Luxury Brands Are Getting Ready For A New Era Of Growth.
The future for luxury looks bright, at least in digital media advertising, says Rachid Ait Addi, Head of Client Partnerships at Teads, who has seen demand for video advertising and creative services grow significantly since the start of the pandemic, a trend he expects will continue into the years to come.
For Rachid Ait Addi, Vice President of Client Partnerships at the world’s leading video advertising marketplace Teads, the global COVID-19 pandemic was a key pivotal moment for luxury brands to realise that the digital revolution had finally arrived.
Conversations about a new innovation or a digital campaign that would have previously taken a year to sign off were suddenly being activated and launched within a few months of discussion. Interest from some of the world’s leading brands to work with Teads’ Creative Services team to develop new digital media concepts soared, and for Ait Addi, it represented a change in mindset from his clients that luxury was finally ready to embrace what digital media advertising could offer.
It's really adapting their DNA for this new digital age,” said Ait Addi. “Because culture-wise, for a luxury brand, their image is super important, the quality of their products is super important, and their values are super important. This doesn’t change with digital storytelling. And how you engage in an elegant way with your consumers doesn’t change, the only thing that has is how you arrive at that point.
Indeed, one key example for Ait Addi of the change that he had seen in the luxury market was with a client, who previously would take up to a year to consider new creative ideas and concepts pitched to them by his creative team, but following the pandemic really embraced the opportunity to explore what digital advertising could offer.
“Digital is really the first point of media for those brands now. We really see a change in the mindset,” said Ait Addi, noting the shift. “The creative team used to talk about ‘luxury time’, meaning that luxury brands really take their time to embrace innovation and even a new creative idea. Usually, we pitch an idea, and then a year later, they activate it during the space of six months. So, I was really surprised that in the first half of this year, we saw more creative innovation from them than in the last two years.”
Creative innovation and digital storytelling is a subject that Ait Addi knows extremely well, given he has spent the last 15 years of his career advising brands on how to make digital more of a priority in their advertising budgets, having previously worked at The Financial Times leading its digital strategy on products like How to Spend It. In his current role as Vice President of Client Partnerships for Luxury, Fashion, Beauty, Sportswear and Automotive, he leads a team of 24 industry specialists around the world to deliver media solutions to advertisers.
The main component of those media solutions is the Teads platform, which reaches nearly 2 billion people a month through most of the world’s leading publications, from Bloomberg and The Economist to The Guardian and Le Monde. Teads enables publishers to sell video advertising space on their websites in a smooth and seamless way (videos appear between article paragraphs and can be dismissed by readers by simply scrolling down), and enables brands to advertise in different increments on premium publishers’ platforms. During the 12 months ending in June, Teads saw its full-year revenue increase 36 percent to $645 million, and specifically within Beauty and Luxury, double-digit growth on top of its 2019 revenues.
What Ait Addi sees as even more promising is the demand for digital advertising and creative services, the move towards more meaningful interaction with innovative technologies, and companies focusing on not only capturing the attention of luxury consumers but also their aims of making more of an impact on their businesses. A trend highlighted during the global COVID-19 pandemic as audiences flocked online during the multiple lockdowns and restrictions the world over.
People often think that the luxury industry is a bit behind in digital, but I don’t think that necessarily true,” noted Ait Addi. “They have always been interested in innovation. They always want to be the first ones to try the next new shiny thing, but they have moved on from doing that to really experiment with the next digital innovation in a more meaningful way, which shows more maturity. They are showing more maturity for the medium of digital.
“Digital used to be an afterthought,” he added. “Now big luxury groups are going through pitches for new media agencies, which two years ago would have been impossible and five years ago would have seemed like a dream. For brands, they’ve realised that it's really building a culture, and embracing this new digital consumption habit from the target audience.”
Looking forward, Ait Addi believes that there is further growth in the luxury market to come and that the rebound in luxury will continue for at least five years, thanks to younger, more digitally savvy consumers helping to drive growth in the market and markets that had previously been overlooked by luxury brands like the United States.
“Brands are talking to these audiences more and more, and these consumers are getting wealthier as they are getting older. So, I believe we’re going into another era of growth, and that’s not only driven by China, but also millennials in the United States and communities that were not necessarily targeted previously,” he said.
