The Financial Times Business of Luxury Summit 2013 in Vienna
The Economic Significance of European Luxury
In 2013, luxury is a serious business. Those within the industry have long understood its significance to culture, heritage, tourism, national identity and the European economy, but 2013 marked the first time that various EU member states banded together to give luxury an official voice in Brussels.
When you consider the figures, it’s difficult to understand why the establishment of such an organisation has taken so long. Particularly given the EU’s economic woes and climbing unemployment – the luxury industry is estimated to employ 6 million workers in Europe alone, and revenues were estimated at €260 billion in 2011.
European products claim a 70% share of the global luxury goods market, and the region’s luxury brands collected an enormous €39 billion alone in royalties in 2011. With 60% of European luxury goods sold outside the European Union, these products have also become cultural ambassadors in the world at large.
Specific figures aside, what the discussions at the FT Summit irrevocably confirmed is that the European luxury industry is of great importance to sustainable employment, tax revenues, tourism stimulation and indeed cultural identity.
“ The luxury industry is estimated to employ 6 million workers in Europe alone.”
The New Luxury Consumers
It wouldn’t have been a discussion about luxury without mention of the BRICs and the emerging middle-class wealth expected to drive growth within the industry in the immediate future. But discussions were perhaps more measured than in previous conferences, as economists revealed that China is set to normalise its growth to 6% in the next five years.
India – and its “well-balanced economy” – has been forecast to grow at 6-7% but still remains ¼ of the size of the Chinese economy. Martin Wolf, chief economics commentator at the Financial Times, worried that despite predicted increases in wealth concentration, the heavily regulated economy could hinder the opportunities for luxury brands. The same was said for Brazil, which is expected to grow at a less optimistic 3-4%.
Throughout discussions, luxury brand executives were encouraged to think beyond China and beyond the BRICs. According to Gavyn Davies, OBE & chairman of Fulcrum Asset Management, the fastest growing economy in the world is Southeast Asia, followed by sub-Saharan Africa. The economic panel at large were confident that future growth in the industry will come from the N11 economies, of particular interest; Mexico, Indonesia, Turkey and Nigeria.
Beyond markets, American Express believes that growth in the luxury industry will be driven by a new segment of consumers. Specifically, Gen X & Y consumers who are high earners not rich yet (HENRYs), with low levels of brand loyalty that are looking for experiences. They are said to be omni-channel consumers, seeking luxury in both the digital and physical world, spending lavishly on luxury fashion, consumer electronics and fine dining.
The Provenance Dilemma
The launch of the ECCIA has sparked much discussion around protecting provenance and savoir-faire. The loss of industry jobs to foreign territories could not only worsen current unemployment situations in Italy and France, but also threaten the integrity and brand equity of luxury houses.
What emerged from discussions with Alexis Babeau of Kering, Mark Henderson of Gieves & Hawkes and Maurizio Tamagnini of Italian Strategic Fund, is that modern provenance should be about quality and authenticity, not necessarily about marketing or tradition for the sake of tradition.
Kering, cited Alexander McQueen and Stella McCartney as examples as two quintessentially ‘British’ brands that are manufactured in Italy and greater Europe, without the loss of their ‘British’ identity. Whereas brands like Bottega Veneta – where the Veneta references the Veneto region of Italy – Kering feel can only legitimately be manufactured credibly in Italy.
Though respect for provenance is not without its challenges. Several executives cited skill shortages and succession issues when it comes to determining where it is feasible to make their products. Younger generations in Italy, Switzerland and France are seemingly less interested in following in the footsteps of their forefathers, learning the crafts that drive our industry, causing supply issues for luxury brands.
Massimo Ferragamo spoke of restoring nobility to craftsmanship, revealing that his father, Salvatore Ferragamo, ‘dreamt of making shoes since he was 8 years old’. Maurizio Tamagnini believes that further scale in Italy could be achieved by increasing the manufacture of pret-a-porter rather than simply focusing on the haute end of the scale.
Jean-Marc Loubier, President & CEO, Fung Brands explained that provenance alone is no longer reason enough to buy a luxury product. Whilst Made in Italy or France still holds cache, the new paradigm may instead focus on ‘Made For’ specific segments of consumers. Mr Loubier cited examples such as Shang Xia (Hermès), Shanghai Tang (Richemont) and Qeelin (Kering) as ways by which luxury brands will reach emerging market consumers on their own terms.
“ Future luxury growth will come N11 economies, of particular interest: Mexico, Indonesia, Turkey & Nigeria.”
Many executives expressed concerned about the banalisation of luxury as an idea, a position and a product. In the quest for exponential growth, brand awareness and accessibility to luxury has never been so high – to the point where the word has lost it’s meaning.
The question was posed; how can a brand remain ‘luxury’ when everyone can suddenly engage and experience its universe, and purchase its products? And what will happen when consumers become fatigued by luxury brands? How can the industry maintain its booming sales in the billions – that in turn will boost the health of the European economy and protect local employment – whilst preserving product and positioning at the true end of the market?
From all that was discussed at the FT Business of Luxury Summit in Vienna, it seems clear that luxury brands need to return to the idea of surprising and delighting their consumers. Return to creating desires for products that consumers were unaware that they had, as opposed to creating products tailored to market demand.
“ How can a brand remain ‘luxury’ when everyone can suddenly engage & experience its universe, & purchase its products? ”
None of this is new, but it is increasingly relevant as luxury brands continue to lose their way. Brands should be creating products that are rare, exclusive and timeless, which make consumers feel truly unique, not part of a particular branded pack.
The conference suggested that the ‘luxury’ brands that will survive and prosper in the long term, will be the ones that enrich the product offering, take prices – justifiably – to higher positions, focus on uncompromising quality and service, and run their business based on the needs of the truly affluent consumers.
Blanketing the world with boutiques or flooding the market with accessibly priced products may drive growth in the short term, but it is unrealistic to think that these brands will still be considered interesting to consumers of luxury in the near future. The industry has seemingly forgotten that luxury was never meant to be for everyone.
And growth expectations – and that of shareholders – simply must become more realistic. It is time for luxury leaders to take a look at their balance sheet and realise that their industry-defiant results and high operating margins are not something to be quaffed at, and that double digit growth year-on-year is not only unrealistic but in many cases, damaging to their longevity.
We look forward to joining the Financial Times in 2014 for the tenth anniversary of the Business of Luxury Summit.
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© Luxury Society, Key Insights from the FT Business of Luxury Summit 2013, 14 June 2013, by Sophie Doran.
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