Luxury’s sustainability challenge
It is not that the market overall is set to shrink—far from it. The number of luxury consumers has more than tripled in under 20 years, to around 330m people. Spending has risen at a similar rate, to an estimated €217 billion (US$300 billion) in 2013. Around 130m of these consumers are in emerging markets, and 50m of those in China. More than 10m new customers are entering the market each year, and many existing occasional consumers are becoming more committed to luxury brands.
But it will be harder to attract and keep an increasingly diverse and sophisticated consumer base.
An even bigger worry may be that in mature luxury markets such as Japan, Western Europe and North America, a disenchanted backlash seems to be setting in. Bain divides the 150m committed luxury consumers at the heart of its report into seven categories, the third-biggest of which it calls “Disillusioned”. As a group they are the top or second-top consumer cluster in all the long-established markets. Though these customers cling to some traditional brands, such as Hermès, Chanel and Cartier, they are spending less on luxury now than a few years ago. The Economist 11 February 2014
Disenchanted consumers would be a problem for any brand, but in the luxury sector where everything is staked on ‘curating the desires’ of customers, this ought to be a game-changer.
Nevertheless, the mood was upbeat at The Sustainable Luxury Forum in February. This is the fourth instalment of the forum since it began in 2010, and some of the participants were already esteemed alumnae of the gathering, which in years past has examined topics such as sustainable excellence and how to drive change in your supply chain to secure your reputation.
The 2015 theme was ‘Luxury in a VUCA World’, VUCA being a trendy management term and acronym for the strategic challenges volatile, uncertain, chaotic, and ambiguous. That certainly sounds like a batch of sustainability issues, just maybe not for luxury brands, according to Cédric DuPont from The Graduate Institute in Geneva. He told Forum attendees that the luxury sector has not experienced VUCA in the last 20 years, and has grown quite healthily in spite of numerous shocks. None of those shocks, from the Dotcom bubble to Ukraine, have created much uncertainty, he said, because there was never enough of a slow-down to raise concerns.
Compared to other sectors, the picture for luxury has been good because of economic growth in Asia and among high net worth individuals, said DuPont. His colleague at The Graduate Institute, Christophe Gironde, put a finer point on those statistics noting the rise of luxury lifestyles in communist Vietnam. In that country, he reported, recent years have seen a 20 percent gain in turnover for luxury goods. Remarkably, The Hermès shop in Hanoi is the brand’s number three store in terms of sales per square meter. And it doesn’t stop there. He also cited a forecast that by 2023 the number of individuals in Vietnam worth $100 million will rise by 160 percent.
For the time being, Asia’s newly-minted millionaires’ taste for luxury appears to have solved a big sustainability problem for the luxury sector. It is also loudly argued, and with good reason, that the economic development behind those fortunes is the rising tide that will lift the masses out of poverty. Not so, said Gironde, stating that “economic growth is not enough to reduce poverty. There is no mechanical link between growth and poverty.” In fact, as Gironde pointed out, inequality is on the rise all over Asia.
Oxford philosophy professor Nick Bostrom delivered a riveting keynote speech in which he made the case that runaway artificial intelligence, à la 2001 A Space Odyssey, might prove to be a very real existential risk for mankind. The rub, he said, is that humans have not evolved to deal with existential risks. Normally we observe actions and their results, and adjust our behaviours in order to survive in the new conditions. Because existential risk leaves no opportunity for rebuttal we must, instead, anticipate, and take proactive steps to secure our continued existence. It’s an interesting philosophical issue and, better yet, a perfect analogy for climate change, which most agree is the biggest existential threat facing mankind.
After day one of the forum, the question remained for this reporter: “What is the luxury sector’s role in sustainability? What difference can it possibly make?” After all, by and large they are still talking about little more than sponsoring projects of limited scope when they should be talking about changing the very way they do business and what they stand for. Taking responsibility for the socially and environmentally harmful desires they ignite in their customers and the disastrous activities they generate throughout their supply chains can’t be solved by building schools in places that will be under a meter of seawater in less than a generation.
Perhaps the answer is somewhere in a question raised by an audience member. “Given the high quality of our offerings, what can luxury firms teach others about sustainability?” she asked. It reminded me of the tagline, “You never actually own a Patek Philippe. You merely look after it for the next generation.” Luxury is lasting, and we should appreciate and strive for things that last, abandoning the take-make-waste throwaway culture we have embraced since the dawn of the industrial revolution. If the luxury sector can take an idea like that, internalise it, walk the talk and create a real sustainable culture then perhaps none of us will need to worry about how to respond to a VUCA world any time soon.
Article by Peter Carson