[Paleopsych] Economist: Luxury: Inconspicuous consumption

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Luxury: Inconspicuous consumption
http://www.economist.com/business/PrinterFriendly.cfm?story_id=5323772

    Dec 20th 2005 | LONDON, NEW YORK AND PARIS

    Now that luxury has gone mass market, how are the super-rich to flaunt
    their wealth?

    THE recently reopened Louis Vuitton store on the Champs Elysées is a
    deliberate exercise in democratic luxury. On its new, opulent art deco
    terraces, elegant French ladies of a certain age--the epitome of the
    traditional consumer of luxury fashion--rub padded shoulders with
    jeans-and-tee-shirt sporting younger women who could be their
    daughters, or, just as easily, rap singers or a gaggle of British
    working-class hen-weekenders.

    What traditional buyers of luxury make of their nouveau co-consumers
    they are, of course, too civilised to say. But it seems unlikely that
    they consider Louis Vuitton's still-exquisite handbags, shoes and
    other indulgences to be quite as exclusive as before. If they continue
    to shop there--and the store's owner, LVMH Moët Hennessy Louis
    Vuitton, thinks it can extend its brand to a broader market without
    losing its existing customers--it may no longer be because its
    products are a signal of exalted social status.

    In this respect, LVMH's goods are by no means unique. Products and
    services that were once the preserve of a very wealthy few--from
    designer handbags to fast cars, bespoke tailoring and domestic
    servants--are increasingly becoming accessible, if not to everyone,
    then certainly to millions of people around the world. This may appall
    killjoy economists such as Robert Frank, the author a few years ago of
    a book condemning "Luxury Fever" in this new "era of excess". But it
    is arguably even more upsetting to those super-rich folk who have long
    been able to afford luxury, and may in one crucial respect even regard
    it as a necessity.

    As Thorstein Veblen noted over a century ago in "The Theory of the
    Leisure Class"--the book in which he coined the phrase "conspicuous
    consumption"--spending lavishly on expensive but essentially wasteful
    goods and services is "evidence of wealth" and the "failure to consume
    in due quantity and quality becomes a mark of inferiority and
    demerit." But in the 21st century, "being a conspicuous consumer is
    getting harder and harder", says James Lawson of Ledbury Research, a
    firm that advises luxury businesses on market trends. What does a
    billionaire have to do to get noticed nowadays?

    Luxury for the people

    A stone's throw from the Louis Vuitton store, the classical grandeur
    of the five-star Four Seasons George V hotel was the perfect Old World
    venue for the World Luxury Congress in October. But all the talk at
    the gathering was of the potentially lucrative opportunities presented
    by new consumers of luxury, in rich and emerging economies alike.

    Being a millionaire, for instance, is becoming commonplace. In 2004
    there were 8.3m households worldwide with assets of at least $1m, up
    by 7% on a year earlier, according to the latest annual survey by
    Merrill Lynch and Capgemini. The newly wealthy are often desperate to
    affirm their status by conspicuously consuming the favoured brands of
    the already rich. In developed countries this can be seen, in its
    extreme form, in the rise of "Bling"--jewellery, diamonds and other
    luxuries sported initially by rappers--and Britain's unsophisticated
    Burberry-loving "chavs". (Burberry is considered unusually successful
    at tapping a broader market. But even it now understands that not
    every new customer is desirable: in January it withdrew its
    distinctive checked baseball caps because of their popularity with
    chavs.)

    The number of luxury buyers in the developed world is also being
    swelled by two other trends. First, consumers are increasingly
    adopting a "trading up, trading down" shopping strategy. Many
    traditional mid-market shoppers are abandoning middle-of-the-range
    products for a mix of lots of extremely cheap goods and a few genuine
    luxuries that they would once have thought out of their price league.

    Alongside this "selective extravagance" is the growth of "fractional
    ownership": time-shares in luxury goods and services formerly
    available only to those paying full price. Fractional ownership first
    got noticed when firms such as NetJets started selling access to
    private jets. It has since spread to luxury resorts, fast cars and
    much more. In America, From Bags to Riches--"better bags, better
    value"--lets less-well-off people rent designer handbags. In Britain,
    Damon Hill, a former racing driver, has launched P1 International. A
    £2,500 ($4,300) joining fee, plus annual membership of £13,750, buys
    around 50-70 driving days a year in cars ranging from a Range Rover
    Sport to a Bentley or a Ferrari.

    As a result, "the price of entry for much of what traditionally was
    available to the top 0.001% is now far lower", says Mr Lawson, who
    notes the sorry implications for a would-be conspicuous consumer: "How
    do I know if the guy who drives past me in a Ferrari owns it or is
    just renting it for the weekend?"

