Global Powers of Luxury Goods 2015 Engaging the future luxury consumer

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1 Global Powrs of Luxury Goods 2015 Engaging th futur luxury consumr

2 Contnts Introduction 1 Global conomic outlook 2 Engaging th futur luxury consumr 8 Global Powrs of Luxury Goods Top Top 100 highlights 20 Top Gographic analysis 24 Product sctor analysis 30 Nwcomrs 34 Fastst M&A activity 38 Q ratio analysis 44 Study mthodology and data sourcs 49 Contacts 50 2

3 Dloitt Touch Tohmatsu Limitd (DTTL) is plasd to prsnt th 2 nd annual Global Powrs of Luxury Goods. This rport idntifis th 100 largst luxury goods companis around th world basd on publicly availabl data for th fiscal yar 2013 (ncompassing companis fiscal yars ndd through Jun 2014). Th rport also provids an outlook on th global conomy; an analysis of markt capitalization in th luxury goods industry; a look at mrgr & acquisition activity in th industry; and a discussion on ngaging th futur luxury consumr. 1

4 Global conomic outlook Th global conomy in arly 2015 offrs luxury purvyors both caus for clbration and concrn. On th clbratory sid, som ky markts ar showing signs of gratr strngth. Th US conomy is clarly prforming bttr than in rcnt yars, with mploymnt growth up considrably and asst prics having strngthnd substantially. In Europ and Japan, mor aggrssiv montary policis ar boosting growth as wll as asst prics. On th othr hand, China s conomy continus to dclrat, vn as th govrnmnt taks stps to boost crdit markt activity. In two of th thr othr BRICs, Russia and Brazil, circumstancs hav conspird to crat a wak conomic nvironmnt. In addition, th uncrtainty of currncy volatility is making it difficult for companis to plan for th futur. What follows is a look at th global conomy and th potntial impact on luxury goods companis. Currncis $ US dollar On of th big storis in 2014 and arly 2015 has bn th sharp ris in th valu of th U.S. dollar against most othr major currncis. Thr wr svral rasons for this. Among thm wr th dclin in th pric of oil; fastr conomic growth in th U.S.; xpctations of highr U.S. intrst rats; and wak growth combind with mor aggrssiv montary policy in Europ, China, and Japan. Th rising dollar has many ffcts. First, it is disinflationary in th U.S. by rducing import prics. This will provid th Fdral Rsrv with mor tim bfor it must rais short trm intrst rats. Scond, a rising dollar is inflationary for vryon ls. That will b good for Europ and Japan, whr inflation is way too low. It will b a problm in many mrging markts. Indd svral hav raisd short trm intrst rats in ordr to stabiliz thir currncis and fight inflation, lading to slowr growth. Third, a rising dollar could b problmatic for companis in mrging countris that hav dollar-dnominatd dbts. Th volum of such dbt has quadrupld in th last svn yars. Going forward, whil it is narly impossibl to accuratly prdict xchang rats, it dos sm likly that th dollar will continu to fac upward prssurs, at last in Euro Th introduction of a far mor aggrssiv montary policy by th Europan Cntral Bank (ECB) has put downward prssur on th uro. Bond yilds in Europ hav bn supprssd and invstors, sking yild, hav sold uros and purchasd U.S. dollars. Th ffct of a dclining uro has bn to boost th comptitivnss of Europan xports. This, in turn, has causd invstors to push up quity prics of Europan companis. Morovr, th chapr uro, by raising import prics, is hlping th ECB to fight dflation. Swiss franc It is rar that Switzrland tops th world s conomic nws, but that was crtainly th cas at th start of First, a littl background: Thr yars ago th Swiss National Bank (SNB), which is Switzrland s cntral bank, imposd a cap on th valu of th Swiss franc in ordr to prvnt a sharp ris that would kill Swiss xports. Prior to that, thr had bn considrabl upward prssur on th franc with global invstors sing it as a saf-havn asst at a tim of turmoil in Europ. Th cap, at 