Executive Chairman, Asia Pacific
See the new issue of Briefings magazine, available at newsstands and online.
An All-Star trio of Ceos— from Cartier, Hermès Usa And Krug—tell us how they are evolving the luxury sector.
When Cartier, the legendary luxury jeweler, celebrated the reopening of its lavish Manhattan location last September, it pulled out all the stops. Long red carpets lined Fifth Avenue as CEO Cyrille Vigneron greeted each guest, many of whom were loyal clients and celebrities flown in by Cartier.
For Cartier, this wasn’t just another retail store, it was the 170-year-old company’s illustrious New York mansion. History has it that Pierre Cartier, the grandson of the company’s founder, bought it from the wife of a railroad tycoon in exchange for a $1 million white pearl necklace she fancied. Now, nearly a century later, French architect Thierry Despont has redesigned the building and created a 44,000-square-foot retail space like no other—a breathtaking venue befitting the globally admired brand.
Yet for the Paris-based purveyor of luxury goods, the evening was as much about its storied past as its challenging future. To a surprising degree, the luxury industry had managed to have a resilient run despite the onrush of the digital world, relying on top, high-priced quality and personal, face-to-face service with well-heeled customers for whom money was no object. But within the span of a year, this glitzy and glamorous world found itself in new territory: a bit of a rut that appears longer lasting. As Vigneron himself puts it, “Most of the brands of the luxury world are facing a transition that is not so easy.”
Indeed, though still an enormous sector with $1.1 trillion in revenues, the worldwide market for personal luxury goods, from jewelry to fashion to hospitality, has softened dramatically. Over a 20-year run into this century, the industry had enjoyed an average annual growth of nearly 6 percent. But last year it hit negative ground, falling 1 percent, according to a luxury market report from Bain & Company. Some of the factors hurting the business have been tied to short-term events, such the terrorist attacks in Paris that slowed high-end tourism in Europe. But a series of fundamental changes, from a sharp slowdown in the Chinese economy to the growing resentment against exuberant personal spending in the U.S., appears to be catching up on a once insulated business.
“The reality is that the market is consolidating,” says Claudia D’Arpizio, a Milan-based partner at Bain and lead author of the luxury study. And as it does, so does the need for high-end purveyors to find new ways to stimulate demand. “Every brand needs to find a pattern of innovation to really wow customers,” she says.
But exactly how do the brands pull this off, especially in an age when the Internet lets newcomers in so easily? And what happens when younger customers want more luxury experiences instead of high-end goods? “That’s a challenge for luxury brands,” says Grace Nida, Korn Ferry’s senior client partner and managing director for the Global Luxury sector. “The traditional luxury brands are fighting for customers’ discretionary income.”
In the end, as with any industry in transition, the challenges ultimately fall into the hands of CEOs, who must help design and oversee a response. We talked to three of the biggest in luxury you could ask for, to hear their stories and their take on what luxury really needs.
When Cyrille Vigneron was named CEO of Cartier in January 2016, his excitement at landing the top spot at the iconic luxury brand was tempered by stark market realities. Few brands are as iconic and respected, but the 54-year-old knew he needed to spark the brand from a global perspective.
He set out to better understand the regional and global implications of a shrinking planet, where exclusive shopping districts, from New York to Paris to Hong Kong, were becoming far too similar and far less exciting to customers. “We want to learn what is specific to each city,” Vigneron says. “What makes that city special and what should we find there that we don’t find in other places, even with the brand we know?”
A strong advocate of physical retail space, Vigneron is banking on refurbishing the company’s iconic “maisons” such as Fifth Avenue, as well as its flagship location on Paris’s Champs-Élysées and in Tokyo, Seoul and London. He wants each location to build off Cartier’s signature brand attributes, offering a specific allure to both local luxury shoppers and well-to-do tourists.
Acknowledging the power of the Internet and e-commerce, he points out that the world is so fast-paced with change that brands risk becoming “a bit too neutral, too quiet” and not distinctive and local enough.
Leading in this environment is a challenge, and Vigneron is traveling around the world to meet with Cartier employees and spread the brand gospel. He does town hall meetings at every venue, where no question is taboo. “You have to grow from within,” he states. “People must understand deeply the esthetic codes of a brand and the maison, and how to constantly reinvent that.”
For mature brands like Cartier, part of the challenge is to attract younger customers such as millennials. Vigneron believes the answer isn’t to design products specifically for a certain age group, but to allow each generation to find the value and beauty in these objects of timeless art. “It’s like classical music,” he says. “At the beginning they may find it boring, but when they start to like it and feel its emotion, it will stay with them forever.”
