Faster, higher, stronger, together – Why luxury records will be broken in 2022

Key points to remember:

• The changes linked to the pandemic led to a full reset in 2021, allowing the luxury sector to fuel even more sales in 2022 and beyond.
• The advantages of scale should continue to develop in luxury goods and with scale the margins should also be well supported.
• A new spirit of openness, shared values ​​and an appetite for risk are a welcome change for the sector.

Faster

The luxury industry has been characterized by complacency. It was late to embrace online selling (remember the managers who told you ten years ago “we will never sell our products online?”), It is still late on environmental, social and social issues. governance, but the crisis has acted as a wake-up call. Today, luxury brands are at the forefront of diversity and inclusion, one of the fastest subsectors to adopt NFTs, taking more risks in terms of product design, ‘artists and alternative means of sale and even, finally, large recruitments from outside the industry (see the recent appointment of the CEO of Chanel). Forget the idea of ​​’ivory towers’ and arrogance, the luxury sector is living with the times and connected, part of the conversation, not as distant as it seemed.

Higher

The debate between “exclusive” and “inclusive” has always been rhetorical in my opinion. Of course, luxury companies want to sell more and, in order to do this, to reach a wider audience, not just sell more to an existing elite. The problem of scale has historically been ubiquity (you can quickly get tired of seeing the same things over and over again) but this has gradually been resolved by the hyper-segmentation of product, services, communication, etc. and the reality of scarcity has come to the sector despite much higher sales.

As I mentioned in my book, the next decade will be driven by buyers, Asians – especially Chinese – newcomers to brands and a powerful and committed youth. 2022 should be particularly strong in terms of sales, because beyond these elements of long-term support, the brands have become very close to their end consumers in local markets, particularly in North America and Europe, certain that they had long ignored because “nice to the well-to-do”. Now that tourists are scarce, they seem to be the icing on the cake. The cake itself – local consumers – is expected to contribute a little more than before the pre-COVID era. Given that, expect plenty of brands to surpass their all-time sales highs this year.

Stronger

The power of marketing strike, the domination of social networks, the recruitment of first-time buyers and the “buy less, buy better” trend which is not specific to the luxury industry (the premium is everywhere) will continue to favor biggest brands in the industry. And with the increase in scale comes operational leverage and also a change in bargaining power. Big brands will get better media rates, cheaper leases and, of course, better locations. The 2021 margin rebound is once again not the end of the road. Margins will increase again this year in all areas and outside of pure scale elements; it also helps that the euro is weak against most other currencies as most luxury brands produce in euros and sell globally. It also supports the margins.

Together

The motto of the International Olympic Committee was “Faster, Higher, Stronger”. And then, six months ago, they added the word “Together” at the end. Likewise, the luxury industry was once very closed, secretive and competitive. It remains, of course, incredibly competitive but, as I have published in the past (see “In this Together”, May 9, 2021), “coopetition” has arisen and there are topics which are much more important than the brands themselves and most of which will not be able to cope on their own.

Examples of cooperation around blockchain technology, raw material sourcing, online joint ventures or other types of partnerships have flourished in recent times. The US Army War College coined the term VUCA (volatility, uncertainty, complexity, ambiguity) in 1987 to describe a complex multilateral post-Cold War world. In the days of COVID, a quarter of a century later, it looks like we are going through a period of VUCA on steroids and cooperation can only help. In luxury, it is certainly time for new business models and open-mindedness. On this optimistic note, May 2022 will also allow you to go faster, higher, stronger, together!

Erwan Rambourg is a leading analyst covering the luxury goods and sporting goods sectors. After eight years as Marketing Manager in the luxury industry, notably for LVMH and Richemont, he is now Managing Director and Global Head of Consumer & Retail Equity Research. He is also the author of Future Luxe: What’s Ahead for the Business of Luxury (2020) and The Bling Dynasty: Why the Reign of Chinese Luxury Shoppers Has Only Just Begun (2014).