He has already seen this positive sentiment about luxury’s rebound following into his clients’ media planning and buying for the fourth quarter of this year, which is typically a key time for spending from luxury consumers. “In this environment, as you can imagine, the big jewellers, the big fashion houses, the big fragrance companies are all planning really positive messages in their adverts for the fourth quarter,” he added.
Hyper-Customisation In Health and Wellness Has Become The New Luxury
When companies speak of DNA, they’re often referring to the marketing codes of a brand. But for Simone Gibertoni, Chief Executive Officer at Clinique La Prairie, the level of customisation that the award-winning medical spa provides actually involves looking at a client’s DNA to provide the highest level of customer care and experience.
When global travel restrictions were put in place last year Clinique La Prairie, like many in its industry, suffered. Around three-quarters of its clients –who were predominantly visitors from outside of Europe – were not able to visit. Which meant shifting its focus to more local clients in Europe as well as highlighting its immunity and global health solutions as they become more relevant in the post-pandemic world. Clients, now more than ever, were seeking the long term benefits of a holistic health approach.
COVID had a very negative effect on us,” said Gibertoni. “We had 97 percent of our clients coming from outside of Switzerland. And 70 percent of our clients were from outside of Europe. So, when COVID hit, we basically had three-quarters of our clients that could not reach us and this lasted for many months.
So, Gibertoni decided to shift the clinic’s focus to local customers in Switzerland and Europe, who were able to more easily access its services and whose awareness and interest in its holistic approach helped drive demand in the first half of 2021. It was a decision that paid off.
Through an extensive marketing push that involved using its own loyal customers to help promote the clinic to family and friends, leveraging its expert approach in helping people, developing new immunity and wellness programmes to reach new and existing clients, as well as targeted online and offline campaigns, Clinique La Prairie has seen its occupation grow again, and the company can once again tentatively resume its longer-term plans to offer clients its services in global locations around the world like Bangkok and Madrid.
However, while demand remains high at present, Gibertoni remains positively cautious for the coming year. “We are definitely very positive on the second half of the year and the first part of next year,” he said. “But I think for us there is the question mark over the reopening of China, which I don't see coming in the next six months, and perhaps even in the next 12 months. And for a company like ours that relies on providing an experience, we cannot sell the experience locally to China.”
While its global expansion plans remain in place, what has helped Clinique La Prairie bounce back from the effects of the pandemic, is in fact, the pandemic. Clients, now more than ever, are focused on health and wellness with a longer-term perspective.
Clients are coming to us with very clear objectives about what they want to achieve, they’re really searching for results. They're really not compromising on the experience that they want,” said Gibertoni.
“People are much more aware of the importance of their health and of check-ups,” he added. “A lot of people were coming to us with the idea of a quick fix, where they would do a wellness-health programme for a week and continue as normal throughout the year. Now, people are beginning to understand the importance of a holistic programme, which is what we have with our Revitalisation programme. Now they are staying in contact with our team and looking for how they can benefit in the long term.”
At a time when one’s health might be the most luxurious thing that money can buy, the wealthy are certainly making use of the very best services that Clinique La Prairie can offer. Beyond its health-wellness programmes like Revitalisation, Master Detox, Better Sleep or Immunity Boost, and its rejuvenation procedures like Beauty Stem Cells, Clinique La Prairie has increased its focus on hyper-customisation for its clients, meaning that when a programme is recommended for a customer, it’s individually personalised because it takes into account their DNA and now also takes into account epigenetic factors like how lifestyle and environment affect how genes express themselves.
Customers are requesting even deeper customisations than before,” said Gibertoni. “The final objective is to better customise the result that clients want to get from the experience. COVID has also clearly shown how different we are…and therefore how important is to customise the therapies based on genetic and epigenetic markers.
Looking forward, Gibertoni believes the future of his industry lies on its ability to continue to innovate, either through technology or through health products, as well as a continued holistic approach to wellness that factors in elements like nutrition and epigenetics.
One of the clinic’s latest innovations is what Gibertoni calls a “longevity supplement”, something akin to dietary supplement but with ingredients that are aimed at promoting cellular longevity, rejuvenation, boosting immunity and managing stress and inflammation.
Another is working out which kind of digital technology will enable the clinic to stay connected with its clients, for example, wearables. “This is going to be a big challenge for us in the future because we have to have a tool which really works and that is really used by our clients.”
