Passion Immersion Drives Niche Luxury

A recent study of luxury handbags, featured in Psychology Today, suggests once the price exceeds $300, the logo decreases in size. But why pay more for a brand without the recognition? Sterling Lanier, President of the market research consultancy Chatter, performed in-home case studies of affluent Gen Yers to provide insight. In one of Sterling’s audience testimonials, a Gen Yer said he purchases shirts from a Scottish designer with around three small stores in Europe. With only a small colored tag to identify the designer, he gets gratification seeing others wear the Scottish brand. As consumers, we identify personalities by the brands and products we purchase. And as Sterling’s testimonial illustrates, we strive to emerge ourselves in brands that help build our identities.

Passion Immersion in Products

For many high net worth individuals, luxury is about finding your passion, immersing yourself in its niche culture and being in-the-know. Brands are picking up on this trend, says said Luxury Institute Chief Executive Milton Pedraza: “Brands that are seen as experts in a few categories tend to manage those portfolios very well. Sort of putting one egg in a basket and then taking good care of it.” Indeed, Sterling’s research suggests two pleasure points with niche brands. Using Sterling’s example, the affluent Gen Yers is: 1) passionate about Scottish fashion and 2) he noticed people like him, that were in-the-know, wearing the same designer.

Passion Immersion in Services

Luxury concierge services also help high net worth individuals. Instead of providing rare fashions, they cater quite the opposite service by offering personalized, once-in-a-lifetime experiences. These experiences are typically derived from individual passion points, such as quest for adventure, or “if I wasn’t a ____ I would have been a ______.” For instance, if you wanted to be an archaeologist, Artisans of Leisure Travel offers a Turkey and Israel cultural vacation. Or, if you would have been a dare-devil, Quintessentially offers an Indiana-Jone-inspired adventure.

Passion Immersion in Communities

Passionate niche communities rally around purchasing decisions, as in Sterling’s illustrative example, but also connect like-minded individuals in a meaningful way. Lululemon Athletica excels at the latter. Lululemon is a high-end athletic apparel company that empowers its community to interact and engage with others — using the brand as a conduit. The athletic apparel company enlists elite ambassadors — comprised of award-winning athletes, such as Olympians — who wear the brand. The second tier of the community is made up of Lululemon-vetted athletes that embody the brand’s healthful living philosophy.

When we look at where people allow themselves to splurge, it’s in a space high net worth individuals are passionate about. Whether they are passionate about niche designer brands or once-in-a-lifetime adventures or being a part of an exclusive athletic club, they spend money with the heart. Products and services help consumers feel comfort in actualizing their dreams of being in-the-know, exploring the world and being the best of the best. Niche luxury offers a chance for high net worth individuals to be themselves, in the most fantastic way.

To read more about luxury trends:

Personal Renewal with Purpose

All luxury fulfills an emotional need. Often times, that need is social relevancy and status among peers. Think about what a Louis Vuitton bag says about a person: affluence and they should be recognized for it. There is a rising trend in luxury that stretches beyond superficial, Louis Vuitton and D&G status symbols, and speaks to rejuvenation, personal energy and sustainability. No, millionaires are not holding hands around a camp fire, singing Koombaya. This emerging class of high net worth individuals seek to preserve themselves and the world around them. Two similar, yet different, brands capturing this rising trend are Terrain and Lululemon Athletica.

Terrain, an outdoor home and garden store owned by Urban Outfitters, is a calming retreat into nature. Chairs, tables, and pots look as if it grew naturally in the store. Every piece of furniture seems artfully hand-selected from yard sales and foreign ruins. That’s not to say you feel like you’re in a junk yard. Terrain taps into a central element of luxury: rarity. The outdoor home and garden store is about 30 percent re-used products, but the company carefully selects objects that embody sophisticated, organic style. Each object feels natural, sustainable and hand-selected just for your home.

Lululemon Athletica takes a different approach to revitalizing personal energy. Where Terrain seeks to rejuvenate through a natural environment, Lululemon takes a more active approach. The luxury healthy living retail site promotes physical renewal through yoga, Pilates and other forms of exercise. Its exclusive community is populated by former Olympians and athletes that inspire others to live strong. These brand ambassadors promote their unique healthy lifestyle through images, free demonstrations and each month members are given a challenge.

