Global Economics

Luxury Handsets: Fashion Goes Mobile


Normal cell phones have lost their snob appeal. So fashion houses such as Armani and Prada are filling the gap with ultra-snooty designs

A boutique on the Champs-??ys??es in Paris carries a m??lange of luxury-brand items from such fashion designers as Prada and Giorgio Armani. But unlike in most luxury retail stores, you won't find towering ceilings, track lighting, or crystal display cases for the items. The designer products sold in this small shop are fashion phones.

Handsets are no longer just a tool for communicating in the modern world. They have become status-defining lifestyle products. In recent years, leading handset manufacturers, such as Nokia (NOK), Samsung, and LG Electronics, have paired up with such prominent, high-end labels as Prada, Armani, and Ferrari to capitalize on the intersection between their respective customer bases. By turning phones into fashion accessories akin to handbags or sunglasses, each industry is likely to boost its brand equity and set new design trends, according to a study by market research firm ABI Research.

The products now being developed by these telecom-fashion partnerships are far more sophisticated than those of a few years ago. As the market develops, fashion houses are playing a greater role than ever in specifying features and designing the look of the handsets that carry their names. Some are even eschewing relationships with established phone makers and developing their own products, which are manufactured under contract by specialty producers.

Trinkets for Millionaires

ABI Research reckons that a niche business whose sales measured just $3.4 billion in 2006 could grow to $11 billion by next year and top $43 billion in 2013. "This is the future," says Kevin Burden, director of the Mobile Devices Division at ABI Research.

The rise of brand-name fashion phones builds on several trends. In recent years, a handful of small luxury makers, such as GoldVish, Mobiado, and Bellperre have released ultra-expensive, hand-crafted phones sometimes costing up to hundreds of thousands of dollars (BusinessWeek.com, 12/21/07). Constructed of precious metals, studded with diamonds and other jewels, and wrapped in exotic leathers, they have struck a chord among the small group of people who can afford them??amely, millionaires and celebrities. Nokia's luxury Vertu subsidiary has helped lead this trend (BusinessWeek.com, 12/21/07), though its phones tend to cost only tens of thousands.

At the other end of the market, fierce competition among major handset manufacturers has driven prices so low that consumers have become accustomed to paying little or nothing for a phone included with a service contract. The ubiquity of handsets in everyday life has erased their former value as status symbols.

Musts for Status Seekers

Now, some mass-market consumers seem ready to reclaim that lost status by buying phones dressed up with a fashion imprimatur. "Consumers are looking for 'masstige,'" says ABI's Burden, using a term that describes the migration of luxury brands into the consumer market. At the same time, the constant struggle to elbow out handset competitors has led manufacturers to search for new selling propositions. "Brand has become a big differentiator," Burden says.

The trend has built quickly. In 2006, some handset makers began rolling out limited-edition fashion phones that were little more than conventional models with luxury labels stamped on the outside. Motorola (MOT), for instance, brought out Dolce & Gabbana and Ferrari versions of its wildly successful RAZR, but only the outsides were different. "That's the inexpensive way of making a fashion phone," Burden says. "It helped their brands and didn't cost them a lot of money."

Starting the next year, some fashion houses began to get more intimately involved in the design and specifications of phones. Greater creative collaboration between phone makers and luxury designers produced handsets that were glitzier and more cutting-edge. Perhaps the most successful example was the Prada Phone from LG, which was distinctly different from anything the Korean company had done before.

The Prada device set a new standard, with its visually elegant screen displays, unusual audio tones, and advanced touchscreen technology that provided tactile feedback to users. Other notable models in 2007 developed via collaboration included Samsung's Giorgio Armani handset and the Ferrari 1947 from Vertu.

Designing Their Own

Now, some fashion houses are going even further. To break away from technology-oriented handset makers that think in terms of millions of units, the luxury brands are going off on their own??orking with boutique phone consultancies, designing the entire product in-house to their precise specifications, and outsourcing limited production runs to contract manufacturers. This summer, for instance, Christian Dior introduced its Dior Phone, which was developed in conjunction with ModeLabs (MDLB.PA), a French startup that specializes in the design and distribution of mobile devices. The phones are sold only in Dior stores.

It's too early to predict whether the go-it-alone model will fly. Carolina Milanesi, an analyst at market research firm Gartner (IT), thinks both sides benefit when established brands hook up. "Fashion companies are jumping into bed with the handset manufacturers and improving their brand quality," she says. Arrangements like Dior's, on the other hand, may have trouble making money because they miss out on the benefits of volume pricing and distribution channels enjoyed by mass manufacturers. "This second trend will be a niche," she says. Still, that's not stopping a lot of eager fashion houses from jumping on the mobile bandwagon, nor handset makers from trying to add a bit of luxury to their lineups.

See BusinessWeek.com's slide show of designers delving into handsets.


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