1.2 francs pr uro, rquird that th SNB continually sll francs (purchas uros) in ordr prvnt a ris in th valu of th franc. Yt th problm with doing so is that it can ultimatly lad ithr to consumr pric inflation or asst pric inflation by incrasing th supply of francs. Whil nithr of ths happnd, th SNB worrid that th situation would bcom unsustainabl whn th ECB startd to implmnt quantitativ asing (QE), which it did in March Th SNB surmisd that such action would probably man mor downward prssur on th uro, thrby ncssitating mor uro purchass by th SNB and mor Swiss mony supply growth. Thrfor, in anticipation of QE, th SNB in January rmovd th cap on th valu of th franc, stunning global financial markts. Immdiatly, th valu of th franc soard as much as 40 prcnt against th uro bfor sttling in at a gain of roughly 15 prcnt. To as th pain, th SNB cut its bnchmark intrst rats. Morovr, th saf havn natur of Switzrland has rndrd bond yilds ngativ. For Switzrland, th ris in th valu of th franc mans lss comptitivnss for Swiss xport-orintd companis. It will man highr prics paid by customrs and/or lowr profit margins for Swiss companis. Th rsult will b slowr conomic growth than would othrwis hav bn th cas. It will also boost th comptitivnss of companis basd in th Eurozon that compt with Swiss companis. For Swiss consumrs, th ris in th valu of thir currncy mans gratr purchasing powr as imports bcom chapr. Whn it coms to luxury goods, th situation is a bit lss clar. Consumrs of luxury products ar not ncssarily pric snsitiv. Thortically, it could b th cas that a Swiss product with strong brand quity will not s a dclin in sals volum vn if prics 2

5 paid by forignrs ris. On th othr hand, w don t liv in a thortical world. Pric snsitivity varis dpnding on whthr a product is high nd or aspirational, whthr or not its brand is considrd uniqu, and th natur of markts in which it is sold. Morovr, it is difficult to idntify th impact of xchang rat movmnts on pric whn othr factors play a significant rol. Ths can includ th comptitiv situation and th conomic strngth of xport markts. For xampl, th corruption crackdown in China has rducd dmand for high nd luxury products, thus causing a drop in prics. Oil prics As of this writing, th global pric of oil has dclind mor than 50 prcnt from whr it was in th first half of Oil has falln du to wak global dmand combind with a considrabl incras in oil production in th U.S., Canada, Iraq, and Libya. Yt th U.S. is th main story, with oil production through fracking in North Dakota and Txas having transformd th global industry. Th othr big part of th story is th dcision by Saudi Arabia not to cut production in ordr to boost prics. Rathr, th Saudis ar contnt to allow th pric to sink in th hop that thy will gain markt shar at th xpns of frackrs. Th drop in th pric of oil is having a considrabl impact on th global conomy. It is crating disinflationary prssurs, spcially in dvlopd markts such as th U.S., Europ, and Japan; it is boosting consumr purchasing powr in oil consuming nations such as Japan, India, th U.S., and much of Europ and contributing to fastr conomic growth than would othrwis b th cas; and it is wraking havoc for oil xportrs such as Russia, Iran, Vnzula, and Nigria. Most importantly it has contributd to th stunning ris in th valu of th U.S. dollar. Oil xportrs ar paid in dollars and thn r-cycl thos dollars by purchasing goods or assts from th rst of th world. With a lowr oil pric, th supply of dollars availabl for such purchass has dclind. This paucity of dollars has causd th pric of dollars to ris. What can w xpct going forward? In th short trm, it is likly that th pric of oil will ithr stabiliz or fall furthr all in th contxt of incrasd volatility. Thr is a considrabl amount of nw oil production alrady in th piplin in th U.S. that is xpctd to com on lin in 2015, and crud invntoris continu to pil up. Longr trm, howvr, a low pric is likly