Brexit and the luxury brands of Britain

(A version of this article appeared in LiveMint on November the 17th, 2016.)

British Prime Minister Theresa May’s visit to India and trade talks with her Indian counterpart take me back to the midsummer’s day in 2016. We in Britain woke up to find that the Leave campaign, colloquially called Brexit, had won the referendum. The pound plummeted and for a while, the stock markets were in chaos. Markets stabilised but the pound continued a downward trend, beating historic lows.

Britain luxury brands are known for their heritage, design, craftsmanship, and quirky individuality which together shape a luxury narrative matched by no other country’s. London too is a choice destination for the experience of buying both British and non-British luxury brands.

The weakened pound was good news for tourists visiting the UK. The month of Ramazan, which traditionally brings wealthy visitors from the Middle East to London, followed. Flight bookings from Europe as well as Asia reportedly rose after the referendum. Premium and luxury hotels benefited from a rise in reservations and stays by overseas guests too. All this made London the hottest and cheapest luxury shopping destination this summer. Much shopping took place as is evident from UBS’s analysis of tax refund receipts. Tax refunds, which are typically sought on big ticket goods, rose by 36% in August.

So far the Brexit vote looks good for luxury shoppers from outside the UK. The picture for luxury brands is more complicated.

The iconic British brand Burberry has seen a 30% rise in sales in its British stores in the last six months. Facing headwinds otherwise, Burberry has also cut prices in its Hong Kong stores, taking advantage of the weaker pound as the brand notably incurs 40% of its costs in Britain.

It is a mixed picture for luxury watches, which are often presented as investment pieces, hence seen as considered purchases not impulse buys affected by currency fluctuations. Many coveted luxury watch brands are imported into the UK and the weaker pound has made the imported goods more expensive. Prices for brands such as Cartier and Mont Blanc, owned by the Richemont Group, have been increased while Hublot, Omega and Tag Heuer, owned by LVMH and Swatch Group, are holding on. The latter category of brands is taking the impact on its margins. For now.

The British luxury watch maker Bremont however is quids-in despite 30% of its costs being imports of Swiss watch parts, which are now more expensive. A weaker pound has helped the firm deal with falling sales in Asia and come out stronger.

To complete the picture and London being a hub for creative entrepreneurs, I spoke with proprietors of several upcoming luxury brands. My conversations revealed a mixed picture. Many small luxury brands source parts, finished products or packaging abroad while serving mainly local British customers. After the referendum, the bill of materials is decidedly more expensive by 10-30% depending on where they import from. As small businesses and nascent brands, however, they cannot always pass on the costs as price increases to the customer. Some however are slowly edging up prices of some products while keeping other prices steady. Overall this does not bode well for smaller, upcoming British luxury brands. Tighter margins will hamper their growth, and in many cases, their ability to survive.

It is also important to remember that despite the outcome of the referendum, Britain is, at the time of writing, still operating in the single European market with free movement of people. This makes it easier for people from Euro countries to travel to and shop in the UK. Any change in the ease of travel will affect Europeans travelling to and shopping in the UK just based on a weaker pound.

Luxury marques already under pressure, such as British car maker Aston Martin, expect a short term lift from the weakened pound but that may only last till Britain quits the single market. The automotive supply chain is global, and that will continue to affect the brand’s margins and profitability especially if Britain loses single market privileges and is not able to strike similarly attractive deals with the many countries where Aston Martin sells.

Some luxury brands are already thinking long term. For instance, Bremont is collaborating with the Advanced Manufacturing Research Centre in Sheffield to reduce its reliance on imported parts. Aston Martin too has made recent investments in product development and a new plant in the UK although its reliance on imported parts will continue for a while. But absent any clarity on the nature of trade deals Britain may be able to make, the return on these investments remains uncertain.

The pound recorded a brief recovery on November the 3rd, 2016 after the High Court ruled that the government will need parliament’s approval to trigger Article 50 which is essential for the official start of negotiations with the European Union. The judgment has temporarily buoyed the Remain voters. The uncertainty is further compounded by the government choosing to appeal the decision in the Supreme Court.

