bw insights volume 4 the true value of wealth (3)

7/31/2019 BW Insights Volume 4 the True Value of Wealth (3)

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Barclays Wealth, the UK's leading wealth manager with 126.8 billion client assets globally at 30 June 2007, serves affluent, high

net worth and intermediary clients worldwide. It provides international and private banking, fiduciary services, investment

management 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 international

presence in Europe, the USA, Africa and Asia. It is one of the largest financial services companies in the world by market

capitalisation. With over 300 years of history and expertise in banking, Barclays operates in over 50 countries and employs over

127,000 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 Barclays Wealth

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

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. We look 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. We also look at how the

wealthy 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 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.

About this report


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At Barclays Wealth, we are dedicated to providing our clients with the means to manage their wealth successfully and are continually

striving 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 Wealth

Insights. 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 global

implications. A Question of Gender explored the differences in attitudes to wealth creation between women and men, and

addressed some of the key challenges facing women today in the context of that wealth. And the third volume of Insights

investigated how wealthy individuals consider Risk, Return and Reward throughout their lives and the role that each plays in their

approach 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 customer

base 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 worked

with 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 you

new Insights in 2008.

Thomas L. Kalaris

Chief Executive

Barclays Wealth

Foreword

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Our Insights PanelGerard Aquilina, Head of International Private Banking, Barclays Wealth

Jean-Christophe Bedos, Chairman and Chief Executive Officer, Boucheron

Radha Chadha, Author, The Cult of the Luxury Brand: Inside Asias Love Affair with Luxury

Luc Delaflosse, General Manager, Burj Al Arab Hotel

Chadwick Delaney, Sales Director, Justerini & Brooks

Kenny Dichter, Chief Executive Officer, Marquis Jet

Sebastian Dovey, Managing Partner, Scorpio Partnership

Kenneth Fang, Owner, knitwear company Pringle

Milton Pedraza, Chief Executive, the Luxury Institute

Russ Prince, President, Prince & Associates

Our thanks also to

Nick Candy, Co-founder, Candy & Candy

Joseph Ettedgui, Owner, Connolly


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A millionaire is not what itused to be The term millionaire used to be the gold standard for wealth,

but it has long since lost its cachet. Today, US$10 million is

the sum that is often talked about as the threshold for being

considered a high net worth individual. Among our survey

respondents, more than one-third think that this is the

amount of liquid assets required to be considered wealthy.

(See page 5)

Increased wealth is a boonfor charitable causes Support for charitable causes has long been part and parcel

of being wealthy, and our survey suggests that it is strongest

among the most wealthy sections of society. When asked

what proportion of their estate they planned to leave to

charitable causes, 26 per cent of respondents with assets

under US$1 million said that they planned to leave more than

10 per cent of their estate to charitable causes. This figure

rose to 37 per cent, however, among those respondents with

wealth in excess of US$3 million - each of whom would therefore

be leaving a minimum of US$300,000 to charity. (See page 10)

Exclusivity is the new luxury With many luxury goods companies now catering for the

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 whenmaking 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)

Appetite for luxury goodsremains strong Luxury goods companies can be confident about their future

prospects, especially in Asia. Asked if they agreed that luxury

goods were a waste of money, only 31 per cent of

respondents agreed. Respondents from the Asian centres of

Singapore and Hong Kong were least likely to agree with this

statement, and were also the group most likely to focus on

brand as a criterion for purchasing decisions. (See page 18)

A bright future fortime-substitute services Time is often described as the ultimate luxury, and evidence

from our research suggests that this is one commodity that is

at an increasing premium as individuals climb the wealth

ladder. Demand for time-substitute services among the

wealthy is growing rapidly. When asked which services they

currently use, those that could be grouped under the heading

of time substitutes, such as cleaners, concierges, personal

shoppers and travel search agencies, were almost always

most popular among the wealthiest band of respondents

(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 and

grooming services, such as personal trainers, personal stylists

and alternative health practitioners. (See page 28)

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Key findings


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Robert Kennedy once remarked that metrics of economic progress, such as gross

domestic product, measure everything except that which makes life worthwhile. In

other words, the essential qualities of a healthy society, including family relationships,

happiness and friendships, are not accounted for by such a blunt measure, and we

should seek other measures to determine our well-being.

One can make the same analogy when discussing the meaning of wealth. Just as GDP

is a crude measure of economic progress, so too the size of an individuals bank

balance 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 a

relative measure. There are many millionaires who do not consider themselves to be

wealthy 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 of

other 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 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. We also

look 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.

Introduction


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In the UK alone, there are 405,000 households with financial

wealth in excess of US$1 million, according to research conducted

by the Economist Intelligence Unit for Barclays Wealth. And the

news that the Securities and Exchange Commission, the chief US

financial regulator, has proposed to increase the level of assets

required to be an accredited investor - someone allowed to invest

in certain types of higher-risk investments - from US$1 million

net worth to US$2.5 million in investable assets is further

evidence that true wealth is now about much bigger numbers.

Inflation is clearly a factor in the increase in wealth in recent

decades. A billion dollars isnt worth what it used to be, as

J. Paul Getty famously quipped in 1957. When Fortune Magazine

recently recalculated the wealthiest Americans - on the basis of

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.

As overall levels of wealth have increased worldwide, so also has

the cost of living for the rich. Forbes magazine calculates what it

calls the Price of Living Well index. It has found that, over the past

year, the cost of a basket of luxury goods climbed by 6 per cent,

more than double the rate of inflation in the US. Moreover,

these figures probably understate the real level of inflation faced

by the wealthy as they experience increased competition for

positional and prestige goods, properties and so on.

Society pays a huge amount of attention to how much money

the wealthy spend, but is being wealthy more than just a

question of money and spending? What other dimensions, in

terms of motivations, behaviour and personal values, should one

take into account?

What does it mean to bewealthy?

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 ina world that is experiencing considerable wealth generation.


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This issue has significant implications from a behavioural and

credit perspective, says Gerard Aquilina, Head of International

Private Banking at Barclays Wealth. In absolute terms, global

wealth is so wrapped up in real estate - some of it perhaps

overvalued or at the top of the cycle - that many individuals

believe they are wealthier than they really are and will spend

or invest accordingly. Liquid or investable wealth may be a

safer definition of wealth. But it goes beyond a monetary

definition; it is a state of mind.

Many bankers, financial advisors and wealth management

professionals use their own classification for bands of wealth.

With wealth increasingly widespread on a global basis, and the

dramatic rise in the number of billionaires, coupled with an

increasingly weaker dollar, the thresholds that many leading

private banks are using have probably grown from US$1 million

to US$10 million in liquid investable wealth to be considered a

"high net worth individual".

