Last month the Financial Times brought together leading thinkers from across the luxury sector – including our Co-Founder and CEO Diana Verde Nieto – for the Business of Luxury Summit. The economist, writer, and friend of Positive Luxury Professor Tim Jackson attended the summit and reports back on the five key points brands need to be thinking about today.
Full-year 2020 data reveals an optimistic picture for the global luxury sector according to Sarah Willersdorf, Partner and Managing Director, Global Head of Luxury at BCG. She said: ‘When we look ahead, we expect a full recovery to pre-Covid 2019 levels to take place somewhere between 2021 and 2022.’ BCG state that in 2019 the Personal Luxury Goods market was valued at Euro 350bn and they estimate it to be somewhere between Euro 330-350bn for 2021. By 2025 it is expected to have grown to a value between Euro 410-430bn.
We believe that China will continue to lead luxury growth through the next decade
Sarah Willersdorf, Partner and Managing Director, Global Head of Luxury at BCG
Growth is expected to vary regionally as countries recover at different speeds. For 2022, Willersdorf predicts the overall global luxury market to be ‘up between 5% and 15% compared with 2019’s value.’ However, performance will vary by country with China in particular leading the way: ‘We believe that China will continue to lead luxury growth through the next decade; in Shanghai and Beijing but also through a number of Tier 2 and Tier 3 cities as well as emerging local areas like Macau and Hainan.’
Despite China driving growth, Willersdorf believes the US has great potential: ‘We are viewing the US as key growth region. It is on the cusp of a renaissance.’ She expects strong local spending and ‘a re-birth of creativity. In part this is because of the focus on purpose and values. But also because the map of urbanization is shifting in America.’ She added that the recovery is expected to be much slower in Europe: ‘We are not expecting Italy and France to be above 2019 numbers until about 2022.’
Luxury is deeply associated with innovation and Hélèn Poulit-Duquesne, CEO Boucheron, revealed how their use of materials reflects this. She explained that their Goutte de Ciel necklace is made from Aerogel, a material used by NASA and comprises 0.2% silica but 98.8% air: ‘It’s incredibly beautiful. It really looks as if you are wearing a piece of the sky.’
Willersdorf pointed out that gaming is becoming mainstream as ‘four out of every five US consumers had played a video game in the last six months. We are now looking at an industry that brings in more revenue than the film industry.’ She added that broader technologies including Blockchain and NFTs are creating a different sense of ownership in the luxury industry.
Poulit-Duquesne explained the importance of innovative physical spaces to selling luxury. The reimagined Boucheron flagship store in Place Vendôme features an atelier and creation studio, but also a VIP apartment where key clients can stay: ‘The more digital we become in the industry, the more the physical world will be important.’ As consumers can buy online the in-store experience must be very special. She explained: ‘My brief to the architects was, I don’t want clients to feel like clients. I want openness and I want them to feel at home.’
I define luxury as something that has to do with time and people.
Pierpaolo Piccioli, Creative Director of Valentino
Post-pandemic there is a greater consideration of humanity and a re-evaluation of how people now feature in the luxury equation. Pierpaolo Piccioli, Creative Director of Valentino, explained that luxury is not always about the most luxurious material but the human care, kindness and work that goes into the manufacture: ‘I define luxury as something that has to do with time and people.’ The remoteness and detachment that has been experienced during the pandemic has generated more interest in the emotion and people behind Haute Couture collections. Piccioli added: ‘Humans always make the difference. Couture is always represented by the hands. Couture is about the people and their hearts and their lives. When you think someone has spent three months of their life to make something – it’s a lot. When you think of the people there is a warm emotion.’
Connecting with people in the community is part of Alexander McQueen’s strategy according to Paolo Cigogmini, Chief Communications and Marketing Officer: ‘We start everything from the values of the house. One of the values is ‘togetherness’ and a sense of community. So sharing values rather than elitism.’ This point was reinforced by Arnaud Carrez, Marketing and Communications Director of Cartier. He explained: ‘Luxury at Cartier is about exclusivity. But the notion of being welcoming and inclusive are very relevant and embedded in Cartier’s DNA.’