to rtard invstmnt in fracking. Indd w r alrady sing a cutback in drilling prmits and a drop in oil company capital xpnditurs. A rduction in U.S. production could, thrfor, happn right whn global dmand starts to pick up spd. If this happns, th pric will surly rbound, prhaps in th nxt on to two yars. A rising pric will b inflationary for consuming nations, will put prssur on xtrnal dbt srvic for consuming nations, and will probably forc tightr montary policy at last in th U.S. For oil xportrs, it would b bnficial spcially for such countris as Russia, Iran, Vnzula, and Mxico. Major markts China China s conomy has slowd down and continus to show considrabl signs of waknss dspit govrnmnt fforts to rvrs th slowdown. Th Chins conomy grw 7.4 prcnt in 2014, th slowst rat sinc Th govrnmnt xpcts growth of only 7.0 prcnt in Lowr growth could man an inability to absorb workrs migrating from rural to urban aras. Th rsult would b high unmploymnt and social unrst. And, if th workrs didn t migrat, China wouldn t grow sinc thr would b zro productivity gains that com from switching workrs from farms to factoris. Thus, China can ill afford to grow much mor slowly. Why is China dclrating? First, xport markts such as Europ hav bn dormant. Evn th U.S. markt isn t what it usd to b for China. Plus, China s wags and currncy hav incrasd in rcnt yars, thrby rducing th comptitivnss of Chins xports. Indd with th rnminbi rlativly stady latly against th U.S. dollar, it has thus risn considrably against th uro and yn. Consquntly, Chins xports to Europ and Japan hav bn waknd. Indd som manufacturing capacity has movd outsid of China. Companis ar looking lswhr to produc goods for xport. Basic assmbly is moving from China to Vitnam, Indonsia, and lswhr. Scond, th govrnmnt has attmptd to limit th growth of th shadow banking systm. Lnding outsid traditional 3

6 banking channls has rsultd in xcss invstmnt in proprty, infrastructur, and havy industry. Th rsult is a growing volum of non-prforming assts which thratns th stability of th financial systm. Indd th govrnmnt has rcntly stimatd that, in th past fiv yars, $6.8 trillion in invstmnt has bn wastd. Yt fforts to limit this activity hav contributd to th slowdown in growth. Th govrnmnt is torn btwn a dsir to limit financial risk and a dsir to avoid a sharp slowdown. It has takn masurs to limit th growth of shadow banking whil, at th sam tim, attmptd to stimulat mor traditional forms of crdit through rpatd asing of montary policy. Indd intrst rats hav bn cut and th rquird rsrv ratio of banks has bn rducd. Th problm is that, with considrabl xcss capacity in proprty and industry, it is not clar that asir montary policy will ncssarily lad to mor crdit markt activity. Morovr, it is not clar if such an incras would b bnficial. It could xacrbat th problm of xcss capacity, xacrbat wholsal pric dflation, and ultimatly lad to financial losss. On sid ffct of th slowdown in conomic growth has bn dclration of rtail spnding. Morovr, th govrnmnt s crackdown on corruption has causd a drop in th traditional giving of luxury gifts, thus xacrbating th slowdown in rtail sals growth. In addition, China has latly sn considrabl outflows of capital. Walthy individuals hav bn moving mony out of th country, oftn into high nd proprty markts in such citis as Sydny, London, Nw York, Vancouvr, and Los Angls to nam a fw. This has put downward prssur on th Chins currncy, complling th cntral bank to sll forign currncy rsrvs in ordr to prvnt a sharpr dclin. USA Th U.S. conomy has acclratd and will likly grow fastr in 2015 than at any tim sinc Whil thr ar signs of strngth, thr hav also bn signs of waknss in arly In part this may rflct bad wathr in much of th country. But it may also rflct th impact of a wak ovrsas conomy as wll as th ngativ ffct of a high valud dollar. Th most important positiv sign, howvr, is a vry strong job markt. Also, thr ar indications that a pickup