Market Maturing Toward Tasteful Luxury

ReutersLVMH chairman Bernard Arnault speaking at the Supreme Luxury conference in the Ritz-Carlton on Wednesday.
Outside the Ritz-Carlton, as a flurry of snow turned Tverskaya Ulitsa to mud, a young man tried to sell a fake designer watch to passers-by for 1,000 rubles.

"I promise you it won't get scratched," he said, a cigarette hanging from his cracked-tooth grin. "Please buy it my friend, I'm practically giving it to you."

Inside the hotel, only meters away but light-years distant, some of the biggest names in the fashion and luxury-goods industries packed out the chandeliered halls Wednesday for one of the sector's most important events.

In improbably high stiletto heels and bodyguard in tow, Donatella Versace tottered past bottles of designer mineral water, while fellow designer Tom Ford posed broodingly for photographers and supermodel Natalia Vodianova tried to raise cash for her charity.

Although there was a nametag with his name on it waiting, billionaire Roman Abramovich failed to show up.

The event was the International Herald Tribune's annual luxury industry conference. Entitled "Supreme Luxury," this year's discussion of all things unnecessary is running Wednesday and Thursday.

And most importantly, for the first time ever, it is being held in Russia.

As the country's economy has boomed over the past few years, so the rate of luxury consumption has rocketed. According to Forbes' rich list, there are now 53 Russian billionaires.

"Some analysts say that Russia is now the fourth largest consumer of luxury goods in the world," Bernard Arnault, chairman and CEO of international luxury brand group LVMH, told the packed hall. The top three spots were held by the United States, Japan and China, he said.

In five years, the total global luxury industry is set to double in size to 300 billion euros ($445 billion), Arnault predicted. In 10 years, he said, Russia, China and India will account for one-third of all sales.

"The trick is not to see it as a short-term El Dorado. It takes detailed planning and minute research," Arnault said.

Other industry bigwigs were also lining up to underscore the value of the Russian market.

"It is an important market for us," said Laurence Graff, head of Graff Diamonds. "Our business here has grown and grown and is still growing."

And 26 years after Estee Lauder visited Moscow to launch her products, John Demsey, group president for the company, said Russia represented the firm's fastest growing market.

Demsey said that as wealthy Russians have flocked to top-end destinations around the world, like London, the French Riviera and Dubai, the Russian diaspora and travelers abroad were also a crucial market.

"The consumption is well beyond what we see in Moscow," he said.

As for the consumption habits of the Russian rich, a myriad of magazine articles recently have suggested that the country's wealthy have started ditching the glitzy ethos of conspicuous consumption for sophisticated modesty.

Where they would have once been clad head to toe in Chanel, Russian women today are likely to be more discreetly, and tastefully, attired, said Suzy Menkes, the International Herald Tribune's fashion editor and brains behind the conference.

Some other industry insiders were less convinced.

"Consumers in emerging markets are still enjoying the 'more is more' phase," said designer Tom Ford. "Conspicuous consumption still rules."

Because of the reach and speed of communications today, Ford said Russian tastes would develop "exponentially faster" than they had in the West.

Arnault, from LVMH, painted the luxury industry's leading brands as the original pioneers of globalization.

After railing against the problems that counterfeit goods pose to the industry, Arnault said Russian membership in the WTO and closer ties with the European Union were paramount.

Currently accounting for 4 percent of global sales, the Russian market is growing at a rate of around 30 percent per year, said Melanie Flouquet, head of luxury goods European equity research at JPMorgan. She singled out the jeweler Cartier as a success story in Russia.

"Jewelry and watches tend to be more exposed in Russia and the Middle East," she said.

And as the credit crunch hits sales in the United States, analysts said attention would increasingly turn toward Russia to stave off hard times.

"We are not in Moscow doing this conference by mistake," said Roberto Vedovotto, chairman of European luxury goods at Lehman Brothers.