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LUXURY – THE NEXT CHAPTER
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For a sector that is highly conservative and that celebrates tradition and heritage over innovation, luxury has undergone enormous changes over the last few years. The behemoths emerged in the form of LVMH, Kering and Richemont, China drove demand to levels never seen before and the pandemic compounded demand for all things digital.
Now, attention is turning to what will happen next and already key trends are emerging. Experiential luxury will become increasingly important. LVMH’s purchase of travel company Belmond revealed the faith that CEO Bernard Arnault has in the idea of experiences over products. However, Covid-19 and lockdown, in particular, have helped to accelerate and refine this trend. When we couldn’t go out as much, we were less willing to devote time and resources to smart outfits and jewellery. Rather than centring on what we can wear, luxury will increasingly be about how we feel.
“Luxury customers have been turning their attention to new items such as linens and towels, renovations of their home and higher-end appliances, they’ve started to find deeper luxuries that actually impacted their daily lives and started spending their money that way,” says Chris Olshan, CEO of the Luxury Marketing Council. Olshan points to the success of companies such as Gaggenau, a highend kitchen appliance manufacturer that specialises in restaurant-quality stainless steel cooking appliances and innovative wine climate cooling solutions used by collectors worldwide.
Looking beyond the pandemic, personalisation will be King. The Knight Frank State of Fashion 2021 report states that brands have an “opportunity to build slicker, smarter operating models and differentiated customer propositions that are more personalised to each customer” – online included. The report suggests that companies must improve the digital customer experience and make each user’s journey feel more unique through “a mix of artificial intelligence, human recommendations and direct contact with salespeople using client communication apps and customer relationship management tools”.
Louis Vuitton, for instance, has long offered personalisation services such as hot-stamping, but its My LV Heritage service elevates the experience and enables customers to personalise a monogram or damier bag easily online as well as instore.
As the climate crisis worsens, interest in sustainability will continue to increase as the move towards net zero intensifies for the new generation of luxury consumers for whom cutting carbon emissions and reducing the use of plastics and packaging isn’t simply a factor in their decision to purchase but acts as a core belief.
Successful luxury brands of the future will go further here, believes Helen Brocklebank, CEO of Walpole, the sector body for UK luxury. “It’ll be about purpose,” she says. “People will want to be able to buy beautifully made items with a clear conscience. They’ll expect brands to have a deep-seated ethos as well as a sustainability policy. The new luxury customers will increasingly want to know where products are made and who made them. Are these people well treated and properly paid?” A 2021 report from McKinsey & Co. agrees: “63% of consumers consider a brand’s action on sustainability as an important purchasing factor.”
The Chinese market is already following this trend, according to Joanne Tang, Founder and CEO of the Infinite Luxury Group, a communications, sales and marketing representation company, and the presenter of the Luxury Voices podcast. “A new generation of Chinese luxury consumers, who are younger, more sensitive about their personal impact on the environment, and who
tend to favour less ostentatious fashion, may have similar aspirations as their Western counterparts when they shop, travel or use luxury services,” she says. “Will the West eventually adopt Asian born luxury brands or market strategies, like they have adopted Chinese social media TikTok?”
Chris Olshan believes that as Western consumers move into this space, the Chinese market will catch up at a faster pace than was the case with their initial embrace of luxury. Asian brands could even become tomorrow’s luxury – brands such as first-of-its-kind Chinese streetwear company NING are already gaining international attention.
In all markets, repair and renewal, which was commonplace decades ago before being replaced by fast fashion, will once again become the norm. The Restory describes itself as “a tech-enabled service [that] has elevated aftercare to align it with the luxury buying experience”. The company is working to create a suite of easily accessible repair services for clothes, shoes, bags and other items to brands, retailers and consumers worldwide.
“We started The Restory to make aftercare fun and stylish and as much a part of the fashion experience as buying to begin with is,” explains founder and CEO, Vanessa Jacobs, who recently signed a deal with Manolo Blahnik to provide a repair service for clients across the web and instore and with e-commerce site FARFETCH to offer a new service called FARFETCH Fix.
Similarly, second hand is no longer second best – and that trend will continue according to Boston Consulting Group, whose analysis shows that the market for second-hand hard luxury items – mainly watches and jewellery – was worth about €21 billion worldwide in 2020 and growing at 8 per cent a year, faster than the luxury industry overall. Vintage clothing company Vestiaire Collective has raised another $216 million for its secondhand fashion platform in 2021, making it a unicorn. Others in the industry, eyeing this valuation, will be certain to follow.
Alongside this, a new wave of younger consumers that rent rather than buy – through companies such as My Wardrobe HQ – is driving a similar development. Cocoon, for instance, which offers new, pre-owned and limited-edition vintage handbags, including Gucci and Bottega Veneta, for rent has raised funding from Kering and in the US, meanwhile Rent the Runway raised $357 million in its trading debut.
As rental, resale and repair grows, the luxury sector will have to consider how to adapt to a market that isn’t principally about selling new products every season. One innovation that will transform the industry is technology and, in particular, artificial intelligence (AI). With the advent of mass-market luxury, gone are the days when your tailor or your dressmaker knew every one of your likes and dislikes, but AI could mean that services and products are more personalised than ever.
Previous page Restoration of a Chanel bag and Manolo Blahnik shoes by The Restory
This page, from left Fine dining with a view at Belmond Cap Juluca; Gaggenau’s sleek appliances found a new home in the luxury consumer’s kitchen during the pandemic; experience a safari in luxury at Belmond Khwai River Lodge; Ortelli & Co. Managing Partner Mario Ortelli
Brands such as Dior and Estée Lauder have leveraged chatbots to add a human touch to the digital experience, while Burberry has gone further, inviting customers who’ve interacted with its bots to enjoy benefits such as virtual shows. Brands can also monitor users’ browser history to provide bettertargeted emails and recommendations.
In M&A, we’re seeing large conglomerates attracting new users to the industry through the acquisition of brands with lower entry points and younger demographics. In 2020, US apparel and footwear company VF Corporation bought luxury streetwear brand Supreme for $2.1 billion, while in 2021 Moncler snapped up casualwear and sports clothing brand Stone Island for $1.4 billion. The hope is that such moves will normalise the purchase of luxury goods at a young age and solidify the future of the industry as the youth grow into the well-heeled shoes of today’s experienced luxury consumer.
Investment insider
With the luxury sector set to grow over the next decade, there are opportunities for investment. Shares in the big groups such as LVMH, Richemont and Kering have all performed well over the last decade as they have for individual listed luxury houses such as Hermès. Riskier but more exciting is the option of becoming an angel investor or working through a venture capital fund to support an up-and-coming new designer.
Analysing the luxury index, Moneyweek states: “Over 10 years, the total return (capital gains plus income) in US dollars from the stocks in this index is a reassuringly luxuriant 13.7 per cent a year. That’s over 3 per cent more than the 10.4 per cent from the S&P Global 1200, an index tracking the overall performance of stocks worldwide.”
“The long-term fundamentals for growth in the luxury sector are excellent,” says Mario Ortelli, Managing Partner at Ortelli & Co., a strategy and M&A advisory company specialising in luxury goods. “In particular there’s growing interest in sustainability, casualisation, well-being, digital transformation, and experiential luxury and so these areas offer opportunities for investment. There are also opportunities with smaller companies being acquired by big luxury groups and others going for IPOs.”
Ortelli adds: “Companies that are developing sustainable products such as in vitro leather will be increasingly successful as luxury houses look for more sustainable alternatives. The trick is to identify niche luxury brands that also have a clear growth strategy.”