Whatever the future of health and wellness may look like, what remains certain is that it will be driven by what the client demands. And what the client demands, Clinique La Prairie delivers. “At the end of the day, what our customers want are benefits to their wellbeing, not just during their time at the clinic but when they are back home,” said Gibertoni.
Our mission is to help people live a longer and better life,” he added. “The best way to do it is to be really at the cutting edge of innovation and offer value for our customers. The idea is to deliver a value that our clients cannot find anywhere else.
Luxury Car Clients Have Demanded More Immediacy And Pre-Owned As A Result Of The Pandemic.
The luxury automotive industry began experiencing an increase in demand during the height of the global COVID-19 pandemic, as customers unable to travel, sought other areas to spend their money. What was even more noticeable was that customers were unwilling to wait for a new model, opting instead for pre-owned cars to satisfy their need for speed.
Our third interview of The Deep Dive features Beat Imwinkelried, Owner and Chief Executive of B.I. Collection, a luxury car dealership based in Zurich, who speaks about how increased demand for luxury cars is helping to increase the popularity of pre-owned models, why physical experiences will continue to drive the market forward and why he believes luxury will recover in 2022.
When the start of the global COVID-19 pandemic began and travel restrictions were put into place the world over, Beat Imwinkelried began receiving a lot of phone calls. The entrepreneur, whose dealerships in Zurich, Basel and Gstaad sell luxury car brands like Ferrari, Maserati, Bugatti, Porsche and Mercedes-Benz, heard the same thing from many of his clients: they wanted a luxury car, they wanted it now, and they were willing to buy pre-owned.
This made for a stark contrast to the trends and behaviours Imwinkelried had observed over his many years working in the luxury automotive space. Clients who would have previously signed a contract with a waiting time of 18 to 20 months for a Ferrari, often customised to their exact specifications, now wanted to take a pre-owned car that they could enjoy in the present, no matter the cost.
What makes this behaviour in the luxury automobile industry remarkable, is that typically, when clients buy their first luxury car like a Ferrari, they often buy a pre-owned model, explained Imwinkelried. But if a client were to purchase a second or a third, typically they would seek out a new model that they can configure to their own specifications, which in itself is part of the experience.
“This is part of the journey and part of the experience of buying a luxury car which is very important,” he said. “For many people who buy Ferraris for instance, it has been very important to go to Maranello, to do your tailor-made specification, visit the factory, sit down for a nice Italian dinner, it was part of the package. And during the pandemic, this kind of experience was not possible anymore. Because of that, clients then chose not to wait, and instead chose to take a car that was already in the dealership.”
This was a significant shift in consumer behaviour,” he said. “Consumers have continued to spend money but what has changed is that they wanted to have it immediately.
A large part of why demand has been so high is due to the travel restrictions and an increase in disposable income to spend elsewhere. “During the pandemic, travel has been extremely restricted. So, instead of travelling to the Maldives, or other exotic locations, clients have decided that if they had to stay in Switzerland or nearby, they wanted to have a nice car, a luxury car to enjoy for themselves while they weren’t travelling to other places,” he noted.
Now that many travel restrictions have eased, at least for the time being, Imwinkelried has noticed that the accelerating trend that he saw in the first quarter of the year, has eased, something he expects to continue in the coming months.
At the moment, I would not say that it is accelerated,” he said. “As soon as people could go back to travelling and the restrictions for travel eased, then the interest shifted and I think this is still kind of going on. We still have people that we are inviting for events, like test drives but for now, there is a feeling that restrictions may come back and clients are travelling for as long as they can. So, this is the kind of behaviour we are seeing at present.
For the year ahead, however, Imwinkelried remains optimistic and expects the rebound that luxury is experiencing to continue into the new year. “From a Swiss perspective, I believe there are good reasons to believe that this rebound in luxury will continue to last into 2022. Switzerland has been recovering, better than forecast 12 months ago. We have a lot of people who have part of their wealth, coming from either capital gains in financial investments or real estate, so I am quite optimistic that this rebound will continue into 2022.”
Looking forward, what remains a challenge for luxury cars is a mixture of things, said Imwinkelried. Firstly, how can businesses balance the mix of both digital and physical customer journeys, particularly in the automotive space where the physical experience forms such a big part of the sales and purchase.
