Deluxe

by Dana Thomas

  Only Net-a-Porter flourished. “Since we were small, we grew with the market,” Massenet explained. Her overhead was tight, her staff top-notch: her main buyer, Sojin Lee, had worked for Bottega Veneta and Chanel before joining Net-a-Porter. The articles on the Web site were informative, the delivery time was fast—same day in London and within seventy-two hours around the world—and service was impeccable. “We don’t just stuff the items in a Jiffy bag and send them out,” Massenet explained. “The girls iron the white cloth bags, and stuff the sleeves with tissue paper. We use handmade, noncollapsible boxes. We knew that we could devalue brands by offering online without all the perks you get when you go shopping. We had to make Net-a-Porter more compelling than what you get in a store.”

  The company’s advertising consisted chiefly of word of mouth and editorial mentions. “Vogue called us the chicest new boutique in the world,” Massenet says proudly. With the rise of Google and other search engines, and affiliate Web sites like Vogue.co.uk and Vogue.de, Net-a-Porter’s exposure grew. Business nearly doubled every year, and the number of new clients increased exponentially each month. To keep up, Massenet had to do “emergency fund-raising” six or seven times. “If we’d only had a few of Boo.com’s millions,” she says with a laugh.

  In 2002, Net-a-Porter landed its retail angel. Chloé CEO Ralph Toledano agreed to let Net-a-Porter sell Chloé accessories. It was a real coup: Chloé’s parent, Richemont, generally shied away from online retailing. Massenet bought fifty Bracelet handbags, which retailed at $1,000 a pop. Within three weeks, Net-a-Porter had a waiting list of two thousand for the bags. Toledano was so pleased with Net-a-Porter’s results that he made the site Chloé’s official online store. In 2004, Net-a-Porter did about $22 million in sales and posted its first profit. It’s been earning a profit ever since, and sales are still doubling each year. By 2006, it did was doing about $70 million in sales.

  In 2006, Net-a-Porter featured about 150 brands, including LVMH’s Fendi, Céline, and Pucci. Massenet has carried Givenchy in the past and was currently looking at Dior. When I asked how she managed to have LVMH brands that are also available on eLuxury, she said, “We have a retail relationship with the individual brands and the individual management teams at those brands. Although we have positive relationships with each of the groups—Richemont, LVMH, Gucci Group—the decisions to go online with us are made at the brand level.”

  In August 2006, Net-a-Porter opened a fifty-thousand-sqare-foot warehouse U.S. distribution center in Long Island City, New York, eliminating the duty and taxes U.S. customers paid when orders were shipped from London, and speeding up delivery. Central Manhattan residents get same-day service; the rest of the United States receives orders within two days. By 2006, the company was attracting a hundred new customers a day from 110 countries and the average order totaled $850. Today Massenet’s customers range from jet-set socialites to average middle-market consumers. The largest number—43 percent—are in the United Kingdom. North America accounts for 27 percent, continental Europe 15 percent, the Far East 8 percent, and the Middle East 7 percent. Surprisingly, ready-to-wear is the best-selling category. “Everyone thought it would be bags and shoes,” Massenet explains. Clients regularly scan designer collections on Style.com and zap e-mails to Net-a-Porter requesting that the buyers select specific items. Net-a-Porter also alerts clients via e-mail about hot new arrivals. For many brands, Net-a-Porter sells more at full price than most department stores, which means more profit for the brands. Massenet’s operations are still lean: she only has 250 employees, and does little advertising—primarily online banner ads. Massenet herself is perhaps the company’s best publicity. A woman with great style and radiant beauty, she regularly poses for magazine fashion spreads, with Net-a-Porter plugged in the captions. When I met her, she was dressed in a white Chloé pencil skirt and black tee, a thin chocolate brown Céline cardigan, and Marni heels—“all from Net-a-Porter,” she said proudly.

  Net-a-Porter’s success has finally removed the stigma of the e-tailing business for luxury executives. Since 2005, Louis Vuitton and Christian Dior have opened online boutiques in France, Germany, and the United Kingdom. (In the United States, the sites link to eLuxury.com.) Hermès launched its online retailing in 2002 in the United States and in 2005 in France to hawk its basics such as scarves, pocket squares, bracelets, and perfumes. Gucci Group began selling Gucci accessories online in 2003 and Bottega Veneta in 2005. And just in time. Forrester Research, an Internet research company based in Cambridge, Massachusetts, stated in a November 2005 study that thirty-nine million Europeans were buying clothing online and predicted that figure would double to seventy-three million by 2009, bringing the online share of total apparel sales to 18 percent. Analysts believe that online apparel sales in the United States will reach about $14 billion by 2009, making it more than computers and electronics. In 2005, online sales of jewelry and luxury goods in the United States rose by 31 percent. Furthermore, Forrester reported that in Europe, “for each euro of clothing sold online, an additional three euros of offline sales will be net-influenced,” and concluded that luxury brands now “have no choice but to provide an online sales channel.”

