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The True Value of Wealth

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Written by the Economist Intelligence Unit (EIU) on behalf of Barclays Wealth, this fourth volume of Barclays Wealth Insights examines what it means to be wealthy today. …

Written by the Economist Intelligence Unit (EIU) on behalf of Barclays Wealth, this fourth volume of Barclays Wealth Insights examines what it means to be wealthy today.
It looked at the factors beyond money that the wealthy consider important, and explore the changing patterns of behaviour that are being driven by the ongoing democratisation of wealth. It also looked at how the wealthy spend their money, and explore the challenges and opportunities facing the luxury goods and services sectors as they adapt their offering to suit their rapidly changing customer base.
In this publication, the true value of wealth and the choices wealthy individuals make in seeking to enjoy it are analysed, together with how luxury brands are responding to the changing requirements and expectations of an ever expanding customer base for whom time in particular is becoming an increasingly precious commodity.

The report is based on three main strands of research. First, the Economist Intelligence Unit conducted a survey of 790 individuals with investable assets ranging between at least US$20,000 and those with in excess of US$3 million. Respondents were spread across a number of key international markets, with the highest numbers of respondents from the United States, United Arab Emirates, Singapore, Hong Kong, United Kingdom, Spain and Switzerland. The survey took place between January and September 2007. This was supplemented with a series of in depth interviews with experts on wealth; and a number of case studies. Our thanks are due to the survey respondents and interviewees for their time and insight.

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  • 1. Barclays Wealth Insights Volume 4: The True Value of WealthIn co-operation with the Economist Intelligence Unit
  • 2. About Barclays WealthBarclays Wealth, the UKs leading wealth manager with £126.8 billion client assets globally at 30 June 2007, serves affluent, highnet worth and intermediary clients worldwide. It provides international and private banking, fiduciary services, investmentmanagement and brokerage. Thomas L. Kalaris, the Chief Executive of Barclays Wealth, joined the business at the start of 2006.Barclays Wealth is part of the Barclays Group, a major global financial services provider engaged in retail and commercial banking,credit cards, investment banking, wealth management and investment management services with an extensive internationalpresence in Europe, the USA, Africa and Asia. It is one of the largest financial services companies in the world by marketcapitalisation. With over 300 years of history and expertise in banking, Barclays operates in over 50 countries and employs over127,000 people. Barclays moves, lends, invests and protects money for over 27 million customers and clients worldwide.For further information about Barclays Wealth, please visit our website www.barclayswealth.com.About this reportWritten by the Economist Intelligence Unit (EIU) on behalf of Barclays Wealth, this fourth volume of Barclays Wealth Insightsexamines what it means to be wealthy today. We look at the factors beyond money that the wealthy consider important, andexplore the changing patterns of behaviour that are being driven by the ongoing democratisation of wealth. We also look at how thewealthy spend their money, and explore the challenges and opportunities facing the luxury goods and services sectors as theyadapt their offering to suit their rapidly changing customer base.It is based on three main strands of research. First, the Economist Intelligence Unit conducted a survey of 790 individuals withinvestable assets ranging between at least US$20,000 and those with in excess of US$3 million. Respondents were spread across anumber of key international markets, with the highest numbers of respondents from the United States, United Arab Emirates,Singapore, Hong Kong, United Kingdom, Spain and Switzerland. The survey took place between January and September 2007. Thiswas supplemented with a series of in depth interviews with experts on wealth; and a number of case studies. Our thanks are due tothe survey respondents and interviewees for their time and insight.For information or permission to reprint, please contact Barclays Wealth at:Barclays Wealth Insights, Barclays Wealth, 1 Churchill Place, London, E14 5HPTelephone: 0800 851 851 or dial internationally on +44 (0) 141 352 3952 or visit www.barclayswealth.com
  • 3. ForewordAt Barclays Wealth, we are dedicated to providing our clients with the means to manage their wealth successfully and are continuallystriving to better understand individual needs, objectives, aspirations and goals.In partnership with the Economist Intelligence Unit, we have this year published a series of in-depth reports entitled ‘Barclays WealthInsights’. The reports set out to stimulate debate and provide a definitive picture of what being wealthy really means in the 21st century.Our first report, ‘The Future of Wealth 2006-2016’, emphasised the unprecedented levels of growth in wealth and its globalimplications. ‘A Question of Gender’ explored the differences in attitudes to wealth creation between women and men, andaddressed some of the key challenges facing women today in the context of that wealth. And the third volume of Insightsinvestigated how wealthy individuals consider ‘Risk, Return and Reward’ throughout their lives and the role that each plays in theirapproach to investment and planning their legacy.Finally, in this fourth publication, we examine the true value of wealth and the choices wealthy individuals make in seeking to enjoy it.We also consider how luxury brands are responding to the changing requirements and expectations of an ever expanding customerbase for whom time in particular is becoming an increasingly precious commodity.As well as consulting with close to 800 wealthy individuals around the world, the Economist Intelligence Unit has once again workedwith a panel of experts drawn from academia, industry and financial circles, who add their own unique perspective.We hope that you find this final chapter in the 2007 series an interesting and illuminating read, and we look forward to bringing younew Insights in 2008.Thomas L. KalarisChief ExecutiveBarclays Wealth 1
  • 4. Our Insights PanelGerard Aquilina, Head of International Private Banking, Barclays WealthJean-Christophe Bedos, Chairman and Chief Executive Officer, BoucheronRadha Chadha, Author, The Cult of the Luxury Brand: Inside Asia’s Love Affair with LuxuryLuc Delaflosse, General Manager, Burj Al Arab HotelChadwick Delaney, Sales Director, Justerini & BrooksKenny Dichter, Chief Executive Officer, Marquis JetSebastian Dovey, Managing Partner, Scorpio PartnershipKenneth Fang, Owner, knitwear company PringleMilton Pedraza, Chief Executive, the Luxury InstituteRuss Prince, President, Prince & AssociatesOur thanks also toNick Candy, Co-founder, Candy & CandyJoseph Ettedgui, Owner, Connolly2
  • 5. Key findingsA millionaire is not what it Appetite for luxury goodsused to be remains strong• The term ‘millionaire’ used to be the gold standard for wealth, • Luxury goods companies can be confident about their future but it has long since lost its cachet. Today, US$10 million is prospects, especially in Asia. Asked if they agreed that luxury the sum that is often talked about as the threshold for being goods were a waste of money, only 31 per cent of considered a high net worth individual. Among our survey respondents agreed. Respondents from the Asian centres of respondents, more than one-third think that this is the Singapore and Hong Kong were least likely to agree with this amount of liquid assets required to be considered wealthy. statement, and were also the group most likely to focus on (See page 5) brand as a criterion for purchasing decisions. (See page 18)Increased wealth is a boon A bright future forfor charitable causes ‘time-substitute’ services• Support for charitable causes has long been part and parcel • Time is often described as the ultimate luxury, and evidence of being wealthy, and our survey suggests that it is strongest from our research suggests that this is one commodity that is among the most wealthy sections of society. When asked at an increasing premium as individuals climb the wealth what proportion of their estate they planned to leave to ladder. Demand for ‘time-substitute’ services among the charitable causes, 26 per cent of respondents with assets wealthy is growing rapidly. When asked which services they under US$1 million said that they planned to leave more than currently use, those that could be grouped under the heading 10 per cent of their estate to charitable causes. This figure of time substitutes, such as cleaners, concierges, personal rose to 37 per cent, however, among those respondents with shoppers and travel search agencies, were almost always wealth in excess of US$3 million - each of whom would therefore most popular among the wealthiest band of respondents be leaving a minimum of US$300,000 to charity. (See page 10) (US$3 million plus in liquid assets). By point of comparison, the difference in extent of usage is much less marked between the wealth bands when we look at health andExclusivity is the new luxury grooming services, such as personal trainers, personal stylists• With many luxury goods companies now catering for the and alternative health practitioners. (See page 28) mainstream market as well as the wealthy, exclusivity is becoming the new touchstone for the wealthy. In our survey, 34 per cent of respondents with wealth in excess of US$3 million say that they consider exclusivity as an important factor when making purchasing decisions, compared with only 18 per cent of respondents with assets below US$1 million. Exclusivity is a particularly important consideration for respondents in the United Arab Emirates, Singapore and Hong Kong. (See page 15) 3