Arnaud explained how they engage in ‘Clienteling’ within their CRM strategy to offer more personalised brand experiences. He added: ‘At Cartier when we talk about data, we talk about “People Data” because it’s not only about transactional relationships. We have an integrated view of all our customers wherever they purchase.’ This was to replace previous databases which were segregated by country to resolve the problem of a high spending customer from a country, region, store or website not being recognised elsewhere within the Cartier ecosystem.
In the absence of vertical integration, strong relationships and collaboration among the people in a brand’s supply chain can help its sustainability. Claire Bergkamp, Chief Operating Officer of the Textile Exchange, emphasised: ‘You don’t have to own your supply chain, but you have to know the people in it.’
The complexity and technology required to implement innovative changes to supply chains has led to brands cooperating with each other. Erwan Rambourg, Global Head of Consumer Research at HSBC, referred to this as ‘Coopetition’ as brands realise they don’t have the resources to do everything on their own: ‘It’s a reality now that we are seeing brands working together. More and more you’re facing issues that go way beyond your brand or your group.’ He cited recent examples of the Fashion Pact driven by Kering and presented at the G7 summit in 2019 and the Blockchain collaboration among LVMH, Prada and Cartier.
Willersdorf revealed recent BCG consumer research shows that luxury consumers seek personalisation from luxury brands. She elaborated: ‘The top element is personalized treatment in-store. Second, targeted recommendations. Third, being recognised across all channels and then fourth, personal shopper.’ She noted that personalised treatment in-store has become the number one priority only this year: ‘so combining data and the human touch is going to be so powerful and is certainly what the consumer is looking for.’
Targeting Gen Z and Millennials as one segment of consumers is problematic according to Felix Krueger, Partner and Associate Director – Fashion & Luxury, Boston Consulting Group: ‘Clustering them together isn’t giving us the full picture.’ In recent research conducted with Highsnobiety he explained: ‘We had to separate younger Millennials from older Millennials because their generation has such a wide age range with really different behaviours.’
Krueger identified differences in what these specific generations seek from luxury brands. The older Millennials value classic luxury characteristics of product quality and aesthetics which Kruger noted ‘are really not enough for the Gen Z and younger Millennials.’ He added: ‘for that younger cohort it is about passion and cultural credibility.’ Specific markers include how a brand’s perceived values match the consumer values, that there is an emotional connection, that the brand story feels authentic and the opinion leaders and influencers are appropriate. Other important trends for these consumers are ‘Digitalisation, both for inspiration and purchase, personalised interactions, the importance of brand values, sense of community and belonging and new business models that go hand in hand with sustainability.’
Diana Verde Nieto, Co-Founder and CEO of Positive Luxury, explained that brands need to understand that younger Alphas and Gen Z consumers are ‘Sustainability Natives’ and are to sustainability what Millennials were to technology and social media.
Rambourg believes that luxury has not kept in tune with consumers’ attitudes and behaviours as well as some other sectors. Using Nike as an example of good practice he explained: ‘Nike has a motto which is “the consumer decides’“. If the consumer decides that you need to be thoughtful in the way you produce and sell, you’re going to have to adapt. Consumers are asking tough questions.’
Geoffrey Perez, Global Head of Luxury Snap Inc. pointed out that AR filters enable Gen Z consumers to reflect their unique and individual identities. Perez stressed that Gen Z seek purpose and love interaction: ‘Clearly they are looking for interactivity. Gen Z is probably one of the most creative generations of all time and they want to co-create with brands.’
Christina Fontana, Tmall Fashion and Luxury Director Europe, stressed that luxury brands need to put the consumer at the centre of what they do. She said: ‘People want to be recognised as a consumer of a brand whether they are in-store or online. We put the person at the centre and have all our channels move around them.’
