The Oxford Handbook of Luxury Business 9780190932220, 0190932228

Table of contents :
Cover
The Oxford Handbook of Luxury Business
Copyright
Contents
About the Editors
Contributors
1. Luxury Business: Approaches and Issues
Part I Conceptual Foundations and the Evolution of the Luxury Industry
2. The History of Ideas on Luxury in the Early Modern Period
3. Critical Theory and the Singular Instant of Luxury: On Contemporary Conceptions of Luxury Customer Experience
4. Luxury as an Industry
5. Luxury, Banking, and Finance
6. Luxury and the Entrepreneur: A Story of Meissen Porcelain, Harlequins, and Creative Destruction
Part II Producing Luxury
7. Luxury Supply Chain Management
8. Luxury, Craft, Creativity, and Innovation
9. Licensing and the Mass Production of Luxury Goods
10. Systemic Luxury Strategy
Part III Luxury Branding and Marketing
11. Luxury Branding
12. Luxury Brand Extensions and Perceived Luxury: Insights from the Australian Market
13. How to Manage Heritage Brands: The Case of Sleeping Beauties Revival
14. Consumers’ Perceptions and Evaluations of Luxury and Luxury Brands
15. Why Luxury Brands Partner with Artists
Part IV Distributing Luxury
16. Department Stores and Luxury Business
17. The Strategic Value of the Mono-​Brand Store for European Luxury Fashion Brands
18. Airport Luxury Retail
19. Intellectual Property Rights and Country-​of-​Origin Labels in the Luxury Industry
Part V Globalization and Markets
20. Luxury in the United States and Western Europe
21. Luxury Business in Japan
22. Luxury in China
23. Luxury in Emerging Markets: Towards Understanding New Prestige Brands in India
Part VI Issues of Morality, Inequality, and Environmental Sustainability
24. Economic Inequality and Luxury: A Critical Luxury Studies Approach
25. Consumers, Counterfeiters, and Luxury Goods
26. Luxury and Corruption
27. Luxury Tourism and Environmentalism
28. Digital Luxury: Towards a Sustainable Future?
Index

Citation preview

T h e Ox f o r d H a n d b o o k o f

LU X U RY BU SI N E S S

T h e Ox f o r d H a n d b o o k o f

LU X U RY BU SI N E S S Edited by

PIERRE-​Y VES DONZÉ, VÉRONIQUE POUILLARD, and

JOANNE ROBERTS

1

3 Oxford University Press is a department of the University of Oxford. It furthers the University’s objective of excellence in research, scholarship, and education by publishing worldwide. Oxford is a registered trade mark of Oxford University Press in the UK and certain other countries. Published in the United States of America by Oxford University Press 198 Madison Avenue, New York, NY 10016, United States of America. © Oxford University Press 2022 All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, without the prior permission in writing of Oxford University Press, or as expressly permitted by law, by license, or under terms agreed with the appropriate reproduction rights organization. Inquiries concerning reproduction outside the scope of the above should be sent to the Rights Department, Oxford University Press, at the address above. You must not circulate this work in any other form and you must impose this same condition on any acquirer. Library of Congress Control Number: 2021039936 ISBN 978–​0–​19–​093222–​0 DOI: 10.1093/oxfordhb/9780190932220.001.0001 1 3 5 7 9 8 6 4 2 Printed by Sheridan Books, Inc., United States of America

Contents

About the Editors Contributors 1. Luxury Business: Approaches and Issues Pierre-​Yves Donzé, Véronique Pouillard, and Joanne Roberts

ix xi 1

PA RT I   C ON C E P T UA L F OU N DAT ION S A N D T H E E VOLU T ION OF T H E LU X U RY I N D U ST RY 2. The History of Ideas on Luxury in the Early Modern Period Christopher J. Berry 3. Critical Theory and the Singular Instant of Luxury: On Contemporary Conceptions of Luxury Customer Experience John Armitage

21

41

4. Luxury as an Industry Pierre-​Yves Donzé

59

5. Luxury, Banking, and Finance Hubert Bonin

79

6. Luxury and the Entrepreneur: A Story of Meissen Porcelain, Harlequins, and Creative Destruction Robin Holt

107

PA RT I I   P ROD U C I N G LU X U RY 7. Luxury Supply Chain Management Alessandro Brun and Hakan Karaosman

127

8. Luxury, Craft, Creativity, and Innovation Joanne Roberts

151

vi   Contents

9. Licensing and the Mass Production of Luxury Goods Tomoko Okawa

173

10. Systemic Luxury Strategy Jonas Hoffmann

195

PA RT I I I   LU X U RY B R A N DI N G AND MARKETING 11. Luxury Branding Benjamin Berghaus

219

12. Luxury Brand Extensions and Perceived Luxury: Insights from the Australian Market Nicole Stegemann and Sara Denize

249

13. How to Manage Heritage Brands: The Case of Sleeping Beauties Revival Delphine Dion

273

14. Consumers’ Perceptions and Evaluations of Luxury and Luxury Brands Klaus-​Peter Wiedmann

287

15. Why Luxury Brands Partner with Artists Annamma Joy and Russell W. Belk

309

PA RT I V   DI ST R I BU T I N G LU X U RY 16. Department Stores and Luxury Business Rika Fujioka and Jouko Pitkänen 17. The Strategic Value of the Mono-​Brand Store for European Luxury Fashion Brands Christopher M. Moore and Stephen A. Doyle 18. Airport Luxury Retail Debbie Pinder and Joanne Roberts 19. Intellectual Property Rights and Country-​of-​Origin Labels in the Luxury Industry Véronique Pouillard

333

353 379

403

Contents   vii

PA RT V   G L OBA L I Z AT ION A N D M A R K E T S 20. Luxury in the United States and Western Europe Fflur Roberts, Florence Allday, Ayako Homma, and Oksana Malynovska

423

21. Luxury Business in Japan Pierre-​Yves Donzé

445

22. Luxury in China Qing Wang

461

23. Luxury in Emerging Markets: Towards Understanding New Prestige Brands in India Glyn Atwal, Douglas Bryson, and J. P. Kuehlwein

483

PA RT V I   I S SU E S OF M OR A L I T Y, I N E Q UA L I T Y, A N D E N V I RON M E N TA L SU S TA I NA B I L I T Y 24. Economic Inequality and Luxury: A Critical Luxury Studies Approach Joanne Roberts

