Transformation of Luxury: A New Dawn in Brand Management
Gregory Gray
CEO of Summit Communication Group and Film Historian | Investor in Healthcare, Entertainment, Hotels and Tourism
Written by?Gregory Gray, CEO and Founder of?Summit Communication Group
The luxury sector has adapted and flourished, a testament to the discipline of creating desire through exceptional craftsmanship, unique experiences and prestigious brands. This market commentary from Summit Communication Group, explores how luxury groups have navigated this transformation, highlighting emerging trends and presenting a glimpse into the future of the luxury industry.
??
The Unstoppable Rise of Luxury Brands Amidst Global Challenges
Luxury Remains Resilient in Turbulent Times
In an era of global crises, from pandemics to socio-economic upheavals, the luxury goods industry stands tall against the odds. Though it may seem counterintuitive to the geopolitical cultural landscape, the world's leading luxury groups, like Richemont, LVMH and Kering, are recording record-breaking profits, demonstrating an uncanny resilience amidst worldwide uncertainty. "There's no crisis of desire," declares Bernard Arnault, LVMH's billionaire chief executive, articulating the sector's unwavering ability to generate dreams incarnate.
This phenomenon may seem surprising to some, especially those in marketing who advocate the “positioning” school of thought, but it makes sense when we delve into the deeper mechanics of the industry. Brands like Louis Vuitton and CHANEL are not just selling products; they are selling aspirations and a promise of exclusivity. "The products we sell are dreams," states Arnault, encapsulating the sentiment that fuels this thriving sector.
?
Bucking the Trends: Luxury Brands and Economic Volatility
A common assumption is that in times of economic stress, people cut back on luxury goods, turning to more affordable, essential items. However, recent trends indicate otherwise. Rather than succumbing to the wider economy's volatility, luxury brands have been largely insulated from the financial uncertainty that characterizes our time.
?
Evidence of this can be found in the success of leading luxury brands. Companies such as Louis Vuitton, Hermès and Gucci, despite facing challenges like the global COVID-19 pandemic, have continued to flourish. Their success stems from their ability to appeal to an expanding global demographic whose affluence remains stable amidst economic fluctuations. This upper-middle-class consumer base, particularly in regions like China, fuels much of the luxury industry's growth.
When members of the press and industry leaders ask Torsten Müller-?tv?s, CEO of Rolls-Royce Motor Cars, ‘Where is the next China?’, referring to this market’s size and significance within the luxury sector? "Given that this expansive and diverse country represents one of the biggest regions in the world by volume and Bespoke for our brand, my answer is simple. China is the next China" he has said.
?
Catering to the Aspirational Buyer
For luxury brands, the appeal is not exclusive to the ultra-wealthy. Creating desire is a key strategy in the luxury industry, a tactic effectively employed by Louis Vuitton. Their Petit Sac Plat bags - priced at approximately €1,500 - target aspirational buyers, not necessarily the ultra-wealthy.
?
According to Jean-Jacques Guiony, Chief Financial Officer at LVMH, "We don't sell [most Louis Vuitton] products to rich people, it is to people who have money and want to indulge themselves." The aspirational buyer — those who might not be ultra-wealthy but have discretionary income — forms a significant portion of the consumer base for luxury brands.
?
This demographic, buoyed by a swelling middle class in regions like China, presents a potent opportunity for luxury brands. "We think the upper middle classes will continue to prosper, and we will tailor products and marketing to them," Guiony explains, outlining a future direction for the industry.
?
Navigating Challenges: A Dynamic Landscape
This ongoing recovery highlights the sector's flexibility and responsiveness. As Caroline Reyl, head of premium brands at Pictet Asset Management, notes, “There is no reason why it’s not going back to one-third," referencing the slump in China's contribution to global luxury revenues during the pandemic.
?
Luxury brands are recognized worldwide, from the US to China, Argentina, and beyond. This global recognition underpins their enduring success. "The luxury sector is one of the few that is truly global, the successful brands are successful everywhere,” Roberto Costa, head of global luxury banking.
?
Evolution: Sustainability, Technology and Emerging Markets
Luxury Sustainability Takes Centre Stage
In an increasingly eco-conscious world, the luxury sector has not remained unaffected. Consumers, especially younger ones, are demanding not only quality and exclusivity but also sustainable practices from their favoured brands. Luxury brands have responded by aligning themselves with sustainable principles. A shining example is Kering's commitment to reduce its environmental footprint by 40% by 2025, a bold initiative that has already earned them the title of the second most sustainable company in the world, according to Corporate Knights.
