News & Trends Impacting the Luxury Goods Supply Chain
Designers Supply Chains a Custom Fit
Luxury brands are taking vertical ownership of their supply chains to ensure longevity, sustainability, and artistry and reduce risk. After all, what better way to ensure a designer’s collections are delivered on time than by owning the factory that produces the garments?
Having the design team and development process under one roof means designers can be more agile and invest in developing sample collections, which often require several fittings and toiles before the final prototype is ready. It also saves having to outsource to companies that are mostly abroad, and keeps the skills and artistry alive at home.
Owning supply chains gives way to bigger margins. As Franck Delpal, an expert in vertical integration and a professor at Institut Francais de la Mode in Paris, told the New York Times: "If you control the greater part of your supply chain, you get margins at every step, and at the end of the day, it creates big business."
—Don-Alvin Adegeest, FashionUnited
The Lap of Luxury
The global luxury goods industry—which includes drinks, fashion, cosmetics, fragrances, watches, jewelry, luggage, and handbags at the highest end of the market in terms of quality and price—has been on an upward climb for many years.
- Revenue in the luxury goods market amounts to an estimated $71,810m in 2019. The market is expected to grow annually by 0.7 percent (CAGR 2019-2022).
- The market’s largest segment is luxury fashion, with an estimated market volume of $25,443m in 2019.
- In global comparison, most luxury brand revenue is generated in the United States.
Luxury in 2025—7 Macro Trends
According to the 17th edition of Bain & Company’s annual study, these seven trends will define the future of the luxury brands supply chain:
1. More Chinese-driven purchases…happening in China. Chinese consumers will make up at least 45 percent of the market, and they will make half of their luxury purchases at home in China.
2. E-commerce, online, and digital will permeate every purchase. By 2025, online will represent 25 percent of market value—up from 10 percent today—cannibalizing traditional channels, and online will influence 100 percent of luxury purchases. Further, 50 percent of luxury purchases in the future will be digitally enabled as a result of new technologies such as virtual reality and mobile payments.
3. Footprint consolidation will reshape the store of the future. Foot traffic reduction in physical stores will drive a footprint consolidation, similar to what has already happened in the music and books sectors. Consequently, a store’s role will change from a simple point of sale to a true touchpoint with consumers.
4. A youthful market will disrupt luxury’s growth path. Gen Z and millennials will represent about 55 percent of the 2025 market and will contribute 130 percent of market growth over the period.
5. Cultures and subcultures will take over consumption trends. Evolving cultures (religion, ethnicity) and subcultures will shape fashion and luxury in 2025. Luxury brands will have to acknowledge and address them to remain relevant.
6. One market to serve markets of one. Brands in 2025 will experience a crossover of typical competitive boundaries. The standard model where brands grow to become either a category specialist or diversified toward lifestyle positioning will be taken to the extremes.
7. Nimble is the new black. This year confirmed the recent trend of higher profitability—from 19 percent EBIT margin in 2017 to 20 percent in 2018. However, the digital disruption will continue to shift the profiles of key expenditures in brands’ profit and loss statements. Profitability will stabilize assuming brands adopt a more nimble approach across the value chain.