Luxury. Is it for everyone?

When I started my career in the luxury industry, a little over 20 years ago, brands were talking about international expansion, rather than global dominance.

Very few, if any, of them had mainland China on their map. The few boutiques they managed directly were more advertising and PR rather than a true retail ambition, and the product mix was conceived to attract the affluent few, rather than the masses.

There were exceptions, of course. You could see the sign of what was about to come, and yet the word exclusivity still implied limited supply and physical presence.

Then the world embraced globalisation, and so did the luxury industry.

Big conglomerates started buying, not to say collecting, independent brands. They literally invaded department stores, started opening multiple boutiques in the world’s major cities, and even expanded beyond them.

Fast forward 20 years, and the world has become fully globalised. Airports have become luxury destinations, brands are everywhere, the number of (luxury) branded categories have expanded significantly and the phenomena seem unstoppable.

Until 2019 came, and with it Covid-19, and the entire world had to stop.

“This is the end of globalisation”, some observers said, but Central Banks wouldn’t let it happen. An unprecedented season of money tapering and zero interest rate started. And for a while, it seemed to work.

The stock market reached an all-time high and, as the world reopened, many economies started recovering. Unemployment rates, especially in the US, were extraordinarily low, and the demand for luxury goods and services peaked again. Significantly.

However, as they say, “all that glitter is not gold”.

Globalization, as we know it, turned out more fragile than most people thought.

Goods were stuck in ports, factories couldn’t keep up with a sudden demand increase after being shut for months, many industries had to re-think their supply chain.

In all that, and as if it weren’t enough, as the relationship between the US and China kept deteriorating, Russia invaded Ukraine.

Those who announced the end of globalisation, and were laughed at, are now being listened to.

The globalised world, one giant market as economic players started seeing it, is now turning into something different.

While most economies are now linked, because of the financialization of the real economy, several countries seem to want to change the existing world order. An order that sees the USA and the US $ in a dominant position.

It is too early to say whether the world order will only slightly change or, otherwise, transform.

For the time being, inflation, instability and volatility are the name of the game.

The stock market is in free fall (despite days of relative improvement) and “official” inflation has reached 9% in the US, 8% in Europe and is raising worldwide. The real inflation, the one people (especially those with a fixed income) have to face, is much higher.

Are we heading towards a global recession? Most probably, yes.

And yet, many world’s leading companies are showing record profits. Luxury conglomerates too, for they could increase sales and prices. More than once since the pandemic.

Will they post the same results in the next 12 or 18 months? We do not know.

What we know is that the wealth gap is growing pretty much all over the world. That the Middle Class is being impoverished in all the mature economies, and that most emerging economies are struggling, especially those with dollar denominated debts.

LUXURY POST GLOBALISATION

I know speaking of post-globalisation is controversial, and I don’t necessarily mean globalisation is over. However, as geopolitical moves take place, it is not impossible to imagine a world split in blocks. Russia is, unfortunately, an anticipation of what it may occur elsewhere too.

If this happens, luxury brands may have to see their global expansion contract, and with it, find a way to grow otherwise.

While it was nice to sell sneakers and keyrings to millions of people around the globe (which is at the extreme end of the concept of exclusivity) we are now seeing exclusivity come back in its original form: scarcity.

Chanel, which has experienced tremendous growth in recent years, will open private boutiques to service only their top clients. The most affluent ones.

Rolls-Royce has recently opened a private office in Dubai, to gather their most exclusive clientele. “For many years we have been inviting our VIP clients to The Home of Rolls-Royce in Goodwood – and now, we are bringing Goodwood to the world,” they said.

This move, which I expect will be followed by several other luxury brands, has opened a debate amongst luxury professionals and observers.

Shall luxury be democratic? (What a paradox).

We know human beings crave a sense of belonging. First-class passengers don’t enjoy sharing their lounge with business class passengers. Many choose to charter a private jet (or buy one) just to avoid it.

We also know that, to be desirable to the affluent few, luxury brands have to be aspirational for the masses. And hence, give them a taste of it.

As wealth gaps increase, the demand for highly exclusive experiences, products and services will probably increase too. And the luxury industry is very well positioned to ride the wave, with a coherent and believable storytelling.

The next few years (maybe months) will be instrumental to understand how the world will look like in the future. National debts, wealth distribution (hence, fiscal policies), innovation and military strength are the forces at play.?

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A certain degree of change of the world order is inevitable. To anticipate it, and keep striving, corporates and individuals need to embrace change. They need to focus on activities that produce ROC (return on capabilities).

I invite you to listen to the latest episode of Lux and Friends, featuring Aidan McCullen , the author of "Undistruptable. A mindset of permanent change for individuals, organizations and life". Aidan is a corporate changemaker, and this interview is full of strategies to help you evolve and transform your business and your career.

Carlo Pignataro

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