Diary: Death in Venice

For an industry encased in a golden bubble of wealth such as it has never known before (everyone agrees on this), with old markets minting new money, and new markets emerging faster then old currencies disappear, the luxury industry - at least those at the FT’s third annual Business of Luxury conference – seems weirdly pessimistic. Thomas Mann’s ghost would feel right at home.

“Imagine,” said Ralph Toledano, chief executive of Chloe, in his keynote address, “a man who gained three times his body weight in a year. What would happen to him? He would die.” Since Mr Toledano was supposedly discussing the spectacular growth of Chloe – 40 per cent a year for the last five years – it was a somewhat surprising metaphor. “We survived,” he continued, “but it was very painful.” Such is the price of success, apparently, when it demands a total rethink of back office and personnel.

And he wasn’t the only person focused on the downside of the current upswing. Francois Curiel, chairman of Christie’s Europe, also mentioned the hurt caused when the auction house decided to reorganise itself from a regional structure to one based on product categories to exploit its global position. It took, he said, ten years for the company to complete the evolution, and though the change catapulted Christie’s from a 45 per cent share of the auction market to a 54 per cent share, there was “a lot of pain; a lot of complication.”

Meanwhile, “we are in the middle of the road,” said Mulberry COO Lisa Montague, referring to her brand’s move from local to global, “and we need to get to the other side before the truck hits us.”

She was talking about the steep learning curve generated by Mulberry’s expansion into the US, and the amount of consumer education required (it surprised them) to win new customers over, but what is it with these people? Danger seems to lie around the corner of every luxury flagship. Even Stanislas de Quercize, chief executive of Van Cleef & Arpels, was concerned; speaking of the fact that 90 per cent of the jewellery market was sales of unbranded pieces, meaning he and his colleagues at Cartier, Tiffany, Gucci and so on had only accessed 10 per cent of the customer base, he noted, “it’s a crime.”

The economists didn’t help. Stephen Roach, managing director and chief economist of Morgan Stanley, said he thought the single biggest threat to the current luxury market conditions was American trade sanctions against their largest lender: China. “I’ve been to testify before congress three times in the last three months, and I’m telling you, that train has just about left the station,” he said. “I’d give it 60 per cent probability, and it’s a tragic mistake. The result would be a sharp downgrade in the dollar.” Given that the American consumer is still seen as one of the pillars of the luxury sales forecasts, this is no small doomsday prediction.

Martin Wolf, the FT’s chief economist, and Mark Lee, chief executive of Gucci, however, agreed: even worse would be “another terrorist attack like 9/11; the psychological effects would freeze everything,” according to Mr Lee. And his company has been growing at almost double the rate they predicted three years ago.

Apparently, the best way to stay at the top is to assume it is all going to be taken away from you sometime soon.

Salvation

But can the baby steps luxury is taking into the ethical and green sphere help make hay while the consumer (and Venetian) sun is shining? “Luxury has always had an uncomfortable relationship with charity; the first is essentially unnecessary, and helping people is very necessary. But just because it can seem gimmicky doesn’t mean you shouldn’t do it; everything we do is gimmicky, to a certain extent.” This is John Hooks, Deputy Managing Director of the Armani Group, explaining why Armani decided to get involved with (Project) Red, Bono’s initiative to fight AIDS and tuberculosis in Africa. Still, altruism was only a part of it, he said. “It was propelled by a business interest. We were aware of a consumer interest, and we followed that.”

“Never underestimate the luxury consumer,” said Thierry Dombreval, COO of Toyota Motor Europe, whose Lexus Hybrid car represents, he said, 30 per cent of that brand’s sales in Europe. “They are not just about showing off. They understand the tangible benefits of a hybrid car, in terms of emission controls, and the intangibles, in terms of being seen as an early adopter.”

“Yes, but the consumer who buys a Lexus hybrid and bio-cosmetics also wears a fur coat,” said Mylene Borrel, Printemps’ head of buying for luxury goods, sceptically.

“I could not care less,” responded Mr Dombreval.

So maybe we’re not there yet. JW Kaempfer, chairman of McArthur Glen, has another idea anyway: “People like buying in a place that makes them feel good,” he said. “Where do museums make a lot of their money? In the shop.” Culture, he said, could be a major driver for luxury consumers – and an easier sell then ethics.

Mr Hooks shrugged; we’re no angels was the implication.