Terrain and Lululemon represent an emerging segment in the luxury category. Renewing personal energy through premium products, such as a palace door ruin from Terrain or high-end exercise gear at Lululemon, is only half the picture. Both emerging luxury brands offer an wholistic branded experience either through a relaxing in-store environment or empowered online community. Terrain and Lululemon are making luxury less superficial and more sustainable to both the environment (recycled products at Terrain) and individual energy (yoga and pilates at Lululemon).

Luxury: For What It’s Worth

What makes a pair of Jimmy Choo heel sandals worth $1,150? Or a $17,500 price tag for a night at the Dunton Hot Springs? In essence, what is luxury worth?  Everyone perceives products and service value differently. You’ve likely been in Gucci or Hermes and said, really? A shoe-shaped Gucci key ring is $170. Really? For some, it’s worth it. “We see consumers as the ultimate experts on brand prestige and this year they are voting on the entire perceived price/value equation of the brand as well as prestige,” said Milton Pedraza, CEO of the Luxury Institute. Brand, quality, rarity all play a role in how we valuate prestige products and experiences. As everyone derives value differently, there are three main criteria that help us decide whether a luxury product or service is worth it:

Exclusive Value – Uniqueness

By economic standards, value is derived from supply, demand and barrier to entry. Short supply, high demand and high barrier to entry drives the luxury market. Accordingly, only a select few high net worth individuals can afford to buy a $1.42 million Lamborghini Reventon or even a $170 Gucci key ring. In fact, only 20 individuals own the Reventon, as they are so rare. Uniqueness not only applies to products, but experiences as well. Quintessentially and Artisans of Leisure Travel design custom vacation packages ranging from Indiana Jones-inspired adventure or an immersion in Turkey and Israeli cultures. For those high net worth individuals seeking exclusive value, very short supply weighs heavier than quality.

Enduring Value – Artisan Craftsmanship

The economic recession has the luxury industry returning to its core: enduring quality. Hermes and Louis Vuitton have flourished amid harsh economic storms, while other, trendier fashion houses such as Christian Lacroix have gone belly-up. Hermès managed to increase sales by 8.5 percent, including an 11 percent bump in the final quarter and an astonishing 20 percent gain in the Americas. In fact, Louis Vuitton held an event called “The Art of Craftsmanship,” to educate young designers on the importance of old-fashioned values such as artisanship and the mastery of traditional skills at New York City’s Fashion Week.

Price Value – Deal-seekers

There is always a risk to integrity whenever a prestige brand discounts, says Milton Pedraza, CEO of the Luxury Institute. A discount suggests the original perceived value was too high and essentially, you were getting ripped off. Despite Pedraza’s foreboding, Guilt Groupe has grown by leaps and bounds by offering daily flash sales to its “exclusive” 2 million invite-only members. Gilt expects to pull in $500 million in revenue in 2010 and in 2009, just two years after its launch, it posted revenues of $170 million. To counter Pedraza’s point, even a 10 percent discount on $1,150 Jimmy Choo shoes ($1,035) is still not accessible for most.

To make your luxury product or service valuable, you must first start with those consumers passionate about your category. For instance, targeting the famous, stylistically challenged Warren Buffet to don a new Gucci suit is worthless, as Buffet finds little value in fashion. But marketing an Indiana Jones-inspired vacation to thrill-seeking high net worth individuals like Richard Branson is smart. To obtain a high perceived value in your customers eye, it’s about finding the right customers and accentuating your products to appeal to their passion points.

To read more about luxury trends:

2010 luxury trends

View more presentations from David Capece.
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Facebook Launches New Feature

Facebook unveiled the beta version of its new Q&A feature, Questions, on Wednesday. Questions appears as “Ask Questions” on the website, though it is not available to all users at this point. The new Facebook product feature taps into the collective knowledge of its half a billion users to create a more social version of Yahoo! Answers and Wikipedia and is a great example of how to add new product features.

Whether you want to figure out what camera to buy or the name of song in a commercial, Facebook Questions can help you out. Users can utilize existing Facebook features, such as images or polls, to help frame their questions. “Want to know what type of flower is growing in your back yard? Take a photo and attach it to the question,” says Blake Ross, director of product management at Facebook.

