ALEX GENTRY COMMODIFYING LUXURY ASSETS DECEMBER 2016

Commodifying Luxury Assets By Alex Gentry

A. GENTRYGENTRY

Table of Contents

Introduction 4-5 What Makes Us 6-21 Acquire Things? Ethnographic Effects 22-39 on Consumption Providing Millennials 40-42 Access to Luxury Assets Art Basel 2016 43-44 Advising + Interviews 45-51 Moving Forward 52-53 Bibliography 54-62 Introduction

Karl Marx wrote that the idea of commodity fetishism transforms the subjective, abstract aspects of economic value into objective, real things that people believe have intrinsic value. (Lewis, 2008)

Commodities are defined as goods which can be acquired, with the intention of trade or consumption. I will be focusing on luxury assets which are not traditionally considered commodities by the average consumer, due to scarcity and cost.

4 COMMODIFYING LUXURY ASSETS INTRODUCTION

In this research book, I will dive deep into what drives our perception of value and how to commodify luxury assets for investors outside of the 1%. On a macro level, I seek to learn more about what drives the consumer’s perception of what something is worth and why. This includes ethnographic, psychological, and behavioral effects on consumption. I will also conduct interviews with some of the leading specialists in the luxury asset realm including Sotheby’s Ex Chief Financial Oficer Patrick McClymont, CEO and founder of Arthena, Madelaine D’Angelo, and my personal thesis advisor Carolyn Trabuco, Co-Founder and Board Member at Azul Airlines.

5 What Makes Us Acquire Things?

Scarcity as a Tactic Need for Uniqueness ( Psychological / Behavioral) The Veblen Effect Access to Scarcity on the Web Gaining the Leadership Role Through Collecting Identifying Trends and Brand Symbolism

6 WHAT MAKES US ACQUIRE THINGS? SCARCITY AS A TACTIC

In the Cornell study titled Scarcity Effects Commodity theory, in contrast to economic on Value: A Quantitative Review of the Commodity Theory Literature, Michael Lynn theory, is a psychological theory which writes that Commodities are "any things— suggests that individuals value unavailable messages, experiences, or objects— that meet commodities because of scarcity, in and of three criteria." He starts off by stating that "Commodities must be useful. Something is itself, when there is no demand or increased a commodity to a person only if it has some monetary reward associated with the utility to him or her." Second, "Commodities scarcity. (Fromkin, 1971) must be transferable from one person to another. Things that cannot be given to, or taken from, are not commodities as defined by the theory." Finally, "Commodities must have the potential to be possessed. Things which are beyond the reach of a person are not commodities for him or her. All marketable goods and services are commodities by this definition. Even promotional activities like sales events and price reductions can be considered commodities because they are conveyed from sellers to consumers and because they have some utility to the consumers." (Lynn, 1991)

Lynn notes that the Commodity Theory coined by T.C. Brock in 1968 deals with the psychological effects of scarcity on consumers. According to the theory, Scarcity enhances the value (or desirability) of anything that can be possessed, is useful to its possessor, and is transferable from one person to another. (Brock, 1968)

In economic theory, scarce commodities are valued because of an expectation that the commodities will increase in monetary value given their scarcity, i.e. a rare automobile, bottle of wine, or painting. Commodity theory, in contrast to economic theory, is a psychological theory which suggests that individuals value unavailable commodities because of scarcity, in and of itself, when there is no demand or increased monetary reward associated with the scarcity. (Fromkin, 1971)

7 WHAT MAKES US ACQUIRE THINGS? SCARCITY AS A TACTIC

Scarcity principle is defined as “an economic Given marketers seek to make products and principle in which a limited supply of a good, services “more desirable and sought after”, coupled with a high demand for that good, commodity theory’s “predictions about scarcity results in a mismatch between the desired effects on value have some relevance to their supply and demand equilibrium.” In my thesis, I goals”. (Brock, 1968) look to provide more individuals the opportunity to invest in luxury assets. As Lynn stated, Lynn writes that Unavailability “refers to scarcity “scarcity is a pervasive aspect of human life” and other limits on availability.” He quotes and “a fundamental precondition of economic Brock’s several hypotheses that "provide behavior.” (Lynn, 1991) operational definitions of ‘unavailability’ “ as such; “(a) limits on the supply, or the number Lynn states that many examples of academic of suppliers, of a commodity, (b) costs of literature on consumer behavior and how acquiring, of keeping, or of providing a we market products “contain relatively little commodity, (c) restrictions limiting possession about the psychological effects of scarcity” so of a commodity, and/or (d) delays in providing “marketing practitioners have long assumed a commodity.” Lynn states that “these potential that scarcity enhances the perceived value of operationalizations of unavailability have products and opportunities (Cialdini, 1985)”. numerous counterparts in marketing actions. Due to this, we often see in advertising Producing limited editions of products, having statements such as “only while supplies last”, exclusive distribution outlets for products, “limited release”, “limit of one per customer”, prestige pricing of products, and restricting or “for limited time only”. Also, a sales person maximum order size for products are all may tell a consumer that there’s only one item common practices that make products difficult left during an interaction with his/her customer. to obtain. Thus, commodity theory’s predictions Brock’s 1968 commodity theory suggests that about the psychological effects of unavailability “scarcity’s enhancement of value is commodity are extremely relevant to marketing practice.” theory.” (Brock, 1968) (Lynn, 1991)

Lynn goes on to say that “value” refers to a commodity’s “potency for affecting attitudes and behavior” (Brock, 1968). “Since commodities have a positive utility, any enhancement of a commodity’s value (or potency) will increase its perceived utility and will make the commodity more desirable and sought after.” Furthermore, the concept of “value” can equal to “desirability” and “utility”.

8 WHAT MAKES US ACQUIRE THINGS? SCARCITY AS A TACTIC

Howard L. Fromkin of the Association for Consumer Research at Purdue University also quotes Brock’s theory in his 1971 piece, “A Social Psychological Analysis of the Adoption and Diffusion of New Products and Practices From a Uniqueness Motivation Perspective”. He states that Brock’s 1968 definition suggests a In my thesis, I commodity is “any object (e.g., informational, experiential or material stimuli)” which is “a seek to design a potential possessor perceived as useful to him and as conveyable from person to person. way to commodify The value of a commodity may be defined as its effectiveness in producing acceptance.” (Fromkin, 1971) “unattainable” luxury

As stated earlier in this chapter, Lynn believes assets which are not there are three key necessities to defining a good as a commodity. “First, commodities easily acquired. This must be useful. Something is a commodity to a person only if it has some utility to him or her. allows prospective Second, commodities must be transferable from one person to another. Things that cannot collectors to purchase be given to, or taken from, others are not commodities as defined by the theory. Finally, commodities must have the potential to be shares of something possessed.” they passionately In essence, Lynn believes that “things which are beyond the reach of a person are not believe has monetary commodities for him or her.” He goes on to say that his definition of commodities value. “gives commodity theory a broad domain that encompasses many things of interest to marketers. (Lynn, 1991) In other words, all attainable goods and services could be considered commodities. Furthermore, I will transform scarce goods (luxury assets) into commodities.

