High Times End?
Now that so many chains and independents have invested in the high-end arena, some suggest the market is oversaturated. With an economy in flux and the face of the high-end market changing, could luxury be finally losing its luster?
By Erinn Morgan
Just how many consumers are willing to shell out their hard-earned disposable dollars on super-high-end eyewear? Up until now, the answer has been: a large percentage.
Years of healthy sales of frames ringing in at prices from the hundreds to the thousands have profited many high-end retailers—and caused countless other independents and chains to trade up assortments and open up stores catering to this market. But many wonder just how much is too much of a good thing.
"Who knew there was this much room in the market?" asks Nancy di Cosmo, president of Au Courant, a high-end chain of three stores with locations in New Jersey, Florida, and Michigan.
UBIQUITOUS LUXURY
The pressure in the high-end market seems to be coming from all directions. From within the industry, suppliers are entering the same market with their retail outlets: "We're your customer on a wholesale level—don't open up next door to us in the same mall," di Cosmo says.
While high-end chains open more locations and independents continue to add luxury lines to their assortments, competition is also coming from retailers outside the eyewear industry, squeezing everyone's profits. Says di Cosmo: "People like us in a big mall are not only competing against sunglass chains but also all the other people carrying sunwear like department stores. Every corner you turn, it is apparent that people have realized high-end eyewear has become a viable—and saleable—accessory."
| Luxury Consumer Spending Plunges |
| How are luxury consumers feeling these days? Not so positive, according to research from Unity Marketing, which showed a drop in the spending of the affluent on luxury goods and services by 21 percent from an average of $15,283 in the second quarter to $12,142. This is the steepest decline since the fourth quarter of 2004. In addition, luxury consumers' confidence fell markedly in the third quarter, as measured by Unity Marketing's Luxury Consumption Index (an October survey of over 1,000 luxury consumers with an average income of $150,200 and age of 43.6 years). The index dipped to 87.3 points, its lowest point since 2004. "There are myriad reasons for the drop in luxury consumer confidence," says Thomas Bodenberg, Unity Marketing's economic forecaster. "The increase in foreclosures due to the correction in the mortgage markets; the dip in value of funds financed by mortgage-based securities; the lag in luxury home building; oil approaching $100 per barrel. The result is an ennui that hampers the purchase of luxury goods and services-the outlook for the Christmas season is clouded at best." The bottom line is that luxury consumers are cutting their spending, particularly on personal luxuries like fashion accessories, jewelry, and home décor. |
| A New Player |
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| Enters the Game Jon Gruen's first optical shop was opened in Manhattan in 1971 and his high-end concept flourished, resulting in a small chain of eight stores. He sold the business to HSD Partners in 2000, but recently Gruen decided it was time to get back in the business. He, along with partner Harvey Ross, the founder and former chairman of Viva International Group, recently purchased Grueneyes from HSD. This move signals a reentry into the optical market for both Gruen and Ross; both had been focusing on other businesses. As such, the two have big plans for the future of this small chain. "Gruen has a good name in New York," says Ross. "And we have a lot of passion for this business—we are out there looking to grow it. We want to be the major luxury chain in New York metro area. And if there are other opportunities in the country or internationally, we will look at those as well." A focus on luxury product and service will help differentiate this optical chain, says Ross, who observes that economy and market factors will not affect the high end. "I think high end is always good: even when things are difficult, the high end always seems to thrive," he says. "Whether you are in the luxury, middle, or value market, you just need to be disciplined within that business," says Ross. "You can't be everything to everybody." |
A crowded retail marketplace and undulating economy add up to questionable times for the luxury market. For second quarter 2007, Unity Marketing, a consulting firm focusing on luxury marketers, noted a decline in its luxury consumption index.
"A lot of people thought the luxury market was immune to economic upheavals that occur, but I think that's not quite right," says Pam Danziger, president of Unity Marketing, a marketing consulting firm for luxury marketers, and author of Let Them Eat Cake: Marketing Luxury to the Masses as well as the Classes.