503

25. Consumers, Counterfeiters, and Luxury Goods Giacomo Gistri

525

26. Luxury and Corruption Tereza Østbø Kuldova

547

27. Luxury Tourism and Environmentalism Geoffrey Jones

571

28. Digital Luxury: Towards a Sustainable Future? Sandy Black

591

Index

615

About the Editors

Pierre-​Yves Donzé is Professor of Business History at Osaka University, Japan, and a visiting professor at the University of Fribourg, Switzerland. His research interests include history of international business, business history of luxury and fashion, and history of medical technology. He is a co-editor of the journal Business History, and a member of the councils of the European Business History Association and the Business History Society of Japan. He recently published Global Luxury: Organizational Change and Emerging Markets since the 1970s (Palgrave Macmillan, 2018), co-​edited with Rika Fujioka. Véronique Pouillard is Professor of International History at the Institute for Archeology, Conservation and History, University of Oslo, Norway. Her research focuses on economic and business history, the creative industries, and the history of intellectual property rights. She was a Harvard-​Newcomen Fellow from 2008 to 2009. She is the author of several books, including Paris to New York: The Transatlantic Fashion Industry in the Twentieth Century (Harvard University Press, 2021). She is currently working on a European Research Council-​funded multiyear project titled Creative IPR: The History of Intellectual Property in the Creative Industries (ERC CoG 818523). Joanne Roberts is Professor in Arts and Cultural Management and Director of the Winchester Luxury Research Group at Winchester School of Art, University of Southampton, UK. Her research interests include knowledge, innovation and creativity, luxury, and international business. Currently, Joanne is exploring the connections between luxury and art, space, prosperity, and inequality. She has published widely in leading international academic journals and she has authored and edited several books. Most recently, Joanne has co-​edited, with John Armitage, The Third Realm of Luxury: Connecting Real Places and Imaginary Spaces (Bloomsbury, 2020) and Critical Luxury Studies: Art, Design, Media (Edinburgh University Press, 2016).

Contributors

Florence Allday, Independent researcher John Armitage, University of Southampton Glyn Atwal, Burgundy School of Business Russell W. Belk, York University Benjamin Berghaus, University of St. Gallen Christopher J. Berry, University of Glasgow Sandy Black, University of the Arts London Hubert Bonin, Sciences Po Bordeaux; University of Bordeaux Alessandro Brun, Politecnico di Milano Douglas Bryson, Rennes School of Business Sara Denize, University of Western Sydney Delphine Dion, ESSEC Business School Pierre-​Yves Donzé, Osaka University Stephen A. Doyle, Manchester University Rika Fujioka, Kansai University Giacomo Gistri, University of Macerata Jonas Hoffmann, SKEMA Business School Robin Holt, Copenhagen Business School Ayako Homma, Euromonitor International Geoffrey Jones, Harvard University Annamma Joy, University of British Columbia Hakan Karaosman, Politecnico di Milano J. P. Kuehlwein, New York University; Columbia University Tereza Østbø Kuldova, OsloMet - Oslo Metropolitan University

xii   Contributors Oksana Malynovska, Euromonitor International Christopher M. Moore, New College Lanarkshire Tomoko Okawa, Jissen Women’s University Tokyo Debbie Pinder, University of Southampton Jouko Pitkänen, Aalto University Véronique Pouillard, University of Oslo Fflur Roberts, Euromonitor International Joanne Roberts, University of Southampton Nicole Stegemann, University of Western Sydney Qing Wang, University of Warwick Klaus-​Peter Wiedmann, University of Hannover

Chapter 1

Luxu ry Bu si ne s s Approaches and Issues Pierre-​Y ves Donzé, Véronique Pouillard, and Joanne Roberts

The luxury industry has been one of the fastest-​growing sectors since the 1970s, and one in which Europe has strengthened its competitiveness in the world market. According to the consulting firm Bain & Company, global sales in the luxury industry grew rapidly from 77 billion euros in 1995 to 173 billion euros in 2010, and, by 2019 sales were estimated to have reached nearly 1.3 trillion euros (Bain & Company 2020a: 8). For Bain & Company (2020a) the luxury market is made up of the following nine segments: personal luxury goods, luxury cars, luxury hospitality, fine wines and spirits, gourmet food and fine dining, high-​end furniture and housewares, fine art, private jets and yachts, and luxury cruises. According to Bain & Company’s analysis, the market for personal luxury goods, consisting of items such as fashion, jewellery, watches, and cosmetics, has steadily risen over several decades to reach a total of 281 billion euros in 2019 (Bain & Company, 2020a:  8). The COVID-​19-​induced pandemic, however, has impacted the personal luxury goods consumption hard, with a loss of value of 25 percent in the first quarter of 2020. From this point, Bain & Company expects that the luxury market would need two years to recover1. While the health-​induced crisis has spread throughout the world and is, in Fall 2020, growing stronger again in Europe, the luxury sector experienced a significant rebound in China that observers attributed to ‘revenge purchases’ after lockdown-​ induced shopping bans. The growth of luxury on newer markets, and especially in China, seems for now to sustain the luxury industry, although such observations will need to be verified in the longer term.2 Luxury has always been traded internationally and, as such, it is a pioneering industry in globalisation. Trade in luxury products and especially personal luxuries can be traced to the rise of civilisations almost 5,000 years ago (Frankopan 2016). During the late twentieth and twenty-​first centuries, with the emergence of dominant brands

2    Pierre-Yves Donzé, Véronique Pouillard, and Joanne Roberts and multinational luxury conglomerates, the luxury industries have become increasingly concentrated. By 2019, the top 10 luxury companies accounted for 51.2 percent of the luxury goods sales of the top one hundred luxury companies (Deloitte 2020: 17). The first three luxury groups in terms of economic weight are based on the European continent: LVMH and Kering in France and Richemont in Switzerland. The weight of Europe as a global luxury player is important and does not seem to abate. The recent acquisition by LVMH of luxury jeweller Tiffany & Co, the most prominent symbol of American luxury, is an example of the ambitions and dominance of the European luxury groups. By acquiring Tiffany & Co., LVMH also consolidates its presence in the realm of luxury jewellery, a domain of activity where the group needed to strengthen its presence, especially in relation to Richemont, which owns an important portfolio of luxury jewellery and watchmaking. The growth of such large luxury groups rests upon strategies of diversification. However, the investment portfolios of these groups may show a much wider diversity of economic activity than the sectors in which the groups are specialised, as Hubert Bonin shows in chapter 5 in this volume. Not all European luxury firms are large or belong to public groups. Important players in the domain have remained private, for example, the French luxury company Chanel and the Italian luxury company Armani. Although Hermès is a public company first launched on the Paris stock exchange in 1993, family members retain a majority shareholding (over 60  percent of the shares) allowing the company to retain its status as one that is largely family-​owned and a multigenerational firm. The sixth generation of Hermès has sought to preserve the company from acquisition by larger groups. Keeping important luxury firms private has been, in some cases, helped by protective action from governments. In France, the state may act notably through the action of the French Autorité des Marchés Financiers. As shown by Pierre-​Yves Donzé, especially from the turn of the millennium, the large luxury groups have sought to restore greater coherency in their portfolios of activities, recentring them around the luxury activities, or even around flagship brands, as for example, Dior is for LVMH (chapter 4 in this volume). This refocusing has operated along the lines of a model of management that scholars describe as centralised decentralisation. The management of the large groups proceeds through rationalisations of the activities of their branches, selling brands that no longer garner the necessary prestige, and strategising mergers and acquisitions. On the marketing side, over the last decades, luxury groups have concentrated activities on luxury, sought to identify strategic areas for growth, but also diversified their lines and products. As Tomoko Okawa shows in chapter 9 on licensing, this key strategy of luxury groups is a balancing act between exclusive luxury products and affordable branded luxury goods. It is also a balancing act on the global map that requires profound knowledge of the cultural differences between the consumers in different parts of the world. This is also reflected in the evolution of retail, where the department store remains important, as shown by Rika Fujioka and Jouko Pitkänen (see chapter 16), while the rise of monobrand stores, including flagships that may be commissioned to the most prestigious architects, have garnered attention in the industry, as Christopher M.  Moore and Stephen A. Doyle show in chapter 17

