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Whither Responsible Luxury

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The contrarian forces – the recession in the western hemisphere and the sustained growth of the emerging economies – have together fostered some interesting, global dynamics that the luxury industry cannot ignore.

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Whither Responsible Luxury

  1. 1. Whither Responsible Luxury Dr. Shefaly Yogendra The Customer Experience Company
  2. 2. “ ” I love luxury. And luxury lies not in richness and ornateness but in the absence of vulgarity. Vulgarity is the ugliest word in our language. I stay in the game to fight it. - Coco Chanel Luxury The contrarian forces – the recession in the western hemisphere and the sustained growth of the emerging economies – have together fostered some interesting, global dynamics that the luxury industry cannot ignore.
  3. 3. The core luxe consumer, traditionally located in wealthy western economies, is rethinking her consumption for several reasons. The recession has forced a broader, societal soul searching about the values we have lived by and wish to live by. Further published data recurrently show that societal disparity is larger than ever, making conspicuous consumption a tricky choice to make. As “vintage” makes a comeback in both couture and jewellery, investment is clearly as important a criterion for her to make a monetary outlay on luxe as indulgence is. Western wealth reconsiders indulgence and investment trends “ ”
  4. 4. At the same time, emerging markets such as India, China and Brazil are booming, creating what some have called a two-speed economy. In these markets no luxe brand is too visible, no indulgence too expensive, albeit for a select few even as vast swathes of society remain inexorably poor. Most recently, Prada reported that its half-yearly sales in Asia rose 35% to €368M mostly driven by Greater China; Richemont’s sales in the Asia-Pacific region soared 48% to US $1.88B, primarily driven by mainland China; Tiffany & Co revised its profit estimates buoyed by a 30% growth in the Asia-Pacific market; and Tod’s Group has attributed its 22% higher earnings than a comparable period last year to its growth in Asia. Eastern wealth rises trends “ ”
  5. 5. There is an interesting duality at work regarding wealth. As western economies enhance regulatory restrictions and clamp down on tax havens, western wealth seeks alternative havens. At the same time, Asian wealth moves in search of assets and investments. The luxe sector thus sees itself serving a more globally mobile consumer with varied cultural expectations of luxury. Wealth seeks mobility trends “ ”
  6. 6. There is the growing clamour for “engagement” using social media with consumers and stakeholders alike; this creates further pressure on how to balance exclusivity, aspirational value and premium pricing of luxe brands, with open-access and dialogue. At the same time it is easier than ever to debate and critique business practices in the luxe sector with a record of using farmed fur, blood diamonds and other ethically dubious raw materials to make profitable goods. Many luxe brands target women as consumers, and with a renewed global focus on governance, the minuscule role of women as decision-makers in these luxury houses will be increasingly challenged. Social media need attention trends “ ”
  7. 7. Amid this push-pull of market and societal forces - or consumers and stakeholders - we were curious about the strategic commitment of the luxury industry to corporate social responsibility (CSR). Our research covered some of the highest profile luxe brands and parent companies. We used publicly available data on their websites and supplemented it with secondary data on the companies. Environment | Social Inclusion | Cultural Patronage Chanel Hermès Labelux LVMH PPR Prada Richemont Tiffany & Co Tod’s Group research “ ”
  8. 8. Question. 1 Do the luxe brands or their parent companies have an executive commitment to, a stated policy on and a published report on CSR? There are several companies that have no stated CSR policies, no CSR reports, and no executive or board level resource commitment to CSR. While internally consistent, this represents one extreme of practice. Chanel, Hermès, Labelux, Prada and Tod’s fall at this end of the spectrum. Our research however yielded an encouraging, diverse range of thoughtful practices at work and executive level commitment in LVMH, PPR, Richemont and Tiffany & Co.” “
  9. 9. Question. 2 What is the scope of these CSR policies and activities where they exist? The CSR activities of the leaders in our research cover three main areas which, in the order of breadth of activities and their link with the core business, are: environmental impact of their business, social inclusion and cultural stewardship. The scope of these activities covers the supply chain as well as broader communities in which these businesses operate. ” “
