Luxury Goes Undercover

There are bespoke suits. And then there are bespoke books. For the mogul who truly has everything, there's something new: a custom-made autobiography. For any where from a few grand to $100,000, Myspecialbook.com, a publishing company started a few years back by wealthy Argentines, will write, design and publish a book all about anyone who can afford it. The glossy pages will be filled with beautiful photos, personal letters and other mementos, artfully laid out to illustrate a life of wealth and privilege. The text will feature quotes and anecdotes from the subject's rich and powerful friends. Milton Pedraza, director of the New York-based research firm the Luxury Institute, recalls a well-known private-equity billionaire who was recently brought to tears after receiving such a birthday gift from his wife. "It's the story of your life, told by the people who love you," he says. "Can you imagine anything more personal? That's real luxury."

The luxury industry sure isn't what it used to be. Forget haute couture handbags; those were commoditized years ago. Custom-made yachts? A dime a dozen in chic ports. Even the purveyors of luxury themselves seem a bit bored by it all—top designers craft clothes for discount stores, and high-end hotel chains nix frigid marble palaces in favor of beach shacks. After years of unprecedented global wealth creation—there are now some 8.7 million millionaires, according to the 2006 Merrill Lynch-Capgemini World Wealth Report. The rich hold some $33.3 trillion in assets, up from $16.6 trillion a decade ago. Meanwhile, the sheer proliferation of luxury goods has made them accessible, at some level, to many millions more. In an era in which anybody can go online to buy toiletries handmade by Florentine nuns, and the Louvre is opening a branch in Abu Dhabi, is anything truly exclusive anymore?

The answer, of course, is yes; luxury, by its very nature, will always seek higher ground. But the luxury business is undergoing a radical change. For starters, its customer base is shifting dramatically, as wealth continues to spread to new parts of the globe. Luxury distribution is changing, too; online luxury, once an oxymoron, is now omnipresent. Meanwhile, members-only services for dining, travel, entertainment and retail are proliferating. Clearly, the rich want to be rich in private, with members of their own tribe.

Most important, the nature of luxury goods and services themselves are evolving. Rather than flash, luxury consumers are now seeking discretion, special access, surprise, humor, even secrecy. They don't crave another pair of Jimmy Choos or a custom-made Bentley so much as the challenge of vying for an appointment at the Parisian jeweler JAR—maybe you'll get a slot that day, maybe not—or an invitation to a resort where they'll be entertained by rock stars and educated by Nobel laureates. Most of all, they want meaning, emotion and connection—witness the rise of "philanthropic travel," where visitors to ultraposh resorts in far-flung places might help build a school or launch a mini-foundation for water-sanitation projects in between beachcombing. It's not about keeping up with the Joneses, but about keeping up with the Gateses.

Delivering the goods to ever more discriminating and demanding luxury consumers is requiring companies to rethink their entire business models, an evolution that is long overdue. Until quite recently, luxury was strictly segmented by product (fashion houses did clothes, wine makers made wine, etc.) and run privately, often by second- or third-generation families. There were only a couple of big conglomerates (LVMH, Pinault-Printemps-Redoute), and they had a fairly predictable formula: blend mass (Louis Vuitton handbags) with class (Bottega Veneta dresses), growing the customer base at one end while keeping margins and brand value high at the other.

It wasn't a bad formula; after all, the luxury business has been growing at around 8 percent a year for the past few years—faster than retail sales overall. But a younger generation of luxury consumers has grown tired of the usual offerings. "The average high-end female consumer today has four or five designer handbags, versus one or two a decade ago," says HSBC luxury analyst Antoine Belge. At the same time, they have more money to spend on luxury purchases than their parents did (according to a survey by Pennsylvania-based Unity Marketing, Gen-Xers spend about $16,000 more a year on luxury than boomers do), and are looking for new types of goods and services on which to drop their extra cash.