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.
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.
In nearly all aspects of luxury travel, understated is now the rule. Rather than a bottle of free Cristal or a mammoth plasma TV—now standard in even midpriced hotels—sophisticated travelers prefer the thoughtful touches: a bundle of fragrant local flowers left on the back seat of their car upon departure, a surprise trip to the concierge's own favorite local haunt or the recipe for a favorite dish printed up and left with their bill. "It's all about 'being' versus 'having'," says Jacques-Olivier Chauvin, CEO of the small high-end hotel group Relais & Chateaux.
Not surprisingly, there are a host of new companies springing up to help the wealthy "be." The education of a new breed of domestic workers—butlers, maids, personal chefs and wine stewards—has be-come a cottage industry, and training centers like the Starkey International Institute for Household Management in Denver, Colorado, are booming. Students learn things like how to best serve the low-key, self-made owner of a $10 million Jackson Hole, Wyoming, fishing shack, who may prefer burgers on the deck with the kids rather than three-course meals on fine china. PinnacleCare medical concierge service not only advises on health but can also secure hard-to-get appointments with a coveted fertility expert or cancer specialist. Family Office Exchange brings together the growing number of family investment officers around the world to exchange stock tips and trade references for top lawyers or brokers.
This trend of the rich servicing the rich will only grow. Already, many new niche luxury brands are being started by socialites who have the most intimate knowledge of what their peers are looking for. The Luxury Institute's Pedraza expects that the scions of today's wealthy families will be the ones to launch tomorrow's private-jet management companies and new Web sites catering to the affluent; already there are a number of closed-door sites (including one run by the Luxury Institute, which vets members by wealth) where the world's richest people can exchange everything from restaurant recommendations to business plans. "The rich will increasingly exist in gated, private communities, online and offline," says Pedraza.
But there is an encouraging backlash to this somewhat disturbing trend: when you can have anything you want, the most discreetly fashionable gesture of all, it turns out, is giving it all away. There has been a sharp rise in philanthropic giving among the growing crop of younger financiers and entrepreneurs, often via their own namesake foundations. It's perhaps no surprise that a recent HSBC luxury-goods research report contained a graphic of American psychologist Abraham Maslow's famous hierarchy of emotional needs. After all, some of the most successful luxury launches in recent memory (American Express's Red Card, Bono's green clothing line) have been linked to higher causes. "The future of luxury will be about imparting real meaning into a product," says Elixir's Zauder. It's anybody's guess what the next generation of luxury products and services might look like. But if it touches a mogul's heartstrings, you can bet it'll be expensive.