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Good evening can you hear me? Welcome to Opera Plaza. Thanks so much for waiting. I think we are ready. In "Deluxe: how luxury lost its luster", veteran journalist Dana Thomas looks at the luxury business and how it like many other industries these days has begun ingratiating itself with the masses. Not just the rarefied aristocracy of old money as one might expect mass production for the masses sometimes means less emphasis on quality and more on availability. Ms. Thomas is a cultural and fashion writer for news of week in Paris and has contributed to Harper's Bazaar, Book, the New Yorker and the Washington Post. She lives in Paris, let's welcome her. Good evening, can you hear me okay? Which one should I be talking in here? Now I can't hear this. Can you all hear me too? Back there, Mr. Camera - okay. Yeah we are going to work on this for some time. Is this better? Oh there we are - great. Thanks for coming. We often say you are what you eat. I believe you are what you wear. As I write my book "Deluxe" the way we dress reflects not only our personality, but our economic, political and social standing and our self worth. Luxury adornmant has always been at the top of the pyramid setting apart the "haves" from the "have nots". Back in the Stone Age, man set himself apart by decorating his furs with bits of bone and feathers. The Chinese enriched their appearance and with silk embroidery as long as 12,000 years ago and as did the Persians and the Egyptians in 3000 B. C. During the reign of the Bourbons and the Bonaparte's in France luxuries as we know it today is born. Many of the luxury branches we patronize such as Louis Vuitton, Armez, and Gaultier were founded in 18th and 19th century as humble as far as humble artisans who create the most beautiful wears as possible and imaginable for the royal courts of Europe I would like to read you a little bit about them. I think I have to put on my glasses because it keeps sliding. In 17th century French King Henry the fourth's second wife Marie de' Medici, wore for a baptism of one of her children a gown embroided with 32000 pearls and 3000 diamonds. Madame Louie - Louie's wife Louie the 16th's wife Marie Antoinette over ran her annual clothing budget by 3.6 million dollars - By buying - of 3.6 million dollars, by buying gowns engrossed it was sapphires, diamonds, silver and gold. But according to observers it was money well spent, she was quote, "an object too sublime and beautiful for my dull pen to describe" said John Adams. Her dress was everything that art and wealth could make up it. Napoleon's wife the Empress Josephine spent half of the 15 million dollars France earn selling the the Louisiana purchased the United States in 1803 on clothes in ten years. With the fall of monarchy and rise of, which is not surprising if you think about it and the rise of industrial fortunes in the late 19th century luxury became the domain of old money European aristocrats in a lead American families such as the Vanderbilt, the Asters and the Whitneys who moved in close social circles. Luxury wasn't simply a product. It denoted a history of traditions, superior quality and often a pampered buying experience. Luxury was a natural and expected element of the upper class life like belonging to right clubs or having the right sir name. It was produced in small quantities often made to order for an extremely limited and truly allied clientele, as Diane Reno noted in her memoirs of DV very few people have ever breathe the pantry air in the house of a women who wear the kind of dress Vogue used to show when I was young. In the last 20 years however that's changed. When I first started covering fashion in the 1980s for the Washington post most luxury companies were small were small independently own and run businesses usually the founder or founder's heirs were running for business and it was still a niche business for a niche clientele. These companies did 20, 30 maybe 50 million dollars a year in sales. But at the same time in the late 80s - 1990s often with no previous connection - our business men often with no pervious connection to the luxury luxury or fashion business began to buy that luxury companies from these elderly founders or their incompetent heirs. The tycoon saw great potential in these old houses; it was the beginning of the economic boom, people were getting richer and richer and want it to pamper themselves like those olden industrial revolution barons. The middle class of evolved into the middle market, in broad social economic demographic that includes everyone from teachers to sales executives to high tech entrepreneurs big mansion suburbanites even the ghetto fabulous. And they became luxuries new target audience. The idea of luxury, luxury executives explained was to democratize luxury to make it accessible. To achieve this, the tycoons launched a two prong attack, first they hiked their brands by trumpeting the brand's historical legacy to give the products an air of legitimacy, then they replaced the long time peculiarities known for their demure designs with bad boy ready to wear designers who turned turned out S & M inspired clothes