In conversation with Vin Lee, CEO of Grand Metropolitan (Exclusive Interview)

How has luxury evolved in the past years? Which are the most important highlights for you? 

Luxury, real luxury, is as varied across the globe as the human condition.  A thousand years ago our currency was trade.  Rare commodities from all around the planet were held in the highest value.  We have evolved from spices and fabrics that could take years to locate and return to your hand to tapping our iPhones and having a diamond ring delivered to you within an hour.  But I don’t believe that terms like faster, easier, and cheaper are components that participate in the luxury world.  People reveled in the sourcing of exotic wares and the efforts associated with the acquisition of such.  French champagnes, Cuban cigars, Russian caviars, Formal wear from Hong Kong tailors, Italian sports cars.

When my brother wanted to get engaged, he came to me with his future bride’s wish list for the engagement ring.   He was able to sit down privately with a diamond broker in my showroom and consider the finest selection of 2ct stones virtually from around the country.  He was also invited to participate in the creation of the setting, meeting with the Romanian artisans hand-carving the wax and selecting the princess cut melee that would chaperone the center stone upon 18kt gold.  Standing in the shop, he could even watch the casting of the metal and the setting of those stones to exact specifications.  That experience and involvement in the process made it personal and intimate in a way that emerging from Tiffany & Co with a blue box after a 15 minute consultation and an AMEX swipe couldn’t possibly compare to.

Today’s luxury clientele, is a delicate mix of quality, sourcing, and experiential shopping.   They want to be involved in the process, reassured of its origin, and guaranteed of its creation.  The story behind that conflict-free diamond, the sustainable caviar, the minimalistic carbon foot print of that EV is equally important to the quality and experience for the customer.   They wish to be romanced by someone they can trust.

Which are, in your opinion, the biggest disruptors of the luxury industry? 

I realize you are probably looking for a list of a handful of startups that are changing the course of business in the luxury industry.  The way Tesla claims it will destroy the oil and gas industry and abolish driving automobiles entirely.  Or how Net-A-Porter and eLuxury was supposed to kill off traditional luxury retailers and department stores and how Apple’s iwatch would render the Swiss watch obsolete.  There is a much larger force at work here at play that jeopardizes the luxury industry.

Of course, fashion and luxury are always changing and shifting trends and fads.  Hair styles straighten and curl, while Hemlines rise and fall in correlation with side burn lengths.  Social consciousness coupled with social media can make or break brands in the matter of minutes in this day and age.  In 2006 The Economist published unflattering comments from Frederic Rouzaud, managing director of Louis Roederer, about the Rap industries thirst for Cristal.   It became amplified when Jay-Z pushed to boycott the product calling his statements racist.  Louis Roederer has been family-owned since its founding in 1776.  Cristal was created for Tsar Alexander II a century later.  Almost immediately a large segment of the population turned its back on this dynastic champagne and has held animus towards the 250 year old company ever since.

Today, anyone with a Twitter handle can wield that same kind of power and influence in this politically-charged environment.  Brands can be damaged simply by association with a controversial topic or medium.  Outraged advocates creating and promoting negative campaigns against companies simply for proximity to an event they do not agree with.  In 2003, Russell Simmons, founder of Def Jam, publicly threatened to boycott Pepsi.  The cola company canceled an endorsement contract with rapper Ludacris (of Fast & Furious fame) over complaints from Fox News talking head Bill O’Reilly.  Pepsi donated $3 million to charity to make reparations.  In 2017, Pepsi got another black eye from an ad campaign featuring social media darling Kendall Jenner.  Neither champagne nor sugar water should have a political opinion or position.

For me, I am trying to adjust to some of the major disruptors in our society as it pertains to luxury, some life changing, and some difficult to fully embrace.   I first entered the luxury world in the late 1980s.  It was the height of the fur industry.  I am a devout animal lover and thankfully that has all but disappeared from North America.  At the same time, as CEO of one of the furniture industries leading retailers, Heilig-Meyers, the loss of the dining room has been a tragedy to our society further separating the family.