However useful this classification, the big question is: how do the

wealthy view their own financial standing? Roughly 50 per cent

of the individuals questioned for the EIU/Barclays Wealth survey,

whose investable assets ranged from a bottom threshold of

US$20,000 to US$3 million plus, consider themselves to be

wealthy. As one might expect, the proportion of respondents

who consider themselves to be wealthy is much higher among

those from the higher asset bands. Some 78 per cent of

respondents with investable assets in excess of US$3 million

consider themselves to be wealthy, compared with 70 per cent

of those with assets between US$1 million and US$3 million and

just 31 per cent of those with assets of less than US$1 million.And 35 per cent of respondents with investable assets in excess

of US$3 million think that you need assets in excess of US$10

million in order to be considered wealthy.

This figure of US$10 million turns out to be one that chimes

with the views of other wealth experts. Russ Prince, President

of Prince & Associates, sees US$10 million as the threshold to

being wealthy today. Our research shows that affluent

individuals who have assets of more than US$10 million act

and spend differently from their less wealthy counterparts,

he says. They are in fact closer in mindset to people with

US$50 million than those with US$5 million.

Milton Pedraza, Chief Executive of the Luxury Institute, agrees

that US$10 million is a figure that signifies wealth today. This

is a level of wealth where people feel protected from thehazards of the world, he says.

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Table 1 - Percentage of respondents who consider themselves tobe wealthy by assets (US$)

Table 2 - Minimum threshold to be considered wealthy by asset (US$)

Yes 31 70 78

No 69 30 22

Total 100 100 100

Assets: lessthan 1m (%)

Assets: 1mto 3m (%)

Assets: morethan 3m (%)

100,000 25 12 3

1m 43 51 26

3m 14 19 37


Assets: 1mto 3m (%)


10m 12 13 25

30m 2 5 10

Total 100 100 100


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When looking at how people see their own wealth, it is

important also to consider the relative dimension of how people

compare themselves with others. Recent research by Glenn

Firebaugh at Pennsylvania State University confirms that people

do indeed consider their peers when evaluating their ownincome. The researchers suggest that, in the US, relative income

is more important than absolute income in determining an

individuals happiness. This has the potential to create what

economists call a hedonic treadmill where people are

continually trying to catch up their wealthier peers.

Its always surprising to see affluent

individuals, with what we would think of

as sizeable assets, who still dont feel thatthey are truly wealthy because they are

comparing themselves with people who

are wealthier than they are.

We see this all the time, says Sebastian Dovey, Managing Partner

of Scorpio Partnership, a UK wealth management and consultancy

company. Its always surprising to see affluent individuals, with

what we would think of as sizeable assets, who still dont feel that

they are truly wealthy because they are comparing themselves

with people who are wealthier than they are.

Indeed, in a recent wealth survey of New Yorkers, the individuals

most likely to agree with the statement rich people make them

feel poor were the highest earners - those who earned at least

US$200,000 a year. And this question of relativity may explain

the results of the Worth-Roper Starch Survey, a US researchproject that found that the majority of Americans in the highest-

earning one per cent of the population did not consider

themselves to be rich.

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

factors, concentration of wealth, wages and cost of living, and so

on, says Mr Aquilina. US$10 million on a purchasing power parity

basis is different in the US as compared to India or Chile."

Even within a city these differences can be substantial. The

recent survey of wealth in New York found that respondents in

the outer boroughs believe that you can be rich on US$200,000

a year or less. In Manhattan, 40 per cent of respondents said

that you needed more than US$500,000.

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The relativedimension of wealth


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People often tend to think about wealth in terms of assets and

money, says Mr Aquilina. But being wealthy is not just about the

money; and certainly that is not the way that the wealthy thinkabout it. There are many other dimensions. For some, it can be

political power or influence; for others, its about their role in the

community. Certainly status is important for many while for

others, its about freedom. There are many aspects and nuances.

Mr Dovey believes that power, prestige and influence are key

facets of wealth. Our research and work with wealthy

individuals makes it clear that money itself is a catalyst toattaining goals in peoples lives beyond money, he says.

Wealthy individuals are often very driven by confirming their

role among their business or society peers. Others seek to drive

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.

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Wealthmeans more than money

The 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 of ones investment portfolio or any other financial measure. Time, family, health andinfluence can all be part of the meaning of wealth.


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Our survey shows a close connection between time and wealth.

Almost two-thirds (62 per cent) of all respondents believe their

wealth has brought them more (or better) leisure time, while

more than half of respondents believe that it has allowed them

to spend more (or better) time with their family.

It is arguable whether the wealthy really have more leisure time

or get to spend more time with their families - time is usually at

a premium for these individuals. What is more likely, and may be

at the heart of this finding, is that the time they have can be

better spent, because greater wealth provides more

opportunities and options.

Wealthy people tend to lead very

complex and busy lives and many

do experience serious time pressure

and stress.

Wealthier respondents - those with assets in excess of

US$3 million - are more likely than those in other wealth bands

to say that increased wealth has brought them more time with

the family. However, respondents in the higher wealth brackets

are also more likely to say that increased wealth has brought

them more stress in their lives.

This reflects the experience of many professionals who work

closely with the wealthy and their families. Wealthy people

tend to lead very complex and busy lives, says Mr Pedraza.

And many do experience serious time pressure and stress. This

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

and make their lives easier.

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Timeis the ultimate luxuryThere has always been a school of thought that sees time, the scarcest resource, as

wealth. Recent research by the Conference Board in the US entitled Global Luxury Market: Exploring the Mindset of Luxury Consumers in Seven Countries found thattime is viewed as the ultimate luxury.


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The link between

wealth andhappiness

What about the relationship between wealth and happiness? In

the EIU/Barclays Wealth survey, 78 per cent of respondents said

that their wealth had made them happier. More respondents

with assets in excess of US$3 million (87 per cent) are likely to

think that increased wealth has brought them greater happiness

than those with assets between US$1 million and US$3 million

(78 per cent) and assets below US$1 million (75 per cent).

The positive relationship is supported by research from Robert

Frank, a Professor of economics at Cornell University, in a paper

for the American Academy of Arts & Sciences. "When we plot

average happiness versus average income for clusters of people

in a given country at a given time, we see that rich people are infact much happier than poor people," he writes.

However, research by Ed Diener, a Professor of psychology at the

University of Illinois, raises questions about the relationship

between wealth and happiness. Mr Diener found the Forbes list

of the 400 richest Americans had about the same level of well-

being as the Maasai of East Africa, a traditional herding people

who live in huts with no electricity or running water.

