When Givenchy dressed Audrey Hepburn for her role in Blake Edwards’ 1961 film, Breakfast at Tiffany’s, luxury was still exclusive, the particular provenance of the refined social elite. Wearing couture specially tailored to her slim and graceful frame, Hepburn exemplified the allure of luxury even as she played a character who could only dream about it: In a classic Hollywood paradox, the world Holly Golightly glimpses through Tiffany’s window is the one Hepburn is wearing.

By 1980, all that was changing. When Brooke Shields announced that nothing came between her and her Calvins, the message was not that Calvin Klein jeans were for her alone — it was that they were for everyone. Hepburn wore hand-sewn dresses specially crafted for her gamine physique; Shields wore her designer jeans off the rack — and so did the millions of others who followed her example.

The contrast denotes a decisive historical, economic and philosophical shift: In the 20-year span between the film and the ad, luxury entered the mass market — and, quite arguably, stopped being truly luxurious.

In Deluxe: How Luxury Lost Its Luster, Dana Thomas, Newsweek cultural correspondent, explains what fashion was and what it has become. She documents how a niche industry once oriented around providing the finest hand-made goods to the few who could afford them has morphed into a global cash cow, a $157 billion-a-year mega-enterprise that places a far greater premium on global marketing and profit margins than on crafted quality, tasteful sophistication and refined exclusivity.

Surveying fashion’s origins, Thomas introduces us to Louis Vuitton, a trunk maker whose distaste for standard luggage design spurred him to launch what would become the world’s first luxury travel line. We meet Parisian milliner Coco Chanel, a bottle of whose “No. 5” perfume is sold every 30 seconds. Living designers such as Miuccia Prada and Giorgio Armani make memorable cameo appearances.

Thomas also takes us on trips. We visit a flower farm in southern France where a small, family-owned operation produces the special Centifolia roses that form the essence of Chanel No. 5. We get to see high-end bags hand-stitched at the Louis Vuitton compound in Paris. We enter Chinese factories, where many luxury items are now cheaply, and secretly, mass-produced. We explore the exploding luxury markets in China, Russia and India, where new wealth has created an insatiable appetite for designer brands. We learn how a certain Honolulu street became a tourist destination for Japanese luxury shoppers. And we discover how Las Vegas has become a hub for the new, democratic ideal of luxury: The city where fortunes are made and lost in moments is now a fitting anchor for the dream of a classless society where everyone has equal access to the most exclusive, high-status goods. Along the way, we meet Hollywood stylists, visit outlet stores and explore online luxury boutiques.

Combining compelling character vignettes and sharp market analysis, Thomas shows us how, over the course of the 20th century, individual artisans became brand names. Beginning in the 1950s, she says, the highly individualized, necessarily limited business of made-to-order couture ceded to a mass-market model with unlimited profit potential. During that decade, designers such as Christian Dior and Pierre Cardin began licensing their names in exchange for royalties on the sale of products they did not themselves make. Soon after, Yves Saint Laurent introduced Rive Gauche, a lower-priced, ready-to-wear line aimed at a younger demographic. It wasn’t long before the current “pyramid” model was in place — genuine luxury couture at the top, for the very rich; off-the-rack ready-to-wear clothing from the same designers for the middle class; a wide, affordable spectrum of fragrances and accessories for everyone else.

This, in turn, set the scene for the 1980s, when big business definitively transformed a small, decentralized cottage industry into a massive corporate conglomerate. Louis Vuitton, for example, is now part of LVMH (Louis Vuitton Moet Hennessy), an international group that comprises more than 50 brands. Today, luxury has consolidated. Approximately 60% of the business is concentrated in 35 brands. The largest of these — Louis Vuitton, Gucci, Prada, Giorgio Armani, Hermes and Chanel — are corporate behemoths in their own right. Louis Vuitton brings in nearly $4 billion in sales annually, while the others rake in more than $1 billion each.

Gucci Shoes on Amazon.com

The key figure in this transformation is French entrepreneur Bernard Arnault. Ranked seventh on Forbes‘ 2006 list of the world’s wealthiest people, Arnault came to fashion through the back door. In 1985, he was a retired businessman looking for a challenge — and so he bought the struggling Christian Dior for $15 million and proceeded to reinvent the entire fashion industry. Today, Arnault presides over LVMH, whose brands include Marc Jacobs, Dom Perignon, Pucci, Fendi and Donna Karan. In the two decades since acquiring Dior, Arnault has both created and cornered the global luxury market. In 2005, LVMH did $18.1 billion in sales and made $3.5 billion in profits. During the first half of 2007, LVMH reported a 16% increase in profits over 2006.

In drawing luxury into the world of big business, Arnault has altered it indelibly. Today, fashion is more visible and more widely available than ever before. You can shop for Gucci watches, shoes and wallets on Amazon.com. Dolce and Gabbana fragrances are available at Target. Sunglass Hut sells shades by Bulgari, Versace, D&G, Prada and Ferragamo. Airports make it easy to shop for luxury goods while you wait for flights, and airlines are promoting travel packages for people who want to spend their vacations shopping until they drop. “Luxury is crossing all age, racial and geographic brackets,” an LVMH executive told Forbes in 1997. “We’ve broadened the scope far beyond the wealthy segments.”

But such easy availability underscores the fact that luxury is not what it used to be. Mass-produced luxury, Thomas explains, is a contradiction in terms. “The contradiction between personal indulgence and conspicuous consumption is at the crux of the luxury business today,” she writes, noting that the real work of the luxury industry is increasingly not to produce genuinely luxurious goods, but to shave costs while pretending that quality remains as high as ever.

