Deluxe: How Luxury Lost Its Luster (27 page)

The exponential rise in manufacturing in Guangdong province has caused a host of environmental and labor problems. In late
2005
, health and environmental experts stated that the factories and population in Guangdong were drawing too much fresh water out of the Pearl River, allowing seawater to flow upstream and taint the local water supply, forcing Guangdong and Macao residents to use only bottled water for drinking and cooking. In January
2006
, several provinces farther up the Pearl River opened the floodgates of their dams to flush the salt water out of the delta and slow down the damage to its ecosystem. The air in Hong Kong, which is downwind from Guangdong Province, has grown increasingly smoggy to the point that most days it seems cloudy when its not. “When they shut down manufacturing in China for one or two days for national holidays, you can see the difference,” Bonnie Brooks, president of Lane Crawford department stores in Hong Kong, told me. “We get a couple of sunny days.”

The constant pressure to increase productivity has triggered a rise in human-rights violations in textile manufacturing around the world, according to the
2005
“Annual Survey of Trade Union Rights Violations,” published by the Belgium-based International Confederation of Free Trade Unions. In Bangladesh, workers at International Knitwear and Apparel who demanded better working conditions were fired, beaten, and told they’d be killed if they joined a union, the report stated. In Cambodia, police armed with guns and electric prods dispersed approximately four hundred protesting workers from a garment factory. In China, police detained cotton factory workers in Shaanxi province for protesting changes in their employment contracts. In China, workers are not required to wear protective gear such as earplugs or helmets when needed. “Foreign employers in the industrial zones, mainly textile groups from South Africa, Hong Kong and Taiwan, pay wages below the statutory minimum, refuse to pay sickness benefits and make unilateral deductions from their employees’ pay packets,” the study said. “The authorities turn a blind eye to these infringements.”

Recently, China has come under fire from human-rights and labor organizations for child labor practices. Though the legal working age in China is sixteen, children as young as eleven or twelve from poor families easily find work in factories, since they are cheaper to employ than skilled workers. Often Chinese children are forced to seek out work because their families cannot afford to send them to public school. Students at public schools in China regularly pay for their books, food, boarding, and transportation, all of which can cost up to $
125
a year—the equivalent of two months of factory wages and more than some farmers make in a year. But that is slated to change. The Chinese government recently instituted a reform to largely eliminate school fees.

In response to rising costs of manufacturing in China, brands are moving production to new cheap-labor markets such as Vietnam and Cambodia. “Chinese factories are coming here more and more,” said Chinese manufacturer Chen Guohui at his factory on the outskirts of Hanoi. “Labor costs are
25
to
30
percent lower than in China.” His workers earn approximately $
60
a month. While in Hong Kong, I heard from a highly placed source at a well-known luxury brand that the company had begun to produce some of its knitwear in Vietnam. As Mookeshwarsing Gopal in Mauritius told me, “The textile industry has a nomadic nature and requires cheap and abundant labor.”

Meanwhile, the Chinese are moving into ownership. In addition to Hong Kong manufacturer Kenneth Fang buying Pringle in
2000
, Taiwanese media magnate Shaw-Lan Wang bought the century-old French couture house Lanvin in
2001
, YGM Trading Limited of Hong Kong picked up French couture house Guy Laroche in
2004
, and Singaporean businessman Cheng Wai Keung owns the venerable
235
-year-old Savile Row tailor Gieves & Hawkes. Chinese entrepreneur Silas Chou is co-owner of both the esteemed British jeweler Asprey and the American luxury sportswear label Michael Kors.

And Chinese manufacturers are looking to acquire textile mills in Italy, many of which are in financial trouble due to cheap labor in China. The manufacturers hope to take over established brands, set up joint ventures to launch new brands, and distribute Italian labels in China. “China is no longer content with producing goods—it wants to go to the next level, to share brand vision, to be part of a distribution plan and bring added value to a project,” said Alfredo Canessa, chairman of Ballantyne, the classic Scottish cashmere knitwear company now based in Milan, which is launching a new brand called Chinese Cashmere Company in a joint venture with the Hong Kong–based company Fenix. “We want to be part of this scenario, if and when China will no longer be a low-cost manufacturing country.”