Luxury Busines: Approaches and Issues    3 dedicated to this type of retail. Finally, the COVID-​19-​induced pandemic has accelerated the shift of important shares of the market to e-​commerce, as Sandy Black explains in ­chapter 28 on digital luxury in this volume. Luxury today is more global than ever. The dominance of the European groups should not overshadow that, to this day, the premier marketplace for personal luxury is New York. This book seeks to offer a wide range of geographically diverse examples, such as the case of Australia which is studied through the prism of brand extensions and tie-​in products by Nicole Stegemann and Sara Denize (chapter 12). Until recently, Asian consumers of luxury goods tended to enjoy shopping in Europe, where the powerful attraction of experience and service added to the enjoyment of owning a product signed by a prestigious brand. Yet the recent developments in luxury consumption, especially triggered by the COVID-​19 pandemic, show that it is on the Asian markets that the consumption of luxury has performed best and shown the most resilience. This volume approaches both more mature Asian markets for luxury, as Pierre-​Yves Donzé does in his chapter on Japan (chapter 21), and the currently fastest-​growing luxury market, China, which is studied in a dedicated chapter of this book by Qing Wang (chapter 22). China is here to stay, underlines a Bain & Company (2020b) report on luxury in the aftermath of the COVID-​19 pandemic. Hence, luxury is a fast-​growing and global industry, dominated by European firms. Since the 1990s, it has attracted a broad range of scholars in various disciplines in the humanities and social sciences, who have contributed to a better understanding of the characteristics and dynamics of this sector. The objective of The Oxford Handbook of Luxury Business is to provide its readership with an overview of the corpus of luxury research conducted in the relevant disciplines over the past two decades. It reflects the variety of perspectives that offer complementary views of the luxury industry. At the same time, this volume is an opportunity to discuss a broad range of global issues faced by luxury business.

Academic Approaches to the Study of Luxury Academic research on luxury has led to an increase in the number of works over the last two decades. Research in management, history, and critical studies offers a varied and complementary view of the luxury business.

Management For the past fifteen years or so, the dramatic growth of the luxury industry has attracted increasing attention from scholars in the field of management (Berghaus et al. 2014;

4    Pierre-Yves Donzé, Véronique Pouillard, and Joanne Roberts Chevalier and Mazzalovo 2008; Chevalier and Xiao 2008; Kapferer and Bastien 2009; Okonkwo 2007; Tungate 2009). Alongside this has been the emergence of an increasing number of management degrees, including master’s and master’s of business administration degrees that are tailored to the field of luxury brand management. Moreover, reflecting the growing academic interest in the area, journals dedicated to luxury and its management have recently emerged (Luxury: History, Culture, Consumption, since 2014; Luxury Research Journal, since 2015). Additionally, various business, management, and marketing journals have published special issues or special sections focused on aspects of luxury (e.g., Journal of Fashion Marketing and Management, 2013; Journal of Business Research, 2017 and 2019; Journal of Branding Management, 2018). This literature builds on a common point of departure perfectly embodied in the seminal book of Kapferer and Bastien (2009): Luxury is different. Consequently, the management of luxury businesses must differ from that of businesses in other sectors. Luxury goods are characterised by a high value-​added deriving from material and emotional factors. Their design, manufacture, and sale follow specific rules that ensure the marketing of consumer goods perceived, and purchased, as luxuries. According to Jonas Hoffmann (chapter 10), entrepreneurs implement a systemic luxury strategy that integrates various levels of actions, from the contextual environment, natural and social, to the human sociomaterial ecosystem and the individual value-​creation system. The balance between the need to innovate, in order to offer new goods to customers, and the need to follow traditional craft practices, which grant a brand legitimate luxury status, is a tension at the core of the creativity process of luxury goods explored by Joanne Roberts (chapter 8). The control of the supply chain is another key issue that aims to make sure the manufacturers of luxury fashion or accessories source excellent materials or components that will contribute to strengthen the luxury position of their goods, as demonstrated by Alessandro Brun and Hakan Karaosman (chapter 7). From the same perspective, Giacomo Gistri (chapter 25) showed that the struggle against counterfeits aims to guarantee product quality and trust for luxury brands. However, management scholars have demonstrated that luxury business does not rely on mere production issues. The idea of luxury itself is deeply subjective. It depends on consumers and differs between cultural and social backgrounds. The difficulty of understanding consumer behaviour regarding luxury goods has led to the development of a large number of academic studies on this topic (Dubois et al. 2005). Klaus-​Peter Wiedmann (chapter 14) argues that the interplay between conscious and unconscious perception has a major impact on the way individuals perceive luxury. The focus on emotion patterns and purchase motivations is a key element for a proper understanding of consumer behaviour. However, as Benjamin Berghaus (chapter 11) elaborates, companies are not passive actors in this process in the sense that they deploy luxury branding to position their products and to communicate to target consumers. Finally, one must stress that the research on luxury in management is not only driven by a pure academic objective and the mere will to offer a scientific explanation to a social phenomenon. It answers also the demand from private enterprises to carry out applied research in marketing and to train the new generations of luxury brand managers. These practical

Luxury Busines: Approaches and Issues    5 objectives explain the presence of several former managers among leading scholars in luxury management. For example, Vincent Bastien was managing director of Louis Vuitton within LVMH and of the beauty division of Sanofi Group, before teaching at HEC Paris (Kapferer and Bastien 2009), while Michel Chevalier was a managing director of Paco Rabanne Parfums and a consultant before teaching at HEC and Paris-​Dauphine University (Chevalier and Mazzalovo 2008). This mixture of genres is the main reason for the underdevelopment of critical studies of luxury (see section “Critical Studies of Luxury”).