    Demand for luxury is also soaring from emerging economies such as
    Russia, India, Brazil and China. Antoine Colonna, an analyst at
    Merrill Lynch, estimates that last year Chinese consumers already
    accounted for 11% of the worldwide revenues of luxury-goods firms,
    with most of their buying done outside mainland China. He forecasts
    that by 2014, they will have overtaken both American and Japanese
    consumers, becoming the world's leading luxury shoppers, yielding 24%
    of global revenues.

    These emerging consumers have a big appetite for the top luxury
    brands--and the owners of those brands are increasingly keen to
    oblige. Russia is producing today's most determinedly conspicuous
    consumers. Roman Abramovich, the best-known oligarch not in jail, has
    conspicuously set new standards in buying mansions, ski resorts and
    soccer teams.

    Veblen revisited

    For the already rich, strategies such as splashing out on ever bigger
    houses, longer yachts or getting special treatment from luxury-goods
    firms does not contribute much marginal conspicuousness. Meanwhile,
    the list of new ways to get noticed by the masses is shrinking fast.
    Even space tourism--impressive in 2001, when Dennis Tito paid Russia
    $20m to visit the International Space Station--will soon be humdrum.

    As it gets ever harder to consume conspicuously, are some traditional
    luxury consumers giving up trying? According to Virginia Postrel,
    author of "The Substance of Style", conspicuous consumption is much
    more important when people are not far from being poor, as in today's
    emerging economies. In developed countries, in particular, "status is
    always there, but the shift in the balance is towards enjoyment". For
    instance, the first thing the newly super-rich tend to buy is a
    private plane. But that, she says, is "not so much about
    distinguishing themselves from the masses as not being stuck with them
    in a security line".

    In his new book, "Hypermodern Times", Gilles Lipovetsky, the favourite
    philosopher of LVMH's boss, Bernard Arnaud, has coined the term
    "hyperconsumption". This is consumption which pervades ever more
    spheres of life and which encourages people to consume for their own
    pleasure rather than to enhance their social status. H.L. Mencken made
    the same point more crisply in a critique of Veblen in 1919: "Do I
    prefer kissing a pretty girl to kissing a charwoman because even a
    janitor may kiss a charwoman--or because the pretty girl looks better,
    smells better and kisses better?"

    Yet rather than abandoning status anxiety, the way the rich seek to
    display status may simply be getting more complex. As inequality grows
    again in rich countries, some of the very rich worry about consumption
    that is so conspicuous to the masses that it provokes them to try to
    take their wealth away. Some car-industry experts blame weak sales of
    the latest luxury limousines on this fear.

    As well as traditional conspicuous consumption and "self-treating",
    Ledbury Research identifies two other motives that are driving buying
    by the rich: connoisseurship and being an "early adopter". Both are
    arguably consumption that is conspicuous only to those you really want
    to impress. Connoisseurs are people whom their friends respect for
    their deep knowledge of, say, fine wine or handmade Swiss watches.
    Early adopters are those who are first with a new technology. Silicon
    Valley millionaires currently impress their friends by buying an
    amphibian vehicle to avoid the commuter traffic on the Bay Bridge.
    Several millionaires have already paid $50,000 a go to clone their pet
    cat.

    In America, at least, says Marian Salzman, a leading trendspotter, the
    focus of conspicuous consumption is increasingly on getting your
    children into the best schools and universities. Harvard may be
    today's ultimate luxury good. Getting into the right clubs is also as
    important a social statement as ever. America's young wealthy may
    currently be seen at the Core Club in New York: membership is by
    invitation only, with a joining fee of $55,000 plus annual dues of
    $12,000.

    But perhaps the true symbol of exalted status in the era of mass
    luxury is conspicuous non-consumption. This is not just the growing
    tendency of the very rich to dress scruffily and drive beaten-up cars,
    as described by David Brooks in "Bobos in Paradise". It is showing
    that you have more money than you know how to spend. So, for example,
    philanthropy is increasingly fashionable, and multi-billion-dollar
    endowments such as the Bill and Melinda Gates Foundation are certainly
    conspicuous. However, since the new philanthropists are keen to
    demonstrate that their giving produces results, this does not quite
    meet Veblen's threshold of being a complete waste of money. So the
    laurels surely go to those who are so wealthy that they are willing to
    buy adverts encouraging the state to tax them. Kudos, then, to those
    conspicuously non-consuming wealthy American opponents of recent
    efforts to abolish estate taxes: George Soros, Bill Gates senior (the
    father of the world's richest man) and Warren Buffett.