O
UTSIDE IT WAS 110
in the shade. But inside the Esplanade shopping mall at the Wynn Las Vegas hotel and resort on a July afternoon in
2005
, it was as cool and dry as a martini, and just as satisfying. Middle-aged Americans in T-shirts and shorts flip-flopped their way down the arcade’s colorful Jacques Garcia carpet, sightseeing. They nipped into Louis Vuitton and Dior to check out the bags and scarfed down free chocolates at Frederic Robert. They snapped pictures of each other in front of Cartier, ogled dresses at Oscar de la Renta, and pawed Manolo Blahnik’s towering gold sandals. Some bought, primarily small items like Vuitton credit card holders and Chanel perfume. Most looked.

Like Kris Stewart, an administrator at Miami University in Oxford, Ohio, and her sister Kathy Sorenson, a human resources executive for Sonoco Products Corporation in Long Beach, California—a couple of nice, average, forty-something white women on holiday in Vegas shopping for “something special” for friends with birthdays coming up. They hadn’t found anything by the time I met them in front of Jean-Paul Gaultier’s store, but they were enjoying the tour. “We don’t normally have an opportunity to stroll through these stores—we don’t get to go to New York all the time,” Stewart told me. “We have none of these shops in Oxford. No Chanel and Dior in Cincinnati. You see ads for the brands, so it’s nice to actually see the products.”

Las Vegas has always been America’s everyman town. Back in the
1880
s, miners set out from there, hoping to strike it rich. In the
1950
s, it was the epicenter of postwar decadence: the showgirls, the mob, the Rat Pack. In the early
1990
s, it improbably became a family vacation destination, with the Disneyfication of the famed Strip adding pirate ship battles and roller-coaster rides. And today, it has morphed again, into a luxury vacation resort with world-class restaurants, art museums, spas, and golf courses—and the greatest shopping in the United States. In the early
1990
s, “shopping wasn’t even on the charts” of how tourists passed their time in Las Vegas, says Maureen Crampton, marketing director for the Forum Shops at Caesars Palace, home of
150
“specialty shops” including Louis Vuitton, Gucci, Pucci, and Dior. By
2006
, shopping was the third most popular activity, after gambling and entertainment. In fact, the Forum Shops at Caesars receive more visitors each year than Disney World.

Because of its unrelenting flow of visitors—more than thirty-five million annually, most of whom, like Stewart and Sorenson, come simply to indulge—Las Vegas has become vitally important market for the luxury fashion business. Bernard Arnault visited the Louis Vuitton and Dior stores in the Esplanade four times in the first ninety days Wynn Las Vegas was open. “Las Vegas stores are always high in performance per square foot—first, second or third best [in the United States],” says Elaine Wynn, the wife of the Vegas impresario Steve Wynn, and a member of the board of directors of Wynn Resorts.

Vegas offers everything that luxury executives dream of: space, the traffic, the favorable demographics. “It’s really a broad cross-section of people,” Marla Sabo, former president and chief operating officer for Christian Dior Inc., North America, told me. “We see good clients from L.A. who visit for the weekend, then you have someone walk in who comes from someplace where we don’t have distribution, and then you’ll have someone who has won a fortune at the gaming tables and is looking for a place to spend it. And you know the Asian clientele has really taken off in the last couple of years. Now there are nonstops from Japan to Vegas. Because of this, we can see what works and what doesn’t work…and to get your brand image across to that many people is an incredible gift. Vegas is exposure.”

In the old days, when European luxury brands expanded to the United States, they primarily sold their goods in fine department stores in New York, Los Angeles, Philadelphia, and Chicago—cities with industrialist and entertainment fortunes and a vibrant social life. Back then, there was still a strict class structure in the United States. Luxury merchants, be it Bergdorf Goodman in New York or the local fine jeweler or silversmith in a smaller city, were considered the domain of the rich, a frontier that the middle class didn’t dare cross. “We don’t belong there,” mothers would whisper to their daughters.

The barriers came crashing down with the civil rights movement and social upheaval of the
1960
s. Not only did blacks have the right to enter establishments once reserved solely for whites, the middle class could emulate the wealthy, including patronizing their finest addresses, without fear of admonishment or ridicule. America’s dream of a capitalist democracy was finally fully realized: nothing was off limits to anyone anymore.

