Guest editorial

Citation

Brun, A. and Castelli, C.M. (2015), "Guest editorial", International Journal of Retail & Distribution Management, Vol. 43 No. 10/11. https://doi.org/10.1108/IJRDM-08-2015-0114

Guest editorial

Article Type: Guest editorial From: International Journal of Retail & Distribution Management, Volume 43, Issue 10/11.

The luxury market is receiving everyday more attention, as witnessed by the impressive number of forums, workshops and other events dedicated to it. Scientific research is also focusing on luxury management, where some of the most frequent research questions regard understanding which are the sources of value that justify the “luxury” label and how the luxury value chain should adapt to a continuously changing business environment (characterised by disruptive trends such as, e.g., explosion of digital technologies, more literate consumers, turbulence in both primary and emerging markets, etc.).

We are living in an era of unprecedented challenges, in which the rise and fall of a luxury brand could occur quite abruptly. To make sure to maintain leadership in this business, top managers of luxury firms should have the following five “hot issues” at the top of their management agenda.

1. Exploit the digital revolution

Arguably, one of the most relevant current trend shaping the twenty-first century competition is the so-called “digital revolution” – that can either be a threat or an opportunity, depending on how it is faced. Indeed, new technologies are challenging the current business models; hence, luxury companies shall strategically plan their digital evolution in a comprehensive way (i.e. considering a number of technological developments which go well beyond setting up and operating an e-commerce platform). Several issues are to take into account, such as mapping the purchasing behaviour of “smart consumers”, figuring out how to use “big data” available in directly operated stores, implementing supply chain (SC) visibility, virtualizing product development and manufacturing, and so on:

As the VP for Product Development of one top leather goods company told us once, upon our prompting him to introduce, in each bag, a plate with a unique identification number, “Our company style is so classic, we are afraid of innovation. I don't see any advantage in placing such a plate into our bags”.

Well, luxury customers – across all age ranges and markets – are asking for growing transparency, and might be keen to know the “history” of their bag: from the materials used to produce it, to the plant in which it was assembled, […] and will be extremely disappointed by not being able to do so.

2. Manage digital communication

Strictly linked with the previous issue, luxury companies – many of them way too old-fashioned when it comes to communication style – should swiftly change their communication style to reach the newly relevant target group: Gen Y or Millenials. This, of course, without being inconsistent with the brand identity.

The challenge is therefore twofold: from the one hand to learn a new language and to use it effectively; and, at the same time, to manage the virtual social environment where the brand is present to ensure utter coherence in an “omnichannel” perspective:

In the Internet era, whatever message you send out is amplified and broadcast. This could result in a double-edged sword. Make a wrong move, or send out an inconsistent message, and the whole world will immediately know. And if you decided not to communicate through Internet at all, others will do that for your brand.

You can't stop bloggers, forums, and any virtual communities, from commenting on every single choice your brand is making.

3. Keep investing in your core competences

Each brand has to clearly understand which core competences (either design, innovation, excellent manufacturing, etc.) are the foundation of its success. It is paramount that such strategic know-how be kept as an internal asset: in fact, internalizing core competences is of the key reasons behind the choice of vertical integration characterising the recent strategy of some successful luxury brands, irrespectively of the fashion-sensitiveness of their business:

Know your strengths and keep reinforcing them.

“On average, our skilled leatherworkers have 35-40 years experience within our company.” This is something you just wouldn't hear. Who will manufacture your bags when – in 5 years time – all of your craftsman will be retired and your core competence vanished?

Savvy companies regard apprentices as a future asset, and nurture them in their leather-craft academy.

4. Maintain local production activities

“Country of origin” is still a critical success factors (CSF) of paramount importance to position a brand in the top of mind of luxury consumers. In case the product or brand was associated with a “made-in-X” idea, it would be mandatory to set manufacturing facilities in the corresponding country (or even region or district). Luxury brands should avoid delocalization in low cost countries, especially when such countries are not associated with excellent manufacturing or heritage for a certain kind of product or craft (this is especially true for first lines, while mixed policies may sometimes work with diffusion lines). Several brands are even “re-shoring” production from Far East to Europe, following the recent turbulence in the exchange rates:

The “offshoring-to-low-cost-countries Eldorado” is now over. An historical brand of absolute luxury shoes realized that its “Made-in-China-handbags-venture” was detrimental to the shoes business also. It is now re-shoring – at what a cost!

5. Be sustainable

Consumers are becoming more and more aware of social and environmental issues. Knowledgeable customers – today no longer limited to mature markets – rather than showing off their status through even loftier levels of expenditures, are now shifting their interest (and money) towards objects and experiences pleasing their intellect. As a consequence, sustainability should be one of the top strategic directions for luxury companies. Indeed, socially and environmentally ethical practices can contribute to higher margins (due to an improved perception of the brand and products) as well as savings in the long term (the third dimension of sustainability, beyond social – “People” – and environment – “Planet” – is, indeed, economic – “Profit”). Hence, luxury companies should introduce sustainable practices along the whole SC, as well as in the retail stores:

Because luxury company cannot afford not to be sustainable.

