Disruptive forces are also evident in the world of brands. On Tuesday, Jack Ma, founder of Alibaba, alarmed the luxury elite during an investor meeting at Alibaba’s headquarters in Hangzhou, “The problem is the fake products today are of better quality and better price than the real names”, he said. “They [are made in] exactly the [same] factories, exactly the same raw materials but they do not use the names.” While he subsequently stressed that he was not encouraging counterfeiters, his remarks have chilled the industry. Alibaba has already been ‘suspended’ from the Anti-Counterfeiting Coalition (IACC).
While his observations sound extreme, they do require careful consideration, particularly about fundamental changes to the retail business model. “The way of doing business has changed for brands. It’s not the fake products, it’s not the IP that is destroying them, it’s the new business model that’s revolutionised the whole world.”
So what is this new business model? Digital reach is certainly part of it. Who needs expensive stores when a handbag can be delivered to your door the same day by Net-a-Porter, the Outnet, Amazon or Alibaba? But the latest factor is down to what politicians might call “blowback”. Outsource your manufacturing to ‘trusted’ suppliers and they learn all the skills and processes and, after a while decide that they want a bigger slice of the fat margins. They may even work out ways to improve quality and consistency. If luxury no longer requires craftsmanship and can be mass produced in a faraway land, it has lost its exclusivity and provenance. Design alone is clearly not enough, as it can be copied and, sometimes, even improved upon.
In this scenario, IP protection is even more vital than ever but this won't stop suppliers hiring great designers and becoming direct competitors once they have mastered their trade. And, of course, not all national authorities enforce international trade mark law the same way.
Jack Ma is calling time on the current luxury brand business model which has become lazy and complacent in pursuit of global growth, and brand owners need to face up to the consequences.
If that wasn’t enough, Mr Ma added a further twist to the Brexit debate, reminding us of how quickly the world order is changing, forecasting Alibaba would double transaction value to $900bn, overtaking the UK "to become the world’s 5th largest global economy by 2020.” Food for thought for Little Englanders as we fret over our ballot papers on June 23rd.
Peter Matthews
Nucleus Founder & CEO
June 2016
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