9 WHAT MAKES US ACQUIRE THINGS? NEED FOR UNIQUENESS (PSYCHOLOGICAL / BEHAVIORAL)

Lynn writes that “Commodity theory did not According to Fromkin, “One potential source originally specify the mechanisms underly- of self-uniqueness is the possession of scarce ing scarcity effects on value.” Brock, however, commodities. Thus, need-for-uniqueness “suggests one possibility—that people may de- theory has come to be seen as an explanation sire scarce commodities more than comparable for the scarcity effects predicted by commod- available commodities because the possession ity theory.” (Atlas & Snyder, 1978; Fromkin, of scarce commodities conveys feelings of 1970; Snyder & Fromkin, 1980). personal distinctiveness or uniqueness.” In professional athletics, young athletes feel According to need-for-uniqueness theory the pressure to stand out from their peers. In which is stated in Fromkin’s, 1973 writings a 2014 Daily Mail article, Meghan Keneally and Snyder & Fromkin, 1980, “people need to states that almost eighty-percent of United feel moderately unique”, due to an individual’s States NFL players go bankrupt during their sociological interaction with his or her peers. career, with similar statistics staying true to the Consistent with this theory, “research has NBA and hip-hop community. In a CNN money shown that people react negatively to feeling article titled “NFL players warn rookies: Stop highly similar to others”. (Fromkin, 1972). Since spending!”, Eddie George, 1996 first round material possessions are “often an extension NFL draft pick is quoted saying, “I’ve made of the self, this is “one potential source of self- millions and Iost millions.” (Kenally, 2014) uniqueness.” (James, 1890; Belk, 1989) A 2016 Clark article by Charis Brown states Fromkin believes that “One potential source of “there is an economic theory as to why we self-uniqueness is the possession of scarce tend to spend more as our income increases. commodities. Thus, need-for-uniqueness The ‘marginal’ propensity to consume as its theory has come to be seen as an explanation called, says that as income rises, spending for the scarcity effects predicted by commod- rises in tandem. So it would make sense that ity theory.” (cf., Atlas & Snyder, 1978; Fromkin, as pro sports players’ income increases, their 1970; Snyder & Fromkin, 1980). spending does too.” (Brown, 2016) When everyone is young and making money quick, Lynn states “The meta-analysis found there is a good chance of showboating. This that scarcity’s enhancement of value was means buying a more luxurious car than a reliably stronger the greater people’s need teammate, having a bigger home, or purchas- for uniqueness. This suggests that scarcity ing a watch with more diamonds in it. tactics will be more effective when targeted at consumers who possess greater than Lynn believes that “although statistically average needs for uniqueness. Such targeting reliable, the scarcity by need-for-uniqueness would be facilitated by an understanding interactions and equivalent effects were of the demographic, lifestyle, and other characteristics of high need-for-uniqueness individuals. Thus, future research should seek to identify these characteristics.” In the ethnographic section of this book, I analyze the ethnographic effects that play a role on psychological/behavioral consumer patterns.

10 FROM DECEMBER TO MARCH, MORE THAN 50 NBA PLAYERS LOGGED THEIR SPENDING ONLINE. HERE’S WHERE THEY PUT THEIR MONEY:

BY CATEGORY – TOTAL: $6.9 MILLION PERCENT

CLOTHING / SHOES 11% AUTOMOTIVE 9% TRAVEL 8% RESTAURANTS 7% CHARITABLE GIVING 7% ENTERTAINMENT 6% PERSONAL CARE 5% SERVICE CHARGES/FEES 5% ELECTRONICS 3% OTHER 39%

TOP COMPANIES/AGENCIES $$$

EXPRESS WHOLE FOODS MARKET NEIMAN MARCUS DELTA AIRLINES LOUIS VUITTON IRS AMERICAN AIRLINES APPLE WALMART MERCEDES-BENZ TARGET BEST BUY ALLY UBER TECHNOLOGIES AMAZON

Source: Personal Capital Todd Trumbull / The Chronicle11 WHAT MAKES US ACQUIRE THINGS? NEED FOR UNIQUENESS (PSYCHOLOGICAL / BEHAVIORAL)

of signifi cantly heterogeneous sizes and being restricted". (Brehm 1966;1972; Hammock contained several failures to replicate. This & Brehm 1966). If consumers can not defi ne suggests that uniqueness striving “does not the reason why a good is scarce, "it is expected always produce scarcity effects and that that they will regard scarce options as attractive future research should seek to identify the options." conditions under which it does and does not do so. One variable that may prove important is the commodity’s function.” Different products serve different functions in people’s lives. Some products, Lynn says, “like coffee or air conditioners, are primarily valued for their utility, whereas others, like fl ags or clothing, are valued for their symbolic and self-defi ning properties” (Holman, 1981; Levy, 1959; Shavitt, 1986). The need for a sense of personal uniqueness might be expected to produce stronger scarcity effects for products that typically serve the latter social- identity functions. This would be an important limitation on the utility of scarcity tactics, so future research should test this hypothesis.”

Lynn also believes that scarcity "may also change the functions that products serve." For example, "people may usually drink coffee for its taste and caffeine, but might purchase and use a particularly rare blend of coffee in order to establish themselves as people of distinctive and distinguished tastes."

In May of 2009, Heribert Gierl from the Department of Marketing at the University of Augsburg, Gemany conducted a study titled “Are scarce products always more attractive? The interaction of different types of scarcity signals with products’ suitability for conspicuous consumption”. Gierl explains that “reactance and the feeling of ‘being a chosen one,’ are discussed in studies predicting responses to scarcity signals. Brehm describes reactance as "a state of psychological tension $2695 $1833 USD that emerges when people have a feeling of YOU SAVE 32% FREE SHIPPING ON ORDERS OVER $250 TO UNITED STATES.

ONLY ONE LEFT.

During the 2016 seasonal SSENSE.com SELECT A SIZE sale, the clothing retailer used a scarcity tactic “only one left” as a tool to drive the IT 44=XS – Only one left IT 46=S – Sold Out consumer to “buy now”. IT 48=M – Only one left IT 50=L – Only one left 12 IT 52=XL – Sold Out WHAT MAKES US ACQUIRE THINGS? NEED FOR UNIQUENESS (PSYCHOLOGICAL / BEHAVIORAL)

Lynn writes that "some of the studies failing to fi nd a scarcity by need-for-uniqueness interac- tion nevertheless found reliable scarcity main effects". (Atlas & Snyder, 1978; Okamoto, 1983). This makes it evident that "some other processes also produce scarcity effects. One possibility is that scarcity’s enhancement of value is an extension of economic and so- cial exchange principles" (Lynn, 1987). Lynn “ Scarcity and value states that "scarcity and value jointly determine price in both social and economic markets, so people may have learned to associate the jointly determine price attributes of scarcity, price, and value with one another. Thus, a kind of implicit economic in both social and theory may be partially responsible for scar- city’s enhancement of value."

economic markets, Scarcity's effect on price (Fromkin, Olson, Dipboye, & Barnaby, 1971) and effects on perceived value (Rao & Monroe, 1989) "pro- so people may have vide some suggestive support for the existence of this implicit economic theory." Lynn provides learned to associate the evidence that this "implicit economic theory may indeed explain some scarcity effects on value." In one study, he found scarcity effects attributes of scarcity, "only when subjects had been primed to think about the price implications of the scarcity", and in another he found "scarcity effects only price, and value with when subjects were not told how much the commodity cost". These results suggest that one another. ” "assumed expensiveness mediated the studies’ scarcity effects, but more research is needed to test this and other potential explanations for scarcity’s enhancement of psychological value." (Lynn, 1991) (Lynn, 1991)

13 WHAT MAKES US ACQUIRE THINGS? NEED FOR UNIQUENESS (PSYCHOLOGICAL / BEHAVIORAL)

Fromkin points out that “Scarce commodities are in some way related to interpersonal processes of self presentation”. He states that in the early 1890’s, “William James remarked that ‘the line between what is me and mine is very hard to draw.’ ” (Fromkin, 1971) Fromkin states “the possession of scarce commodities is one socially acceptable way to redeine the self as different or unique in a society which is rampant with pressures toward conformity and forces of dehumanization or deindividuation.” For example, “unique material possessions such as automobiles and clothing may serve to deine that person as different from his neighbor and therefore contribute to his feelings of differentness.” (Fromkin, 1971)

14 WHAT MAKES US ACQUIRE THINGS? NEED FOR UNIQUENESS (PSYCHOLOGICAL / BEHAVIORAL)

The two major assumptions of the above explanation are: “(a) there is a need to see oneself as different; and (b) valuation of scarce commodities, when scarcity implies no economic gain, may be attributed to static or dynamic states of uniqueness motivation. If such a motivational state exists in some individuals, feelings of extreme interpersonal similarity will produce different behavior than feelings of extreme interpersonal dissimilarity. Furthermore, the behavior manifest under feelings of interpersonal similarity, when aroused by a variety of operational procedures, will be related to attempts at unique self presentation in a number of different response domains.” (Fromkin, 1971)

