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The price of luxury
Written by: Klára Smolová, Tamina Quinto-Penková
Photo: Petr Poliak
When luxury brand names like Herme`s, Louis
Vuitton, and Escada landed on the local market five years ago, some said
it was just the beginning. But did the fashion invasion actually happen?
ACCORDING
TO world-wide research into the most expensive streets worldwide,
conducted by the real estate consulting firm Cushman & Wakefield
Healey & Baker, Prague's Na Příkopě shopping zone rated 18th.
Last year, rents there rose by a record 25%, to EUR 1,680 per m2
per year. True, this is a far cry from New York's Fifth Avenue
- rents on that most expensive street in the world amount to EUR
7,967 per m2 per year - but Prague rated well ahead of nearby neighbors
Budapest (29th place) and Warsaw (35th place).
This sharp growth indicates that competition on the Czech real
estate market, especially in Prague, is rising. In the last several
years countless new shopping centers have sprung up throughout
the country, attracting many well-known retail brands such as Zara,
Mango, and H&M. But while more and more stores focusing on
the middle class are appearing, trade in luxury goods is stagnating,
in contrast with original expectations. True, back at the beginning
of the nineties several brands, such as Ligne Roset designer furniture,
Hugo Boss, and the cosmetics firms Lanco^me and Estée Lauder, set
up shop here. About five years ago they were joined by such icons
as Versace, Louis Vuitton, Escada, and Swarovski - but for now
this trend has halted.
"
Versace originally had a large store but then had to move to a
small one," claims Jan Králíček, assistant editor-in-chief
of the luxury-oriented magazine Dolce Vita. "Pringle closed
down, and Donna Karan stayed around for only a few months. There
are no Gucci, Prada, Yves Saint Laurent, Chanel, or Vivian Westwood
shops here. Why? The local market is too small," he adds.
But many people in this field are convinced that in ten years the
situation will have changed. As they say, it's only a question
of time and increasing purchasing power of the citizenry.
New customers are on the way
The limited market is certainly not the only reason why luxury brands
and upscale shops aren't flocking to the Czech Republic. According
to a mid-September report in The Wall Street Journal, in the last three
years these firms have been facing their worst crisis in a decade.
This was caused not only by global economic stagnation, but also by
such catastrophes as the New York terrorist attacks, the SARS epidemic,
and the war in Iraq. These events affected the travel industry, on
which the luxury goods trade depends, so most of the leading brands
suffered falling revenues. "Many of our suppliers are having survival
problems," says Aneta Rašovičová, the owner of Linea Pura, a furniture
and accessories vendor.
The Czech market was also hurt by global events that entailed a decline
in the number of foreign visitors. But according to luxury brand vendors,
the customer base is slowly changing, so the decline in the number of
tourists is partly made up for by increasing numbers of Czech clients. "Eighty
percent of our customers are Czechs," claims Miloš Staněk, the general
director of Potten & Pannen, which sells kitchen products, including
Rosenthal porcelain. The typical customer spends up to CZK 50,000 at
the store, and other vendors are reporting similar numbers. "Ninety-five
percent of our shoppers are Czechs who live in Prague," says Jindra
Kramná, an interior decorator from Ligne Roset, adding that in the early
nineties shoppers were mainly foreigners or expatriates who knew the
goods from abroad.
This change is entirely logical. The more Czechs travel and open up to
the rest of the world, the better educated they become in the areas of
design, fashion, and quality, so they also become more demanding. Besides
the so-called upper ten thousand - comprised of top company managers,
entrepreneurs, artists, and expatriates - a new potential clientele is
being recruited from today's generation of thirty- and forty-somethings
who are at the peaks of their careers and have money to spend. "I
think this is natural behavior. In the beginning quantity was the most
important thing, but once you've satisfied your basic needs you want
something more," says Mária Gálová, the director of the Dorotheum
auction house, which has been active on the Czech market since 1992,
focusing on the sale of jewelry, 20th century paintings, and porcelain.
But unlike western countries, in the Czech Republic people from the middle
class save up to buy luxury goods. They are interested mainly in small
items like fashion accessories, which is why small handbags or belts
by Louis Vuitton are popular items here. According to Kramná, Ligne Roset
is accessible to all shoppers, because if someone likes the style but
can't afford a CZK 200,000 sofa, they can still buy a small lamp, for
example.