Firstly, people stopped dressing for the workplace (casual Fridays), then no longer dressed for dinner.  So housing companies started to phase out the formal dining room from their developments floor plans, this rippled across the fine china, crystal and flatware markets quickly.  Iconic companies like Waterford Wedgewood, Lalique and my personal favorites Orrefors, Baccarat, and Steuben are no longer mainstays in homes and collected as cherished family heirlooms to be passed on for generations.  And everyone is in separate rooms on their screens while they eat.

The same phenomenon has touched the fine timepiece industry, especially the legendary Swiss brands.  Once the most cherished item a man could pass down to his son, like my Grandfather did to my Father, a Rolex, Audemars Piquet, Patek Phillipe, or Vacheron Constantin was symbolic of legacy and heritage.

Today, smart phones and Apple watches have descended upon billions of people and replaced the traditional wristwatch.  The Grand Complications of yesteryear are no longer the harbingers of time and sacred keepsakes caste in precious metals and gemstones.  Although I doubt many will be handing down their Shinola Bedrock to their heirs in 2050, it’s really unlikely that Fit Bit is going to end up in anyone’s will.

What is your view of the state of the U.S. luxury market? What are your expectations for this year as well as for 2019? 

I have to answer this question in two ways.  Global stock markets closed out the year on record highs, gaining $9 trillion in value over 2017 due to a strong worldwide economy.  At the same time in North America specifically, many thousands of retailers have closed their doors in shopping centers and malls across the country.  Hundreds of companies found it opportunistic to trim overhead and exit leases and redundancies since “everyone else was doing it”.  This means that there is a much larger economic pie being divided up by fewer brands.  Consumers are tired of not spending or upgrading their lives with added discretionary income created by tax cuts, increased incomes and better access to shopping experiences through technologies.

Interest rates bottomed out creating an urgency to buy a home versus renting or refinancing mortgages to lock in the low interest rates before they climb north again.  This jump in the housing market creates buying opportunities for new home furnishings which of course is of great benefit to Heilig-Meyers Furniture.

While there is a segment of the population who are very angry about politics, many people are enjoying the bonuses and increased pay and tax advantages.  This cause for celebration creates direct increased demand in our cigar and caviar brands.  Pushkin Caviar participates in hundreds of events worldwide and that is skyrocketing as a result of more corporate and charitable parties with expanding budgets.  Simultaneously, this consumer confidence promotes a willingness or openness to spend/finance higher ticket items which directly impacts Finlay Fine Jewelers and our many jewelry brands.

Now that being said, the second part of my answer is not as bright and cheerful.  As the economies around the world improve, companies strengthen and become more expensive to acquire especially if they are able to borrow themselves into debt that prohibit us from adding them to Grand Metropolitan’s portfolio.   During the last two turn downs we were able to add dozens of brands to our operation without adding any debt to our spreadsheets.   So as CEO, my focus has to be on organic growth of our companies and building up brand recognition and customer satisfaction while ensuring that each employee understands their importance.

Are there any particular sectors which present exceptional opportunities of development? 

With almost three decades in the jewelry industry, I should say diamonds.  But if you consider our portfolio of 130 brands, we are very diversified throughout the luxury world.   I was recently asked if I were to start my career over today, what other area would I want to be in.  There are three markets I have faith in for the future outside of our current businesses.  The biggest and most varied being micro and mobile payment systems.  People being able to use their phones to pay for things as well as being able to finance “micro” loans is here and now.  Of course our focus is in engaging the consumer with these payment vehicles across our luxury platform, Lichtenstein’s Department Store for all Grand Metropolitan brands.

The second sector that I believe has exceptional growth potential is the cannabis industry.  With nearly 20 years in the cigar world, as owner of the Beverly Hills Cigar Club and IMASCO, it seems like a natural transition as legislature continues to favor marijuana both in medicinal and leisure use.  There are branding opportunities for the big producers that have not yet gone mainstream.  I personally don’t partake of the lifestyle, but believe it will soon be a significant influence in our society.

Following that lineup, I believe that cryptocurrency is here to stay.  While it skims the border of the micro and mobile finance world I previously mentioned, many retailers and luxury goods companies are starting to accept bitcoin and its many contemporaries as payment.  It is the wild west of that industry and like online gambling was a decade ago, it has drawn both a bad element as well as a lot of attention from legislators.  That volatility mixed with the improving economic conditions means the possibilities are there for creative opportunists.