15 WHAT MAKES US ACQUIRE THINGS? NEED FOR UNIQUENESS (PSYCHOLOGICAL / BEHAVIORAL)

Fromkin goes on to say that “novel predictions may be derived from application of uniqueness theory to the identifi cation of innovators. For example ‘social visibility’ is a characteristic of new products which likely enhances positive evaluation by innovators with a high need for uniqueness. That is, although innovators will value new products more than plentiful products under conditions of uniqueness arousal, an additional increment in valuation of new products will occur when the product’s newness is observable both to the innovator and to others ‘Social visibility’ is a in his social environment.” (Fromkin, 1971) characteristic of new products which likely enhances positive evaluation by innova- Heribert Gierl and Verena Huettl of the University of Augsburg have tors with a high need for uniqueness. set off to investigate whether or not scarcity signals have positive ef- fects on product evaluation. They believe that “the effect of scarcity signals depends on whether the scarce product is used as a con- spicuous consumption good or as a non-conspicuous consumption good.” By combining “the type of scarcity (i.e., scarcity due to supply vs. due to demand) and the type of product (i.e., high vs. low suit- ability for conspicuous consumption)” they can “analyze whether the effect of scarcity on the attitude toward the scarce product depends on the four conditions that result.” (Gierl, Huettl; 2009)

The Cohiba Robusto, a scarce commodity which was banned in 1962 from being exported to the U.S. 16 WHAT MAKES US ACQUIRE THINGS? NEED FOR UNIQUENESS (PSYCHOLOGICAL / BEHAVIORAL)

Gierl believes that scarcity signals have a "Two additional mechanisms" (or marketing positive effect on consumer responses. He tactics), Gierl writes, is the creation of states that "consumers may respond positively "reactance" and the constructed feeling of to scarcity signals when products can be used “being a chosen one”. to communicate with friends or colleagues. For instance, possessing scarce products Brehm defines reactance as "a state of could evoke feelings such as being envied psychological tension that emerges when and highly respected." This is something people have a feeling of being restricted" we have all experienced. He goes on to (Brehm 1966;1972; Hammock & Brehm define conspicuous consumption goods as 1966). Gierl states that "If they (the consumer) "products that can be consumed to satisfy cannot eliminate the cause of the restriction, such social needs". Some examples of these it is expected that they will regard scarce goods are "automobiles, apparel, jewelry, options as attractive options." For example and home appliances (i.e., goods that can be the Cohiba cigar has widely been regarded noticed by guests and friends)". Gierl states as a scarce commodity in the United States that consumers can use scarcity signals "as ever since the Cuban Embargo in 1962. With heuristic cues to simplify their assessment of a built romanticism around the idea of Cuban product’s quality". products being banned in the United States, reactance has caused a scarcity effect. Gierl's study on the scarcity paradigm builds well off of Lynn's findings. Gierl states that Gierl writes that on the contrary, "the scarcity scarcity has a large effect on the consumer of a single product of a category containing "when a signal of scarcity (due to limited multiple options, consumer reactance is supply) is combined with a product that is unlikely to occur, as people will hardly interpret not suitable for conspicuous consumption." the scarcity of one option as an important Gierl goes on to say that "the same lack restriction of their freedom." (Gierl, Huettl; of theoretical considerations exists when 2009) a signal of scarcity due to high demand is combined with a product that is suitable for According to Brock, the basic premise of communicating to others. Furthermore, there commodity theory is “that any commodity will is no empirical research on the effect of the be valued to the extent that it is unavailable” interaction between the type of scarcity in play (Brock 1968, p. 246). Brock postulates that and the product’s suitability for conspicuous believes that "a scarce commodity may result consumption. Even the assumption that in a positive feeling of 'being chosen.' This scarcity due to supply improves the evaluation feeling requires the supplier to actively select of conspicuous consumption goods has not consumers to receive the scarce product", yet been tested. Providing answers to these such as a pair of rare Yeezy sneakers or a questions serves the purpose of contributing limited edition Supreme T-shirt (Gierl, Huettl; to the theory of conspicuous consumption 2009). by adding the type of scarcity and, thereby, extending this theory. Furthermore, knowledge about the effectiveness of scarcity as a heuristic cue is expanded." (Gierl, Huettl; 2009)

17 WHAT MAKES US ACQUIRE THINGS? THE VEBLEN EFFECT

Although you may have never heard of it, you’ve Vetements’ re-structured Champion brand almost certainly came in contact with veblen hoodies “come in a few different variations goods or experienced the veblen effect - and and frequently cost around $800. Despite potentially fell for it. The veblen effect is a the price, they keep selling out, and are a marketing tactic where goods are intentionally common sight on the streets of Paris and New priced at a highly infl ated price point, with the York.” Similarly to several other luxury goods, intention to drive consumer demand. This is Vetements keeps production runs small to done by fabricating the consumer’s belief that increase demand. Guram Gvasalia, Vetements this pricing equates to quality and prestige. founder, states that “In order to make people want something, you need to create scarcity.” In his highly regarded piece on the leisure (Mondesert, 2016) class, Thorstein Veblen (1899), a witty critic of capitalism, argues “wealthy individuals In a 2016 article with QZ, Gvasalia stated often consume highly conspicuous goods “Every single piece in our collection is going and services in order to advertise their wealth, to be a limited item. Customers know if they thereby achieving greater social status.” don’t buy the piece they want, it may not be Veblen’s writings have “spawned a signifi cant available.” (Bain, 2016) body of research on ‘prestige’ or ‘status’ goods. Anecdotal evidence suggests that Veblen effects may be empirically signifi cant in markets for luxury goods. In his piece, he comments on a marketing manager who stated to him, ‘Our customers do not want to pay less. If we halved the price of all our products, we would double our sales for six months and then we would sell nothing’.” (Bagwell, 1996)

A modern day example, and potentially the epitome of veblen goods would be the uber expensive French fashion brand Vetements. In a 2016 Yahoo news article titled Refugee Brothers Maverick Label Turns Fashion Head, we’re told the story of how an $800 hooded sweatshirt (or “hoodie”) is selling out globally. “For more than a year, a small, Paris-based label has been rapidly bubbling up in the talk of fashion insiders. Now, Vetements—the name simply means “clothes” in French—is no longer a secret. Just a few seasons old, it already sells to 135 stores around the world.”

Women's "Logo" Hoodie, by Vetements Retail: $654 USD Source: Lyst

18 WHAT MAKES US ACQUIRE THINGS? ACCESS TO SCARCITY ON THE WEB

Streetwear brand Supreme, Kanye West’s With this influx in demand for limited edition Yeezy brand (produced by Adidas), and Jerry clothing, Yeezy’s - what would’ve arguably been Lorenzo’s Fear of God clothing line have all considered in the past simply as “new sneakers had a great amount of success through a inspired by a rapper”, are now considered to combination of the veblen effect and fabricated be a highly valuable collectible, selling for at scarcity online. Adidas, as well, has added a least five-times their retail price. “wait on line” feature to their site, which gives online customers the feeling of being on a line A new site titled LSWOP, short for Luxury outside of a store, with the slight chance of Swop, allows subscribers to rent a pair having the opportunity to purchase a pair of of sneakers for one to four days for $150.

By providing their “limited” shoes before they sell out. Jean Complex Magazine states that they have other consumers with Paul Leon, fashion aficionado and fifth year plans available as well, “two sneakers a month the feeling of being a ‘chosen industrial design major told me, “When it’s for $300, and 3 sneakers a month for $450 one’ and having your turn, you’re arguably more likely to click (it’s slightly cheaper to become a year-long the “opportunity to purchase a pair of the ‘buy now’ button, knowing other people member).” (Welty, 2016) sneakers” as Leon are going to buy them at that very moment if describes, almost guarantees the sale you don’t.” By providing consumers with the LSWOP founder Jinette Cordero tells of goods. feeling of being a ‘chosen one’ and having the Complex, “We understand there’s basic wear “opportunity to purchase a pair of sneakers” as and tear, but anything that’s over the top is not Leon describes, almost guarantees the sale of acceptable. Each sneaker that goes out comes goods. Leon went on to say that this feeling is with a credit card hold for its retail amount. It’s even better when the consumer sees it as an like renting a car. When it’s returned, the hold investment, “given no one else could get them”. is taken off the car. We have our patented 3M sole protector that goes on the bottom of the Access to platforms With the introduction of online “buy and sell” shoe, a pair of socks, Jason Markk’s product like this turns a consumer’s feeling platforms such as eBay and Grailed, any given to clean it, and a shoe protector to stop it from of holding a true consumer with access to the internet can creasing. Each customer has their own custom commodity into a reality since they profit sell an “exclusive” piece of clothing they have wood-wrapped box with their name on it. We off trading it. “copped” (slang for purchased) online. Access make sure we cater to our clients.” (Welty, to platforms like this turns a consumer’s feeling 2016) of holding a true commodity into a reality since they profit off trading it. Paddle 8, Artsy, and Artspace currently serve as the Grailed of the online art word, allowing When Justin Bieber collaborated with the average consumer to become an art dealer, Fear of God designer Jerry Lorenzo on his re-selling upper-tier contemporary artwork 2016 rock-inspired tour merchandise, “Bieber online to others in an auction or buy it now pieces went up instantaneously on eBay. format. Thanks to profiteering resellers, more than a few have found their way to Grailed, a new online resale marketplace aimed squarely at the streetwear demographic. Eighty pieces so far have been listed since the pop-ups began, said Lawrence Schlossman, the brand director of Grailed, and 60 percent of those sold immediately, though they do not elicit the fervor of limited editions by Supreme or Yeezus pieces by Mr. West.” (Schneier, 2016)