Luxury executives responded to America’s social and economic liberalization conservatively by opening boutiques in New York and Beverly Hills and expanding their product lines in department stores to include lower-priced items such as scarves, ties, perfumes, and handbags. Old European luxury firms were still small, family-run affairs. Growth was not the top priority. After all, business was good, the families lived well, and no one worked too hard. What more did one need?

But in the
1980
s, when growth became not merely a priority but the sole objective, and Japan had proved that luxury brand products could sell very big overseas, the tycoons turned their sights onto a new target: the middle market. And the biggest, wealthiest, most fluid middle market in the world was the United States. The question was: Where to start? Luxury had to find a place that had an abundant number of customers, didn’t diminish the perceived status of the brand, and wouldn’t cost a fortune if the store flopped. Las Vegas was the logical choice. It had buffed itself up, was growing exponentially, and, most important, was perhaps the lone place in America—and maybe the world—where the have-nots lived, if only for a few days, like the haves.

Las Vegas was in a sense the metropolitan equivalent of corporate luxury. Since nearly its inception, Las Vegas has hawked the dream of wealth, with Lady Luck as its conduit. But it’s all a mirage. The sole objective for both Las Vegas and today’s luxury brands is to take your money. It was only a matter of time until the two converged.

“As funky and tawdry as Las Vegas has been in the past, people come here and feel they can indulge themselves in personal pursuits of pleasure,” Elaine Wynn explained. “Maybe they aren’t the greatest gamblers, and maybe they can only play slots, but, boy, do they know how to shop. And it’s a heightened experience here because it’s judgment-free. No one is looking over their shoulder telling them they shouldn’t be spending their money on this or that way. When they come here they are released from all those inhibitions, and it created a wonderful opportunity for retail.”

I
N THE
U
NITED
S
TATES
,
President Ronald Reagan’s tax breaks and the rising stock market kicked off the transformation of the middle class into the middle market. The Internet boom of the
1990
s bolstered it that much more. America Online, in Dulles, Virginia, for example, had an estimated three thousand millionaires on staff in
1999
. All this new money and spending power changed the American Dream: average Americans were no longer content being average. According to a University of Florida study in
1991
,
85
percent of those surveyed aspired to be among the wealthiest
18
percent of American households, writes Juliet B. Schor, author of
The Overspent American: Why We Want What We Don’t Need
. Only the remaining
15
percent said they would be content being “middle class.” In a
1986
Roper Center poll, average Americans claimed to need $
50
,
000
to fulfill their dreams. By
1994
, it was $
102
,
000
.

Social priorities changed, too. According to a Roper Center study in
1975
, a lot of Americans thought “the good life” meant a happy marriage, one or more children, an interesting job, and a home, reports Schor. By
1991
, many of responses were more materialistic: “a lot of money,” “a second car,” “a second color TV,” “a vacation home,” “a swimming pool,” and “really nice clothes.”

Since
1970
, real household income in America has risen by
30
percent; one-fourth of American households have an annual income of more than $
75
,
000
. By
2005
, four million American households had a net worth of more than $
1
million. What have Americans done with all that money? Gone shopping. Between
1979
and
1995
, the average American’s spending increased by at least
30
percent and up to
70
percent. And it was deeply satisfying: According to a
1997
study,
41
percent of Americans between the ages of twenty-two and sixty-one declared that shopping made them “feel good.” To pay for it all, Americans went profoundly into debt. Between
1990
and
1996
, credit card debt doubled; by
1997
, American household debt was $
5
.
5
trillion, Schor reports. Yet it wasn’t enough:
27
percent of all American households with income over $
100
,
000
claimed they couldn’t afford to buy everything they needed.

Other industrialized nations have seen a similar trend, though not to the same extent. In the United Kingdom, disposable income has increased by
88
percent in real terms in the last twenty years. In Italy it increased fourfold from the
1970
s to
2000
, and in France nearly five times. Like Americans, Europeans went shopping, and they bought nice stuff. In
2004
, nearly half the U.K. population claimed to have purchased as least one luxury product in the last twelve months.