How has your company performed in 2017 and what are your views on 2018? 

Grand Metropolitan and its subsidiary divisions and brands are privately-held.  As such we do not report earnings or revenue publicly like our contemporaries LVMH, Richemont, and Kering.  But I am proud to announce that we have continued to be debt-free for the last two decades while advancing our business plan internationally.  The last few years have seen a marked increase in market share and growth across our portfolio.  Our focus has been to strengthen our vertical integration and vendor exclusivity programs.  Grand Metropolitan has been pursuing industry rollup strategies since inception for fine jewelry, home furnishings and more recently gourmet food.

The recent advancement in the economy has encouraged us on the outlook of luxury in 2018 and going forward.  The current retail landscape in North America has gone apocalyptic, creating substantial buying opportunities for Grand Metropolitan.  Recent incidents on the international market with competitors, such as Nirav Modi and Gitanjali (Samuels Jewelers in America) will also open up avenues for growth and expansion.

Contemporaries LVMH’s 24 Sèvres, Kering and Richemont’s YOOX NET-A-PORTER GROUP continue to blaze the trail forward for Lichtensteins and selling luxury goods online.   Long since faded companies like Gilt and Blue Nile Diamonds had begun paving the way toward building trust between internet consumers and startups.  Amazon and Wayfair have spent buildings supporting those relationships.  Now it is time for the luxury brands to transition from simple social media relationships to transactional.

Your group is diversified into several layers of the jewellery retail. Tell us more about your businesses.

Grand Metropolitan is my personal holding company, founded in Beverly Hills with clients around the world.  Our portfolio is 130 strong in 7 industry sectors with several billion dollar brands.  Collectively our brands date back as far as 1787 and have done over $250 billion.  Under the Hadid Group, Finlay Enterprises has been one of the leading jewelry brands in North America for the last century topping out at over 1,100 locations and $1 billion in revenue prior to our acquisition.  Today the company owns and operates over 20 of the Top 50 Jeweler banners in the United States including Friedman’s, Crescent, Lundstroms, Marks Bros. and Whitehall Co. Jewelers.

Hadid also manages Heilig-Meyers Furniture, once the largest publicly-traded furniture retailer in the world.  At its peak, the company produced almost $3 billion a year in revenue from 2,500 locations.  In addition, the showrooms maintained jewelry counters that turned Heilig-Meyers into one of the largest jewelers in North America as customers took advantage of easy and affordable credit terms.  Rhodes, Room Store, Wickes and Krause’s Furniture are part of the group of 20 of the TOP 50 Furniture Brands in North America dating back to 1858.

Gourmet food producer, Dalgety PLC markets arable & pastoral farming products such as Pushkin Caviar, IMASCO (United Cigar Stores, Carlos Murphy’s), and Frechef Foods System (Fruishi, Dairy Marts).  Dairy Marts was recently added as complement to Dalgety’s vertically integrated food operation.  This concentrated effort is to echo the success of privately branded merchandise at Hediards, Harry & David, and Fortnum & Mason on the shelves of Lichtenstein’s Department store.

What are your plans in terms of expansion?  

My first acquisition back in 1992 was a jewelry store company that once boasted 5 locations in Michigan.  I walked in the showroom for a Rolex President and 6 hours later I walked out having made the deal.  In public relations it can often take 6 months of billings to recover client acquisition costs before the account appears in the black.

Today, because of the size of the targets and complexities associated, deals average 2-3 years from the opening of conversation till we get the keys and, as in the case of Heilig-Meyers Furniture and Finlay Enterprises, can take decades to fully integrate operations and cultures and achieve a pure profitability above acquisition costs.  For an organization of our size, there must be a delicate balance between organic growth and acquisitive growth.   Other companies use a combination of stock and debt to buy up competitors and vendors.  As well as a cadre of lawyers, shareholders, and creditors to satisfy quarterly.

Grand Metropolitan has been ultimately built upon that financial overreaching of professional executives.  People who have borrowed billions of dollars to expand and grow their companies without successful execution to return repay those funds.  Many of our brands have been acquired after the failure of previous management and ownership had to be ejected.  Not as a direct result of the relationship between the brands and the consumers.  We will continue on the path of customer and employee satisfaction and debt free expansion.