Luxury brands, like many others, will just have to sit tight and watch. After all, what is a couple of years in the grand schema of luxury brands that have lasted or intend to last for centuries?

Luxury’s talent conundrum

A version of this essay appeared on Hudson Walker International’s Opinion section published on November the 4th, 2016.

The Luxury sector is facing headwinds. Single digit growth seems here to stay. The behaviour and the expectations of the elusive but coveted millennial consumer remain somewhat a mystery with conflicting trends emerging. For instance, millennials seem disinterested in owning houses and cars, but are nonetheless happy dropping $25 Bn on diamond jewellery. The luxury consumer is globally mobile and digitally savvy, thus requiring brands to think of narratives that remain relevant and accessible in the many contexts in which the consumer might encounter the brand. The traditional luxury maison with its aura of exclusivity is also under challenge from the small, nimble luxury brand that not only knows where to find the new consumer but also to serve her well with messages and products that appeal to her, and do so in an agile manner. The emergence of these new brands is not unrelated to the technological developments challenging and reshaping the entire luxury value chain.

Like many other industries being redefined by technology and the warp speed of the web, the luxury sector too is facing a talent shaped challenge. The sector however remains quite conservative in where it sources talent, privileging industry embeddedness over attracting outsiders. These outsiders may come in and ask uncomfortable questions but they also have the ability and aptitude to shape the future of the industry. The need for luxury sector leadership to shake up their thinking on talent is apparent.

But how can they do it? Well, here are some ways to examine the existing thinking critically.

Consider whom you are attracting. While seeking to fill a position, if the hiring manager in the luxury maison sees applications from only those already working within industry, there is a problem. Pretty much every other industry has had to learn, some grudgingly, others more willingly, ways to reach out to active and passive talent where the talent hangs out and to make their brands more relevant to those professionals who would not otherwise consider them as possible employers.

Ask whether you are hiring for what they can do for the maison, or for what they have already done in their careers. This is trickier than it looks at first pass. Research suggests men are often hired for potential while women have to have proven it before. The luxury sector overwhelmingly sells to women, who have increasing economic power as well as alertness to governance issues in companies they buy from. The hiring-for-potential-or-proof challenge is exacerbated when companies are hiring for a future that is not fully spelt out and is unfurling as we watch. If you are seeking to acquire skills that are themselves nascent, consider that those skills may well have been acquired and demonstrated outside formal employment. As the boundaries between work and non-work areas of life dissolve, it is worth remembering that we bring our whole selves to wherever we go. Hiring conversations need to evolve from the curriculum vitae to exploring the passions of the individuals in their life. This will have to become normal as people pursue and build many careers within their professional lives, which brings me to the next point.

Before even seeking new talent, think deeply about how you will retain them, once they are hired. The adage that “employees do not leave companies, they leave their managers” needs modification. Employees leave in pursuit of fresh challenges knowing well that having multiple careers is now not a novelty but the default, and that only they themselves are responsible for shaping their work life. This challenge is multiplied manifold when the talent freshly hired is a a star and aware of her star power. Monetary and non-monetary incentives are the hygiene factors. Retention is about giving them something to believe in, something that lifts the game daily from mundane transactions to an opportunity to make a meaningful difference.

Lest this monograph should make these challenges sound insurmountable, I should add that this is where a seasoned and well-networked headhunter comes in. A good headhunter serves as the consigliere or consigliera to the maison. He or she understands the essence of the luxury brand, and can communicate it faithfully to a prospective candidate in a manner that bridges elegantly the gap between the narrative of the brand and its salience to a candidate’s aspirations. This is a crucial skill as a luxury mason’s success in attracting, hiring and retaining talent now depends on how well the leadership articulates their vision of the future and demonstrates that it is in line with the future emerging before our eyes.

The industry whose mainstay is heritage and craftsmanship is up against rapid technological and socio-political change. Something’s got to give for the industry to remain relevant and thrive. Talent is where the solution to that conundrum lies.

