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ET Insider – January 21, 2014

As we get into 2014, I am happy to once again start up our series of Elite Traveler Insider newsletters. The newsletters are simply news about Ultra High Net Worth consumers I think you might find interesting, updates about private jet travel when relevant and of course my musings. Happy 2014 and best wishes for a great year!

Follow Doug Gollan on Twitter:

https://twitter.com/EliteTravelerDG

In this edition:

1. “Luxury for Less” brands are the Elephant in the Room for “True Luxury”

2. Private Jet Travel Goes Long-Haul…That’s Why Elite Traveler is in private jets in over 100 countries.

3. Where to Find Very Rich Customers in the Next 90 Days …When they’re not on their Private Jets reading Elite Traveler  

1. “Luxury for Less” brands are the Elephant in the Room for “True Luxury”

http://luxurysociety.com/articles/2014/01/could-luxury-for-less-threaten-market-share-for-true-luxury

In a world of sophisticated consumer marketing, the fastest way to increase the top line in the near term is often a fabulous ad campaign, backed by sizzling public relations and well planned goosing of social media. But let me start 2014 by suggesting that ‘true’ luxury brands should be taking a quick glance in their collective rear mirror.

Several years ago I was amused when Tom Ford spoke at a conference about walking through a supermarket and perusing packages of ‘luxury’ frozen chicken. The clear message was the word ‘luxury’ was being so overused that simply slapping it on one’s offerings would no longer suffice.

Driven by increasing demand from the increasingly richer and growing population of global Ultra High Net Worth families, coupled with demand from the newly affluent from emerging markets in Russia/CIS, Latin America, Asia and Africa, and Mass Affluent stragglers from the pre-2008 bubble in the U.S. and Europe, the ‘true’ luxury industry has been enjoying halcyon days.

Brand stories, heritage, craftsmanship, quality materials, design, innovation, experience and service are of course part of the mix that generates premium pricing for providers of true luxury products and services. That said, I am seeing more and more competition from a category we can call “Luxury for Less” or “Near Luxury.”

These players are in my opinion raising their game. They have taken inspiration from the top “True Luxury” players in their marketing, they have paralleled design and have used technology to enhance their service. An article in The New York Times noted how solid four-star brands such as Marriott and Sheraton are upping their luxury quotient.

Starwood Hotels Chairman Fritz Van Passchen (operator of Sheraton, W, St. Regis, Luxury Collection, Westin, Aloft and other brands) aptly identified that what was a luxury a generation or two ago is now common place – think refrigerators, televisions, spa treatments, intercontinental travel by plane.

I remember when the first portable calculator came out in the Seventies and we gathered around my grandfather at the kitchen table viewing the device like it was out of a science fiction movie. The same Massification is taking place with luxury.

No longer does one have to buy a luxury car to have leather interiors, adjustable bucket seats and cool bells and whistles. No longer does one have to stay in a luxury hotel to enjoy a breakfast buffet with smoked salmon, made to order omelettes or have on-site spa facilities.

Over the holidays I stayed in two Sheraton hotels, both nice but certainly not what the luxury hotel industry would define as luxury. Interestingly, these hotels have many of the amenities less than a generation ago would have defined a luxury hotel. Both had very good concierges, 24-hour gyms, spas, 24-hour room service and good food and beverage outlets.

The Singapore hotel was renovated by Hirsh Bedner and my bathroom had as much marble as the next luxury hotel, there were Daxima hand-held and rain showers, a stunning Club Lounge and rooms with Italian made furniture.

You more likely know Hirsh Bedner for its work at world-renowned hotels such as The Beverly Hills Hotel, The Alpina Gstaad and top luxury groups such as Jumeirah, Park Hyatt, Shangri-la, St. Regis and Ritz-Carlton. Then again you’re more likely to think about Jimmy Choo and Stella McCartney as namesake brands, rather than their collaborations with H&M.

In Bali, on its busy and congested Kuta Beach, closer to South Beach, Cancun or Las Vegas than the tranquil setting for many of the island’s finest resorts, is a new Sheraton as well. One opening press report noted, “If you’re looking for a 5-star experience that’s just a stone’s throw from the colorful Kuta beach life, this might be the place for you.”

Rooms feature deep soak tubs, spacious walk-in showers, there is an infinity pool with stunning ocean views, a 24-hour fitness center and a service minded staff. Asia is a shopper’s paradise, with local wares as well as global brands such as Zara, Top Shop and H&M. Everywhere one turns, there is the juxtaposition of “True Luxury” and “Luxury for Less.”

So let me get back to the rearview mirror. For aspirational consumers, we all know that like kids in a candy store, they eventually get a stomach ache. One simply needs to look at the 2008 economic crisis to see how the over-engorged Mass Affluent had their lives come to a screeching halt when they found out they couldn’t flip those condos in Miami or Vegas and the value of their primary residence was lower than their mortgage.

Stable companies were no longer stable and fast charging aspirationals – who hopped from six figure gig to six figure gig and never saw a credit card offer they could refuse – were suddenly happy to have a cubicle. With that in mind, the last half decade has seen the “Luxury for Less’ industry revving up its machine of creating lower priced alternatives to “true luxury” brands that charge premium prices.

Like refrigerators, air-conditioners, smoked salmon, calculators, designer fashion, spa treatments and fancy hotels, the “Luxury for Less” segment is taking products and services once reserved for the rich and bringing them to the masses. Page through glossy Mass Affluent magazines from Conde Nast and Hearst and you will see countless ‘look for less’ items in editorial and advertising.

