This week I was invited to present a keynote speech at an important luxury investor conference in Japan. We were discussing the current luxury industry situation in many parts of the world with a particular focus on China, Japan, the US, and Europe. My verdict was that many luxury brands aren’t prepared for the future — or even for the present! Companies like Neiman Marcus had massive shortcomings before the COVID-19 crisis but got away with it until now.
A sense of urgency was needed five years ago when digital commerce began disrupting luxury. But most brands looked the other way. Instead of acting, they chose to talk. Buzzwords like “digital transformation,” “agility,” “empowerment,” and “sustainability” were used to ease internal and external stakeholders. They kicked off initiatives where they pretended to be frontrunners, but the truth was different: empty words and no action.
Any action that doesn’t lead to a competitive advantage isn’t simply inaction — it’s a negative action. It lulls employees into believing that activity has been done, while a company simply hibernates. Two years ago, I suggested to the luxury industry in my Future of Luxury white paper for The Economist that it was time for its players to go through brutally honest assessments and actions. I considered it a wake-up call. Some of the world’s best brands reacted immediately, and they are performing relatively well today.
But the gap between the best brands and the rest of the pack is widening, and the rapidly-changing preferences of Gen Zers and young Millennials are making many former luxury leaders obsolete. Brands that may have seemed vibrant were already dead to the youngest consumers. In my keynote, I urged investors to act now to not accept inaction and poor management anymore. This means tough decisions like changing CEOs and management teams when needed. It means demanding less talk and more action.
It’s a pity that it takes a crisis to wake up brands. Why aren’t luxury cars sold online? Why do most jewelry stores have shortcomings in e-commerce? Why haven’t watchmakers redefined their business models? Many brands have huge shortcomings in their digital journeys, but their physical journeys also lack differentiation. Over the last two years, we saw very few convincing physical experiences during our brand audits. As a case in point, I asked my luxury MBA students to evaluate physical expressions of luxury brands in the fields of hospitality, fine dining, fashion, beauty, jewelry, and more. The results were eye-opening. Out of nearly thirty physical in-store experiences, only a few were convincing. For luxury brands, it was a disaster.
One question I received after my keynote was why so many incumbent brands disappointed in terms of growth over the past few years and what they should do instead. Their first task? Remove their egos and take a hard look at any brand gaps they have.
Most brands aren’t clear about their model for extreme value creation. In other words: How can brands build a convincing strategy if they don’t know why a consumer should pay a premium price for their products? Brands still put too much focus on materials and quality when reassuring consumers about their high price points. But this is irrelevant to young consumers. They need to know what your brand purpose is because they will only associate with brands that have an intriguing story.
Sadly, very few brands are good storytellers, and for Gen Zers, this is unforgivable. And if Gen Zers don’t find your brand relevant, millennials won’t either. And if millennials don’t buy your brand, older consumers will abandon it.
Most brands that are failing are poor in brand equity, brand storytelling, and can’t influence or inspire young consumers. Those who can are rewarded with explosive growth. This is even more important in a digital space. All major purchase decisions originate with a digital journey, so not investing in the right infrastructure, tools, and execution is the best way to become obsolete, even if a brand’s story is legitimate. Additionally, luxury pricing is an area where most brands fall short. I constantly see how incorrect pricing (often too low) leaves profits on the table that could help brands survive.
In luxury, every detail counts, and that’s even more important in a crisis. One high-end luxury brand I know remarkably achieved all-time results in the first four months of this year, while most other brands lost sales. This happened because, last year, the brand completely changed and upgraded its brand storytelling, became relevant to young target groups, and installed a sophisticated digital infrastructure with one of the most advanced CRM systems.
AI allowed the brand to measure every daily — even hourly — change in consumer sentiment. During a crisis, this paid off. So despite a big impact on its physical sales points during lockdowns, the brand’s digital sales literally exploded and they sold more than ever by continuously nurturing their customers through every sales touchpoint.
For most luxury brands, less talk and more actions like these are needed — and they need to change now. There won’t be any “normal” after the crisis because there wasn’t really a normal before the crisis. Disruption was already present and was the main culprit behind many brands’ woes. Act or die! There is no middle ground.
Daniel Langer is CEO of the luxury, lifestyle and consumer brand strategy firm Équité, and the professor of luxury strategy and extreme value creation at Pepperdine University in Malibu, California. He consults some of the leading luxury brands in the world, is the author of several luxury management books, a global keynote speaker, and holds luxury masterclasses in Europe, the USA, and Asia. Follow @drlanger