  • 6. IntroductionRobert Kennedy once remarked that metrics of economic progress, such as grossdomestic product, measure “everything except that which makes life worthwhile”. Inother words, the essential qualities of a healthy society, including family relationships,happiness and friendships, are not accounted for by such a blunt measure, and weshould seek other measures to determine our well-being.One can make the same analogy when discussing the meaning of wealth. Just as GDPis a crude measure of economic progress, so too the size of an individual’s bankbalance is an overly simplistic measure of what it means to be wealthy. The things thatmake life worthwhile - family, friendships, health, happiness and many other factors -are simply not captured by such a narrow definition.This discussion is further complicated by the fact that wealth - unlike GDP - is arelative measure. There are many millionaires who do not consider themselves to bewealthy and just as many with a mere fraction of those assets who think that they are.Wealth, in other words, is determined by environment, and also incorporates a range ofother qualities that are less easy to measure than money.In this report, we examine what it means to be wealthy today. We look at the factorsbeyond money that the wealthy consider important, and explore the changing patternsof behaviour that are being driven by the ongoing democratisation of wealth. We alsolook at how the wealthy spend their money, and explore the challenges andopportunities facing the luxury goods and services sectors as they adapt their offeringto suit their rapidly changing customer base.4
  • 7. What does it mean to be wealthy? As the amount of wealth in the world increases, and as the number of millionaires, centi-millionaires and billionaires soars, what does it mean to be wealthy today? The term ‘millionaire’ - once almost a gold standard of wealth - has lost its cachet in a world that is experiencing considerable wealth generation. In the UK alone, there are 405,000 households with financial As overall levels of wealth have increased worldwide, so also has wealth in excess of US$1 million, according to research conducted the cost of living for the rich. Forbes magazine calculates what it by the Economist Intelligence Unit for Barclays Wealth. And the calls the ‘Price of Living Well’ index. It has found that, over the past news that the Securities and Exchange Commission, the chief US year, the cost of a basket of luxury goods climbed by 6 per cent, financial regulator, has proposed to increase the level of assets more than double the rate of inflation in the US. Moreover, required to be an ‘accredited investor’ - someone allowed to invest these figures probably understate the real level of inflation faced in certain types of higher-risk investments - from US$1 million by the wealthy as they experience increased competition for net worth to US$2.5 million in investable assets is further positional and prestige goods, properties and so on. evidence that true wealth is now about much bigger numbers. Society pays a huge amount of attention to how much money Inflation is clearly a factor in the increase in wealth in recent the wealthy spend, but is being wealthy more than just a decades. “A billion dollars isn’t worth what it used to be,” as question of money and spending? What other dimensions, in J. Paul Getty famously quipped in 1957. When Fortune Magazine terms of motivations, behaviour and personal values, should one recently recalculated the wealthiest Americans - on the basis of take into account? wealth as a fraction of economic activity (GDP), Bill Gates, the wealthiest person in the world, was assessed at number five behind John Jacob Astor, Cornelius Vanderbilt and others - many of whose wealth was a fraction of Gates in absolute terms. 5
  • 8. “This issue has significant implications from a behavioural and Table 1 - Percentage of respondents who consider themselves to be wealthy by assets (US$)credit perspective,” says Gerard Aquilina, Head of InternationalPrivate Banking at Barclays Wealth. “In absolute terms, global Assets: less Assets: 1m Assets: morewealth is so wrapped up in real estate - some of it perhaps than 1m (%) to 3m (%) than 3m (%)overvalued or at the top of the cycle - that many individuals Yes 31 70 78believe they are wealthier than they really are and will spend No 69 30 22or invest accordingly. Liquid or investable wealth may be a Total 100 100 100safer definition of wealth. But it goes beyond a monetarydefinition; it is a state of mind.” This figure of US$10 million turns out to be one that chimes with the views of other wealth experts. Russ Prince, PresidentMany bankers, financial advisors and wealth management of Prince & Associates, sees US$10 million as the threshold toprofessionals use their own classification for bands of wealth. being wealthy today. “Our research shows that affluentWith wealth increasingly widespread on a global basis, and the individuals who have assets of more than US$10 million actdramatic rise in the number of billionaires, coupled with an and spend differently from their less wealthy counterparts,”increasingly weaker dollar, the thresholds that many leading he says. “They are in fact closer in mindset to people withprivate banks are using have probably grown from US$1 million US$50 million than those with US$5 million.”to US$10 million in liquid investable wealth to be considered a"high net worth individual". Milton Pedraza, Chief Executive of the Luxury Institute, agrees that US$10 million is a figure that signifies wealth today. “ThisHowever useful this classification, the big question is: how do the is a level of wealth where people feel protected from thewealthy view their own financial standing? Roughly 50 per cent hazards of the world,” he says.of the individuals questioned for the EIU/Barclays Wealth survey,whose investable assets ranged from a bottom threshold of Table 2 - Minimum threshold to be considered wealthy by asset (US$)US$20,000 to US$3 million plus, consider themselves to bewealthy. As one might expect, the proportion of respondents Assets: less Assets: 1m Assets: more than 1m (%) to 3m (%) than 3m (%)who consider themselves to be wealthy is much higher among 100,000 25 12 3those from the higher asset bands. Some 78 per cent of 1m 43 51 26respondents with investable assets in excess of US$3 million 3m 14 19 37consider themselves to be wealthy, compared with 70 per cent 10m 12 13 25of those with assets between US$1 million and US$3 million and 30m 2 5 10just 31 per cent of those with assets of less than US$1 million. Total 100 100 100And 35 per cent of respondents with investable assets in excessof US$3 million think that you need assets in excess of US$10million in order to be considered wealthy.6
  • 9. The relative dimension of wealthWhen looking at how people see their own wealth, it is Indeed, in a recent wealth survey of New Yorkers, the individualsimportant also to consider the relative dimension of how people most likely to agree with the statement “rich people make themcompare themselves with others. Recent research by Glenn feel poor” were the highest earners - those who earned at leastFirebaugh at Pennsylvania State University confirms that people US$200,000 a year. And this question of relativity may explaindo indeed consider their peers when evaluating their own the results of the Worth-Roper Starch Survey, a US researchincome. The researchers suggest that, in the US, relative income project that found that the majority of Americans in the highest-is more important than absolute income in determining an earning one per cent of the population did not considerindividual’s happiness. This has the potential to create what themselves to be rich.economists call a ‘hedonic treadmill’ where people arecontinually trying to catch up their wealthier peers. Geographical location will also have a significant influence on relative perceptions of wealth. “Clearly what it means to be wealthy depends very much on the country in which you live, economic“It’s always surprising to see affluent factors, concentration of wealth, wages and cost of living, and soindividuals, with what we would think of on,” says Mr Aquilina. “US$10 million on a purchasing power parity basis is different in the US as compared to India or Chile."as sizeable assets, who still don’t feel that Even within a city these differences can be substantial. Thethey are truly wealthy because they are recent survey of wealth in New York found that respondents incomparing themselves with people who the outer boroughs believe that you can be rich on US$200,000 a year or less. In Manhattan, 40 per cent of respondents saidare wealthier than they are.” that you needed more than US$500,000.“We see this all the time,” says Sebastian Dovey, Managing Partnerof Scorpio Partnership, a UK wealth management and consultancycompany. “It’s always surprising to see affluent individuals, withwhat we would think of as sizeable assets, who still don’t feel thatthey are truly wealthy because they are comparing themselveswith people who are wealthier than they are.” 7