The point is not that wealthier people are less happy than those

leading a simpler life - many wealthy individuals report very high

levels of well-being. The authors point out, however, that

increasing wealth is associated with only a slight rise in well-

being once nations have a moderate level of income. Other

factors, such as interpersonal relationships and the cultural

context, are also extremely important. For example, the research

found that homeless people in Fresno, California, who may have

similar wealth to the Maasai in purely monetary terms,

reported very low levels of well-being. The environment in which

the individual finds him or herself, and whether or not basic

needs are met, is therefore crucial.

Social responsibility is another, increasingly important dimension

of wealth. More than half of the respondents in EIU/BarclaysWealth survey say that being able to help people through

philanthropy is important or very important. In addition,

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Table 3 - Percentage that says increased personal wealth hasbrought greater happiness by assets (US$)

More/better 75 78 86

Less/worse 25 22 14

Total 100 100 100


Assets: 1mto 3m (%)



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47 per cent of respondents say that the ability to help others is

an important driver for them to amass and protect their wealth.

This figure rises to 55 per cent among those respondents with

assets in excess of US$3 million.

When asked what proportion of their estate they planned to

leave to charitable causes, there was also a notable difference

between the wealth bands. In the case of respondents with

assets under US$1 million, just over a quarter (26 per cent) said

that they planned to leave more than 10 per cent of their estate

to charitable causes. This figure rose to 37 per cent among

those respondents with wealth in excess of US$3 mil lion.

Wealth is about having peace of mind

and the opportunity to fulfil personal

goals such as charitable causes.

Many wealth experts note that there are generational issues to

consider, with younger individuals more likely to make the link

between wealth and responsibility. This is not to say that older

generations are not exploring ideas of social responsibility, but

certainly younger generations are becoming more vocal in their

need to demonstrate that their wealth has a positive impact.

How do these different aspects of wealth vary around the

world? Not as much as you would think, says Mr Dovey.

Regional and national differences are often overemphasised

while similarities are overlooked, he says. You may be told not

to discuss legacy and tax issues in Asia, because talking about

death is taboo; or that the family is hugely important to Indians.

People often extrapolate from a limited experience with a few

wealthy families in a particular culture. But when you conduct

surveys and interviews across a wide range of countries, you see

similar patterns and trends. There are subtleties in language and

in how people approach these questions, but the meaning of

wealth turns out to be remarkably consistent.

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The meaning of wealth varies enormously among ourclients. However, one constant is that the amount of money you need to be considered wealthy has gone upconsiderably in the past decade. Rising inflation meansyou need more money to be wealthy as the cost of travel,school fees, hospitality and leisure, and even refurbishinga home continues to rise.

As people work harder to achieve and sustain their wealth,attitudes to prosperity are shifting. People are lessembarrassed by wealth than they used to be and they aremore overt in their enjoyment of wealth, without being brash.

This is creating a revolutionary change in peopleslifestyles. For instance, more wealthy individuals are nowhiring private jets, not so they can be overtly extravagantbut because these are becoming less expensive than afirst-class plane ticket. The superior service and quality of the experience is also something they appreciate. Jetcompanies have responded to this demand by introducingshort leases and part-ownership.

Other investments include boats and second or thirdhomes abroad. The pursuit of sailing is now so popularthat it is almost impossible to find a good crew for a boatbecause the chances are they will have already been hired.Conversely, buying a home abroad is becoming easier withcompanies dedicated to handling every aspect of lifebetween several countries. Money is more transferablewith fewer obstacles to moving capital across borders.And even with threats such as terrorism, living overseas isgenerally safer and easier than it has been in the past,enabling wealthy individuals to be more adventurous.

So, does wealth simply mean money and indulgence? Whileour clients certainly enjoy the rewards of their investments,for them wealth is also about much more than that. It isabout having peace of mind and the opportunity to fulfilpersonal goals such as charitable causes. Many wealthypeople are now giving their energy and insight, as well asfinancial support, through philanthropy. Being wealthy alsoenriches the experience of travel, enabling people toventure to places that are far from the madding crowdwhere they and their families can find serenity.

But there is often a gap between the things that peoplewant to do and the time they have available. Nearly everyclient laments the lack of time. No matter how wealthysomebody is, there are still only 24 hours in a day.

The Barclays Wealth privatebanker perspective


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While we traditionally classify wealth primarily in

financial terms, it is clear that wealth is a term

that means different things to different people

Gerard Aquilina, Head of International Private Banking at Barclays Wealth

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Exclusivity and

growth- having it all

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Few industries have to grapple with the changing nature of

wealth, and the way in which the wealthy behave, quite so

keenly as the luxury goods and services sector. Over the past

decade, the explosion in the number of wealthy consumers

worldwide has irrevocably changed the relationship between

these companies and their clients. Previously, companies could

count on knowing their clients, often for generations, and might

have had a market of just thousands. Now, they are faced with

many newly wealthy clients and their potential client base can

be counted in tens of millions.

Few industries have to grapple with

the changing nature of wealth, and the

way in which the wealthy behave, quite

so keenly as the luxury goods and

services sector.

Luxury companies face a dilemma. On the one hand, the market

opportunities created by this new customer demographic are

immense; on the other, companies risk diluting the exclusivity of

their brand by taking advantage of those market opportunities.

Exclusivity and uniqueness matter enormously to the wealthy,

says Milton Pedraza, Chief Executive Officer of the Luxury

Institute. When luxury brands are widely available, sooner or

later, they lose their cachet of exclusivity.

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 to

target the wealthy market. When US jewellers Tiffany started

selling US$110 silver charms for younger buyers, they were

inundated with teenagers buying bracelets, to the concern of

Tiffanys traditional, wealthier clients. And in the UK, Burberry

suffered from its popularity with a more down market audience.

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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 itself is part of being wealthy?


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Over the past decade or so, the luxury industry has focused

on developing derivative goods - like lower-priced accessories -

to make a brand and its products more attainable to a wider

audience, he said. I think this business model can, and

should, be challenged. His answer: to focus on the upper

echelons of luxury.

Claudia DArpizio, a Partner in Bain & Companys consumer

products practice, is not convinced, however, that large luxury

goods companies can afford to rely only on the top end of the

market. Smaller niche brands may have success focusing on

the very top end of the market, she says, but it wont work for

the big luxury companies because there just arent enough

customers. Large luxury companies tend to have a large fixed

costs base. Profitability is driven by top line revenue growth - its

all about gross margins.

The so-called affordable luxury, or mass affluent market - Ralph

Lauren Polo rather than Hermes - is immense. Boston

Consulting Group, the consulting firm, estimates that the

trading-up industry, whereby consumers will pay more to feel

special, last year amounted to US$720 billion in the US alone.

So how should luxury goods companies take advantage of these

market opportunities while still maintaining the prestige of their

brand? And how do they ensure that their offering meets the

needs of the wealthy who are, after all, their core market?

