The world’s top 100 luxury goods companies generated revenues of 252 billion dollars in 2020, down from 281bn the previous year, but net profit margins of the top 81 companies was down only 5.1 percent. The data was released by Deloitte’s annual Global Powers of Luxury Goods 2021 report, which states the pandemic was the catalyst for change as luxury goods companies adopted new paradigms of value creation but generally remained resilient.
“As they seek new ways to connect with their customers, they are changing their approach and mindset by incorporating sustainability and digitalization into their long-term strategies, to align with consumers’ demands and new regulatory requirements,” said the report’s introduction.
The top ten generated 51.4 percent of the revenue of the top 100 luxury goods sales. These include LVMH, Kering, Estee Lauder, Richemont, L’Oreal, Chanel, EssilotLuxottica, PVH, Hermes and Chow Tai Fook Jewellery Group. The top 10 increased their share of total luxury goods sales of the top 100 companies by 0.2 percentage points, said the report, although all the Top 10 companies except PVH reported a decline in sales in FY2020, they remained profitable, together delivering more profit than the total for the Top 100 companies (as many of the smaller companies reported losses).
Breakthrough luxury, three takeaways:
Header 2Digitalization and sustainability goals in the luxury goods industry
The world of fashion and luxury goods is undergoing extensive change. What were previously choices of product design of just a few environmentally-conscious and courageous innovators, are now moving closer to the mainstream, involving almost all the companies in the industry. Increasingly, luxury goods companies are changing their approach and mindset, incorporating sustainability and digitalization into their long-term strategies, to align with consumers’ demands and new regulatory requirements.
Embracing the circular economy: Innovating with biomaterials in luxury goods products
Given the changes in the luxury industry over recent years, it’s clear that sustainable luxury—promoting environment and social responsibility—is here to stay. Increasing numbers of luxury products are labeled ‘sustainable’, and the industry is now accustomed to concepts like ethical fashion (production methods, working conditions, and fair trade); circular fashion (recycling, upcycling, and thrifting); slow fashion (sharing, renting); and conscious fashion (eco-friendly and green fashion).
Luxury goods companies are setting environmental targets for the future, with offsetting carbon emissions as a priority. An imperative is to find new ways to be more sustainable, in design, production, distribution, and communication. Luxury goods companies are looking to make use of technology to develop environmentally-friendly new materials and with technological development, comes material innovation.
A new luxury frontier: NFTs and fashion gaming
The luxury industry usually takes a conservative approach against what might put its heritage at risk, but the pandemic changed everything and has pushed companies to make bold moves in the creation and development of their digital strategies. NFT represents multiple opportunities for luxury companies. Firstly, they are a tool to verify authenticity and ownership of an item: counterfeit products are an issue for the industry and blockchain helps tracing the origin of an item, its history and previous owners allowing a product’s ownership to be easily transferred and products traced and re-sold. This feature is also very helpful in the secondhand market, by allowing consumers to verify their purchases. Another important aspect of ‘virtual luxury’ is its viability and accessibility—even those who can’t afford a luxury bag or pair of shoes can possess and use a virtual branded item and display it on multiple occasions. Luxury skins could be compared to diffusion lines in the real-life world.
Gen Alpha: The consumers of the future are on their way
Gen Alphas are expected to become a generation of consumers with large spending power and the key to future success for luxury goods brands may lie in gaining their loyalty from an early age. As the consumers of the future who were born in a digital age, Gen Alpha will be exposed to luxury brands from a very young age through social media, through their peers, and through the habits of their millennial parents.
Academic research shows that children start recognizing brands, relating to them, and even expressing preferences from as early as the age of three. So, although we are still in unchartered territory, luxury brands must learn how to develop a relationship with this emerging customer base.Article source: Deloitte Global Powers of Luxury Goods 2021 report