“The challenge for us is how to cope with this mix of the two, he said. “How do we create and capture their interest on digital channels and how can we reach them? And then how can we put them behind the steering wheel of a car physically? This is something that I think is a big challenge for the industry. I see a lot of pilot projects and I see a lot of trial and error approaches by manufacturers.”
“I think you have to be very smart and very educated and very skilled,” he added. “If you want to really achieve an impact. You need to use digital ways to communicate and reach your target audience, but in a very stylish way which more or less corresponds to the positioning of your product.”
Another topic is sustainability, which is growing in importance for many clients. “There is an increasing awareness regarding certain social responsibility, certain environmental issues and it's obvious that many luxury goods manufacturers have identified that and responded to that. And that's increasingly important. Consumers are informed and are interested.”
“People are asking questions and are investigating certain impacts on the environment, like fuel consumption,” he added. “They are asking questions about what will be the value of this car in 10 years. Do you believe that I can still go into city centres in five years from now, these are questions that are increasingly being asked. Eventually, they still buy the car, but it shows us that they care about these topics.”
And lastly, the experience, where Imwinkelried believes his expertise lies. “With luxury cars, it’s all about emotional mobility,” he said. “Let's be clear, nobody on the planet needs a Ferrari. It's a pure emotion. Nobody can tell me that he needs one. And so, a Ferrari, a Bugatti, a Rolls Royce, are all part of what I call emotional mobility.”
“It’s not about getting from A to B, but about something that drives your emotion,” he said. “I truly believe in the future of emotional mobility and all the services around it. This is where you can not only deliver a product but you can also deliver a lot of services around the product.”
It’s where an all-inclusive trip to a racetrack in Spain can be organised for the speed junkie, right down to the hotel, transportation of your vehicle, the replacement tyres, the mechanic that travels with you and your friends to take care of everything,” he added. “Here are the services around the core product, and this is where I see the future.
Luxury Brands Need To Develop A Whole Digital Ecosystem For China Alone.
The head start that luxury brands gained from their presence in the Chinese market has continued to provide a competitive advantage, but as China’s digital ecosystem matures, so too must the strategies that companies employ to navigate luxury's fastest-growing market, says Pablo Mauron, Managing Partner China and Partner at Digital Luxury Group.
For many brands, luxury’s rebound commenced at the start of this year when they began to report a significant uptick in sales figures, signalling an improvement from the sharp falls seen during the height of the global COVID-19 pandemic in 2020. But for Pablo Mauron, luxury’s rebound began over a year and a half ago in China when the country eased its restrictions and brands could once more open their stores to customers.
Those that suffered the least from the pandemic in China, were brands that already had a major e-commerce ecosystem in place as well as strong Customer Relationship Management that allowed them to reactivate their audiences when stores were able to reopen, inviting them to elaborate in-store events, particularly as international travel remained off-limits and consumers began to shop domestically for luxury goods.
The result has been a very intense 18 months,” says Mauron. “A lot of brands have been very aggressive in their marketing strategies, holding events such as brand installations and pop-ups and on a bigger and more experiential scale, and launching e-commerce offerings across various digital channels – from marketplaces to social platforms. And all of that has been even more warmly welcomed by consumers because it also became a way to entertain themselves at the moment where they were kind of stuck.
Unsurprisingly, luxury consumption in mainland China is still driving the majority of growth in the market and is expected to for the foreseeable future. Analysts at Bain & Co say that much of the recovery over the past 18 months has been down to the “insatiable” demand from its consumers and by 2025, Chinese consumers’ share of global luxury goods will make up the world’s largest. Little surprise then that brands who were previously reluctant to launch onto platforms like Tmall, have now jumped in and are rapidly attempting to expand their presence on multiple platforms within China’s digital ecosystem.
The fast adoption of platforms like Douyin (also known as TikTok to those in the West) and Xiaohongshu (RED) further highlighted how important new channels have become to luxury brands, who in the absence of a physical touchpoint, had to adapt to survive. But as China’s ever-evolving digital ecosystem develops even further, brands also have to figure out what kind of solution they are looking for in luxury’s fastest-growing market particularly if they want to gain more autonomy and independence and higher profit margins.
The question for a lot of brands now is how do we continue to grow that online business while potentially reducing the dependency on a third-party platform?” said Mauron. “Brands need to think about how they can scale their e-commerce activities without overspending on media, as well as maximising profit margins – meaning developing direct-to-consumer channels and leveraging private traffic.