19 WHAT MAKES US ACQUIRE THINGS? GAINING THE LEADERSHIP ROLE THROUGH COLLECTING

Consumers influence each other in many everyday consumption decisions and is a ways. They imitate one another’s choices, central component of almost all daily events, they converse, exchange information, and influencing what we eat, how we dress, how give opinions on certain matters. Researchers we talk and even our thinking processes” identify consumer interpersonal communication (Bertrandias & Goldsmith, 2006). Clark states, as one of the most important influences on what we own and how we present ourselves product sales and brand choice (Bertrandias & is viewed as “an outcome of a dynamic culture Goldsmith, 2006). KP Vel from the University and common shifts in taste and preferences” of Wollongong in Dubai states, “Word travels (Clark, 2008). quickly amongst consumers about the latest trends in fashion and which products are Like Veblen stated in the late 1800’s, luxury attractive and which ones are not. Many goods serve as semiotics, which may be consumers listen to these words and consider publicly consumed to visualize information the consequences if they did not listen to about someone’s personality and status. KP Vel opinions. states, “When fashion opinion leaders share information and advice with other consumers Opinion leadership has been defined in who seek them out as sources of information many ways; the concept is mainly associated for luxurious products, they exert a powerful with influence, with information sharing, or influence on their buying behavior of other with both.” Associate Everett M. Rogers and consumers.” (K. Prakash Vel, 2011) David Cartano, professors of sociology at the University of Ohio define opinion leaders as “individuals who influence the decisions of others. These are individuals regarded by a group of people as having expertise, knowledge, and are considered as appropriate sources for information and advice” (Clark, “When fashion opinion 2008). When a consumer decides to invest in a luxury asset, they will most likely reach out to leaders share information a friend or family member whom they believe will understand that product. and advice with other Clark states that “Fashion opinion leaders are a prime example of this area of topic. consumers who seek They generally play the role of endorsers and information sources. Fashion opinion leaders them out as sources of are expected to have higher levels of fashion innovativeness than most other consumers.” (Clark, 2008). information for luxurious What we own in comparison to who we want to be seen as, “forms an important role in products, they exert a powerful inluence on their buying behavior of other consumers.” (K. Prakash Vel, 2011)

20 WHAT MAKES US ACQUIRE THINGS? IDENTIFYING TRENDS AND BRAND SYMBOLISM

MEANS-END MODEL OF CONSPICUOUS CONSUMPTION

SATISFYING SOCIAL NEEDS (E.G., SENSE OF BELONGING, ACCEPTANCE, RESPECT, LEADERSHIP)

OSTENTATION OF A HIGH SOCIAL DEMONSTRATION OF DEMONSTRATION OF STATUS UNIQUENESS(DIFFERENTNESS CONFORMITY (SIMILARITY (POSITION WITHIN FROM PEOPLE BELONGING TO PEOPLE BELONGING TO A SOCIAL HIERARCHY TO THE SAME SOCIAL GROUP) A CERTAIN SOCIAL GROUP)

USING PRODUCTS AS STATUS USING PRODUCTS TO EXPRESS USING PRODUCTS TO EXPRESS SYMBOLS (E.G., EXPENSIVE UNIQUENESS (E.G. INNOVATIVE, CONFORMITY (E.G., PRODUCTS AUTOMONILES, JEWELRY, RARE OR UNUSUAL PRODUCTS) WHICH ARE APPRECIATED WITHIN AND APPAREL) A CERTAIN GROUP)

USING SOCIALLY VISIBLE PRODUCTS WITH SYMBOLIC MEANING AND THE APPROPRIATE TYPE OF SCARCITY

(Gierl, 2009) (Fig. 1)

As displayed in the bottom portion of Fig. 1, a connotative signifier such as a vintage Apple computer represents more than just an antiquated piece of technology. In Berlin, Germany on May 23, 2013, German auction house Breker sold a Steve Wozniak signed Apple 1 along with a letter written by Steve Jobs for $668,000 (over 1,003 times what it sold for in 1976). (AP Staff, 2013)

The sociological effect of being a part of history, or owning what is be believed to be a part of history provides a demonstration of uniqueness, serves as a status symbol, and ultimately a sign of differentiation from peers.

Similarly, a Vetements hoodie isn’t seen simply as a cotton sweatshirt. Brand symbolism and semiotics play a huge in the consumer’s perception of value. 21 Ethnographic Effects on Luxury Consumption

Overview United Arab Emirates China United States Millenials

22 ETHNOGRAPHIC EFFECTS ON LUXURY CONSUMPTION OVERVIEW

“For many years, people all over the world have satisfied themselves with the possession of expensive and exquisite goods. Luxury goods have been defined as goods for which the general use of a particular branded product brings prestige to the owner, apart from any functional utility (Husic & Cicic, 2009). A luxury product is defined by the extraordinary labor and skills, and the exquisite quality of raw materials that go into producing the product that makes a brand premium and luxury (Seringhaus, 2002). During the last decade, the luxury market has sustained constant growth due to the increase in luxury consumption amongst people internationally. Amongst the countries that witnessed significant growth in their luxury market is the United Arab Emirates.” (K. Prakash Vel, 2011).

Bain & Company states in their 2015 study on luxury goods that Chinese consumers "play a primary role in the growth of luxury spending worldwide" accounting for "the largest portion of global purchases (31%), followed by Americans (24%) and Europeans (18%).” Chinese consumers "continue to spend far more abroad than in Mainland China, which accounts for only 20% of their global purchases. However, the depreciation of the euro boosted the country to the global luxury podium; it is now the third-biggest market in the world, after the US and Japan. The most popular travel destinations for Chinese luxury shoppers shift—typically to Europe, South Korea or Japan—in response to currency fluctuations, which create temporary favorable price gaps.” (D’Arpizio; Levato; Zito; Montgolfier, 2015)

23 ETHNOGRAPHIC EFFECTS ON LUXURY CONSUMPTION OVERVIEW

GLOBAL PERSONAL LUXURY GOODS MARKET, 1994-2015 (¤ BILLION)

1994 73 1995 77 1996 85 1997 92 1998 96 1999 108 2000 128 2001 133 2002 133 2003 128 2004 136 2005 147 2006 159 2007 170 2008 167 2009 153 2010 173 2011 192 2012 212 2013 218 2014 224 2015 253

Figure 1: The global luxury market exceeded €1 trillion in 2015, posting overall growth of 5%, driven by cars, hospitality and fine arts. Information Source: Bain & Company.

24 ETHNOGRAPHIC EFFECTS ON LUXURY CONSUMPTION OVERVIEW

WORLDWIDE LUXURY MARKET, 2015E (€ BILLIONS)

253 PERSONAL LUXURY GOODS 13% 1-2% 405 LUXURY CARS 15% 8% 176 LUXURY HOSPITALITY 17% 7% 64 FINE WINES AND SPIRITS 10% 3% 45 FINE FOOD 13% 4% 40 FINE ART 19% 6% 32 DESIGNER FURNITURE 9% 4% 21 PRIVATE JETS 14% -1% 7 YACHTS 2% -1% 2 LUXURY CRUISES 16% 4% 1,044 TOTAL 2015E 14% 5%

NOTE: DISCREPANCY IN TOTAL IS DUE TO ROUNDING SOURCE: BAIN & COMPANY

Figure 2: Exchange rate fluctuations resulted in a double-digit growth rate. Information Source: Bain & Company.

