Luxury brands, much like companies in other industries, are in the midst of a sea change when it comes to their management and business practices. But Gilles Auguste and Michel Gutsatz believe that the major firms in this industry are facing an acute challenge simply because those who have led the industry so successfully are now facing the challenge of ‘going global’, while at the same time preparing for retirement.
Cartier, Louis Vuitton, Hermès, Swatch, Armani: whether or not you are a customer of such businesses, you probably recognise these companies as examples of ‘luxury brands’. What you may not have recognised is the potential peril such firms face if they don’t find ways to replace the brilliant business leaders who created and managed them. In the next few years, many of those who’ve successfully guided those products for decades will retire. A lot is at stake here. According to research done by Bain, the global luxury market doubled in ten years: it went from €77 billion in 1995 to €147 billion in 2005. Since then it has grown a further 16 per cent to €170 billion in 2008. At the heart of this astounding growth are fewer than 200 brands that talented luxury executives have transformed into global players.
But global business is not what it used to be: ‘global’ now demands that businesses focus on every major continent in terms of customers, market trends and new or emerging competitors. Then, too, the pace of business has quickened, requiring both strategic planning and tactical finesse. Companies tied to luxury brands are being run by a generation that quite possibly is not attuned to these new realities. To research these issues, we have found some sobering facts about the state of luxury brand leadership. One need only look at the status of those who serve on the boards of firms in this sector; these board members include key players inside firms such as the CEO, artistic director, sales director and finance director:
- 65 per cent have spent most of their careers dealing with luxury lines and 70 per cent of luxury board members are Europeans: is their view of global business potentially myopic?
- 10 per cent of luxury board members are sons or daughters of the family company founder: do they have the qualifications to deal with new global realities?
- 20 per cent of luxury board members are female: is that a sufficient representation for a market in which women could easily represent a growing base of customers?
- Less than 15 per cent of the top 100 luxury board members have an MBA degree: will competitors with more business savvy overtake them?
- 52 is the average age of luxury board members: who will replace them as they retire, which could occur sooner rather than later?
- There are no Asian nationals among the board members nor in senior leadership positions: how can companies that hope to operate in countries such as China and India grasp the importance of understanding such different cultures?
Four critical issues
In short order, the companies that dominate the luxury brand industry will need to:
Replicate talent The critical challenge they face now is to identify the competencies of the generation of executives that brought the business to its present heights. They must consider succession planning to avoid an undesirable cultural shift. Questions such as “Do we hire talent from outside or inside the industry?” should be addressed now. This must be accomplished without diluting the signature of the brands.
Cultivate talent management Creativity paired with creation is critical to a luxury brand’s success; the management of creative teams and designers requires specific management skills — and managers who possess a strong independent streak. To be sure, managing at Richemont is not the same as managing a steel mill or a high-tech computer company. Luxury-brand managers must be able to unify teams of designers who expect deference to their creative ‘genius’, who prefer to be managed with a light touch, who rebel against corporate conformity and who, in fact, thrive on risk.
Update customer service Luxury-brand customers are different from mass-market customers. Clients of luxury firms expect shopping by appointment, the availability of a personal sales shopper, delivery of purchases and handwritten thank-you notes as part of the luxury brand experience. This concierge-level service requires a professional career track that recognises and rewards the importance of this role. Today, however, the luxury industry is more about creating masterworks and not about mastering the customer experience. Developing ways to boost customer loyalty through new levels of customer relationships is central to the challenge of sustaining any luxury brand.
Hire Asian executives Because countries such as China and India cannot be ignored by any luxury brand hoping to remain a global player, firms will need to find ways to develop executives who understand Asian preferences. And those preferences differ from country to country. For example, in China, luxury brands are going to need to learn how to tap into local entrepreneurs, to train employees at middle and junior levels who probably have little experience in how luxury brands operate, and to actually understand Chinese consumers and local cultural trends. Such requisites for operating in the future means that, at the very least, luxury brand firms will need to create ‘leadership duos’. This means that they will have to pair an Asian executive with a European/ American business leader so that both can learn from each other while establishing the brand within a targeted part of the Asian economy.
Overall, firms in the luxury-brand industry are facing some special challenges in the coming years. Domenico De Sole, the former Chairman of Gucci Group, once noted, “… You can have the best strategy in the world; the difference between the excellent and the incompetent is execution, execution, execution….” He’s right. But execution is all about people who know the industry, know the marketplace, know the customers and know how to get things done. Where those people will come from for the top luxury brands is a question yet to be fully answered.
Auguste is a graduate of the Accelerated Development Programme at London Business School.
This article is adapted from their book, Leading and Managing a Luxury Brand: People Change Issues (Palgrave Macmillan, 2013)