in businss invstmnt is imminnt. Th major wak componnt of th U.S. conomy is housing. Data hav bouncd around in th past yar du to highr mortgag intrst rats, highr hous prics, and th fact that first-tim buyrs ar oftn plagud by studnt dbt. Howvr, th mdiumtrm outlook for housing is good givn that prics appar to b stabilizing, mortgag rats ar down, job growth is strong, and thr is considrabl pnt-up dmand. A disproportionat shar of th activity is now in multi-unit housing rathr than singl family housing. And, in som big citis, prics at th uppr nd hav bn boostd by inflows of Chins mony. Du in part to th dramatic dclin in oil prics, inflation rmains wll blow th Fdral Rsrv s targt of 2.0 prcnt. As such, it is likly that th Fd will wait at last until th nd of 2015 bfor raising short trm intrst rats for th first tim in ight yars. Plus, low inflation and lowr nrgy prics ar hlping to boost consumr purchasing powr. In addition, unlik in th rcnt past, thr is no fiscal consolidation taking plac. Du to a strong conomy, th budgt dficit has falln dramatically, thrby narly liminating th political prssur to do somthing about th dficit. Th absnc of spnding cuts and tax incrass rmovs a factor that hld back growth in Europ Aftr a prolongd priod of disappointing conomic prformanc, th Eurozon conomy is starting to show som arly signs of improvmnt. Ths includ strongr job growth, rising rtail sals, improvd manufacturing prformanc, and som improvmnt in crdit markt conditions. Still, mor is ndd and, in som parts of Europ, growth rmains wak. Morovr, whil dflation has bn avoidd, inflation rmains too low. Th principal problm has bn waknss in crdit markts rsulting in a paucity of businss invstmnt. Th nd rsult, until rcntly, has bn wak hiring and high unmploymnt. Crdit markt waknss stms from svral factors. Ths includ wak banks that ar struggling to rcapitaliz by slling risky assts and avoiding nw ons, high risk sprads in Europ s priphry du to fars about sovrign risk, and th far of dflation. Dspit a modratly aggrssiv montary policy, which has ld to growth of th broad mony supply, bank crdit to th privat sctor continus to dclin, spcially in Europ s priphral countris. To countr th problms in crdit markts, th ECB has latly ngagd in a far mor aggrssiv montary policy. This ntails vry low intrst rats, dirct low-intrst loans to banks on th condition that th mony is thn loand to th privat sctor, and most importantly, purchass of govrnmnt bonds bttr known as quantitativ asing. Th arly signs ar good. Yt quantitativ asing alon may not b sufficint to rstor strong growth. Europ still nds an asir fiscal policy, mor conomic rstructuring within ky countris, and mor financial intgration within th Eurozon. 4

7 Japan Japan wnt into rcssion in 2014 following a big tax incras, with dclining consumr spnding and businss invstmnt. This was not mant to b. Whn Shinzo Ab took offic roughly two yars ago, h offrd a radical dpartur in policy charactrizd by th thr arrows of Abnomics. Ths wr fiscal stimulus, aggrssiv montary policy, and structural rform (basically drgulation and fr trad). Of th thr arrows, only on was implmntd. This was montary policy in which th Bank of Japan ngagd in unlimitd quantitativ asing with th goal of ultimatly achiving 2.0 prcnt inflation. Th ffct of this policy was to supprss th yn, boost quity prics, boost inflation, and supprss ral intrst rats. Initially it had a positiv impact on growth. Thn, things changd. Wags faild to rspond and ral consumr purchasing powr dclind having a ngativ impact on consumr spnding. Th rst of th world faild to cooprat and wak xtrnal dmand hurt xports. But th worst problm was implmntation of a massiv tax incras in April 2014, a policy that had alrady bn in th piplin whn Ab took offic. This had a dvastating impact and ld to th rcnt rcssion. Th good nws is that, by arly 2015, th Japans conomy was out of rcssion and growth was starting to acclrat. Unmploymnt was