Think Tank: How Luxury Brands Can Balance Consumer Preferences, Corporate Values

Julie Petit

Updated Thu, April 5, 2018 at 4:30 AM UTC

Affluent buyers, driven by a commitment to sustainability, seek traceability and transparency in their purchases. To satisfy customers’ demands, many luxury fashion brands are placing respect at the forefront for the environment, integrity, fairness and workplace practices. They also are showcasing their manufacturing supply chain and clearly communicating the entire manufacturing process to their customers.

Sustainability and traceability in luxury fashion

Sustainability can be defined as meeting the needs of the present without compromising the environment or depleting natural resources. It has been part of the consumer buying lexicon for years. Traceability involves tracking the product through the supply chain. Overlaying both is transparency, which brings clear and accurate information on product sources, manufacturing methods, and the degree to which a company adheres to human rights and ethical practices.

Luxury fashion brands are embracing these values

How can luxury fashion brands align their goals of respecting the environment, sourcing materials locally and maintaining workplace ethics with their commitment to create value and generate a positive bottom line?

Luxury fashion brands are highlighting skills and experience to implement ethical practices and stimulate further innovation in production methods and enhanced materials properties. European luxury brands have embraced these changes to a greater degree than have U.S. companies, reflecting an overall commitment to sustainability. For example, France’s largest luxury brands have united behind a charter of good practices, which serve as guidelines for the sustainable development of the industry. These initiatives create a culture that supports sustainability, traceability and transparency in European luxury fashion brands’ manufacturing practices.

Luxury fashion brands are empowered in two important ways when they adhere to ethical initiatives that preserve scarce resources: respect the environment, source materials locally and maintain good workplace conditions. First, customers who subscribe to these values buy these products, building market share. Second, these practices contribute to the brands’ bottom line by mitigating risks, improving supply chain efficiency, ensuring regulatory compliance and enabling a quick pivot when a change decision is made.

Luxury fashion is proactive

Luxury fashion brands’ high-profit margins and stature supply the resources not only to support these initiatives but also deliver total transparency through clear communication with high-end customers. They have adopted several creative methods to do so.

Luxury fashion brands are using an omnichannel approach as a mean of engaging with customers and demonstrating traceability, transparency and sustainability. These efforts offer an integrated and cohesive customer experience by showcasing how products are produced. For example, Hermès invites its scarf designers to meet customers. During this event, Hermès shared the water reduction practices used in the dyeing process, which has resulted in a decrease of water use by 37 percent.

Luxury fashion brands are actively creating foundations and partnerships with non-governmental organizations, devoting a percentage of profits to worthy causes and humanitarian activities. For example, Gucci and UNICEF help orphans stricken with HIV and AIDs. Christian Dior collaborates with Rihanna by selling T-shirts emblazoned with “We Should All Be Feminists,” in Christian Dior boutiques. A portion of the proceeds goes to the singer’s Clara Lionel Foundation, which is committed to global education, health care and emergency response.

Developing partnership ecosystems among suppliers, auction houses and distributors to sync with customers’ expectations is another tool in luxury fashion brands’ quiver. For example, Saga Furs, the Finnish auction house, is committed to improving breeding conditions, designing new standards, engaging with breeders to teach them responsible practices and requiring them to comply as a condition of continuing their supplier relationship. Saga Furs invests heavily in and promotes its certification, leveraging third-party audits to maintain transparency.

Adhering to REACH standards can promote environmental sustainability through the responsible use of chemicals in the manufacturing practice, and maintain transparency by communicating its risk management measures to users. Social Accountability International’s SA8000 certification encourages organizations to demonstrate fair treatment of workers worldwide and is considered to be the leading global social certification standard. Gucci has been a member of SAI since 2007, and earned its certification in 2011 after conducting 2000 annual inspections of workplace conditions and verifying sustainability compliance.

Demonstrating corporate commitment

Luxury fashion brands should seek to develop an organizational structure that validates commitment to corporate social responsibility. CSR enables a two-prong approach: risk-reactive, designed to limit negative impact, and activism, which creates leadership through virtuous practices and results in tangible value. Upholding an ethical charter, analyzing its environmental footprint, and creating an environmental profit and loss statement — similar to Kering Group’s efforts — will make the company’s impacts visible, quantifiable and comparable.

It is also critical that luxury brands avoid greenwashing, an attempt to demonstrate environmental concern that generally follows bad publicity stemming from questionable practices. Seldom effective, greenwashing can breed distrust.

As luxury consumers continue to exhibit greater interest in sustainability, luxury fashion brands are meeting their customers’ demands for traceability by taking an omnichannel approach, creating foundations and partnerships, obtaining and adhering to certifications, and demonstrating a commitment to corporate social responsibility. Luxury fashion is also forging brand loyalty by deploying innovative methods of transparency in communicating responsible manufacturing and workplace values to their clientele.

Julie Petit is a partner at Mazars USA, a top 25 accounting firm, where she specializes in providing accounting, audit and advisory services to mid-size companies and multinationals in the manufacturing & distribution and luxury sectors. In 2017, Mazars published “Reinvesting Luxury? Ethics as Value Creation,” a comprehensive analysis, noting specific ways that luxury brands are addressing their customers’ evolving demands.

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