By Ashok Som
Leadership style and strategy that luxury brands should keep an eye on in order for them to ensure that their business philosophies and brand proposition are effectively conveyed and their brand is well presented to their target market. In this article Prof. Ashok Som weighs up the changes and challenges ahead for the luxury industry as it moves into a global mode and sets out the skill sets luxury brands will require of its employees both onboard and onboarding.
Luxury has changed: bring on the Hydra
There was once a time when luxury had a single head. The head belonged to a creator-designer-craftsman all rolled into one, initially producing excellence that was commissioned by local monarchs and local aristocracy. In France and Italy names were made and shops opened, still local, sometimes regional. And then, with the industrial revolution, legends grew. With greater wealth among greater numbers of people, those seeking the unique and rare and willing to pay a high price for exceptional quality travelled to the outlets to buy on site. This all belonged to the pre-1950s: small, family run businesses with the founder-creator as head.
Today, if we stop to gaze at the luxury sector, the first observation is that the business of luxury is no longer a local business. It has become global, faceted by digitalisation, instant communication mobility, nomadism and a new breed of consumer from the emerging BRICS countries – educated, digitally savvy, and abreast of the changing ways in which the products and services are designed, marketed, distributed, and consumed. And although the traditional core values and heritage of the industry remain true and spark the motivation to purchase luxury, they are no longer enough to cater for the hydra that the industry has become.
While many other sectors have traversed the same revolution, the luxury industry is as unique as the products it creates: the industry is small, with a total of about 110 brands (excluding cars, hotels, yachts and other heavy-duty luxury products and services) and the people working there traditionally move from one brand to another. An “Up-or-out” syndrome has been prevalent as employees had to continuously reinvent themselves, renew their creativity, be agile, and perform. The local-to-global scenario is changing this too. In order to thrive in the transformation of local sales and local business model to global perspective and initiatives, the industry needs talents with specific and versatile skill sets that are entirely new to luxury while enabling the existing talent pool to adapt and change with the times. In short, the luxury brands need to be run by skilled professionals who not only understand the intricacies of the business but also can operate on a global scale.
Brahma sees four
Luxury brand creations have seen phenomenal growth in their reach and sales over the last twenty years thanks to wider marketing, organic growth, greater presence in outlets and new luxury consumer segments. Family-run businesses are rivalled by the conglomerates such as LVMH and Kering some of which – in order to cope with the demand and to increase profitability – have outsourced some of their activities to skilled labor in various countries. However, luxury customers still, above-all, crave “Made in France,” “Made in Italy,” or “Swiss” watches. This raises the challenge of how to manage largescale growth and scale up the production of goods, while keeping the brand DNA intact and produce in a home country where skilled workers are fewer and harder to find. Indeed, it could be said that the scarcity of these skills at home render them almost a luxury in themselves. The challenge is fourfold in terms of skill sets required along the chain of luxury:
• Craftsmen and women who possess tacit knowledge of the brand DNA
• Designers who deeply understand this DNA and who create innovations around it
• Salespeople who translate the story of the brand into unforgettable consumer experience to the diverse and increasing numbers of consumers across different cultures and continents
• Managers able to run the business not as an SME but as a global corporation.
By Janus, I think yes!
Looking closely at the four different types of talent, each has a specific skill that calls into optimal use their left or right brains effectively. To go further, the left brain uses logic, focuses on detail, facts, figures, complexity, acknowledges reality and is oriented towards strategic, practical and low-risk thinking patterns. On the other hand (or head), the right brain is generally acknowledged to think in terms of feelings, creativity and imagination, with a preference for the bigger picture, symbols and images and an appreciation of spatial perception and knowledge while being open to what ifs and risk-taking.
In the luxury industry, to a certain extent, craftsmen have to be skilled in balancing the right- and left-brain functions. The designer, however, has to be more skilled in right-brain functions. As for sales, people working within this function need to be more focused on the left-brain while developing the competencies of the right-brain. Finally, managers on the other hand need to be more skilled in using the left brain while acknowledging the right.
It is a difficult balance for brands to ensure and it becomes more challenging with the expansion and growth of the industry. On the one hand, employee willingness to learn and effectively use new skills is an attractive trait at all levels of the organisation and effective training schemes set up by brands can help nurture and achieve this. But on the other hand, what has become a global, digital-influenced and complex industry desperately needs outside professionals from different fields armed with hybrid skills. For example, the need to expand into emerging markets such as China and South Asia requires cross-cultural experts capable of moving seamlessly between countries, cultures and languages and skilled in ensuring that the essence of the brand is not lost as the industry goes global. This does not mean, however, that these outside talents with specific and hybrid skills outweigh the creative geniuses who are the messengers of the brand. Future success can only be generated by balancing these two categories.