  • 10. Wealththan money means moreThe word wealth comes from the Old English words “weal” (well-being) and “th”(condition). While we traditionally classify wealth primarily in financial terms, it isclear that “wealth” is a term that means different things to different people. It doesnot necessarily refer only to the simple notion of money in the bank, the size ofone’s investment portfolio or any other financial measure. Time, family, health andinfluence can all be part of the meaning of wealth.“People often tend to think about wealth in terms of assets and Mr Dovey believes that power, prestige and influence are keymoney,” says Mr Aquilina. “But being wealthy is not just about the facets of wealth. “Our research and work with wealthymoney; and certainly that is not the way that the wealthy think individuals makes it clear that money itself is a catalyst toabout it. There are many other dimensions. For some, it can be attaining goals in people’s lives beyond money,” he says.political power or influence; for others, it’s about their role in the “Wealthy individuals are often very driven by confirming theircommunity. Certainly status is important for many while for role among their business or society peers. Others seek to driveothers, it’s about freedom. There are many aspects and nuances.” change in their world through the fact that their wealth allows them to move agendas. We have come to term this as P.P.I. - money leads to enhanced power, prestige and influence.”8
  • 11. Time luxury is the ultimateThere has always been a school of thought that sees time, the scarcest resource, aswealth. Recent research by the Conference Board in the US entitled Global LuxuryMarket: Exploring the Mindset of Luxury Consumers in Seven Countries found thattime is viewed as the ultimate luxury.Our survey shows a close connection between time and wealth. Wealthier respondents - those with assets in excess ofAlmost two-thirds (62 per cent) of all respondents believe their US$3 million - are more likely than those in other wealth bandswealth has brought them more (or better) leisure time, while to say that increased wealth has brought them more time withmore than half of respondents believe that it has allowed them the family. However, respondents in the higher wealth bracketsto spend more (or better) time with their family. are also more likely to say that increased wealth has brought them more stress in their lives.It is arguable whether the wealthy really have more leisure timeor get to spend more time with their families - time is usually at This reflects the experience of many professionals who worka premium for these individuals. What is more likely, and may be closely with the wealthy and their families. “Wealthy peopleat the heart of this finding, is that the time they have can be tend to lead very complex and busy lives,” says Mr Pedraza.better spent, because greater wealth provides more “And many do experience serious time pressure and stress. Thisopportunities and options. is one reason why the wealthy use the internet intensively, as we discovered in our recent research. And this is why the wealthy are increasingly likely to consume services that help save time“Wealthy people tend to lead very and make their lives easier.”complex and busy lives and manydo experience serious time pressureand stress.” 9
  • 12. The link betweenwealth and happinessWhat about the relationship between wealth and happiness? In However, research by Ed Diener, a Professor of psychology at thethe EIU/Barclays Wealth survey, 78 per cent of respondents said University of Illinois, raises questions about the relationshipthat their wealth had made them happier. More respondents between wealth and happiness. Mr Diener found the Forbes listwith assets in excess of US$3 million (87 per cent) are likely to of the 400 richest Americans had about the same level of well-think that increased wealth has brought them greater happiness being as the Maasai of East Africa, a traditional herding peoplethan those with assets between US$1 million and US$3 million who live in huts with no electricity or running water.(78 per cent) and assets below US$1 million (75 per cent). The point is not that wealthier people are less happy than thoseTable 3 - Percentage that says increased personal wealth has leading a simpler life - many wealthy individuals report very highbrought greater happiness by assets (US$) levels of well-being. The authors point out, however, that increasing wealth is associated with only a slight rise in well- Assets: less Assets: 1m Assets: more than 1m (%) to 3m (%) than 3m (%) being once nations have a moderate level of income. Other factors, such as interpersonal relationships and the cultural More/better 25 12 3 context, are also extremely important. For example, the research Less/worse 25 12 3 found that homeless people in Fresno, California, who may have Total 14 19 37 similar “wealth” to the Maasai in purely monetary terms, reported very low levels of well-being. The environment in whichThe positive relationship is supported by research from Robert the individual finds him or herself, and whether or not basicFrank, a Professor of economics at Cornell University, in a paper needs are met, is therefore crucial.for the American Academy of Arts & Sciences. "When we plotaverage happiness versus average income for clusters of people Social responsibility is another, increasingly important dimensionin a given country at a given time, we see that rich people are in of wealth. More than half of the respondents in EIU/Barclaysfact much happier than poor people," he writes. Wealth survey say that being able to help people through philanthropy is important or very important. In addition,10
  • 13. 47 per cent of respondents say that the ability to help others isan important driver for them to amass and protect their wealth. The Barclays Wealth privateThis figure rises to 55 per cent among those respondents withassets in excess of US$3 million. banker perspective The meaning of wealth varies enormously among ourWhen asked what proportion of their estate they planned to clients. However, one constant is that the amount ofleave to charitable causes, there was also a notable difference money you need to be considered wealthy has gone upbetween the wealth bands. In the case of respondents with considerably in the past decade. Rising inflation meansassets under US$1 million, just over a quarter (26 per cent) said you need more money to be wealthy as the cost of travel, school fees, hospitality and leisure, and even refurbishingthat they planned to leave more than 10 per cent of their estate a home continues to rise.to charitable causes. This figure rose to 37 per cent among As people work harder to achieve and sustain their wealth,those respondents with wealth in excess of US$3 million. attitudes to prosperity are shifting. People are less embarrassed by wealth than they used to be and they are more overt in their enjoyment of wealth, without being brash.Wealth is about having peace of mind This is creating a revolutionary change in people’sand the opportunity to fulfil personal lifestyles. For instance, more wealthy individuals are now hiring private jets, not so they can be overtly extravagantgoals such as charitable causes. but because these are becoming less expensive than a first-class plane ticket. The superior service and quality of the experience is also something they appreciate. JetMany wealth experts note that there are generational issues to companies have responded to this demand by introducingconsider, with younger individuals more likely to make the link short leases and part-ownership.between wealth and responsibility. This is not to say that older Other investments include boats and second or thirdgenerations are not exploring ideas of social responsibility, but homes abroad. The pursuit of sailing is now so popular that it is almost impossible to find a good crew for a boatcertainly younger generations are becoming more vocal in their because the chances are they will have already been hired.need to demonstrate that their wealth has a positive impact. Conversely, buying a home abroad is becoming easier with companies dedicated to handling every aspect of lifeHow do these different aspects of wealth vary around the between several countries. Money is more transferable with fewer obstacles to moving capital across borders.world? Not as much as you would think, says Mr Dovey. And even with threats such as terrorism, living overseas is“Regional and national differences are often overemphasised generally safer and easier than it has been in the past,while similarities are overlooked,” he says. “You may be told not enabling wealthy individuals to be more adventurous.to discuss legacy and tax issues in Asia, because talking about So, does wealth simply mean money and indulgence? Whiledeath is taboo; or that the family is hugely important to Indians. our clients certainly enjoy the rewards of their investments,People often extrapolate from a limited experience with a few for them wealth is also about much more than that. It is about having peace of mind and the opportunity to fulfilwealthy families in a particular culture. But when you conduct personal goals such as charitable causes. Many wealthysurveys and interviews across a wide range of countries, you see people are now giving their energy and insight, as well assimilar patterns and trends. There are subtleties in language and financial support, through philanthropy. Being wealthy alsoin how people approach these questions, but the meaning of enriches the experience of travel, enabling people to venture to places that are far from the madding crowdwealth turns out to be remarkably consistent.” where they and their families can find serenity. But there is often a gap between the things that people want to do and the time they have available. Nearly every client laments the lack of time. No matter how wealthy somebody is, there are still only 24 hours in a day. 11
  • 14. 12
  • 15. “While we traditionally classify wealth primarily infinancial terms, it is clear that “wealth” is a termthat means different things to different people”Gerard Aquilina, Head of International Private Banking at Barclays Wealth 13
  • 16. Exclusivity andgrowth - having it all14