Companies need to cater to the top end of the market with

specially targeted brands and offerings, and unique or distinct

distribution, says Ms DArpizio. The real challenge for luxury

companies is to listen to their customers and to find out what they

want - a relatively new idea for many luxury goods companies.

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The challenge for theluxuryBalancing 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 yearsInternational Herald Tribune luxury conference.


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This is exactly what some luxury companies are doing. For

example, Tiffany has been focusing on its traditional, wealthy, core

clients by separating stores into mass-affluent and fine jewellery

sections, and providing private viewings for its wealthier

customers. Meanwhile Coach, the leather goods and accessories

brand, has successfully focused on building the relationship with

its customers, allowing it to maintain its brand prestige while still

providing affordable luxury. Coach has been successful because itis 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.

The scale of the opportunities in the upper echelons of luxury

can be seen in Lamborghinis recent launch of the US$1.4

million Lamborghini Reventn. The company announced a

limited edition of 20 cars - all of which were sold within four

days of being announced. (Lamborghini management believe

that they could easily have sold twice as many).

goods industry


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Despite the problems that can befall luxury brands, there clearly

remains an appetite among the wealthy to purchase them.

When asked whether they thought that buying designer clothes

and other luxury goods was a waste of money, only 31 per cent

of respondents to the EIU/Barclays Wealth survey agreed. Theresults were broadly the same irrespective of how much wealth

respondents held. Looking at specific countries, respondents

from US and Canada appeared least enthralled by luxury goods,

while the Asian centres of Singapore and Hong Kong appeared

to find them most appealing.

Asian customers value and appreciate

international luxury brands for their

exclusivity, sophistication and quality.

Asian customers value and appreciate international luxury

brands for their exclusivity, sophistication and quality, says

Kenneth Fang, the Hong-Kong based owner of knitwear

company Pringle. Many of them travel extensively and are well

exposed to the wide offering these international luxury brands

have in other parts of the world. Such well informed customers,

in today's globalised setting, have greatly accelerated the

growth of these international brands in the Asian markets.

Asia is a region that is seeing rapid economic development and

wealth creation, brand and exclusivity are important signifiers of

status, and demonstrate that the bearer has benefited from the

creation of new wealth. By contrast, in countries such as the US

and Canada, where the economy is now developing more slowly

after a prolonged period of growth, such signals do not have quite

the same potency. Indeed, other social signifiers - philanthropy, for

example - may be perceived as more revealing of status.

The survey also shows the importance of exclusivity as a buying

criterion, with almost 30 per cent of respondents citing it as one of

the top three factors influencing their buying decisions. Wealthier

individuals are more likely to cite exclusivity as an important

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.

Value for money as a purchasing criterion remains consistently

important across the wealth bands, with the very wealthiest

members of the survey considering it just as important as theleast wealthy. Clearly, the possession of great wealth does

nothing to undermine the universal requirement for purchases

to be worth what they cost.

Luxury, exclusivityand other purchasing criteria


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19

Percentage who disagree that designer clothes and otherluxury goods are a waste of money by country

64% South Africa

64% Dubai

66% Italy

84% Hong Kong

68% France

67% Switzerland

76% Spain

79% Singapore

Portugal 77%

UK77%

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

Table 4 - Factors that guide purchasing decisions by assets (US$)

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


Assets: 1mto 3m (%)


59% US & Canada


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Value for money 76

UK Product quality 80

Brand 26

Value for money 74

US/Canada Product quality 79

Brand 32

Value for money 53

France Product quality 56

Brand 44

Exclusivity 39

Purchasing experience 41

Product quality 44

South Africa Brand 56


Hong Kong Product quality 65

Brand 48

Exclusivity 39

Brand 44

Factors such as celebrity endorsement are rated as very

insignificant by respondents, although interestingly, this criterion

is seen as a slightly more important factor by those from the

highest wealth band. Overall, though, it is not seen as significant,

which might call into question the effectiveness of campaigns for

luxury goods that rely on the endorsement of celebrities.

There are also notable regional differences between the purchasing

criteria that are seen as significant. While product quality is usually

regarded as the most important factor when guiding buying

decisions, factors such as brand and exclusivity are seen as

particularly important in Middle Eastern and Asian centres, such as

the United Arab Emirates, Singapore and Hong Kong.

The survey also shows the importance

of exclusivity as a buying criterion, with

almost 30 per cent of respondents citing

it as one of the top three factors

influencing their buying decisions.

Singapore Product quality 62


20

Table 5 - Top three purchasing criteria by country

UAE Product quality 62

Country Criteria %

Exclusivity 39

Brand 39

Switzerland Product quality 51

Value for money 39

Product quality 42

Brand 42

Portugal Purchasing experience 48

Brand 56

Spain Product quality 58


Exclusivity 34

Brand 53

Italy Product quality 61



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21


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22

Chinese demographics are key to understanding this

phenomenon. The liberalisation of the Chinese economy has

rapidly given birth to a super-rich capitalist class. There are

estimated to be some 350,000 US dollar millionaires in China.

Just how quickly wealth is growing can be seen from the most

recent China Rich List, compiled by Hurun, which shows a

sevenfold increase in US dollar billionaires in the past year.

So it is no surprise that luxury car makers, hotel groups and a

roll call of elite brands are racing to expand their presence in

China. Whereas previously they would have focused on the

major urban centres, such as Beijing and Shanghai, they are

increasingly turning their attention to smaller cities, such as

Shenyang, Jinan and Chengdu, as the market for luxury goods

expands into previously unexploited parts of urban China.

The Chinese market will eventually be like ten Japans, says

Radha Chadha, author of The Cult of the Luxury Brand: Inside

Asias Love Affair with Luxury . So far luxury brands have only

touched the surface of this market. Ms Chadha believes that

luxury markets in Asia develop according to a five-step model.

China, she argues, has completed phase one (which she refers

to as subjugation, characterised by authoritarian rule,

deprivation and poverty, which build a hunger or a desire for

luxury) and phase two (economic growth), and is currently at

phase three, which she terms the show-off stage, where

status is the key focus. Phase four is reached when this trend

for displaying wealth becomes widespread, and phase five is

when luxury becomes a way of life.

Patience is a virtuefor investors in ChinaCountry case study

Luxury goods companies are currently in thrall with China. It is

estimated that there are around 10 million to 13 million customers of

luxury goods on the mainland, and this figure is likely to climb as

wealth spreads across the country.


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23

Wealthy Chinese want to telegraph in a simple, clear manner

that they have money, she explains. And luxury brands tell the

world how well youve done and your status in society. The huge

changes brought about by economic liberalisation have

reinforced the need for status validation.

Luxury brands tell the world how well

youve done and your status in society.

The huge changes brought about by

economic liberalisation have reinforced

the need for status validation.

