Our guest on this episode of the career success podcast is Davide Lunghi. Davide has been working within the luxury industry since 2002 for brands like Fendi, TAG Heuer, Hublot and Zenith.
Key topics include:
- Estee Lauder, Richemont, Swatch and Luxottica – What others in the luxury industry should be learning from them
- The impact Generations Y and Z have had on the growth of luxury
- How the industry can keep up with estimates of 4%–5% compound annual rate over the next three years
During the podcast we refer to The 16th edition of the Bain Luxury Study, published by Bain & Company, you can read more here.
***Correction in podcast introduction: The luxury market grew to 1.2 trillion Euros, not 2.1 trillion Euros in 2017.
Lauren: Hi, I’m Lauren Stiebing and welcome to this episode of the career success podcast. Today, we will be joined by Davide Lunghi, the Projects and Development Director Europe for Tag Heuer in LVMH Company. We will be discussing the luxury industry and why it has performed so well in 2017. The 16th edition of the Bain Luxury Study published by Bain & Company stated that there are nine segments led by luxury cars, luxury hospitality and personal luxury goods which together account for more than 80% of the total market. Considering all segments, the luxury market grew by 5% to an estimated €1.2 trillion globally in 2017. The market for personal luxury goods —the “core of the core” reached a record high of €262 billion. Davide, why do you believe the luxury industry is doing so well?
Davide: That’s a magic question Lauren. I see… I see three main reasons, if I may say, contributing to the success of the luxury industry and these are coming from my experience and my continuous research. The first one is the sustainability of the business model of the luxury companies. Sustainability for me, means combining tradition and innovation. It means connecting past, present and future and continuously investing in heritage. All the luxury companies that I observed keep investing in supply chain to ensure a long-term vision and what I’ve seen as well is that, the majority of these companies and our company as well keep putting effort in sourcing sustainable raw materials and developing the very highest standards. The second one is in my opinion the purchasing behavior of the travellers. We have seen in the travel retail, people spending more and more for luxury goods. A recent statistic that Bradford issued by Deloitte is saying that people traveling accounts for 40% of the personal luxury study mark, which as an amount is very astonishing, but is what we see and what we observe and doing that the brands are reacting to the technology, launching special lines for travellers, opening brand cafes, luxury hotels and again, adding travels and journey experience in their brand DNA.
Davide: And the last one that I observed is the innovative developed shopping experience that we have seen in the past few years. The luxury sector, of course like all sectors, has not been immune to the rise of the e-commerce, and this is demonstrated by the capture of the market share of companies like Yoox Net-a-Porter, Farfetch and others. And by the continuous rise of the brand of comm channels. It means the real, the e-commerce of the brand and in this context the original challenge for the luxury brands was how to replicate the luxury shopping experience that we have offline, online, and it happened increasingly more and more; the valuable investment on how to use digital technology and to enhance this luxury store experience.
Lauren: Okay and in terms of LVMH, they had a record revenue of €42.6 billion in 2017; an increase of 13% over the previous year, so I’m sure you know and understand those numbers quite well. But in terms of, you know besides LVMH, which luxury companies do you think are leading the industry?
Davide: So, of course as you said LVMH remains the market leader with a record year again in 2017, and confirmed solid results. Then what we have after LVMH, and which are the biggest luxury companies and luxury groups, so we have in the top five. The second one is Richemont; we have brands like Cartier, Mont Blanc, IWC, Jaeger Le Coultre, Chloe and so on. It is the primary focus on watches and jewelry, business but they are key players. Then we have the American player, Estee Lauder in the beauty with brands like Estee Lauder, Clinic and Aveda. So, the first one is a global luxury player, the second one is the more focused on watches and jewelry, the third one is more focused on beauty and cosmetics, and then we have the fourth one is the Italian companies; the Italian group Luxottica.
Davide: Luxottica. Is specialized in eyewear, specialize in accessories and they have purchased brands like a Ray-Ban, Oakley, then they have licensed eyewear and the number five is the Swatch group. Again, we go back again to the watches, and they have brands like Omega, Longines, Swatch, Breguet and many other watches brands.
What I have observed is that the strategic behavior of these five top players is currently showing a flourishing activity on investments resulting in M&A; such is the case of Luxottica and the lens giant Essilor or another example which is really, a nowadays example, is the bid of Richemont to take the full control of Yoox net-a-porter; the pure player online market leader in the premium and luxury product.
Lauren: And the main growth engine of the luxury market is a generational shift with 85% of luxury goods in 2017 fuelled by generations Y&Z, why do you believe that is?
Davide: I can frankly confirm this view, and this has been as well stated in a recent study published in February 2018 by the Boston Consulting Group and the ultra-gamma stating that Millennials are the generation that will contribute the most to the market growth in the future, and between millennials, Chinese consumers represent the nationality who will drive the most growth.
In this direction, we see that Generation Y and Generation Z, as you stated in your question, are bringing the luxury brand to move away from a dogmatic approach and to cooperate fully with street wear brands and artists. We have an in-house excellent success which in the sense which is a collaboration between the brands Louis Vuitton and supreme which helped to break the rules of the traditional Louis Vuitton approach to luxury, and the second major success factor necessary to attract and to keep bringing GenerationY in that, like the top customers is to move away from a customer centric organization to a community centric approach. We have seen customer centric organization; is the focus of the past year but the future will be really a community centric focus.
Lauren: Okay and Bain estimates that growth will continue at four to five percent compound annual rate over the next three years with the market for personal luxury goods reaching anywhere from 295 to 305 billion euros by 2020, what do you believe?
Davide: So, I’m convinced that the luxury, the industry of luxury goods is facing up various challenges in the coming years and these challenges will be crucial to get to the mention compound annual growth that you mentioned or that Bain estimates, between four and five percent. So, the first one is the strong investment in mobile, so social media and online. So, what we have, what we know, based on research is that 55% of luxury consumers buying online use mobile phones, and these peaks appear among the youngest generations; getting to 75%, and influencers and social media are gaining more and more power with five platforms which are dominating the market. So, Facebook and Instagram in the Western world and we have in Asia, and primarily in China We Chat, Weibo, QQ.
Davide: The second challenge is the decline of formal style, opening the doors to the casual style, so affordable luxury represents better the personal branding of the younger generation, compared to a more classical luxury style, which is the one represented by the traditional brands. Then a third, and the last challenge that I see is highlighted as well by a recent Deloitte study on fashion and luxury goods, which is linked to the Omni-channel. The Omni-channel and the inevitable flow of the digital tide continuous, and the real risk for luxury brands is that they are left behind if they cannot find the right place for e-commerce in their business strategy, and treating e-commerce as a distant business, risks creating a wider divide and make it harder to bridge, because at the end, the consumer expects a connected and a coherent experience regardless of the channel, and this is this what I think actually is important for the future of the luxury goods.
Lauren: Alright. Well Davide, thank you so much for joining us today on the career success podcast.
Davide: Thank you. Thank You Lauren, my pleasure.