What brands need to realise is that having an e-commerce presence isn’t just about having one flagship store that consumers will flock to, but about having multiple channels and being present across platforms that make sense for them, that sit alongside supporting marketing strategies and content creation and that lead to two things: customer data and sales.
“Brands realise now that it's really hard to make your user shift from one app that they like to another,” said Mauron. “The evolution is really going to be about developing full integration, content marketing and customer activation across the channels with all the specificities that they have in terms of content assets.”
“They need to be designed in a way that each one of those can lead to a chain of data that can be built into a significant data pool,” he explained. “Which would not only be limited to customer data but be a real data pool that contains leads, prospects and customer data that allows brands to have in-depth analysis when it comes to knowing and owning their customer profiles, their prospects and how to activate them.”
“The funny thing is that we're not really talking about omnichannel anymore,” he added. “The principles remain the same, but we're not any more on that customer mapping journey that says that you go from point A to point B, and onto point C. Customer journeys can now take place cross-channel, or all within a singular channel as well.”
Looking forward, there are challenges that lie ahead in the Chinese market, despite the plethora of opportunities and rewards that it offers to luxury brands. While there are currently no specific policies stemming from the government’s “common prosperity” drive that impact the luxury industry, it is difficult to ascertain its long-term effects on consumption and demand. And as international borders begin to tentatively reopen, Mauron believes brands should be preparing for a second wave in the rebound.
“We see the revenge spending, which we know cannot be a long-lasting thing,” said Mauron. “You can eventually estimate that there will again be hundreds of thousands of Chinese travellers that will make, once again, trips to their favourite shopping destinations. So, brands that are significantly increasing their investment in the local Chinese market, must also be aware that there is another wave of rebound for other markets which is the day China reopens and will have to work really hard to convince their customers to continue to buy in China.”
Another issue is the longer-term question that needs to be addressed by luxury brands like how to attract younger generations, who are already showing signs of turning away from previous generations’ stereotypical ideas of success.
I don't necessarily see why the demand for luxury brands would decrease in China, but when it comes to the younger generation, there is a lot of discussion now about the trend of ‘lying down’. Meaning they are deciding to not seek to attain the stereotypical idea of success that has been the same for many generations before them,” said Mauron.
“You do see many people are walking away from big cities, who value more of a work/life balance, that are walking away from the 996 working culture,” he added. “A lot of the assumptions that have been made by the luxury industry is this idea of the growing middle class. But the thing is that for the young generation, a lot of them realise that it's too much work to be a part of that growing middle class and so that does pose a lot of longer-term questions.”
But most importantly, on top of considering all these issues, one concern remains at a primary focus for all luxury brands: how can they ensure that they’re in a leading position in the Chinese market? The answer, as Mauron puts it, is quite simple. Brands must place the country first, in terms of all their decision making, particularly if they want to continue reaping the rewards from it.
“The concern from brands is always the same,” said Mauron. “How can brands ensure they are in a leading position in the world’s largest luxury market? But to be in a leading position in China requires them to place China at the centre of a lot of decisions they make, and that goes beyond digital and marketing.”
It goes as far as product, design, celebrity endorsement and all of that,” he added. “And I think that the challenge for brands is that there is a requirement to succeed in their most important market. But this is also perceived as the potentially biggest threat on adding an impact on the global image and their global positioning.
If Your Product Is Not Well-Positioned For Your Specific Markets, You Will Struggle.
Brands must be aligned towards their clients’ expectations in order to succeed in luxury’s new normal, says Alexander Manz, Director of Business Development at ASMALLWORLD Hospitality, and position themselves in a clear and distinct way towards their specific niche audiences or risk falling behind the industry’s younger and more digitally savvy competitors.
Of all the different sectors within luxury that have been affected by the global COVID-19 pandemic, travel has most likely been the hardest hit. When international borders closed during the first half of 2020 and global travel restrictions were put in place - the hospitality industry ground to a halt. Occupancy rates fell dramatically and hopes of filling hotels with flocks of affluent international tourists grew dimmer as months of uncertainty passed by.
But for Manz, whose hospitality business forms a part of the ultra-exclusive lifestyle and luxury travel social network ASMALLWORLD, and who provides consulting services for the development and management of luxury hotels and resorts globally, the pandemic gave the travel and hospitality sector the opportunity to stop and reassess what changes needed to be addressed so that when travel restrictions did ease, it would be ready to move forward and operate in what is now, the new normal.