25 ETHNOGRAPHIC EFFECTS ON LUXURY CONSUMPTION UNITED ARAB EMIRATES

K. Prakash Vel’s 2011 study for The University of Wollongong in Dubai discusses the United Arab Emirates (UAE) luxury spending trends. KP Vel notes that as the UAE economy grows and retail per capita increases, “consumers will be encouraged to devote a significant amount of their disposable income on purchases”. The UAE he states is ranked as one of the “top five countries for consumer purchasing power for luxury clothes and accessories” (Balakrishnan, 2008). Since UAE citizens are predominately wealthy, the upper social class has began to associate brand symbolism of luxury goods with society. “Within the Middle East, serious luxury buying starts at 20 years of age, compared to 40 years in Europe, which means 20 years of extra ‘luxury power’ in the region” (Gulf Marketing Review, 2008). Furthermore, the small percentage of middle class citizens have become heavily exposed to this “elite” market, and in turn have begun to purchase these items as well. (K. Prakash Vel, 2011)

"There is a need to analyze aspects, other This information brings up the question of whether or not the luxury than buying power, in terms of the Arab consumption trends of upper class citizens in the UAE influences society and culture that might have an nationals. KP Vel argues "there is a need to analyze aspects, other influence on their purchase of luxury than buying power, in terms of the Arab society and culture that goods." might have an influence on their purchase of luxury goods."

KP Vel defines luxury assets as things “whose price holds greater value than the functional use of the product itself" (Nueno & Quelch, 1998). Statistically, “over the past two decades the luxury market has grown to $68 billion from $20 billion in 1985.” The Economist states that “Despite several market fluctuations, the luxury goods industry has been able to sustain a steady growth rate”. (The Economist, 2002). KP Vel quotes a report by Merrill Lynch and Cap Gemini (2005), stating in 2004 “there were a total of 8.3 million millionaires, of which 7.5 million were from USA alone. The percentage of luxury consumption was reported highest in Asia (37%), closely followed by Europe (35%), and USA (4%) (Chadha & Husband, 2006).” KP Vel believes this exemplifies “the potential for growth in the luxury market, but also points out the amount of wealth is unequally distributed worldwide.” He goes on to say that “about 2% of the world’s richest people own over half the world’s

26 ETHNOGRAPHIC EFFECTS ON LUXURY CONSUMPTION UNITED ARAB EMIRATES

wealth, and are concentrated in North America, Europe, Japan, and There is a direct Australia” (Oslobodjenje, 2006). correlation between an In cultures where there is a social hierarchy, "the display of wealth “individual’s and consumption of luxury goods becomes an important symbol consumption of being." (O’Cass & Frost, 2002). In such cultures, “Individuals behavior” and are especially concerned about the impression they make on “his or her social others in society.” (Park et al., 2002). Physical appearance, (such class position, as fashion), becomes a consumption tactic in these societies. and this is a (O’Cass & United Arab Emirates Frost, 2002). more significant determinant of There is a direct correlation between an “individual’s consumption his or her buying behavior” and “his or her social class position, and this is a more significant determinant of his or her buying behavior than just behavior than just income.” In the UAE’s society, individuals “are more expected to income.” buy branded products that convey affluence, wealth, and social class. This is common among consumers in cultures such as the UAE where there is a great emphasis on social class and power. In such cultures, social brand image is very important.” (K. Prakash Vel, 2011)

K. Prakash Vel states that “By using luxurious goods as symbols” societal members can “communicate meaning about themselves.” Prakash goes on to say that "Arabs in the UAE view global luxury brands as symbols of prosperity and social status as do Western consumers.” Since UAE consumers are socially oriented, they will always need to “maintain class and exclusivity in everything they do. Most of them are concerned with society approval and care about being approved and accepted by others. Many of these consumers come from a society where appearances matter and to gain society’s approval, one could wear something expensive and appealing to others. In order to fit in to this society, consumers believe they should purchase luxurious items. The more expensive an item he or she beholds, the better impression they will have on other members of their society.” (K. Prakash Vel, 2011)

27 ETHNOGRAPHIC EFFECTS ON LUXURY CONSUMPTION UNITED ARAB EMIRATES

During my studies at Syracuse University I have befriended predominately international students, including one of my best friends Nitesh Shewakramani who is not Arab, but is a Dubai native. Nitesh has told me that given Arab cultural norms, there aren’t many creative/differentiating outlets for citizens. As a woman, it is frowned upon to act provocatively and for men to act out of tradition. Because of this, luxury assets have become a facet of differentiation in UAE society and many parts of the affluent Middle East. Upon arriving at Nitesh’s home in Emirates Hills (Dubai) last summer, I was greeted in his driveway by two servants to bring my bags inside, with the backdrop of an extremely opulent villa. In Dubai and the UAE, this is considered to be a proper celebration of success. In the United States, many would frown upon this, labeling it as ostentatious.

K. Prakash Vel believes that “Luxury products represent the most complex in terms of the various factors influencing the buyer’s choice. In particular, the role played by important social symbols, publicly consumed goods, change in culture, opinion leadership, reference group, social consumption motivation, and gender differences make the consumer decision making process a complex area of study.” He references an analysis of literature which reveals “luxury buying is an important trend in the Emirati society in the United Arab Emirates, whose purchase behavior of the same has not been documented as yet.”

In a study which K. Prakash Vel cites, he states “Thirteen structured focus groups were conducted with Emirati nationals, both men and women, and a content analysis on each of the propositions was carried out. Findings indicated that family and peers were the key influencers of purchase decisions related to luxury products. These findings represent the social and cultural considerations to be taken into account in the marketing of luxury products in the UAE.”

28 ETHNOGRAPHIC EFFECTS ON LUXURY CONSUMPTION UNITED ARAB EMIRATES

Prakash states that “the more consumers seek status, the more they will engage in behaviors such as the consumption of symbolic goods that will reflect their image and class to others” (Park et al., 2002). Many brands we know of consistently position themselves as exclusive thus “communicating prestige status and role position of the brand user.” There is an emphasis on the perception that the "acquisition of materialistic goods is one of the strongest measures of social success and status" (Park et al., 2002). Eastman highlights the importance of status consumption and notes it as being the "motivational process by which individuals attempt to improve their social standing through conspicuous consumption of consumer product" (Park et al., 2002).

Since many citizens residing in the UAE come from wealthy families, and because of their family’s reputation and status, these individuals acquire luxury assets to fall in line with their reputation and maintain image. K. Prakash Vel states that “this is concerned with the outwardly directed egoistic needs part of Maslow’s theory pertaining to outwardly egoistic needs, including: prestige, reputation, position, status and recognition from others.” (K. Prakash Vel, 2011)

29 ETHNOGRAPHIC EFFECTS ON LUXURY CONSUMPTION CHINA

In McKinsey & Company’s 2012 quarterly article titled “Meet the Chinese Consumer of 2020”, they state “Chinese market growth at the high end of some consumer goods categories already outpaces average growth for those categories as a whole. Sales of premium skin care products, for instance, rose by more than 20 percent a year in the past decade while the industry average was 10 percent.” They go on to say, “Annual volume growth rates of more than 20 percent are foreseeable for luxury SUV cars, compared with around 10 percent for basic family models. China had already become a leading luxury market by 2010 and could overtake Japan to become the biggest such market by 2015.” (Atsmon; Magni, 2012)

Chinese consumer trends play a large role in the world of collecting. “As with much of the investment landscape, the biggest returns when investing in art are at the very top of the spectrum. The Mei Moses World All Art Index (a somewhat controversial but widely cited market indicator) was down 3.1% in 2015, while the S&P was up 7.14%. However, works sold for over $10 million have generated a 27% compound annual growth rate, or a 1,000+% return over 10 years. Deloitte highlights that this return more than doubles that of gold and other frequently cited commodities. Looking at a 20-year spread, the Mei Moses’s compound annual return of 5.26% was below the 8.33% of the S&P500. However, if you segment out post-war and contemporary art or traditional Chinese art, Mei Moses beats the S&P at 10.71% and 9.13%, respectively. A similar picture is painted when looking at a 50-year spread, with art returning 7.89% annually against the S&P’s 9.17%, but post-war and contemporary delivering 10.85%.” (Forbes, 2016)

During my five years at Syracuse University I have become particularly infatuated by the large demographic of wealthy Chinese students. “Fuerdai” - the controversial term given to this particular group, translates in English to “children of the Chinese nouveau riche”. Many of these children can be seen driving through campus flaunting luxury assets - particularly cars and clothes. A good friend of mine, Edison (or Pei-Pei as his close friends like to call him) drove a brand new, “all options included” BMW M5 on campus, and would regularly wear head-to-toe Rick Owens outfits to the library to study in.