Location is everything
In Prague luxury goods shops are naturally concentrated on Pařížská street
and around Old Town Square. This is due not only to the area's attractiveness
for tourists, but also its greater concentration of residents with
higher incomes, who rent luxury apartments and offices in historic
buildings. But according to Martin Žížala, the manager of the retail
department at Cushman & Wakefield Healey & Baker, the amount
of suitable space in this area is limited (in terms of numbers and
size), so other businesses are beginning to look elsewhere. "For
example, furniture vendors need a lot more space, so the Vinohrady
area is of interest to them," Žížala explains. The number of newly
opened shops on Vinohradská street, such as Living Space and Scavolini,
seem to bear him out.
The same is true of Holešovice, where companies like Vitra and Koncepti
that sell designer furniture and accessories have chosen to locate their
headquarters. Once considered "out of the way", this district
now has a chance of becoming the design center. Abandoned factories in
this formerly industrial quarter of Prague draw innovative architects,
who have converted many of them into lofts that will surely not rent
or sell cheaply. Karlín, once an industrial zone, is being similarly
developed. One reconstructed factory has been converted into the headquarters
of the Czech architect Mojmír Ranný, who moved from the city center.
His company, Ranný Architects, is the exclusive vendor of furniture and
accessories by companies like Wittman, Cappelini, Montis, and Fantoni. "We
want to concentrate more on the office furniture market. Here (in Karlín)
many new offices are being created, and we're also in closer contact
with developers," explains Ranný.
Although at first glance Czechs may not seem very interested in luxury
goods, the boom in shops that carry expensive designer furniture and
accessories announces that a change is occurring in how people perceive
the term. "Luxury á la Ivana Trump is an anachronism - today what
counts is originality, uniqueness," opines Králíček of Dolce Vita.
According to some of the city's upscale retailers, Prague has great potential
to become a major European shopping mecca. "Prague has been and
will continue to be a common place for buying luxury goods and fashion," Žížala
claims. Time will tell how the local market shapes up compared to the
relatively affluent cities of the west, but flying to New York for a
shopping spree will always be an attractive option for those who can
truly afford it.
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Getting a taste for luxury
The offer of luxury fashion in Prague is a
far cry from that in London, Paris, or New York, as the lack
of fashion industry leaders shows. Czechs still spend more
on their homes than on clothes, so the demand for haute couture
is growing very slowly.
It's all a question of lifestyle. "In the Czech Republic
there are lots of wealthy people who dress on the cheap,
but there are also lots of people who like saving up for
luxury," says Barbora Bergová, PR manager of stores
selling the Malo and Alberto Guardiani clothing brands and
fashion accessories by Francesco Biasia and Vicini, which
can be afforded by only the upper crust of society. Milena
Stavrič-Maksimovič, the owner of a shop selling Baldinini
shoes and accessories, says, "Although Czechs make 50%
of the purchases here, they still don't like investing in
shoes and accessories." In her opinion this phenomenon
can be traced back to the past, when for 50 years people
had nothing to choose from. "As opposed to foreigners,
we don't have a 'clothes culture' or an innate feeling for
luxury," claims Ivana Rudičová, the PR manager for a
shop that sells Herme`s luxury fashion goods. "Only
now is an offer of luxurious goods appearing, as well as
customers who demand high quality. But it will still take
some time."
Merchants agree that Czech customers are typically hard-sell,
and the best way to win them is through personal contact. "Czechs
go shopping often for small items, making decision on larger
purchases more gradually. Deciding on a particular purchase
can take weeks," Rudičová says. European customers go
about their purchases in a manner that indicates many years
of experience with branded goods, as well as comfortability
spending more money. "While most Czechs buy individual
clothing items separately, in other countries customers come
to stores for complete outfits. This says a great deal about
a nation's psychology and purchasing power," says Lukáš
Loskot, retail manager for a shop selling men's fashion and
accessories by Alfred Dunhill and a shop with Carollinum
jewelry and accessories.
But the purchasing power of Czech clients is still causing
store-owners problems. "Although Swarovski jewelry is
affordable for everyone, only five percent of our revenues
come from Czechs," says Silvie Steinerová, manager of
the Prague Swarovski shop. This is further illustrated by
the fact that, for example, luxurious Cartier watches can
be bought in Carollinum in Prague for 50,000-600,000 crowns,
yet the most expensive models can be found only in London
or Paris, or by special order.
While Czech customers continue to guard their wallets with
cautious frugality, they are now becoming the center of attention
for many luxury merchants. This has been a decision based
in necessity, as events of the last two years - from floods
and SARS to global terrorism and war - has reduced the number
of foreign visitors, making local clients a default target
group.
