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?

Of pigs and predictions

The Trump victory has left many of my friends reeling and in disbelief. It has also already brought out criticism of pollsters and polling data. Some sceptical ones go a step further and condemn all prediction makers, and mock machine learning and artificial intelligence. This condemnation is foolish and tantamount to throwing the baby out with the bathwater.

Prediction models turn on data, collected from the right questions being asked of the right statistical sample of people. Reductive questions generate neat data sets which then provide all the right answers.

But as experienced market research people will tell you, far fewer people, than those who enthusiastically nod and say they will purchase a new product, actually do. It is not that people are lying, it is just that human beings tend to give answers to please the asker. On politics and other emotionally charged matters, this tendency to give socially acceptable answers to minimise confrontation is especially pronounced. People also change their minds over time.

If the outcomes of any large exercise, where people actually make active choices, shock us it is worth remembering that the only truth is revealed preference i.e. what our actual choices reveal about our preferences. Human beings do not always seek to maximise utility, often preferring to use simplifying shorthand or heuristics to make decisions. The heuristics could have encoded in them experience and knowledge, as well as prejudices and received wisdom.

The concept of revealed preference is, of course, flawed too. If I pick Candidate A over Candidate B, it does not say I prefer Candidate A, merely that I prefer Candidate A to Candidate B. In the future, if Candidate A is up against Candidate C, I may pick Candidate C not because of Candidate C’s superiority over Candidate A but because my preferences are not immutable. Faced with more than two options, we have a way to simplify the choice for ourselves as well as I have written here.

It may sound nihilistic to suggest predictive modelling is not really reliable. But if we are relying on flawed and mutating preferences, and treating them as immutable truths in our analysis, how can methodologies and predictive models generate anything reliable?

It would be akin to putting lipstick on a pig. We would have used up lipstick but the pig would still be a pig.

In the last UK general elections, the Brexit campaign, and now the US general elections, predictions have failed to, er, predict anything reliable.

It is time we learnt to judge differently — by expanding our comfort zones, by listening more, by asking and seeking to understand more, by being healthily sceptical, and by bringing critical thinking lenses to all those pursuits.

For now, if your side won, good for you. The advice to try and understand the other point of view applies to you too. But if your side didn’t win, dry your eyes, dust yourself up, and go out and talk to someone who is not cohabiting your comfort zone.

The narratives we hear will have rough edges, and not the cleanliness or reductiveness of survey questions. But that texture is the stuff understanding is made of. Less data, more understanding. That is what we need.

The medium is the message

President Obama wrote a piece on Feminism for Glamour magazine.

Curious minds want to know why that specific magazine. Here is whom the magazine is for, according to its owner Conde Nast: “Glamour is for the woman who sets the direction of her own life and lives it to its fullest and chicest. Her point-of-view is unmistakably American, unwavering in its optimism and wide open to the possibilities ahead. The dream job, the perfect look, the right guy: All are in her reach.

How would writing in that magazine ensure the article gets read by men, someone asked. Legit question.

Here is how.

Several media outlets men might read – Vox (under Policy and Politics, no less), New York Times, Rolling Stone, Time, and many others – have picked up and paraphrased the essay’s main ideas for easy reading by men. Obama thus neatly sidestepped men wondering why he is lecturing to them and got a standing ovation from women for his approach as a Dad.

And yet he is getting heard by men, as the conversation on those paraphrased articles shows. Several men are commenting on these paraphrased pieces that while they disagree with Obama politically, as fathers of young women, they agree with him completely on this matter. This is not a surprise. Research evidence shows that when daughters are born, men change their attitudes to traditional gender roles for women. Indeed many young women may be making their dads read the article. There is also the possibility that Hillary Clinton’s popularity among young women could get a boost from this, because he spoke with them but not quite at them by referencing his daughters in the essay.

There is more to this than meets the eye though. More than Obama. More than feminism.

There is a quiet but firm change happening in the magazine world. And so-called millennials are leading it. With guidance and nurture from older, steadier, more experienced hands in the trade.

Here is a Teen Vogue piece on a young woman, presumably a teenager, on how she became a feminist. Here is a piece on how queer identity may make a person a target for violence, and another on how American culture fuels homo and trans phobia.

Glamour and Teen Vogue are not magazines common prejudices about “girlie mags” allow us to expect to do a great job of hosting and enabling such discourse on identity. But they are doing it. Anna Wintour, the tour de force in Conde Nast, is guiding a team of millennials which is doing a great job getting the unfairly reviled younger persons reading serious stuff. In other words, emergent generations are being engaged using old fashioned tools.

Their views have a platform. Their voices are being amplified by “curation” led websites that “grownups” read. Change is quietly happening, while we are too busy stereotyping millennials and younger generations.

The revolution, it is clear, is not being televised.

It is being written and read and discussed on channels that allegedly responsible adults dismiss as pointless, past-it, dying or any number of hand-waving adjectives.

Be there, or be square.

And Obama is no square, as we all know by now.

Living in “interesting times”

Would you rather be a dog in peaceful times? Or a human in chaotic times? When asked this, most people of course pick “human in chaotic times”.