Major influences for the potential downturn include the decline of the real estate market, which has sent shockwaves through the financial marketplace.
"The perception that their houses are worth less and their stock portfolios are going down have a negative effect on people's attitudes," Danziger adds.
PROFILES IN LUXURY
But it's not all bad news. Many suggest the overall luxury market is growing and supportive.
According to The Luxury Marketing Council, the luxury goods industry (not including travel, real estate, and automotive) rings up about $160 billion a year with no signs of flagging.
"It is growing in excess of 10 percent a year," says Richard Baker of the council. "It could be growing as fast as double the rest of the retail industry."
Greg Furman, the Luxury Marketing Council's founder and president, points to the U.S.-specific numbers in a recently released book, Richistan: A Journey Through the American Wealth Boom and the Lives of the New Rich by Dana Frank, as evidence.
■ LOWER RICHISTAN. Frank suggests that "Lower Richistan," people who have a household net worth of $1 to $10 million, is populated by 7.5 million households in the U.S.
"This group is more susceptible to turns in market," says Furman. "Those people do momentarily withdraw their spending, but after their guilt passes, they enter right back in. They just don't stay out of market for long."
■ MIDDLE RICHISTAN. Those living in "Middle Richistan" have a household with a net worth of $10 to $100 million—there are, according to Frank, two million of these households in the U.S.
■ UPPER RICHISTAN. Frank also concludes that people in "Upper Richistan," with a household net worth of $100 million to $1 billion, cannot be tracked because they conceal their wealth (he estimates their numbers are in the thousands).
| Jumping on the Brand Wagon |
| Remember the days when unbranded, unusual, and unorthodox product ruled the luxury eyewear roost? "Over half our store was dedicated to high-end, boutique lines and, while that aficionado still exists, you can just about count their numbers on one hand," says Nancy di Cosmo, president of Au Courant, a high-end chain with locations in New Jersey, Florida, and Michigan. "It really is brands that are selling. We finally said, 'OK, we've spent countless amounts of money on trips and thousands of dollars bringing in new product from Europe from the shows. We like it, it's innovative, and nobody else has it. But guess what? Not too many people want it." In the general luxury market, brands continue to be extremely important. But savvy customers are increasingly moving away from those brands that do not back up their goods with quality. "Brand will get them in the door, but if the quality and value of the product—or the level of customer service—is not there, the brand is not just going to cut it," says Greg Furman, The Luxury Marketing Council's founder and president. |
| Mass Marketing Luxe |
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| A recently released book, Deluxe: How Luxury Lost its Luster(Penguin Press HC, 2007), takes a hard look at the business of luxury. In this tome, author Dana Thomas says the luxury industry "has sacrificed its integrity, undermined its products, tarnished its history and hoodwinked its consumers. In order to make luxury 'accessible,' tycoons have stripped away all that has made it special." Truth or fiction? Let the reader decide. In the meantime, here are some spicy statistics gleaned from the pages of Deluxe.
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Many optical retailers report they are still reaping the benefits of a wealthy society. "For me, the luxury eyewear business is good and sales are increasing," says Scott Mischel, owner of Marc Michel Eyewear Studio in Los Angeles.
His price range of $280 to $1,500 illustrates the solidity of his market. "The heart of my business is $400 to $500," he says. "This seems to be the comfort zone for high-end designer products. Anything above the $600, there is a pause of consideration."
At Advanced Vision Care, a practice that shifted its assortment to high end when it moved to a new space nearly 10 years ago, the focus is still a success. "Our range is about $125 to $600, and it works for us," says Nicki Harrison, practice manager.
In the end, the success of luxury optical will depend on each ECP, notes Mischel: "I do see luxury waning in other categories because of quality issues. But high-end eyewear can stay strong if you are merchandising it right. There might be a saturation point. But what will separate the people who just put high end in from the high-end boutique is customer service." EB
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