Marco De Benedetti, Managing Director and Co-Head of the European Buyout Group Carlyle Group, stressed that global brands need a China strategy. This is particularly important now that past luxury spend by Chinese travelers has largely repatriated to mainland China. He made the point: ‘In the luxury world, China is at least 50% of the market. In some cases, it’s even more.’ He also pointed out an implication of the shift to domestic consumption of luxury in China: ‘In pricing the rule of thumb is that for a luxury product the price in China was 1.5 to 2 times higher than in Europe or North America. That can no longer be sustained.’ Nadar Mousavizadeh, Founding Partner & CEO Macro Advisory Partners, noted that brands need to understand the changing nature of the Chinese consumer: ‘The national sense of pride and identity among Chinese consumers in the next generation is greater than older generation.’ As such brands need to ensure transparency across their supply chains, ensure products are manufactured sustainably and that the marketing of Western brands is adapted to reflect Chinese identity. He added that China should also be regarded as an innovation centre and not just a destination market to sell Western branded products.
Rambourg stated that sustainability is becoming much more important for luxury consumers in China as the market becomes more sophisticated. He explained that Chinese consumers are not asking the ‘tough questions’ when they are a first-time purchaser: ‘If she is buying for the first time her focus will be on, Is this the proper brand for me to be part of the club?’ However, he pointed out that this changes ‘if she moves on like Western consumers to be a repeat purchaser and she is buying her second or third bag or watch or another category, then she will start to ask questions.’ He added that in the past, consumers have been drawn to logos and brands but that now they are drawn to purpose and values. They expect brands to be acting to help the planet and their communities.
Fontana reinforced the importance of sustainability to younger consumers in China: ‘Young Chinese consumers are very aware of sustainability and health and wellness, which was something they were focused on before the pandemic. It ranges from their fashion choices through to food.’
Remo Ruffini, Chairman & CEO Moncler Spa. considers the Chinese market to be central to the success of luxury businesses. He reflected: ‘If you don’t understand China today, you won’t understand the world tomorrow.’
Diana Verde Nieto said that brands need to think of the lifecycle value of their customers as there is an expectation that products will have a use beyond that of a single consumer’s needs. Luxury brand business models and product strategies will need to reflect this. In the LUXCO 2030 report co-authored with Bain, Diana Verde Nieto reflects on new business models: ‘Resale is one business model we explore as well as leasing and renting. This will account for probably 40% of the total sales of a company. What companies need to do today is to think about the impact across their supply chains. So for example, plans for deadstock fabrics, how they can be upcycled, more limited editions, resale, glamourize or perhaps give allure and exclusivity to preloved.’ Willersdorf revealed that luxury consumers are exploring extended life options for items: ‘We see about 18% participating in the rental market, 25% participating in buying second-hand commerce and 35% participating in selling second-hand commerce.’
Diane Verde Nieto pointed out that a pure definition of sustainable development requires consideration of a broad spectrum of issues and that it’s not enough simply to focus on tackling one problem such as carbon footprint. The requirement to meet the needs of today without compromising the future for next generations involves thinking about both people and planet. She explained: ‘Carbon is one component. But what is your impact on biodiversity, animal welfare policies, overall transparency beyond just supply chains? So many components go beyond just the carbon footprint of the product.’ She stressed that other parts of the overall solution need to include regenerative agriculture and restorative business models.
Bergkamp reiterated the need for a holistic approach: ‘If you focus on carbon in isolation you will miss the mark.’ She said that businesses have to look at the bigger picture; ‘We have to look at biodiversity, soil health, water, grazing patterns and human rights. It’s an intricate network of pieces. The role of certifications is also very important because when we look at a carbon footprint on a product, it’s a great place to start but it does only give you one metric.’ She explained that certification can provide insights into a bigger picture as it provides verifiable information all the way through the supply chain.
Laura Balmand, Make Fashion Circular Lead, Ellen MacArthur Foundation, revealed that currently the fashion industry is hugely wasteful: ‘Less than 1% of materials going into the overall system are recycled back into clothing.’ However, she pointed out there are opportunities: ‘One of the things we have found is, in terms of value, around US$ 500bn are being lost each year to the industry purely because materials are not being used enough or the items are not being recycled after use.’ Balmand also added that according to Farfetch, preloved sales are growing three times faster than the primary luxury market.
Written by Professor Tim Jackson
This month, Positive Luxury is exploring the topic ‘Climate Justice is Social Justice’. If you would like to learn more about this key concern and get your business ahead of the curve, reserve your place at our webinar on Thursday, June 17