down, businss sntimnt was up, and asst prics wr rising, largly a rsult of th aggrssiv montary policy of th cntral bank. On th othr hand, consumr spnding rmains wak and, dspit th much lowr valu of th yn, th industrial sid of th Japans conomy has yt to xprinc a significant rbound. Going forward, it appars likly that Japan will xprinc modst growth. Yt th major uncrtainty is th dgr to which th govrnmnt will mbark on significant rforms, as originally promisd. Manwhil Japan ngotiats with th U.S. ovr th Trans-Pacific Partnrship (TPP), an agrmnt aimd at libralizing cross-bordr flows of goods and capital in th Pacific Rim rgion. If an agrmnt is rachd, it could play a major rol in complling th govrnmnt to libraliz various domstic industris, thus hlping to boost productivity and spur fastr growth. Brazil As of arly 2015, Brazil s conomy is in rcssion. This is du to a sharp drop in commodity prics (du to China s slowdown); a cntral bank policy of high intrst rats to fight inflation and to stabiliz th currncy; and businss lack of confidnc du to a govrnmnt policy of high rgulation and protctionism. In addition, Brazil has suffrd from th ris in th U.S. dollar, which is on of th rasons that th cntral bank has bn complld to tightn montary policy. Th lction in lat 2014 rsultd in a scond trm for Prsidnt Dilma Roussff. Although sh has sinc appointd a vry markt-orintd Financ Ministr, thr rmains uncrtainty as to whthr sh will gain lgislativ approval to implmnt th fiscal austrity and conomic rforms sh promiss. Among th policis that invstors want ar a rduction in govrnmnt social spnding and subsidis (in ordr to cut th dficit and fr up rsourcs for invstmnt in infrastructur); drgulation of labor and product markts; and frr trad. As for trad, Brazil rmains a rlativly protctionist conomy. Trad is a much smallr shar of GDP than is th cas in China or India. Th rang of rform idas is mant to boost productivity and improv Brazil s comptitivnss. This is important as domstic dmand is not likly to b a major sourc of growth in th nar futur. Consumr dbt is alrady quit high, so consumr spnding will ncssarily b constraind. Until now, Roussff s major platform has bn an ffort to boost th spnding powr of th poor through govrnmnt transfrs. India India had a highly significant lction in 2014, rsulting in th lction of Narndra Modi as Prim Ministr. For th first tim in mor than 30 yars, a Prim Ministr s party has a majority in th Parliamnt, thus boosting prospcts for nacting rform lgislation. Yt in his first six months in offic, not much rform lgislation was proposd, thus disappointing supportrs who wr uphoric following Modi s victory. Thy ar hoping h will drgulat industry and labor markts, rduc costly subsidis, boost infrastructur invstmnt, ngotiat frr trad, and as rstrictions on forign invstmnt. If h dos ths things, India s growth outlook will likly improv dramatically. Manwhil, growth is rcovring from its doldrums but rmains blow potntial. Th cntral bank has managd to rduc inflationary xpctations, which should hav a positiv impact on growth. Plus, lowr oil prics ar having a positiv impact both on inflation and growth. Russia Russia s conomy is in bad shap. Following th crisis in Ukrain and th implmntation of sanctions, thr was massiv capital flight from Russia rsulting in a sharp drop in th currncy. This, in turn, ld th cntral bank to svrly rais intrst rats svral tims. Th rsult was that invstmnt drid up, including forign invstmnt. Morovr, th dclining global pric of oil also contributd to downward prssur on th currncy and concrns about th ability of Russian dbtors to srvic thir xtrnal dbts. Th sanctions that hav bn imposd man that som big Russian companis will hav troubl rolling ovr forign dbts du to limitd accss to forign financial 5