Indeed, in the Conference Boards Global Luxury Market: Exploring

the Mindset of Luxury Consumers in Seven Countries , China was

the only country surveyed in which a majority of wealthy

consumers agreed that luxury is defined by brand. China was also

one of the countries identified in the report where individuals are

most likely to own status luxury goods.

Currently, success in China for luxury goods companies depends

on being a top brand. The top ten brands in China for the ultra

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, lesser

brands may find it a struggle to win clients in China.

As they pursue their growth strategies in the region, luxury

companies in China also face a number of specific problems:

intense competition, a proliferation of brands and luxury goods

companies, together with spiralling costs, a shortage of skilled

workers, steep import duties and value added taxes, to name a few.

Although attempts are being made to curb the problem,

counterfeiting also remains a major problem. It is difficult to

pinpoint particular strategies to fight counterfeiting since its

ramifications are so wide, says Mr Fang, the owner of Pringle.

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

standards. We are now starting to see much more attention in

some markets. That said, unfortunately the problem is not

solved yet.

What will it take for luxury goods companies to succeed in

China? Experts say a long-term perspective is essential. Recent

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, Cartiers Managing Director for

China, revealed that the company is barely breaking even after

15 years on the mainland, despite being the best-selling luxury

jewellery brand in the country.

Ms Chadha believes that it will take 15 to 20 years for China to

reach phase five, where a culture of luxury is well-established,like in Japan. Luxury brands need to continue to build

relationships with consumers over this time. Those who build

the right foundations will reap great rewards, she says.


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But however spectacular and extraordinary future projects in Dubai

might be, there is one structure that will undoubtedly remain its

most iconic - the Burj Al Arab hotel, which is managed by the

Jumeirah Group. Built on a man-made island and connected to themainland by a short causeway, the Burj Al Arab is, at 321 metres

above sea level, the worlds tallest all-suites hotel and calls itself the

worlds most luxurious. The ratio of staff to guests is eight to one

and each floor has its own reception and butler, who will carry out

check-in in the privacy of the suite.

To prevent an invasion of gawping tourists, non-residents can

only visit if they have booked at one of the hotels restaurants.

Certain parts of the hotel, such as the pools and private beach,

are entirely off limits to non-residents.

In the eight years that the hotel has been open, the customer

base has become more broadly international in line with the

democratisation of wealth. The highest proportion of guests

comes from Europe, and primarily the UK, says Luc Delaflosse,General Manager of the Burj Al Arab, but visitors from countries

such as China, the Middle East, the Commonwealth of

Independent States, North America and others are rapidly

becoming more commonplace. Our customer demographic

tends to be centred around those countries for whom luxury is

an important consideration.

Burj Al ArabAn icon of luxury in a dynamic cityCase study

Visitors to Dubai rapidly become accustomed to superlatives. Home to the

worlds largest shopping and entertainments complex, the worlds largest

indoor ski slope and, in a few months time, the worlds tallest skyscraper,

this is a city that wears its ambition to be the biggest and best on its sleeve.

24


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25

Keeping track of a changing customer demographic requires

careful monitoring and analysis of customer feedback to ensure

that the expectations of a demanding clientele continue to be

met. Mr Delaflosse says that the Burj Al Arab, and the Jumeirah

Group as a whole, uses this feedback to guide new innovations

and services at the hotel. He cites as an example a newauthentic Asian restaurant, called Junsui, which opened at the

Burj Al Arab in November 2007. Our decision to open this

restaurant was guided in part by customer feedback that we

received, and in part because we recognise that Asia is becoming

an increasingly important market for us. We expect to see 100

per cent growth in Asian guests over the next two years.

Our customer demographic tends

to be centred around those countries

for whom luxury is an important

consideration.

In billing i tself as the worlds most luxurious hotel and awarding

itself seven stars, the Burj Al Arab certainly sets the bar for

service high. To meet these exacting standards, the hotel

invests heavily in training and management education. It has

developed its own e-learning modules to provide guidance for

customer-facing employees, and grooms future managers atthe Emirates Academy, a hotel management training college

operated by the Jumeirah Group. The company also uses an

intranet-based tool, called Voices, to solicit suggestions from

employees for improving the customer experience. This

generates around 5,000 suggestions a month, says Mr

Delaflosse, of which we aim to implement around 20 per cent

of ideas considered.

It is impossible not to be impressed by a first-time visit to the

Burj Al Arab. The scale and innovation of the building itself, with

its towering lobby and sail-like structure, along with an opulent

interior that combines traditional Arabian elements with a

futuristic sheen, are enough to impress even the most jaded

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 hotels

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.


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Pierre Cardin and Diane von Furstenberg are two brands that

the authors single out as having implemented unsuccessful

brand extension strategies and seen revenues and profits

plummet as a result.

The authors argue that Diane von Furstenberg did not translate

well into non-adjacent categories, such as eyewear, luggage and

jeans, and so the brand lost its premium as a result. They also

describe how Pierre Cardin granted more than 800 l icences to

goods as unlikely as baseball caps and cigarettes, which had no

fit with the original brand and thus devalued it.

For a brand to be transferred successfully to nonadjacent

categories, much depends upon its core value in the eyes of

consumers, according to Reddy and Terblanche. They say that

some luxury brands, such as Louis Vuitton, are valued for their

lifestyle, or symbolic aspect. Symbolic brands can, they argue, be

successfully transferred into nonadjacent categories - so long

as they are positioned in line with their key symbolic qualities.

The authors cite Bulgaris expansion into the luxury hotel market

as a successful example of brand extension. Bulgari licensed its

name to the upscale hotel division of Marriott International to

create a chain of luxury hotels. They attribute the success of this

venture because customers bought into the concept because

of the symbolic value of the Bulgari name, not because they

thought Bulgari had engineering skills that it brought to bear on

the design and installation of Marriotts bath towel holders.

26

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 entitledHow Not to Extend Your Luxury Brand, shows how risky a strategy this can be.


29/43

Founded in 1878, the business built a reputation as a prestigious

tannery and finishers, known for the unique aroma and quality

of its upholstery leather.

The influence of new owner Joseph Ettedgui, founder of the

Joseph clothing label who bought the company in 1999, has

discreetly given Connolly a new, more fashionable direction and

attracted a more international clientele without losing their long-

standing traditional British and European fans.

Ettedgui recognised that in particular Russians, Italians, Japanese

and Americans were attracted by the brands history and

prestige. He successfully branched out from its leather

upholstery heritage to making stylish luggage and classic

clothing as well as rally jackets that sport the logo Connolly GB

and quirky products such as a leather-bound travel espresso set

and a Krug champagne case designed for yachts and private jets.

Connolly sells gifts for the person who has everything,

Ettedgui said. We sell the products that other luxury goods

companies havent thought of. For example, travelling now is

very serious and stressful so we sell products that make peoples

lives easier - and make you smile.