Boston Consulting Group’s Silverstein and Fisk proposed in their 2004 tome “Trading Up” that consumers would splurge on categories they were passionate about, spending more to accumulate in a category of favor and cutting back in other places to fund the splurge. “Luxury for Less” means financially pressed consumers no longer have to spend big money they don’t have to have their own Top Model wardrobe or splash in infinity pools in famous resort destinations.

For True Luxury companies, fast growing economies have created new consumers who willingly pay for their prestige brands. These consumers filled the hole after the 2008 Meltdown. However, one thing that’s true about fast growing economies is that the cost of living over time becomes more expensive.

The need for luxury brands as a badge of having made it for the aspirational consumer is eventually replaced by more mundane needs such as paying for the cost of education, healthcare, retirement and maintaining the façade of the aspirational lifestyle, namely choking mortgages or ever increasing rents as well as well as personal technology (take a look how much money per year goes to mobile devices and networks).

For the True Luxury Industry, the Luxury for Less players are well positioned to take share by providing passable replacement products and experiences at highly discounted prices. For the True Luxury segment, this means they need to get more focused on enhancing their brand positioning and educating the segment that will have the money to continue to patronize their companies, namely the Ultra High Net Worth.

Like a firefly, Mass Affluent consumers come and go. Today’s global Ultra High Net Worth population of some 200,000 families estimated to have over $50 trillion in wealth, and their head count and wealth is projected to increase by 50 percent in the next decade.

For luxury brands that have a deep story, the time is now to make sure this core segment knows why your handbag is 10 times the price of that one, or why your smoked salmon is better than their smoked salmon. Without properly educating the UHNWs who have the deep pockets to buy even more and often provide the inspiration for aspirational consumers, luxury brands risk having the “Luxury for Less” segment chip away at its high heels while the UHNWs lose interest.

“Recently we had an American customer who walked in with a copy of Elite Traveler and booked two suites that been directly featured in the magazine. The value of the booking was in the region of $200,000.” – Tony Potter, Corinthia Hotels

2. Private Jet Travel Goes Long-Haul…That’s Why Elite Traveler is in private jets in over 100 countries.

The excerpt below is from from The New York Times:

The destinations read like the world map in the game Risk: Irkutsk, Mongolia, Madagascar, West Africa.

Business travelers are increasingly flying to hard-to-reach places, helping to fuel a revival in the private-jet industry. And nowhere is the demand greater than in the longest flights to the most-exotic locales, requiring planes that can fly for 13 hours without refueling.

“The segment of business aviation that has grown the fastest in the last five years is the ultra-long-range jets that are capable of flying halfway around the world,” said Ed Bolen, president and chief executive of the Washington-based National Business Aviation Association.

The number of long-range flights rose 18.7 percent this year through October compared with the same period last year. As for the jets, the manufacture of ultra-long-range planes increased 29 percent this year through September compared with the same period last year.

Behind the growth is a more-connected world, where businesses are “truly operating in a global marketplace,” Bolen said. It’s not just multinational corporations but U.S. companies of all sizes that are doing business abroad, he said.

A host of companies are serving this market, including Columbus-based NetJets, VistaJet and a private service owned by Delta.

Thomas Flohr, the owner of VistaJet, bought his first aircraft more than 10 years ago and began leasing it when he was not using it. The routes, he said, have changed considerably, “mainly due to globalization.”

When he was flying his own plane, “the majority of my travel at the time consisted of connecting major U.S. cities with London, Zurich and Paris,” he said.

Today, his company flies routes between Zurich and Maputo, Mozambique; China and Lagos, Nigeria; China and Ghana in western Africa; and Russia and Mozambique.

As global business has shifted, the growth of markets such as China, Nigeria, Uganda, Angola and Brazil has been staggering, he said. Any destination is within reach – as long as its runway is long enough. “When you see a jet parked, business is being done in that remote region,” Flohr said.

Also, in some places, scheduled airline service might be limited or nonexistent. Africa and the former Soviet republics of central Asia “are two examples of places where there is not great scheduled air service,” said John Vawter, vice president for the Americas region of CWT Energy, Resources & Marine, a travel-services provider. “There has to be a specific need, a specific reason,” for companies to use private aviation, he said.

“Elite Traveler is a key media source for us with well over $200,000 in sales we can track directly back to our ads in your magazine over the past year.” – Charles Krypell, Owner, Charles Krypell

3. Where to Find Very Rich Customers in the Next 90 Days…When they’re not on their Private Jets reading Elite Traveler.

  • Basel Watch & Jewelry Fair, Basel, Switzerland
  • TEFAF (The European Fine Arts Fair) – The Netherlands
  • Baseball Spring Training (Florida and Arizona) -Palm Beach Boat Show, Palm Beach, FL
  • BNP Paribas Open, Indian Wells, CA (largest tennis tourney after the Grand Slam)
  • Hainan Rendez-Vous, Hainan, China
  • NCAA Basketball Final Four (Dallas, TX)
  • World Travel and Tourism Council Annual Summit, Hainan, China
  • The Masters, Augusta, GA
  • Formula 1 (16 Mar, Australia, Albert Park; 30 Mar, Malaysia, Sepang; 6 Apr, Bahrain, Sakhir; 20 Apr, China, Shanghai)

“From the Summer Edition of Elite Traveler Superyachts, as well as the Asia Edition including the May/June issue we are happy to report sales ($437,000) of the timekeepers we advertised” – Patrik Hoffmann, CEO Ulysse Nardin

All the best,

Douglas D. Gollan Group President and Editor-in-Chief Elite Traveler, the private jet lifestyle magazine Elite Traveler Superyachts, the superyacht lifestyle magazine Elite Traveler Asia, Asia’s private jet lifestyle magazine Elitetraveler.com, the private jet lifestyle online Elite Traveler Update, our weekly e-Newsletter to private jet owners worldwide

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