Luxury re-defined

Gilt’s first acquisition of Bergine, a San Francisco based company, stirred quite a discussion within the e-commerce sector, particularly as it pertains to the luxury goods and services industry. The best place to get the specifics of the deal (which, after all, was between two private companies so don’t expect to find any numbers) is in Geoffrey Fowler’s WSJ Blog of October 26, 2010 (http://blogs.wsj.com/digits/2010/10/26/gilt-makes-its-first-acquisition-bergine/). Mr. Fowler thoroughly covers what has grown to be a very competitive landscape of online discount retailers on luxury deals, for example discounts on five-star restaurants, wedding planning consultations, or high-end flower design. The deals have an expiration date, are good for one use only (this could however include a package of services), and allow the masses or financially mindful to partake in the luxury lifestyle industry.

All this is very nice. It seems however that the idea of luxury for such type of operation is a fleeting one. While Gilt City (which launched in New York last May and quickly expanded to Boston, Chicago, Miami, and Los Angeles) is gaining market share against competitor Groupon, (which controls a considerable percentage of the market and has been growing thanks to a strategy of determined acquisitions of small, local businesses that keep cropping up), the question of how is luxury doing online remains unanswered.

Technology has changed the way people think and has contributed to educating them on various topics and industries. The masses are suddenly aware of the unique and highly exclusive restaurant where a dinner for two may easily cost their weekly wages, if not more. They are able to taste that extravagant dinner once thanks to the online discounts (purchased on Gilt City or Groupon). Do they become permanent clients at this establishment? Probably not, but according to the analytics of traffic, sales, and return customers, one who has bought a discount dinner may be on the look out for another discount at the same restaurant. The restaurant, on the other hand, remains open thanks to the people who pay full-price for their meal. Most importantly, the restaurant maintains its status within the luxury world because it is not accessible to everyone.

I find the current developments within the particular segment of the online luxury market very interesting. The phenomenon will certainly continue for a few years and until all regional markets are covered. But once this has been achieved, it will also spur a leap in prices within the luxury lifestyle sector. This is because our culture prizes excess. The people who can own excess demand exclusivity and those who admire excess desire both the product and the privilege of exclusivity.  This is how human psychology operates.

Consequently, I cannot agree with the generalizations online retailers of discounted luxury goods project. Who do we group under the “online luxury” label? More importantly, which product and service do we specifically distinguish and denote as luxury? While the online market will be consolidated in a greater degree, so will the luxury lifestyle sector. When cards are reshuffled, they are reshuffled in all directions, albeit not at the same time. The more prolific the online discount deals on the so-called luxury goods, the greater the spike in the prices of exclusive products. This is how the economy works, either on paper or online.

Private Initiatives in a post-2008 World

            When private equity firm NRDC (a firm that specializes in real estate with investments in retail, office, and warehouse projects) acquired Lord & Taylor in March of 2006 for a reported $1.2 billion, the retail world made a bet that the oldest department store was dying a slow death. NRDC targeted the failing business for its prime real estate on Manhattan’s 5^th Avenue and 39^th Street.

            Four years forward, and under the leadership of retail executive and Stern alum, Brendan Hoffman, who already had over 15 years of executive experience with Neiman Marcus when he accepted the position of CEO at Lord & Taylor, the famed department store is thriving.  This discussion is particularly interesting today as a reminder of a topic we have touched upon before in one of the earlier entries. Namely, retail, an industry that has been shunned by most private equity firms in the past and certainly during the latest economic boom, is suddenly very trendy (pun intended). We have been watching major M & A taking place over the summer in Europe. Closer to home, we have been witnessing major restructuring of businesses here in the US, not to omit NRDC’s decision to acquire Fortunoff, the home-furnishings and jewelry retailer that finally filed for Chapter 11 bankruptcy and was successfully sold at auction. What retail does therefore is that it stirs the market. Even if consumer confidence is still low, deals do take place at a macro level and in between firms with mergers and acquisitions, consolidations, and successful turnarounds such as the one Lord & Taylor had.

            An industry that has been scoffed as too trivial and too messy has been elevated to an exciting playing field for major investors. This is happening because failure creates opportunity. (We have also discussed how failed banks have created opportunities for major investors who are in the process of assembling substantial portfolios of regional banks). It is also happening because digital technology has allowed retail to branch out to Web 2.0 and reconnect with its customers. This was particularly pertinent in Lord & Taylor’s revival. Having flirted with expensive brands, the department store was not good enough to attract the higher-end partners it sought and it became too expensive for its core customer. It had managed with this ill-advised strategy to alienate its core customer at all levels. The new owner brought the new CEO, who seems to be aligning his strategy for the reinvigoration of Lord & Taylor’s brand as a “House of National Brands” with the latest in infrastructure.