Facebook Questions will incorporate tags to organize questions and answers. For instance, if you want to learn more about a state politician you would browse in the politics category and to see how the answers evolve, users can “follow” a question, much like a brand. As the new feature becomes accessible to the broader internet audience, Facebook’s Questions could be stiff competition for Yahoo Answers! and the re-focused Ask.com.

In general, adding new features can increase your overall product value and consequently, increase your market share. To help you build new features to improve your products overall value, you will need to:

  • Perform market research: Get the facts and learn about your audience (tips on market analysis).  Facebook is aware that Q&A sites, such as Yahoo! Answers, receive a significant traffic. In fact, Yahoo! Answers has 28 million average in monthly traffic, Ask.com has 50.2 million and Aardvark 19.5 million (recently acquired by Google), according to Quantcast.com. Combined, that is nearly 100 million users that “like” Q&A. Seems like a prime opportunity to me.
  • Evaluate your current product offering:  understand the value you bring to the market, and any gaps.  Facebook discovered a gap: there is increased market attention to digital solutions that answer questions (as discussed in our Ask.com analysis).
  • Stretch your creativity: pursue continual innovation (see our tips on innovation).  Facebook continues to roll out new features including Facebook Connect, apps, mobile sharing, etc.
  • Make sure it’s in-line with the product: every new feature must make sense. For Facebook, its user-base already comments, shares and uploads content to friend profiles. Adding a Q&A section follows the same process, although users do not necessarily interact with others within their network. Instead, they call upon experts in the respective field (remember the camera example).
  • The numbers must add up: weigh the value created by the new feature and the cost of producing it. In the first quarter of this year, Facebook surpassed Yahoo! as the online display advertising market leader with 176 billion display ad impressions, which represented more than 16 percent of the market, reports InformationWeek.com. Keeping users on the site with additional features, like Questions, will increase pageviews and ultimately Facebook’s profit.

Read more about adding new product features here.

Facebook and Amazon Partner for Web Shopping 3.0

Facebook and Amazon announced today a new partnership that integrates Facebook Connect into Amazon shopping. Facebook users will be able to purchase products for their friends on Amazon and the e-commerce site will be able to show product recommendations for Facebook friends for even easier holiday shopping — although Amazon emphasizes it will not contact Facebook friends or reveal account history.

The Amazon and Facebook partnership exemplifies how companies can leverage existing strengths to enhance products, services, and capabilities. In the case of Facebook and Amazon, Amazon is leveraging Facebook’s vast, half a billion user network and Facebook is utilizing Amazon’s powerful e-commerce capabilities.

Partnerships are a way to share risk, exchange ideas, build capital and pool resources. Here are several reasons why partnerships, like that between Amazon and Facebook, provide great opportunities for entrepreneurs to create larger impact:

Obtain a new skill set

Facebook does not have the powerful e-commerce skill set of Amazon and Amazon doesn’t have the vast, interconnected, half-billion user network of Facebook. By combining their competitive strengths, they are able to forge another skill set: web shopping 3.0.

Grow customer base

Signing on Facebook’s half a billion users, Amazon will greatly increase its user base. Although Amazon already has a large customer base (it is the #1 online retailer), Facebook will extend that reach even further.

Improve profitability

While Amazon has significant potential to grow its user-base via Facebook, Facebook can create another revenue stream from Amazon purchases. Although details of how Facebook will monetarily benefit from the partnership have not been disclosed, referrals are certainly an incentive for the social network.

Create a leadership position

Kaboodle, MyItThings, Zebo and Woot are among numerous social shopping sites. There isn’t a clear leader in the social shopping space… until now. The merging of two digital titans, Amazon and Facebook, will surely and quite immediately create a leadership position for the two companies in the social shopping space.

Although the Amazon, Facebook partnership details have yet to surface, their sheer influence (in users, profitability, market leadership) will position the companies ahead of the curve. We bet the social shopping market will soon have a clear leader.

Recession-Proof Luxury: Timelessness & Enduring Quality

If you had a choice between buying one uber trendy dress this season and another trendy dress next or buying a timeless dress this season and a timeless cardigan next, which would you choose? At year two, you could either have one dress or one dress and one cardigan. Investing in timeless luxury items is a way to maximize spending dollars in recessionary times while maintaining an affluent lifestyle. More and more, Gen X men and Gen Yers consider luxury an investment and some prestige brands, such as Hermes, are benefiting — even when times are lean.