The prefect paradox
The luxury industry thus is the story of a perfect paradox. On the one hand it sells itself (among other inherent attributes) on the notion of timelessness and heritage, and on the other it offers beauty that can metaphorically die in a day, only to be reborn in the constant cycle of creativity and changing fashions. In an industry context, skillful homoluxus – as those working in the luxury sector are known by – are also well aware that the lifespan of luxury brands is varied and totally surprising. Brands can flutter in all their spring time glory, only to comprehend their fragility when collapse, which comes so quickly in luxury, suddenly looms.
Although there still exist luxury brands which have lived through generations of family ownership – Estée Lauder and Hermès among them – and still others acquired since their early days by wealthy families – Chanel, for example – countless luxury butterflies have ended up in the collections of conglomerates that have built a portfolio of brands focused on specific luxury sectors within their own structures. The environment for these pretty creatures has changed too. From being the predilection for only a small elite of consumers, in recent years’ luxury has become accessible to a wider, younger and more international net, extending their reach by expanding their product range and diversifying into larger offers such as eyewear, perfumes and accessories.
The creator behind a brand – the artist that gives all the uniqueness and beauty to a luxury product – was also in former times the controller of the brand. But the developments in the sector over the last twenty years or so have raised questions about his or her capability, indeed capacity, to run a global business, to sell, and to manage the value chain as well as the issue of continuing brand legacy after his or her departure.
The golden rule in real luxury is to make sure creators have no managerial responsibilities and are given a free rein to pursue their art as long as their creation is coveted for. Of course there can be failures sometimes, but not too many times. Take the example of Alessandro Michele and Marco Bizzari. After meandering for a decade the duo has got it right. The example of Gucci shows that that luxury can only work if the products are unexpected and unplanned. Creation goes beyond a system or habits and the organisation of a luxury house has to allow for this. This is where the manager comes in. And in this context, a manager’s capacity to master the paradoxes and dilemmas in luxury may well have a butterfly effect not only on his/her teams and results, but also on the brand and its charismatic creator.
Be the change you want to see
Research, including interviews and surveys among luxury professionals, points to the luxury sector requiring people with skill sets that enable them to display a mix of aptitudes: able to fit in with the changes in the industry environment, connect and work within the luxury sector areas
related to the right-brain, fit with the brand and company culture, and demonstrate competencies related to the left-brain. In this context, it is worth taking a look at how each of the four populations mentioned previously operates.
Craftsmen are an inherent, historical and irreplaceable component of luxury. In former times, catering for local or regional customers, the luxury product required skills mainly focused on their craftsmen’s passion for excellent work and creative design that possessed their signature differentiation. The same is true today in several, specific brands but perhaps best encapsulated by the Swiss watch industry. And this craftsmanship, although subject to outsourcing among others in the industry, is seen as a major attribute for the future. To quote Fulvia Visconti Ferragamo: “Craftsmanship is the key to luxury, because I think the time has come back to restore the value of the expertise of craftsman and to look to the solid foundation of the past to create the new.”
Entrepreneurial designers: Van Cleef, Hans Wilsdorf, Arpels, Guerlain, Krug, Rothschild, Chaumet brothers, Coco Chanel, Gucci and Breguet are all examples of designers with an entrepreneurial flair. In the days where designers started their businesses with their passion and a belief in what they created, the objective of business was not to maximise shareholder value. As such, they did not feel the need to hire talents in retail, finance, marketing or branding and titles such as CFO, COO or HRD were unknown and rather distasteful badges secondary to their art. Times have changed. Gucci, Hermès, Chanel and Vuitton all need these professional skill sets to ensure that the beauty created by their designers remains sustainable and profitable.
Unlike those in other industries, the sales team in the luxury sector has to juggle constantly between left- and right- brain patterns and indeed mix them on a daily operational basis. The sales person has to be a practical artist, blending strategic thinking with a dash of creativity. Such diversity is not easy to find in a single employee and even if it is, the particular blend is often difficult to manage. The major challenges facing sales are how to make profit without compromising the brand’s DNA, grow market share without diluting the brand offer, and retain the low product accessibility inherent to the luxury aura while still selling as much. To give an example of the dilemma, 94% of young Japanese women now own a Louis Vuitton product with the risk of making the brand less exclusive: how do sales maintain that selling rate while guarding brand exclusivity? Hermès and Bottega Veneta provide different examples and another extreme: while Hermès innovates and customises to woo Chinese and Japanese clients, they stick firmly to their cultural roots and heritage; and while Bottega Veneta sells, there is relatively low brand awareness compared to competitors such as Armani. How to manage the sale of a brand that displays no logo and promotes itself through discreet subtlety?
