Disrupting the world of luxury

THE SHIFT IN THE luxury business was visible at the Gucci men’s fall/winter fashion show in Milan, this July. More than 60% of the coveted front row was filled with Asians—buyers and journalists, armed with smartphones and dressed in the sort of flowery, hip chic that’s uncommon in Western fashion capitals. On the runway, Gucci designer Frida Giannini, who led a movement within the 92-year-old company to rediscover its heritage, showed bursts of floral patterns on menswear. Some were inspired by the scarf Rodolfo Gucci, son of founder Guccio Gucci, gave Princess Grace of Monaco in 1966. But the enduring image of the show was not the fashion; it was the picture of scores of Asians raising their phones, almost in concert, to rapidly click photos. That image symbolised perfectly the theme of this issue: change in the world of luxury.

It’s not that Asians are a rarity in the world of luxury. It’s just that their demands have changed, forcing the $273 billion (Rs 16.9 lakh crore) industry to adapt.

For about two decades now, the global luxury industry, expected to cross €250 billion (Rs 20.6 lakh crore) in sales by 2015, has been fuelled by Asians—mainly the Japanese. Through the mid-1990s, Japan was the world’s biggest luxury market, and customers were so focussed on buying luxury products that social theories were born. According to one, Tokyo was so starved of real estate space that people began to see their own bodies as real estate to display wealth. Others refused to leave the parental nest to save on rent and spent that money on vanity buys —and the ‘parasite single’ theory came about.

In 2002, when LVMH Moët Hennessy Louis Vuitton opened a store in Tokyo’s Omotesando district, there were queues all day. By the end of day one, the store had clocked $1 million in sales. But the tide was already turning. By 2007, the sales of luxury brands in Japan had fallen 39% from the heydays of 1996. And then came the ‘Japanese triple disaster’—the tsunami, the earthquake, and the Fukushima meltdown. Which is not to say that Japan is no longer a major market. It accounted for 8% of LVMH’s and 12% of Kering’s sales last year. But there’s been a definite shift.

The new big luxury hotspot is China. Consultancy Bain & Company estimates that luxury sales in China will grow at 7% this year. At over $35 billion, that’ll make China the world’s second-largest luxury market (U.S. is No. 1), and the fastest growing.

But even in China, the narrative is altering. High-end Bordeaux sales have collapsed, Swiss watch imports are down. At the same time, Burberry has grown by 20% and Jaguar Land Rover and Audi have both grown more than 15% in the last six months. So what’s happening? Two things. One, the Chinese government has come down heavily on “conspicuous consumption”, especially by the Communist Party elite. This includes restrictions on splashy advertisements, including on billboards. At the same time, the market is maturing and making demands that the luxury industry is slowly adapting to.

That can be seen in the fact that Asia now wants luxury on its own terms. It’s not enough that brands such as Ferrari and Rolls-Royce have carved local iconography, like dragons on some models. The Chinese buyer now demands Mandarin-speaking salespeople in high-end stores, where once English speakers were prized.

The change can also be seen in the number of Chinese brands that luxury companies are acquiring. Kering picked up jewellery label Qeelin, and Hermès bought Chinese crafts major, Shang Xia. Meanwhile, Richemont, the world’s largest jewellery maker and one of the largest luxury conglomerates in the world, is betting big on Net-a-Porter, the Amazon.com of fashion. That’s not such a strange thing in light of a MasterCard global survey last year, which showed that the strongest interest in online fashion shopping comes from China, followed by New Zealand, and Australia.

If China is the new target for luxury companies, can India be far behind? The current state of the economy notwithstanding, the world’s second-biggest market ought to be an attraction for most luxury heavyweights. Yet, over the last 15 years, these companies have come to realise that India is going to be the market-in-waiting for some time to come.

One of the big reasons for this is the fact that the category where Indians splurge the most, the wedding industry (valued at $38 billion), is all about tradition. As the CEO of a global luxury brand said, “Sadly, when it comes to clothes, the Indian bride does not need us. Neither does the groom, it seems.” Of course, global brands did not get to where they are by sitting on the sidelines, waiting to be accepted; they are actively changing the way they function to be relevant to this market. And so, there are luxury wedding accessories from jewelled bridal clutches (American designer Judith Leiber with Indian designer Suneet Varma), to customised wedding shoes (Jimmy Choo).

India’s luxury business is worth $1 billion, roughly where China was in 1998. Recent market research by Reliance Brands, one of the biggest players and the local partner for the likes of Ermenegildo Zegna, shows that the number of luxury consumers is set to triple, and their wealth set to grow five times in the next five years. This assumes a roughly 6% annual growth of the Indian economy. Little wonder that 19 of the top 50 luxury brands in the world are already in India.

But just setting up shop is not enough. Brands have to fundamentally change to engage a new audience.

In the following pages you’ll hear from some of the biggest names in the business on how they are navigating the brave new world of luxury. They include François-Henri Pinault, the owner and boss of Kering (formerly PPR), who runs one of the world’s largest luxury empires, and his right-hand man, Patrizio di Marco, CEO of Gucci.

Then there’s Bill Lumsden, chief whisky maker of Ardbeg, one of the best-known single malts, now part of LVMH, which embraced change and came back from the dead. Why, even Savile Row, the street of ultimate sartorial snootiness and outfitters to the Empire, is embracing change, stiff upper lip in place.

Plus there’s our usual feature on five Indian designers to watch out for and five Indian crafts that can become global luxury icons with a little bit of imagination.

Ultimately, luxury is merely a state of the mind, as is, of course, business strategy.