Luxury industries facing a polycrisis
Published: November 02, 2022
Mike Redwood examines how luxury industries have adapted over time and the many challenges they face on the horizon.
If you look at the categories used for luxury goods – clothing and footwear, leather goods and accessories, watches and jewelry, cosmetics, luxury cars, arts, home and furniture, technology, alcohol and food, travel and hotels – you will see n there is no leather in cosmetics, alcohol or food. In all other sectors, leather is found and in footwear, leather goods and accessories, it is the main material.
Since luxury entered the retail trade and began to consolidate into large groups around 35 years ago, definitions of luxury have become less precise and a paradox has arisen, exclusive luxury items becoming easily accessible for those who benefit from the globalization of travel with well-loaded credit cards. . The days of having to travel to France to buy Hermès or to Italy for Gucci were over.
The buying public has never been too bothered by it, and sales have risen sharply year on year, adapting well to the shift in the center of gravity to the East, the rise of international tourism and the changes in the economy and generational.
A minefield ahead
As we slide towards the end of 2022, but not yet the end of Covid, the landscape ahead of us has not only become difficult terrain, it looks like a minefield.
Positive financial results were driven by the strength of the Chinese market and US tourists using the strong dollar to spend money while traveling in Europe. Yet, with all major brands shut down in Russia and Xi’s 3rd term in China offering continued Covid lockdowns and slowing economic growth, we have the beginning of trouble.
Rising inflation means consumers will cut back on their trade, and entry-level items such as scarves and sunglasses barely replace a handbag. Despite some continued strength from retail, there is growing evidence that European consumers are cutting spending on hospitality, travel and larger purchases such as automobiles, and reducing borrowing in order to build up or keep savings to pay for food and energy. Living beyond your means is now an outdated concept.
China has been better for luxury than expected, but “common prosperity” with slowing growth will make life difficult for some consumers and retailers. A society filled with older people and their health care needs could provide “silver fox” opportunities, but without wealth acceleration, this will be limited.
With continued decoupling and ESG concerns, luxury brands could face challenges sourcing premium materials such as silk.
The hypocrisy of celebrities and fashion
From time to time, luxury brands throw an olive branch towards sustainability and consider alternative material choices like mycelium or “metal-free” leather. One look at the global travels involved by the entire fashion industry entourage over the past three months and the money lavished on endless fashion shows and it’s hard to believe they are serious.
Given that many celebrities and billionaires with anti-leather opinions are actively flying around the world in private jets, decrying cattle for their carbon footprint and demanding alternative materials, it’s no surprise. This is an industry driven by emotion, not evidence.
A situation with so many complexities is now called a polycrisis, and to this must be added the fields of digital marketing, repair and second-hand activity. While digital sales have grown significantly in China, digital luxury has seen mixed results in the West. Used or pre-loved items have always had a role but are more prevalent with eBay now getting seriously involved. By 2030, some luxury categories expect to see second-hand items reach 50% of the core market.
For leather, the growth in repair, combined with the luxury fundamentals of design, quality and craftsmanship, is good news. Leather rarely wears or deteriorates in a way that cannot be part of its history; the patina of life rather than a flaw. Problems with leather goods mainly come from faulty seams, zippers or handles. These need to be fixed in the initial design with higher quality components and accessible zippers for easy repair.
Despite the absence of the wealthy Russian oligarchs and the Chinese mega-rich – who are hiding or looking for ways to emigrate with their wealth – the richer part of the market will always continue to do well.
The problem is that the family economic changes have been both abrupt and significant and seem set to last a long time. This is having a far greater impact on salary scales than anything seen in decades. Some may think that “polycrisis” is too soft a term.
Follow Dr. Mike Redwood on Twitter: @michaelredwood
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