"Wealthy individuals are not just looking for elegant and unusual

items, they are looking for exclusivity, value and quality in the

finish, packaging and service of goods, and a real sense of

history, not a marketing trick," Ettedgui said.

With the clothing, we dont produce big quantities of every

garment that we sell and we are not easy to find, he said. We

find that our customers love the personal attention of our

garments being sold in only one store, not by lots of different

retailers. The products that they buy and the way they buy

them may change, but their attitude to quality and service will

not. There is a 1930's poster advertising the motor races at

Goodwood, which I love. It says ' the right crowd and no

crowding' - something I hope we achieve at Connolly."

Connolly sells gifts for the person

who has everything, we sell the

products that other luxury goods

companies havent thought of.

27

ConnollyExclusivity in brand extensionCase study

Connolly, a luxury leather goods company whose famous hides covered the

seats of Concorde, the Queen Elizabeth II yacht and luxury cars includingRolls-Royce and Aston Martin, is a quintessentially English brand.


30/43

Services are increasingly important for luxury consumers, says

Mr Pedraza. Its not that they are not interested in luxury

products but many have as many products as could possibly

satisfy them. You can only own so many houses. Wealthy

consumers are looking for services and experiences that deliver

a great experience that they will remember forever. Another key

factor here is that many wealthy consumers are increasingly

time-constrained.

The Conference Board report Global Luxury Market: Exploring

the Mindset of Luxury Consumers in Seven Countries points to a

global trend whereby the wealthy are focusing less on material

things and more on what it terms how one experiences life, a

sense of happiness and satisfaction.

The EIU/Barclays Wealth survey provides some interesting

insights into the demand for services among the wealthy. The

survey assessed past, present and future uses of a wide range

of luxury services. Splitting services into time substitute

services (cleaner, concierge, personal shopper, travel consultant,

chef, butler and property search agency) and health and

grooming services (personal trainer, life coach, alternative

health practitioner, dietician, beautician, personal stylist and

personal image consultant), we find that the time substitute

services are almost always most popular among the wealthiest

band of respondents (US$3 million plus in liquid assets). In the

case of health and grooming services, the difference in extent of

usage is much less marked between the wealth bands.

28

New luxury servicesand service models are emerging

Luxury 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.


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29

The rising popularity of concierge service companies, which help

the wealthy to manage their time more effectively, is a reflection

of these time constraints. Concierge companies have been

around for some time, and the EIU/Barclays Wealth survey

found that the demand for these services is likely to increase

substantially in the future. The survey also shows concierge

services tend to be most popular among the more wealthy.

Research conducted by Russ Prince and Hannah Shaw Grove on

the ultra wealthy (with an average of almost US$90 million in

assets), and recently published in a book entitled The Sky is the

Limit , found that just over one-quarter of the ultra-wealthy

surveyed are already using concierge services with two-thirdslikely to do so over the next three years. Concierge services are

proving very popular with the wealthy, says Mr Prince.

Mr Pedraza from the Luxury Institute believes that this market is

evolving as it grows. We are starting to see the emergence of a

new type of service provider - like Quincy Consulting in the US,

a mix of management consulting and lifestyle management -

a kind of BCG or McKinsey for lifestyle management, who can

look after a wealthy individuals personal goals, as well as dealing

with their different business objectives.

Among the ultra-wealthy, the exclusivity of a given service is

highly important. In the mountains of Montana, US, the private

ski and golf resort community of the Yellowstone Club is one

such example. Membership is by invitation only and is only open

to those with a minimum of US$3 million in liquid assets. Theinitial joining fee is US$250,000, and members must also

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.

Table 6 - Those who use Time substitute services (US$)

Personal image consultant 14 55 35

Table 7 - Those who use Health and grooming services (US$)

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


Assets: 1mto 3m (%)


Butler 21 63 79

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


Assets: 1mto 3m (%)



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30

For clients, luxury is about having private amenities at home, be it

a home spa with beauty and hairdressing facilities or a

subterranean gym and swimming pool, according to NicholasCandy. Todays ultra-luxury consumer often prefers the comfort of

their own home, so the services they want are brought in-house

and a trained hairdresser, beautician or masseuse comes to them.

Its important to know minute details; if they like to fold their

socks or not, if they hang their belts or roll them, if their kitchen

has to accommodate a left - or right-handed chef, he said. We

get to know our clients well and become so close that we often

recommend everything to them, from bespoke luggage for their

private jets and helicopters, to arranging an exclusive party for

100 people - a complete lifestyle.

Many of their clients have a been there and done that approach,

so it essential for Candy & Candy to always be one step ahead and

constantly adapt its operation to reflect this. I ts designers travel

frequently, sourcing the globe for new materials and innovations

that can be adapted and remodelled for clients. For Candy &

Candy it is about pushing boundaries to create something unique.

Its not just about bespoke, its also about creating a wow

factor - our clients want something that is totally out there in

terms of design, something that no one else has, thats

impressive to their friends and business contacts he said.

However, unlocking the wow factor is hugely challenging,

since function is as important as form to these clients.

As international wealth has spread, so has Candy & Candys

client base. They now cater to people across the world, including

UK, Monaco, Russia, Qatar and the US. The age of their clients

has also broadened. As people make impressive returns atyounger ages, clients now range from mid 20s upwards. But

interestingly, Candy points out clients are mainly first generation

wealthy, who tend to be more creative in how they spend their

assets. Our clients demand an increasingly high level of

bespoke detail and exclusivity and are prepared to spend money

creating their own ultimate luxury lifestyle, Candy concludes.

Candy & CandyDesigning a lifestyleCase study

Award-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 getting

inside their lifestyles to create something that complements the way they live.


33/43

As the number of wealthy individuals around the world increases,

a number of new business models, such as fractional ownership,

are starting to emerge. Fractional ownership is a service model

that allows the wealthy to enjoy the benefits of an asset without

the need to own it outright; instead, customers buy a share in the

asset. For example, the wealthy can now buy a fraction of a jetwith companies such as NetJets, a super-yacht designed by Lord

Foster through YachtPlus, or a share in an exotic car through the

Otto Club. They can even buy a fraction of a vineyard.

As the number of wealthy individuals

around the world increases, a number of

new business models, such as fractional

ownership, are starting to emerge.

The growth in fractional ownership can be seen as part of an

ongoing process of the democratisation of wealth and luxury.

It also reflects a trend whereby wealthy consumers are opting

for lifestyle experiences over ownership of expensive prestige

or positional assets.

Some 12 per cent of the ultra wealthy surveyed for The Sky is

the Limit are members of an exotic car fractional ownership

club, and about double that number are planning to join such a

club in the future. Members of such clubs cite several benefits,

such as being able to enjoy a variety of vehicles, and freedom

from the time constraints and prohibitive costs associated withoutright ownership.