  • 17. Any discussion of the meaning of wealth needs to factor in the way in which thewealthy spend their time, and enjoy their money. For example, how important isthe traditional concept of ‘luxury’ to this group, and how are luxury brandsadapting to meet the changing needs and aspirations of the wealthy? And howis this reflected internationally? Further, what are the services emerging to fulfilthe needs of the wealthier individuals in our society to whom having ‘time’ itselfis part of being wealthy?Few industries have to grapple with the changing nature of Luxury companies face a dilemma. On the one hand, the marketwealth, and the way in which the wealthy behave, quite so opportunities created by this new customer demographic arekeenly as the luxury goods and services sector. Over the past immense; on the other, companies risk diluting the exclusivity ofdecade, the explosion in the number of wealthy consumers their brand by taking advantage of those market opportunities.worldwide has irrevocably changed the relationship between “Exclusivity and uniqueness matter enormously to the wealthy,”these companies and their clients. Previously, companies could says Milton Pedraza, Chief Executive Officer of the Luxurycount on knowing their clients, often for generations, and might Institute. “When luxury brands are widely available, sooner orhave had a market of just thousands. Now, they are faced with later, they lose their cachet of exclusivity.”many newly wealthy clients and their potential client base canbe counted in tens of millions. A loss of exclusivity was the fate that befell Pierre Cardin and Gucci in the 1980s. More recently, brands like Calvin Klein and Ralph Lauren have also suffered as a result of their efforts toFew industries have to grapple with target the wealthy market. When US jewellers Tiffany startedthe changing nature of wealth, and the selling US$110 silver charms for younger buyers, they were inundated with teenagers buying bracelets, to the concern ofway in which the wealthy behave, quite Tiffany’s traditional, wealthier clients. And in the UK, Burberry suffered from its popularity with a more ‘down market’ audience.so keenly as the luxury goods andservices sector. 15
  • 18. The challenge for the luxuryBalancing growth with exclusivity is clearly one of the biggest challenges facingluxury companies today. Francois Pinault, Chief Executive Officer of French luxurygoods company PPR, whose exclusive brands include Gucci, Bottega Veneta andBoucheron, outlined his opinions on this issue during his speech at last year’sInternational Herald Tribune luxury conference.“Over the past decade or so, the luxury industry has focused The so-called affordable luxury, or mass affluent market - Ralphon developing derivative goods - like lower-priced accessories - Lauren Polo rather than Hermes - is immense. Bostonto make a brand and its products more attainable to a wider Consulting Group, the consulting firm, estimates that theaudience,” he said. “I think this business model can, and “trading-up industry”, whereby consumers will pay more to feelshould, be challenged.” His answer: to focus ‘on the upper special, last year amounted to US$720 billion in the US alone.echelons of luxury’. So how should luxury goods companies take advantage of theseClaudia D’Arpizio, a Partner in Bain & Company’s consumer market opportunities while still maintaining the prestige of theirproducts practice, is not convinced, however, that large luxury brand? And how do they ensure that their offering meets thegoods companies can afford to rely only on the top end of the needs of the wealthy who are, after all, their core market?market. “Smaller niche brands may have success focusing on “Companies need to cater to the top end of the market withthe very top end of the market,” she says, “but it won’t work for specially targeted brands and offerings, and unique or distinctthe big luxury companies because there just aren’t enough distribution,” says Ms D’Arpizio. “The real challenge for luxurycustomers. Large luxury companies tend to have a large fixed companies is to listen to their customers and to find out what theycosts base. Profitability is driven by top line revenue growth - it’s want - a relatively new idea for many luxury goods companies.”all about gross margins.”16
  • 19. goods industry This is exactly what some luxury companies are doing. For The scale of the opportunities in the “upper echelons of luxury” example, Tiffany has been focusing on its traditional, wealthy, core can be seen in Lamborghini’s recent launch of the US$1.4 clients by separating stores into mass-affluent and “fine jewellery” million Lamborghini Reventón. The company announced a sections, and providing private viewings for its wealthier limited edition of 20 cars - all of which were sold within four customers. Meanwhile Coach, the leather goods and accessories days of being announced. (Lamborghini management believe brand, has successfully focused on building the relationship with that they could easily have sold twice as many). its customers, allowing it to maintain its brand prestige while still providing affordable luxury. “Coach has been successful because it is excellent at listening to its customers,” says Mr Pedraza. “It tests out new products on them and gets feedback on the right products to develop. In addition, it has a truly excellent approach to service that is better than most luxury companies. And that matters enormously to the wealthy consumer.” 17
  • 20. Luxury, exclusivityand other purchasing criteriaDespite the problems that can befall luxury brands, there clearly and Canada, where the economy is now developing more slowlyremains an appetite among the wealthy to purchase them. after a prolonged period of growth, such signals do not have quiteWhen asked whether they thought that buying designer clothes the same potency. Indeed, other social signifiers - philanthropy, forand other luxury goods was a waste of money, only 31 per cent example - may be perceived as more revealing of status.of respondents to the EIU/Barclays Wealth survey agreed. Theresults were broadly the same irrespective of how much wealth The survey also shows the importance of exclusivity as a buyingrespondents held. Looking at specific countries, respondents criterion, with almost 30 per cent of respondents citing it as one offrom US and Canada appeared least enthralled by luxury goods, the top three factors influencing their buying decisions. Wealthierwhile the Asian centres of Singapore and Hong Kong appeared individuals are more likely to cite exclusivity as an importantto find them most appealing. criterion than the less wealthy - only 18 per cent of respondents with assets below US$1 million cite it as a factor, compared with 35 per cent of respondents with assets above that threshold.“Asian customers value and appreciate Value for money as a purchasing criterion remains consistentlyinternational luxury brands for their important across the wealth bands, with the very wealthiestexclusivity, sophistication and quality.” members of the survey considering it just as important as the least wealthy. Clearly, the possession of great wealth does“Asian customers value and appreciate international luxury nothing to undermine the universal requirement for purchasesbrands for their exclusivity, sophistication and quality,” says to be worth what they cost.Kenneth Fang, the Hong-Kong based owner of knitwearcompany Pringle. “Many of them travel extensively and are wellexposed to the wide offering these international luxury brandshave in other parts of the world. Such well informed customers,in todays globalised setting, have greatly accelerated thegrowth of these international brands in the Asian markets.”Asia is a region that is seeing rapid economic development andwealth creation, brand and exclusivity are important signifiers ofstatus, and demonstrate that the bearer has benefited from thecreation of new wealth. By contrast, in countries such as the US18
  • 21. Percentage who disagree that designer clothes and other luxury goods are a waste of money by country 68%France 67%Switzerland UK 77% 66%Italy Portugal 77%59%US & Canada 76%Spain 64%Dubai 84%Hong Kong 79%Singapore 64%South Africa Table 4 - Factors that guide purchasing decisions by assets (US$) Assets: less Assets: 1m Assets: more than 1m (%) to 3m (%) than 3m (%) Product quality 78 56 60 Value for money 44 34 41 Exclusivity 18 37 35 Brand 42 42 34 Purchasing experience 35 40 26 Recommendations from friends and family 15 23 26 Availability online 4 13 14 Ethical considerations 9 12 13 Fashion 7 12 12 Endorsement by celebrity 2 7 8 Country of origin 5 5 7 19
  • 22. Factors such as celebrity endorsement are rated as very Table 5 - Top three purchasing criteria by countryinsignificant by respondents, although interestingly, this criterion Country Criteria %is seen as a slightly more important factor by those from the UAE Product quality 62highest wealth band. Overall, though, it is not seen as significant, Purchasing experience 59which might call into question the effectiveness of campaigns for Exclusivity 39luxury goods that rely on the endorsement of celebrities. Singapore Product quality 62 Brand 44There are also notable regional differences between the purchasing Exclusivity 39criteria that are seen as significant. While product quality is usually Hong Kong Product quality 65regarded as the most important factor when guiding buying Purchasing experience 50decisions, factors such as brand and exclusivity are seen as Brand 48particularly important in Middle Eastern and Asian centres, such as South Africa Brand 56the United Arab Emirates, Singapore and Hong Kong. Product quality 44 Purchasing experience 41The survey also shows the importance Spain Product quality 58 Brand 56of exclusivity as a buying criterion, with Purchasing experience 51 Portugal Purchasing experience 48almost 30 per cent of respondents citing Brand 42it as one of the top three factors Product quality 42 Switzerland Product quality 51influencing their buying decisions. Brand 39 Value for money 39 Exclusivity 39 Italy Product quality 61 Brand 53 Purchasing experience 34 Exclusivity 34 France Product quality 56 Value for money 53 Brand 44 US/Canada Product quality 79 Value for money 74 Brand 32 UK Product quality 80 Value for money 76 Brand 2620