For this reason, the luxury industry — as hugely profitable as it is — hinges on a fragile paradox. Once the rarified prerogatives of the privileged few, designer goods have been democratized into commodities anyone can own. But this is one industry that cannot be democratized without losing its identity, and thereby imperiling its economic viability. Luxury’s mystique must be able to transcend the vagaries of the market. Precisely because luxury is supposed to be immune to market fluctuations — because its value is by definition timeless and transcendent — it is subject to an unrelenting economic bottom line: Its stock simply cannot go down.

And prices must remain comparatively high. We applaud when expensive products, such as computers and cell phones, become more affordable, but the luxury industry does not — and cannot — play by the same rules other consumer industries do. The gradual decline in the price of a laptop means that we are absorbing ever greater technological capacity into mainstream culture. But luxury is synonymous with expense. Cheap, in the world of luxury is, well, cheap. We are meant not to mind, it seems, when the profit imperative translates into a decline in quality: Thomas describes paying $500 for a pair of Prada pants in 2002, only to have them fall apart the first time she wore them.

The Aura of the Brand

Mass marketing has thus permanently changed the meaning, purpose and function of luxury. You can still pay top dollar for designer goods, but you are most likely paying more for a label than for luxury. Luxury is no longer a private, indelible, privileged experience. It is public, superficial, forever changing and infinitely available, which means it’s not luxury at all. Today, what we are buying into when we buy a luxury brand is not an experience but an image, not quality but illusion. What we are buying into is the aura of the brand.

We know this, of course. We acknowledge it every time we refer to brand name items as status symbols. And luxury brands know we know this, which is why they plaster their logos so relentlessly over their products. “When you look at [Louis Vuitton],” LVMH designer Marc Jacobs remarks, “you see it is mass-produced luxury. Vuitton is a status symbol. It’s not about hiding the logo. It’s about being a bit of a show-off.” Thomas is precise and cutting in her discussion of luxury’s newly democratized landscape. “Vuitton is the McDonald’s of the luxury industry,” she states. “It’s far and away the leader, brags of millions sold, has stores at all the top tourist sites — usually steps away from a McD’s — and has a logo as recognizable as the Golden Arches.”

The point here is not that we ought to return to the days when few people could afford nice things, but that we must be alert to marketing techniques that attempt to exploit our appetite for an impossibility: a luxury market that is at once truly democratic and truly exclusive. 

Much of the mystique behind luxury goods hinges on the assumption that they are handmade by skilled European craftsmen. But facts belie the mystique. Hermes has openly outsourced the sewing of scarves to Mauritius. Louis Vuitton, a $3 billion a year leather industry in its own right, has recently announced plans to build a shoe factory in India. Armani has embraced Chinese laborers.

And these are the brands that are honest about what they are doing. Some, like Prada, claim not to outsource manufacturing — but close inspection of certain Prada products reveals cleverly hidden “Made in China” labels. Burberry downplays the extent of its outsourcing, as does Ralph Lauren. Some designers do manage to keep the manufacturing in Europe but rely on illegal immigrant labor to keep costs down. Still others, Thomas reports, actively deceive customers about just where their designer bags, shoes and clothes were made.

Thomas teasingly describes visits to Chinese factories that make luxury goods for designers who swear that all their products are handmade in Europe. Allowed inside these factories on condition of confidentiality, she does not name the designers who go to such lengths to dupe — and fleece — their customers. But she does describe seeing a handbag stitched together for a brand that claims to produce all its goods by hand in Italy. Made on an assembly line for about $120, the handbag was later sold for 10 times that amount in a Hong Kong department store.

The market for cheap luxury goods is so strong that fakes regularly make their way into major retail outlets. Wal-Mart has been sued by Fendi, Gucci, Tommy Hilfiger and Louis Vuitton for selling cheap counterfeits of their clothing and accessories. Costco has also been caught selling fakes. Amazon and eBay are well known dumping grounds for counterfeits. In 2004, Tiffany sued eBay, claiming that 80% of the Tiffany goods for sale on the site were fakes. In 2006, LVMH sued eBay on the grounds that 90% of the Vuitton and Dior products for sale there were counterfeit.

All in all, Thomas argues, we have been sold an overpriced, badly made bill of goods — regardless of whether our designer possessions are real or fake. And, ultimately, she suggests, it’s because we have sold our souls for an impossible dream. In the brave new world of democratized exclusivity, one’s identity is confirmed and even enhanced by the branding of one’s clothes.

The strangeness of this — and the newness — was captured succinctly by the 1985 film, Back to the Future. Transported back to 1955, Marty McFly can’t understand why everyone keeps calling him “Calvin.” When he asks about it, he receives a telling answer: “Well, that is your name, isn’t it? It’s written all over your underwear.”

This clever punch line — and wry commentary on how times have changed — expresses the subtle but definitive cultural shift brought on by the mass marketing of luxury brands. At mid-century, the only name a teenager could possibly have on his skivvies was his own. At century’s end, the name on the underwear identifies the owner, who could be anyone, with the designer, thus conferring upon him a borrowed status. In the movie’s joke, the boy is the brand.

Now, as our economy tightens, so does our hold on luxury. Newsweek recently described people downsizing their homes (though keeping their granite countertops) and skipping the Starbucks run (though buying espresso machines to make cheaper gourmet coffee at home). People are cutting back on accessories such as watches, jewelry and handbags. But true luxury — the stuff that has always transcended mass marketing — remains stable. Despite the financial uncertainty of recent times, Tiffanys reported a 17% jump in same-store sales during the second quarter of 2007, and is, appropriately enough, opening a new outlet on Wall Street.

A year ago, the little black Givenchy dress that Audrey Hepburn wore in Breakfast at Tiffany’s sold at auction for $807,000. Holly Golightly would approve. So would Bernard Arnault: Today, LVMH owns Givenchy.