Interesting article written by Jessica Fellowes
October 17, 2008
Telegraph.co.uk
But there’s one market that is showing remarkable resilience: luxury. Private jets, diamonds, art, antiques, Rolls-Royces and even Savile Row suits are all still selling, showing signs of bullishness in a financially fragile world.
Could luxury be the one remaining boom in the bust?
If you wanted to judge the optimism of luxury consumers this week, you couldn’t have done much better than attend Thursday night’s London launch party of The Wall Street Journal’s new magazine, WSJ, dripping with adverts for brands such as Chanel, Dior and Armani.
The Royal Academy of Arts was buzzing with the capital’s glitterati. Erin O’Connor, supermodel and face of M&S, was there, draped in designer labels – Moschino jacket, Dries Van Noten shirt, Smythson bag. “I always buy luxury when it’s purposeful and well thought out,” she says. And it’s this attitude that may explain the surprising strength of the luxury market at a time when, in many households, even the bare necessities are being cut back.
The art market is certainly confident. Damien Hirst’s sale last month surprised everyone by breaking all his previous records: he walked away from Sotheby’s with £111 million, on the same day [Sept 15] that traders at Lehman Brothers were losing more – much more.
And although at the opening day of the annual Frieze Art Fair in London’s Regent’s Park this week there wasn’t the usual feeding frenzy, Charles Dupplin, art market expert at Hiscox Insurance, says: “There are trades going on. Everyone is there, they’re just sitting on their hands a bit.”
Matthew Paton of Christie’s has his own explanation for robust art sales in a downturn: “Serious collectors might wait 40 years for the thing they want to come up – so they’ll buy at any time. There are lots of dealers in London this week for Frieze, and we’re expecting our sales this weekend to go well. But these are people who buy with an eye and a heart, not just for investment.”
Cartier had a successful week, launching 70 new pieces at the Paris Biennale, and reports that £1 million necklaces are still selling. Christie’s also held a sale of jewels on Wednesday night in New York where most pieces went below the estimate but still at healthy prices (£1.5million for a pear-shaped purplish-pink ring).
However, it is worth noting that it is not just British buyers who are delving into their pockets: four out of the five top lots went to Middle Eastern clients. No wonder Christie’s current excitement is the masterpiece exhibition it is shortly to hold in Abu Dhabi.
Mark Law, chairman of Partridge Fine Art, says: “We’re selling to Americans now the dollar is stronger. Only last week I sold a rosewood inlaid table for £70,000. People are definitely still buying – but they’re asking serious questions before they commit.”
Foreign investment could well be the reason the British luxury market is bearing up. “Business is amazing,” says Rodney Turner, director of the Rolls-Royce showroom in Berkeley Square. “We’re selling to Nigerians, the Middle East and Asian clients. But our UK customers are holding back.”
John Guy, retail and luxury goods analyst at MF Global, a brokerage firm, says: “It’s an international market now for luxury commodities and you have to measure it in those terms.
Demand falls away in Britain because conspicuous consumption doesn’t go down too well, whereas in China and Russia, showing off one’s wealth is a sign of power. Look at the first week of October, where sales at LVMH [owners of Louis Vuitton and Moët Hennessy champagne] were up 12 per cent. That’s an acceleration.
But it’s a very difficult market in terms of where demand goes. The barriers aren’t closed to tourism now in the way they were after 9/11, and currency is likely to offset softer underlying demand to a degree in 2009.” So, at an international level, a brand can post good results because of frequent travel, strong currencies and emerging markets (such as India and China). But if it is based only in Britain, can it remain as strong?
Burberry, which posted 13 per cent sales increases in the six months to September 30, showed that it was its Spanish, American and Japanese markets which were faltering, while Britain remained “solid”.
However, contradicting the argument that you need international bases to survive, there are glimmers of hope at a more local level. Patrick Grant, owner of Savile Row tailors Norton & Sons, says: “Orders to the end of the third quarter are up 54 per cent, and nearly three-quarters of our sales are from UK clients. We’re lucky to have a very consistent level of repeat customers, plus our clothes are investments.”
Other smaller luxury brands, such as Holland & Holland, makers of guns with prices starting at £5,000, say they are still continuing to sell well. There is even one shop in the upmarket mall Royal Exchange, in the City, which claims that people are buying as much as before; the only difference is that shoppers are requesting that their purchases are not put in the branded bags: they don’t want to show that they have cash to splash.
James Ogilvy, chief executive of Luxury Briefing, which produces a monthly intelligence report on the luxury industry, says: “We’re in the middle of the maelstrom now, which affects confidence, but luxury is a long-term business for the brands involved. The customer base is broader than it was with some brands having more than 200 stores worldwide.
“Emerging markets, too, may counteract the stagnation of some of the more mature markets. But people who are used to luxury will buy carefully and ensure better value for their money.”
It is this flight to quality by consumers that provides the key to understanding why luxury brands will survive this recession, particularly those with heritage and a strong identity.
None the less, launching a private jet company in the height of the downturn might seem like madness. But Chris Moody’s Fractional Jets Europe is designed for the times.
“People have still got to do business but they need to work smarter than ever before,” says Moody, who brings together the sellers of fractional shares in a jet with those who want to buy.
Fractional ownership – we knew it as ''timeshares’’ in the Eighties – is currently providing buoyancy in the luxury market. Clients are splitting the costs of yachts, jets or holiday villas with their fellow rich elite. There is also now a host of companies simply reselling empty seats on pre-booked private jet flights, including privatejetshare.com, LunaJets, NetJets, lastminutejet.com to name but a few.
But while private jets help people do business, what of the ultra-luxury market that is the playground of the super rich? Philippe Lamblin, chief executive of PrivatSea, a membership club for super yachts, is less ebullient: “People just aren’t buying into the big toys. We had 60 yachts moored in St Tropez last year – now there are just 30.”
Recessions aren’t always the worst time to launch a business, though.
Just a few months after the great stock market crash of 1929, which marked the onset of the American Depression, Henry Luce founded Fortune magazine. Daringly, it was printed on good quality paper and cost a dollar an issue at a time when most publications cost around five cents. Sometimes bucking the trend is a good way to get noticed: plus, as is clear now, people will put their trust in good quality when times are tough.
Chris Moody makes a pertinent point: “For every one person losing millions, there’s someone on the other side of the deal making a fortune. Look at Sir Philip Green, who went to Reykjavik this week to look into buying their retail group Baugur.”
Taking over Baugur’s debts would give Green huge control of the public purse – it owns shares in Jane Norman, Karen Millen, French Connection and Oasis. So perhaps we should give the last word to the Top Shop magnate and high street king whom I met at the WSJ party. What does he, one of the few men thought to be immune to economic hardship, think of the recession?
Sir Philip shrugged. “It’s going to get to all of us, innit?”
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