T
HIS MADE THE
luxury tycoons giddy with glee. Just as in Japan, they could roll out their stores across the United States and Europe, fill them with affordable, logo-covered products targeted to this new, shop-happy middle market, and watch their sales—and profits—mount. “[Expansion] was in the air and needed to be addressed,” Tom Ford told me in
2006
about Gucci’s expansion into the middle market in the
1990
s. “Had we not done it, someone else would have.”

Luxury brand executives applied their couture pyramid model to their retail expansion. First, they opened gleaming flagships in such cosmopolitan capitals as New York, Paris, Milan, London, and Beverly Hills to set the tone. They were big stores that contained the entire collection, from couture gowns to key rings, and were staffed with both the snooty salesclerks who knew the old-money regulars and friendlier sorts who could help the new middle-market customers. Like the couture shows in Paris and the made-to-order leather ateliers, the flagships—with their polished mahogany counters, plush carpeting, contemporary art, or antique decorated salons—reaffirmed the marketing departments’ well-crafted image of luxury, reinforced the companies’ brand power, and seduced legions of new followers from every economic level. Armani’s flagship on Rodeo Drive, for example, draws hundreds of customers every day, from movie stars looking for something new to middle-market tourists who visit it like a museum. The tourists may not fork out $
3
,
000
for a suit then and there, but chances are when they get back to their hometown, they’ll hit the lower-priced A/X or Armani jeans stores and buy into the dream.

Luxury brands clumped together on what were once streets filled with local merchants—Bond Street in London, Via Condotti in Rome, Rodeo Drive, and Madison Avenue—thereby changing the landscape and the local economics, in a sense creating luxury ghettos. In part the clumping was to draw the customers more easily: they came to see Dior and decided to check out Prada and Gucci, too. But there was also a financial consideration. Groups like LVMH, Gucci, and Prada negotiated blocks of real estate for their various brands. If you wanted Vuitton, you’d get Dior and Céline, Givenchy or Loewe, and offer a good price for the lot. “When we look to locate in a shopping mall…we define which mall is a luxury mall, because they need all of our brands,” Arnault said.

In Beverly Hills the change was dramatic. Real estate value took off. Old local retailers and landowners sold or leased their space for a fortune to the only folks who could afford it: luxury brands. Even Fred Hayman, Mr. Rodeo Drive himself, cashed out. He leased the Giorgio building to Louis Vuitton. (No dummy, Hayman held on to the property.) “It’s a very attractive company, an asset to Beverly Hills and certainly to Rodeo Drive,” Hayman told me.

From there, the brands decided to roll out to the secondary cities such as Chicago, Miami, Hong Kong, Osaka—and Las Vegas. Vegas was a dream destination, and luxury brands were now in the business of selling dreams. It had the demand, and it didn’t have much in the way of luxury retail—only Joseph Magnin, a small family-run boutique next to the Desert Inn, and Neiman Marcus, which had opened in
1981
as an anchor for Fashion Show, the Strip’s first shopping mall. At first, Neiman Marcus catered to wealthy locals who had previously done their shopping on Rodeo Drive or during trips to New York. But soon tourists discovered it, in particular career women who were coming to Las Vegas for business and for pleasure and spending their hard-earned money as they pleased.

To tap into this new free-spending demographic, in May
1992
Caesars Palace and Simon Property Group, a major mall developer, opened the first retail mall at a casino. Reproducing ancient Rome, with colorful stucco houses and cobblestone streets, the Forum Shops offered a wide range of retailers from midlevel shops such as Ann Taylor and Caché to luxury brands Louis Vuitton, Gucci, and Bulgari. The target was tourists, plain and simple, and they bit big: the revenue from May to December
1992
was $
500
to $
700
per square foot—triple the national shopping mall average. By May
1993
, it was approaching $
1
,
000
per square foot. Five years later, Caesars inaugurated a thirty-five-shop extension that included the Atlantis show—an hourly Animatronics retelling of the legend of the mythic city, a five-hundred-thousand-gallon saltwater aquarium—and a range of retailers including Niketown, the Cheesecake Factory, and Dolce & Gabbana. They, too, did a bang-up business. Sales were $
1
,
000
to $
1
,
200
per square foot.