Protecting luxury’s future by creating a positive impact strategy

Luxury brands failing to demonstrate sufficient progress in sustainability risk becoming less desirable and even obsolete, Stéphane JG Girod, Professor of Strategy and Organizational Innovation, has said.

“If we don’t reverse negative social and environmental trends, we could see a questioning of what luxury is, and of its relevance going forward,” he said at his LiTT webinar.

Half (50%) of participants polled that they felt that “just enough” was being done in their companies to comply and manage risk in the area of sustainability. Close to 20% thought their firm was lagging behind.

Girod said the luxury industry was under increasing pressure to create a new dimension of exemplarity. Instead of being an example of pure quality and creativity, it would need to also take on sustainability. This was down to forces including stakeholder activism, employees taking a stand, and requests from investors.

He added that there would be no basis for luxury at all if our healthy environments and societies decay to such an extent that we have no economy for it.

Participants listed bottlenecks to progressing on sustainability in their firms ranging from having the wrong growth paradigm and a lack of capital allocation, to concerns about how sustainability objectives affect business models and the sheer difficulty of implementing systemic changes.

The good news: luxury has a head start

Luxury must address the fact that some of its values are at odds with sustainability, Girod said, but was quick to add it had a head start because it could draw on those of its values that align with sustainability.

One of these is luxury’s ability to reconnect with having a strong link to artistic creation, to craftmanship, and to being in tune with local ecosystems. Just think of the ‘Made in France’, ‘Made in Switzerland’, ‘Made in Italy’ claims and the like – brands can really push these, showing they care for their local economy and ecosystems, Girod said.

A second is luxury’s capacity to influence society through storytelling, which up until now has been carried out by propagating the “selling much more” philosophy. “Let’s remember the influencing power of luxury,” he added.

A third is the fact that luxury has the money to invest in the transformation needed for sustainability initiatives to succeed – for example, in upskilling and in the education of the workforce.

‘Luxury is sustainable by nature’: a great mistruth

However, said Girod, saying luxury has a head start in the world of sustainability doesn’t make it sustainable by nature, and believing so is one of the industry’s pitfalls. A look at the data tells us that luxury brands can be polluters and that they have, traditionally, been late to the sustainability game (with exceptions, such as French luxury group Kering).

But crucially, he explained, we cannot say luxury is sustainable by nature when it exhibits a whole host of contradictions that are at odds with sustainability: luxury likes mystique, whereas sustainability requires transparency (and increasingly this will be by law), and sustainability is all about collective thinking, luxury less so. Add to this the fact that sustainability is built around inclusivity whereas luxury promotes exclusivity, and that luxury likes control and sustainability openness.

That said, there are various ways in which luxury is making inroads in terms of bridging these gaps, such as by garnering customer trust – an integral part of transparency. Perhaps the greatest nut to crack is how to become socially exemplary in addition to environmentally so. As Girod said, “When luxury brands talk about sustainability, it can make customers feel uncomfortable as they feel guilty about the net impact and costs of their purchases.”

Strategizing for positive impact

In a world in which breaking down overall costs – including those related to impacts on social and environmental dimensions – may well become law, how will luxury brands stay relevant?

Girod thinks brands should start by remembering that being less “bad” is not akin to being “good”, and carry out a selected amount of ESG targets – essential for measuring and continuing improvement – thus transforming constraints into opportunities.

However, ESG targets are not the whole strategy. Girod advised luxury brands to simultaneously start a process of strategic renewal, taking a longer-term, marathon-like approach to sustainability and asking questions such as: “What is growth going to be now?” “Should we acquire certain new competencies?” “Should we be present in certain businesses?” “What should the purpose of luxury be?” and, “How should we collaborate?” Lots of sustainability challenges are unresolvable by a single company, he warned.

When France was given the go-ahead by the European Commission to ban short haul domestic flights in December last year, the implications for private jets were obvious. The takeaway from Girod? “It was a sign that change could happen very quickly, and that luxury could become irrelevant if it doesn’t transform.”