that were presented in million dollar fashion shows. To drum up controversy and make head lines the tycoons spent billions of dollars on deliberately shocking advertising campaigns remember Dior's grease smudged lesbian ad to sell hand bags or Saint Laurent's full frontal male nudity shot as of perfume and they made their brands is recognizable and common as Nike and Ford. With the help of stylus, they dress celebrities whom in returned told every reporter lining the red carpet, which brand provided the gown, their jewels their hand bag, their tuxedo or their shoes and their shoes. The message was clear, buy our brand and you will live luxurious lives too. They made their products more available economically and physically they introduced fashion at lower price entrance per accessories that most any one could afford. They ruled out thousands of stores that are - approachable as Banatone and Gap. They opened up outlets to sell leftovers at bargain prices. Launched e-commerce ramped at the share they do duty free retailing and the companies grew in billion cooperate conglomerates or global conglomerates. To understand and the extraordinary and the exponential rate of growth consider this in 1977 Louis Vitton was a family owned business with two stores, it did about 12 million dollars a year in sales. The two stores with Paris and Nice, today the Louis Vitton is a publicly traded corporation with 370 stores that didn't work than 3 billion dollars a year in sales last year. Luxury brands funded this expansion by listing their companies on the world stock exchanges, going public brings many advantages to luxury companies, it raises capital, elevates brand status creates management incentives such as stock options and tracks the higher caliber of executive management. But it also makes brands for hold into stock holders who demand increases a profit- in profits every three months to meet these profit broadcast the luxury brands have cut corners, they use inferior materials and quietly outsourced production to developing nations. Most have replaced individual hand craftsmanship with assembly line production mostly on machines. Simultaneously, most luxury brands have raised their prices exponentially to justify the move but and justify the move by vastly claiming that their goods are made in western Europe or labor is fasting more expensive. When I went to I saw this first hand when I went to visit a hand bag factory in in Guangzhou. They make luxury brand hand bags, brands that say that they don't produce in China, brands you carry, brands you know. And I saw them making a hand bag, a very nice leather hand bag for about a hundred dollars the production cost which is a lot of money in China it was they were sewing it on machines, but they were sewing it. There was very little glue as the sign of the cheap product. And when I got back to Hong Kong that evening I was meeting some friends at a bar in a department store which is very Hong Kong thing to do and walked through the hand bag department which ofcourse is the first department you go through because they are easy to sell. And there was the same handbag I saw them making in this Chinese factory on sale retail $1200. In a two hour drive, it increased $1100 from the price. Now in the old days, there used to be middle men wholesalers remember wholesalers, prices doubled each step from production to whole sale to retail which was fine, it made sense. Every one was in business as with business. So when the tycoons took over, they brought distribution in house, they often even brought the production you know, at the factories. There were no more middle men. So often that 12 times profit is put between the retailer and the brand. And in some instances, the brand is also the retailer. So what does this do for company, like to read to about "what this does for company?" In 2004, Valentino - the Rome based Couture house that just celebrated its 45th anniversary this summer. Reportedly began to outsource its $1,300 men's suits to a factory in Cairo where they were produced by veiled Muslim seamstresses who learned their craft by watching videos on televisions in the workshop. At the time Italian textile worker's hourly wages were $18 and 63 cents. The Egyptian workers earned 88 cents. When the suits destined for the European market arrived in Italy, Valentino representatives ripped out the "Made in Egypt" tags. In Europe, companies do not have to declare where the goods are produced. Valentino's suits for American and Japanese markets which have restricted a loss about providence, were produced in Italy and the United States and Japan could perceive quality, so more important than real quality Valentino's CEO told me the cut in manufacturing cost had a positive impact on the bottom-line. In 2005, Valentino posted its first profit in about 30 years. What does this do for companies, owners and share holders? We will consider this. Bernard Arnault, the head of LVMH, the publicly traded that owns Louis Vuitton MoÃƒÆ’Ã†â€™Ãƒâ€šÃ‚Â«t Hennessy, the publicly traded group of more than 50 brands including Dior, Givenchy, Celine, Louis Vitton has grown from being a bourgeois property developer in northern