  For Massenet, the future of online luxury retailing is what she calls “mass personalization”—essentially online couture. “Say you like that gray dress but you want it in red,” she says. “We’ll have it manufactured in red and deliver it to you. When you have a thousand women who want it in red, it becomes a viable business.” The idea, she says, is “to offer customers exactly what they want. I think we will achieve that in the next five years.”

  While her method is new, Massenet’s idea is quite old-fashioned: Net-a-Porter is a modern version of the classic department store. She has also proved a basic principle in luxury merchandising: a third-party retailer can reach out to the middle market and make a killing without hurting its reputation because it is simply a conduit and it sells a limited amount of items, giving both the store and the luxury brand the appearance of exclusivity. When luxury brands themselves go mass-market, however—selling a full range of goods in ubiquitous boutiques, outlets and duty-free stores and on their own Web sites—they undermine their well-crafted message. They become an everyday occurrence, a common presence. They aren’t a luxury anymore.

  OF COURSE, reaching out to the average consumer, hawking the dream, creating “democratic luxury” as Burberry’s now-retired CEO Rose Marie Bravo trumpeted in the late 1990s, was great for business. But going mass-market has had its drawbacks, too.

  The most obvious is theft, known euphemistically in the business as shrinkage, and by carrying more stock in more places, luxury brands have made themselves increasingly vulnerable to it. The primary culprits are company employees, according to the National Retail Security Survey, conducted annually by the University of Florida. Garden-variety shoplifters who stash items in their coats or purses and slip out the door are still a problem, too. Luxury’s most famous amateur shoplifting bust was in 2001, when twenty-nine-year-old movie star Winona Ryder was caught trying to steal $5,500 worth of merchandise at Saks Fifth Avenue in Beverly Hills, including a Gucci dress, a Dolce & Gabbana bag, and a Marc Jacobs top. She received three years of probation, a $10,000 fine, and 480 hours of community service.

  That sort of theft is manageable: brands can simply add more security cameras and guards. What’s become difficult is the dramatic rise in theft-to-order of luxury brand goods. “It’s not normal shoplifting anymore, where they’re stealing one or two items,” said Joe Morrash, a detective with the stolen-property task force of the Alexandria, Virginia, police department. “They’re stealing in volume and selling to fences and underground boutiques.” Some capers are for-hire by private clients. In Minnesota, a dentist paid a professional thief to shoplift $250,000 worth of Baccarat, Chanel, and other luxury brand items. He was caught when, upon discovering that the loot included the wrong brand men’s suits, he sent the thief back to steal Armani.

  But
a lot are staged by organized rings, many from Latin America. They move from New York to Washington to Chicago and steal in volume to supply boutiques elsewhere. They make off with a lot quickly. Andrew McColl, a Washington-based agent for the Federal Bureau of Investigation, arrested a thief taking $100,000 worth of items from the Tysons Corner mall in northern Virginia. At times, robberies can get dangerous: the Versace boutique in Boston was held up by two armed bandits, who attempted to make off with $750,000 worth of watches and jewelry before being caught. One of the gunmen struck an employee in the face with a.38 handgun, causing a gash that required seventeen stitches.

  The pros have their tricks, like lining shopping bags with aluminum foil or duct tape to confound alarms or fleeing via little-watched side entrances. There are “girdle bandits” who slip most anything under their clothing. “One thief I know put a whole mink in a girdle,” Gerald Dupree, a retired shoplifter, told the Times. Another, he said, “would go into a jewelry counter and, you know they have chains hanging on display racks? She could just lift the chains up all at once and drop them down her sleeves.”

  They also increasingly steal from the source. Cargo theft—when delivery trucks are jacked—is on the rise. And thieves routinely break into luxury brand showrooms and fashion magazine storage closets to steal samples. “They obviously had good taste,” Nylon magazine’s fashion director Michael Carl said after thieves swiped fifteen pieces of Prada and Chanel from the magazine’s offices in 2004. “They systematically went through and picked out the nicest clothes.”