30 ETHNOGRAPHIC EFFECTS ON LUXURY CONSUMPTION CHINA

Lunch time at 2015 Bund Classic.

31 ETHNOGRAPHIC EFFECTS ON LUXURY CONSUMPTION CHINA

Pei Pei and I developed a very close relationship during our five years together, in which I learned a lot about this mysterious, exclusive group. He told me that his mother was a real estate developer in Wuhan, China, and owned a Hyundai dealership. When asked why he drove a BMW, he laughed. He told me that having “nice things” in Syracuse makes Chinese students feel “at home”. Since European cars are much more expensive in China, coming to the United States for school gives them an opportunity to buy top tier automotives - whether it be purely for consumption or as an investment.

In the 2015 Jing article, “China’s Rich Look to Classic Cars for Status Symbols and Investment Opportunities”, writer Liz Flora discusses Pei Pei’s statement in further depth. Flora states that “As China’s wealthy seek out both new status symbols and investment opportunities in the face of a shakey stock market, classic cars are increasingly start- ing to catch their attention despite regulatory hurdles." At this years Bund Classic car show, "vintage autos by brands such as Rolls Royce and Mercedes-Benz adorned the lawn of the old British consulate on Shanghai’s Bund as collectors and brands gathered to promote classic car collection to both investment and lifestyle-minded Chinese elites.” (Flora, 2015)

At the show, “Activities for visitors over the course of the weekend went far beyond the auto exhibition itself" ranging from "the pragmatic to the indulgent, including a forum on heritage investment, a classic concert, classes on table settings and wine-tasting, and a ‘hat-mandatory’ pic- nic on the lawn, sponsored by a wide range of luxury brands including Vacheron Constantin, Ferrari, and Christofle.” Strikingly similar to Ameri- can and European heritage car gatherings, “the event’s focal point was the Concours d’Elegance, a parade of the automobiles on the Bund followed by a selection of the most elegant model by a panel of high- profile judges.” (Flora, 2015)

The Bund Classic, which has been going on for three years, displays the “growing interest in collecting vintage automobiles in China as the mar- ket booms globally.” Flora states that the classic car trend is “taking up fast in China and several Chinese collectors are starting even to invest in cars overseas”. Liu Tao, vice manager of the Shanghai Auto Museum agrees that car collecting is “definitely a trend” in China. Tao states that, "Their (Chinese) enthusiasm for cars is growing.” Flora goes on to say that “Just a few weeks after the Bund Classic, the Classic Car Chal- lenge China held its fifth annual event, in which drivers took 51 classic

32 ETHNOGRAPHIC EFFECTS ON LUXURY CONSUMPTION CHINA

cars on a 1,200-km journey from Beijing to Shanghai.”

Referencing China’s recent stock market crash and worries about a real estate bubble, Flora states this has “caused wealthy Chinese individuals to seek out alternative forms of investment, many are look- ing to collectibles and classic cars as the market booms globally.”

Delphine Lignières, founder of the Bund Classic, states “I do believe that the stock market crash has pushed a few high-profile individu- als to find alternative investments, and that classic cars and art have been a great option. More and more Chinese start to take part in overseas classic car auctions and we can see the trend growing fast.”

These investors that Lignières refers to are “likely encouraged by signs of growing global demand.” Flora states that at the 2014 edi- tion of the Pebble Beach Concours d’Elegance in California, there was a definite increase in Chinese participants, with total sales breaking "a record of $399 million.” Lignières noted that “Warren Buffet has said investing in classic car is better than in gold, and a recent Knight Frank study on investment in collectibles found that the largest growth is connected to cars.” (Flora, 2015)

Flora states that since Chinese collectors face significant regulatory obstacles, “where the import of used cars is banned”, events like the Bund Classic “play an important role in exposing potential col- lectors to the cars, as classic car shows, rally racing, and donations are the only ways one can legally transport a vintage car into China”. Because of this, many collectors store their automotives elsewhere, including the United States.

Alexi Fung is Hong Kong’s managing director of Bonhams auction house, which Flora says “held the sale of the world’s most expensive vintage car ever sold at auction with the $38 million purchase of a Ferrari 250 GTO Berlinetta in 2014.” Besides displaying cars at the Bund Classic, “Bonhams featured a display of jewelry, watches, and art prints for Chinese collectors to view.” Fung states that “For Chinese clients, the majority of them are collecting Chinese paintings and Chinese works of art, but in the vintage luxury market we can see the growth as well.”

33 ETHNOGRAPHIC EFFECTS ON LUXURY CONSUMPTION CHINA

Fung believes “the purchase of a classic car or luxury item at auction should be a long-term investment rather than a knee-jerk response to the stock market". He goes on to say “The stock market goes up and down instantly... For investment objects or jewelry or cars—these are the kind of objects that you cannot sell right away. You have to go through an auction house. Auc- tion houses have two seasons a year, so you have to wait at least four or six months to put it on the market and sell it.” (Flora, 2015)

Flora states that “China’s burgeoning collectors are often motivated not only by financial incentives, but also by a passion for collecting.” Liu says that “although the classic car market is similar to the art and antiques market in terms of investment buying, there are also many collectors who are buying out of personal interest.” Liu goes on to say that she encounters “many collectors who love cars and collect without caring about how much the value will increase or with a goal of eventually selling in mind. They just like the cars.”

Flora goes on in her article to discuss the Italian super-car manufacturer Pagani, who only produces forty automotives per year, and “just opened its third global showroom in Shanghai” (Flora, 2015). Pagani’s global sales director Alberto Giovanelli states the main objective of Pagani “has always been to target a niche market for a pure luxury experience. While other lux- ury auto brands like Ferrari, Porsche, and Maserati, are targeting very high volumes, ranging from 1,000 to 50,000 units globally per year, demand is still high at the top echelon of the ultra-rich in China.”

Giovanelli goes on to say, “What we’re looking at is a private collector, mostly, that already has most of these cars. He’s probably an international traveler; he’s got most of the brands; he drives most of the cars. Our target is really extremely high. There’s nothing on top of a Pagani client in terms of purchasing power and automobile collection.”

Flora finishes by stating whether the purchase of a luxury asset is made “as investment, personal interest, or both, the goal of events like Bund Classic is to spark wider interest in classic car collecting among China’s wealthy by educating them about the market while demonstrating the perks of the life- style in the classic car collecting community.” Fung states, “Once they get into collecting cars, they will learn a lot more; they cannot stop themselves from buying.” (Flora, 2015)

34 ETHNOGRAPHIC EFFECTS ON LUXURY CONSUMPTION CHINA

The 2015 Bund Classic in Shanghai.

35 ETHNOGRAPHIC EFFECTS ON LUXURY CONSUMPTION UNITED STATES MILLENIALS

Robb Report Luxury Newswire reports that “With U.S. consumers spending more than $150 billion on arts and entertainment in recent years, new data released by Invaluable - the world’s leading online marketplace for fine art, antiques and collectibles - examines how consumer attitudes and prefer- ences toward art will impact behavior for future generations. The “American Attitudes Toward Art” survey, fielded to nearly 5,000 U.S. adults in March 2016, found that age is a major factor in how U.S. consumers discover and purchase art, especially when it comes to capturing the next generation of art buyers.” (Robb Report Luxury Newswire, 2016).

In the United States, “Millennials spend more than thirty hours a month on social media sites, survey findings show social media channels, such as Instagram and Pinterest, are the preferred art discovery tool among Millen- nials. Nearly half (44.3%) of young Millennials age 18-24 and 33.8 percent of older Millennials age 25-34 indicate they discover new art through social media channels, compared to the largest percentage of Baby Boomers age 65+ (29.5%) who prefer a more traditional discovery path by finding new art through museums.” (Robb Report Luxury Newswire, 2016).

