The Im­por­tance of ‘Sex­i­ness’ in To­day’s Lux­ury Busi­ness

Ac­cord­ing to an Ernst & Young study, qual­ity, her­itage and lo­ca­tions are not enough to com­pete for con­sumers in the lux­ury arena.

WWD Digital Daily - - News - BY SAN­DRA SALIBIAN

MI­LAN — Lux­ury is about sex­i­ness.

That is what emerges from the eighth edi­tion of “The Lux­ury and Cos­met­ics Fi­nan­cial Fact­book” annual study, which was re­leased Wed­nes­day by con­sult­ing firm Ernst & Young.

Ac­cord­ing to the re­search, which of­fers anal­y­sis and sta­tis­tics on cur­rent trends based on the data of 28 listed com­pa­nies from the lux­ury and beauty in­dus­tries, the “cool­ness” a com­pany and its prod­ucts ex­press is the key in­gre­di­ent be­hind all of the great growth sto­ries to­day.

“Ten years ago, if you had qual­ity, her­itage and re­tail doors in the right lo­ca­tions, your per­for­mance was in line with the mar­ket’s [ex­pec­ta­tions,]” said Fed­erico Bonelli, EY part­ner of fash­ion and lux­ury trans­ac­tion ad­vi­sory ser­vices. “Now you have to add a fourth el­e­ment to the equa­tion: sex­i­ness.”

In­ter­view­ing a sam­ple of over 10,000 con­sumers, the re­search high­lights that over the last year, sex­i­ness jumped from the eighth po­si­tion to fourth in the rank of fac­tors rep­re­sent­ing lux­ury for customers. It fol­lows ma­te­rial qual­ity, ex­clu­siv­ity and crafts­man­ship and pre­cedes el­e­ments such as brand vis­i­bil­ity, in­no­va­tion and her­itage.

The cool-fac­tor man­i­fests it­self in mul­ti­ple forms, as it can orig­i­nate from a dis­rup­tive ap­proach — think of Gucci

— or be a con­se­quence of long-stand­ing de­sir­abil­ity — think of Her­mès.

“Ev­ery brand is ex­am­in­ing it­self to un­der­stand how to be rel­e­vant for the con­sumer,” said Bonelli, who high­lighted the im­por­tance of adapt­ing the sex­i­ness to each com­pany’s own DNA as “the big­gest mis­takes hap­pen when some­body tries to adapt a suc­cess­ful con­cept on a brand with dif­fer­ent char­ac­ter­is­tics.”

“That’s the rea­son why the choice of a cre­ative di­rec­tor to­day is more crit­i­cal than ever, as com­pa­nies need peo­ple able to in­ter­pret the cur­rent taste and [con­sumers’] de­mands, to un­der­stand the brand’s DNA and have a com­mer­cial at­ti­tude, work­ing closely with the mer­chan­dis­ing team. It’s not the rock star era any­more,” said Bonelli.

The sex­i­ness qual­ity is pri­mar­ily con­nected to com­pa­nies’ abil­ity to de­velop ap­peal­ing prod­ucts and lever­age iconic pop items once not con­sid­ered in the high- end world, such as sneak­ers, T-shirts and back­packs, mak­ing them the plat­form for the new con­cept of lux­ury.

The strong growth in ca­su­al­iza­tion, the fewer op­por­tu­ni­ties to wear tra­di­tional for­mal­wear and the “mix and match” ap­proach in shop­ping fash­ion goods re­flect a deep evo­lu­tion of taste and ex­pec­ta­tion that will de­ter­mine the ac­cel­er­a­tion of pre­mium and the growth of the en­try-tolux­ury seg­ment while the lux­ury mar­ket will see a slow­down, ac­cord­ing to the study. In par­tic­u­lar, the ex­pected com­pound annual growth rate, or CAGR, for the for­mer will be around 7.5 per­cent for the 2017 to 2021 pe­riod, against 3 per­cent growth of the lux­ury in­dus­try in the same pe­riod.

Over­all, sales of lux­ury and cos­metic goods are ex­pected to reach 517 bil­lion eu­ros in 2021. In 2017, sales to­taled 435 bil­lion eu­ros, with the lux­ury mar­ket ac­count­ing for 276 bil­lion eu­ros and the pre­mium and en­try-to-lux­ury seg­ment reach­ing 108 bil­lion eu­ros.

In terms of prod­uct cat­e­gories, ac­ces­sories will fuel the pre­mium and en­tryto-lux­ury seg­ment, as they will grow with a 9 per­cent CAGR in the 2017 to 2012 pe­riod. Shoes will re­main the ob­jects of de­sire lead­ing the lux­ury growth and will reg­is­ter a 10 per­cent CAGR while pre­mium fash­ion — also ben­e­fit­ing from the day­wear and ca­sual trend — will ac­cel­er­ate com­pared to past years and in 2021 reach the same mar­ket value of lux­ury ap­parel, 84 bil­lion eu­ros.