The overall luxury market fell during this recessionary dip. It dropped 10 percent in the U.S. and 8 percent worldwide in 2009. Trendy fashion houses such as Christian Lacroix went belly-up, meanwhile Hermès managed to increase sales by 8.5 percent, including an 11 percent bump in the final quarter and an astonishing 20 percent gain in the Americas. “Hermès isn’t about trendy,” said Bob AChavez, the CEO of Hermès’s American operation to the Luxury Institute. “It isn’t even a fashion house. We are a house of craftsmanship. We are committed to making products that have an enduring quality and are very versatile.”

Heritage, classics and enduring quality, as found in Hermes and Louis Vuitton products, are powerful selling points to during recessionary slumps — particularly to Gen X men and Gen Yers. “I believe the American male is largely uneducable. We need to focus on the segment of males that have real discerning taste, but I can also say that even the undiscerning American male is a smart consumer. That person is looking for a product that is durable, that is classic, that can stand the test of time,” says Lew Frankfort, Chairman and CEO of Coach. In general, classic and timeless value makes sense when considering men’s fashion versus women’s fashion.

Women’s fashion drastically ebbs and flows with the seasons whereas men’s fashion receives subtle adjustments on existing designs. For instance, slightly v-necked shirts or a small whale pattern or a royal blue instead of a faded blue or a European cut versus relaxed might be en vogue for several seasons. For the most part, men’s fashion remains constant and therefore investing in one product could last many more seasons than women’s uber-trendy drop-crotch trousers — reminiscent of Hammer-time.

Gucci drop-trousers might pique the interests of some young fashionistas, but for the most part, Gen Yers view luxury as an investment — and as such, have a discerning eye for the quality. Unlike its generational counterparts, Gen Y is less concerned with heritage than exceptional quality. Heritage brands might find it difficult to market its spot in history to turn on Gen Y. Instead, luxury brands need to dial-up the longevity, both in quality and style, of its products to make their brand a long-term investment.

Many high net worth individuals are savvy shoppers that buy less on impulse and think about purchases in a calculated, well-thought-out manner. As we’ve seen in 2009, trendy fashion houses are the first out the door due to their ephemeral designs while enduring quality prestige brands, such as Hermes and Louis Vuitton, thrive. Although the recovery is in the purview, high net worth individuals are still wary of spending superfluously but interested in investing in luxury.

To read more about luxury trends:

2010 luxury trends

View more presentations from David Capece.
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Ask New Biz Strategy: Re-Focusing on Q & A

Ask.com, the famous mid-nineties search engine, is going to re-launch its site to focus more attention on answering user questions. The new business strategy will return Ask.com to its original roots answering user questions, instead of queries based primarily on keywords. In our everyday life, humans ask questions to learn of information.  The question is:  will a search strategy based on questions instead of key words and phrases work?

In the late nineties, Ask (which was then Ask Jeeves) was a formidable player in the search engine market. However, when Google arrived on the scene, search engines such as Yahoo and Ask wanted to replicate the success of Google’s keyword-based algorithm. It has been over a decade since Ask switched strategies and it is near the bottom of the search engine barrel. Google reigns the supreme leader of search, with 62.6 percent market share, and Yahoo falls in second with 18.9 percent and Ask comes in fourth with 3.6 percent as of June 2010.

Can re-focusing on questions — going back to its roots — be the answer to Ask’s problems? Ask.com is not the only search engine trying to avoid to enhance the user experience and help users find answers more quickly and with less clicks. Wolfram Alpha (a computational search engine), Bing, Yahoo Answers and even Google — through its acquisition of Aardvark and Metaweb — are trying to make sense of the web, whether it’s through answering a math question (Wolfram) or find all Mp3s of your favorite band (Bing), all in one place.

ask_google_comp_feature

The key challenge is how Ask.com is going to take a non-Google approach (i.e. bring all information to the search results, instead of forcing user to follow numerous links) and make it distinctly better and appealing. Currently, Ask.com’s answers are slightly different than what you might find on Google (see above). However, as a market laggard, Ask.com is going to have to really evolve and hopefully transform the user experience and search results.  The new product has not launched yet, but we’ll check back in when it does to see if Ask.com has made incremental improvements or really changed the search-and-answer game to ask-and-answer.