  10. 10. Question. 3 Finally how are the key markets influencing their CSR footprint? This question was tougher to answer than the others we asked. Indications are that the CSR activities, where they exist, are driven as central strategic initiatives and not necessarily tailored to the presence in the local markets. Data are insufficient at this stage to draw any indicative conclusions. ” “
  11. 11. There seem to exist two extremes in the luxury industry’s CSR practices. Accordingly we feel there are several action points for companies that can best be described as laggards in the space. For instance, a company with a diverse portfolio of luxury goods, such as Chanel, could examine the global suppliers of cloth, leather, precious and non-precious metals, packaging and semi-finished goods, and start thinking about how to change things for the better. action points for laggards
  12. 12. Engage with your wider communities, your customers aren’t the only ones interested in your business action points for laggards Text 1 Several good examples worth emulating exist here. Tiffany & Co’s commitment and specific practices in responsible sourcing of diamonds and precious metals – both raw materials core to its business – cover strategic choices both of commission e.g. responsible mining practices and of omission e.g. refusing to buy diamonds from Zimbabwe and refusing to use coral in its jewellery. Likewise, LVMH, Richemont and Tiffany & Co have programmes in place for making their packaging “green” as well as for redressing the damage caused to mature forests in the sourcing process.
  13. 13. Your choice to be responsible can affect your entire value chain – sometimes other industry players too – positively. action points for laggards Text 2 Recently LVMH took majority ownership in Singapore-based Heng Long, One of the world’s top five suppliers and tanneries of crocodile leather. Heng Long imports a diverse range of crocodilian skins such as the Nile crocodile skins from Africa, alligator skins from the United States and Caiman crocodile skins from South America. By engaging actively with Heng Long, LVMH can not only share best practices but also make an explicit commitment to responsible business in an emerging market. Heng Long is also a supplier to Hermès, and any improvements in its environmental footprint will no doubt burnish that of Hermès too.
  14. 14. Responsibility means inclusion, especially of the gender to which you are primarily selling. action points for laggards Text 3 If your company sells to women, then engaging women only to sell more to women clients is a cynical strategy. Not having any women on board at all, such as the case with Prada, with the exception of Miuccia Prada for historical reasons, is worse. This practice just does not cut the mustard any more. In our research, PPR comes out looking the best in this respect, with three women on the board of directors, one on the executive committee and over half of the employees and new recruits in the rank being women. This is in addition to the PPR Foundation’s work to enhance women’s rights globally.
  15. 15. We think that all-encompassing reporting standards will no longer drive excellence but set a floor level, minimum that businesses must comply with. Excellence in strategic CSR will be driven by industry’s own creativity and dialogue with stakeholders who will demand, educate, feedback and keep the industry on its pointe toes. Universal standards or new standards? concluding remarks
  16. 16. We think that for publicly traded companies, a corporate foundation may be harder to create and implement, as it should require explicit permission from their shareholders, even as they will be held to tougher public scrutiny and high standards vis-à-vis their CSR strategy and performance. ` CSR or corporate foundations or both? concluding remarks
  17. 17. How will emerging markets in luxury influence CSR? concluding remarks We think this will need to change especially as the luxe groups aim to profit from countries like India, China and Brazil with their rich heritage and cultural legacies, existing side-by-side with abject poverty. The challenge will be to be able to do both wi thout looking ei ther cyni cal or patronising. `
  18. 18. Finally our research is based on publicly available data on this fast-evolving sector. We welcome corrections, additional data, feedback and above all, the opportunity to enter into a dialogue with the luxury sector as well as its stakeholders. Please do get in touch with us at trendscape@futurescape.in Your Thoughts
  19. 19. Dr Shefaly Yogendra specialises in strategic decision-making. In sunrise sectors and in emerging markets. Especially where technology, investment and regulation meet. Twitter: @shefaly Author
  20. 20. Futurescape, Delhi Level 4, Rectangle 1, Commercial Complex D4 Saket, Behind Sheraton, Delhi New Delhi – 110017, INDIA Futurescape, Mumbai Level 2, Raheja Centre Point 294 CST Road Near Mumbai University Off Bandra–Kurla Complex, Santacruz (E) Mumbai – 400098, INDIA Telephone: +91 9910201783 +91 (11) 6654 4196 Email: innovate@futurescape.in Web: www.futurescape.in Twitter: @futurescape

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