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Chris Jones

Upstairs, Meet Downstairs

7 June 2006

LAS VEGAS, Nevada -- Are jet setters' champagne wishes crossing paths with common folks' corn dog dreams?

You bet your assets, several luxury retailing experts said this week in Southern Nevada.

As inconceivable as it may seem, discount chains such as Wal-Mart and Target are a growing threat to traditional luxury retailers.

And while big-box chains may never offer the ultrahigh-end wares found within Strip shopping malls or Rodeo Drive boutiques, low-price retailers' drive to better their products is dividing sales within the world's $186 billion luxury retail sector.

"The middle part of the (luxury) market, especially in the U.S., is hurting," said Gilbert Harrison, chairman of Financo, a New York- and London-based investment banking firm that specializes in merchandising.

"When mass marketers come out with products that have style and quality, it hurts the moderate (luxury) market," Harrison said Monday at Henderson's Ritz-Carlton Resort at Lake Las Vegas, site of the first Financial Times Business of Luxury Summit held in the United States.

Harrison's comments were echoed by Patrizio di Marco, president of Bottega Veneta, a division of Gucci Group.

He said sales of extremely high-end products purchased by the wealthy will rise, as will lower-tier luxury products and accessories priced for widespread consumer availability.

"We're going toward more of these two extremes," di Marco said.

Supporting evidence is easy to find on store shelves and Web sites.

Minneapolis-based Target Corp. has for years thrived selling chic clothing and furniture by noted designers such as Mossimo and Isaac Mizrahi.

Bentonville, Ark.-based Wal-Mart has followed suit, as evidenced by its fall debut of the Metro 7 clothing line targeting fashion-conscious women.

Even warehouse stores such as Costco and Sam's Club carry luxury items, from big-screen plasma television sets and Prada handbags to 4.24-carat diamond rings that sell for $80,000 each.

Alberto Torres, president of Vertu, a London-based manufacturer of luxury cell phones, said he believes today's shopper of means frequently purchases one or two luxury items from high-end boutiques.

They'll round out their collection, he added, with lower-priced-but-still-stylish wares sold by mass marketers.

Still, successful luxury retailers will always enjoy a niche so long as there's wealth in the world.

How else to explain the popularity of Vertu's exclusive phones studded with 700 diamonds? At $90,000 per phone, don't expect to snag one at Wal-Mart anytime soon.

Torres was chided that such a phone could prove extremely costly should an owner misplace one in the back of taxi, as cell phone users often do.

His phones, he answered, "Wouldn't be left in a taxi because the person who owns one wouldn't be taking a taxi."

The continued success of luxury retailers is important to Las Vegas, which has recently become one of the world's best shopping destinations.

Matteo Marzotto, chief operating officer with Italy's Valentino Fashion Group, said the United States generates approximately 20 percent of his company's $2.3 billion annual sales.

Las Vegas is the nation's fastest-growing market for Valentino, which also owns the popular Hugo Boss brand.

"There's so much happening here, so many opportunities," Marzotto said of Las Vegas.

Marzotto's colleague, Graziano de Boni, said he's pleased that more local residents are shopping at high-end stores, a trend he said reflects the valley's thriving economy.

"(Locals) are shopping here instead of going to L.A. or New York," he said.

With nearly 40 million visitors per year, Las Vegas is one of the few cities where luxury brands can have four or five stores, de Boni added.

While fending off the likes of Wal-Mart and Target, luxury retailers must also stave off threats from their high-end peers, warned Darrell Rigby, an analyst with Bain & Co., a global business consulting firm.

Rigby said most companies that own several luxury brands have not used their size to achieve the success enjoyed by companies with only one brand.

If those so-called multibrand players, including Gucci and Mo?t Hennessy, can improve their business models, Rigby said they could siphon sales from popular "monobrands" such as Rolex and Dolce & Gabbana.

Approximately 400 people attended this week's three-day Business of Luxury Summit, including representatives of leading luxury product manufacturers Fendi and Simon Property Group, which owns the Forum Shops at Caesars.