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  • 24. Patience is a virtuefor investors in ChinaCountry case studyLuxury goods companies are currently in thrall with China. It isestimated that there are around 10 million to 13 million customers ofluxury goods on the mainland, and this figure is likely to climb aswealth spreads across the country.Chinese demographics are key to understanding this “The Chinese market will eventually be like ten Japans,” saysphenomenon. The liberalisation of the Chinese economy has Radha Chadha, author of The Cult of the Luxury Brand: Insiderapidly given birth to a super-rich capitalist class. There are Asia’s Love Affair with Luxury. “So far luxury brands have onlyestimated to be some 350,000 US dollar millionaires in China. touched the surface of this market.” Ms Chadha believes thatJust how quickly wealth is growing can be seen from the most luxury markets in Asia develop according to a five-step model.recent “China Rich List”, compiled by Hurun, which shows a China, she argues, has completed phase one (which she referssevenfold increase in US dollar billionaires in the past year. to as subjugation, characterised by authoritarian rule, deprivation and poverty, which build a hunger or a desire forSo it is no surprise that luxury car makers, hotel groups and a luxury) and phase two (economic growth), and is currently atroll call of elite brands are racing to expand their presence in phase three, which she terms “the show-off stage”, whereChina. Whereas previously they would have focused on the status is the key focus. Phase four is reached when this trendmajor urban centres, such as Beijing and Shanghai, they are for displaying wealth becomes widespread, and phase five isincreasingly turning their attention to smaller cities, such as when luxury becomes a “way of life”.Shenyang, Jinan and Chengdu, as the market for luxury goodsexpands into previously unexploited parts of urban China.22
  • 25. “Wealthy Chinese want to telegraph in a simple, clear manner Although attempts are being made to curb the problem,that they have money,” she explains. “And luxury brands tell the counterfeiting also remains a major problem. “It is difficult toworld how well you’ve done and your status in society. The huge pinpoint particular strategies to fight counterfeiting since itschanges brought about by economic liberalisation have ramifications are so wide,” says Mr Fang, the owner of Pringle.reinforced the need for status validation.” “The good news is that Asian governments have come to realise how damaging it is even for their own economies in the long run and are starting to adhere to international controls and “Luxury brands tell the world how well standards. We are now starting to see much more attention inyou’ve done and your status in society. some markets. That said, unfortunately the problem is not solved yet.”The huge changes brought about by What will it take for luxury goods companies to succeed ineconomic liberalisation have reinforced China? Experts say a long-term perspective is essential. Recentthe need for status validation.” research by Boston Consulting Group suggested that only about one in ten overseas luxury brands were profitable in mainland China. Earlier this year, Nigel Luk, Cartier’s Managing Director forIndeed, in the Conference Board’s Global Luxury Market: Exploring China, revealed that the company is barely breaking even afterthe Mindset of Luxury Consumers in Seven Countries, China was 15 years on the mainland, despite being the best-selling luxurythe only country surveyed in which a majority of wealthy jewellery brand in the country.consumers agreed that luxury is defined by brand. China was alsoone of the countries identified in the report where individuals are Ms Chadha believes that it will take 15 to 20 years for China tomost likely to own “status” luxury goods. reach phase five, where a ‘culture of luxury’ is well-established, like in Japan. “Luxury brands need to continue to buildCurrently, success in China for luxury goods companies depends relationships with consumers over this time. Those who buildon being a “top” brand. The top ten brands in China for the ultra the right foundations will reap great rewards,” she says.wealthy, according to Hurun Report, are: BMW, Louis Vuitton,Mercedes-Benz, Rolex, Giorgio Armani, Ferrari, Rolls-Royce,Bentley, Cartier and Vacheron Constatin. Beyond this elite, lesserbrands may find it a struggle to win clients in China.As they pursue their growth strategies in the region, luxurycompanies in China also face a number of specific problems:intense competition, a proliferation of brands and luxury goodscompanies, together with spiralling costs, a shortage of skilledworkers, steep import duties and value added taxes, to name a few. 23
  • 26. Burj Al ArabAn icon of luxury in a dynamic cityCase studyVisitors to Dubai rapidly become accustomed to superlatives. Home to theworld’s largest shopping and entertainments complex, the world’s largestindoor ski slope and, in a few months’ time, the world’s tallest skyscraper,this is a city that wears its ambition to be the biggest and best on its sleeve.But however spectacular and extraordinary future projects in Dubai In the eight years that the hotel has been open, the customermight be, there is one structure that will undoubtedly remain its base has become more broadly international in line with themost iconic - the Burj Al Arab hotel, which is managed by the democratisation of wealth. “The highest proportion of guestsJumeirah Group. Built on a man-made island and connected to the comes from Europe, and primarily the UK,” says Luc Delaflosse,mainland by a short causeway, the Burj Al Arab is, at 321 metres General Manager of the Burj Al Arab, “but visitors from countriesabove sea level, the world’s tallest all-suites hotel and calls itself the such as China, the Middle East, the Commonwealth ofworld’s most luxurious. The ratio of staff to guests is eight to one Independent States, North America and others are rapidlyand each floor has its own reception and butler, who will carry out becoming more commonplace. Our customer demographiccheck-in in the privacy of the suite. tends to be centred around those countries for whom luxury is an important consideration.”To prevent an invasion of gawping tourists, non-residents canonly visit if they have booked at one of the hotel’s restaurants.Certain parts of the hotel, such as the pools and private beach,are entirely off limits to non-residents.24
  • 27. Keeping track of a changing customer demographic requires In billing itself as the world’s most luxurious hotel and awardingcareful monitoring and analysis of customer feedback to ensure itself seven stars, the Burj Al Arab certainly sets the bar forthat the expectations of a demanding clientele continue to be service high. To meet these exacting standards, the hotelmet. Mr Delaflosse says that the Burj Al Arab, and the Jumeirah invests heavily in training and management education. It hasGroup as a whole, uses this feedback to guide new innovations developed its own e-learning modules to provide guidance forand services at the hotel. He cites as an example a new customer-facing employees, and grooms future managers atauthentic Asian restaurant, called Junsui, which opened at the the Emirates Academy, a hotel management training collegeBurj Al Arab in November 2007. “Our decision to open this operated by the Jumeirah Group. The company also uses anrestaurant was guided in part by customer feedback that we intranet-based tool, called Voices, to solicit suggestions fromreceived, and in part because we recognise that Asia is becoming employees for improving the customer experience. “Thisan increasingly important market for us. We expect to see 100 generates around 5,000 suggestions a month,” says Mrper cent growth in Asian guests over the next two years.” Delaflosse, “of which we aim to implement around 20 per cent of ideas considered.”“Our customer demographic tends It is impossible not to be impressed by a first-time visit to theto be centred around those countries Burj Al Arab. The scale and innovation of the building itself, with its towering lobby and sail-like structure, along with an opulentfor whom luxury is an important interior that combines traditional Arabian elements with a futuristic sheen, are enough to impress even the most jadedconsideration.” consumer of luxury. “The biggest challenge for us is to deliver on our promise to guests each and every time,” says Mr Delaflosse. As one measure of success in that regard, he points to the hotel’s repeat occupancy rate, which runs at about 25 per cent on average, but can rise to 80 per cent at certain times of the year, such as during the Dubai World Cup. In the notoriously fickle world of luxury services, this is a statistic that the Jumeirah Group will certainly find reassuring. 25