While designing my platform for commodifying luxury assets, I plan to incorporate social media marketing tactics in order to get millennials involved in investing online.

Robb Report states that “When it comes to how the next generation will purchase art, more than half of Millennial respondents (56.9% ages 18-24 and 51.6% ages 25-34) said they would purchase art online, compared to only 19 percent of Baby Boomers (age 65+). In fact, roughly one in four Mil- lennials age 18 to 24 prefer to purchase art through an online marketplace or website.” (Robb Report Luxury Newswire, 2016).

In almost every U.S. industry, (including retail, restaurant and hospitality) there have been major digital transformations to turn Millennials into cus- tomers. Rob Weisberg, Invaluable CEO, told Robb Report that “Millennials’ mobile-first preferences are driving similar demand from the art industry”. He states “there has never been a more critical time for our industry to prepare and execute digital strategies that engage, inspire and capture the next gen- eration of art buyers - Millennials.” (Robb Report Luxury Newswire, 2016).

36 VALUE DESCRIPTION

AESTHEIC THE PURCHASER OF THE ART WHO, USING SENSORY COMPONENTS, JUDGES THE CREATIVITY, AESTHETICS, ORIGINALITY, BEAUTY, SPONTANEITY OF THE WORK OF ART.

COGNITIVE INTELLECTUAL PROCESS OF SEMANTIC AND AETHETIC UNDERSTANDING AND APPRECIATION OF THE ARTWORK BY THE PURCHASERS OF SAID WORK.

EMOTIONAL A SET OF FEELINGS, VARYING IN TYPES, WHICH THE ARTWORK GENERATES IN VIEWERS AND COLLECTORS.

OWNERSHIP PSYCHOLOGICAL EFFECT EXPERIENCED BY A PURCHASER UPON OWNING A WORK OF ART.

INVESTMENT INCREASED VALUE OF ARTWORK, PERCEIVED BY THE COLLECTOR BOTH TO FOR PROFIT BY SELLING IT, AND AS AN INDICATION OF A WISE DECISION.

SOCIAL IMAGE THAT THE COLLECTOR PROJECTS THANKS TO THE WORK IN TERMS OF HIS/HER SYMBOLIC EDUCATION, GOOD TASTE, SOCIAL STATUS AND DECORATIVE USE.

LEGACY PERCEPTION OF THE WORK AS A LEGACY FOR FUTURE GENERATIONS AND/OR FOR WORLD HERITAGE.

SCIENTIFIC EXCLUSIVE AND TANGIBLE CHARACTERISTICS OF ARTWORK THAT HAD TO BE AUTHENTICATED BY EXPERTS AND SPECIALISTS.

PRESCRIPTORS LOCATION WHERE WORKS OF ART ARE SOLD AND EXHIBITED, WHICH ARE HIGHLY RATED BY PURCHASER FOR THEIR PRESTIGE AND ABILITY TO IDENTIFY QUALITY ART.

DIMENSIONS FOR ART’S PERCIEVED VALUE

37 ETHNOGRAPHIC EFFECTS ON LUXURY CONSUMPTION UNITED STATES MILLENIALS

In a The Street’s May 2016 interview, Evan Bear, the National Arts Executive at U.S. Trust tells reporter Scott Gamm “there is a new breed of young collec- tors who see art as both a way to seek aesthetic pleasure, as well as tool for loan collateral.” Beard states that “‘Art can be used as a capital asset, refer- ring to the generational shift he has noticed among clients.” Gamm goes on to say that “Millennials are looking at art as an investment. Some 55 percent of millennials collected art for its aesthetic appeal, compared to 85 percent of baby boomers.” (Gamm, 2016)

Beard states that “the relationship the collectors have with their art is chang- ing.” Beard believes “Older generations would collect and buy art, but they were rarely sellers.’ He says that “older investors buy art for its aesthetic ap- peal” however “a new generation (Gen X and millennials) are far more com- mercially driven with their art, much more willing to sell their art as they are collecting and they are savvy in using their art as collateral for loans.” Gamm writes that “just 27 percent of millennials said investing in art is ‘risky,’ com- pared to 46 percent of baby boomers.” (Gamm, 2016)

For millennials seeking to buy luxury assets (such as art) for investment sake, Beard advises “buy what you love.” He goes on to say, “The art market is hun- dreds and hundreds of sub-markets with their own interesting dynamics and the economic drivers of price in the art market are much different from stocks and bonds". Beard states "investors should invest in art because they’re interested in a particular piece - not because they’re hoping to turn a profit." (Gamm, 2016)

In comparison to the global perspective, a July 2016 Australian Financial Re- view stated that in Australia “a growing segment of the young investor market now views art as an alternative to traditional investments”. Young Australian investors are allocating “5 to 10 percent” of their investment portfolio to art, “providing additional diversification”. (Australian Financial Review, The Art of Business - Advertising Feature)

38 ETHNOGRAPHIC EFFECTS ON LUXURY CONSUMPTION UNITED STATES MILLENIALS

While The Robb Report reveals Millennials aren’t purchasing art as frequently as Baby Boomers, surveys shows Millennials see long-term value in purchasing art. According to Robb Report, “Roughly 42 percent of young Millennials and 37.2 percent of older Millennials surveyed believe that buying art is a good investment, compared to roughly 32 percent of Baby Boomers.” (Robb Report Luxury Newswire, 2016).

Invaluable CEO Rob Weisberg tells Robb Report “These indings not only reveal the importance of connecting and assimilating new generations and irst time buyers into the art ecosystem, it also spotlights a tremendous growth opportunity in reaching new segments of buyers”. He continues that, “As digital-irst preferences continue driving more interest from Millennial buyers, we know that technology will play a critical role in engaging and connecting this generation to the art world.” (Business Wire, 2016)

39 A. GENTRY INTRODUCTION 3 Providing Millenials Access to Luxury Assets

Crowdfunding / Investing

40 PROVIDING MILLENIALS ACCESS TO LUXURY ASSETS OVERVIEW

Since President Obama passed the JOBS Act in 2012, the opportunity for crowdfunding has skyrocketed.

Opportunities once reserved for wealthier accredited investors now are free domain for young, unaccredited investors eager for investment opportunities. Indiegogo on November 15th, 2016, was approved by the U.S. Government to begin their irst equity crowdfunding platform.

41 PROVIDING MILLENIALS ACCESS TO LUXURY ASSETS OVERVIEW

Kickstarter, one of the most commonly I strongly believe that Indiegogo’s suc- known crowdfunding platforms, allows cess with the U.S. Government will individuals to crowdfund projects of bring a lot more equity crowdfunding all types - from beer coolers to cof- opportunities. We will most likely see fee makers. Kickstarter has structured a dramatic change in the conventional themselves as a “donation” platform, way of investing. With investors seeking where startup 'backers' are promised new opportunities to invest in a diversi- products or services in return for their fied portfolio of luxury assets, I believe donation. No equity is provided, thus a platform for unaccredited investors to they are not considered investors. As of crowdfund luxury assets will be a great November 2016, Indiegogo has been hit. given the green light to launch their equity crowdfunding platform, giving According to Forbes’ 2016 article titled, unaccredited investors equity in start- “The Rise of Investment Crowdfund- ups. This serves as a historical moment ing”, Adi Gaskell states that crowd- in the history of finance, enabling the funding platforms “generated an es- average middle market investor to serve timated $2.1 billion in investment for as a venture capitalist. startups in 2015, and that is expected to grow considerably in 2016.” Crow- Currently, no equity crowdfunding dExpert’s David Pricco states, “We’re platforms exist for investing in luxury expecting 75-100% growth in U.S. assets. Arthena, a new platform allows equity crowdfunding volume of capital accredited investors to buy a (minimum) raised in 2016, approximately $3.5 to $10,000 stake in top tier art. Based off $4 billion.” Goldman Sachs has labeled comparables, Arthena choses art to in- crowdfunding as “potentially the most vest in, then crowdfunds it as an invest- disruptive of all the new models of fi- ment. After selling the work off after an nance,” with “the World Bank predicting allotted period of time, all equity share- that crowdfunding investments will be holder get a return. In the Advisor and a $96 billion a year market in develop- Interview section I conduct an interview ing countries alone by 2025.” (Gaskell, with Arthena's CEO and Founder, Mad- 2016) elaine D’Angelo.

