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Luxury isn’t what it used to be.
“With millions of millionaires and thousands of [other] people who can afforda Louis Vuitton bag or a Prada suit, the very term luxury keeps getting debased,” Robert Frank, author of “Richistan” (Crown Publishers,$24.95), stated simply.
One result of people getting wealthier far faster and at significantly younger ages than they have historically is that luxury marketers will be pressed to keep giving more to the new rich. More elaborate and expensive things will be in demand— status symbols that “have always defined the truly rich,” projected Frank, who has chronicled the rapid run-up in wealth that is giving rise to a tier of Americans he dubs Richistanis, who live in the realm of Richistan.
Even in Richistan, a class divide is emerging whereby the “have-mores,”as Frank describes those with wealth of at least $10 million, are intent on purchasing things that, among other things, set them apart from mere single-digit millionaires. Single-digit millionaires do not qualify as truly rich in the eyes of the author, a senior special writer at The Wall Street Journal who writes a daily blog, “The Wealth Report.”
In 2004, there were nine million single-digit millionaire households among the country’s then-112 million households.That compares with a considerably more rarefied 530,000 households with wealth of $10 million and 110,000 households with wealth of $25 million, based on the Federal Reserve Board’s Survey of Consumer Finance.
Nonetheless, the nine million households with a net worth of $1 million represent a steep ascent from the less than four million such households tracked by the government in 1995. And households with wealth of $1 million in 2004 represented 8 percent of the U.S. total, twice the 4 percent share 10 years earlier.
In an interview at the funky, fun, but decidedly unluxurious Mayrose Dinerin Manhattan’s Flatiron district, Frank expressed concern that the older couple portrayed in the “Richistan” cover image — a satiric reinvention of Grant Wood’s “American Gothic” painting — not give people the idea his tale is one of an older crowd. The playful placement of a golf club in the man’s hand and a poodle in the arm ofthe woman, who stand before a McMansion, manicured lawn and swimmingpool, do suggest the sense of fun that permeates many of the writer’sstories about the lives of the new rich and their (relatively) fast money.
“If you take wealth too seriously, you either get depressed or very angry,” suggested Frank, who points out in “Richistan” that aboutone-third of the country’s wealth is held by the richest 1 percent ofits denizens.
Wheredo America’s style moguls fit in? The Forbes list of America’s richestin 2006 includes Nike Inc. founder Phil Knight, whose wealth it puts at$9.6 billion; Ralph Lauren, with $5 billion; Limited Brands Inc.founder and chief executive officer Leslie Wexner, $3.2 billion; JimDavis, founder of New Balance, with $2 billion; Robert Fisher, chairmanof Gap Inc., $1.4 billion, and Paul Fireman, former Reebok ceo, $1billion. Alain Wertheimer, chairman at Chanel, who lives in the U.S.,shares with his brother Gerard a fortune Forbes place at $10 billion.
Thoughtheir exact numbers are unknown, the population of Upper Richistan,people with net worth of $100 million to $1 billion, is believed to bein the thousands. Their chief sources of wealth are business ownershipand equity. An Upper Richistani’s average spending in 2006 came to$182,000 on watches, $397,000 on jewelry, $169,000 on spa services and$311,000 on cars, according to the book. “When you live in UpperRichistan, your entire philosophy of money changes,” Frank writes. “Yourealize you can’t possibly spend all of your fortune…in your lifetimeand that your money will probably grow over the years even if you spendlavishly.
“Still, Upper Richistanis have occasional feelings ofinferiority,” Frank continues. “That’s because they’re beingovershadowed by the residents of Billionaireville.” There were only 13billionaires in the U.S. in 1985. Current lists range widely. In 2006,Forbes highlighted more than 400 citizens of B-ville in its annual listof richest people, while Leslie Mandel’s Rich List Co. claims more than1,000 names, a roster Mandel began compiling in the Sixties through herinvestment banking and fund-raising endeavors.
Like many of thenew rich, recently minted billionaires prefer to keep a low profile.This won’t keep America’s millionaires and billionaires from stretchinghigher for status, however. In Richistan, the word affluent is aninsult reserved by many for Lower Richistanis.
Frank cops to the view of economist Robert H. Frank (no relation), whoexpects the country’s wealthiest to keep spending more for theirluxuries, a level the 39-year-old “Richistan” author described as “anew, irrational reference point consumers will use when making theirown purchasing decisions.” These days, that could mean signaling wealthby, say, choosing a $50,000 watch rather than a $25,000 model, orreplacing an $89.95 gas grill with a $5,000 Viking-FrontgateProfessional Grill.
Sizedoes matter. For example, there were 30,000 homes larger than 5,000square feet built in 2005 — more than five times as many as in 1995.The least pricy of three Richistani vacation homes on the market earlythis year, Frank reports, “is an estate near Lake Tahoe namedTranquility, built by a cofounder of Tommy Hilfiger [Joel Horowitz],boasting a private lake, conservatory, boathouse, stable, gymnasium andgarage space for 17 cars,” he continues. “The home’s staircase is areplica of the SS Titanic’s, and the marble flooring in the entryway ispatterned after the New York Public Library’s.”
Grander orglitzier alone won’t always cut it with those intent on proving theirstatus, now a never-ending effort as the bar keeps getting raised bythe rapid accumulation of wealth by the country’s richest. Oftentimes,it will take an improvement in the functionality of top-end things tocommand their ever-climbing prices, Frank advised in the interview.Yachts so long that they need to dock with oil rigs in industrial portsinstead of in marinas in Fort Lauderdale, Fla., or Monaco are notlikely to impress one’s friends, he said, only half kidding.
Designerfashion is likely to see a groundswell in demand for one-of-a-kind andmade-to-measure clothing — and more so as mass marketers keep addingdesigner names and one-off collections. “Too many brands want to cashin quickly, and in the long term that’s death to a luxury brand,” thewealth expert noted. “[Luxury] fashion designers ought to producelimited quantities to protect their cachet.”
The Richistanipopulation is projected to grow by 2 to 3 percent in each of the nextfew years, reaching 10.5 million in 2010, and as they increasingly movein the same global circles with the rest of the world’s millionairesand billionaires, Richistanis will add to a nascent “third culture,”Frank forecast. It is one comprising people who are staying at the samehotels (Four Seasons, Ritz Carltons), driving the same cars(Rolls-Royces, Bentleys), wearing the same apparel and accessories(Louis Vuitton, Gucci, Franck Muller) and visiting the same vacationspots (St. Bart’s, Monaco, Maldives).
This third culture is expected to remain a global scene in theforeseeable future, as its basis, Frank said, “is a worldwidesimilarity in consumption habits.”
A Spending Record From Billionaireville: 2005
|Air charters/private jet:|
|House staff & personal assistants:|
|Entertaining at house:|
|Annual real estate taxes:|
|Personal beauty, salon, spa:|
Note: “a”: includes $80,000 for massages.