Luxury industries are facing a polycrisis

Redwood Comment
Published:  02 November, 2022
Credit: Tadeas Skuhra/Shutterstock.com

Mike Redwood looks at how the 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 – apparel and footwear, leather goods and accessories, watches and jewellery, cosmetics, luxury cars, arts, home and furniture, technology, alcohol and food, and travel and hotels – you will see there is no leather in cosmetics, alcohol or food. In all the other sectors leather is found and in footwear, leather goods and accessories, it is the main material.

Since luxury stepped into retail and started consolidating into big groups some 35 years ago, definitions of luxury have become less precise, and a paradox was created of exclusive luxury items becoming easily accessible for those benefitting from the globalisation of travel with well-loaded credit cards. The days of having to visit France to buy Hermès or Italy for Gucci were over.

The buying public was never too disturbed by this, and sales strongly grew year-on-year, adapting well to the centre of gravity moving East, the huge rise of international tourism and economic and generational changes.

A minefield ahead

As we slide towards the end of 2022, but not yet the end of Covid, the landscape ahead has not merely become difficult terrain, it looks like a minefield.

Recently positive financial results have resulted from the Chinese market staying strong and U.S. tourists using the strong dollar to spend money on trips to Europe. Yet, with all major brands closed in Russia and Xi’s 3rd term in China offering a continuation of Covid lockdowns and slowing economic growth, we have the start of the problems.

Rising inflation means consumers will trade down and entry point items such as scarves and sunglasses hardly replace a handbag. Despite some continued retail strength, there is evidence gathering that consumers in Europe are cutting back on hospitality, travel and bigger purchases such as automobiles, and reducing borrowing so as to build or conserve savings to pay for food and energy. Living beyond your means is now an old-fashioned concept.

China has been better for luxury than anticipated but “common prosperity” with growth slowing will make life hard for some consumers and retailers. A society filling with elderly people and their healthcare needs might offer “silver fox” opportunities but, without accelerating wealth, this will be limited.

With further decoupling and ESG concerns, luxury brands could find issues sourcing top-quality materials such as silk.

The hypocrisy of celebrities and fashion

Occasionally, luxury brands throw an olive branch towards sustainability and look at alternative material choices like mycelium or “metal-free” leather. Just one look at the global travel involved by the entire fashion industry entourage over the last three months and the money being lavished on endless fashion shows and it is hard to believe they are serious.

Given that many of the celebrities and billionaires who hold anti-leather views are actively flying the world in private jets denouncing livestock for their carbon footprint and demanding alternate materials, it is not a surprise. This is a sector driven by emotion not evidence. 

A situation with so many strands of complexity is now being called a polycrisis, and we must add the areas of digital marketing, repair and second-hand activity. While digital selling has risen greatly in China, digital luxury has seen mixed outcomes in the West. Second-hand or preloved items have always had a role but are more widespread with eBay getting now seriously involved. By 2030, some luxury categories expect to see second hand items reaching 50% of the main market.

For leather, the growth of repair, associated with the luxury fundamentals of design, quality and craftsmanship, is all good news. Leather rarely wears out or gets damaged in ways that cannot become part of its history; the patina of life rather than a defect. Problems with leather goods mostly come from failing seams, zips or handles. These need to be corrected in the initial design with higher quality components and zips accessible for easy repair.

Despite the absence of wealthy Russian oligarchs and the Chinese mega-rich – who are lying low or seeking ways to emigrate with their wealth – the richest end of the market will always continue to do well.

The problem is that family economic changes have been both abrupt and large and look likely to stay for a long time. This is impacting far higher up the salary scales than anything seen in decades. Some may think “polycrisis” too mild a term.

Mike Redwood

mike@internationalleathermaker.com

Follow Dr Mike Redwood on Twitter: @michaelredwood

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