History The existing literature demonstrates the complexity of defining luxury and its changing meaning over time, as explored by cultural, economic, and social historians. This complexity arises because the meaning of luxury varies through time and space, and across economic, social, and cultural contexts. Luxury is often associated with excessive quantity and frequently viewed as superfluous, unnecessary, or an indulgence. The term is also associated with expensive, rare, elegant, and refined products and services of the highest quality. Yet, luxury, as a concept, also changes according to the perspective of scholarly disciplines. Recent scholarship in history emphasizes that luxury was already an important sector in the economy of antiquity. During this period luxury was associated with extravagance, desire, and decadence. In contrast to the virtues of temperance, luxury was therefore viewed as morally indefensible. Tracing the transition of luxury from antiquity through to modern times, Christopher J. Berry (1994) notes its demoralisation in the eighteenth century when the social and economic benefits of luxury production and consumption were advanced by the philosophers David Hume (1752) and Adam Smith (1776). Berry (chapter 2) pursues these questions in this volume, thereby exposing the long-​lasting importance of the theories on luxury to understand how the industry came to be what it is today. Historians have also researched the emergence and ascent of luxury businesses, and set to the task of addressing questions that include the place of luxury in the development of capitalism, the relation between luxury and so-​called consumer revolutions, the interrelations of luxury and globalisation, and issues of periodisation (Berg 2007; McNeil and Riello 2016; Sombart [1913] 1967; Verley 2006). Historians of modern consumption societies have highlighted the role of luxury consumption in stimulating economic development in the eighteenth century (Berg 2007; McNeil and Riello 2016), a period when Western middle-​class consumers increasingly enjoyed the growth of ‘demi-​luxe’ products, many of which were sourced in Asia, including ceramics, spices, and fabrics. The importation of such goods motivated domestic producers to innovate and to emulate the imported luxuries; in this way, luxury consumption stimulated domestic industrial production. Ceramics made in the West, for example, attempted to replicate and to adapt sought-​after designs from Asia. The history of luxury reveals that products, markets, and exchanges are constantly evolving. Historical research has also emphasised that the formation of a global luxury business was a relatively recent

6    Pierre-Yves Donzé, Véronique Pouillard, and Joanne Roberts phenomenon, dating back to the 1980s, as it was mostly based in Europe, the United States, and Western offshoots until then (Donzé and Pouillard 2020).

The Use of History in Narratives of Luxury Consequently, an appreciation of history is important to understand luxury from a management perspective. Industrialisation, economic development, and social change impacted on the goods and services considered to be luxuries. The emergence of large enterprises and the globalisation of markets had a major influence on the growth of luxury business. Despite a significant shift in global competitiveness from Europe towards East Asia, since the late twentieth century, luxury remains an industry in which Europe retains its competitive advantage. In part, this is due to the valorisation of heritage and culture. In this way, the luxury industry generates economic resources from present-​day interpretations and uses of the past. Such a valorisation of the past should however be exercised with caution. Recently, management and history scholars have noted the risks borne by uses and misuses of history in the narratives of firms (Perchard, Mackenzie, Decker, and Favero 2017: 913). Several chapters in this book analyse the ways in which firms manage heritage and provenance as economic resources. Researchers have shown that the place of the past in such narratives can be more or less infused by rewriting or by adding fictional elements. The past history of luxury brands themselves may have an aura strong enough for the brand to retain value even after having been discontinued. Luxury brand revivals, and the typology of strategies available for reviving such brands, is examined in a chapter by Delphine Dion (chapter 13). In this context, the recent development by luxury firms of entire in-​house departments dedicated to their patrimony and their archives is a sign of the serious investments by brands in their heritage. Such investments become part of portfolios of intangible assets that are expected to offer returns on conservation, and to recreate value from the past. In this context, the definition of an archive by a luxury firm may be a repository of forms that may be reused, a collection of traces that allow the affirmation of the authenticity of the brand, and a museum of artefacts that can be staged in retrospective exhibitions showcasing the brand by way of objects exhibited in museums around the world. Such understandings of the role of the archives by luxury brands might be different from the definition that historians use for corporate archives. The possible monetisation of such archives may also raise further questions and challenges. In the light of this question, luxury appears as an industry of great interest in interrogating the uses of history in the management of firms (Donzé and Wubs 2019: 83–​102). Historical narratives are deployed in the communication strategies of luxury businesses. Although, as Bastien and Kapferer (2012: 323) argue in their classic study on the industry, the role of advertising in the luxury business is not to sell. Indeed, some luxury brands, for example, the Belgian designer Dries Van Noten, decided on a clear and long-​term communication strategy that excludes advertising. However, luxury firms build extremely powerful brands that communicate dreams, including

Luxury Busines: Approaches and Issues    7 connections to the past, and do not evoke the question of pricing. In constructing the identity of the luxury firms, branding plays a central role. This volume offers diverse and complementary research perspectives that contribute to deconstructing the strategies used to position goods and services as luxuries, and to augment their intangible capital. It goes further, in examining various strategies of brand construction and legitimisation by luxury firms. The work of artists for luxury brands, explored by Annamma Joy and Russell W. Belk (chapter 15 in this volume), is a particularly relevant example of the innovative nature of the communication modes deployed by luxury firms.

Critical Luxury Studies As noted above, much management literature concerned with luxury lacks depth of critical analysis. Yet, given the rising significance of luxury business, critical consideration of the nature and impact of luxury is required. Research in the field of business, management, and marketing explores luxury business in isolation from the sociocultural and historical contexts of the goods and services they produce and distribute. Similarly, the consumption of such goods and services is rarely situated in its wider social practices. In contrast, scholars adopting a critical luxury studies perspective situate luxury in relation to other sociocultural practices, such as the politicised structures of capital and labour, democracy, the city, and other sociocultural dimensions (Armitage and Roberts 2014, 2016a, 2016b). With a multidisciplinary philosophical approach that draws on orthodox and radical perspectives within the arts, the humanities, and the social sciences, critical luxury studies is cognizant of historical, economic, and political trends and yet open to interpretations that are attentive to social-​cultural conditions. Moreover, critical luxury studies is an approach that resonates with scholars of luxury seeking alternative perspectives to that offered by the field of luxury brand management. The moral questioning of luxury that was prevalent in antiquity continues today, though, perhaps, to a lesser degree (Roberts 2019). In this volume, such concerns are evident in chapter 24 by Joanne Roberts, which takes a critical luxury studies approach to an exploration of the relationship between luxury and inequality. Additionally, the corrupting influence of luxury that has long been recognised is a theme taken up by Tereza Østbø Kuldova (chapter 26) which critically investigates present-​day manifestations of the connections between luxury and corruption. Spatial considerations of luxury have attracted the attention of critical scholars. For instance, Roberts and Armitage (2020) argue that the connection of real luxury places and imaginary spaces, which are increasingly augmented by a host of visual media, gives rise to a third space of luxury, which they term ‘the third realm of luxury’. In this third realm mass-​produced ‘luxury’ branded goods that are associated with exclusive hand-​crafted luxury items in brand communications can, when connected to the imaginary spaces of the consumer’s fantasies, take on real-​imagined luxury status in the minds of consumers who imbue them with their own personal imaginary qualities. Through the exploitation of this third realm, luxury brands can ensure that the

