A recent report French luxury association Comité Colbert and Boston Consulting Group points to the luxury industry as a “bold pioneer of change”. The metaverse and NFTs, finding innovative alternatives in the face of raw material shortages and improving traceability to better control the supply chain are all areas of focus.
The luxury industry is expected to return to pre-covid performance levels from 2022 and witness an estimated 5% annual growth between 2022 and 2025, according to Boston Consulting Group. Comité Colbert and BCG’s Luxury Outlook 2022 report says that by building on its foundations, the luxury industry can, and is becoming, a “bold pioneer of change.” We take a closer look at the five challenges facing the industry as identified by the research.
Production & Resources - perpetuating quality and accelerating innovation
When it comes to production and resources, the luxury industry needs to improve traceability to better control the supply chain, as well as ramp up innovation and support research into new materials in the face of scarcity of resources. For traceability, luxury maisons could work on the concept of a product digital ID, which would hold information on provenance and production stages.
"While it is now essential to innovate and make eco-responsible products, the process is still restrictive and there are difficulties in producing on an industrial scale,” the report quotes Interparfums President Philippe Bénacin as saying.
The report also highlights the importance of, and challenges linked to, the transmission of savoir-faire. Certain trades have fallen by the wayside, and some skills are now at risk. Some 20,000 jobs aimed at young people went unfilled in 2021, almost twice the number in 2019. Reasons are manifold: the remote location of certain positions, uncertain career prospects or simply low awareness and understanding of jobs available.
(Editor's note: a special report in the fall 2021 issue of our sister publication Formes de Luxe explored the training issue facing artisanal know-how in Frances luxury sector. Luxury groups have created their own training academies, but to ensure that this work has a lasting impact, "a close collaboration between the private sector and authorities is essential. Without this, we risk permanently losing certain skills and certain know-how," says Alexandre Boquel, Director of Development for métiers d'excellence, LVMH.
Life Cycle - recyling, upcyling, repairs and rentals
With the usage of a product having a greater impact than its production, life cycle and reconciling sustainability, use, rarity and novelty is increasingly important. For 70% of luxury consumers, a brand’s commitment to the environmental impact of products is a fundamental criteria when it comes to making a purchase.
Increasing or multiplying the lifespans of products will continue to be a focus in luxury, with brands investing in new usage optimization models such as recycling, upcycling, offering repairs, rentals and secondhand. With the secondhand market forecast to reach €50bn by 2025 (annual growth of 13%), traceability and product authentication are key challenges.
Customer relations - the digital delay
According to the report, luxury brands must continue to reinvent the customer experience in physical stores, notably through services. Some 80% of customers complete their luxury purchase in store, although 50% begin their search online. Illustrating the importance of digital, the report states that the proportion of luxury sales done online is expected to reach 30% by 2025, up from 10-15% in 2019. Yet, luxury brands are still struggling to replicate the in-store consumer experience online – 64% of consumers surveyed think brands are lagging behind when it comes to digital, and 67% think the digital luxury experience is not at the level of that found in store.
With almost one in two consumers interested by the idea of a digital store, the metaverse could spell big opportunities for luxury brands, while NFTs play into the sector’s association with rarity and exclusivity. “NFTs allow for a reinvention of the concepts of possession and rarity, while creating a strong sense of belonging to a community, says Joël Hazan, BCG Associate Director and co-author of the report. “As for metaverses, they are great spaces for personalization and creativity that brands are starting to embrace.”
Sustainability/Responsibility - collaboration is key
With its creative flair and capacity to influence, the luxury industry can make sustainability attractive. But, players need to work together, rather than competing against one another.
"While in recent years the luxury sector may have considered "green" as a competitive advantage, the leading companies in the environmental transition must now bring the rest of the industry on board. The aim is to put sustainable development at the heart of all practices," says Hazan.
Luxury houses need to better communicate their sustainability efforts among consumers however, says the report, especially given that sustainability commitments are an influencing factor in the purchase decision for 65% of luxury consumers.
Globalization - leveraging untapped markets
Two-thirds of the luxury market’s global growth between 2021 and 2025 will come from outside Europe and the US, according to the report. Significant growth opportunities for luxury brands exist in underpenetrated markets such as India, or certain regions of China where local players have started to develop. In-depth understanding of tastes and preferences that are sometimes significantly different to a brand’s own DNA is needed to conquer foreign markets: luxury brands need to strike the right balance between conserving their identity and values and adapting to local consumers.
The report notes that in China, the penetration of fragrance is estimated at around 5%, against roughly 50% for the US and 42% in Europe. Yet fragrance in China has been booming recently, driven by the younger generation using it to express their personality. The Chinese market could become the second biggest market for fragrance worldwide in 2025, up from 10th place today.
Comité Colbert and Bain and Company will release a report on luxury and technology in mid September. Stay tuned for our coverage by subscribing to our free bi-weekly newsletter here.