In this sce­nario, the fu­ture chal­lenge for com­pa­nies will in­volve in­creas­ing their com­pet­i­tive­ness in terms of cre­ativ­ity and busi­ness model, fo­cus­ing on three main ar­eas. The first step is op­er­at­ing on the buy­ing and mer­chan­dis­ing de­part­ments, to en­hance the prod­uct se­lec­tion, its re­plen­ish­ment strate­gies and pre­sen­ta­tion in- store.

The cus­tomer re­la­tion­ship man­age­ment will also be key ac­cord­ing to Bonelli, who urged com­pa­nies to de­velop an ef­fi­cient, im­me­di­ate, co­her­ent and flex­i­ble com­mu­ni­ca­tion, putting the con­sumer at the cen­ter and in­clud­ing both tra­di­tional and dig­i­tal me­dia. In par­tic­u­lar, more than 60 per­cent of pur­chases are in­flu­enced by dig­i­tal, whether con­sumers are look­ing on­line and buy­ing in a phys­i­cal store or di­rectly on e-tail­ers. In ad­di­tion, more than 70 per­cent of con­sumers con­nect to their fa­vorite brands through so­cial plat­forms, also en­cour­aged by word of mouth that re­mains the first lever of in­flu­ence for the lux­ury con­sumer and oc­curs for twothirds through dig­i­tal plat­forms.

The third chal­lenge for com­pa­nies is to im­prove the re­tail ma­chine “to meet the in­creas­ingly ex­treme ex­pec­ta­tions con­sumers have,” said Bonelli.

“Con­sumers have been mise­d­u­cated by Ama­zon, which brings them [goods] at home and within 24 hours, but now they ex­pect the same treat­ment also from lux­ury [com­pa­nies]. So hav­ing an ef­fi­cient re­tail ma­chine means en­hanc­ing op­er­a­tions, ser­vices, re­plen­ish­ments, buy-and-pick-up­wher­ever-you-want op­tions,” he said.

Con­sumer be­hav­ior, dig­i­tal en­gage­ment and trans­for­ma­tive dis­tri­bu­tion will also af­fect the beauty in­dus­try. Ac­cord­ing to the re­port, the pre­mium cos­metic mar­ket, which to­taled 51 bil­lion eu­ros last year, will grow 4.5 per­cent for the pe­riod from 2017 to 2021. In­no­va­tion, nat­u­ral and or­ganic beauty trends and male-fo­cused groom­ing prod­ucts will con­trib­ute to the growth. In ad­di­tion, the in­crease of mid­dle-class con­sumers in emerg­ing mar­kets, which are ex­pected to ac­count for 50 per­cent of to­tal per­sonal-care sales by 2020, will con­trib­ute to the sec­tor’s per­for­mance.

The EY study also an­a­lyzed merger and ac­qui­si­tion ac­tiv­i­ties reg­is­tered last year, which were cen­tral both for the lux­ury and beauty in­dus­tries.

Trans­ac­tions for the for­mer were up 20 per­cent in 2017 with 140 deals com­pleted, and Italy ranked as the se­cond coun­try for the num­ber of in­bound deals. The av­er­age size of the deals in­creased to 527 mil­lion eu­ros com­pared to 262 mil­lion eu­ros in 2016. Pri­vate eq­uity funds also played a cen­tral role, as they were in­volved in 49 per­cent of the trans­ac­tions in 2017, show­ing in­ter­est in mid­dle-mar­ket com­pa­nies in the pre­mium and en­try-to-lux­ury sec­tor.

Re­gard­ing the beauty in­dus­try, the num­ber of deals was up 42 per­cent last year, to­tal­ing 81 com­pleted ac­qui­si­tions — the high­est in the last five years — com­pared to the 57 trans­ac­tions in 2016. The av­er­age deal size was 304 mil­lion eu­ros, in line with the 302 mil­lion eu­ros in the pre­vi­ous year, if the deal in­volv­ing the ac­qui­si­tion by Coty of 43 Proc­ter & Gam­ble brands is ex­cluded. The study high­lighted that, in this case, pri­vate eq­uity firms were in­volved in only 30 per­cent of the trans­ac­tions, as global beauty groups con­tinue to con­sol­i­date their po­si­tions, ac­quir­ing other firms in or­der to reach new mar­kets, to di­ver­sify their of­fer with in­no­va­tive prod­ucts and to en­gage con­sumers with tech tools and apps.

Newspapers in English

Newspapers from USA

© PressReader. All rights reserved.