Luxury tends to weather the storms well. Or, at least, to do better than other industries. The global supply crisis, derived from the lack of raw materials, logistical problems and the escalation of energy prices, was not going to be less. While brands such as Adidas have recognized that the tension in the supply chain will have a negative impact on their sales of around 500 million euros, Ikea is beginning to have problems with certain accessories, and El Corte Inglés is rationing video game consoles, the high-end he frets.
The key, according to experts, is local production and slower consumption times. Some particularities that, in addition, will mark two completely different situations: one for authentic luxury and another for the so-called accessible luxury. The former is highly protected, says Susana Campuzano, director of IE's strategic direction and management program for the luxury universe. There was a time when the brands understood the value of what was made in Europe and those that had taken the factories to China returned to production in proximity. This is why the expert is blunt: "It may affect the high range, but not luxury."
Frequently, these more aspirational or accessible brands start to manufacture the product in China, even if it is auctioned off in Europe in order to put the label made in France, Italy, Spain... Even if it is 100% produced in proximity, it is common that there is a certain dependence on Asia for certain decorations or accessories, such as zippers and studs. “You also have to take into account products that are not a fundamental part of the product, but that do influence it, such as packaging or supplies for the decoration of new stores”, details Néstor Hap, associate director expert in personnel luxury by BCG.
Campuzano also warns of possible problems linked to more accessory issues, such as packaging, but insists that true luxury is always very close to its suppliers. In this sense, the expert highlights the case of Chanel, which made a vertical integration of its suppliers, from button makers to tweed manufacturers, to ensure control of production and guarantee that the smallest trades are maintained over time. Firms such as Hermès also have a network of suppliers that the brand itself protects.
The negotiating capacity of each company also comes into play here, explains ISEM Fashion Business School professor Luis Lara. A battle in which luxury has the upper hand over other industries, especially due to its planning capacity. Along these lines, Campuzano highlights the flexibility of independent brands to adapt to changing situations. A skill that they have developed to the extreme during these months of pandemic.
The fact that these signatures are limited to a maximum of eight or nine collections per year, as well as that these are shorter, also helps to control possible shortage problems. “One difference between luxury and fashion is that in the latter everything is constantly renewed, but in luxury you have a series of references that are always the same. Most of the turnover comes precisely from these classic products”, describes Campuzano. Nor should we forget that this crisis occurs after a period of hiatus in which it is likely that the brands had stored stock. "If this problem had come at a time of euphoria, it would have been worse," acknowledges the IE professor.
In any case, if shortages were to occur, this would not be a problem for luxury brands. Quite the contrary. "Hard to get [difficult to get, in English] has always played in favor of luxury, since one of its factors is exclusivity," says Lara. A vision shared by Campuzano: “Scarcity is part of the luxury game. It is not uncommon for a certain product to be purchased and that reference is not there, only the one that is exposed”. Waiting lists and production on demand are two old acquaintances in the industry. “It is something very special, there is a very long elaboration process behind it and it needs time to be carried out”, defends the expert.
Another advantage of the high-end in this sense is that a stock break would not be an advantage for the competition. “Unlike in the mass market, where you always find a substitute, in luxury it is not so easy. If you want a certain model of watch or bag, the normal thing is that you wait for it to be available again because you want a specific one”, says Lara. Thus, if a Chanel 2.55 or a Birkin is desired, the customer will not give up choosing another design that is available and will not damage the brand image, but will wait patiently.
One consequence of this phenomenon, however, is the boom (even greater than before the pandemic) of second-hand products, with which resale platforms that guarantee authenticity are experiencing a golden moment. “People want to have it now, so in some designs we see prices even above the original value. They have the great advantage that there is no need to wait to enjoy it”, justifies the ISEM professor.
Whereas before sending a container was around 2,500 euros, now it can reach 10,000 euros, but the brands are not raising prices in their own sales channels. For Hap, this is because they have a higher profit margin than other industries, so they don't need to pass on this extra cost to consumers. "If they do, it will be to align with the market, but not to cover expenses," says the head of BCG. In his opinion, to reduce the tension in the supply chain, the best strategy is to choose to stop doing promotions, since it is even a way to protect the brand.
Chinese demand
But China is, in turn, the main consumer of many high-end brands, even reaching more than 50% in cases like Gucci. With dates as marked as Single's Day (October 11) and Black Friday (November 26) ahead, the question is whether the brands will be able to withstand the pull. Esic professor Beatriz Irún has no doubt that this will be the case: “The Chinese government has asked for more moderation, but for now it has not had any impact on the population. The brands are not even going to notice it.” She does believe, however, that price increases will be more common, linked to the cost of energy, logistics routes and the scarcity of raw materials. That yes, once again, it is a question of classes: "For the so-called affordable luxury it will be more evident, the real luxury will hardly be noticed". The zippers will not be missing.
