New business models are emerging within the luxury industry

Timothy Jackson, Director of The British School of Fashion at Glasgow Caledonian University in London, opines that many luxury brands have recognised that the old elitism associated with luxury is not socially relevant now and instead are focused on demonstrating a values-driven philosophy. These values are now centred around sustainability, inclusivity and social responsibility.

IBT: How has COVID-19 affected consumer sentiments in the luxury market in your view? How is this expected to impact the luxury market across segments?

Prof. Tim Jackson: Unlike previous disasters to impact the luxury industry, COVID-19 is the only one to have a completely global impact, and one which may not have a clearly defined end point. Past damaging events have either been regionalised, including SARS or had responses, which mitigated their impact like airport security following 9/11. Even the ‘global’ financial crash of 2008 was principally a Western market problem and luxury brands managed to supplement lost demand by opening up in China.

However, there are a number of differences this time. First, the Chinese market that represents around 35% of luxury goods consumption is just as badly affected as other international markets. This is accentuated by the fact that North American and European markets were already in decline for luxury spending. Second, the enforced period of lockdown has provided many people with time to think and take stock of their lives, which appears to have included some re-evaluation of values and priorities. This is likely to add to consumers’ existing concerns about the environmental cost of consumption and put pressure on luxury brands to improve their performance in that respect.

Certainly some (consumer) behaviours have changed, including a greater willingness to engage with digital technology and online shopping in particular. There are clear implications for luxury brands on the balance of their distribution channel strategies and some will close stores. Ironically, the department store/mall format may benefit as shopping, while adhering to social distancing requirements, can be more easily accommodated. Luxury boutiques may still fair better than mass-market volume stores, as luxury boutiques can more easily operate an appointment model due to the higher prices/lower volumes. However, it is highly likely that some real luxury sectors will recover by the start of 2021 as the rich normally ride out these difficult periods; as a reminder in 2018 there were approximately 18 million High Net Worth Individuals globally with a combined wealth amounting to just over US$ 68 trillion (Capgemini, 2019).

IBT: Will the woes of luxury brands be over as lockdowns soften and social distancing norms are relaxed?  Will “conscientious value” displace “conspicuous value”?

Prof. Tim Jackson: It would be nice to think that following COVID-19, all consumers will become more environmentally conscious, socially responsible and make purchase decisions accordingly. Undoubtedly, there will be many who value ethics as much as aesthetics. However, this is likely to vary by nationality, generation and even wealth.

In China, for example, consumers in Tier 1 cities are more concerned about sustainability and environmental considerations than those in Tier 3 and 4 cities, according to Hong Kong-based businessman Adrian Cheng, who said that China is very polarised. He has said that Tier 1 cities are more conscious because they are also experiencing the effects of climate change. They can feel that, so they are much more prone to support sustainability. He added that when you go to third of fourth tier cities where they have just urbanised from the rural villages, consumers want to just own a luxury brand to showcase their status.

Many luxury brands have recognised that the old elitism associated with luxury is not socially relevant now and instead are focused on demonstrating a values-driven philosophy. Purpose and values are now centred around sustainability, inclusivity and social responsibility. Cedric Charbit, CEO, Balenciaga states,

“There is a new way to be a luxury brand today. It’s no longer just about heritage and craftsmanship. It’s also about the values, what you believe in and what you stand for.”

There are a range of new business models emerging within the luxury industry around fashion and personal luxury goods. They are driven by a sustainability & purpose and include the 3 R’s; Rental (e.g. Panoply), Resale (The RealReal) and Remade (Christopher Raeburn). This is a growing business model within personal luxury goods and yet, once the pandemic subsides, there will be an inevitable temptation for many luxury brands to ‘return-to-normal’ in markets, where status is conferred by the brand you show.

To balance this, there is a feeling that in more mature luxury markets, demand will move away from the frequently replaced products to beautifully crafted, sustainably sourced and high quality items, which exhibit status from socially responsible values. A return to true luxury, which is about authentically crafted, creatively conceived and original items made with care to deliver joy to its owner is perhaps overdue.

IBT: How can brands leverage technologies to weave experiences that fit well with the luxury marketing narrative and enhance the connect with their customers?