8    Pierre-Yves Donzé, Véronique Pouillard, and Joanne Roberts mass-​produced item is experienced by the individual consumer as unique. Andermatt Conley (2020) demonstrates how real estate developers in New York and Boston take advantage of the third realm to sell small apartments as luxurious. Making use of wide-​ angled photography, favourable lighting, and minimalistic decor and furnishings, real estate developers evoke the experience of a real-​imagined luxury space. In this volume, Debbie Pinder and Joanne Roberts (chapter 18) also consider the manipulation of space in relation to the airport luxury store. They argue that through the use of iconic design features, products, logos, and iconography, luxury brand stores create a sense of place by providing a haven of luxury culture within the space of the hustle and bustle of the airport. An airport presence offers luxury brands not only a means of generating revenue but also an important means to promote brands to a wide and varied international set of customers. For international airports, the presence of luxury brand stores has become a significant means to attract passengers and strengthen commercial revenue streams.

Global Issues Although luxury has become a large fast-​expanding global business, today, it faces major issues that may challenge the basis of its business model and the pursuit of growth. These global issues are not unique to luxury, but this sector is particularly sensitive to them due to its real and deep global nature. Luxury commerce and industries were pioneers in international trade, and in the successive waves of globalisation. The rise of the luxury business seems to follow three, rather than the two, waves of globalisation usually observed by the historians (Jones 2005). In the case of luxury, the first period of internationalisation lasted until 1945, despite the Great Depression from 1929 into the 1930s and World War II. Luxury then went through an early globalisation during the period from 1945 to 1980, therefore globalising earlier than most other industries. This was followed by a more standard wave of mature globalisation from the 1980s onwards (Donzé and Pouillard 2020: 425). The last phase of mature globalisation was accompanied by an important movement towards concentration in the luxury industries. Larger groups have set to the task of buying smaller firms, leading to the emergence, in the last decades of the twentieth century, of giants that include Louis Vuitton-​Moet Hennessy (LVMH), Kering (built on the foundations of the Pinault Printemps Redoute, PPR group), and Richemont. In the process of their development, these groups became publicly owned, which enabled access to investment resources to support their growth strategies. Some luxury firms remain private. Private firms have also engaged in acquisitions strategies, one of the best-​known examples being the assemblages of craftsmen’s workshops that Chanel has realised and nurtured under the umbrella of its division Paraffection (Donzé and Pouillard 2020: 432). In this process, luxury groups have managed what Donzé and Wubs call ‘centralised decentralisation,’ which offers specialised luxury workshops and clusters support, security, and ideal conditions of work while respecting the creative autonomy

Luxury Busines: Approaches and Issues    9 of each unit (Donzé and Wubs 2019). The concentration movement does not seem to abate, as the first luxury group, LVMH, presided over by Bernard Arnault, who was listed as the third richest person in the world in 2020 after Jeff Bezos of Amazon and Bill Gates of Microsoft (Forbes 2020), keeps an active acquisition policy best illustrated by the purchase of Tiffany & Co. This acquisition was barely slowed down as a result of the COVID-​19 crisis. However, the agreement was brought in front of the courts, and the total price of the purchase was slightly reduced, yet the transaction eventually took place, reinforcing for now the leadership of LVMH group in the industry. The domination of big business over the luxury industry is a challenge for small and independent brands, especially because conglomerates control extensive distribution and retail networks throughout the world.

Globalisation of Markets and Dependency on China The financial crisis of 2008 may have been the beginning of a phase of receding globalisation, and it seems that the COVID-​19-​induced health crisis exacerbates a movement of deglobalisation. But it is uncertain how this movement of deglobalisation will impact luxury, and how profound that impact may be. Luxury business therefore also appears as an excellent vantage point in order to understand how economies have increasingly become global, and to observe the impact of crises of globalisation. Periods of crisis including the world wars, stock market crashes, and economic depressions, and, most recently, the global health crisis, have had a mitigated impact on the luxury industries. In this respect, the global scope of the luxury industries may be an essential factor in their resilience, as we observe that newer emerging markets, and especially China, has sustained the global luxury industries amidst the COVID-​19 pandemic. Several contributors to this book examine how specific luxury markets are developing and engaging in the global markets, and how globally recognised luxury goods and services adapt to local markets. Chapter 14 by Wiedmann examines perceptions of luxury in the United States, France, Germany, Japan, China, and Brazil. Markets and consumers in the United States and Western Europe are the topic of the chapter by Fflur Roberts, Florence Allday, Ayako Homma, and Oksana Malynovska (chapter 20), while Glyn Atwal, Douglas Bryson, and J. P. Kuehlwein examine the markets and consumers of luxury in the emerging countries (chapter 23). Most recently, in 2020, the new developments of the fashion scene, including the organisation of field-​configuring events, such as the December 2020 Fashion Week of Dakar, Senegal, show the creative potential of new, emerging countries and cities to reignite consumers desires on the global luxury stage.3 However, despite the emergence of new markets for luxury, the high dependency upon Chinese consumers continues to strengthen. For many European brands, this is a major challenge in terms of communication and marketing strategy due to the specific cultural and political environment of this market, as experienced in 2018 by Dolce & Gabbana when its advertisement campaign was considered racist and therefore had a negative impact on the brand image.4