            Infrastructure today is a more complex term than when it was originally coined. It encompasses the physical real estate of the brand. The building is in fact undergoing major architectural work that showcases customer friendly design.  The renovation has gained support and enthusiasm from Lord & Taylor’s partners, who collaboratively began work at the department store’s ground floor and cosmetics counters that had been unchanged since the early 1970s. The “face-lift” is steadily moving to the upper floors where both space and windows are now open.  The latter are literally opening up to 5^th Avenue allowing natural light in—after having been blocked for almost a century. Infrastructure goes beyond the physical character of the building and includes the brand’s digital image, communications, mobile applications and everything that allows the brand to maintain a presence in a very competitive market. To extrapolate, I will note here that infrastructure may also mean the people who work for a business especially if the business would like to develop exceptional customer service—which today is key for success—and a coherent brand image aligned with the firm’s strategy for long-term success. This is where Lord & Taylor is at the helm of the retail industry with its initiative to re-institute Executive Training Programs through which to cultivate the next generation of leaders in the industry.

            Lord & Taylor’s current CEO, Brendan Hoffman, had participated in the brand’s Executive Training Program when he began his career and recognizes today the value of that type of training. He also recognizes his and the industry’s responsibility to develop their executives and therefore to implement training programs, a feeling that the CEOs of the C-Suite (entry of October 24) shared with him. Once again, private companies seem to be at the forefront of innovation in a post-2008 world.

C-Suite Retail Spotlight

“Unwrapping the Business of Brand” was the theme of this year’s Annual Luxury & Retail Conference organized at the NYU Stern School of Business last Friday, October 22, 2010 (Chandra Chantim & Jalaine Johnson, Vice Presidents of Conference; Becky Hyman & Jennifer Smalheiser, Co-Presidents). In its fourth year, Friday’s conference focused on how companies differentiate themselves from the competition, how they use digital initiatives to engage the client, and how they develop strategies for long-term growth.

While the welcome remarks and keynotes by Paul James, Global Brand Leader, St. Regis & The Luxury Collection and Brendan Hoffman, President and CEO, Lord & Taylor as well as the closing keynote by Mike Indursky, President, Bliss imparted valuable knowledge on how these companies have been reinventing themselves in the last 10 years and through two consecutive economic recessions, I would like to review the C-Suite Panel Discussion, moderated by Jennifer Hyman, CEO, Rent the Runway. The panelists:  Andrew Oshrin, CEO, Milly; Heather Pech, CEO, Nanette Lepore; and Susan Sokol, President and COO, J. Mendel share an industry and a passion but they also share the fact that they work for private companies that have been operating in a very competitive market within which they have maintained their independence and marked success.

Each company has a unique history and fashion approach. J. Mendel was founded in 1870 by Joseph Breitman, furrier to the Russian aristocracy and remains family-owned today with Gill Mendel, of its sixth generation, at the helm. Nanette Lepore was launched in 1992 and maintains a prominent place within the luxury sector with witty and colorful designs.  The company, headquartered in Manhattan’s garment district, has also branched out into shoes and fragrance.  The youngest of the three, Milly, entered the market in 2000, when designer Michelle Smith decided to turn her experience from her career with Parisian luxury powerhouses Hermès and Dior into a feminine label with a New York point of view. Three distinctly different companies in terms of size, longevity, and country of origin, these independent houses have become major players in the business of luxury. Their executives confirmed that this place was achieved by understanding what luxury really means. I have summarized here my insights on the discussion and I hope they are illuminating to the players or those who would like to enter the field.

a.                    Luxury is about service: The higher up the company at the higher end of the spectrum within luxury, the greater the customer expectations for unrivaled service, attention to detail, and openness. Young designers often confuse the monetary value of their product (the cost of furs, gems, or rare textiles and handwork) with what truly creates value in luxury, which is service.

b.                    Luxury is about agility: While we tend to identify the most prominent of luxury brands with stability, perseverance, and continuity of tradition, luxury brands maintain their spot when they are able to incorporate customer feedback quickly. The product may not reflect any immediate changes but the process of producing it and delivering to the customer will.

c.                    Luxury is about authenticity: What is the story that differentiates one luxury brand from the other? The product will not stand the market’s ups and downs and the customers’ capricious and at times erratic behavior unless the story behind the brand is consistent and whole.

“Unwrapping” the business of brand is an important chapter in business practice and education and pertains both to the financial analysis of what each brand means (in terms of product value and brand value) and to the strategic analysis that needs to take place periodically to assess and evaluate each brand’s trajectory within the specific segment of the market. When entrepreneurs wish to add something to the market, they need to determine first whether there is a space in the marketplace for this product and if there is indeed, whether the market place will support the product. This last piece of advice came from all three panelists, all very accomplished within their field and truly inspired in leading their companies through recessions, technological and generational changes. The spotlight is on Andrew Oshrin, Heather Pech, Susan Sokol, and Jennifer Hyman for having enriched the audience’s experience of the Annual Luxury & Retail Conference.