?
Fran?ois-Henri Pinault, CEO of Kering, emphasises, "Sustainability is part of luxury. It is not an option; it's a necessity". This growing trend signifies a shift in the luxury landscape where sustainability is no longer merely a 'nice-to-have' but a crucial competitive advantage.
领英推荐
?
The Digital Leap: Luxury Brands Must Embrace Technology
In a world where digital experiences are the norm, luxury brands have recognized the need to adapt their traditional business models. Their engagement strategies have become more digital-centric, focusing on enhancing customer experiences through e-commerce platforms, social media and digital marketing campaigns.
?
Gucci 's recent collaboration with the popular mobile game Honor of Kings to design virtual outfits is a striking example of this. Marco Bizzarri, CEO of Gucci, reflects on the brand's innovative engagement tactics, "Our challenge is to maintain the sense of luxury while becoming more inclusive, more approachable." The digital shift, thus, is not a departure from luxury's exclusivity but an evolution of it.
?
Embracing the New Normal: Pandemic-Inspired Changes
The COVID-19 pandemic brought forth significant shifts in consumer behaviours, some of which are likely here to stay. The rise in online shopping, accelerated by the pandemic, is one such change. Luxury brands, historically reliant on physical retail and personal interactions, have made substantial strides in improving their digital offerings.
?
The pandemic has also seen consumers gravitating towards "investment pieces" - high-quality items that hold their value over time, as opposed to fast fashion. Brands like Hermès, known for their timeless products, have benefited from this trend. Axel Dumas, CEO of Hermès, acknowledges the shift, "People are looking for something meaningful, something that lasts".
?
The Need for Agility
In these dynamic times, luxury brands need to embrace agility, balancing the need to preserve their brand heritage while evolving to meet changing consumer expectations. Luxury brands, therefore, must continue to innovate, while staying true to their brand promise and maintaining their aspirational appeal.
?
"The future of luxury lies in its ability to adapt," says Roberto Costa, Head of Global Luxury Banking at Citi, emphasizing the importance of balancing timeless appeal with contemporary relevance in a rapidly evolving landscape.
?
Future Projections and the Path Forward
Luxury's Global Appeal
While we have observed some caution regarding slowing growth in the US and Europe, the global appeal of luxury continues to remain strong. Morgan Stanley predicts a robust 15% rise in luxury spending in the Middle East for 2023, alongside promising single-digit growth in South Korea and Japan. The beauty of the luxury sector is its innate universality - successful brands have a universal appeal, transcending regional boundaries.
?
Roberto Costa supports this view: "The luxury sector is one of the few that is truly global. The successful brands are successful everywhere." This international appeal aids luxury companies in maintaining their momentum, as a demand decline in one region can be offset by demand elsewhere.
?
Embracing the Future of Luxury
Amid celebrations of opulence, such as Louis Vuitton's glossy new campaigns featuring celebrities like Zendaya and Lionel Messi, and glitzy events at the Paris headquarters of LVMH, there is an awareness of a growing responsibility towards society at large. Arnault addresses the critique of luxury as a symbol of inequality by highlighting the industry's contribution to the economy, stating, "We pay the most taxes of any company in France. Luxury employs a million people."
?
The path forward for luxury is intricately tied to the socio-economic evolution of the global consumer landscape. Brands that master the art of catering to a growing demographic whose affluence is insulated from economic volatility will continue to thrive.
?
The future of luxury will be determined by how brands navigate these exciting yet challenging times, maintaining their timeless appeal while evolving to meet the needs and aspirations of a changing world. As we look forward to the rest of 2023 and beyond, we see a luxury industry that is vibrant, dynamic and ready to adapt to whatever comes its way.
Summary
Summit Communication Group believes the future of luxury will be determined by how brands navigate these exciting yet challenging times. But brands aren't merely adapting; they are revolutionizing the way they operate. We witnessed this first-hand, with many of our client brands using technology not just for sales, but for redefining customer interaction and enhancing the value of their brand's heritage. Our view is the industry's success lies in its ability to maintain its timeless appeal while evolving to meet the needs.
?