Luxury in the Danger Zone


Robb Young | April 26, 2010

The darker side of tantalising new markets

LONDON – I’ve always fancied myself a moderately intrepid business traveller. Certainly not as heroic as the frequent flyer commandos who pack a mosquito net in their briefcase or hire bodyguards at the arrivals lounge, but a curious and adventurous sort nonetheless. Such was my state of mind three years ago when at a cocktail party in New Delhi, I was approached by organisers of Pakistan Fashion Week who were discreetly working the room to poach international journalists for their inaugural event later that year.

India was already swarming with luxury executives singing their 2007 anthem, “India, the Next China” so I thought it was high time to meet the neighbours. I was convinced there were untapped opportunities next door which my peers had yet to discover and so I was game. Just weeks before I was due to go, the bombs starting blasting in Pakistan’s commercial capital, Karachi, in the first attempt to assassinate Benazir Bhutto and Taliban-inspired operatives kicked off a guerrilla war with the Pakistani government – one which still blights the country today.

Needless to say, I didn’t wait around to hear whether the fashion shows would go ahead before refunding my ticket. But it did get me thinking: in this seemingly endless growth cycle where we rely on a steady stream of new frontier markets to replace emerging markets that have themselves joined the ranks of maturing ones, where exactly do we draw the line? Just how adventurous should we really be in the years to come when we’re deciding where in the danger zone to invest – not based on the high reward-to-risk ratio we’re tempted by today but by what is left of a plundered global market?

With so much mileage left in the BRICs and other relatively safe investments around the world, it may seem pointless or at least premature to ponder such questions now but I’d argue that the luxury industry is already wading knee-deep through the danger zone across some pretty volatile markets. It has only been a few years since Israel’s war with Hezbollah ravaged parts of Beirut. Yet luxury brands seem sufficiently convinced that the intermittent peace and reconstruction boom are reason enough to carry on with business as usual – despite the unresolved legacy of a fifteen-year civil war and simmering tension in and around Lebanon’s borders. A few months ago, Christian Dior and Chloé were the latest arrivals to Beirut’s luxury retail strip, Rue El-Moutrane, which was spared destruction during the 2006 hostilities. Firms are putting down roots in other hazardous corners of the Middle East and in some highly unstable countries in Central Asia and the Caucasus too.

Yes, brands tend to use low-risk franchise models when expanding into these markets. And the devil’s advocate would probably make a quick but callous commercial conclusion: none of these markets represent a significant proportion of brands’ global revenue to justify serious concern even if there were a catastrophe. But if we are truly entering a more benevolent era where the luxury industry is serious about “ethical” considerations and corporate social responsibility, could there be a moral dimension to contemplate?

In certain markets, our sector is more vulnerable to hostility than others. The ugly truth is that the presence of luxury goods and services can exacerbate tensions between rich and poor or secular and religious in fractured, fragile societies. Luxury hotels and resorts are a favourite target for militants and terrorists around the developing world – and not only because they’re an obvious place for extremists to attack unwelcome Westerners. In countries where there are strict religious communities or regimes, luxury can represent everything unholy: decadence, immodesty and sexual liberation. In some former colonies, nationalist extremists might view Western luxury brands as the arrogant residue of cultural imperialism – and something that should be rooted out of society. Even in the heart of Europe, when things turn sour, emblems of luxury can be a handy scapegoat. Only last year during the Greek riots, socialists and anarchists marched into the Kolonaki district, smashing the windows of Athens’ designer boutiques.

Lofty business ethics aside, there is at least the safety of staff, agents and partners to consider. Are there places where we might be putting our employees at excessive or unreasonable risk? In January, the president of Chechnya announced plans to construct a luxury ski resort in the embattled republic’s Argun Gorge where kidnappings and shootouts take place daily. Never mind the folly of the idea – a Courchevel inspired Alpine-style resort in Russia’s most violent separatist region. If it does go ahead, international luxury hoteliers and retailers will be probably be propositioned to invest in due course.

Not all scenarios are quite so easily dismissed though. How much longer before conditions seem “right” to bring luxury goods direct to Nigeria or Iran, for instance? Both have been a hotbed of violence and bloodshed this year and, barring a miracle, neither will really be a secure business environment in the short or medium term. Weighing up the pros and cons is not always as straightforward as it seems. Other indicators in such markets can look pretty tempting. Both are vast virgin territories with exceedingly wealthy elites and growing middle classes tuned into global brands. Expansion into Lagos and Tehran might not be as far-fetched or as far off as it sounds.

If it is inevitable that the luxury industry will gain a foothold in ever more dangerous markets in order to sustain growth targets, then we will have to face these issues sooner or later. Perhaps it’s time to start having a debate, establish best practice and draft some guidelines. Selling luxury in a danger zone is never going to be a simple proposition but we can begin by reviewing what we’re already doing wrong. Much of what we can do better will be based on common sense, dialogue, discretion and, dare I say it, compassion.

Like the organisers of Pakistan Fashion Week who ultimately did stage their event last year after several cancellations (and who did it again this month), a handful of brave locals are soldiering on in many risky markets around the world. We might learn a thing or two from these resilient characters now before our adventurous spirit gets the better of us. For my part, I’m not convinced that we can rely solely on “the invisible hand” to help us know where to draw the line – not when there’s so much at stake.

Robb Young