When Luxury Gets Political & Business Trends Off the Runway

Amanjena Resort in Marrakech, Morocco
Amanjena Resort in Marrakech, Morocco

Although certain individuals working in the ivory tower of luxury can be guilty of ignoring the real world, many globetrotting executives today have come to realise that the popular mood on the humblest of streets can directly impact the figures on a luxury brand’s balance sheet.

With all eyes fixed on the revolutions, protests and political unrest spilling over into much of the Arab world, a few sage voices are beginning to ask what it all might mean for businesses increasingly reliant on emerging markets such as those in the now troubled region.

On Friday, the International Herald Tribune's fashion editor Suzy Menkes pondered: "Could the dramatic events in the Middle East ultimately be a bonus to the luxury industry?"

Menkes canvassed opinion at the CEO level and discovered some interesting perspectives. Sidney Toledano, Christian Dior's CEO, reminded her that "what we like is stability. We want to go into countries where there is a middle class and where we see some immediate potential."

Fendi's chief executive, Michael Burke, suggested that the answer to Menkes's opening question was probably yes, assuming that the unrest causes growth of the aspirational middle classes and further upward mobility.

"This is a whole area of the world that missed the beat for the last 80 years — but for the future of the global economy, let's hope it goes in the direction of China and not Iran," he said. Diego Della Valle, chairman and CEO of Tod's Group, and other executives were more cautious, declaring that it was still far too early to tell the outcome and that the turmoil could develop into any number of political or economic scenarios.

Ultimately, what Menkes was implying in her article was that the long-term outcome of the current troubles in the Middle East could be positive for the luxury industry. In the meantime, however, as is always the case in times of upheaval there will also be short-term winners and losers.

Of course, some sectors of the luxury industry feel the effects of social unrest sooner than others. Travel and hospitality are hit first. Luxury resorts, hotels and tours around Tunisia's Mediterranean coast and Egypt's Red Sea beaches are plummeting and the nascent luxury retail sector linked to them is also suffering.

Early predictions that Dubai – because of its status as a safe haven for upmarket tourists – would benefit from their loss have proven true. Reports confirming this are already reaching travel operators like Kuoni.

According to CPP Luxury, anther aspect to the regional unrest is that it may cause a short-term boost to the luxury markets where the ousted Arab ruling elites and their wealthy peers flee into exile such as London, Zurich, Paris and Istanbul.

But looking back at the local dimension, there are also the inevitable cancellation of events like Bahrain's Formula One race which have knock-on effects for affiliates. The participating automakers were adversely effected but so too were luxury hotel operators who lost out on lucrative bookings of VIPs and attendees.

It's not always immediately obvious where tremors of such social quakes will pass throughout the wider market. Reuters reported on how geopolitics and its impact on the financial markets is causing trouble in the timepieces sector. Immediately after the troubles began in Libya, stocks in luxury watchmakers and their conglomerates (notably Richemont Group) fell two to three percent and have continued downward.

While Libya is insignificant as an importer of luxury goods, being a major exporter of crude oil meant that its instability caused the price of oil to rise – which analysts expect to negatively effect discretionary spending for luxury goods globally.

Of even greater concern is the unlikely but not unthinkable prospect of the domino effect knocking down regimes in key luxury markets like the United Arab Emirates, Saudi Arabia and other Gulf States. To put it into some perspective, just five Middle Eastern countries account for nearly ten percent of all Swiss watch exports, according to the Reuters report.

The recent protests in relatively stable and prosperous countries like Bahrain and Jordan should make it clear to luxury industry executives that the domino effect is already practically on the doorsteps of their boutiques in nearby Dubai and Kuwait.

And that's not all. Because countries which have been seen as beacons of stability (like Morocco) have enjoyed big boosts in foreign investment thanks to companies in the luxury industry, future growth targets could be at stake. Privately, some luxury brands must now wonder whether the kingdom of Morocco, despite its progressive society and economic uptick, is really so immune from this sort of uprising. After all, no one could have predicted that President Mubarak’s iron grip Egyptian society would falter — and Egypt has been another favoured destination for luxury investment in recent years.

What some might find surprising is that, one year ago, Luxury Society unknowingly touched on some of the events now unfolding in the Middle East with a piece entitled, 'Luxury in the Danger Zone' in which "the darker side of tantalising new markets" was explored by this author. As there is no end in sight to the current instability, it is perhaps worth revisiting a passage I wrote in that article about investment in places like war-torn Lebanon.

"If it is inevitable that the luxury industry will gain a foothold in ever more dangerous markets in order to sustain growth targets, then we will have to face these issues sooner or later. Perhaps it's time to start having a debate, establish best practice and draft some guidelines.

Selling luxury in a danger zone is never going to be a simple proposition but we can begin by reviewing what we’re already doing wrong. Much of what we can do better will be based on common sense, dialogue, discretion and, dare I say it, compassion."

As the runway baton was passed from London to Milan in the middle of the week, the New York Times's daily scorecard of fashion week reviews went uninterrupted, ultimately declaring a diverse group of 'winners' for the two cities: Mulberry, Pringle of Scotland, Mary Katrantzou, Gucci, Fendi, Jil Sander and Versace.

But for all the fashion trends that were percolating up from these and other catwalks, there were quite a few other business trends worth highlighting that bubbled up off the runway.

Robin Givhan's report on London Fashion Week for The Daily Beast drew attention to the fact that museum exhibitions like the Alexander McQueen retrospective at the Met and a new breed of political 'celebrities' (Kate Middleton and Samantha Cameron) are now serving as a formidable promotional vehicle for London designers of all persuasions. It stressed how monolithic certain trends like the royal wedding and the death of a designer can become for the fashion industry.

The Daily Mail provided an interesting perspective on the cool but conventional celebrities and the new twist on theatrical spectacle steering the fashion show season forward. Burberry's decision to beam its show over to the iconic screens at London's Piccadilly Circus seemed to signal that the brand now famed for its new media prowess was not content to sit on its digital laurels.

And in Milan, The Wall Street Journal used the young blogger Bryanboy as a way to demonstrate how brands like Dolce & Gabbana are profiting not only from real-time exposure on popular blogs but also from the added spotlight by dressing this new generation of 'celebrity bloggers' in branded goods.

Via Luxury Society

Robb Young

Every day, thousands of leading luxury professionals from over 150 countries log on to Luxury Society, a private online business network designed to connect, inform and inspire. Members are able to forge valuable relationships, keep abreast of the industry's latest developments and discover innovative strategies and career opportunities, while maintaining the privacy and discretion that they...(Read More)

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