Luxury brands face an uneven recovery and a complex mix of challenges and opportunities in 2022, with labour and material costs rising fast, supply chains disrupted, digitalisation accelerating, climate change and social responsibility becoming priorities and a changing attitude in and towards China.
According to consulting group Bain & Company, online sales have nearly doubled for luxury goods – growing from 12% in 2019 to 22% in 2021 – to reach $70 billion. Bain estimates that online sales will become the single biggest channel for luxury goods, overtaking physical retail stores, by 2025. Early adopters have realised the benefits, whilst latecomers are struggling to adapt.
The metaverse is already providing new ways to shop online, allowing consumers to browse through virtual showrooms and purchase both virtual and physical versions of products. Nike recently acquired the virtual sneaker start-up RTFKT Studios and has launched ’Nikeland’ – its own metaverse experience. Gucci became the first major luxury brand to start selling non-fungible tokens (NFTs), with a 4-minute film by Alessandro Michele selling at Christie’s for $25,000 in May. Beeple sold ‘Everydays: the first 500 days’ for $69m in March. Last summer, Louis Vuitton hid 30 NFTs in ‘Louis the Game’, launched to celebrate the founder’s 200th anniversary.
There are some downsides to the metaverse, however, with NFTs in particular linked to money laundering and, due to its unregulated nature, international law is struggling to keep up. Hermès has recently issued a cease and desist to the creator of the Metabirkin NFTs alleging infringement of the BIRKIN mark and handbag design. Expect to see more of this in the future.
Elsewhere, we see technology combining with luxury services to deliver holistic relationships. Take a wellbeing retreat or a skin care brand where initial consultations and follow-ups can be online and then the actual experience still delivered in person – whether that’s a retail environment or an island retreat. Brand relationships can now be extended beyond the physical experience into holistic virtual and reality experiences.
Digitisation isn’t only impacting customer experience, it’s also transforming the design and manufacturing process. According to the digital start-up DressX, producing a single digital garment requires 97 per cent less carbon emissions than the conventional process and opens up the possibilities for customisation and personalisation, helping to change perceptions of an industry known for its wastefulness.
Digitalisation also has a role to play in product authentication and anti-counterfeiting. We recently implemented a proof tag system for our Chilean client, Clos Apalta, where customers of their 100pt wines can authenticate the bottles they own on the Clos Apalta website.
All luxury brands must embrace digital transformation and embed technology at the heart of their business strategies, adopting a metaverse mindset in order to stay relevant.
Provenance has always been a core value for luxury brands. More than ever before, consumers want to buy sustainably produced products and want to know where the products come from, how they are made and whether the people making the products are well treated. Increasingly, they want hard proof of this.
Some brands, including Chanel and Zegna have invested in greater ownership of their supply chain to improve transparency, buying suppliers and gaining more control over materials and sourcing. This more vertically integrated model provides additional provenance and facilitates branded ‘product passports’ to give customers confidence about proof of origin as well as deter counterfeiters.
Blockchain can also support transparency and provide guarantees of authenticity. Aura is a blockchain group founded by LVMH, Richemont and Prada — buyers can access information about a product’s complete supply chain, including the sourcing of raw materials and factories, aftercare and even second-hand sales.
Gen Z has emerged as a demanding demographic with fresh views and preferences. Diversity, wellbeing and social responsibility are fast becoming deciding factors for this generation – and this is also true of Asian consumers.
With manufacturing increasing after a two-year decline, fashion’s environmental footprint will continue to worsen without further action.
Reducing fashion’s environmental impact is an essential part of slowing climate change, by limiting the damage to the environment from raw material extraction, improving processes, reducing consumption of water and energy, and eliminating harmful textile waste.
Circularity – or closed-loop recycling – is another opportunity for luxury brands to reduce their environmental footprints, limit waste throughout the process and increase the sorting and recycling of end-of-life products. We think luxury goods should last forever so extending product life and encouraging multiple use before recycling is the way ahead.
ATTITUDES IN CHINA ARE CHANGING
Chinese customers have sustained luxury brands during the pandemic, and now represent 45% of global sales, but current developments signal major changes.
President Xi is driving reforms in social values, with crackdowns on wealth and celebrity culture, now classified as ‘extravagant pleasure.’ China’s Cyberspace Administration has issued regulations on celebrities, and even threatened bans on fan-run pages – some comprise tens of millions of followers.
Chinese social media is changing rapidly. Luxury brands are already behind the curve: WeChat, for example, is only used by about 15 per cent of established luxury brands, but younger consumers consider it outdated and have already moved on to newer platforms or online gaming with social interactivity.
Furthermore, the Chinese regime treats data as a national security concern, and privacy rules have been tightened. Consequently, luxury brands may find it increasingly difficult to understand what motivates Chinese customers or communicate meaningful brand experiences to them.
VALUES AND BELIEFS
Luxury brands are masters of ‘desire creation’ – constantly redefining what constitutes desirability (and setting prices to match). But today, it is no longer sufficient for a brand to stand for values such as exclusivity, status or wealth.
Rather, luxury brands need to be involved in social interactions, plugging into cultural shifts that reflect social inclusivity, ecosystem protection and sustainability. They should be dynamic and driven by a sense of purpose, so that they can remain relevant to the needs of their core audiences.
Nike’s support for equality in society; Vivienne Westwood’s human rights campaigning; Stella McCartney’s focus on animal welfare – these are strong belief systems that reach beyond a traditional luxury audience.
BRANDS MUST FOCUS ON CORE PURPOSE
What can we learn from this?
Amidst all the disruption of the past two years, luxury brands must remain focused on their purpose, and if their purpose is no longer as relevant, redefine it.
It’s consumers who decide how to engage with luxury brands – so future success requires agility and resolute engagement with next generation audiences. Being this ‘customer intimate’ needs a clear purpose and strategy, brought to life by the highest quality creative execution, across all customer touchpoints.
Where to in 2022? Luxury brand leaders have their work cut-out to stay relevant and unlock growth, but opportunities are all around us, on earth and in the metaverse.
Peter Matthews & David Gilbert
For more information about Nucleus’ luxury brand and digital services contact firstname.lastname@example.org