Luxury Industry

ISSUES AND CHALLENGES OF THE SECTOR

The French luxury goods industry has achieved an extraordinary success in terms of annual growth in turnover or profitability (the top 100 luxury companies in the world generate more than €250 billion in turnover and have an average annual growth rate of more than 10%), its internationalization and the worldwide appetite of consumers for its brands and offers.

Like other sectors, luxury must effectively respond to societal changes. The digitization of the economy and uses in the first instance, the evolution of the habits and customs of the new generations (millenials and GenZ), ecological imperatives, the rise of experiential luxury or the new geographical balance on a global scale, with the Chinese market as a central issue.

In this universe, French luxury players undeniably dominate the market with more than a quarter of the world's top 100 sales.

China now accounts for a third of the world's spending on luxury goods. Growth potential is naturally driven by the country, but also by the areas of India, Africa and Latin America.

This trend implies two key challenges for the industry.

• Firstly, to accelerate the adaptation to the needs and expectations of these populations, by proposing an offer, a marketing mix and a customer experience that is adapted and personalized, but also by adjusting the customer culture of the points of sale in these locations.

• Secondly, to ensure that sales and profits are not dependent on territories that are too small and too concentrated. Accelerating the development of growth in traditional (Western) countries must once again become a priority, through the reinvention of new offers, the use of new business models or the more intensive use of new technologies (IoT for example).

Millennials and Gen Z represent today one of the most promising segments for luxury spending in the world. But their requirements differ greatly from those of their elders in this form of consumption. The luxury of experience prevails over possession. They express new needs for emotional, sensory or value experiences.

These generations also expect brands to take a clear stand on social and environmental topics. Brands need to make a sincere commitment to this. With this in mind, fast fashion and its ecological consequences are increasingly repelled by customers, who continue to turn away from it or even reject it as a socially responsible approach.

Beyond the generational segments, there are also those from the more affluent middle classes, the Henrys (High Earners Not Rich Yet), which represent an increasingly attractive potential for luxury brands. The latter have strengthened the development of their long-term relationships with this segment, which has significant development prospects.

PRIORITY ACTIONS FOR THE FRENCH LUXURY INDUSTRY

The effective use of technology

Online sales of luxury products and services are expected to account for 25% of total sales in the sector by 2025. In this context, the growing use of artificial intelligence and big data is helping luxury companies to reshape their customer engagement techniques through more sophisticated data analysis.

The connection between people and technology also requires a precise choice of materials and the purchase of connected products. The Houses compete in innovation to remain ethical at the product level. This awakening of consciousness is confirmed by the trend of millennials who increasingly buy products made from recycled materials.

The ultra-customization of the offer

Luxury brands are taking advantage of these changes to revisit the value of their heritage and their history in the relationship with their customers.

The offer of exceptional products in special orders or tailor-made products enables them to meet a simple customer need: to be unique and to be at the center of the customer relationship with the Luxury company. The acceleration in the digitization of ultra-customization services confirms the companies promise to guarantee a seamless experience, thanks to the excellence of the craftsmen's know-how and their ongoing creativity to achieve the product imagined by the customer.

From the simple engraving or embossing of initials to the creation of an existing model from scratch, according to the customer's specific requirements, ultra-personalization is a challenge that the luxury companies will increasingly take up. Co-creation with the client promises a privileged experience and further engages the client with the company: the client becomes his or her own designer.

The ongoing development of the luxury experience

If there is one area where the word "experience" takes on its full meaning, it is that of luxury. The players in this industry must be both impeccable and forward-thinking in this approach.

Loyalty is therefore key in the strategy of a Luxury Goods company facing a changing client whose good customer experience is no longer sufficient. Several levers can be activated starting from the proper adaptation of tools to ensure maximum optimization of customer knowledge, updated in real time (CRM, shop, e-commerce site, social networks, private events). The customer's vision is unified.

First of all, it is a question of ensuring that all employees, from the front office to the back office, of a luxury company have a strong and unique customer culture. This dimension must be constantly measured in order to provide the necessary training and coaching so that the highest level of customer culture is achieved.

Also, the optimization of the customer journey, in order to create a real luxury experience, must allow the complete optimization of its four dimensions: the service, the relational, the experiential and the emotional.

The priority given to local and secular craftsmanship

This action should allow a renewal of exclusivity, through ever more limited series, in order to make luxury even rarer and more desirable.

Collaborations between fashion houses and other luxury sectors (automotive, musical equipment, streetwear, etc.) also contribute to the desirability of products thanks to communications via social networks and sales open to all but based on the principle of "first come, first served".

