Talking about a revolution

July 03, 2018 | NEWS

Digital transformation in the luxury industry

After a slowdown in 2015, the global personal luxury goods industry is growing again, with consumer spending reaching approximately €260bn annually. Single-digit annual growth in the 2 to 5% range is now the “new normal” compared to growth rates of 10% over the past decade. Within this environment, we see the industry going through massive, revolutionary changes.

Digital technologies are disrupting traditional channels. Once, it was simple: suppliers talked to brands, brands talked to channels, and consumers talked to channels – or had a physical experience of a brand at a point of sale. Now, everybody is talking to everybody.

Consumers are more curious and they are shopping around. They engage with conventional channels, but they are going straight to brands – and to producers as well – via social media platforms and websites. Naturally, the ‘selling ceremony’ is evolving, since there are so many more touchpoints for consumers to experience a product before they enter a store.

Millennials are also reshaping the market, introducing a different set of values, behaviours and demands, compared to previous generations. Further complexity comes from Asia, where specific needs and cultural attitudes will necessitate tailored approaches, especially in relation to digital strategies.

Brands need to rethink the way they interact with consumers and, overall, should review the whole lifecycle of a luxury product and the services that support it.

Far-sighted companies are already responding with unique brand experiences, further differentiating their offerings, while ensuring distribution excellence.

While online sales are climbing, physical stores will retain an important role, continuing to offer the option of touching a luxury product. When it comes to capturing consumers’ attention, speed is of the essence; brands will have to accelerate their processes and supply chain.

What is clear is that greater transparency around the origin, supply and markup on luxury goods will put pressure on product quality and prices. Consumers may question if it’s worth paying 6 to 7 times as much for a designer handbag, even if it does have a valuable logo.

The industry’s challenge is to maintain premium pricing and the intangible allure of brands.

Looking forward: organisational implications

The critical issue for businesses in the personal luxury goods industry is how to adapt their organisations to a challenging landscape.

A shift from Communication to Consumer Engagement has to be built into the entire ecosystem – connecting product design, development and supply to consumers, giving them exactly what they want, when and how they want it. Relationships need to be dynamic, leveraging the most advanced technologies and appealing both to Millennials and other generations. Fresh content is key: video clips, music, social media and events can all help to build buzz.

This realisation may be one of the reasons why Gucci recently announced a new organisational structure, including a vice president of Brand & Customer Engagement who is dedicated to engaging consumers with a global community. Larger groups and companies may be able to afford this more easily, but there are opportunities for smaller brands to achieve better visibility.

In parallel, the commercial approach requires reorganisation. Businesses need to stop thinking of channels in silos; the old divisions between channels are no longer sustainable. To serve clients efficiently, each territory around the world should be covered with the right mix of synergistic channels.

To address the digital transformation challenge, organisations could look at third-party alliances as one way of importing skills quickly. This is what Chanel has decided to achieve through a strategic partnership with Farfetch, initially focused on technologies to enhance Chanel's physical store experience with "Augmented Retail".Once new capabilities are established, brands can consider bringing them in-house.

We see an opportunity for big groups to create a central competence centre, able to exploit economies of scale and competence across their organisations. Such taskforces could support and empower local initiatives by sharing specialist resources and best practices. Standalone brands would be forced to build everything up, meanwhile.

The rules of the game have changed and we have yet to discover the winners and losers. We believe that businesses cannot wait and see what happens as fundamental changes take effect in the personal luxury goods market. But there is no one-size-fits-all solution – brands have to find their own way.

Find out more about Pascal Martin, Partner

Find out more about David de Matteis, Partner