The Virtues of Failure: Arianna Huffington at GoToMeeting Panel Discussion on Social Networking

“Failure is not a problem,” said Huffington who joined a panel of four online experts today at the Tribeca Rooftop In New York City.  The event, impeccably organized by CITRIX online (CITRIX is the company that launched GoToMeeting, GoToAssit, and GoToPC) consisted of a series of presentations on social networking and online tools used for work and how these have transformed the world of business. Arianna Huffington, co-founder and editor-in-chief of The Huffington Post, was joined by Aline Wolff, Clinical Associate Professor of Management Communication at NYU, Brett Caine, President of CITRIX online, TJ Keitt, Analyst for Forrester Research, and Chris Brogan, President of Human Business Works, who was the panel moderator.

Failure is not a problem, not an issue, not a concern. In fact, failure is the trigger that makes our inner wisdom pick up and lead us through change. It happened to Huffington, the entrepreneur admitted, three years ago when she fainted from exhaustion and broke her cheekbone as her head hit her desk. This interruption came as a shock to an excessively driven workaholic who, after a long career in other types of media, decided to begin blogging, a sphere reserved for the very young at the time. Five years later, the Huffington Post drives millions of readers to its daily blog and engages them in exciting discussions on a variety of issues.

In a world where hyper-mobility (constant connectivity, social networking, abundance of new devices and applications) has created immobility in people who have forgotten to look up, away from their smart phones and into the world, Huffington has learned to differentiate people in two categories: on one hand the smart ones who are always connected and cool and on the other the wise, who are able to unplug, disconnect as to allow themselves to look at life from a distance. This “disconnect” is what gives people the ability to gain a “bird’s eye view” of their problems and is a particularly handy trick for the entrepreneur who risks being consumed by the trivial and the pedantic in a non-stop effort to be present online.

In Brogan’s words, “stop snacking on apps” and allow yourself the luxury of real-time experiences that will enable you to sharpen your skills, develop a clearly defined perspective on social networking tools and their usage, and evolve as a human being who, whether online or face-to-face, is striving to build relationships of trust. For those who are afraid of missing a beat, take Brett Caine’s reassuring assertion: when Iceland’s Eyjafjallajokull volcano erupted in April of 2010 online GoToMeetings doubled in number in Europe.

The volcano eruption was a “natural” type of failure and out of our control. But we still get the point. Failure is only a hint that the chosen direction is not as productive as once thought. Most probably growth potential is still present and will spring up elsewhere. Observe the valleys of your work and of your own physical strength as an indicator that something is not working properly. Immediately unplug. Introspect. Nap. Repeat if necessary. Pick up and go off to where your inner wisdom tells you. That’s the secret of personal success propelled by failure. 

New York’s Business: Mentorship

Today, I met with Tim Gunn, Chief Creative Officer for Liz Claiborne Inc. As the typical New York story goes, I know someone with whom I discussed a project of mine over cocktails. That someone is Tim Gunn’s friend and when he heard of my project thought that Tim would have good advice for me.  Serendipity therefore combined with generosity on my friend’s part who made the introduction led me to Tim Gunn’s office at Liz Claiborne Inc.’s headquarters on 40^th Street and Broadway, in the outskirts of New York’s legendary garment district.

Mr. Gunn’s role at Liz Claiborne is to attract, retain, and develop creative talent that will keep propelling the company’s portfolio of brands forward. I am mentioning this because this is a role for someone who, in addition to understanding the industry, brand, product and design process, is also a facilitator, one that can keep the wheel turning even if one or more of the spikes (i.e. designers) break. His reality is to keep in mind the entire operations plan of this creative company and make adjustments daily and until everyone’s efforts deliver the product: smarter, better, more sellable. His role therefore is defined by a thorough understanding of creative processes topped with the resolute decisiveness of a businessman. This is what the public envisions a creative director to do.

What I experienced today expands beyond that narrow scope of the aforementioned definition. What Tim Gunn possesses is a set of highly advanced critical skills. In the most productive twenty minutes of my life, he took my project apart because I admitted to him I felt stuck. He pointed out to me which areas made me feel stuck, he put the pieces back together in a new sequence that makes much more sense, and even elaborated on how he could see the project evolving in one or five years’ time. I call this engineering, a way of thinking that I have used to comment on others’ projects but I was unable to use on my own. I also call it dexterity of the sort academics have. Academics approach questions from a theoretical perspective, solving problems on the conceptual level first and then zooming in to the details. (Tim Gunn spent a number of years at the Parsons School of Design as the Director of Program Development).

In addition to having left with a new blueprint for my project, I observed great leadership skills first-hand from someone who listened to what I had to say, understood the relationships between the various tasks (or sub-projects), and offered direction, suggestions, and inspiration for me to move forward. That’s the type of mentorship everyone wishes to have in business. I recognize it as one instance of kindness and generosity that can be found in New York.