The luxury sector has endured the Covid-19 crisis with little lasting damage expected and a recovery is now under way.
That was one of the recurring messages at the FT’s annual Business of Luxury summit, held online last week. While economist Nouriel Roubini warned of the knock-on effects of rising US inflation on the global economy, Sarah Willersdorf, global head of luxury at Boston Consulting Group, predicted a full return to pre-pandemic sales levels for the luxury sector by 2022.
The recovery will not be equal
The Covid-19 crisis has had its silver linings for major luxury brands, which were able to snap up market share from smaller, independent players and those mid-turnround.
The Tod’s group had already been battling declining sales for four years prior to Covid-19, and president and chief executive Diego Della Valle said he would be open to selling the Italian luxury shoemaker to LVMH, which last month bought a 6.8 per cent stake in the group for €75m. He also hinted at plans to step back from day-to-day management at the group. After a turbulent year and a half, it was a reminder of the tough decisions brand owners are having to make to ensure their futures.
It has been an especially challenging period for the small- and medium-sized businesses that make up the majority of the British fashion sector. Designer Roland Mouret said he lost 80 per cent of his business due to Covid-19, while Brexit has increased shipping costs and paperwork. The government is not doing enough to support the industry, he added.
Sustainability and luxury must coexist
Sustainability was already on the minds of designers and luxury executives prior to the pandemic, but now it’s at the top of the agenda.
“Being sustainable is not even an option anymore. You have to be,” said Gabriela Hearst, creative director of the Gabriela Hearst label and Richemont-owned Chloé. At her eponymous label, she focuses on lessening her environmental footprint through materials — prioritising recycled and deadstock fabrics for example — and transport.
Claire Bergkamp, chief operating officer of not-for-profit Textile Exchange, advises brands to take a similar approach, concentrating on the materials they use most and finding lower-impact alternatives. At her former employer Stella McCartney, it was cashmere that had the biggest footprint, so the brand made sourcing recycled, high-quality cashmere a priority.
Resale and rental is also something brands should embrace, argued Laura Balmond, who leads the Ellen MacArthur Foundation’s Make Fashion Circular programme. She observed that the second-hand market is outpacing luxury goods sales, and the vast majority of brands are missing out.
“The luxury industry is quite complacent” in this respect, said Erwan Rambourg, global head of consumer and retail research at HSBC. Labels could be building loyalty among younger consumers who might make their first luxury purchase second-hand, then trade up. “As a brand you’re leaving a lot of the data and relationship to other people”.
Know your message
Brands need to understand that sustainability goes beyond reducing the carbon footprint of a product, said Positive Luxury co-founder Diana Verde Nieto. Equally important is social impact. Companies must ask themselves, “how do we build social justice alongside environmental justice?”
Before communicating their social values to consumers, brands must look internally at their own diversity, inclusion and sustainability efforts. “It cannot be only ideological,” said Paolo Cigognini, chief marketing and communications officer at Alexander McQueen. “We need to take action.”
Younger consumers will notice if you don’t. “Millennials care about the quality of product, but Gen Z care about cultural credibility, so what is the brand’s perceived value, the emotional connection to a brand. They need to feel [the brand’s] story is authentic,” said Felix Krueger, partner and associate director, fashion and luxury, at BCG.
Valentino creative director Pierpaolo Piccioli said the pandemic and Black Lives Matter movement have galvanised him to use his voice. “I am not a politician but fashion can be political, I think you use images to say what you are going to deliver,” he said. “If it doesn’t deliver a moral then it is empty.”
But companies are still lagging behind on diversity, particularly in the beauty sector, said Noelly Michoux, founder and chief executive of 4.5.6 Skin, which produces custom skin care products for melanin-rich skin. “I see diversity is becoming this purely optical phenomenon. Very little is being done to ensure true inclusion at every level of the value chain.”
Go big in China
While the eurozone is expected to emerge from recession this year, growth is likely to be less than half compared with the near 9 per cent forecast for China. The repatriation of consumer spending in the mainland is transforming brands’ relationship to the world’s fastest-growing luxury market. The question now is how much spending will stay in the country as international travel resumes, says BCG’s Willersdorf.
With more consumers buying luxury locally, brands need to introduce greater price parity and invest more in local expertise, said Marco De Benedetti, managing director of the Carlyle Group. They also need to look to China for inspiration for retail and marketing, said Nader Mousavizadeh, chief executive of Macro Advisory Partners: “Don’t think of China as the endpoint of your product. A lot of what is coming out [of China] is coming to the west later.”
Wake up to your supply chain
Covid-19 created an existential threat to supply chains, forcing brands to rethink their models. Shipping ports felt the pressure of pent-up demand, resulting in logjams and rising prices: container shipping costs from China to Europe quadrupled at the end of last year. The world was reminded of the fragility of trade flows when a container ship was lodged in the Suez in March, causing weeks of delays.
As a result, companies are committed to strengthening, and in some cases shortening their supply chains to offset the risks and rising costs, said Carlyle’s De Benedetti. This spells a massive opportunity for investment in supply chain resilience, according to Caroline Brown, managing director of Closed Loop Partners.
For more on the FT’s Business of Luxury summit, its speakers and to view sessions on demand, visit here
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