I refuse to borrow capital or issue shares to expand our operations.  We have grown Grand Metropolitan through cash acquisitions and organic growth and innovation.   It has taken many years longer than anticipated but we carry no debt and that in the light of many of our competitors is a success.  Each division has an aggressive growth program:

Heilig-Meyers Furniture is launching its first ever sleep line under the new Golidlockz brand.   It will be available exclusively on our Lichtenstein’s Department Store platform and across our 30 furniture retail chain operations including Rhodes, Wickes, Krause’s, and Room Store banners.  Our Hadid brand will be released international as well as on Lichtenstein’s.

Finlay Enterprises, is currently focused on promoting “From Mine to Yours” finance campaign which includes raising a $3 billion diamond purchasing program and continuing our to develop our Hadid branded fine jewelry line.  Ephraim Brasher is our branded precious metals operation which will begin offerings outside of Finlay Fine Jewelers by 2020.

Dalgety PLC just preannounced Frechef’s Fruishi (fruit sushi) products.  It is very exciting to be at the forefront of a new product line.  Pushkin Caviar is focused on an industry rollup of its own with a new acquisition.  IMASCO will continue to outperform the marketplace as it positions to dominate a new retail infrastructure.

Which do you consider as the most effective marketing tools nowadays?

This is a really fascinating question.   In addition to Grand Met, I have been CEO and a partner in a corporate marketing and PR firm for almost the last two decades.  Most people would expect social media like Facebook, Instagram, or Twitter as the most likely answers.  (Anyone remember MySpace, Vine or Periscope?)  But those venues really are becoming public utilities like radio or television were half a century ago.  Today, it is the consumer that is most responsible for your message being broadcast and rebroadcast far more than slick advertising campaigns from Beverly Hills or Madison Avenue agencies or multi-million dollar ad buys from Chicago firms.  I believe that integrity is the most effective marketing tool of today.  The client must trust your message, your product, your company and you.

Clever slogans and toe-tapping jingles for mainstream consumer products help to reinforce the message only after the customer has been successfully engaged and believes in you.  I find most of the advertising and marketing efforts are diving after CLIOs, Silver Anvils and politically-correct social messaging instead of earning trust.  In American media, I have noticed a huge movement to include every ethnic and socioeconomic demographic in every campaign equally, even though I can’t figure out what the product is or even remember the brand afterward.  We are so focused on including everyone in everything that much of the benefits of the products don’t make it into the discussion.

Even if the products have been well-embraced for decades, companies and brands have been boycotted for CEO tweets or comments made in bad taste or executive misconduct towards employees.  Three decades ago luxury goods companies that tested their beauty products on animals were admonished and the market punished them.  And rightfully so.  In the 1990s, Nike was publicly denounced for its use of child labor and sweatshops to create its sportswear.   In similar fashion Apple has faced scrutiny for poor manufacturing practices of the third parties creating its eponymous technologies.

In 2018, the reaction is like whiplash and the fallout is nuclear for a company’s image.  For years, the Public Relations industry would bellow “Even bad press is good press.”  Just so long as they were talking about you.  But that is no longer the case.  Every Diner, Drive-In, and Dive is Yelped for every offense like a personal vendetta.  As evidenced by our hyperbolic political environment, the public judges you not only on who you are today, but who you have been your entire life.  They want to adorn their lives with brands and innovations that not only serve their needs and make their life better, but they demand that the people and organizations providing those goods and services also have integrity.

Fortunately, the luxury goods conglomerates messaging for hundreds of brands is aspirational for all peoples of varied backgrounds, passions, and interests.  Our goals are to encourage the masses (consumers, employees, artisans, and vendors) to strive for excellence in their lives and reward themselves and each other for those successes.  And of course tweet, follow, like, and Instagram themselves in their new shoes, drinking that champagne and enjoying our caviar.

Vin Lee is the Founder and CEO of Grand Metropolitan Holding based in Los Angeles, California.

Vin Lee, CEO Grand Metropolitan Holding

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