BrazilFour strategic imperatives for luxury fashion retailers
For luxury fashion brands, Covid-19 was a wake-up call to fundamental inefficiencies in their business model. OC&C Strategy Consultants presents four pillars of transformation for the industry's post-pandemic avatar.
Discretionary spending was among the first economic victims of Covid-19. With job losses rampant and a recession imminent, few were considering luxury purchases. Fashion brands were left to contend with evaporating revenues, in addition to supply chain disruptions at an unprecedented scale.
According to OC&C experts, this scenario has been an eye-opener. “A challenging 2020 has forced senior luxury leaders to pause and reflect about how they currently work,” noted Luca Bettale, partner at Long Term Partners – an Italian management consulting firm that joined OC&C in 2019.
“Above all, it has given them an opportunity to consider the structural changes they could make." For an insight into this transformation, the consulting firm interviewed CEOs of leading luxury brands with combined revenues of $25 billion across France and Italy. For most leaders, the way forward for luxury fashion is greater integration across the luxury supply chain – from ‘upstream’ sources and producers to ‘downstream’ suppliers and retailers.
With this goal in mind, four strategic imperatives can be carved out for the luxury market of the future – each with varying inputs, timelines and economic value. A brief roundup:
Reshaping seasons into a continuous offer
The entire luxury supply chain has traditionally been geared towards seasonal launches – via spring, summer, autumn and winter collections. Spring and summer sales were negligent last year, causing a backlog in supply and forcing brands to find innovative ways to market products through the year. As it happens, this method is both efficient and popular.
“Brands recognise the requirement to engage consumers with fresh monthly offerings,” noted Bettale. The underlying framework will still be a seasonal approach, topped off with a dynamic clothes line. For the upstream, this means smaller volumes, speedy timelines and lower costs. Inklings of this approach were already visible before the pandemic, which has catalysed the change.
Engineering flexibility into the production process
On average, luxury brands design products up to a year in advance, and also find themselves anticipating volumes and sales. For the experts, this approach is doomed to go “off-road.” Instead, brands need to “become nimble go-karts built specifically to zip around a competitive market.”
Once again, this means collaboration between brands and suppliers to plan products, minimise risks, balance costs, adapt to changes and “manage variances in volume and mix.” It also means building a long-term relationship of trust with suppliers, as opposed to the traditional “one season only” approach. “The cost of flexibility is lower than the cost of going off road: this is the pandemic’s true lesson,” noted Anna Mirenda, partner at Long Term Partners.
Flow management: from ‘deadlines’ to ‘appointments’
Timelines in luxury production are notoriously loose. In an online-first age where customer preferences are determined by the quality and speed of service, this approach will have to change. Small volumes, frequent deliveries and dynamic production require precision, which must be cultivated across the upstream and downstream.
The researchers recommend seeing deadlines as “mandatory appointments” rather than guidelines. “The logistics and quality management model, as well as its organisation (internal or external to the brand), will become much more important than it is today. These concepts are not new, but the speed of change will increase,” noted Mirenda.
Sustainability is the goal
Last on the list is a focus on sustainability – beyond isolated initiatives to promote sustainable fashion and towards a more sustainable supply chain in both process and material.
Most large brands – LVMH Group & Kering Group included – have made some commitment to a greener future, but the industry lacks clear rules, standards and a common sustainability infrastructure. Suppliers have tremendous power here, as they possess the technical capabilities to concretely introduce sustainable innovation. More collaboration through the supply chain will likely put brands in a better position.
To sum things up in the words of Bettale, “Brands will need to review their organisational models, redefine rules of engagement with suppliers and share long- term programmes.”
