Luxury Goes Undercover

Enter private-equity investors, who buy up and revamp ailing firms. Flush with cash, and looking for new targets, private equity has been snapping up luxury brands—recent buys include Jil Sander and Jimmy Choo. As fashion's old guard (Garavani Valentino, Giorgio Armani, Karl Lagerfeld) begin to step down over the next few years, financiers, rather than fashionistas, will increasingly shape the future of luxury. While some in the industry have lamented the end of designer leadership, there's already evidence that the moneymen are a boon to both profitability and creativity. Brands like Versace, under new leadership, are moving beyond red-carpet dresses into areas like interior jet and auto design. Last year Donna Karan went a step further, researching the launch of a branded airline. Meanwhile, formerly fusty or low-profile brands like Goyard (upscale luggage) and Valextra (leather goods) have been acquired and reinvented for new audiences who appreciate their quiet elegance.

Far from homogenizing luxury, industry experts like investment banker Gail Zauder of Elixir Advisors believe that the flood of cash will infuse it with energy. "Private equity is going to help many more niche brands grow and survive," she predicts. Already, there are luxury brands coming from places previously unheard of: Wisconsin (W.C. Russell Moccasin Co.), for example, or Alabama (Project Alabama, purveyor of handmade fashions). This reflects the growing availability of funding, and the ability of small brands to reach faraway audiences via the Internet, but also the tastes of a new kind of consumer who enjoys the stealth surprise factor of having, say, a $20,000 gown embroidered by Red State seamstresses rather than by the usual Parisian suspects.

That's not to say that luxury customers won't still stroll the Avenue Montaigne, but an increasing number will come from more-unexpected places as well. Globalization, wealth expansion and demand for luxury products continue to march in step; according to HSBC, Kazakhstan, Des Moines and Oslo are now bustling luxury markets, as are many second cities in China, where personal wealth is beginning to rival hubs like Hong Kong and Shanghai. Chicago, better known for big department stores than cutting-edge boutiques, is turning out topnotch designers who peddle their wares in tiny, hidden stores; Ikram, an understated shop on Rush Street, can't keep $20,000 dresses in stock. Clients who prize individuality above all favor slightly lower-profile designers like Azzedine Alaia, and many expect their chosen outfits to fly first class to their second homes on the day of purchase. "Having salespeople fly dresses to clients is pretty standard," says owner Ikram Goldman.

But while the rich are clearly willing to pay almost any price for great service, they are also increasingly interested in immediacy and convenience. Web sites like vivre.com, net-a-porter.com, or 20ltd.com allow consumers to shop for $22,500 Erickson Beamon chandeliers or $800 Loro Piana travel pillows in total privacy. According to Luxury Institute research, nearly all wealthy Americans (98 percent) use the Web to purchase such goods and services, and more than half do it frequently. It was only a matter of time before even the most upscale brands, like Hermès, started selling in cyberspace. Earlier this year, players of the online game Second Life were treated to a preview of Victoire de Castellane's one-of-a-kind jewelry for Dior.

When they aren't shopping online, the rich may still protect their privacy by shopping at home—house calls are now de rigueur for upscale retailers. Individual trunk shows held in clients' homes, or in small, plush venues for only a handful of viewers, are also becoming more common. "Fashion shows have become media spectacles, and designers combine discount goods and couture on the catwalk at the same time," notes Sonnet Stanfill, a fashion curator at the Victoria & Albert Museum in London. "It's gotten completely away from the old-fashioned notion of luxury, which was very much about privacy and exclusivity. Clients would sit quietly, smoking or having a cup of tea, while viewing a collection. That hothouse atmosphere is starting to come back now."

Even when they travel, the wealthy crave the quiet comforts of home. Some upscale hotels monogram linens especially for regular customers. Quintessentially, the London-based luxury concierge service, is launching a chain of members-only hotels in 2008, where visitors won't even have to check in; a swipe card flashed at the door will alert staff, who will then greet them personally while their bags are whisked up to the usual room.