8 markts. Alrady risk sprads hav incrasd dramatically. Som nrgy companis will lack accss to tchnologis that ar ndd to tap into Arctic rsrvs. This mans that oil production is likly to dclin absnt an nd to sanctions. By arly 2015, th cntral bank had stoppd intrvning in currncy markts and had startd to cut intrst rats. With oil prics stabilizing, th rubl has rboundd somwhat, but inflation rmains high and invstmnt is vry wak. Whn oil ultimatly rbounds, this will hlp Russia. Yt in th absnc of an asing of sanctions, it will b difficult for Russia to rturn to strong conomic growth. South Africa Economic growth has dclratd stadily ovr th last fw yars and is now only slightly abov 1 prcnt pr yar. Inflation has bn high, but has com down du to lowr nrgy prics. Th country has bn hurt by labor unrst, dclining commodity prics, shortags of lctricity, and undr-invstmnt. On th othr hand, th dclin in th pric of oil should boost consumr spnding powr in Still, th currncy (rand) has bn undr prssur, thus contributing to inflation and limiting th flxibility of th cntral bank. Whil growth is xpctd to pick up in 2015 and byond, most analysts s South Africa as having limitd potntial. Growth is xpctd to rcovr to a lvl of 3 to 4 prcnt, far blow that of many othr African conomis. Howvr, du to South Africa s sophisticatd businss nvironmnt, it is xpctd to rmain a major cntr of businss and financ for th continnt. Conclusion Th conomic climat for luxury goods companis is, on balanc, positiv, but thr ar risks and problms nonthlss. On th positiv sid, th conomis of th U.S., Europ, and Japan all appar to b on th rbound. Asst prics, including proprty prics, hav don wll, thus boosting th purchasing powr of upscal consumrs. On th ngativ sid, conomic growth in thr of th four BRIC conomis has ithr stalld or dclratd, th xcption bing India. Morovr, currncy markt volatility has thrown a monky wrnch into th bst laid plans of many companis. Among th risks going forward ar th possibility of a ris in nrgy prics, a drop in asst prics, and potntial gopolitical shocks in such placs as th Middl East and th South China Sa. Ovrall, howvr, luxury goods companis should b plasd that, aftr many yars of stagnant growth, th global conomy is mostly on a positiv path. 6

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10 Engaging th futur luxury consumr Th vr-sophisticatd luxury consumr is incrasingly digitallysavvy, tim-snsitiv, and socially awar. To ngag such a consumr th luxury industry has thr significant challngs. Th first is tchnology: 2015 so far has vry much bn a smart yar in th luxury sctor, and th sctor nds to continu to forg a strong rlationship with an vr-incrasing array of tchnologis. Scond, th rapidly volving consumr profil maks it critical for companis to undrstand th changing dsirs, buying bhaviors and channls of luxury consumrs. Undrpinning both of ths factors is th luxury brand s commitmnt to its history, provnanc, and community. Supporting a shard history by giving back to th community can strngthn brand quity and crat long-trm stratgic and financial rward for th businss. Why tchnology mattrs in luxury Th rlationship btwn digital and luxury can no longr b ignord. Tchnology will continu to influnc th ntir valu chain within th sctor. Evaluation Th luxury industry as a digital latcomr : It is a popular but in many ways unfair criticism to suggst that luxury brands hav bn too slow to includ digital, and spcifically -commrc, in thir businss. This slowr adaptation has its basis in th nd for luxury brands to first and formost protct brand hritag. This lgitimat concrn about diluting th brand s uniqunss and xclusivity in th broadly accssibl onlin world rquirs brands to mov cautiously to nsur sustainabl, long-trm valu cration. According to Dloitt s 2014 Swiss Watch rport, 1 xcutivs from that industry idntifid rputational risk from social mdia as on of th highst risks in onlin markting and distribution. In spit of ths challngs, howvr, many brands ar showing grat innovation and ar mbracing th potntial for digital tchnology to rach nw audincs, nhanc brand