What the pandemic did, and probably what any crisis or big disruption does is just accelerate existing patterns in the world,” said Manz. “It shifted us towards new values, trends and behavioural patterns which were already there pre-COVID, but are now growing in popularity. One of the values that is becoming more important is well-being, for instance, another is the trend of shifting demographics; who is driving the market, making the decisions and has the money to spend.
Indeed, those who are driving the market are the same ones forcing it to change, shifting it towards more digital-based concepts like hyper-segmentation of audiences, meaning that brands must embrace the capabilities that a digital toolbox allows them to have and position themselves towards their specific niche audiences that are interested in their offering.
More simply put, it’s about knowing who your specific customer is, their likes and dislikes, what kind of holiday or accommodations they like to stay in, what kind of facilities and activities they want on offer, and channelling your marketing efforts towards reaching those exact customers.
“It's becoming easier and easier to read the data,” said Manz. “I'm seeing a huge growth in demand for personalisation, that will at the same time play a significant role in the future. Fifty years ago, a luxury hotel could position itself as a very nice four-star property, with a good price. But today, there are 100 different ways you can position yourself. There are so many new niche markets and in each niche market, you have your customer groups that are in demand.”
Nowadays, to be a brand means you need to have a very clear concept positioning towards the client, in which everything is aligned,” he added. “If you don't have this, you will have issues. So, you have a lot of possibilities in this market, but you need to be aligned in every field. If you do it correctly and position your offering towards the right kinds of audiences, you will see a huge demand.
It’s a method that clearly works. In August and September, one of the hotel properties within Manz’s family portfolio - the Ritz Carlton Hôtel de la Paix in Geneva - returned to 90 to 95 per cent occupancy levels, similar to those previously seen in 2019 before the start of the pandemic.
But demand is something that remains a delicate balance in luxury travel as many countries still have restrictions in place. The United States only opened its borders to fully vaccinated travellers on November 8, after nearly 20 months of closure. Most European countries are open for vaccinated visitors and for those with a negative PCR test, but EU member countries are free to impose their own restrictions. And some countries in Asia, like India, Thailand and Cambodia are allowing vaccinated travellers to enter without having to quarantine. China still remains off-limits for inbound and outbound tourism. The emergence of the Omicron variant announced in late November, is a stark reminder of just how delicate that balance is.
Without the demand from international travellers, who previously were willing to travel far and wide to far-flung destinations, the outlook for the industry still remains uncertain, at least in the short term.
Hospitality is an international business, so we need flight capacities and we need people to travel again,” said Manz. “There is intrinsically a strong demand for travel, especially for leisure and family vacations.
Looking forward, Manz remains optimistic about the luxury market and the rebound that it is experiencing particularly in the higher end where he operates. “In general terms, I'm very optimistic about luxury, especially, I would say ultra-luxury , because we have a world where central banks are printing money to create inflation and support global economies, making the wealthy, even wealthier.”
More wealth means more disposable income to spend on leisurely activities and Manz believes this will help push demand for trends like the rise of ultra-exclusivity within travel and hospitality, something he believes the industry will see more of in the future.
“We are seeing a rise in the diversification of flight choice, for example,” he said. “Companies are now providing aeroplanes as private planes for families to travel more safely during the pandemic, and this demand is helping to drive the pricing down. This is the next big step in luxury and there will be a huge demand for these kinds of services in the next 15 years. The lower costs are already happening, and I see transatlantic flights becoming very cheap as a result.”
Exclusive products will be on the rise, and the average product will die,” he added. “People don't want average products. Exclusive doesn’t have to be a luxury product, it can be something like an exclusive milk in the supermarket but as long as enough people want an exclusive product, the demand will be there for it.
There Has Never Been A More Competitive Time For Luxury Than Now.
The growing demands from luxury’s ever-evolving consumers means there has never been a more competitive time for brands to remain relevant, says Mario Ortelli, Luxury Society Columnist and Managing Partner at Ortelli&Co, who believes the long-term fundamentals of the market remain a compelling opportunity for investors.
There was once a time when Mario Ortelli could recall comments about whether a brand like Louis Vuitton could exceed revenues of $2 billion. That figure rose to $5 billion, and then $10 billion. And today, the value of what is arguably the world’s largest luxury brand is above $15 billion.