France to the seventh richest man in the world in 30 years 25 years. You say fine, good for them, that's capitalism. Why not? There is a dark side a very dark side to this democratization of luxury and that's counterfeiting. When luxury brands went democratic they thought they could satisfy the middle market with lower priced handbags and perfume. What executives didn't count on was middle market consumer satisfying their craving for their higher end goods by buying fake versions that could pass off as real. At the same time China evolved into the world's manufacturing centre. With a new class of entrepreneurs who so counterfeiting is a viable business. The convergence of the two big demand and big supply was cataclysmic. It took luxury executives completely by surprise. Since 1993, the counterfeiting of all goods has increased 1700 percent. Today seven percent of our total production - world production $600 billion worth is counterfeit. Well, that includes everything from baby formula from baby formula to Ferraris. Yes, they actually counterfeit Ferraris. One of the most popular sectors is fashion, because it's easy and cheap to copy and even easier to sell. And the most lucrative of these fashion alcoves are those bearing luxury brand logos. You can now buy fake Louis Vitton hand bags and sort of Gucci Sunglasses and Burberry knapsacks on Canal Street in New York and Santilli in L.A. I bought one today in China town here in San Francisco. I needed it for a prompt for a TV show. And when I was in there, four ladies came in and they went straight it was a store that sold many things, but they went straight for the Louis Vitton - the fake the counter for hand bags and one declared look at these Louis Vitton bags they are so off they are so off. You mean oh yeah they are just not good at all. Let's get out of here. You can buy them on the internet in free markets and even in the living rooms of suburban America where house wives goes to purse parties. Purse parties to make some extra cash no problem we love Bosenova also and who are purse parties you ask. Well let me read you about one. One day in 2004 New York security expert Andrew Albert Philip and lawyer Harvey McDonald were participating in a raid in a counterfeit mall on Canal street in Manhattan. When they saw a petite blonde sobbing hysterically in a Texas draw she - pleaded with McDonald this is my first time to New York and this is uh huh I just want to take my things and go home. McDonald asked the police, what is the Texan's things were? She had 58 of the same bag. McDonald said incredulously. Five minutes later McDonald said no and the Texan left in a half. Five minutes later she returned, tears gone - pity of that I am on my cell phone with my lawyer and he said you can't do this without my dame call, So I will just take my things and go. She declared no, McDonald responded I will take your bags and see you in the court. Two weeks later McDonald told me we were doing a raid in near by location and who do we see that same Texan. I told her I thought you said you were never coming back here and you know what she said "bite me". In the last twenty years counterfeiting has ballooned from a small potatoes local business to a global racket run by filing crimes in the case. They also deal with narcotics, weapons, trial prostitution human trafficking and terrorism. The FBI believes that the terrorist financed the world trade centre bombings in 1993 with sales encountered with T-shirts in the store on Broadway in New York City. Profits from counterfeit good sales had gone to groups associated with Hezbollah the IRA and Colombia's main rebel army FARC. One of the suspects in that did Madrid train bombings in March 2004 was a non accounted film. But that's not the worse of it I witnessed the worse of it myself when human winter afternoon in Guangzhou I will get back that to you. Shortly after lunch we drove to a Chinese law enforcement agency a typical fluorescent light office that could be found anywhere in the world, officer - the officers is mostly in their 30's and 40's were friendly and polite offering the screen test it's about proudly of success they recently had in fighting counterfeiting. After a few minutes, the chief came up and announced they have a got a tip about the counterfeit workshop across town. The informant was the landlord He runs to the counterfeiter to full payment upfront in cash, calls the cops gets the reward and runs out the space again. There are no ethics in this business, my expert who is taking he once told me none. They come strapped on their hoisters and if you put on bullet proof vests, raids can be dangerous, sometimes workshop owners will pull a knife or have tugs there to beat up the cops during one raid in the Sing-Sing market in Guangzhou, someone shot a gun in the air, when everyone hit the ground the counterfeiter escaped. We all went downstairs and happened to be a pair of officials [0:19:15.] ____ cross town, we put into the courtyard of a white stucco tenement and ran out steps seven of flights over empty coke cans and other trash. As we approached the top the acute toxic smell of glue burnt in our nostrils, we walked to the workshop a long