Deluxe

by Dana Thomas

  The barriers came crashing down with the civil rights movement and social upheaval of the 1960s. 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 1980s, 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.”

  IN THE UNITED STATES, 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 1990s 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 1970s 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.

  THIS 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 1990s. “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.

  Steve Wynn took notice, and when he and his wife Elaine designed Bellagio, their $1.6 billion, 3,025-room luxury resort on the Strip, they decided to include a one-hundred-thousand-square-foot corridor called Via Bellagio, dedicated exclusively to luxury retailing. “We wanted brands that were at Neiman Marcus but didn’t have a presence in Las Vegas like they did in Paris or Hong Kong,” Elaine Wynn told me. “We started with the big triumvirate—Chanel, Armani, and Gucci—then filled in the blanks, adding Prada, Yves Saint Laurent. Chanel resisted coming. We had to give them a very big pitch. I remember my husband told Arie Kopelman [then president of Chanel Inc.], ‘Arie, you think you are doing me a favor but, believe me, we are doing you a favor.’ Arie wasn’t familiar with the new Las Vegas. But he came to visit and he got it immediately. Armani was ready to go, but everybody was saying, ‘Who else is coming? If you get a commitment we’ll go.’ They didn’t want to be in a spotty neighborhood. Though they are competitive, they wanted to be together because that would assure a look. We didn’t believe that this was an experiment. Neiman Marcus was already doing a terrific business and we were sure that there was a market to explore. When the audience changes every two and a half days, [business] grows. It was sure bet.”

  It sure was. For New York jeweler Fred Leighton, the Via Bellagio shop had its highest sales per square foot. “Bellagio kicked up the caliber of shopping in Las Vegas,” remembers veteran Las Vegas retailer Terri Monsour. And it proved that luxury retail was a bona fide flourishing business in Las Vegas. In 1999 came the $1.5 billion Venetian hotel-casino with the five-hundred-thousand-square-foot Shoppes, where families glide down an indoor Grand Canal in genuine gondolas past palazzi that house not Casanova or Lord Byron but Burberry and Jimmy Choo. In 2003, Fashion Show completed a $1 billion renovation and expansion, and in 2004, the Forum Shops opened a third, sleek, modern section for sixty luxury retailers, including Harry Winston, Baccarat, Pucci, Kate Spade, and a second Coach store.

  In a matter of a few seasons, Las Vegas became the second city in which a brand opened a store, after New York. For some brands, it was first. Christian Lacroix opened its first American store in the Forum Shops in August 2006. Juicy Couture, the California clothing brand that made its reputation by selling luxury velour sweat suits to Madonna and Gwyneth Paltrow, put its first freestanding boutique there, and Versace opened its only Home Collection store there. It was a wise move. With sales of $1,500 per square foot, the Forum Shops did nearly four times more business than the average regional shopping center in 2005, according to the International Council of Shopping Centers, making it one of the most successful in the country.

  Since then construction of luxury shopping centers has not abated. The Wynns opened Esplanade with great fanfare on Elaine’s sixty-third birthday in April 2005. Next door, Wynn is building Encore, a $1.4 billion hotel-casino, with a ninety-thousand-square-foot shopping mall for luxury brands, including Hermès. Across the street, the Sands Corporation, owner of the Venetian, is constructing a $1.8 billion, three-thousand-room resort called Palazzo, with three hundred thousand square feet of retail space that will include Christian Louboutin, Chloé, and Barneys New York, due to open in 2007. And MGM Mirage is building the $7 billion, sixty-six-acre Project City-Center to open in 2009, with eighty-plus stores that will have “all the major luxury suspects,” said William Taubman, chief operating officer of Taubman Centers Inc. “We’ve come up with a plan that allows us to give the major international brands street frontage and brand identity similar to what they get on the Ginza in Tokyo and New York’s Fifth Avenue.” Though brands are sure to have several outlets along the Strip when the projects are completed, neither they nor the mall owners are worried about the idea of overexpansion. “People do not go up and down the Strip and comparatively shop,” Terri Monsour told me. “They tend to stay close to their hotel.”