The Luxury of Once-In-A-Lifetime Experiences

You are assigned a mission in which you will train with former M16 agents. Your journey will take you around the world where you must complete challenging tasks that require both brains and brawn. Do you wish to accept? Many high net worth individuals are asking, where do I sign up? The seven-figure Indiana-Jones-inspired vacation is one of many thrill-seeking experiences coordinated by the members-only luxury concierge service, Quintessentially. Quintessentially is leading a trend that curates not just extravagant vacations, but extraordinary experiences that yield incredible stories.

“These days people are looking for those once-in-a-lifetime moments,” says Quintessentially’s founder, Aaron Simpson to the WSJ. “Getting a peek into a closed-off sector of the pyramids or cruising through Europe in a Bentley can be a very different experience than your average vacation.” Indeed, extreme luxurious vacations are less about pampering and island getaways and more about access to exclusive experiences.

“Our luxury travelers are fascinated by the history in Israel and nearby Turkey and really want to have in-depth cultural experiences,” says Ashley Isaacs Ganz, founder of Artisans of Leisure Travel to the Luxury Institute. Ganz explains, his high net-worth clients seek thrilling, unexploited experiences, such as renting a rehabbed ghost town in the Colorado wilderness or pay $17,500 a night for the Dunton Hot Springs.

Artisans of Leisure Travel and Quintessentially understand the power of once-in-a-lifetime experiences and re-experiencing them through stories. More unique stories you have, the more interesting you become. For instance, who would have better life-stories: dare-devil billionaire Richard Branson or tech tycoon Bill Gates? Sure, Gates could wax poetic about software systems, but Branson could regale you with stories of hot air balloon races and sky diving.

More affluent individuals are searching for Branson-esque adventure that pair risk (exotic cultural explorations) with reward (fascinating stories) to yield incredible experiences. It’s about finding your passion — whether it’s an Indiana Jones adventure or archeologist —  and realizing the life you could have had through exclusive experiences. It’s not enough to put your mind on auto pilot, if you dreamed of flying in an F-47, you are the pilot. And concierge services, such as Quintessentially and Leisure Travel, are making that possible.

To read more about luxury trends:

2010 luxury trends

View more presentations from David Capece.
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Zynga’s Success Inspiring for Entrepreneurs

Today, the New York Times posed a question about the wildly successful Facebook game developer, Zynga: “Will Zynga Become the Google of Games?”

It wasn’t so long ago that Sergey Brin and Larry Page were scrapping together servers from spare parts to build what would become the most successful search engine in the world. Nor, was it so long that Mark Zuckerberg dropped out of Harvard to work full time on a social network that would gain over half a billion users.

In maybe three or four years Mark Pincus, founder of Zynga, will realize NYT’s vision of becoming the “Google of online games.” Founder of popular Facebook games, Mafia Wars and Farmville, that vision could not be that far out of reach.

Unlike other hot Silicon Valley startups, like Twitter, Zynga is highly profitable. The online game developer will bring in over $500 million in revenue this year, according to Inside Network, through small user payments of virtual goods. How did the online game company reach half a billion in revenue in only three years?

Here are several entrepreneurial lessons we can learn from Zynga and other Silicon Valley superstars:

Believe What You’re Doing

When Mark Zuckerberg launched Facebook (then The Facebook) from his Harvard dorm room, not even he could have imagined amassing over half a billion users. But he believed in creating the social platform enough that he eventually dropped out to pursue his entrepreneurial dream. Steve Jobs was booted from Apple in the late nineties due to internal conflicts, but he revived the failing company when he returned several years later. Mark Puncus entered an unexplored space (Facebook apps) with full force and that vision of what the company could be carried him, Steve Jobs and Mark Zuckerberg to the success they have today.

Be Able to Scale Quickly

Zynga, like many other successful Silicon Valley entrepreneurs, grew exponentially in a very short amount of time. For entrepreneurs to scale their company quickly they need to build in internal growth strategies into the overall entrepreneurial vision. Zynga, for instance, grew to 1,000 employees, up from 375 a year ago, and now has around 400 job openings. Zynga’s internal structure of the company lends itself to fast, scalable growth.

