5/30/08

How green are luxury companies ?

By Fiona Harvey, Environment Correspondent, FT.

Luxury companies must do more to justify their value in an increasingly resource-constrained and unequal world.” That was the conclusion of a report by WWF, the conservation charity, into the environmental sustainability of luxury products, published last November. The report found that “despite strong commercial drivers for greater sustainability, luxury brands have been slow to recognise their responsibilities and opportunities”.
When WWF graded some of the best-known luxury brands according to their environmental performance, none received higher than a C plus. L’Oréal, buyer of the Body Shop, topped the list, scoring more than 60 points out of a possible 100 on various green and social sustainability criteria. Close behind came Hermès and LVMH, then Coach. Tiffany scored a D plus to rank fifth, but Bulgari and Tod’s merited only an F.
None of the companies were available for comment at the time of going to press.
Why is it that environmental concerns have been so low on the agenda for luxury groups? Other companies have shown much more interest in going green, partly out of growing consumer concern. Havas, the advertising company, recently conducted a big survey of green concerns of more than 12,000 people in several countries. It found that about three quarters would prefer to buy from a greener company.
“It’s very surprising that companies that are supposed to be so quick to pick up on fashions have been so slow to come to the table,” says Solitaire Townsend, chief executive of Futerra Sustainability Communications, who has worked with brands such as L’Oréal and Estée Lauder on improving their green credentials.
She says consumer brands much lower down the scale have picked up on green concerns much sooner: “You get more of a sense of the environment movement if you walk into Tesco than into Bergdorf Goodman.”
Part of the reason for this reluctance to embrace a green agenda may be that in the past the environment and luxury would have made uneasy bedfellows – environmentalists have traditionally had a dowdy image, preferring home-grown and home-made goods to brands.
Another reason may be that it is hard for luxury brands to adopt green principles – Ms Townsend notes, for example, that high-end cosmetics companies tend to differentiate themselves by using elaborate packaging. That plainly contravenes the principles of environmental economy – to use as little resource and create as little waste as possible.
Conspicuous consumption can also mitigate against environmental good citizenship. Paris Hilton’s favourite drink is said to be Bling Water, in glass bottles covered in small crystals, for an eye-watering $40 a pop. The bottles may be advertised as reusable, but the materials and the cost of transportation still take a toll in terms of carbon footprint. It also contrasts sharply with the desire of environmentalists to wean people off bottled water.
Yet there are reasons why luxury brands can identify with environmental goals. Luxury brands increasingly seek to connect with consumers’ desire for authenticity and there is little more authentic than natural materials. Being environmentally-friendly can be a luxurious form of consumption – bespoke pieces crafted from natural materials command a premium price.
Roy Tam makes eco-furniture in Dorset. Wood, he points out, is environmentally sound as it contains carbon absorbed from the air as the trees grew. He uses young wood that has not been dried in a kiln from local, small trees. His corporate customers “are almost all eco-minded” now, he says, while domestic customers are looking for good designs first but are attracted by eco-credentials.
There is even a practical side to environmental goods in a luxury setting. Yachts and plush homes are among the highest status symbols available and both could benefit from being greener. Stephen Voller, chief executive of the fuel cell company Voller Energy, says many of his customers are owners of mid-size sailing yachts in the 40ft-55ft class, costing from about £250,000 ($494,000) to £500,000.
These are usually equipped with lead acid batteries for power while sailing. But changing them is “every skipper’s nightmare”, says Mr Voller. The usual option is to run the engine or a generator. “Both are noisy, cause significant vibration within the boat and produce unpleasant smells. They are also fuel inefficient when used this way,” he says. For these reasons, an environmentally-friendly fuel cell is a greener and cleaner luxury option.
Environmentally-friendly homes – with options such as green roofs, water recycling and renewable heat and power – are also a hit in the luxury home market, says Julian Brooks, managing director of GreenMoves, an estate agent website. “There are more high-end eco homes than mid-range or low-range homes,” he says. It is easier for property developers to target the high end of the market with eco features, he adds.
WWF concludes that luxury and the green agenda can be reconciled, and that high-end brands can adhere to environmental principles while selling high-value goods – and indeed must do so in order to satisfy people’s increasingly green consciousness. “Luxury is about being and having the very best. Products that cause misery or environmental damage, now or in the future, are no longer considered by affluent consumers to be best in class. Such products do not feel luxurious to the more ethically and environmentally concerned consumers of today.”
Copyright The Financial Times Limited 2008

JAPANESE CONSUMERS : SHRINKING CONCERN FOR LABELS


By Jonathan Soble, Financial Time.