awarnss, and stablish a broadr gographic rach. No longr just about digital markting: For tchnology to b most ffctiv in th luxury spac, companis must intgrat it throughout th ntir valu chain and not just limit it to th markting function. This is particularly rlvant givn that today s multi-factd luxury consumr can offr multipl opportunitis for ngagmnt. H or sh is youngr, halthir, drivn, sophisticatd, xacting, digitally-savvy, xprinc-drivn, srvic-focusd, tim-prssd, prudnt, and nvironmntally awar. Wll-placd tchnology invstmnts at thr main valu chain touch-points ar liklist to positivly affct rturn on invstmnt and long-trm valu cration. 1. Product dvlopmnt: Innovation in product dvlopmnt nhancs xisting products and crats nw ways to fus craftsmanship with modrnity. Kring s Matrials Innovation Lab 2 and Biocoutur 3 ar just two xampls of firms invsting havily in R&D with rgards to raw matrials and fabric manufacturing procsss. Grac Choi s 3D mak-up printr 4 unvild arlir this yar and Ralph Laurn s Polo Tch shirt 5 ar xciting xampls of luxury brands incorporating tchnology into product dvlopmnt. 2. CRM systms: Effctivly managing th way in which dtaild consumr information is capturd and thn turning it to a brand s advantag will nhanc th comptitiv positioning of luxury groups and brands. According to rsarch conductd by Exan BNP and ContactLab, Burbrry xcls in thir -commrc Stratgic Rach (numbr of countris, languags, product catgoris offrd onlin), and digital customr xprinc (wbsit navigation and th onlin purchasing procss). 6 By using smart analytics, Burbrry collcts information on its customrs shopping habits and tailors thir in-stor and onlin xprincs Enhancd customr xprinc: Luxury brands that us tchnology to mak thir consumrs livs asir and mak intractions mor ngaging will rapidly build strongr brand valu and broadn thir markt footprint. Morovr, givn th incrasing numbr of dvics usd by consumrs, all contnt must b samlssly availabl across multipl platforms. Byond convninc, howvr, brands must kp th customr ngagd bfor, during, and aftr th actual purchas, continuing th rlationship and nriching it through valuabl and ntrtaining digital contnt. Gucci has bn vry highly rankd in digital customr xprinc and Coach has bn rcognizd for thir capabilitis in both -commrc rach and digital customr xprinc. 8 Looking forward Pushing boundaris: Brands that can intgrat tchnology into brand and product xprinc ar wll placd to ngag futur luxury consumrs. Consumr xprinc will b inxtricably linkd with innovativ us of digital platforms to connct with th growing numbr of intrnt and smart phon usrs in lading luxury markts. A numbr of companis ar drawing on thir artistic and innovativ traditions, crating highly polishd, visually nchanting onlin contnt. Rcnt xampls includ Chanl s short film Bhind th Scns by Karl Lagrfld, 9 which accompanid th brand s 2014/15 Métirs d Art show; Gucci s Making Of films for som of thir iconic products such as th Lillian boot 10 and th Jacki handbag; 11 Zgna s Ros Rborn film that dramatically showcass th brand s styl, lganc, and sophistication 12 ; and Louis Vuitton s Spirit of Travl campaign launchd via social mdia in Fbruary 8

11 2015 which highlights th brand s strong travl hritag. 13 Som companis hav cratd ntrtaining apps, such as Hrmès s Ti Brak, 14 a gam that immrss usrs in th brand xprinc. Luxury brands that choos to push boundaris whn it coms to crating visually nticing and xprintial digital platforms via short films, apps, microsits, and #vnts such as Burbrry s Art of th Trnch 15 ar liklist to succd with consumrs both on and offlin. Th mrgnc of smartwatchs and warabls ar two xampls whr brands hav pushd tchnology boundaris, not just at point of markting but also at th product dvlopmnt lvl. Howvr, thr is a fin lin btwn whn tchnology improvs th functional lmnt of luxury brands and whn it bgins to undrmin th brand by dging it toward commodification. Tchnology as a comptitiv advantag: Navigating th uncrtainty of th warabl dimnsion Luxury brands nd to adopt nw tchnologis and rfin thir products. But thy must do so without dtracting from thir uniqu cor product offring and xprtis. Evaluation Whn it coms to warabl tchnology, th smartwatch has bn rciving th lion s shar of covrag, thanks primarily to th launch of Appl s smartwatch. Indd, findings from Dloitt s 2014 Swiss watch industry survy found that 44% of Swiss watch xcutivs s smartwatchs as th nxt big thing. 