But when offered to pick one of two — risk or uncertainty — most pick “risk” over “uncertainty”. To an extent, risk is definable, quantifiable, often tangible, possible to plan mitigation of.

Brexit is a risk. We know the British public will make its choice on June the 23rd, 2016. Both “remain” and “leave” campaigns are trying hard to get people on their side. The “remain” side is trying to mitigate the risk by highlighting possible losses Britain can incur if Brexit happens. The “leave” campaign calls their mitigation strategies fear-mongering and baseless.

But a juicier example affecting us all this year is from across the pond.

That Trump could become President of the United States is a risk, as he inches closer to the required delegate count. What he will do, as President, about foreign policy, international trade, immigration, job creation etc is an uncertainty. As on the date of writing (April the 27th, 2016), his policy positions are at best unclear, at worst rhetorical. That may change. Or not. Further, all of the members of the Congress and a third of the members of the Senate are also up for elections this year. So it is hard to say what the balance of power will look like in the final outcome. That exacerbates the uncertainty.

My startup clients seem unfazed by Brexit although Jeff Lynn’s warning about how Brexit will damage the UK’s startup ecosystem should give them pause for thought. Folks at larger company client firms are adopting a wait-and-watch stance. In practice, this means there is much inaction around. Countrywide has sounded a warning bell over housing prices. All said, the economy in limbo is slowing down and Brexit is expected to hit the UK’s growth numbers.

It is, however, an altogether different discussion when it comes to the US presidential elections. Almost everyone I speak to, both in the UK and the USA, is secretly wishing for Mrs Clinton to become President, even though the GOP is traditionally seen as the party good for business and business people. I rarely have occasion to call a situation brimming with bathos. This is one such. I am also not unaware of the filter bubble effect in this finding, because I overwhelmingly speak with people who are educated and in well-paid white collar jobs.

But that is how we often deal with uncertainty. We try and wish it away. We conjure favourable scenarios. We discuss fine detail over which we have no control.

Mostly, we bide time till the uncertainty crystallises and transmogrifies into a risk – risk we can delineate, measure, plan to mitigate for, or just accept.

Back to my dog v human question. “Better to be a dog in a peaceful time, than to be a human in a chaotic (warring) period.” This is the Chinese curse we have bastardised for the Anglophone world as: “May you live in interesting times.”

As political chaos goes, I cannot recall a year more “interesting” than 2016 in my entire career of over two decades. Can you?

Answers on a postcard, please.

The design challenge called Indian traffic [2]

An earlier, admittedly ranty post documented the weirdness that is Indian traffic. Though it focused more on vehicular traffic than on pedestrians, any good traffic system design should enable peaceful co-existence of both vehicles and pedestrians.

I have spent some time thinking about traffic systems since I have been able to observe traffic in several countries outside India, especially the UK, for a few years now. I’d say it largely works well in the UK. Except when it does not, say, when we have the wrong type of snow. Roads don’t work, trains don’t work, almost nothing works.

Yet, some sincerely wonder if traffic in India can be improved to the level it is in developed countries.

Jokes apart, traffic in developed countries, when it flows, has mainly three component parts, although not all developed countries are created equal in their traffic discipline. These component parts exist in a Nash Equilibrium, which keeps the traffic flowing.

Rules

Unlike India — where most people with driving licences have done few, if any, lessons, and most driving licence owners have never been subjected to a rigorous examination of car knowledge and driving skills — it is near impossible to get a driving licence in most developed countries without passing multistage tests of road rules, car knowledge, and driving skills.

As far as I know, road rules — that would cover speed limits, lane discipline, overtaking procedures, use of indicators and other functioning lights on the vehicles, driving behaviour during egregious weather or road conditions, prioritisation of emergency vehicles, required civic behaviour during emergencies — aren’t even fully documented in India. Documenting them and then making them available in the many Indian languages would have to be the step that precedes training and testing for licensing purposes.

Licensed trainers and an incorruptible testing procedure would be the next essentials.

Then the state of the roads. It shouldn’t be down to a High Court to pronounce that citizens have a right to good roads. Because, so what?

Rule followers aka the social contract

Then comes the harder part. Of making a citizenry — of whom many are accustomed to saying “do you know who I am?” and “ok, do my work first, here is the cash!” — follow the process of learning and being tested to obtain a licence, with knowledge and humility, and not by sending someone else to get the paperwork done.

Some positive change, led by citizens themselves, is in evidence so there is hope on this count.

Enforcement and punitive measures

The third crucial part of a functioning traffic system is a traffic police force that catches, penalises and prosecutes if necessary the violations, no matter how minor, of road rules. This is helped by clear rules, along side specification of punitive measures for breaking them. This is further supported by a judicial system that lets traffic violation cases be tried swiftly instead of dragging them on for years, as Indian courts often do with many court cases.

So to return to the question, whether road traffic in India ever be improved to the level it is in developed countries, the answer is both Yes and No.

Yes, if India can arrive collectively at a new Nash Equilibrium of the above-mentioned factors.

No, if any of the above is missing.

The challenge for India is where to start.