There has unquestionably been a rise in platforms which offer investors an opportunity to come together and fund investments. Fundrise, a new crowd- funding site, allows its users to crowd- fund real estate development projects.

42 Art Basel – Miami 2016

43 ART BASEL – MIAMI 2016 OVERVIEW

This year I was given the incredible opportunity to attend Art Basel Miami after being awarded Syracuse VPA’s Co-Curricular Grant. During my stay in Miami I conducted ield research, attending Design Miami/, Scope, Untitled, and Art Basel. For my third consecutive year at Art Basel Miami, I was thrilled to see another incredible turn out. According to the Blouin Artinfo article Art Basel in Miami Beach 2016 Ends on a High, this year's turnout was 77,000 visitors.

I spoke to a couple of dealers regarding my concept, and they all seemed to be pretty intrigued by it. Arthena seems to be a very feasible concept, since pooling accredited investor capital into a fund does not necessarily devalue the art work. I discussed with a gallery how I would buy a $125,000 Peter Saul painting as a 22-year-old unaccredited investor. He stated that most galleries offer inancing plans but a platform to allow this would be incredible.

The advice I was given during my interview with Madelaine D’Angelo (refer to Advising and Interviews Section) regarding deal low stayed fairly consistent with what I was told at Art Basel. Since it may be hard to acquire high-ticket artwork from dealers with unaccredited investor capital, getting collectors to share equity in existing collections is my best bet.

44 Advising + Interviews

45 ADVISING + INTERVIEWS OVERVIEW

Carolyn Trabuco Thesis Advisor Co-Founder, Azul Airlines Board Member of Azul Patrick McClymont Interview Ex-CFO, Sotheby’s Current CFO, IMAX

Madelaine D’Angelo Interview CEO + Founder, Arthena

Larry Albukerk Interview CEO + Founder, EB Exchange

46 ADVISING + INTERVIEWS ADVISING

Carolyn Trabuco, my neighbor from Fairfield, CT, epitomizes the art of kindness. She has proven to me that it’s truly possible to be successful through ethics, hard work, and simply having a kind soul. Carolyn studied Art History at Georgetown University and currently serves as co-founder and board member at Azul Airlines. She recently finished her role as global thematic analyst and managing director at Cornerstone Capital and has worked at Phibro Trading in commodities, Astenbeck Capital Markets, and Pequot Capital Management.

During my project, Carolyn has put me in contact with the Ex-CFO of Sotheby’s Patrick McClymont (current CFO at IMAX), as well as Larry Albukerk, the founder of EB Exchange. During the Design Phase (Semester II), Carolyn plans to help build this platform in the most viable way possible. She currently is conducting research on the financial end for me, figuring out how this platform can legally be built, allowing unaccredited investors to buy shares of luxury assets, theoretically crowdfunding them for investment sake.

Carolyn put Patrick McClymont and I in contact with the intention of figuring out how this platform could live in the art/ collectible auction world. During our conversation, McClymont and I discussed the hurdles I will have to get around while 47 ADVISING + INTERVIEWS INTERVIEWS

building this platform. McClymont stated that “since these assets are being funded case by case, it’s going to be more difficult to fully fund individual investments versus going the route of creating art funds.” During his time at Sotheby’s, McClymont seeked opportunities to create “art funds”, since “who’s better to create an art fund then the people who have the most amount of access and expertise in the art world?” Innovation-wise, there hasn’t been too much change in the auction industry. Now buyers can bid online, thanks to new features and platforms such as Paddle 8 and Artnet. McClymont also brought up HSX Exchange which allows individuals to trade “funny money”, placing bets on which movies and actors/ actresses will do best in the box office. As we discussed, art is a $65 to $70 billion dollar a year (global) market, not including other luxury assets such as cars, jewelery, etc. There are definitely untapped areas of opportunity.

McClymont finished off the conversation by telling me if he was still CFO at Sotheby’s this project would be of interest to him. He also stated that he could envision a potential partnership, assuming I’m able to prove this is not only feasible but has user traction. He said that “Sotheby’s would be able (for a cost, of course), to insure and store

48 ADVISING + INTERVIEWS INTERVIEWS

assets after being acquired.” This from a structural standpoint is great, because it allows me to ensure assets are safe for our investors and I wouldn’t have to worry about finding a holding facility, hiring security, etc.

After speaking with McClymont, I personally reached out to the new fintech startup Arthena with the intention of speaking to their CEO and Founder Madelaine D’Angelo. Her assistant Sophie was quick to put the two of us in contact. D'Angelo and I had a very interesting conversation, discussing her history and how she came to be founder of Arthena. D'Angelo is a very well-versed individual who studied undergrad at NYU then received her M.A. at Harvard. After working in art curation for a couple of years, she moved out to San Francisco and took part in the Angel Pad (startup accelerator). D'Angelo prides her and her team on being "the first company to crowdfund equity of tangible assets".

D'Angelo recommended that while designing this platform I visit Title 3 of the JOBS Act, which allows unaccredited investors to participate in equity crowdfunding. She also stated that an issue which could arise is “deal flow” from top galleries. Since galleries and auction houses select high-ticket buyers who will add to the value of the work (donate it eventually to a museum, etc), she believes it will be hard for me to acquire top tier 49 PROVIDING MILLENIALS ACCESS TO LUXURY ASSETS INTERVIEWS

artwork. Since her platform only works with accredited investors (minimum buy-in for individuals is $10,000 per share), according to her this does not “de- value” the artwork.

In terms of understanding the appreciation and value of assets, D'Angelo claims they have built a proprietary database of around six million auctions which allows them to understand trends in buying/selling patterns. She said either I will have to create my own, or use a service. Artsy has created a highly useful art data analytics platform, which Patrick McClymont referenced as well.

Finally, Carolyn put me in contact with Larry Albukerk who founded the alternative investment platform EB Exchange, allowing unaccredited investors to invest Pre-IPO for the first time. The call with Albukerk rounded out all of my interviews, given McClymont's understanding of the art buying/selling industry from a corporate viewpoint, D'Angelo’s expertise on crowdfunding assets, and Albukerk's knowledge on unaccredited investing.

Albukerk felt a way to get around the potential “deal flow” issue D'Angelo mentioned is to get passionate collectors and investors to post their personal assets to the site for equity funding.

50 PROVIDING MILLENIALS ACCESS TO LUXURY ASSETS INTERVIEWS

Through a simple legal agreement, they would assure that the asset would be inspected yearly by one of our platform’s “registered” experts, to ensure the asset is being well taken care of. There would also be a predetermined date of sale agreed, prior to starting the funding process.

By creating this platform it allows, for example, an 18 year old to buy shares of a collector’s Bugatti, while providing the investor with liquidity to further grow his or her own personal collection. This platform in theory would be creating luxury asset initial public offerings.

51 From the research I’ve conducted on the psychological and behavioral impacts on why we collect, I plan to create an alternative investment platform for luxury assets. This will allow individuals to invest in commodities that would otherwise be unaccessible to them. This platform may be based off of monetary value, intrinsic value, or a combination of both.

52 CONCLUSION MOVING FORWARD - DESIGN BRIEF

Through the guidance and wisdom of my thesis advisor Carolyn Trabuco, as well as the additional highly-qualified individuals I’ve spoke to regarding my research, I believe the best way to execute this concept is to develop a platform which allows collectors to post their assets in the format of an IPO (initial public offering). This will allow collectors’ “stranded assets”, as Mrs. Trabuco puts it, to “be monetized by selling down ownership.” During the six week IPO “book building” period, collectors are able to sell off equity stake in their collection. After the IPO, collectors will be given capital in return for the equity they have shared. Afteran allotted time period (which will be decided pre- IPO), collectors will sell off their assets, providing the share holders with a return on investment. By allocating existing collectors’ assets, this eliminated the potential “deal flow” issues of acquiring assets. With this structure in place, assets would be coming to us.

Mrs. Trabuco and I plan to further discuss my thesis research book and next steps. Throughout the design phase, Carolyn will serve as an incredible resource in structuring my platform. She also plans to connect me with Pequot Capital Management's founder Arthur Samberg, as well as her close friend and former lawyer at Pequot, who helped formulate her agreement with Azul Airlines. This will assistant in figuring out how legally and structurally my platform will look.

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