10    Pierre-Yves Donzé, Véronique Pouillard, and Joanne Roberts

Income Inequality and Democratisation of Luxury Luxury is a topic of discussion for a wide array of disciplines. Sociologists, economists, and historians have sought to understand the role of luxury in generating wealth, notably by creating employment and revenue. Some theorists, among whom the most prominent was the German economist and sociologist Werner Sombart ([1913] 1967), placed luxury at the origin of capitalism. Sombart traced long-​term causal relations between the lives and relationships of courtiers, their desires for luxury, and the need to seek new resources, including in opening new routes for exploration and trade. French historian Louis Bergeron developed a different analysis, according to which the luxury market became so prominent in France, that it resulted in the earliest capitalist forms of organisation of labour and of commerce (Bergeron 1998: 30). Sombart’s thought has remained stimulating, even if he has received justified criticism for not providing a clear demonstration for each step of the causal relations between the various elements that structure his theoretical work on luxury. Besides the elements to be found in the substitution of luxury trade with domestic production, Sombart pinpointed the importance of the court’s life that remains, to this day, one of the elements that stimulate the production of luxury goods and services in the broadest definition of holding court (Sombart [1913] 1967; von Wachenfeldt 2013: 207). From the onset, luxury in theory was the focus of a moral tension that has not abated to this day (Castarède 2010: 7). Luxury conveys powerful images that also trigger opposition, resistance, and even vandalism. In France, gilets jaunes, the movement which contests the rising inequality in French society, has burned, destroyed, and looted places symbolic of French luxury:  the Fouquet’s high-​end restaurant, where former right-​ wing President Nicolas Sarkozy celebrated his electoral victory, and flagship stores of higher-​end leather goods brands. Luxury can also be associated with guilt. Historians have evoked the anxieties of affluence in their analyses of the behaviour of consumers confronted with excesses (Horowitz 2014: 252–​256). Joanne Roberts devotes a chapter to the examination of the complex relations between luxury and inequality, seeking to untangle the confusions that often result from the use of images of luxury to communicate about other societal questions such as poverty (chapter 24). Public reactions to images of luxury follow a swing of the pendulum (Mc Neil and Riello 2016: 46–​78), but they are not globally unified. The clients of luxury have diversified considerably, because luxury businesses needed to democratise, at least some of their product lines, to be and to remain profitable. The rise of the French industry of tableware and especially cutlery, including firms such as Christofle, is a good example of this process. The luxury brand that catered to a wider bourgeoisie used the Paris banlieue5 hinterland as a location for its expansion of production (Bergeron 1998:  44–​45). Buyers do not all approach luxury with the same moral perspective. As studies on specific markets, like that of sneakers, show, for example, buyers may also approach luxury products as a source of revenue through resale.6 Conversely, faithful consumers of luxury may, in response to the moral dilemmas encountered in the public place, reinforce productions and practices described as

Luxury Busines: Approaches and Issues    11 pauper chic, slow luxury, or silent luxury, that emphasize an association of outstanding quality in a form characterised by discretion and sobriety. Luxurious furs can be used as linings, invisible from the outside. Luxurious investments can be made inside a home, largely hidden from the outside passers-​by. These forms of silent luxury, also referred to as stealth luxury, regularly resurface in times of crisis, and also seem to gain importance in the post-​COVID phase of consumption.7 Home renovation has remained strong during the pandemic. Even more literally, silence itself has become a luxury whether in the tourism industry or in real estate.8 The matter is more complicated with cars, where Bastien and Kapferer emphasize the peculiar culture of the owner of race cars, and the relative discomforts that are enjoyed by the connoisseurs who drive them (Bastien and Kapferer 2012: 96–​99). Although images of luxury may seem to give it the appearances of a moral battlefield, the consumers of luxury are highly diverse. As a status bearer, luxury remains profoundly aspirational, as illustrated in Honoré de Balzac portrayal, in his series of novels titled La Comédie humaine, of the ambitions of the provincial parvenu Rastignac climbing the social ladder in Paris. His gloves, shirt, coat, and horse carriage are of the essence; it does not matter if he lives poorly and barely eats. Any funds will go to the appearances that allow him to enter the upper sphere of the fashionable cultural spaces, in the salons—​the court of the bourgeoisie—​at the opera, and at the theatre. Yet the consumption of luxury is a multifold phenomenon that resists reduction to solely aspirational performance, as the case of collectors show, who may live in discreet premises but devote an important part of their lives to a passion that, in the modern era, could be tulips or ceramics. In chapter 6, Robin Holt uses the narrative developed by author Bruce Chatwin in Utz to compare the figure of the collector as an individual in tension with the figure of the entrepreneur in luxury business (Raustiala and Sprigman 2012: 40–​41). The growing economy of the luxury firms and the diversity of the branded luxury products, including licensed lines, indicates that luxury became profitable when it democratised. The concentration in luxury groups shows the need to balance the products within the structure of the group. In the largest groups, for example, LVMH, the tendency over the last two decades at the global level was to refocus on luxury, and yet this luxury was in turn composed of products situated at very different pricing levels. Cosmetics, perfumes, wines and spirits, and smaller accessories have played an essential role in the successful diversification and democratisation of luxury.

Guaranteeing Authenticity History, but also authenticity, craft, exclusivity, know-​how, rarity, and technology, are tools that can be mobilised in the narratives of luxury firms. In creating legitimacy, luxury brands may also seek to assert their authenticity by defending their production against substitute products. Fine-​ grained typologies distinguish between imitations, copies, fakes, and counterfeits. The reasons why consumers buy fakes are far from limited to a rational choice of a cheaper good. Further patterns of acquisition

12    Pierre-Yves Donzé, Véronique Pouillard, and Joanne Roberts and ownership, as well as analysis of the consequences of the trade in fake goods for luxury firms, are approached by Giacomo Gistri (chapter 25 in this volume). Substitute products may notably imitate a design, a label, or both at the same time, with more or less exactitude and in qualities that can be highly variable. Experts in the law do not all agree on the potential threat that substitute products pose for luxury brands. In some cases, for example, luxury cars, foodstuffs, wines, or even cosmetics, counterfeits can pose problems of health hazards and public safety (Stanziani 2004: 149–​167). In other cases of luxury goods, the immediate dangers seem less important, and the question is therefore whether the flooding of markets with fakes is harmful for the original brands, or if it creates free advertising and consumer education for aspirational brands. This debate has a long history. Traders in cloth during the Middle Ages, for example, were preoccupied with the quality of the fabric, its weight, and the authenticity of the seals that traced its provenance (Bartholeyns 2008). Luxury firms and entrepreneurs have had various responses to threats to the authenticity of their products. Some entrepreneurs consider that unauthorised copies should be prohibited, while others consider that unauthorised copies are a homage and even a form of free advertising, expecting that customers who bought a fake are already buying into the status of the brand, and will eventually upgrade to buy the real object. Scholars similarly do not agree, some disapproving of counterfeits, while others consider that counterfeits are not only economically profitable to the counterfeiters but also to the authentic brand (Barnett 2005). Luxury brands therefore do not all approach fakes as a threat. Yet, increasingly, most luxury firms have sought to protect their portfolios of intellectual property rights. The legal tools available to luxury firms to protect their intellectual property assets is the topic of Véronique Pouillard (chapter 19). Going to the courts, as costly as it can be, can for a luxury brand be a way to stage its authenticity, but also to regulate competition and to prevent competitors from gaining market shares. More recently, the maturing of intellectual property systems has resulted in an increase of out-​of-​court settlements for such matters.