Jasmina Žarković |
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Quality above quantity
Strolling in some areas of Prague, especially around Vinohradská,
it is hard not to notice the steady growth of luxury interior
design shops alluring customers with pricey goods. It comes
as no surprise then, that after an era of yearning for top-model
cars and brand-name fashions, Czech shoppers have moved to
the next level: high standard living.
Experts in the luxury market assure that optimum quality
has become a major priority. Jindra Kramná, interior decorator
with Ligne Roset, one of the first shops offering luxury
design furniture on the Czech market since 1993, says that
people are becoming more educated, and thus getting more
demanding. "Before we used to sell more products just
from the catalogue. Today, we have to have most items on
display, because in 90% of cases, customers like to see and
try them," Kramná says. This required the store to enlarge
its showroom from 120 to 350 square meters six years ago.
Mojmír Ranný, owner of Ranný Architects, agrees that Czechs
are becoming smarter shoppers. "They have woken up and
realized they were buying houses without value," says
Ranný pointing out at the uniform houses that mushroomed
in Prague suburbs in the middle of the '90s. Those people,
he says, are now seeking assistance from architects and designers
to improve their living space. But Ranný sees a great potential
in young managers who hold good positions and are expected
to climb higher. "Already fifty percent of our customers
are younger than 35," he observes.
Miloš Staněk is general manager of Potten & Pannen, a
shop that sells luxury kitchenware, including Rosenthal porcelain.
According to him, it is in the hands of the new generations
to spread the "trend" of owning superlative quality
housewares. Although the majority of people buying high-end
are in the top salary range, the middle class is increasingly
getting a taste of luxury. "Some of our customers can
afford buying one or two products a month," says Staněk
of middle-class shoppers who like to festoon their kitchens
with Potten & Pannen items, but who must gather their
collection slowly.
Tamina Quinto-Penková |
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Luxury on wheels
Cars are a special sort of luxury purchase. Price-tags on
the finest automobiles can often equal the cost of a three-room
apartment, but Czech vendors can't complain about a lack
of clients.
In the luxury sedan segment the Audi A8 is the Czech market
leader - in the first ten months of 2003, 153 A8s were sold.
Its closest competitors are well behind: sales of Mercedes-Benz
S class reached 90; BMW sold 60 series 7; and Jaguar XJ luxury
models amounted to only 20. The Mercedes-Benz brand accounted
for 40% of the top sports car market over the first ten months,
with sales of 36 SL cabriolets and 12 CL coupés, while 27
BMW Z4 roadsters and 13 Porsches were sold, one behind Ferrari.
Although the high-end car market is very sensitive to a fluctuating
economy, statistics still show a rising trend. "Every
year sales rise a bit," notes Richard Vegera, sales
manager for Porsche Inter Auto Praha. The cars his firm offers
cost from CZK 1.5 to 16 million, depending on the equipment.
Jan Fechtner, the director of Jaguar Praha, is of a similar
opinion: "This year we sold 80 cars, and next year we're
counting on selling over 100." On the other hand, according
to Sylva Webster, sales promotion specialist for Volvo Auto
Czech, sales were affected by recent low interest rates on
mortgages, so many people have put off buying cars in order
to invest in real estate.
Luxury car suppliers describe their customers as extremely
successful people, strong individualists, top managers, artists,
and athletes. But each car expresses a specific image that
draws particular types of people. For example, while Volvos
and Porsches are said to be bought mainly by conservative
people who like unostentatious luxury, self-confident extroverts
buy Jaguars. "There is unusually high value placed on
brand image in this country," Fechtner explains. "People
think that Rolls-Royce is on top, followed by Jaguar, and
so on down the line. But in terms of price, our cars compete
with BMWs," he adds.
A common trait of people who buy cars for a few million crowns
is that they are particularly demanding. "When someone
chooses a Porsche they want as many options as possible.
They can easily spend an extra million on options," Vegera
explains. Fechtner says that Jaguar's mid-range S-Type is
the best-selling model in the Czech Republic, while in western
Europe the X-Types, the smallest Jaguars, traditionally sell
best.
Disregarding the spectacular nature of their products, the
vendors agree that there is no need for showy advertisements
and presentations. "This brand doesn't kowtow. The clients
we're interested in will come of their own accord," claims
Vegera.
Klára Smolová |
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