The need for strategies to support diversity and inclusion

After the veneration of exclusivity, capturing and engaging the millenials and Gen Z requires luxury companies to embrace an inclusive approach in their client strategy: respect for diversity (sexual identity, gender, age, morphology...), solidarity, ethics. Thanks to the revolution of the younger generations, the feeling of being elected is gradually giving way to the notion of the collective and the desacralization of luxury companies. Adopting new languages and being sensitive to the appropriation of the codes of luxury by the millenials and Gen Z are pushing these same companies to rethink the merchandising of their boutiques to create a real playful experience and advertising campaigns featuring all communities. If the House does not play the game, the risk is an immediate sanction by luxury product enthusiasts: viral communication on social networks, boycotts of events (fashion shows...) and withdrawal of collections. Conversely, luxury products that take to the streets and are co-created with their clients give rise to initiatives leading to purchases, symbolizing an act of solidarity.

This strategy of inclusion also increasingly sees the appointment of employees from diverse backgrounds to management positions at the company, such as Virgil Abloh, Louis Vuitton's first Afro-American artistic director for its men's collections. Other companies are following similar paths by recruiting managers dedicated to the promotion of diversity and inclusion. If they fail to do so, these new talents are charged with turning controversy into learning and better knowledge of the culture of each community.

An online experience reinvented to compensate the drop in sales, most of which are generated in physical stores and through travel retail

The luxury goods industry has been exemplary during the containment to engage customers through digital media. The House-Customer link has been preserved and numerous initiatives have enabled this link to be constantly revolutionized: the provision of a virtual showroom to discover the new collection of a major French fashion company, the organization of live events such as a concert by a singer and friend of a company or the adoption of social commerce (selection of pieces and redirection to the e-commerce site).

During the Covid-19 crisis, the ability to adapt (or even anticipate) to new distribution channels saw the emergence of a "Darwinian Shakeout": 80% of companies in the fashion sector would be in difficulty 2 months after closing their shops (Business of Fashion, April 2020). However, luxury is a relatively well-positioned industry.

The mobilization of all the operational teams to prepare for “revenge shopping”

The health crisis has placed the customer and his health at the heart of the companies' short and medium-term strategies, requiring exceptional actions. Concrete solidarity actions have put the luxury goods industry at the forefront of the initiatives undertaken during the containment process: production of hydroalcoholic gels and masks and creation of a support fund. The reassuring posture of the companies was praised and gave the client confidence in their values.

To respond to the "Revenge Shopping", the challenge for the companies involves rethinking logistics, probably by expanding storage warehouses and delivering products safely.

The reinforcement of the tendencies pre-covid-19

The market for luxury second-hand goods is growing among enthusiasts of the sector: neo-customers who want to access the brand for the first time or occasionally, and who are therefore being introduced to the brand through a different approach. The strategy for the Luxury companies here is the acquisition of new customers. In addition, luxury second-hand is also of interest to existing customers who wish to resell the products they buy new to buy others or who are looking for limited-edition pieces. The logic here is therefore loyalty building, shaking up consumer habits. Zooming in on the weight of the second-hand luxury market, it is estimated at 36 billion euros by 2021 (source BCG) and should double within 5 years. From the brand's point of view, stock rotation makes it possible to fuel demand and production of collections and to continue the fight against counterfeiting. Second-hand is a valuable drive-to-store booster for the Luxury companies.

Noteworthy is the takeover of Watchfinder, a platform specializing in second-hand luxury watches, by the Richemont group in 2018. And the launch of the Good Dressing website by Galeries Lafayette for the exchange and resale of clothing, whose transactions are carried out in this department store.

In this same logic of stock optimization and loss limitation, outlet stores are essential channels that follow the same approach as the second-hand market, namely, to allow the new customer to access luxury brands.

Finally, the use of recycling is even more accentuated as the Luxury companies are concerned about their ecological footprint, particularly in order to respond to the sustained pace of fashion shows, which implies an over-consumption of textiles. From automobiles and watches to wines and spirits, from the product itself to packaging, upcycling invites the Houses to innovate and surpass themselves by creating products from existing materials.

In order to be sustainable, the companies are invited to make a sincere and genuine commitment to environmental and social issues. Millenials and Gen Z are concerned about the message conveyed by the Houses: from the place of production of the pieces to the CSR commitment. Transparency and product traceability are at the heart of tomorrow's strategies: Luxury companies can anticipate reputation risks by using decision-making tools to assist in the sourcing of materials, as well as the life of the product from purchase to resale.

The luxury sector is now entering the era of "slow luxury": customers consume less but better and are aware of the actions of the companies, from the product to the actual experience in the store and via the e-commerce website.

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