Graziano de Boni:

What defines luxury? For Graziano de Boni, president and CEO of Valentino Fashion Group USA, luxury goods are characterized by five factors: time, quality, consistency, timeliness emotional fulfillment and scarcity.

De Boni was invited by the Luxury Goods and Design Business Club to address HBS last Wednesday and spent an hour outlining the dynamics in the luxury goods market and Valentino’s strategy. Urbane, entertaining and patient with the endless questions thrown at him by students, De Boni used vivid examples and statistics to bring the industry to life. The Hermes Birkin bag, for instance, was used as an example of a product that exudes true luxury. Remember when Martha Stewart ignited furor for appearing in court with a Birkin bag in 2004? Or the Birkin Samantha was so desperate to get her hands on in Sex and the City? Thirty years ago the Birkin started as a customized bag for actress Jane Birkin. But despite being around for decades, it has withstood the lapse of time to be the “it” item of the early 21st Century, with a long waiting list stretching close to three years at its peak.

The luxury market is growing. In the United States alone, the number of households with more than $1 million in assets has increased by seven percent between 2003 and 2004. Even more interesting for RC students, who had just completed the Wal-Mart case earlier in the day, was a statistic de Boni gleaned from Michael Filkenstein’s book, Trading Up: In 2004, $100 billion was freed up from the reduced cost of everyday consumer products sold by discount retailers such as Wal-Mart, to be spent on higher-priced products. Outside the U.S., emerging markets in Brazil, Russia, India and China have seen soaring demand for luxury goods; China is poised to overtake the U.S. and Japan as the leading luxury market.

Another trend in the industry is the “democratization of luxury.” More consumers are increasingly buying cheaper items from luxury ranges. According to de Boni, this has spilt the luxury market into two distinct markets: one for mass luxury, with affordable products sold under luxury brands, and another for couture, with exclusive custom-made products by the designer or brand for the individual consumer. Valentino, one of the few fashion houses to persist in the haute couture business, and which has focused more on the clothing collections compared to the more affordable accessories line, would be likely to thrive in couture.

Garavani Valentino set up the House of Valentino as a small studio 47 years ago in Rome. Years later, Valentino remains the creative driving force behind the fashion house-a rarity in the luxury fashion world. Italian textile group Marzatto acquired Valentino in 2002 complementing the company’s portfolio, which also includes brands like Hugo Boss and Marlboro Classics. Marzatto had a high degree of brand awareness among consumers despite having the highest price points in the luxury market and a relatively small share compared to the rest of the market.

Although it registered a net loss of _44 million at the time of acquisition in 2002, Valentino has since turned around successfully to record a net profit of _2.8 million in 2004. In the U.S., De Boni was able to grow the business by putting together a highly experienced team, rebuilding the wholesale business, fixing the existing direct-operated stores business, focusing on consumers with the support of direct marketing, expanding the pre-collections, determining the right prices and market positions and streamlining the processes and organization. Worldwide, new stores were being opened from St. Petersburg to Istanbul and New Delhi over the last year.

The House of Valentino is a survivor, and De Boni believes Valentino will continue to grow if it works on these growth drivers: extend the brand, particularly in shoes and accessories and in the diffusion lines; strengthen and expand the distribution network; and strengthen the design team. As a byword for timeless elegance and style, the fashion house will have the last word yet.

Did you know?

 Garavani Valentino is famously reserved and has to force himself to be sociable at parties.

 Valentino is known for creating luxurious gowns with intricate detailing and tastefully body-conscious silhouettes. Sharp, classic tailoring characterizes the menswear collection.

 Valentino was the first major designer to introduce a ready-to wear line in the 70s.

 Valentino believes royalty are the true style-setters (as distinct from trend-setters who determine fads). He dressed royalty like Princess Margaret, Begium Aga Khan, the aristocratic Jacqueline Kennedy Onassis and stars like Elizabeth Taylor.

 In more recent times, Halle Berry, Jennifer Garner, Jennifer Aniston, Naomi Watts, Claire Danes, Gwen Stefani, Lindsay Lohan, Gwenyth Paltrow, Jennifer Lopez and Cate Blanchett have all donned Valentino for red carpet events. Julia Roberts wore a vintage Valentino black gown with white piping when she won the 2001 Oscar for Best Actress.