A New Brand of Luxury

Not in Paris, London or Zurich; it was in the imperial splendours of Vienna’s Palais Liechtenstein that the Financial Times chose to host its annual "Business of Luxury" summit on 2-4 June. In a mirage of expensive scent, Chanel suits and flashing Rolexes, the power-brokers of the international luxury industry came to learn about the latest trends and make deals.

One of the paradoxes of the recession is that luxury markets are booming. As Martin Wolf, chief economist at the FT remarked, "…the people who buy your products are doing better than ever before. You have positioned yourself in the best industry." Even the demand for diamonds – perhaps the ultimate symbol of luxury, was quickly stabilised. Esther Oberbeck, Head of De Beers Group Strategy confirmed, "there was a certain nervousness in 2008, but the market quickly recovered. As long as diamonds are understood as symbols of love and romance, people will buy engagement rings."

So, while it may not be politically correct to speak of luxury during times of austerity, the reality is that the industry is of strategic importance to Europe’s competitiveness, driving the revival of artisanal craftsmanship and according to Karel De Gucht, Commissioner for Trade at the European Commission, "…it creates six million jobs". Much like the diamond rings themselves, the luxury business is synonymous with creating "intangible value".

 

Return on a rebirth

Vanessa Friedman, fashion editor of the FT, conceptualised the conference in Vienna as a "renaissance of luxury".

In the last 12 months, the city map has been redrawn by Tyrolean developer Rene Benko and Signa Holding GmbH with the opening of the "Golden Quarter", a new high-end shopping, residential and lifestyle district on Tuchlauben.

Hot on the heels of Louis Vuitton and Europe’s largest Prada store, 18 high-end brands have signed up, creating a "luxury halo effect".

No longer just home to the tired clichés of the Kaiser, Lipizzaner and Sachertorte, Vienna has become a credible luxury destination where one can live and spend in style.

As Michael Schneider of Move Now real estate brokers explained, "Whilst [anyone would want] a property in Bond Street, it is impossible to get property there. Whereas Vienna is opening up and the potential return on investment is attractive."

The business case for Signa’s €500 million investment is powerful: "Vienna is the number one conference destination worldwide, with 181 last year," said CEO Christoph Stadlhüber. "Conference tourists spend €480 per visit – double the average tourist."

Luck was clearly on Signa’s side as prime location properties came onto the market. This was a "once in a lifetime opportunity," Stadlhüber admitted, "as commercial rents have trebled since 2004." Together, Benko and Stadlhüber had the foresight, money and connections to re-route three public bus routes to pedestrianise the Quarter, financing 90 per cent of the cost.

Inside one of the 12 Signa penthouses, one wonders what kind of person can afford one for €5-15 million? Stadlhüber overturns some common assumptions. "Russian spending power is overstated; they spend a lot of time doing due diligence," he said. "Three out of four penthouses sold have gone to Austrians.

There are still a lot of Austrians with money." As Vienna continues to be voted no. 1 by Mercer, it is the city’s peace and quiet that will underscore its liveability. Light, clean air, water, safety and health – our understanding of a luxury lifestyle is going back to basics.

 

Showcasing the "new story"

Contrast this tranquillity with the noise of the Vespas in Italian cities like Florence. Still, Florence has much to teach Vienna about combining heritage with a contemporary future. As Florence mayor Mateo Renzi commented at the summit, a historical city should not "be a show-room to the past."

Gucci apparently now attracts more visitors than the Uffizi gallery. "Culture should never be a luxury," he agreed, "but there should never be luxury without culture." Vienna can never be just about high-end stores, nor should it turn into a museum. The city needs to write a new story that balances the economy with culture, history, tradition and the arts.

As Marigay McKee, Chief Merchant, Harrods, advises "In order keep luxury goods as a ‘dream investment’, one needs to offer unique experiences and build an emotional connection with emerging consumers." So, to deliver long-term appeal, the Viennese lifestyle must be positioned as an aspirational part of European heritage, similar to the success of "Made in Italy" brand. Herr Reiter, the third generation of Ludwig Reiter bespoke shoes, describes Viennese luxury as "sophisticated and understated; people can demonstrate their refinement."

Whilst all are aware of Chinese high-end purchasing power, few in Vienna have woken up to the emerging wealth of Nigeria and other resource-rich African states. Currently, seven out of ten purchases at Harrods, for example, are made by the Chinese or Nigerians. According to Joseph Sitt of Thor Equity, it is essential to "understand the psychographic of this aspirational luxury consumer.

The Viennese should focus on classic European appeal, so the consumer thinks, ‘If I purchase this I will feel better, I can show people I have made it.’ " In contrast to London or Paris, Vienna has a very small African population and to date has not attracted significant tourism from new high spending customers from Nigeria, Ghana, Rwanda and Ethiopia. Beyond these, according to Sitt, "Luxury brands need to look at the ‘next 11 countries’ such as Mexico, Turkey, Indonesia, as well as new wealth from Eastern Europe."

 

Going with the trend

The moneyed Chinese are different. Typically leaving frugality at passport control, the high-end Chinese consumers have moved up the connoisseurship curve very quickly. Customisation is key if you are to be "one in a billion". This was echoed by Poltrona Frau, a bespoke furniture producer, which regularly receives requests to refit and monogram the interiors of new Ferraris for the Chinese market to the tune of €150,000.

Still, Europeans are not the only civilization with a rich cultural heritage. As FT editor Lionel Barber predicts, "there will be an increased appearance of Asian luxury brands becoming credible competitors in their own right."

Luxury appears to have come full circle, as consumers have become more demanding on the provenance and manufacture of products – particularly since the recent tragedy in the factory in Bangladesh. Corporate social responsibility is key and this authenticity is particularly important to younger consumers, who are more conscientious and certainly more vocal through social media.

Here, Austrian brands may have an advantage, given the country’s impressive track record in green retailing and eco luxury. The most successful companies combine tradition and modernity, offering local, natural products with world-class design. In these, Austria excels.