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,

ownership of an asset is turned into a pure service.

31


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32

At the time, in the late 1990s, there were essentially threeprivate aviation options: you could buy a jet, charter a jet, or buy

a share in a jet (called fractional ownership). With fractional

ownership, owners purchase a share in a jet, typically consisting

of a three to five year commitment with guaranteed access to

50 or more hours of flight time annually. Mr Dichter wanted to

take it one step further. His idea was to allow people to access

the quality and consistency of fractional ownership but with

smaller blocks of time and no long-term commitment, rather like

buying a pre-paid phone card.

He soon set about turning this idea into reality. An experiencedmarketer, Mr Dichter felt comfortable dealing with the

marketing and customer service elements of the new business

concept. But he would need a partner with the assets and

infrastructure to provide the aviation service. Mr Dichter and his

partners believed that NetJets, the market leader and pioneer in

the fractional ownership arena, was the only company with the

infrastructure and financial backing to provide the right level of

service they were seeking.

Marquis JetA new model for private air travelCase study

Kenny Dichter fell in love with private aviation on his first private jet flight, a trip

from 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 minutes

later. I was amazed it was so simple, hassle-free and convenient - a million miles

away from the experience of normal commercial flights. I felt that if there was a

way to bring this service to a broader audience, it would be a huge success.


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33

Unfortunately, NetJets was not initially interested. But Mr Dichter

persisted and returned half a dozen times before Richard Santulli,

NetJets Chairman and CEO, finally gave the green light to the idea.

The Marquis Jet Card programme, backed by NetJets, was

launched in February 2001. The card provided guaranteed accessto the NetJets fleet 24 hours a day, 365 days a year, and access to

thousands of airports in North America and Europe. The initial

pricing was US$109,900 (plus government fees and taxes) for 25

hours on one of NetJets Citation V Ultra aircraft. Today, customers

can purchase a Marquis Jet Card for 25 hours on nine different

NetJets aircraft types, up to the Gulfstream 450, with pricing from

US$119,900 to US$339,900, depending on the aircraft type.

The business took off quickly. By the end

of the first year, Marquis Jets had 273 card

owners and, by the end of the second

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 the

second year, this had risen to 850. Much of Marquis Jets early

growth came from what Mr Dichter calls concept fliers -

individuals that had never used private aviation before.

Mr Dichter believes Marquis Jets relationship with NetJets has

been vital in helping the company to grow. It is enormously

powerful to be able to tell our customers that we have NetJets

handling all flight operations. NetJets commitment to safety and

security, and the consistency of the service, is first rate.

Interestingly, 10 to 15 per cent of Marquis Jet Card Ownerseventually go on to become NetJets fractional owners.

Over the next three years, we aim

to become a billion-dollar business.

Marquis Jet is growing at 15 to 20 per cent a year and will

achieve revenues in excess of US$700 million in 2007, according

to Mr Dichter. Over the next three years, we aim to become a

billion-dollar business, he says. Once our card owners get usedto private aviation, its very difficult to go back to mainstream

commercial aviation.


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Boucheron went on to pioneer diamond engraving, and later

became renowned for designing Art Nouveau nature jewellery

designs such as snakes and butterflies, birds and dragonflies.

Boucherons main offering is jewellery and watches fromUS$7,000 to US$70,000 (the product ranges prices are not fixed

scales and can change from collection and year). It presents a

wide and varied range of new jewellery in two collections a year;

and there are singular additions from time to time.

Boucheron is probably most famous for its fine jewellery (Haute

Joaillerie), which consists of unique jewellery pieces made from

gold or precious stones of exceptional weight and quality. Priced

from US$70,000 upwards, these collections are highly

aspirational one-offs with the same ethos as Haute Couture.

Boucherons illustrious clients have included film stars and

royalty, from Greta Garbo to the Queen of Jordan.

By the end of the 20th century, the market for bespoke fine

jewellery was effectively moribund. Jean-Christophe Bedos,

Chairman and Chief Executive Officer of Boucheron believes that

this reflects the development of the luxury industry during this

time. Over the past 20 years, we have seen a lot of standardisation in the luxury industry. This approach was totally

contradictory to the spirit and essence of luxury jewellery and was

a slap in the face for the old traditional luxury goods companies.

In recent years, however, there has been renewed interest in

bespoke fine jewellery as wealthy buyers seek unique and

distinct jewellery pieces. We are seeing customers crying out

for bespoke, says Mr Bedos. Its a return to the human

dimension. I also think many people are getting tired of the fast-

moving consumer culture, where things change every season.

Bespoke jewellery has a different dimension of time and space.

Boucheron JewelleryBespoke is backCase study

34

Frdric Boucheron opened his first jewellery shop in Paris in 1858. In 1893 he

became the first jeweller to open his doors in the citys Place Vendme - inthe brightest shop in the square according to legend, all the better to show off

its intricate jewellery designs.


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This renewed interest in bespoke jewellery is also being driven by

a new kind of client. The old clich about the nouveaux riche-

just doesnt hold any water any more, says Mr Bedos. We are

now seeing a new, very well-educated wealthy clientele, many

wealthy for the first time, who have a growing interest in

jewellery. These clients can be very discriminating - with astrong sense of what they do and dont want.

Boucheron rarely receives a request for bespoke jewellery from a

first-time customer - such commissions usually grow from an

existing relationship. Occasionally, the jeweller will propose a

bespoke piece, but most often it is the clients that come to

Boucheron with the idea. The company aspires to provide the

ultimate bespoke jewellery service: luxurious creations of master

craftsmen and designers that at once reflect the clients

personal desires and the spirit of their time.

In recent years, however, there has been

renewed interest in bespoke fine jewellery

as wealthy buyers seek unique and

distinct jewellery pieces.

It is a most intimate and personal experience, says Mr Bedos.

The Boucheron designer or master craftsman meets with the

client, often at their home. As the client shares his vision, our

designer starts visualising the clients dreams, creating a life

expression for a piece of jewellery. Sometimes we will send the

clients more designs to consider later. Some clients like to follow

the creation process closely; more often the client prefers only to

see the final creation.

Just as Boucheron has been revitalising a highly traditional skill,

it also has one eye to the future in the form of a new website

where customers will be able to purchase the companys entire

product offering. This is a bold step in an industry that has

typically been reluctant to embrace the internet. Selling on the

internet has been a taboo for the fine jewellery companies, saysMr Bedos. Our online service allows our clients to engage with

Boucheron whenever they want, however they want, in the

most private and intimate way.