Tensions of Production What is the role of craft, creativity, and innovation in the production of luxury? What are the challenges of mass-​producing luxury? How do actors control production and creativity in a global environment? Production occupies an important part in the narratives of luxury. Know-​how, practices, gestures, are essential in the making of luxury products and crafting their uniqueness, as shown by Joanne Roberts in chapter 8 on craftsmanship. The places of production, standards of production, and country-​of-​origin labels can be a political issue. The tensions concerning the relocation of production raise important strategic issues for the management of luxury brands. The complexification of the chains of production has increased during the last period of globalisation, and deserves relevant analytical frameworks, as exposed by Brun and Karaosman in Chapter 7 on the management of luxury supply chains. Economic historians have, however, shown that luxury was, in the modern era, traded from faraway places of production,

Luxury Busines: Approaches and Issues    13 especially from Asia to the West. Recent decades have shown again shifts in the luxury groups’ strategies of production, most often acknowledging that high-​quality work is everywhere. In such a context, the multidirectional transmission of know-​how and expertise becomes central. Luxury is multifold and time-​contingent. For instance, luxuries of the early modern era, like coffee, chocolate, and printed cottons, are today banal products in most parts of the world. Especially salient is the time-​contingent relation between fashion and luxury. Until the postwar era, when fashionable clothes made ready-​to-​wear kicked in, fashion had been a luxury. Fashion means the nonnecessary renewal of clothes in order to follow aesthetic trends, which was for most people, unattainable for most of history. During the postwar era, fashions reached the masses, and the pace of the cycle of design and manufacture of newer affordable fashions meant that their production could no longer be sustainable. To a large extent, luxury found a refuge in more static, iconic products that remain wearable luxuries, but have much greater longevity than seasonal fashions. The time for delivery of Ferrari cars or Hermès handbags far exceeds the time of seasonal fashions. The extent of the domains of production covered by luxury might be changeable. But a classicism in the forms and the idea of an object that can retain or even increase its value across generations remain part of the idea of luxury. Numerous luxury objects have a near timeless quality. Such classic luxuries are coveted objects that are often designated as iconic, and also as investment purchases. It is indeed the case that some objects by luxury houses of renown, for example, leather good by firms including Chanel and Hermès, may, if kept in good condition, not only keep their initial value throughout their existence but even acquire the status of an heirloom or merchandise for speculation. An important consequence of this is the sustainable dimension of these objects, which, carefully preserved, remain in use for a long time and will be deemed worthy of repairing rather than being discarded. The high quality of service offered by the same brands does not just aim to personalize the goods, for example, by stamping or printing monograms but also to maintain the products in good condition for longer use. Entire shops and online platforms, including Mytheresa, The RealReal, and Vestiaire Collective, thrive on the resale of luxury goods, which in turn demands that new expertise develop, as, for example, the authentication services that may ensure that a Chanel purse, a Cartier watch, or a Hermès silk scarf bought as vintage are authentic products. However, the character of timelessness in numerous higher-​end luxury objects cannot be found in all luxury products. If many are meant to be consumed in the original sense of the word, that is to be used up as fine cigars, haute cuisine meals, or fine wines are, John Armitage (in chapter 3) argues that it is the experience of luxury that is one of timelessness.

Luxury and the Sustainable Economy Tensions of production raise questions of ethics and sustainability in the chain of production. The luxury firms may develop various approaches to corporate and social

14    Pierre-Yves Donzé, Véronique Pouillard, and Joanne Roberts responsibility (CSR). This question is at the core of Geoffrey Jones’s chapter on luxury tourism and the environment (chapter 27). Sustainability issues also pervade the relation between luxury and care. With the concentration of luxury business in larger groups, most of them have developed growing activities in the domain of philanthropy. For instance, LVMH has had a corporate philanthropy programme to support arts and culture since 1990 (LVMH 2021), Richemont co-​founded the Laureus Sport for Good Foundation in 2000, which currently supports over two hundred sports-​based community programmes in more than forty countries (Richemont 2020: 39), and, since 2008, Kering has worked to combat violence against women through The Kering Foundation (Kering 2021). The high content of technology and know-​how that is deployed in various domains of luxury may be related to the development of activities in the realm of healthcare. Such engagements have a long-​term history. The COVID-​19 crisis has shown the large variety of participation of luxury firms in contributing to the response to the pandemic. Conversion of part of their activities in order to produce essential material started early on, with examples such as Giorgio Armani, which converted part of its garment production into the manufacturing of overalls to protect healthcare workers, and the LVMH group, which converted part of its production of alcohol for perfume into the production of disinfectants. The investment of luxury groups in caring activities was a conscious choice that predates the current pandemic, and finds its roots in the nineteenth-​century politics of paternalism developed by owners of early consumption emporia, such as the Boucicault family which owned the Bon Marché department store in Paris (Miller 1981). The importance of service in the luxury industry is another central factor in the peculiar relation of the industry to care (Roberts and Armitage 2020). For example, the former French luxury group Pinault-​Printemps-​Redoute, one of the top three at the global level, accomplished its transformation into a luxury group in 2013, and marked this shift by choosing a new name, Kering, that resulted from the merging of the Brittany word ‘ker’ meaning home, and the English term ‘caring’. However, although CSR reports are full of examples of how luxury companies care about the environment and society, there are still major pending issues, notably regarding the supply chains of raw materials such as gold and diamonds. Some firms, like the watchmaker and jeweller Chopard, engage actively in the promotion of ethical labels that guarantee the sourcing of sustainable materials. Such practice is not the norm yet and its spread will depend on the evolution of consumer behaviour, and on the regulations that governments may impose on, and follow-​up with, such firms. Nevertheless, international agreement between governments, such as the 1973 Convention on International Trade in Endangered Species of Wild Fauna and Flora, which seeks to prevent the exploitation and trade of wild animals and plants, restricts the range of legally permitted inputs for the production of luxury goods (Naylor 2011).

