MILAN — Tradition and responsiveness are two aspects that have always characterized luxury companies and they will be further required to overcome the challenges in the post-COVID-19 landscape, according to the 2020 edition of “Global Powers of Luxury Goods” study compiled by Deloitte.
The report highlighted how the pandemic is acting as a divider between the old and new ways of doing business, with changing consumer behavior significantly affecting luxury goods companies’ strategies.
In particular, digitalization is opening new possibilities, while embracing sustainability and a circular economy will be key for luxury players not only in terms of business but also reputation.
“Although luxury goods companies were initially slow to adopt digital technologies, the pandemic has accelerated the use of artificial intelligence and augmented reality applications to develop rapid responses to the needs of their target of reference in a moment of emergency,” said Deloitte’s fashion and luxury leader for Italy Giovanni Faccioli.
As digitalization is here to stay, Faccioli urged that it is “therefore becoming increasingly important for companies to have the right technologies available that allow accurate and rapid data collection and analysis, to implement new strategies aimed at increasing customer loyalty.” Yet physical stores offering a unique customer experience won’t be replaced by digital platforms but will remain the main point of reference for customers.
“Along with ominichannel and multichannel strategies, sustainability will be another element that will play a key role in the coming months,” continued Patrizia Arienti, Deloitte EMEA fashion and luxury leader.
Global luxury brands have been investing significantly in green technologies and other measures, such as carbon offsetting to fight against climate change, but a further effort is required to match consumer expectations.
“Being sustainable does not mean limiting oneself to supply chain innovations. It involves embracing new values and making them your own, as a response to the ever-changing needs of consumers. For this reason, many luxury brands have not only taken part in initiatives managed by supranational organizations, but are adopting sustainability, inclusivity and social responsibility as their own corporate core values. Now more than ever, luxury companies are looking for new ways to be close to their consumers and in order to achieve this goal, they are reinventing themselves in ways that were unthinkable just a year ago,” noted Arienti.
As for the long-gone pre-pandemic era, last year the luxury goods market reported an increase in its overall value, but already registered a lower growth rate, according to Deloitte’s report, which also identified the 100 largest luxury goods companies based on their performance across geographies and product sectors from Jan. 1 to Dec. 31, 2019.
Among the causes impacting growth last year, the effect of protectionist policies and trade restrictions were listed as the most important, with big luxury goods markets such as China and the U.S. both registering lower year-on-year growth.
In particular, the world’s top 100 luxury goods companies generated revenues of $281 billion in the 2019 fiscal year, up $34 billion compared to the previous year, while the 8.5 percent annual growth rate showed a slowdown compared to the 10.8 percent increase registered in 2018.
For the third year in a row, the top 10 companies in the ranking were the same. The best-performing were LVMH Moët Hennessy Louis Vuitton — which has headed the list since the 2014 fiscal year; Kering; The Estée Lauder Companies Inc., and Compagnie Financière Richemont. In the 2020 report, L’Oréal Luxe ranked fifth instead of Chanel, which slid to the sixth position and was followed by EssilorLuxottica. Chow Tai Fook Jewelry Group Limited; PVH Corp., and The Swatch Group Ltd. completed the ranking of the top 10 companies, whose aggregated luxury good sales accounted for 51.2 percent out of the total sales generated by the 100 firms. Registered for the first time in seven editions of the report, this figure highlighted a shift toward a concentration in the industry.
“The trend that has been emerging in recent years is a strong concentration of the market, dictated by the expansive strategies of the companies, which are focusing on acquisitions to differentiate their portfolios, enter new market segments and diversify production,” confirmed Arienti.
The report showed that Italy is home to the largest number of luxury goods companies in the ranking, with 22 firms. In particular, 23 percent of these hailed from the bags and accessory category and represented more than half of this sector’s companies.
Albeit more numerous, Italian companies accounted for only 12.4 percent of total sales, coming after France, the U.S. and Switzerland. Driven by its luxury conglomerates, France is the best-performing country with composite sales growth of 15.7 percent, contributing the highest share of top 100 luxury goods sales at 28.3 percent. The average size of French companies is around $8.8 billion, more than three times greater than the top 100 average.
Yet luxury sales by Italian firms were up 4.7 percent, registering a positive performance compared to the flat sales of the previous year.
EssilorLuxottica, Prada Group and Giorgio Armani were the top three Italian players in the chart, ranking seventh, 19th and 26th, respectively. Their aggregate sales accounted for half the sales generated by all the Italian firms in the list.
Moncler, Ermenegildo Zegna and Euroitalia reported double-digit sales increases, and fashion companies returning to growth in 2019 included Armani and OTB.
Moncler scored the third highest net profit margin in the whole top 100 ranking, following leading Brazilian jeweler Vivara and Hermès, and was included in the top 20 fastest growing companies for the fifth year in a row. This specific list — headed by Richard Mille and Canada Goose Holdings Inc. — also saw the debut of Euroitalia, which reported a compound annual growth rate of 16.6 percent for the 2016-2019 period.
In terms of product categories, sales were up in all sectors. In particular, cosmetics reported the highest increase — 8.5 percent — followed by jewelry and watches; apparel and footwear; bags and accessories.
The clothing and footwear sector continued to count the largest number of companies in the top 100, but they registered the smallest average size of just $1.2 billion.
The scale of these 37 companies was also linked to the fact that more than half of them are still privately owned — often by their founding families — and more than one-third of the companies are Italian, which reflects the country’s influence as the home of luxury fashion but also highlights the lack of local conglomerates.
Read more from WWD:
WATCH: Can Fashion Influencers Be Sustainable?