Luxury’s Future: A Question of Trust

In the past two weeks, the Kering group (owners of Gucci) committed to full carbon neutrality across the board, the LVMH group announced new commitments to protect the environment and biodiversity, teenage Swedish activist Greta Thunberg spoke at the UN to say her generation would never forgive the previous one for not having done more for the planet, and author Dana Thomas spoke to the media about her latest book “Fashionopolis: The Price of Fast Fashion and the Future of Clothes,” focusing on environmental and labor issues in the industry.

What do all four have in common? The next generation of luxury shoppers will want to know about certain topics that have been overlooked by most brands. Can you tell me where your one-carat diamond on that beautiful ring of yours comes from? Unlikely. Do you know how the cotton in your shirt was grown? Impossible. Is your favorite brand still selling coats that use coyote fur or handbags with ostrich skin, and are you all right with that?

All consumer brands are fair game. A BBC report last week asked if Nutella was made with nuts picked by children. And The New York Times just published an article headlined “How fast fashion is destroying the planet.” Luxury won’t be immune. Actually, luxury will likely come under more pressure than others, given consumers pay a higher price for the goods. It is a given that the quality should be absolutely trustworthy.

The solution? There is no miracle, but we believe that these three approaches might help:

Embrace sustainability at the top

Issues of environmental, social and governance (ESG) are no longer simply buzzwords, as both consumers and investors are making decisions with these being key determining factors. ESG is a bit like digital and e-commerce: you can have a few specialists in some department tucked away, or you can make it part of your board agenda, your culture, and your mission statement. And if you are doing a good job, tell the world! There is no downside in sharing best practises in this field. Moreover, you cannot monitor what you cannot measure so giving your company and your employees measurable targets related to ESG matters is a prerequisite.

Control as much as possible

The ultimate luxury is to be able to fully control your sourcing. The motto of one of the leading spirits companies, Rémy Cointreau, is “terroir, people and time.”

“Terroir” is essentially a place that gives you absolute control over the provenance and full traceability of your goods. “People” is about accountability and responsibility. And “time” is the specific process of aging and blending done internally that enables the group to produce Louis XIII, an uber-luxury cognac with the eaux de vie, which is aged up to a century. Not everyone can control their supply chain like Rémy does, but being as close as possible to your suppliers and having them support your ESG mandates, is key.

Listen to your consumers

Over the past year, Burberry has stopped burning unsold products; Prada has gone fur-free, developing a collection based on recycled nylon ocean plastic waste; and Chanel has stopped using exotic skins. Product substitutes are popping up everywhere, from lab-grown diamonds, presumably less harmful and much cheaper than traditional mined diamonds, to pineapple leather, faux fur and more. Some will generate real interest and demand from consumers, while others will fall flat. Listen to your consumers. They will not necessarily know what they want, but they will tell you clearly what they don’t want.


About the Author: 

Erwan Rambourg is a managing director at HSBC in New York City and the co-head of Global Consumer & Retail Equity Research. He has been a top-ranked analyst covering the luxury and sporting goods sectors for the bank for the past 14 years. Rambourg joined HSBC in 2005 after working for eight years as a marketing manager in the luxury industry, notably for Richemont and LVMH. He is regularly featured in The Wall Street Journal and The Financial Times and appears on CNBC and Bloomberg. Rambourg grew up in New York and has lived and worked in Paris, London and Hong Kong.

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