Many of China’s young luxury consumers seek experiences over products, which is why so many are choosing exotic vacations. But this doesn’t mean that physical products have become obsolete to this demographic — it means that brands need to create new experiences that attract and engage consumers.
With brands becoming increasingly important, China’s hyper-informed young consumers are starting to consider the negative effect of this mass consumption. Questions about where materials come from, the quality of colors and dyes used, and how workers are treated during the production process are just a few of the issues brands now need to answer. And the answer should better be that the entire process of sourcing and production has been holistically aligned and meticulously controlled. It wasn’t so long ago that Hermès faced massive social media scrutiny for alleged mistreatment of crocodiles that were the source of the leather in some of their most famous bags. Meanwhile, Gucci announced about 18 months ago that they’d no longer use fur in any of their products. Times are changing.
Still, many companies believe that they can get away with sourcing materials or production methods that don’t meet today’s highest ethical standards. What may have worked in the past will soon not be acceptable. In a study we did for the Chinese market using AI-based advanced data querying, we noticed that among trending terms in conversations about luxury fashion, the combination of luxury and sustainability was near the top. It was not yet the No. 1 purchase driver, but it was trending upwards.
Why is sustainable luxury such a difficult topic to implement? First, luxury has to offer a unique experience, which in most cases is done by outperforming other brands in the segment, in at least one area. For example, a luxury handbag may be available in a rare leather that requires specialized training to handmake the bag. I call these extreme performance points, and when things get extreme, it’s often difficult to produce or consume them in a truly sustainable fashion.
When we look at this from a different perspective, the dilemma becomes more pronounced. If we want to create a product that’s sustainable — in all aspects — there is a good chance that the performance may suffer and that the product will no longer be identified as a real luxury. And a brand that is not perceived as luxury does not provide consumers with what we call “Added Luxury Value,” such as social status, enhanced attractiveness, ultimate experiences, and an unforgettable treat. When these effects are missing, the willingness to pay such high prices decreases and people walk away. How can this be solved?
1. Luxury brands and products need to be luxury first
This sounds silly, but in my experience, it’s the point where most mistakes are made. When the sum of its parts is not perceived as luxury, people won’t pay the enormous premium. Brands fail, products won’t be sold. The luxury experience has to be at the center of all activities. BMW had to learn this lesson the hard way, when their electric models flopped. Despite several hundred million dollars in investment in highly-sustainable production facilities and sustainable materials in the cars, the “feel” of both the i8 sports car and the i3 urban car was not seen as a luxury or even premium by many. The i3 could not compete in terms of range with vehicles that were sold at much lower price points, while the i8 was not competitive in acceleration versus a Tesla Model S. Hence, with reduced performance and experience, the cars remained exotic but could hardly be seen anywhere.
2. Create a sustainable business model
Once the extreme performance points of luxury are defined, brands need to come up with a holistic end-to-end strategy of how to produce that performance with the least impact on the environment. This is an excellent opportunity to innovate and differentiate. I encourage my clients to think out-of-the-box and see sustainability as the enabler. In times of super-empowered, well-informed consumers, greenwashing is not an option for any company. It is crucial to think of the business model in totality and find ways to improve continually.
3. Be bold — challenge and talk about actions
Many companies are silent when it comes to sustainability. Sustainability efforts are communicated to investors and shareholders, and in an abstract way to consumers, but few companies understand the power of actively talking about sustainability. Stella McCartney, for example, is one of the few who has advocated for sustainable fashion and who has challenged her competition to follower her lead. Consumers look for brands that take a stance and take actions — so be bold!
So many seasoned managers are still skeptical about sustainable luxury. While they publicly embrace the idea, on a corporate level, they don’t believe that sustainability sells when you talk to them off the record. But with millennial and Generation Z consumers becoming such a strong shopping segment, this reluctant approach is dangerous, as it does not match their expectations. In my point of view, sustainable luxury is the future, and those who drive it in the right way will be the winners.
Daniel Langer is CEO of the luxury, lifestyle and consumer brand strategy firm Équité. He consults some of the leading luxury brands in the world, is the author of several luxury management books, a regular keynote speaker, and holds management seminars in Europe, the USA, and Asia. Follow @drlanger