  • 28. Brand extensionthe price of diversificationLuxury companies often use brand extension as a means to expand into newmarkets and reach new audiences. However, research by Mergen Reddy and NicTerblanche, which was published in a Harvard Business Review article entitled“How Not to Extend Your Luxury Brand”, shows how risky a strategy this can be.Pierre Cardin and Diane von Furstenberg are two brands that some luxury brands, such as Louis Vuitton, are valued for theirthe authors single out as having implemented unsuccessful lifestyle, or symbolic aspect. Symbolic brands can, they argue, bebrand extension strategies and seen revenues and profits successfully transferred into “nonadjacent” categories - so longplummet as a result. as they are positioned in line with their key ‘symbolic’ qualities.The authors argue that Diane von Furstenberg did not translate The authors cite Bulgari’s expansion into the luxury hotel marketwell into non-adjacent categories, such as eyewear, luggage and as a successful example of brand extension. Bulgari licensed itsjeans, and so the brand lost its premium as a result. They also name to the upscale hotel division of Marriott International todescribe how Pierre Cardin granted more than 800 licences to create a chain of luxury hotels. They attribute the success of thisgoods as unlikely as baseball caps and cigarettes, which had no venture because “customers bought into the concept becausefit with the original brand and thus devalued it. of the symbolic value of the Bulgari name, not because they thought Bulgari had engineering skills that it brought to bear onFor a brand to be transferred successfully to ‘nonadjacent’ the design and installation of Marriott’s bath towel holders.”categories, much depends upon its core value in the eyes ofconsumers, according to Reddy and Terblanche. They say that26
  • 29. ConnollyExclusivity in brand extensionCase studyConnolly, a luxury leather goods company whose famous hides covered theseats of Concorde, the Queen Elizabeth II yacht and luxury cars includingRolls-Royce and Aston Martin, is a quintessentially English brand.Founded in 1878, the business built a reputation as a prestigious "Wealthy individuals are not just looking for elegant and unusualtannery and finishers, known for the unique aroma and quality items, they are looking for exclusivity, value and quality in theof its upholstery leather. finish, packaging and service of goods, and a real sense of history, not a marketing trick," Ettedgui said.The influence of new owner Joseph Ettedgui, founder of theJoseph clothing label who bought the company in 1999, has “With the clothing, we don’t produce big quantities of everydiscreetly given Connolly a new, more fashionable direction and garment that we sell and we are not easy to find,” he said. “Weattracted a more international clientele without losing their long- find that our customers love the personal attention of ourstanding traditional British and European fans. garments being sold in only one store, not by lots of different retailers. The products that they buy and the way they buyEttedgui recognised that in particular Russians, Italians, Japanese them may change, but their attitude to quality and service willand Americans were attracted by the brand’s history and not. There is a 1930s poster advertising the motor races atprestige. He successfully branched out from its leather Goodwood, which I love. It says the right crowd and noupholstery heritage to making stylish luggage and classic crowding - something I hope we achieve at Connolly."clothing as well as rally jackets that sport the logo “Connolly GB”and quirky products such as a leather-bound travel espresso setand a Krug champagne case designed for yachts and private jets. “Connolly sells gifts for the person who has everything, we sell the“Connolly sells gifts for the person who has everything,”Ettedgui said. “We sell the products that other luxury goods products that other luxury goodscompanies haven’t thought of. For example, travelling now isvery serious and stressful so we sell products that make people’s companies haven’t thought of.”lives easier - and make you smile.” 27
  • 30. New luxury services and service models are emergingLuxury goods companies are not the only ones dealing with a new anddemanding business environment. The luxury services sector is also changingdramatically, with innovative new services and business models, which werealmost unheard of a decade ago, rapidly becoming well established. In thefuture, experts believe that luxury services will be one of the fastest-growingand profitable segments of the luxury goods industry.“Services are increasingly important for luxury consumers,” says The EIU/Barclays Wealth survey provides some interestingMr Pedraza. “It’s not that they are not interested in luxury insights into the demand for services among the wealthy. Theproducts but many have as many products as could possibly survey assessed past, present and future uses of a wide rangesatisfy them. You can only own so many houses. Wealthy of luxury services. Splitting services into ‘time substitute’consumers are looking for services and experiences that deliver services (cleaner, concierge, personal shopper, travel consultant,a great experience that they will remember forever. Another key chef, butler and property search agency) and ‘health andfactor here is that many wealthy consumers are increasingly grooming’ services (personal trainer, life coach, alternativetime-constrained.” health practitioner, dietician, beautician, personal stylist and personal image consultant), we find that the ‘time substitute’The Conference Board report Global Luxury Market: Exploring services are almost always most popular among the wealthiestthe Mindset of Luxury Consumers in Seven Countries points to a band of respondents (US$3 million plus in liquid assets). In theglobal trend whereby the wealthy are focusing less on material case of health and grooming services, the difference in extent ofthings and more on what it terms “how one experiences life, a usage is much less marked between the wealth bands.sense of happiness and satisfaction.”28
  • 31. Table 6 - Those who use ‘Time substitute’ services (US$) Assets: less Assets: 1m Assets: more than 1m (%) to 3m (%) than 3m (%) Cleaner 66 85 85 Personal concierge service 21 43 39 Personal shopper 19 50 54 Travel consultant 31 53 58 Property search agency 22 51 68 Chef 26 69 78 Butler 21 63 79Table 7 - Those who use ‘Health and grooming’ services (US$) Assets: less Assets: 1m Assets: more than 1m (%) to 3m (%) than 3m (%) Personal trainer 28 55 56 Life coach 28 53 30 Alternative health practitioner 32 50 49 Dietician 31 53 55 Beautician 49 67 51 Personal stylist 36 71 76 Personal image consultant 14 55 35The rising popularity of concierge service companies, which help Mr Pedraza from the Luxury Institute believes that this market isthe wealthy to manage their time more effectively, is a reflection evolving as it grows. “We are starting to see the emergence of aof these time constraints. Concierge companies have been new type of service provider - like Quincy Consulting in the US,around for some time, and the EIU/Barclays Wealth survey a mix of management consulting and lifestyle management -found that the demand for these services is likely to increase a kind of BCG or McKinsey for lifestyle management, who cansubstantially in the future. The survey also shows concierge look after a wealthy individual’s personal goals, as well as dealingservices tend to be most popular among the more wealthy. with their different business objectives.”Research conducted by Russ Prince and Hannah Shaw Grove on Among the ultra-wealthy, the exclusivity of a given service isthe ultra wealthy (with an average of almost US$90 million in highly important. In the mountains of Montana, US, the privateassets), and recently published in a book entitled The Sky is the ski and golf resort community of the Yellowstone Club is oneLimit, found that just over one-quarter of the ultra-wealthy such example. Membership is by invitation only and is only opensurveyed are already using concierge services with two-thirds to those with a minimum of US$3 million in liquid assets. Thelikely to do so over the next three years. “Concierge services are initial joining fee is US$250,000, and members must alsoproving very popular with the wealthy,” says Mr Prince. purchase a property in the complex, which costs between US$1 million and US$10 million. Members include Microsoft founder Bill Gates and former US Vice-President Dan Quayle. 29
  • 32. Candy & CandyDesigning a lifestyleCase studyAward-winning interior designers and development managers Candy & Candy,owned by brothers Christian and Nicholas Candy, has designed some of the mostsought after homes, private jets and even a yacht for clients. But for the ultra-wealthy clients they service, it goes beyond interior design. It is about gettinginside their lifestyles to create something that complements the way they live.For clients, luxury is about having private amenities at home, be it that can be adapted and remodelled for clients. For Candy &a home spa with beauty and hairdressing facilities or a Candy it is about pushing boundaries to create something unique.subterranean gym and swimming pool, according to NicholasCandy. Today’s ultra-luxury consumer often prefers the comfort of “It’s not just about bespoke, it’s also about creating a ‘wow’their own home, so the services they want are brought in-house factor - our clients want something that is totally ‘out there’ inand a trained hairdresser, beautician or masseuse comes to them. terms of design, something that no one else has, that’s impressive to their friends and business contacts” he said.“It’s important to know minute details; if they like to fold their “However, unlocking the ‘wow’ factor is hugely challenging,socks or not, if they hang their belts or roll them, if their kitchen since function is as important as form to these clients.”has to accommodate a left - or right-handed chef,” he said. “Weget to know our clients well and become so close that we often As international wealth has spread, so has Candy & Candy’srecommend everything to them, from bespoke luggage for their client base. They now cater to people across the world, includingprivate jets and helicopters, to arranging an exclusive party for UK, Monaco, Russia, Qatar and the US. The age of their clients100 people - a complete lifestyle.” has also broadened. As people make impressive returns at younger ages, clients now range from mid 20’s upwards. ButMany of their clients have a ‘been there and done that’ approach, interestingly, Candy points out clients are mainly first generationso it essential for Candy & Candy to always be one step ahead and wealthy, who tend to be more creative in how they spend theirconstantly adapt its operation to reflect this. Its designers travel assets. “Our clients demand an increasingly high level offrequently, sourcing the globe for new materials and innovations bespoke detail and exclusivity and are prepared to spend money creating their own ultimate luxury lifestyle,” Candy concludes.30