At the Boucheron website, www.boucheron.com, clients can

access the wide range of Boucheron jewellery, watches and

perfumes; they can also access a made-to-measure and

customised jewellery service. The made-to-measure option

allows clients to create their unique ring online, selecting gems

that can be mixed and matched with the clients preferred

setting and precious metal band. Boucherons customised

service allows clients to customise a unique Boucheron

chameleon broach online selecting and mixing an array of

coloured precious gems (diamond, ruby, emerald or sapphire).

Boucheron will celebrate its 150th anniversary in 2008. Mr

Bedos is optimistic about the future of the Boucheron online

service. So far the reaction has been very good and exceeds

expectations. Of course in some cases there is no substitute for

the sensual sensation and feeling of the jewellery itself. Our

internet site can, however, be a first point of contact - offering

discretion and privacy, key services that our wealthy clients look

for - and the beginning of a long relationship.

35


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For most of its 258-year history, the client base of Justerini &

Brooks has been the British landed classes. But in the past ten

years, the nature of the wine merchants customers has

changed dramatically. Although the firm continues to supply the

aristocracy, it now has a much broader demographic, with40 per cent of its customers based overseas.

The expansion began with the new breed of wealthy making their

money in the City of London. There has been a huge explosion,

says Chadwick Delaney, the firms Sales Director. A decade ago,

we hardly did anything with people in the financial industries, and

now we have one salesman purely focused on them.

The expansion continued when some of those new clients moved

abroad: Lawyers and bankers got sent out to Hong Kong and

Singapore, and they continued to build their cellars while out there.

With the economy booming in the countries of Asia-Pacific, the

development of an indigenous client base quickly followed.

According to Mr Delaney, Justerinis clients in these countries are

at the top of the economic tree. They are CEOs of

multinationals - very intelligent, successful people, and all weredoing is building their cellars for them, he says.

He adds that the new customers are just as knowledgeable

about wine as Justerinis traditional client base. There is a

preconception that these guys dont know what theyre doing.

They might not have done 20 years ago, but they certainly do

now. Wine merchants listen to what our best customers are

saying because these guys are drinking top wines probably on a

more regular basis than we are.

Justerini & BrooksRoyal wine merchant goes internationalCase study

36

Justerini & 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 individual

who is charged with selecting the wines that are drunk in Buckingham Palace.


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Justerini & Brooks now makes regular visits to its clients in Asia,

although it does not have offices there. We are geared to look

after big collectors, says Mr Delaney. We havent needed to have

a permanent presence, because we send someone out regularly

with updates on whether theyve just been to Bordeaux or a

vintage report, and that is what our customers out there want,much more than having a daily presence in the shop.

While the market expansion has not changed the firms

relationship with its customers, Mr Delaney believes that it has

had an impact on suppliers. The wine they are now making is

far superior and also far more expensive than it was before, he

says. I think there is a growing realisation, certainly in Bordeaux,

that their wines are demanded in ever increasing markets. With

demand rising for a highly scarce product, this has meant big

increases in price for the top wines, with many traditional

buyers 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.

Mr Delaney points to two other important areas of expansion for

the firm. One is young people: traditionally, the average Justerini

& Brooks customer has been in his 50s, but the introduction of a

website a few years ago has drawn in many in their 30s and

40s. The other is Eastern Europe, and especially Russia where

there is an explosion of new oil and gas wealth. Future plansinclude expansion into China, and also into India if the

government abolishes what Mr Delaney describes as its

punitive duty laws.

At a time of increasing demand for luxury wines, greater

competition from newer wine merchants is inevitable. But Mr

Delaney believes that Justerinis age and pedigree gives it an

advantage. We have some ancient trading relationships with

the estates, and therefore get very big allocations, he explains.

In the space of a decade, Justerini & Brooks has successfullymanaged to become a global supplier while maintaining its

traditional client base, the British aristocracy. But as Mr Delaney

points out: I think any company that survives over a quarter of

a millennium has probably evolved many, many times.

37


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First, wealth is relative: it depends on the environment in which

an individual finds him or herself, and any consideration of what

it means to be wealthy will be driven as much by comparisons

with peers as by the number of zeroes on a bank statement.

Second, other factors will usually be considered a component of

wealth: time; health, happiness, and friendship may all be

perceived to play a role, as without them, mere possession of

money loses its lustre.

As wealth spreads around the world into a growing number of

demographic groups, it is becoming more difficult to drawgeneral conclusions about the behaviour and expectations of

the wealthy. For luxury goods companies, the opportunities

afforded by wealth generation are, in part at least, offset by the

complexity of serving an increasingly diverse customer base.

Many are grappling with the challenge of capitalising on these

opportunities without diluting the values of their brand, and not

all will emerge successful.

The shift from goods to services in the broader economies of

developed countries is a trend that is mirrored in the world of

luxury. Experience, exclusivity and time substitution are the

watchwords for these services, and any company that can meet

these needs in an innovative way is likely to have a bright future.

38

ConclusionIt is a simplistic view to consider that wealth is an absolute measure, referring onlyto money in the bank.


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Written by the Economist Intelligence Unit (EIU) on behalf of

Barclays Wealth, the report examines what it means to be

wealthy today.

It is based on three main strands of research conducted by the

EIU: a global survey of 790 individuals with investable assets

ranging between at least US$20,000 and those with in excess of

US$3 million; a series of in-depth interviews with experts on

wealth and luxury, and a number of case studies.

Please note that in some cases percentages used in the report

may not equal 100, as survey participants were asked to select

three choices.

39

AppendixMethodology

The 790 survey respondents were recruited from EIU

databases of individuals around the world. The survey was

undertaken between January and September 2007 by the EIU.

Geography: The highest number of respondents came from

Hong Kong, Singapore, United Arab Emirates and United

States (100 each). France, Italy, Portugal, South Africa, Spain

and Switzerland were represented by between 30 and 50

respondents each. An additional 116 respondents were

generated from elsewhere in the world.

Net worth: 20 per cent between US$20,000 and US$500,000

in liquid assets; 20 per cent between US$500,000 and US$1

million; 30 per cent between US$1 million and US$2 million;20 per cent have more than US$2 million in liquid assets; 10

per cent have more than US$3 million in liquid assets.

Survey demographic


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This document is intended solely for informational purposes,

and is not intended to be a solicitation or offer, or

recommendation to acquire or dispose of any investment or to

engage in any other transaction, or to provide any investment

advice or service.

Any information within the report pertaining to individuals has

been published with their express permission.

40

Whilst every effort has been taken to verify the accuracy of this

information, neither The Economist Intelligence Unit Ltd. nor

Barclays Wealth can accept any responsibility or liability for

reliance by any person on this report or any of the information,

opinions or conclusions set out in the report.

Legal note

Contact us

For more information or to be involved in the nextreport email [email protected]

Telephone: 0800 851 851 or dial internationally on +44 (0) 141 352 3952

www.barclayswealth.com


43/43

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