even showed a mega-yacht marina and resort being developed in the Ukraine that is being positioned to attract “worldwide travelers.”

It was also interesting to hear that during the Cold War, wives of top Soviet government officials were frequent visitors to Paris where they enjoyed the Couture shows, and that during the 60s, Dior held several glamorous events in Moscow.

There were some very interesting case studies – I am thinking particularly of Ahrendt’s at Burberry, where she is already delivering amazing results by going up the pyramid since the brand had already been positioned at “opening price point” luxury. Salvatore Ferragamo CEO Michele Norsa was as usual entertaining and insightful as he discussed the U.S. as a growth market for luxury brands, particularly in secondary cities (I always say to luxury brands that the person with a private jet in Oklahoma is your customer as much as the one in Palm Beach). He also talked about how Ferragamo uses commercial airports to target the affluent travelers who are top luxury customers. Obviously, private jets and private jet terminals could be an interesting way to complement both strategies.

I always say, “Private jets set the Super Rich (or Modern Rich as Umberto Angeloni would say) free.” This was in particular evidence at the IHT Supreme Luxury Conference where it is clear that the long-term forecast for anybody involved in luxury is sunny. Which paths these many successful companies pursue to get there will be interesting to observe, and which paths bear the most fruit for their travelers will be fascinating.