white room of barred windows and before us the two dozen Chinese boys and girls roughly eight to 14 sitting at old sewing machines and standing behind plywood worked tables that there was scraps of black leather and parts of glue and cookie tin filled with stamps reading Versace Boss. The children stopped the work one guy who was stuck in machine had some - the cops told the children to line up single file. They looked at us with their sweet faces filled with confusion. Their eyes tired and sad. They didn't know why they were there, why they were told to stop working. As they walked out, some staff had punished their time cards and hopes they are getting paid. When it was time to leave, we had to run across the courtyard to the vans to shield ourselves from the debris the kids through from the balconies. To the children, the cops were the bad guys. The children who were working counterfeit factories are usually harassed by the owners. The kids in the raid I witnessed that across the courtyard in slum dioramas. When a kind of this factories is raided an the owner is arrested, the children are left not only out of work; but also homeless. And the people who took me on this raid have since started a foundation where they are rising money and rescuing the children from the factories and putting them in in school. It's called teacher of 10,000 generations and you can pretty easily find it on the web. I have to note their web address, I don't have it with me. Some cases are truly horrific, the expert told me, I remember walking into an assembly plan in Thailand a couple of years ago and seeing 6 or 7 little children all under ten years old sitting on the floor assembling counterfeit leather hand bags. The owner have broken the children's legs and tied their lower leg to the thigh so the bones wouldn't mend, he said he did it because the children said they wanted to go out and play. Surprisingly luxury companies don't do much about counterfeit didn't do much about counterfeiting until the late 1990's. Some players still shrug, Louis Vitton designer Mark Jacobs told me, he thinks counterfeiting is fantastic. As long as I have been here he said, everything we have done have been copied. We hope to create a product that has been that is desirable. Product CEO, Patricia Porcelli calls counterfeiting for the game of fashion adding, I would be more worried if my product wasn't copied. So, what is luxury today? Does it still exist? Of course it does. And its terribly what I call luxury refugees designers and perfumers and executives who grew so disillusioned with the companies are with the compromises and the greed of luxury co operate world that they fled and started something small and independent that would allow them to do what drew them to the business in the first place, create the best that money could buy. One of my favorite luxury refugees is is Christian Louboutin, a shoe designer. I would like to read to you about him. Christian Louboutin may be the most defined voice in luxury fashion today. I am just back from the meeting with some one who want to buy my company again he told me when we met at his head quarters one freezing April evening. I said, "No" again. Louboutin is a rare breed in today's luxury goods industry a highly successful purposefully small designer owned and run company that produces impeccably made items. Louboutin's silk satin stilettos and crocodile pumps can be found on the feet, of beautiful the beautiful and famous and fashionably in the known. Among his regular high profile clients, are Jennifer Lopez, Queen Rania of Jordan, Madonna, Elizabeth Taylor and today show news anchor Ann Curry and also I heard Oprah the other day; who occasionally flashes the Louboutin's signature is scarlet source scarlet source on camera. Louboutin's company is tiny by luxury standards. After 15 years in business, he has only seven stores and 35 people on staff including his sales people. He serves at several of skilled department's stores including [0:23:57] ____ and even markets. He does no advertising he has no marketing department. He does not actively pursue dressing stores with the red carpet. He sells about 100,000 pairs of shoes a year. And when I asked him how much he does his sales annually, he looked at me blankly. I have no idea, which says Louboutin apart from his comfier is his business philosophy. I see these men who build luxury brands to make money and I am working in the same industry but I feel I have nothing in common with that, he told me. Luxury is a is the possibility to stay close to your customers, - to do things if you know they will love. Its about sedulity in details, it's about service. I cannot accept a palace for people are badly received. I can't imagine spending several $1000 on something and the sales quite gets annoyed because you take 50 minutes to look. Luxury is not consumerism; it is educating the eyes to see that special quality. So why is all this so important? Why I have written this book quiet simply because I believe that we lose the our hand crafting items made with love and passion. If we lose the integrity it takes produce and sell them, then we will lose the soul of our culture. Thank you.