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.

Martin Žížala

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.

Getting a taste for luxury

Ivana Rudičová

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

Quality above quantity

Jindra Kramná

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

Luxury on wheels

Richard Vegera

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