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December 3, 2020

MAZARS REPORT: LUXURY BUSINESSES TRANSFORM TO TAKE ADVANTAGE OF TECHNOLOGY AND CIRCULAR MARKET

Reshaping the luxury business model

Reshaping the luxury business model

  • New customers and demand drive luxury brands to address sustainability and build intersectoral alliances
  • Luxury customers increasingly expect sophisticated, long-term relationships with brands, access to integrated after-sales services, unique experiences and transparency - all made possible by digital technologies
  • Affluent Chinese Customers, HENRYs (High Earning Not Rich Yet) and Generation Z drive the transformation and growth of luxury

Mazars, an international audit, tax and consulting firm, announces the launch of its new report Conscious, collaborative, connected: reshaping the luxury business model. The report, published in partnership with the project consortium Arianee, reveals how the luxury sector is adjusting to a new business model that allows customers to experience and relate in new ways to brands and purchase products knowing that they can be easily repaired and resold.

Conscious, collaborative, connected includes insights from several luxury industry leaders, including Breitling, Colbert Committee, Kering and Vacheron Constantin and derives from an extensive document review of more than 150 articles, reports and other sources.

Changing the world of luxury

The luxury business model is changing in response to a changing world: in 2010 luxury customers spent € 4.3 billion online; in 2019 that amount rose to € 33.3 billion. China is currently the country where the luxury market is growing the most. The global market for second-hand products reached € 30 billion annually, thanks to a average annual growth of 12% over the past five years.

According to the report, the new business model responds to the expectations of new groups of customers, prioritizes luxury experiences, invests in partnerships and adopts circular practices in search of greater sustainability.

Customer cohorts

Luxury customers are increasingly younger and come predominantly from China. The country is the main growth market for luxury and welcomes millions of wealthy customers eager to buy top-of-the-line products. China's luxury customers are one of three new groups identified in the report. These are: HENRYs (High-Earners-Not-Rich-Yet) [1], located in China and other countries, Millennials and Generation Z - all boost the growth potential of the luxury fashion market. Each new group brings its own distinct opportunities and pressures to focus on the customer.

Streamline experiences and partnerships

Throughout a series of interviews presented in the report, leaders in the luxury sector point out that “customer service” has become at the forefront of the customer experience, especially the services that come after the initial sale of a product. An example is the return and recycling programs for customers looking for sustainable consumption, including the pioneering program Renovate by Eileen Fisher.

Partnerships have become vital to ensure greater transparency, circularity and sustainability. The Fashion Pact is an example of successful collaboration: a global coalition that helps big luxury houses like Burberry, Kering and Prada to collaborate with smaller brands, offering exchanges brand-to-brand. In doing so, they fulfill the promise of environmental sustainability that consumers want.

Some of these partnerships were established with the aim of combating counterfeiting. Fake luxury products are estimated to account for 60% to 70% of the € 3,8 trillion in annual counterfeit trade flows. [2]

New luxury technology

Technological innovations help luxury brands to update their models, including:

  • Digital certification to guarantee the authenticity of the products. Some of the leaders in this area include Arianee, which is currently working with Breitling on an exclusive digital passport, where the watchmaker offers watch owners a complete and continuous service from purchase to repair, resale or transfer - all based on blockchain.
  • Offer live experiences, such as shows, special sales, art previews and access to capsule collections - all linked to the use of social networks by customers and their followers.
  • New digital technologies, such as chatbots and radio frequency identification (RFID) intended to speed up and facilitate the customer experience.

Looking to the future: main challenges and opportunities

The report highlights the main challenges and opportunities for the luxury sector, including the impact of Covid-19. This includes how the pandemic gave the luxury retail market an extra boost to spur investment in new services. In North America and Europe, many of the young and upper class customers have suffered a loss of purchasing power, and the resale market has become more attractive to these consumers.

All brands are expanding their digital presence: Hermès and Tiffany, for example, are adopting digital marketing tools, such as the livestreaming, which they had rejected in the past.

The report predicts a brighter long-term future for players that take the customer's interest in sustainable consumption seriously. This starts with the circular economy and the search for solutions for recycling luxury products. But it also means going further, developing new materials and production processes that do not harm the planet, and bringing supply chain partners on the path to sustainability.

Isabelle Massa, Partner at Mazars, says: “Luxury brands have long been known for their ability to control the way their products are presented and sold. This report reveals how brands are reshaping their business models to match the new market reality. Alliances that enable brands to be more innovative and circular, and business practices that prioritize a younger and more diverse customer base are starting to become recurring. ” He adds that “this report reveals the new approaches taken by luxury brands: how they are expanding their digital presence to respond to the pandemic and to readjust their models to build sustainable businesses and respond to all their customers more effectively than that never".

Pierre-Nicolas Hurstel, CEO and co-founder of Arianee, says “our findings reveal how the luxury sector is undergoing reform and why. The industry as a whole is evolving, culturally and organizationally, to respond to new and old challenges. Technology and partnerships are at the heart of this evolution: as luxury brands find new ways to offer experiences, services and circular opportunities, such as resale, they can keep up with the demand of their increasingly young and visionary customers global".

Methodology

This study is based on an extensive document review of more than 150 articles, reports and other sources, and in-depth interviews with leaders and experts in the luxury sector conducted between May and September 2020. The report was created and published in partnership with Arianee .

 

On Mazars

Mazars is a leading international company in auditing, taxation and consulting, which aims to build the economic foundations of a prosperous and just world. Operating through an integrated partnership, Mazars works as a unique team, capable of leveraging expertise, scale and cultural proximity to deliver exceptional and tailored services in auditing and accounting, taxation, financial advisory, consultancy and legal services.[3].

With European origin, Mazars is present in more than 90 countries and territories and has 40.400 professionals - 24.400 in the partnership integrated and 16.000 via the Mazars North America Alliance - dedicated to helping customers maximize business opportunities and act with confidence.

About Arianee

Founded in 2017, Arianee is an independent consortium whose mission is to create a global standard for the digital certification of valuable goods. The Arianee protocol makes it possible to associate a unique, non-falsifiable and increased digital identity with any item of value. This digital “identity card” opens a new channel for interaction between brands, owners and objects that is permanent, secure and anonymous. Based on blockchain technology, the solution implemented by Arianee is open-source and decentralized. Arianee offers the first platform for managing SaaS certificates and mobile wallet applications that enhance the Arianee Protocol.

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