Back then, it was almost impossible to believe that a luxury brand could reach such scale and not risk over-exposing itself, said Ortelli. But today, Louis Vuitton is point and proof of how a compelling brand story can be built-up, its products segmented to appeal to a number of different audiences and yet still remains true to its customers as it did 167 years ago when it was founded.
So, when doubts are cast over the long-term fundamentals of the luxury market, Ortelli points to LVMH, the world’s leading luxury products group, which in October posted a 46 percent rise in revenue of €44.2 billion in the first nine months of 2021 and which noted the performance of its Louis Vuitton brand as performing “remarkably well” and maintains his positive stance: that the growth prospects of luxury remain a compelling investment in the long-term.
“I'm positive on the long term fundamentals of the luxury sector,” said Ortelli, who has worked as a luxury advisor for more than 23 years and who now leads a strategic and M&A advisory boutique for luxury goods, high-end retail and premium branded consumer goods sectors, after working for companies like Bernstein, Boston Consulting Group and Accenture.
Clearly there may be certain moments, like we have seen in 2020 with the pandemic that was an enormous negative discontinuity. But luxury was able to quickly rebound after the biggest crisis in recent history back to levels seen in 2019.
“It basically shows that there is very strong underlying demand,” he added. “And also, from a cultural point of view, luxury keeps its connotation of a positive value to the consumer.”
Indeed, it seems that pandemic or not, luxury consumers have barely taken a pause to stop buying, despite the initial impact seen in the first half of 2020, and the result is what Ortelli describes as the most competitive environment for luxury there has ever been.
“Consumers are becoming more and more sophisticated and more discerning,” he said. “And so, for the luxury companies, that means that the competition is getting more and more intense.
“To be relevant as a luxury brand, you have to have a global footprint,” added Ortelli. “Meaning it requires a kind of scale and investment that many luxury brands have never thought of before. On one hand, it’s easier than ever to communicate with consumers in this digital era with social media and digital advertising, and that can help brands stand out for a certain while,” he noted. “But on the other hand, you need to also have a compelling value proposition to appeal to customers and without investment and scale, it can be hard to stand out through all the digital noise out there.”
It goes without saying that remaining relevant with consumers has become key in today’s luxury market, particularly as the adoption of online channels continues to accelerate. Online channels grew by 27 percent from 2020 to 2021 and is estimated to reach €62 billion in market value this year, nearly doubling in the past two years, according to its update on the luxury market by Bain&Co. and Altagamma published in November.
Brands must consider how to address the multiple trends that are reshaping the market and demand for luxury goods, including embracing digital and devising creative and compelling content for consumers, said Ortelli.
They must also keep up with the trends that are steadily gaining traction with younger consumers like how to implement sustainable practices into their business, adapt their product offerings to suit the more casual styles preferred by Millennials and Gen-Z, and explore the world of the metaverse. The brands who do not successfully engage with their customers in a dialogue around these topics, risk losing out to their competitors.
What we have seen so far is the divide forming between high and low performers,” said Ortelli. “This gap will continue to increase as each customer goes to their top of mind brands in each specific product category and the other brands will simply lose relevance over time.
Looking forward, Ortelli sees more opportunity for investment within the luxury market, particularly as the pandemic has forced companies to dramatically rethink their businesses and plan for the future.
“These eye-opening events have pushed companies to be more efficient, agile and faster to adapt,” said Ortelli. “It has been a very good lesson for brands to change things up and the result has been that they are now stronger for it. Do I think that this is a sector that is able to attract investors? Yes.”
“Let’s put it this way,” he added. “Brands that are able to remain top of mind for the luxury consumers just increase their value massively over time. A few years ago, there were rumours that a potential buyer might pull out of the possibility of acquiring Moncler at $2 billion as it was considered expensive. But then they came back to look at it and they were not able to acquire it at $10-12 billion and nowadays, Moncler is an almost $20 billion market capitalisation company.”
It goes back to my original point about luxury’s long-term prospects,” he continued. “If you build up a compelling brand story, if you're able to hyper-segment your offer and so be at the ‘top of mind’ and relevant for different consumer clusters that look to your brand for a specific purpose, and you’re able to do this without diluting the other parts of your brand, the sky's the limit.