  Another problem luxury has faced from going mass-market has been attracting less-than-desirable customers and fans. Not all brands are thrilled with the sort of fervor their advertising, celebrity dressing, and retail expansion has created. Like Burberry—despite Rose Marie Bravo’s “luxury for everyone” rhetoric. In Britain a few years ago, a working-class subculture emerged called Chavs, a term derived from the Romany travelers’ word chavi, meaning “child.” Young and usually with only a high school education, Chavs hang out at small-town shopping centers, smoke cigarettes, and intimidate passersby. Their uniform is a baggy tracksuit, clunky gold jewelry, and anything and everything with the Burberry check, much to the chagrin of Burberry executives. Chavs are “the same kind of slightly disenfranchised suburban kids” as punks were a generation ago, Lucian James, a brand consultant in San Francisco, told the New York Times Magazine. “In the same way in the 70s [punks] would sort of [snort] glue, now [Chavs] are all just sitting at McDonald’s wearing Burberry hats.” They are proud of their Chavness and have their own set of celebrity idols, the tops being Victoria Beckham, former Spice Girl and wife of soccer star David Beckham, and Daniella Westbrook, a working-class British TV actress who starred in the popular soap EastEnders. Westbrook was named the Queen of Chavs when she was snapped shopping in London dressed head-to-toe in Burberry check and pushing her Burberry check–clad baby in a Burberry check stroller. The Chavs became most obsessed with the Burberry check baseball cap. When Burberry stopped producing the caps, Chavs started buying counterfeit versions.

  In the United States, the rap subculture, with its obsession for bling, embraced luxury’s logo-ridden products, promoting brands in songs, onstage, or in music videos. They also began splurging on the clothes, jewelry, and handbags in very public shopping sprees. As Kanye West rapped, “I’m Kon, the Louis Vuitton Don. Bought my mom a purse, now she Louis Vuitton Mom.” It shouldn’t have been a surprise to luxury brands, since they created the obsession through design as well as marketing. Back in the early 1980s, at the nascence of the hip-hop movement, street kids in Harlem and the Bronx took the logos of Gucci, Dior, Louis Vuitton, and Chanel—back then very conservative brands for bourgeois white ladies—printed them on T-shirts, sweatpants, and baseball caps, oversized and in loud colors, and showed up at hip-hop clubs or on street corners garbed up in these spoofs. “Everything was very cartoon,” says Kim Hastreiter, co-editor of Paper, the New York–based avant-garde pop culture magazine. “What a great way to devalue status. It wasn’t bling. It was taking white status and taking the air out of it.”

  In the end, luxury picked up on the trend. In the early 1990s, Chanel designer Karl Lagerfeld used the house’s double-C logo in the same way the ghetto kids did—dangling it from necklaces, hanging it from chain belts, stamping it on everything. Designers Marc Jacobs at Louis Vuitton, Tom Ford at Gucci, and John Galliano at Christian Dior incorporated this street take on old luxury into their work. As Kim Hastreiter and David Hershkovits recall in their book 20 Years of Style: The World According to Paper, “Ford immediately produced superfly coats, suits, hats, shirts and bags, all covered in the traditional Gucci-logo fabric.”

  And who became their best customers? The new superrich hip-hop stars such as Sean “P. Diddy” Combs, Jennifer Lopez, and Beyoncé Knowles, decking themselves out in Fendi furs, Fred Leighton diamonds, and anything with a Dior, Chanel, Gucci, or Vuitton logo on it. Logos—particularly luxury brand logos—represent “all the shit we don’t have,” said Def Jam Records founder Russell Simmons. “We’re not ripped-dungarees-rock-n-roll-alternative-culture people. We want to buy into the shit we see on television but we want to put our own twist on it. Part of the fantasy of fashion is about being successful. It’s aspirational. I put this on, I’m getting laid. Not because I’m cool and raggedy but because I’m cool and clean. Because I want to buy into this culture.”