Prof. Tim Jackson: Physical outlets of whatever size, though, will need to integrate technology more and engage digitally with their consumers. Augmented Reality (AR) provides brands with the opportunity to deliver immersive experiences to their customers. This can be delivered both on mobile devices and in-store. That said, there will always be a role for the physical space, ‘boutique’ rather than ‘store’, as consumers want to experience the product. Personalisation is also likely to grow in popularity especially with the growth in the application of AR.

Also, brands must use blockchain technology to provide supply chain transparency. The technology will also be able to evidence provenance and authenticity of products for consumers. This will help combat counterfeiting and reinforce beliefs around nation-branding. The idea is that a product will have a unique digital identity, using a crypto serial number which can be registered on a blockchain platform.

As such, a whole range of characteristics including a product’s provenance, history, ownership and all transactions can be stored and accessed by a customer using their smartphone. In markets where there is concern over counterfeiting or the ethical and sustainability credentials of a brand’s products, it will provide reassurance and confidence to potential buyers. This traceability is also likely to support the growing resale or re-commerce markets, where currently there is a authentication process in place.

AI and big data collection will drive greater product personalisation. The interface with that is likely to be through new tech applications including AR Commerce.

IBT: What supply chain reinvention strategies should luxury brands gear up for to embrace the new normal?

Prof. Tim Jackson: Brands need to ensure that supply chains are integrated with their front-end digital commerce systems and start to leverage Artificial Intelligence (AI) to enhance inventory management capabilities. One large retailer in China generated over US$ 30 billion in the first 24 hours of trading on the ‘Singles Day’ shopping event in 2018. That generated 1.2 billion parcels and a rate of processing payments of 325,000 transactions per second; their president commented that when delivering 65-70 million packages a day, it’s impossible to keep track of everything with humans, you need bots and so technology. The arrival of 5G networks should enhance brands’ capabilities in that respect.

Artificial Intelligence can drive more effective brand buying and merchandising systems that will enable businesses to use real-time data and automated inventory supply and replenishment. This means faster and more accurate responses to consumers’ orders. Furthermore, the application of beacon technology networked within the Internet of Things (IoT) will enable brands’ stores to deliver personalised digital messages, immersive experiences and customised service to individual consumers (or markets of one). Some retailers in China have also been experimenting with facial recognition software to speed up in-store payment transactions and so improve the perceived customer service.

IBT: What do you see as ‘a new normal’ for luxury retail stores? How can luxury brands carve more customer-centric digital solutions while unlocking the full potential of omnichannel retailing and mastering digital marketing?

Prof. Tim Jackson: Physical (store) retailing of luxury products has traditionally been concentrated in either a brand’s own ‘directly operated stores’ or through departments stores. At the very highest end, some of those directly operated stores will operate as boutiques where VIP shopping is on an appointment basis. This is not likely to change although the integration with technology will enhance the customer experience, and the nature of service processes.

For example, Augmented Reality (AR) is being used to entertain and engage customers before they buy. Gucci has a ‘Try-On’ sneaker AR app that allows the shopper to virtually try on its Ace sneaker using their mobile device. The consumer can then order online or purchase from a physical store. AR and VR offer great potential for delivering immersive experiences in a physical space to help generate purchases both in-store and online. Consumers’ expectations of luxury brands are that they lead in terms of design and are innovative in products. This will translate into increased expectations on luxury brands to use technology in a way that also delivers leading, exceptional and personalised service.

---

Tim Jackson is the Director of the British School of Fashion and the Programme Leader for MBA Luxury Brand Management. He has worked on managing undergraduate and postgraduate fashion marketing and luxury management programmes for a number of universities, including London College of Fashion and European Business School, Regent’ University London. With 10 years’ external examining experience, and having worked as an examiner for the CIM, he also has extensive academic development experience across fashion marketing, buying, journalism and luxury disciplines.

In addition to publishing influential books on fashion buying, fashion marketing and Routledge’s Fashion Handbook, he also provides expert commentary and analysis on the luxury and fashion sectors across premium business media. He has been a regular contributor in these areas for WGSN, Stylus.com and also published in the International Herald Tribune and luxury aviation NetJets in-house magazine. Prior to working in Higher Education, Tim worked in retail management and buying for a number of brands, including Harrods, Jaeger, Dash and Burton Menswear.

Tim is a Fellow of the Higher Education Academy and a member of the Chartered Institute of Marketing and has worked as a Trustee of the Covent Garden Area Trust in London. Current research interests include luxury, virtual flagships and creative thinking.