Autonomous cars and luxury marques

Aston Martin, James Bond’s car of choice (except when he went through a BMW phase), showcased a powerboat at Monaco Yacht Show this year. Writing in the Financial Times, Philip Delves Broughton laments that Bond’s legacy is being junked by this luxury marque and outlines the dangers of brands diversifying into unrelated categories, especially those far away from the brand’s core, while also acknowledging the financial pressures that may have brought about the powerboat.

Those are great arguments; indeed they are in line with the “we have heritage” argument that keeps many a luxury brand in that strange place where they are simultaneously desirable and at the risk of going out of business very fast. Those are also arguments that arise from a steady state style of thinking applied to the stark challenges faced by luxury businesses.

The challenge is altogether different. Existential, in fact.

As autonomous vehicles get on roads outside the Bay Area, indeed here in the UK not far from the Aston Martin Headquarters, the existential crisis facing luxury marques in cars is too urgent to ignore. They overwhelmingly pitch their cars as being about the pleasure of owning and driving a car as beautiful such as the Vanquish (I have my preferences but please feel free to imagine the marque that makes you go weak at the knees here!). There is a primal connection between the man and the (stunning) machine that is at the heart of the purchases of such cars.

With autonomous cars around the corner, the makers of such luxury cars may go out of business altogether.

What will be their offering, their raison d’être?

What deepest desires in our hearts will they be appealing to, with their beautiful — but self driving — cars?

Yes, I hear you cycling through Kübler-Ross. I am doing it too so you are not alone.

Meanwhile, let’s not pretend that the Aston Martin AM37 powerboat is only about the financial bottomline. There are existential choppy waters ahead. Aston Martin has found one way to navigate them. Unlike Bond, makers and purveyors of such luxury vehicles may not live to die another day. They have to think fast to remain relevant and in business at all. More previously unthinkable business models may be forthcoming from luxury car makers.

Mr Broughton meanwhile can perhaps take solace in the possibility of the next boat chase on the Thames featuring an Aston Martin! Bond’s heritage may be alive and well. For the time being.

Authenticity and Vedic wisdom for luxury brands

Alicia Keys, the talented musician and singer, was in the news recently for having chosen decidedly to eschew makeup. In a monograph in a newsletter, she said she feels no need to cover up any more. She talked about her journey to self discovery and finding her authentic self which did not need to be hidden under layers of makeup.

On cue, and missing all the irony of Keys’s commentary, Harper’s Bazaar featured 74 models in selfies with the faces they were born with. Hashtag #nomakeup.

Ladies & Gentlemen, authenticity is now on trend, and branded.

In a related development, one of my favourite web friends, Jackie Danicki, has started writing Burned Out Beauty, a beauty blog which is my new not-so-secret indulgence. She was the original beauty blogger in 2004 on the world’s first beauty blog Jack & Hill.

Jackie is not being a contrarian. She took a break, so to speak, and she is back doing something that she loves, enjoys and is knowledgeable about. Jackie is authentic.

The good thing about being authentic is there is no need to be contrarian.

But how can brands find where their authenticity lies? Indeed what is authentic and what are the sources of authenticity?

Eagle-eyed readers will remember my agonising over the “authenticity” of the Porsche symposer some time ago. I ruminated on it a while. After all the car is man-made, as is the symposer, and it is humans that manifested the Porsche vroom in the car’s engine as well as the symposer. It is not about the engine, it is about the sound. Once I had reached that essentialist unifying thread, I was at peace.

Where a sensory signal is not the only or the main signature of the brand, a brand may have to work a tad harder to define what it stands for, what its authentic self is.

A beautiful and effective tool is to be found in a Vedic method of inquiry.

What the essence of something is is often arrived at by answering what it is not.

Neti-Neti. Not this, not this.

Unlike other fixed signals of authenticity, the process of Neti-Neti also accommodates indeed nurtures growth and reinvention. If we are no longer something, if we no longer stand for something, we are one step closer to being our authentic and whole self.

So with brands.