  • 33. As the number of wealthy individuals around the world increases, Some 12 per cent of the ultra wealthy surveyed for The Sky isa number of new business models, such as fractional ownership, the Limit are members of an exotic car fractional ownershipare starting to emerge. Fractional ownership is a service model club, and about double that number are planning to join such athat allows the wealthy to enjoy the benefits of an asset without club in the future. Members of such clubs cite several benefits,the need to own it outright; instead, customers buy a share in the such as being able to enjoy a variety of vehicles, and freedomasset. For example, the wealthy can now buy a fraction of a jet from the time constraints and prohibitive costs associated withwith companies such as NetJets, a super-yacht designed by Lord outright ownership.Foster through YachtPlus, or a share in an exotic car through theOtto Club. They can even buy a fraction of a vineyard. In a further evolution of this model, companies like Marquis Jets (see Case Studies, page 32) provide a prepaid card that entitles holders to a certain number of hours’ access to a jet. Here,As the number of wealthy individuals ownership of an asset is turned into a pure service.around the world increases, a number ofnew business models, such as fractionalownership, are starting to emerge.The growth in fractional ownership can be seen as part of anongoing process of the democratisation of wealth and luxury.It also reflects a trend whereby wealthy consumers are optingfor lifestyle experiences over ownership of expensive prestigeor positional assets. 31
  • 34. Marquis JetA new model for private air travelCase studyKenny Dichter fell in love with private aviation on his first private jet flight, a tripfrom LA to New York, while working in the entertainment industry. “We weredriven straight up to the jet, climbed aboard, sat down and took off a few minuteslater. I was amazed it was so simple, hassle-free and convenient - a million milesaway from the experience of normal commercial flights. I felt that if there was away to bring this service to a broader audience, it would be a huge success.”At the time, in the late 1990s, there were essentially three He soon set about turning this idea into reality. An experiencedprivate aviation options: you could buy a jet, charter a jet, or buy marketer, Mr Dichter felt comfortable dealing with thea share in a jet (called “fractional ownership”). With fractional marketing and customer service elements of the new businessownership, owners purchase a share in a jet, typically consisting concept. But he would need a partner with the assets andof a three to five year commitment with guaranteed access to infrastructure to provide the aviation service. Mr Dichter and his50 or more hours of flight time annually. Mr Dichter wanted to partners believed that NetJets, the market leader and pioneer intake it one step further. His idea was to allow people to access the fractional ownership arena, was the only company with thethe quality and consistency of fractional ownership but with infrastructure and financial backing to provide the right level ofsmaller blocks of time and no long-term commitment, rather like service they were seeking.buying a pre-paid phone card.32
  • 35. Unfortunately, NetJets was not initially interested. But Mr Dichter Mr Dichter believes Marquis Jet’s relationship with NetJets haspersisted and returned half a dozen times before Richard Santulli, been vital in helping the company to grow. “It is enormouslyNetJets Chairman and CEO, finally gave the green light to the idea. powerful to be able to tell our customers that we have NetJets handling all flight operations. NetJets’ commitment to safety andThe Marquis Jet Card programme, backed by NetJets, was security, and the consistency of the service, is first rate.”launched in February 2001. The card provided guaranteed access Interestingly, 10 to 15 per cent of Marquis Jet Card Ownersto the NetJets fleet 24 hours a day, 365 days a year, and access to eventually go on to become NetJets fractional owners.thousands of airports in North America and Europe. The initialpricing was US$109,900 (plus government fees and taxes) for 25hours on one of NetJets’ Citation V Ultra aircraft. Today, customers “Over the next three years, we aimcan purchase a Marquis Jet Card for 25 hours on nine different to become a billion-dollar business.”NetJets aircraft types, up to the Gulfstream 450, with pricing fromUS$119,900 to US$339,900, depending on the aircraft type. Marquis Jet is growing at 15 to 20 per cent a year and will achieve revenues in excess of US$700 million in 2007, accordingThe business took off quickly. By the end to Mr Dichter. “Over the next three years, we aim to become a billion-dollar business,” he says. “Once our card owners get usedof the first year, Marquis Jets had 273 card to private aviation, it’s very difficult to go back to mainstreamowners and, by the end of the second commercial aviation.”year, this had risen to 850.The business took off quickly. By the end of the first year,Marquis Jets had 273 card owners and, by the end of thesecond year, this had risen to 850. Much of Marquis Jet’s earlygrowth came from what Mr Dichter calls “concept fliers” -individuals that had never used private aviation before. 33
  • 36. Boucheron JewelleryBespoke is backCase studyFrédéric Boucheron opened his first jewellery shop in Paris in 1858. In 1893 hebecame the first jeweller to open his doors in the city’s Place Vendôme - inthe brightest shop in the square according to legend, all the better to show offits intricate jewellery designs.Boucheron went on to pioneer diamond engraving, and later By the end of the 20th century, the market for bespoke finebecame renowned for designing Art Nouveau nature jewellery jewellery was effectively moribund. Jean-Christophe Bedos,designs such as snakes and butterflies, birds and dragonflies. Chairman and Chief Executive Officer of Boucheron believes that this reflects the development of the luxury industry during thisBoucheron’s main offering is jewellery and watches from time. “Over the past 20 years, we have seen a lot ofUS$7,000 to US$70,000 (the product ranges’ prices are not fixed standardisation in the luxury industry. This approach was totallyscales and can change from collection and year). It presents a contradictory to the spirit and essence of luxury jewellery and waswide and varied range of new jewellery in two collections a year; a slap in the face for the old traditional luxury goods companies.”and there are singular additions from time to time. In recent years, however, there has been renewed interest inBoucheron is probably most famous for its fine jewellery (Haute bespoke fine jewellery as wealthy buyers seek unique andJoaillerie), which consists of unique jewellery pieces made from distinct jewellery pieces. “We are seeing customers crying outgold or precious stones of exceptional weight and quality. Priced for bespoke,” says Mr Bedos. “It’s a return to the humanfrom US$70,000 upwards, these collections are highly dimension. I also think many people are getting tired of the fast-aspirational one-offs with the same ethos as Haute Couture. moving consumer culture, where things change every season.Boucheron’s illustrious clients have included film stars and Bespoke jewellery has a different dimension of time and space.”royalty, from Greta Garbo to the Queen of Jordan.34
  • 37. This renewed interest in bespoke jewellery is also being driven by Just as Boucheron has been revitalising a highly traditional skill,a new kind of client. “The old cliché about the “nouveaux riche”- it also has one eye to the future in the form of a new websitejust doesn’t hold any water any more,” says Mr Bedos. “We are where customers will be able to purchase the company’s entirenow seeing a new, very well-educated wealthy clientele, many product offering. This is a bold step in an industry that haswealthy for the first time, who have a growing interest in typically been reluctant to embrace the internet. “Selling on thejewellery. These clients can be very discriminating - with a internet has been a taboo for the fine jewellery companies,” saysstrong sense of what they do and don’t want.” Mr Bedos. “Our online service allows our clients to engage with Boucheron whenever they want, however they want, in theBoucheron rarely receives a request for bespoke jewellery from a most private and intimate way.”first-time customer - such commissions usually grow from anexisting relationship. Occasionally, the jeweller will propose a At the Boucheron website, www.boucheron.com, clients canbespoke piece, but most often it is the clients that come to access the wide range of Boucheron jewellery, watches andBoucheron with the idea. The company aspires to provide the perfumes; they can also access a made-to-measure andultimate bespoke jewellery service: luxurious creations of master customised jewellery service. The made-to-measure optioncraftsmen and designers that at once reflect the client’s allows clients to create their unique ring online, selecting gemspersonal desires and “the spirit of their time.” that can be mixed and matched with the client’s preferred setting and precious metal band. Boucheron’s customised service allows clients to customise a unique Boucheron“In recent years, however, there has been chameleon broach online selecting and mixing an array ofrenewed interest in bespoke fine jewellery coloured precious gems (diamond, ruby, emerald or sapphire).as wealthy buyers seek unique and Boucheron will celebrate its 150th anniversary in 2008. Mr Bedos is optimistic about the future of the Boucheron onlinedistinct jewellery pieces.” service. “So far the reaction has been very good and exceeds expectations. Of course in some cases there is no substitute for“It is a most intimate and personal experience,” says Mr Bedos. the sensual sensation and feeling of the jewellery itself. Our“The Boucheron designer or master craftsman meets with the internet site can, however, be a first point of contact - offeringclient, often at their home. As the client shares his vision, our discretion and privacy, key services that our wealthy clients lookdesigner starts visualising the client’s dreams, creating a life for - and the beginning of a long relationship.”expression for a piece of jewellery. Sometimes we will send theclients more designs to consider later. Some clients like to followthe creation process closely; more often the client prefers only tosee the final creation.” 35