Guillaume Brochard knew he was right to bet on the Japanese market when the diamond-encrusted pandas sold out in a day. The five sparkling figurines – 6cm high and sporting 15 carats of diamonds and a €19,000 ($29,963) price tag – were made exclusively for sale in Japan by Qeelin, the Franco-Chinese jeweller founded five years ago by Mr Brochard and his Hong Kong-based designer, Dennis Chan.

Its baubles – mostly pendants shaped like bears, bells and lotus roots – have been a hit in Japan, where they are available at a single boutique in Tokyo’s Roppongi district. One woman bought 27 smaller and (slightly) lower-priced panda pendants “to give out to friends”, Mr Brochard says.
Qeelin does not advertise and came to Japan with next to no name recognition and none of the history or sales infrastructure enjoyed by big rivals such as Cartier and Bulgari. But that is less of a handicap than it would have been a few years ago, Mr Brochard says, particularly for producers targeting the top end of the market.
“There is an elite of Japanese that is distancing itself from the traditional ‘mass luxury’,” he says. “They are now more eager to embrace true luxury, which means exclusivity.”
Rich Japanese, in other words, are seeking out products that will be recognised and appreciated by their rich and cultivated friends, even if no one else knows who made them. That is a big shift in what has been a notoriously label-conscious market, and marks Japan out from its up-and-coming neighbour, China. “The Chinese haven’t reached this level yet,” Mr Brochard says. “They still like brands you can recognise from 100 metres.”
Back in the 1980s, Japan led the world in the so-called democratisation of luxury, as middle-class consumers splurged on designer handbags and jewellery. But “lux-aholic behaviour” has waned, say researchers at the Japan Market Resource Network, a consultancy. Although many people drew down their savings to feed brand addictions through the 1990s economic slump, others decided that the mass-produced joys of Uniqlo and Muji suited them just fine. “Today it is socially acceptable to buy off-price or from discount stores,” JMRN says.
As a result, sales of high-end brands have stagnated – pricey pandas notwithstanding. Antoine Belge, analyst at HSBC, says Japan is the world’s most mature market for luxury goods, and predicts that most brands will register “low single-digit” sales growth in the country “for the foreseeable future”.
Yet the stakes remain high in a country that generates some 14 per cent of sales for European luxury companies (and more for the bigger names). Weak overall growth also hides gaps between winners and losers. The migration of demand to the high and low ends of the market has benefited “accessible luxury” brands such as Coach – which now has 147 locations amid double-digit sales growth – as well as ultra-exclusive labels such as Bottega Vaneta – a brand as pricey as it is logo-light.
At the same time, “brands like Polo and Prada, which both have high levels of brand awareness and market penetration, are losing momentum,” says JMRN, as buyers feel “they are not worth their premium prices”.
Big luxury groups are responding to market shifts by offering limited-edition goods even as they cash in at the lower end. Some established brands are also going incognito to increase exclusivity: Kanebo, the Japanese cosmetics maker, has generated its strongest domestic sales growth with its RMK and Suqqu lines, neither of which trade under the Kanebo brand.
Many foreign brands are taking the opposite tack, boosting visibility with flashy new flagship stores, some of which offer more than clothes and jewels. At Armani’s 12-story, 6,000sq metre flagship store in Ginza, customers can spend Y65,000 ($627) for a three-hour spa treatment or dine on Japanese beef with celery root flan at the Armani Ristorante. Armani sank $20m into the new space last year, its biggest-ever investment in a single store.
Such investments are designed to knit brands more tightly into their customers’ social lives. They also generate new revenue streams without diluting the value of luxury groups’ core offerings – a big risk with more conventional brand expansions.
Looking ahead, luxury companies will have to deal with Japan’s shifting demographics – the number of working women aged 30-44 has increased by 15 per cent since 1997 and created a new class of high-earning female consumer. The country’s low birth rate, meanwhile, means the number of young first-time buyers will shrink.
In another switch, many “Japanese” luxury buyers may not be Japanese at all, as tourists from China and even Russia increasingly pick up the slack from domestic consumers. “Wealthy Chinese travel to Japan to get things they can’t get in China,” says Richard Collase, head of Chanel in Japan.
Chinese signs abound in department stores and some 10,000 retailers now accept debit cards issued by Chinese banks.
Luxury shops have encouraged the trend by stocking items not available outside Japan – in part to avoid piracy but also because Japan serves as a test market for the region. “Japan is a showroom for the rest of Asia,” says Mr Collase.
Copyright The Financial Times Limited 2008