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Executive Perspectives

EXECUTIVE PERSPECTIVE: Disrupting the Luxury Industry

24 July 2018

“Luxury companies and companies across sectors have huge opportunities to become stronger by proactively addressing disruption.”

Elisa Niemtzow, Managing Director for BSR’s consumer sectors practice globally and  author of the newly published report “Disrupting Luxury: Creating Resilient Businesses in Times of Rapid Change,” provides insight into the power luxury companies have in driving sustainable changes within the industry and the importance of creating these changes now, to ensure long-term prosperity across the industry. Sherah Beckley, Editor Thomson Reuters Sustainability. 


Sherah Beckley: Could you tell us about the drivers and current socio-economic challenges that led to the creation of this report? 

Elisa Niemtzow: The 15 luxury companies who make up the Responsible Luxury Initiative recognized that the sector’s future growth won’t be based on business as usual, given the unprecedented economic, political, and environmental changes occurring in the wider world. These transformations have specific implications for the luxury sector, and companies recognize a need to develop specific solutions based on how luxury is affected by these trends as well as the power of luxury to influence certain aspects of social and environmental progress. The luxury sector is already feeling the effects of the disruptive trends.

“Climate change and biodiversity loss are affecting the supply of precious raw materials, as well as the resilience of the sector’s infrastructure; new technologies and automation are redefining the manufacturing process, retail experience, and nature of work; and rising economic inequality means luxury brands will need to re-affirm their value, particularly in emerging markets.”

Sherah: The report looks at how luxury companies can respond to the challenges posed by climate change, technology, and inequality to build more resilient businesses. How does addressing these factors build resilience for businesses? Why does it make good business sense?

Elisa: Climate change offers a clear example. Luxury companies rely on high-quality raw materials derived from nature and agricultural systems that are increasingly threatened by climate change and biodiversity loss. These materials include varieties of wool, leather, exotic wood, vicuna, cashmere, vanilla, and rare essential oils. Even sectors such as tourism and hospitality depend on natural ecosystems such as coral reefs as “raw materials” for their product offerings. As climate change continues to decrease the availability and quality of these materials and natural resources, luxury companies will face difficulties in offering their exceptional products.

A different challenge is posed by automation. A McKinsey study found that 82 percent of hours worked in the apparel, fashion, and luxury sectors could become automated. What does that mean for the historical association between luxury and artisanal craftsmanship? How can the luxury sector protect its savoir-faire and equip its workforce with the skills of the future, as it leverages the benefits of new technologies? That’s a question that luxury companies must consider now to be ready for the future.

ReLI members believe that luxury companies have the opportunity to build on their strengths, such as close relationships with suppliers, the ability to experiment with more flexible manufacturing capabilities than mass-produced goods and a traditional long-term view of business focused on preserving heritage and brand equity, to demonstrate a new model of resilient business.

Sherah: It also highlights businesses that illustrate how collaboration, social and environmental sustainability can fuel future growth, drive innovation, and strengthen brand equity. Could you share a couple examples from the report?

Elisa: A growing number of consumers are making choices based on the values embodied and reflected by brands.

“Luxury companies have an opportunity to attract and retain this growing demographic or provide added-value to their traditional demographics.”

Take the example of upcycling, which allows luxury companies to meet consumers’ growing desire to reduce and eliminate waste. Luxury companies are increasingly responding to this with product lines. The Kering brand Saint Laurent has found a new way to give second life to its best leather offcuts by upcycling them into a vintage leather tote bag. The R Collective, sold at Lane Crawford and YeeChoo (Asia’s leading clothing rental company), uses discarded luxury waste to make new collections. Tiffany & Co. purchases approximately 55 percent of the silver, gold, and platinum that it uses in its own manufacturing facilities from recycled sources.

The topic of women’s empowerment provides another example. Luxury brands depend on women, who make up the vast majority of their consumer and employee base. In 2015, women accounted for 85 percent of luxury sales.

“Companies that can demonstrate leadership on women’s empowerment stand to develop a stronger, lasting relationship with women as consumers.”

Kering, for example, is committed to empowering women and has clear targets to ensure gender parity at all levels and salary equality in all functions by 2025. Already 7 out of 11 of Kering’s board members are women, which is a greater percentage than other luxury companies on the CAC 40. LVMH introduced its gender diversity initiative, EllesVMH, in 2007, to support professional development and opportunities for women at every level. Over 10 years since launch, LVMH has been able to increase the percentage of women in key positions to 40 percent from 23 percent.

Sherah: You conclude and draw on three distinct opportunities for luxury companies – what excites you the most about these opportunities?

Elisa: These opportunities provide a “win-win” roadmap for the industry to build strong, relevant brands as it contributes even more value to society.

In a time of unprecedented change, we need to leverage luxury’s power to influence and drive broader change in society. The industry can, for instance, lead by example in portraying women as strong agents of change as it works to better empower women in its supply chains.

Sherah: What is your final message to the luxury industry and beyond – who don’t believe these are issues that require urgent attention and action?

Elisa: Luxury companies and companies across sectors have huge opportunities to become stronger by proactively addressing disruption. They can build closer relationships with their consumers and employees, better manage risks and volatility, and drive innovation in their product and service offerings. They can also partner with the growing cohort of influencers, such as supermodel Gisele Bündchen and actress Emma Watson, who are advocating for social and environmental progress.

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