The scientific community is actively investigating how companies are reacting to the dramatic changes taking place in the markets, and studying emerging (best) practices developed to address the above unprecedented challenges. Most influential scholars in the field of value creation in the luxury business have been invited to submit the output of their researches for publication in the International Journal of Retail & Distribution Management. The result is a special issue dedicated to new paradigms and best practices in the luxury value chain.

The first part of the issue includes contributions focusing on the management of processes along the SC. Some papers explore the SC of luxury companies as a whole, while others go more in depth into specific processes or management techniques. The issue proceeds with papers discussing how aspects such as material provenance, scrap materials recycling, selling online, as well as another number of brand management dimensions as a whole, are affecting the customer perception of a luxury good or brand.

The issue opens with a paper by Hennings, Wiedmann, Klarmann and Behrens, that moves towards providing a profound understanding of the luxury concept and its deeper values. The authors take into account the intrinsic complexity of the value of luxury, which strongly derives from the individual perception of luxury and the following purchasing behaviour. The study shows the relevance of several dimensions of luxury value including financial, functional, individual, and social consumer perceptions and explores their causal effects on different aspects of luxury consumption. Managerial implications include the possibility of stimulating purchase behaviour with appropriate marketing campaigns that create and preserve the most important value aspects throughout the SC from production to distribution.

The second paper, by Castelli and Sianesi, takes into account the alignment of the SC towards the critical success factors of luxury. Thanks to a theoretical development based on SC literature and to a number of case studies in fashion/luxury companies, the authors propose a model for identifying the SC objectives that better correspond to creating and supporting the CSFs of luxury on the market. Furthermore, they show that the relevance of CSFs as well as the consequent choices along the SC, vary depending on the kind of luxury positioning (either Absolute, Aspirational or Accessible luxury). Hence, the paper documents that success in the luxury market not only depends on branding and marketing but also on the choices made along the SC, to the point that it is possible to identify some SC choices and practices that support the achievement of luxury CSFs.

The third paper, by D'Avolio, Bandinelli, Pero and Rinaldi, offers an interesting investigation on how Italian luxury fashion companies manage the replenishment process, and how they leverage the SC in order to match supply and demand of fashion products. Thanks to an extensive literature review and relevant case studies, the authors are able to model the Italian luxury fashion industry with special focus on merchandise planning constraints and the replenishment processes. A noteworthy result is that flexibility is a key performance in order to match supply and demand when there is a relevant fraction of seasonal products in the collection. Results also prove the relevance of both downstream and upstream SC alignment.

The last piece of research focusing on SC processes is the paper by Carmignani and Zammori, which discusses a practical application of the lean approach in an Italian Fashion Luxury company. A lean implementation is still quite infrequent an experience in the luxury business. Indeed, the paper aims at identifying the key features of the luxury fashion market that may act as barriers for the adoption of lean principles. Thanks to the pilot application, authors could assess which of the lean principles can be properly reinterpreted, so as to properly fit the requirements of this market, with special focus on manufacturing and logistics processes.

Moving on with the papers dedicated to the study of new paradigms, the paper by Faust and Surchi analyses the perception of cashmere amongst Italian and American Gen Y luxury consumers. The 334 questionnaires collected by the authors confirmed that cashmere is perceived as a superior material, and provided insights in terms of which characteristic of the noble goat fibre contribute to its luxurious aura.

The following paper, by Collins and Weiss, analyses the contribution of country of origin (“provenance”) to the perception of luxury status for internationally renowned Scottish and American textile brands. Direct interviews to the companies managers allowed the authors to identify five relevant strategies to leverage the country of origin value creation, including storytelling – to leverage the brand's authenticity and provenance – and avoiding offshoring manufacturing outside the country of origin.

The paper by Keith and Silies discusses an emerging value creating practice, named “Upcycling”. Basically, upcycling consists in employing pre-consumer scrapped materials to create luxury end-products – as opposed to the common practices of using scraps and wastes materials to realize lower level, second choice items. The authors analyses several study cases, highlighting the role of collaboration between textile mills and designers to create value – luxury apparels made with worthless scraps.

The paper by Kluge and Fassnacht addresses the emerging luxury goods online selling, analysing the impact of two typical shortcomings of online selling (increase brand accessibility and price display) which could negatively affect the perception of a luxury brand. The somehow counter-intuitive results of an extensive survey on high-income luxury consumers show that online accessibility of luxury goods is not affecting the perception of scarcity of a luxury brand and, as a consequence, could not be considered as a negative aspect in the value creation process.

Finally, the paper by Cavender and Kincade proposes an original comprehensive framework for luxury brand management, encompassing both exogenous (“macro-environmental”) and endogenous (“micro-environmental”) dimensions. The macro-environmental dimensions include such factors as globalization, technological developments, consumers trends and shifts in demographics and attitudes, while the micro-environmental ones include such aspects as company history and brand portfolio (at corporate level), as well as brand identity, brand strategy and brand sustainability (at the single brand level).

We hope you will enjoy reading this special issue.

Associate Professor Alessandro Brun, Department of Management, Economics and Industrial Engineering, Politecnico di Milano, Milan, Italy, and

Dr Cecilia Maria Castelli, The European House Ambrosetti, Milano, Italy