President and CEO, Hermès USA
Amid the industry’s recent struggle, Hermès has remained a success as radiant as its lovely scarves, with sales in the first half of 2016 up 7 percent. Robert Chavez, president and CEO of Hermès USA, believes it comes from a corporate philosophy that emanated from family control of the company’s entire 180-year history.
Though most luxury brands are focused on classic, traditional styles and designs, whether for Champagne or watches, there is a recognition at Hermès that in a globally interconnected world, comfort in the status quo is a losing strategy. According to Chavez, “There is a deep curiosity by the family and the company to always find newness, something different, not resting on our laurels but always pushing the envelope.”
To that end, Chavez has made some bold moves that have helped fuel Hermès’s success in the U.S. He opened the first and only free- standing Hermès men’s store in the world along with the first Hermès perfumery, both in New York. And he forged a partnership with Apple to produce an Apple watch with Hermès watchbands, a collaboration that had customers waiting in line outside Hermès’s Madison Avenue boutique when the watch went on sale.
“It was a way for both companies to really push into the next level of innovation,” Chavez says. Indeed, Hermès is ranked No. 32 on the Forbes list of the 100 most innovative companies in the world. “Retailing is changing so quickly today, you have to be on your toes,” he says.
When Chavez was a boy growing up in San Antonio, Texas, he could never have dreamed of a career path that would lead him from Texas to the haute couture of New York and Paris. Even after successful stints at Bloomingdale’s and Macy’s, and as CEO of Etienne Aigner, a producer of moderately priced footwear and accessories, the Princeton-educated Chavez was shocked when he was offered a chance to become the U.S. president and CEO of Hermès, one of the world’s iconic luxury brands.
“One thing led to another and I found myself in Paris, and the next thing I knew, they offered me the position. I couldn’t believe it,” Chavez recalls.
That was in 2000. Over the next 17 years, Chavez would spearhead dramatic growth and innovation for the luxury goods maker in the States. Under his watch, Hermès now has 28 U.S. retail locations—not many compared to large retail chains, but the right number to retain the allure and mystique of the Hermès brand in one of its key markets.
“Our philosophy has always been that less is more in every way, shape and form,” Chavez says. “Twenty-eight stores is not a lot in a country with 350 million people, but the strategy has worked very well for us.”
President and CEO, Krug Champagne
At first, Margareth Henriquez thought she had the problem well in hand. Sure, the company she had taken over as president and CEO, Krug Champagne, was struggling badly in the midst of a deep industry decline in 2009. But the executive, known to all as Maggie, figured on a quick turnaround. After all, she had managed some stiff corporate challenges both at Seagram and Moët Hennessy’s Chandon brand.
“I thought this was going to be easy,” Henriquez recalls. “I thought, ‘We can turn this around fast because it’s a small house.’ ” But within a year, with Krug’s results no better, she had learned her first lesson: “Never underestimate the problem,” she says.
Her response from there was to learn what luxury was all about. Ruminating in her office at Krug headquarters in Reims, the commercial center of France’s Champagne province, Henriquez realized that luxury is not simply a higher price point but a “real, living being,” and in order to understand that living being she would need to learn about the company’s founder, Joseph Krug. She came across his personal notebook that had been locked away for a century—which helped her launch a two-year odyssey to marry the founder’s vision with the modern-day brand. “Today I know Joseph Krug better than my own father,” she says, smiling.
The problem wasn’t in the production. Krug Grand Cuvée Champagne, a blend of more than 120 wines from 10 or more different vintages, has long been considered among the world’s best. What was needed was luxury communication—a new and potent connection to Krug’s devoted customers. So, in 2011, Henriquez launched the Krug Lovers program, using its website to create a platform for stories and inspiration about Krug. The Krug Ambassades network includes 150 ambassadors—noted chefs and sommeliers who help promote the brand.
As part of this effort, Krug embraced the idea that music and Champagne are deeply connected, and music appears to have a significant impact on the enjoyment of drinking Champagne. Based on research done at Oxford University’s Crossmodal Research Lab, Krug has invited musicians such as violinist Joshua Bell and British vocalist Beardyman to extensive tastings. She requested playlists inspired by what they tasted.
At the same time, Henriquez initiated the Krug ID program, in which every bottle of Krug Champagne has a six-digit number on its back label designed to tell the story of that bottle. Sommeliers, collectors and customers alike can not only learn about the wines and vintages, but also get a playlist geared for drinking the Champagne.
To be sure, Krug would be helped by an industry revival in Champagne, but Henriquez’s unique effort clearly helped orchestrate the company’s return to stardom; it’s now ranked No. 6 on Drinks International magazine’s list of best-selling Champagnes for 2016. “We are having the best year in the history of the house,” Henriquez says.