When stylist Keylee Sanders asked one of her wealthier clients what was on top of her Christmas list, her client showed her a photograph of a fur coat by Michael Kors. It was $32,000.
The problem was the coat wasn't the right color, and she really wanted something practical she could wear every day. So Sanders suggested they have a custom coat made instead.
"We picked up the pelts and had them dyed," Sanders recalled. "By January, we had a knee-length, trench-style white mink with a hood. The best part? It was only $22,000, $10,000 less than the original coat.
Luxury is back, but there's a hitch this time. Customers have become savvier during the recession, designers and retailers say. They're willing to spend, but they want added value, which means little duplication of items they already have in their closets. And if they can supplement with discounted items from flash-sale sites like Gilt or stylish lower-end stores like Zara, all the better.
Sales for LVMH, the world's largest luxury-goods group, leapt 16 percent in 2011, yielding year-end profits of more than $4 billion. Prada reported a net profit of over $364 million in the third quarter of 2011, a 75 percent increase over the same quarter in 2010. And PPR, which owns Gucci and Yves Saint Laurent, continues to record steady growth.
Despite rising energy costs and political uncertainty in an election year, American women ran to stores in March, according to Thomson Reuters, snapping up bright skinny jeans, neon shoes and colorful coats. Now luxury-goods companies are prepping for what they hope will be a banner summer -- and that means cleaning house. Chief executives at Bergdorf Goodman and Givenchy fashion and leather goods appointed a new CEO and president in the last two months, while Christian Dior and Yves Saint Laurent inked deals with new creative directors. The hunt is on for the new luxury customer, and no one's taking any chances.
"Designers and retailers are looking at their current customer base and saying, 'How can I mean more to this customer?'" said Michael O'Connor, a jewelry expert who has been in the fashion industry for over 25 years. "Reaching out to new people can be costly, and it isn't always fruitful."
The hope is that customers who took a hiatus over the last few years will return this summer. It's a tricky proposition, though, because wealthy customers have become cautious. Many lost money in stocks and real estate, and some were financially devastated by Bernie Madoff, who, in March 2009, pleaded guilty to operating a Ponzi scheme considered the biggest financial fraud in history.
Customers were burned, and they don't want to feel foolish this time around. As a result, "companies are moving away from sex appeal and trying to sell products based on quality and value-added services," O'Connor said. "Designer handbag companies are focusing on hand stitching, while jewelry stores are allowing customers to purchase new items with credit earned from gold buyback programs."
In 2009, Blake Kuwahara, a well-known eyewear designer, launched a San Francisco-based design collective called Focus Group West. The goal? To help companies with luxury product development and branding. He immediately encouraged his clients to add customization programs like Nike and Polo did, or offer limited edition pieces that customers could only snag for short periods of time.
Kuwahara commends H&M and Target for their quick sell-throughs -- who could forget Missoni customers crashing the Target website in September? -- and says luxury brands have to think in the same way. "Customers don't want to seem ostentatious or frivolous anymore," he said. "So it's important to give incentives." Some luxury eyewear companies have offered "buy one, get one free" options that would have been unheard of in 2005 or 2006. "Customers are asking, 'Where is the value?'"
Though Sanders' clients are more inclined now to invest in a whole outfit, as opposed to just adding a shoe or bag like they did last year, they want to feel that there's a reason for their purchase. "Now, if a client is going to spend $800 on a pair of pumps, she wants it to be a new color like neon pink. She's not going to buy the same black pumps she got last year."
Neon colors, a big trend for spring, were a boon at retail in March. "This is something we haven't seen recently," Hitha Prabhakar, a retail analyst and author of the book "Black Market Billions," said. "So consumers feel they have a reason to shop again."
Over the last 18 to 24 months, women have been plagued by what Prabhakar calls frugal fatigue. "We experienced one of the worst recessions in my lifetime, but consumers are starting to feel more optimistic." That optimism is translating into sales of colorful apparel and a lot of footwear. Just don't expect a repeat performance of the roaring '20s or Greed-is-Good '80s, cautioned Prabhakar. "The psychology has changed. It's not about bling-bling."
"When we watch Shahs of Sunset," the reality TV show about wealthy Iranian Americans who spend thousands of dollars each month on luxury cars and accessories, "it's not aspirational, it's entertainment -- because we no longer want to be just like them."