16 Howvr, th luxury sctor is warming up to th warabls concpt mor broadly, with a numbr of high-profil partnrships btwn lading tchnology firms and fashion dsignrs showing an innovativ blnd of functionality and craftsmanship. This fusion is critical, as th ky challng for luxury companis is incorporating functionality in an asthtically plasing dsign that rflcts th usr s discrnmnt. Tag Hur s partnrship with Googl and Intl to build an Android War powrd smartwatch is but on xampl of such collaboration. 17 Othrs includ: Th MICA (My Intllignt Communication Accssory), launchd through collaboration btwn Intl and Opning Crmony, 18 incorporats smi-prcious gms with advancd tchnology that includs th capability of rciving SMS mssags and mting alrts. Th Ralph Laurn Ricky smart bag 19 nabls warrs to fully charg thir phons; lifting on of th flaps activats an intrnal light. Th bag mbodis a classic luxury lathr handbag whil simultanously intgrating craftsmanship and tchnology. In 2014 Luxottica and Intl announcd a joint partnrship to invstigat th futur of smart tchnology in ywar. 20 Kovrt Dsigns 21 has dvlopd a rang of dsignr jwlry that intgrats microlctronics such as snsors, a rchargabl battry, and Blutooth with thir stons. Through such functional jwlry, warrs rciv a subtl vibrating alrt whn thir phons rciv prdfind txts, mails, or calls. Swarovski s Activity Tracking Crystal, 22 dsignd in collaboration with Misfit Warabls, crystal can count a warr s stps, track slp pattrns, masur distanc travld, and show caloris burnd. Tory Burch s collaboration with th Fitbit Flx trackr 23 has rsultd in an xclusiv collction combining fashion with warabl tchnology. Luxury rtail is also ntring this trritory. A Prada stor in Nw York has Intractiv drssing rooms with smart mirrors through which customrs can connct to social mdia 24 and Nordstrom is currntly tsting smart fitting rooms in which full-lngth mirrors bcom intractiv scrns whn a customr taps thm. 25 Customrs at Thomas Pink s stor at Hathrow Airport can dsign thir own shirts through a larg intractiv tablt using th Prsonally Pink srvic or watch clips on Pink TV, a channl ddicatd to showing th latst brand vidos. 26 Positioning for a nw luxury consumr: No lss important than th product is its positioning as a luxury itm somthing uniqu, with limitd availability, and oftn aspirational. Appl s launch of its smartwatch positiond th product as a combination of tchnological innovation and a luxury accssory. Th launch campaign itslf has usd many lmnts of th most succssful ons in traditional luxury such as high-profil and xclusiv ditorial sprads (in various ditions of Vogu), limitd rtail distribution, partnrships with th world s trndist rtailrs (Coltt in Paris and Opning Crmony in London), individual sals appointmnts in stors, and clbrity ndorsmnts. All of this has cratd normous buzz and surroundd th product with an aura of luxury. Looking forward Fostring and ncouraging dvlopmnt: On th whol, Appl s ntry into th smartwatch catgory should b a positiv dvlopmnt, fostring tchnological advancmnt in th warabl catgory. Going forward, manufacturrs of warabls will most likly nd to mbd som form of halth monitoring function in ordr to appal to this digitally connctd and halth-conscious consumr. Th challng will continu to b providing optimal functionality whil mphasizing th history, artistry, and uniqunss 9

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