  • 38. Justerini & BrooksRoyal wine merchant goes internationalCase studyJusterini & Brooks has a pedigree that other wine merchants can only envy:established in 1749, it has supplied wine to the past eight consecutivemonarchs, and its current chairman is Clerk of the Royal Cellars - the individualwho is charged with selecting the wines that are drunk in Buckingham Palace.For most of its 258-year history, the client base of Justerini & With the economy booming in the countries of Asia-Pacific, theBrooks has been the British landed classes. But in the past ten development of an indigenous client base quickly followed.years, the nature of the wine merchant’s customers has According to Mr Delaney, Justerini’s clients in these countries arechanged dramatically. Although the firm continues to supply the at the top of the economic tree. “They are CEOs ofaristocracy, it now has a much broader demographic, with multinationals - very intelligent, successful people, and all we’re40 per cent of its customers based overseas. doing is building their cellars for them,” he says.The expansion began with the new breed of wealthy making their He adds that the new customers are just as knowledgeablemoney in the City of London. “There has been a huge explosion,” about wine as Justerini’s traditional client base. “There is asays Chadwick Delaney, the firm’s Sales Director. “A decade ago, preconception that these guys don’t know what they’re doing.we hardly did anything with people in the financial industries, and They might not have done 20 years ago, but they certainly donow we have one salesman purely focused on them.” now. Wine merchants listen to what our best customers are saying because these guys are drinking top wines probably on aThe expansion continued when some of those new clients moved more regular basis than we are.”abroad: “Lawyers and bankers got sent out to Hong Kong andSingapore, and they continued to build their cellars while out there.”36
  • 39. Justerini & Brooks now makes regular visits to its clients in Asia, Mr Delaney points to two other important areas of expansion foralthough it does not have offices there. “We are geared to look the firm. One is young people: traditionally, the average Justeriniafter big collectors,” says Mr Delaney. “We haven’t needed to have & Brooks customer has been in his 50s, but the introduction of aa permanent presence, because we send someone out regularly website a few years ago has drawn in many in their 30s andwith updates on whether they’ve just been to Bordeaux or a 40s. The other is Eastern Europe, and especially Russia wherevintage report, and that is what our customers out there want, there is an explosion of new oil and gas wealth. Future plansmuch more than having a daily presence in the shop.” include expansion into China, and also into India if the government abolishes what Mr Delaney describes as itsWhile the market expansion has not changed the firm’s “punitive” duty laws.relationship with its customers, Mr Delaney believes that it hashad an impact on suppliers. “The wine they are now making is At a time of increasing demand for luxury wines, greaterfar superior and also far more expensive than it was before,” he competition from newer wine merchants is inevitable. But Mrsays. “I think there is a growing realisation, certainly in Bordeaux, Delaney believes that Justerini’s age and pedigree gives it anthat their wines are demanded in ever increasing markets.” With advantage. “We have some ancient trading relationships withdemand rising for a highly scarce product, this has meant big the estates, and therefore get very big allocations,” he explains.increases in price for the top wines, with many traditionalbuyers being priced out of the market. In the space of a decade, Justerini & Brooks has successfully managed to become a global supplier while maintaining its traditional client base, the British aristocracy. But as Mr Delaney“In the space of a decade, Justerini & points out: “I think any company that survives over a quarter ofBrooks has successfully managed to a millennium has probably evolved many, many times.”become a global supplier whilemaintaining its traditional client base,the British aristocracy.” 37
  • 40. ConclusionIt is a simplistic view to consider that wealth is an absolute measure, referring onlyto money in the bank.First, wealth is relative: it depends on the environment in which afforded by wealth generation are, in part at least, offset by thean individual finds him or herself, and any consideration of what complexity of serving an increasingly diverse customer base.it means to be wealthy will be driven as much by comparisons Many are grappling with the challenge of capitalising on thesewith peers as by the number of zeroes on a bank statement. opportunities without diluting the values of their brand, and notSecond, other factors will usually be considered a component of all will emerge successful.wealth: time; health, happiness, and friendship may all beperceived to play a role, as without them, mere possession of The shift from goods to services in the broader economies ofmoney loses its lustre. developed countries is a trend that is mirrored in the world of luxury. Experience, exclusivity and time substitution are theAs wealth spreads around the world into a growing number of watchwords for these services, and any company that can meetdemographic groups, it is becoming more difficult to draw these needs in an innovative way is likely to have a bright future.general conclusions about the behaviour and expectations ofthe wealthy. For luxury goods companies, the opportunities38
  • 41. AppendixMethodologyWritten by the Economist Intelligence Unit (EIU) on behalf of US$3 million; a series of in-depth interviews with experts onBarclays Wealth, the report examines what it means to be wealth and luxury, and a number of case studies.wealthy today. Please note that in some cases percentages used in the reportIt is based on three main strands of research conducted by the may not equal 100, as survey participants were asked to selectEIU: a global survey of 790 individuals with investable assets three choices.ranging between at least US$20,000 and those with in excess ofSurvey demographicThe 790 survey respondents were recruited from EIU Net worth: 20 per cent between US$20,000 and US$500,000databases of individuals around the world. The survey was in liquid assets; 20 per cent between US$500,000 and US$1undertaken between January and September 2007 by the EIU. million; 30 per cent between US$1 million and US$2 million; 20 per cent have more than US$2 million in liquid assets; 10Geography: The highest number of respondents came from per cent have more than US$3 million in liquid assets.Hong Kong, Singapore, United Arab Emirates and UnitedStates (100 each). France, Italy, Portugal, South Africa, Spainand Switzerland were represented by between 30 and 50respondents each. An additional 116 respondents weregenerated from elsewhere in the world. 39
  • 42. Legal noteWhilst every effort has been taken to verify the accuracy of this This document is intended solely for informational purposes,information, neither The Economist Intelligence Unit Ltd. nor and is not intended to be a solicitation or offer, orBarclays Wealth can accept any responsibility or liability for recommendation to acquire or dispose of any investment or toreliance by any person on this report or any of the information, engage in any other transaction, or to provide any investmentopinions or conclusions set out in the report. advice or service. Any information within the report pertaining to individuals has been published with their express permission.Contact usFor more information or to be involved in the nextreport email barclayswealthinsights@barclays.comTelephone: 0800 851 851 or dial internationally on +44 (0) 141 352 3952www.barclayswealth.com40
  • 43. This item can be provided in Braille, large print or audio by calling 0800 400 100* (via Text Direct if appropriate).If outside the UK call +44 (0)1624 684 444* or order online via our website www.barclays.com*Calls may be recorded so that we can monitor the quality of our services and for security purposes. Calls made to0800 numbers are free if made from a UK landline. Other call costs may vary, please check with your telecoms provider.Lines are open from 8am to 6pm UK time Monday to Friday.Barclays Wealth is the wealth management division of Barclays and operates through Barclays Bank PLC and its subsidiaries.Barclays Bank PLC is registered in England and is authorized and regulated by the Financial Services Authority. Registered No. 1026167. Registered office: 1 Churchill Place, London E14 5HP.Copyright Barclays Wealth 2007. All rights reserved. 41