  Shopping in Las Vegas is, like gambling, a two-tiered world. There are hoi polloi, like Kris Stewart and Kathy Sorenson, the tourist sisters I met at the Esplanade, who play small stakes in the casino and cruise the luxury brand mall. For them, shopping in Las Vegas is a treat. The items for sale are far flashier than what they see back home, with lots of glitter and sparkle and not much hemline—all of which reinforce the idea of Las Vegas as a city of luxurious dreams. The stores themselves are much more inviting, with wide mall entrances and not a single menacing doorman to be seen. And the salesclerks are like the dealers in the casinos—they’re friendly, and they take the time to educate you about the products; they don’t assume that you know. “In New York I feel so uncomfortable walking in a store, like I don’t belong there,” Stewart explained. “Las Vegas is much more relaxed, casual.” In part, that’s because the staff can’t always size up who’s who. “You cannot be judgmental in Las Vegas,” says Monsour. “The person in cutoffs and a holey T-shirt can open up a money belt and pull out $100,000 in cash. I’ve seen it many times.” But also there is the great chance that if you don’t buy this time, you might the next time you’re in town. In its first year, half the customers at Wynn’s Esplanade were repeat.

  For Big Shoppers—the sorts, says Elaine Wynn, who fly in from far corners of the world and “buy thirteen pairs of Manolo Blahniks at a time”—it’s a different experience altogether. Like the high-rolling gamblers—the ones casinos fly in on private jets, house in villas, and cater to attentively—Las Vegas’s Big Shoppers get the royal treatment. Usually they call Justine Bach, head of Wynn’s Personal Shopping Service, to announce that they are on their way. Bach clears her schedule, then goes to the stores in the Esplanade to pull clothes, shoes, handbags, jewelry, watches—anything and everything the customer might like—that she will either set up in a plush private salon just off the mall or send up to the shopper’s room to try on. Sometimes the shopper visits the stores, too, with Bach in tow. There are two seamstresses and a tailor on staff to make immediate alterations because generally the customer wants to wear it now. Sometimes Big Shoppers ring down to Vuitton to order a new suitcase (or two or three) for their purchases. Monsour also ships worldwide. The hotel offers other perks to Big Shoppers, such as limousine service to and from the airport. “They are like the people who play baccarat,” says Elaine Wynn. “They don’t come often, but when they do it’s a strong, strong business. So you have to have something available to satisfy their needs.” In its first year of business, Esplanade did an astounding $1,800 worth of sales per square foot.

  THE EXPANSION was racking up millions in sales and profits and making owners and shareholders extremely happy. But all these new stores created a new problem: unsold merchandise. When luxury brands sold their wares in their one flagship store and a handful of department stores, their inventory was limited. The little bit of ready-to-wear that went unsold was sent to discount chains like Loehma
nn’s, or was burned. Leather goods changed so little that they remained on the shelves season after season.

  However, to sell more merchandise and meet the quarterly turnover projections, designers churned out increasingly trendy collections of clothes, handbags, and shoes each season to draw customers more often to the stores. The downside was that the products had a much shorter fashion life span—six months max—before they were displaced by the new collection. And with hundreds of new stores around the world, the volume of leftovers was immense. Executives knew it was bad business to sell the leftovers for a pittance to the discount chains, and watch the Loehmann’s and Syms of the world rake in the profits. Burning them and writing off the loss was out of the question; shareholders weren’t about to watch their profits go up in smoke.

  The answer lay somewhere between Rodeo Drive and the Las Vegas Strip—literally as well as figuratively. Two hours due east of Los Angeles, in the heart of the California desert on the way to Palm Springs, is a shopping center called Desert Hills Premium Outlets, which houses many of the same names you’ll find in Beverly Hills—Dior, Prada, Ferragamo, Gucci, and Armani—but sell items at up to 75 percent less. It is part of Chelsea Property Group, a leading developer of more than forty upscale, fashion-oriented outlet centers around the world. When I visited Desert Hills in July 2005, there was a decentsize crowd, considering the sweltering desert temperatures. During the high seasons—October to March—you can wait in a long backup on Interstate 10 just to get into the parking lot. Approximately seven million people shop at Desert Hills each year, a great many who have bought into luxury’s marketing of the dream but can’t afford luxury goods at full or sale price, as well as those who can but want to get more for their money. “People are so into bargain hunting, and everyone loves luxury brands,” Desert Hills general manager Kathy Frederiksen told me. “Customers sit down and look at the map and say, ‘Wow! You have that and that!’ They get so excited. ‘We can buy so much more here with our money.’ People leave with trunkfuls of merchandise. They make several trips to the car to load up the trunk.”