When luxury brands with deep heritage struggle to reinvent themselves and their relevance in a world with modern technology and newness, they can choose to look inward and answer what they are not.

What are you not, any longer?

Authentic & still relevant

Influencer marketing and the luxury marque

Eight years ago, I was pondering the meaning of “authority” on the web. Fast forward to 2016 and the language has moved on. It is no longer about authority but about influence. Brands, including some luxury brands, are engaging in “influencer marketing”.

The web is awash with “advice” for luxury brands on the criteria for choosing the right influencers; these include relevance, reach, engagement, previous brand endorsements, and that old chestnut called authority.

But should luxury brands engage in influencer marketing at all?

I have no doubt there are some, who were influenced into buying a Breitling because of John Travolta, a bonafide and accomplished pilot and a 2007 inductee into the Living Legends of Aviation. Travolta was the face of Breitling until in 2012, Breitling shocked many by picking David Beckham. Beckham is a famous former ace footballer but now mostly a celebrity model, who reportedly turned down Calvin Klein but later appeared in Giorgio Armani and H&M ads — for underwear.

How are Breitling’s brand values aligning with this new choice of influencer? What aspirational quality or relatable values is the brand projecting with David Beckham? Notwithstanding his sporting prowess, Beckham is a peculiar and unimaginative choice of influencer for a brand that, since 1884, has been known for engineering innovation driven watches.

IMG_3407During the AW16 shows in Milan, Gucci’s Alessandro Michele officially invited — and collaborated with — Trevor Andrew whose love for Gucci had made his “Gucci Ghost” persona well known and gained him a huge following on Instagram (31K at the time of writing). Andrew bought his first Gucci watch at age 17 with the money he earned snowboarding. Gucci wasn’t giving him money to talk Gucci all this while (for the various shades of disclosure between bloggers and luxury brands, read this). He is no ordinary influencer for Gucci to engage with. He has his own creative lens on things, including to his music — he is a man of many talents — with a rip-mix-burn approach he puts to practise and that resonates with web users. Web culture has indeed moved on from the early binarity of creator v consumer, to co-creation and hacking.

Does Andrew resonate with Gucci’s brand values? They are, after all, rooted in the Italian and Florentine heritage and craftsmanship. Where does Andrew fit in? Perhaps with Gucci’s fashion leadership and success with authenticity? Andrew is authentic, creative, successful with his own style of craftsmanship. There is synergy perhaps, and Gucci put its money where its mouth is by producing a collaborative collection with Andrew.

Both brands Andrew and Gucci have influence over their audiences.

But in the collaboration, who influenced whom? It is hard to tell. It is more like a circle of virtuous mutual influence! This kind of serendipity, overlaid with a strategic twist is not available to all luxury brands.

Luxury brands are currently torn between many dualities. The democratic nature of the web, versus the exclusive, aspirational image of a luxury brand. The reality of who is spending the money now, versus the need to build relationships with the potential customers of the future. Even the heritage claim becomes difficult to ride on, when the brands are addressing markets with their own heritage vastly more expansive and richer than the luxury marque’s own.

Amid all this, the question — should a luxury brand engage in influencer marketing at all?

My considered answer to that is No.

A luxury marque is, at its core, a Veblen good. Influencer marketing — including the lazy marketer’s option of celebrity endorsement, never mind their tenuous relationship with sales — on the other hand is an attempt to get in on the bandwagon effect (economists call it “interpersonal effects on utility”). Influencer marketing, given all the variables in the mix including the influencer’s own “brand” and its values, is cognitive dissonance-inducing in the luxury brand discourse.

“But, but what about the young generation and our engagement with them?,” some might ask.

The clue might lie in a 600 year old brand that somehow survived and thrived.

With the old fashioned idea of always being the keeper and regaler of the brand story, the craftsmanship story, the collection story. Even the influencers it has worked with in recent times are now collaboratively embedded in its glorious historicity.

When it comes to influencer marketing, true luxury marques need to remember just this:

Don’t borrow someone else’s influence. Be the influence.