LUXURY TRENDS

Luxury Institute has created its usual trends for the year ahead. This time, however, there is an economic crisis which will affect the industry in multiple ways. First, the number of wealthy ‘mass consumers’ (those on decent incomes who aspire to rich lifestyles) is likely to drop as people tighten their belts or become unemployed; second, even the mega-rich have lost some money on the markets - steel magnate Lakshmi Mittal has seen £16bn wiped off his fortune.

But The Luxury Institute takes the view that everything is cyclical and this is a time when those brands with the potential to last in the long term need to invest more than ever.

Traditional luxury brands dramatically accelerate their internet activities

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• Changing Models• Using Global communities more• Crowd sourcing

• Their economics will become much more compelling as the economic downturn makes opening stores and traditional advertising economically challenging. Look for all types of traditional luxury goods and services providers to begin to imitate the techniques of these luxury innovators or to acquire them.

Some Good Ones…

Increasing influence of Generations X and Y …empowered digitally!!

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• According to The Luxury Institute’s research, 22% of consumers have executed a transaction via a mobile device, while 21% have made a payment via mobile. Those doing so tend to be under 45 years-of-age, but significantly wealthier, with household net-worth at $5+ million.

• Luxury should be leading m-Commerce innovation since it creates an enhanced experience for all customer segments. Generation X and Y shoppers are influencing the lightning speed with which consumers of all ages, including baby boomers in their 50s and 60s, are embracing mobile technology for on-the-go entertainment, search, and transactions.

• Look for a few luxury innovators to make a more serious effort to experiment with m-Commerce in 2009, especially internationally, as luxury quickly discovers that it must seriously address the mobile needs of the wealthy constituents of Generation X and Generation Y, as well as the mobile needs of boomers.

Price does matter again…33

• In the recent boom, some in the luxury industry deluded themselves into believing that the more expensive an item, the greater its appeal to the wealthy, regardless of quality, functionality and service experience. University research suggested that the more expensive a consumer was told an item was, regardless of the fact that it was the same quality as a much lower priced item, the more the happy chemicals in the brain approached a state of bliss.

• In times of economic crisis, that high can only last so long. Most of the wealthy are self-made, and have sacrificed to earn every cent while delivering great quality and service to their own customers. Like their customers, they use both sides of their brains to make luxury purchasing decisions. One empirical example: The 2008 research shows that when it comes to luxury travel, the top two factors influencing vacation destination decisions are: scenery and nature (58%), and cost (56%). So, it’s back to value-added luxury fundamentals in 2009.

Philanthropy = better Reputation

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• In 2007, The Luxury Institute noted that Bill Gates and Warren Buffet’s entry into big-league philanthropy created the “alms race” we had predicted. Many billionaires followed. In 2008, it noted that their participation, and the trend they started, created a new level of scrutiny for ineffective philanthropies to deliver results.

• While this trend continues, we now also expect many discredited Wall Street executives to turn a new leaf in an effort to save family legacies and reputations and get into the high-end philanthropy game. It’s not much fun for kids to have the wealthiest parents in private school when everyone knows they made their money in a Ponzi scheme that brought the world economy to its knees.

• Repentant wealthy executives have begun to carve out new family legacies by engaging in serious philanthropy. The search for redemption is part of the human journey and the attempt by these super-talented executives to make a difference in world-class problems will be embraced.

Corporate Responsibility as a Critical business need

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• For several years, The Luxury Institute’s research has documented the rise in relevance of corporate social responsibility. Wealthy consumers have increased their preference for socially responsible brands from 51% in 2006 to 57% last year. Expect that number to rise dramatically by 2009.

• The global crisis of confidence in governmental, financial and other institutions will drive luxury consumers to demand that luxury brands serve not just them, but society as a whole. They will require luxury brands to be ethical with all constituents, charitable in ways that make a difference to their beneficiaries and eco-friendly in ways that can be documented. It might mean we will see, among other changes, a reversal in luxury charity events where 80% of proceeds go to lavish fun for the attendees and 20% to the beneficiaries.

• The good news is that these enlightened practices will elevate luxury to a new level in the eyes of all of its constituents, including young aspirationals, who are even more sensitive about these practices than their elders.

Classic luxury will

co-exist with selective

indulgence, guided by ‘trusted advisors’

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• In the midst of this financial crisis, and the populist backlash on unearned financial services wealth, many wealthy consumers are a bit confused and feeling a tad defensive about luxury, even if they have money to spend. Consequently, many wealthy consumers will opt for classic luxury that is unique and exclusive, with exquisite artistic design, craftsmanship, and quality, delivered with impeccable service.

• They still covet their favorite Lamborghini sports cars, Judith Leiber handbags, Christian Louboutin shoes, Harry Winston jewelry, and Ritz- Carlton experiences. That’s good, because luxury spending has a strong and positive multiplier economic effect on society.

• At the same time, they are selectively looking for a few playful indulgences in their favorite categories that they can enjoy in privacy with family and friends.. Personal shoppers, travel agents, realtors, car dealers, interior designers and others who have earned the ironclad trust of clients over the years will have the advantage of curating customer experiences that indulge, but don’t overreach, for their loyal clients.

Trust, Authentication, Validation and Certification become important phrases

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• The financial meltdown has its roots in a crisis of confidence that began in real estate as far back as 2006. Trust in credit ratings institutions such as Moody’s and Standard & Poor’s, and in quasi-governmental institutions such as Fannie Mae and Freddie Mac, and in financial institutions such as AIG, Bear Stearns, Lehman Brothers, Merrill Lynch, Morgan Stanley and even Goldman Sachs, has declined precipitously, as indicated by their financial results and stock prices. Several paid the ultimate price for this lack of trust.

• Luxury too, is down, partly because some purveyors have forgotten what true luxury means to the customer. As online communities, social networks and ratings hubs dot the internet landscape, expect luxury consumers to look extensively to their own trusted peers for guidance on what is, and, what is not, true luxury. These now-wiser consumers, who are reeling from loss of net-worth and income, will scrutinize luxury brands far more carefully going forward, and will rely on authenticated, validated and certified ratings to make purchasing decisions. They will expect luxury brands to be transparent, and to independently authenticate claims, such as country of origin, quality, customer referrals, and social responsibility, like never before.

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