With the shift from family-run, entrepreneurial luxury businesses to global players, professional managers have become important factors for brand survival and growth. Multi-brand conglomerates whose business model incorporates globalisation, professionalisation, commercialisation, centralisation, and profit maximisation for their shareholders need them. So do the handful of small, family-run brands. Gone is the “Chef de Maison” (Head of the House). Managers working in luxury today require diversified skill sets that include strong leadership, effective communication, and efficient strategy-making and financial skills. Most will have come from reputed business schools and possess experience across sectors with a proven record of well-rounded management and open communication skills. They also have to know how to recruit, motivate and retain talent within the brand and should be characterised by having a keen insight for change and development within the market regarding market entry, expansion, extension, and acquisition. Once again, it is essential for line management to understand the attributes of their brand, its values and market position, and operate while staying true to the brand’s DNA.
Hercules: a cutting-edge example
The above mentioned changing needs for hybrid skill sets is a reflection of many new dynamics in the luxury industry: the digital revolution, globalisation, faster and improved customer feedback, structural changes in the industry, new business models, and more cross-relationship between governments. The hydra that the industry has become has not destroyed the fundamental attributes and values that luxury holds, but has raised more challenges for the luxury brand to cater with than ever before: only a hybrid, two-brained and brand-sensitive workforce can effectively deliver the Herculean response required.
Indeed, management style is also profoundly influenced by the distinctive environment, social culture, and climate in which an organisation operates. And given that the luxury industry is ridden with paradoxes, managing people in this industry is also a paradox. To survive and prosper in the luxury environment, luxury brands should be seeking to take on board managers who possess a combination of the following attributes and backgrounds.
Difference: embrace it and understand it
There is, of course, no one-size-fits-all. Different houses, brands, and conglomerates have different management styles according to the personalities of their leaders and the internal and external environment in which they operate. However, luxury is a world of details that make a difference – to stretch the butterfly metaphor further, ones that may separate the luxurious Eighty Eight from the common Cabbage-white. To be a manager in the luxury industry requires physical endurance, good mood, good health, and good listening skills in both the home and the international market contexts. Quite apart from the usual hard skills attributes of a manager, understanding is paramount to capturing the subtleties of the luxury game, its details, and the specific language of the luxury brand. In the end, the homoluxus should always know that Luxury has been built on the foundation of certain principles that can be neither ignored nor compromised. It is a culture and a philosophy that requires understanding before the adoption of business practices because its intricacies and output are essentially different from other types of goods. Embrace and understand it and the experience will be like working on a butterfly’s wings: beautiful, creative, heady and in constant regeneration.
• The business of luxury is no longer a local business. It is global, digitalised, mobile and shaped by new, emerging consumers from both developed and emerging markets.
• The industry seeks talents with specific and versatile skill sets that are entirely new to luxury while enabling the existing talent pool to adapt and change with the times.
• The four main skilled job categories – craftsmen, designers, sales forces, managers – use predominant left- or right- brain thinking patterns and those who are adept in smooth transition between both have undeniably an added advantage.
• While each function has to remain respected, new industry challenges mean that luxury employees require a high degree of awareness between creativity, quality and desirability.
• Newcomers to the industry must demonstrate multi-cultural skills that include cultural awareness and languages while ensuring that the essence of the brand is not lost as the industry goes global.
• Typical challenges involve blending results while remaining true to brand DNA and luxury attributes such as quality, rareness, exclusivity, and temporality.
About the Author
Ashok Som is Professor of Management Department at ESSEC Business School. Professor Som is one of the pioneering thought leaders in designing organisations and an expert in global strategy. At ESSEC, he is currently the Co-Director of ESSEC-Bocconi Executive Masters in Luxury (EMiLUX) Business. He was the Founding Associate Dean of the full-time, one-year post experience Global MBA program of ESSEC Group, the founder of the India Research Centre and the founder Director of the Global Management Programs on Luxury and Retail Management (in partnership with Indian Institute of Management (IIM) Ahmedabad).