Build Momentum Off of Early Success

Early successes can be the spark that sets the business to eventual profitability. Don’t let that spark fizzle by ignoring potential opportunities. For instance, Zynga started off with one game, then used early successes as a cue to build an entire suite of Facebook apps. By building off this early momentum, Zynga has undoubtedly become the market leader of Facebook apps. But as Mark Puncus adds, it’s only the beginning. He’s going to use the initial success of Facebook apps as a stepping stone to become the “Google of gaming.”

Raise Money, Even When You’re Profitable

There is sometimes a misconception amongst early stage companies that you need funding when the coffers are empty. Not true. Businesses can always use funding to take their strategic vision to the next step. For Zynga, although the company is estimated to generate $500 million in revenue this year and is valued more than $4.5 billion, it has still obtained $520 million in funding — from investors including Google and Netscape founder Marc Andreessen.

Luxury’s Love Affair with High-Tech

Robot housemaids, electric cars, personal commuter airplanes and all the insanely impossible kitchen gadgetry imaginable. For nearly a century, the World’s Fair has illustrated American’s strong association between luxury and technology. Tech enhances our ability to connect with the world and how the world connects with us. It maximizes our time and extends our pleasure. It helps us navigate a world flooded in information while liberating us from its complexities.

The intersection of technology and luxury is more apparent and pervasive in the luxury market today than ever before. From social networking restaurants, to vehicle office management software, to accessorizing luxury products, technology is the height of luxury. Today’s tech speaks to several pillars of luxury: exclusivity, badge of importance and an immersive experience.

In-the-Know Luxury Tech

MiWorld leverages a main tenant of luxury: exclusivity. The tech-savvy Jahannesburg restaurant taps into affluent Gen Yers and Gen Xers lust for exclusivity and techno-gadgetry. To participate in MiWorld, patrons must receive an invitation and secret code to register online. The in-the-know customers can visit MiWorld’s modern cocktail bar, MiBar Martini or the sophisticated cocktail, champagne and wine bar, MiLounge Martini.

When patrons enter the door, they must log in — much like Facebook or FourSquare. Once inside, users can play with interactive, touchscreen MiTables, where they can chat with other tables, sign into Facebook, view the menu and access exclusive content and offers.

Complete Tech Immersion

Car phones were the height of luxury at the dawn of the mobile phone era. High-power CEO’s tooling around in company limos epitomized luxury nearly a two decades ago. Hartman’s System-On-a-Chip (SOC) is ushering auto tech into a new age of connectivity. Hartman is developing a premium automotive infotainment system for entry-level luxury vehicles.

SOC enables customers to integrate smartphone devices (iPhone, Blackberry, Android) to deliver mobile office features within their vehicle. That means e-mail, SMS, texting and calendar functions all within arms reach. That’s just the beginning… SOC delivers 3-D route graphics, real-time traffic updates, latest map info, construction zone notifications, speed limits, etc. Though there are arguably many hazards with such a system, SOC epitomizes auto luxury.

Tech Badge of Luxury

“Although Apple did not set out to be a luxury brand, it exhibits most of the qualities that luxury brands should strive for in the 21st century,” says Milton Pedraza, Luxury Institute CEO. In its quest for the most beautiful, awe-inspiring, user-friendly device, Apple created a leading luxury device. The tech company “delivers fabulous product design, unbeatable functionality, and a powerful in-store experience to consumers of all ages that many luxury brands lack.”

As with many prestige brands, accessories makes the product pop and serves as a badge of your personality. iSobre knows this more than anyone. iSobre’s offers an iPad made of 100 per cent leather, with double stitching all around with a turned-edge finish and two blue leather central buttons. The iSobre’s Bumble Bee iPad case tells the world not only do you love sexy tech, but you know how to dress it up.

American’s association between all things tech and luxury has accelerated at an astonishing rate since the 1950s World’s Fair. In fact, even many non-affluent individuals splurge on a $300 smartphone with a $100 monthly plan. A smartphone, tablet, high-tech software system for your car or an invite into a members-only cocktail lounge are ways individuals — non-affluent and high net worth individuals alike — display status. Much like a robot housemaid in the 1950s World’s Fair.

To read more about luxury trends:

2010 luxury trends

View more presentations from David Capece.
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