  Some brands embrace the bling obsession. Gianni Versace once boasted that rapper Tupac Shakur “wore Versace on the day he walked into prison and on the day he walked out of prison.” Dolce & Gabbana dressed Mary J. Blige for a concert tour, and, in 2005, Louis Vuitton hired hip-hop star Pharrell Williams to design its new sunglasses line. Some cringe silently and ring up the sales. And some speak out. “What can we do?” asked Frédéric Rouzaud, head of Louis Roederer, the last major family-owned champagne house and the makers of the top-ofthe-line Cristal, which rappers swig, as well as sing about, often. “We can’t forbid people from buying it. I’m sure Dom Pérignon or Krug”—both owned by LVMH—“would be delighted to have their business.” In response to this apparent diss, rapper Jay-Z, CEO of Def Jam, took Cristal off the wine list at his clubs in New York and Atlantic City and vowed to change the lyrics in the half-dozen songs in which he references the bubbly. “I view his comments as racist and will no longer support any of his products through any of my various brands,” the rap star declared.

  Perhaps the greatest problem luxury brands have created for their companies by going mass, banking analysts say, is financial instability. Before its global expansion to the middle market, luxury was immune to economic cycles. The companies were small and catered to a limited old-money clientele who were rich enough not to be affected by short-term drops in the stock market or economic downturns, and who shopped consistently and bought well. Luxury was a successful niche business. But when luxury changed its target audience to the cost-conscious middle market that shops when flush but stops cold when times get tough, it made itself dangerously vulnerable to recessions—as the industry would soon find out.

  In the mid-1990s, luxury brand executives saw the Asian economic tiger as a hungry, deep-pocketed new customer base. “Anybody who had a name or wanted to make a name moved into Asia,” Giancarlo Giammetti, then managing director of Valentino, told me. “If you opened one store, the next thing you knew, you opened five.” Gucci had seven outlets in Hong Kong in 1998, three within a six-block radius. Prada had nine. New York City, in contrast, had just one Gucci and two Prada shops. It was inevitable that “these companies were going to get killed because of their overcapacity” in Asia, said Joanne Ooi, president of East from Seventh Ltd., a wholesale showroom in Hong Kong for Western designers trying to break into the Asian market. “Without tourism, Hong Kong is only a city of six million inhabitants. How is it going to support nine Prada stores?”

  But in July 1997, Thailand’s currency collapsed, triggering a two-year-long economic crisis acro
ss Eastern Asian, and luxury took a beating. Valentino’s Giammetti immediately halted the construction of two Valentino stores in Singapore. Zegna closed three of its four shops in South Korea. Yves Saint Laurent pulled out of Seoul’s Galleria department store, and Louis Vuitton shortened store hours in Hong Kong. Gucci’s stock plunged a staggering 50 percent in a month. LVMH lost 45 percent of its stock value from July to October. At Hermès, sales in Southeast Asia dropped by 11 percent and its stock fell by 14 percent. “In South Korea,” British designer Paul Smith told me, “our business [was] gone, completely. Overnight.”

  Four years later, the terrorist attacks of September 11, 2001, stopped leisure and business travel cold for weeks and diminished it greatly for two years, causing substantial losses for the luxury industry, which relies greatly on travel shopping. LVMH’s net income plunged from €722 million in 2000 to a mere €10 million in 2001. As soon as the industry recuperated from those losses, SARS hit, in effect shutting down Hong Kong, one of its biggest markets in the world, for six weeks. Two years later, the threat of avian flu made luxury executives extremely nervous.

  Since luxury has broadened its audience, middle-market brands such as Zara, Gap, H&M, and Banana Republic have taken advantage and moved in next door. “I wonder if Abercrombie being next to Prada on Fifth and Fifty-sixth Street will benefit Prada,” mused Joel Isaacs, president of Isaacs & Company, a real estate firm in Manhattan that specializes in luxury retail placement. “From the view of foot traffic, it might. What I do suspect is that Abercrombie will benefit from Prada.” This retail integration has turned once-chic shopping streets into tourist attractions and driven luxury brands to look for new, more “insider” addresses, such as the meatpacking and financial districts in New York and Melrose Place in Los Angeles, for big-spending luxury customers. Today there is not one bank, gas station, or drugstore on Rodeo Drive. Instead, there are more than thirty-five luxury brand fashion stores, twenty major jewelers, and a half-dozen high-end art galleries along the fifteen-hundred-foot, three-block retail stretch of Rodeo Drive. In 2001, fourteen million people visited Rodeo Drive and it was averaging $1 million a day in retail sales. “We don’t want to be on Rodeo Drive anymore,” says Mario Grauso, president of the Puig Fashion Group, which includes Nina Ricci, Carolina Herrera, and Paco Rabanne. “That’s not the shopping experience anymore. You don’t want a busload of tourists out front taking pictures.”