Challenges to European Dominance The continued global dominance of luxury business by three large European luxury groups is not guaranteed. Important luxury groups are also based elsewhere, notably

Luxury Busines: Approaches and Issues    15 in the United States, with, for example, Phillips-​Van Heusen (PVH Corp.), which is one of largest corporations globally in the apparel trade and owns numerous brands of medium-​range luxury and premium goods, such as Calvin Klein, Tommy Hilfiger, Van Heusen, IZOD, ARROW, Warner’s, Olga, Geoffrey Beene, and True&Co. The group is also well positioned in Asia. Numerous luxury groups are also based in Asia, with strongholds in personal luxuries and especially in jewellery (Donzé and Fujioka 2017). US based groups are emerging, such as Capri Holdings, formerly known as Michael Kors Holding Group until 2019, which acquired the British brand Jimmy Choo Ltd in 2017 and the Italian luxury fashion house Versace in 2018 signalling a strategy of growing a portfolio of luxury brands. Another area to consider is the purchase of European luxury businesses by holdings and investment groups from the Far East—​such as the UK’s Gieves & Hawkes purchased by the Hong Kong company Trinity Ltd. These examples demonstrate that the domination of European companies over the global luxury industry may not last forever. However, one more point to consider is the relation between luxury brands and the image of luxury. Even if non-​European companies acquire more and more luxury brands, most of them are European. On the global market, Chinese, Japanese, or Indian luxury brands, to mention but a few, are still mostly considered national businesses rather than global. Mikimoto pearls are Japanese, like Shanghai Tang dresses are Chinese. However, European luxury goods are consumed around the world as objects that embody a global ideal attached to Europe, whose values are elegance, individuality, and quality of life. Luxury and the art of living can be considered soft powers that allow Europe to occupy a major place in the globalised collective imaginary (Dubé-​Sénécal 2020).

Acknowledgements Part of the research for this book has received funding from the European Research Council (ERC) under the European Union’s Horizon 2020 research and innovation programme (Grant agreement No. 818523, Project Creative IPR—​The History of Intellectual Property in the Creative Industries).

16    Pierre-Yves Donzé, Véronique Pouillard, and Joanne Roberts

Notes 1. https://​www.consultancy.eu/​news/​4 171/​bain-​personal-​luxury-​goods-​market-​will-​need-​ years-​to-​recover 2. https://​edition.cnn.com/​2020/​06/​11/​business/​global-​luxury-​sales-​china-​coronavirus-​intl-​ hnk/​index.html 3. https://​www.theguardian.com/​fashion/​gallery/​2020/​dec/​14/​dakar-​fashion-​week-​takes-​ place-​in-​a-​baobab-​forest-​in-​pictures accessed 14 December  2020. 4. https://​edition.cnn.com/​2018/​11/​23/​business/​dg-​in-​china-​intl/​index.html 5. In France, a banlieue is a suburb of a large city. However, since the 1970s, banlieue has becoming a popular term for economically depressed suburbs with low-​income housing populated by many French of foreign descent. 6. Abdul Malik, ‘Luxury Sneaker Markets Are a Preview of Capitalist Dystopia’, Jacobin Luxury Sneaker Markets Are a Preview of Capitalist Dystopia, https://​jacobinmag.com/​ 2020/​12/​luxury-​sneaker-​markets-​capitalist-​nikes-​resale). 7. McKinsey Report, https://​www.mckinsey.com/​industries/​retail/​our-​insights/​ a-​perspective-​for-​the-​luxury-​goods-​industry-​during-​and-​after-​coronavirus# 8. https://​w ww.theatlantic.com/​entertainment/​archive/​2015/​10/​how-​silence-​b ecame-​a-​ luxury-​good/​408412/​

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18    Pierre-Yves Donzé, Véronique Pouillard, and Joanne Roberts Richemont. 2020. Richemont Annual Report and Accounts 2020. Richemont. https://​www. richemont.com/​media/​qbehirls/​rar-​2020_​27may.pdf Roberts, Joanne. 2019. “Is Contemporary Luxury Morally Acceptable? A  Question for the Super-​rich.” Cultural Politics 15, no. 1: 48–​63. Roberts, Joanne, and John Armitage. 2020. “The Third Realm of Luxury: Conceptualizing the Connections between Real and Imaginary Spaces.” In The Third Realm of Luxury. Connecting Real Places and Imaginary Spaces. Edited by Joanne Roberts and John Armitrage, 1–​23. London: Bloomsbury. Smith, Adam. 1776. An Inquiry into the Nature and Causes of the Wealth of Nations. London: Strahan and Cadell. Sombart, Werner. [1913] 1967. Luxury and Capitalism. Translated by W. R.  Dittmar. Ann Arbor: University of Michigan Press. Stanziani, Alessandro. 2004. “Wine Reputation and Quality Controls: The Origin of the AOCs in 19th century France.” European Journal of Law and Economics 18: 149–​167. Tungate, Mark. 2009. Luxury World:  The Past, Present and Future of Luxury Brands. London: Kogan Page. Verley, Patrick. 2006. “Marché des produits de luxe et division internationale du travail (XIXe-​ XXe siècles).” Revue de synthèse 127, no. 2: 359–​378. Von Wachenfeldt, Paula. 2013. “The Language of Luxury in Eighteenth-​Century France.” In Fashion in Popular Culture: Literature, Media and Contemporary Studies. Edited by Joseph H.  Hancock, Toni Johnson-​Woods, and Vicki Karaminas, 207–​223. Chicago:  Chicago University Press.

Pa rt I

C ON C E P T UA L F O U N DAT ION S A N D T H E E VOLU T ION OF T H E LU X U RY I N DU ST RY

Chapter 2

The History of I de as on Lu xu ry in t h e E a rly Modern Pe ri od Christopher J. Berry

The idea of luxury has been discussed and debated virtually from the very beginning of Western thought. The discussion centred around its effects on both individuals and the societies in which they lived. As opposed to partisan engagements which continued into the nineteenth century (Emile de Laveleye 1887, is a characteristic example) and on into some current critiques, often from a “green” perspective, the (largely) disengaged study of that discussion is, however, relatively recent. Leaving aside brief reflections by philosophers John MacCunn (1889) and Henry Sidgwick (1894), the first such study is probably an enormous four-​volume work by the French scholar Henri Baudrillart (1880). Starting from the premise that there is an instinct for luxury, he opened with observations about behaviour in the Stone and Bronze Age, then covering a range of civilisations he proceeded to survey in exhaustive detail the various positions of philosophers, historians, and moralists from the Greeks to the nineteenth century. Its sheer bulk meant it lacked analytical discrimination. The next major scholar of the subject, Werner Sombart (1913), dismissed Baudrillart’s work saying one learns nothing from it. Sombart himself defined luxury as expenditure beyond what is necessary and traced its genesis to the wealth accumulated from trade stimulated by court society in which female courtesans played a prominent role (as we will see, this gendered aspect is a conspicuous feature of the classical literature). Sombart was a significant scholar but is best known for his wider study of capitalism, of which his book on luxury was only a part. Mention should also be made of The Theory of the Leisure Class (Veblen [1899] 1970), because, although a discussion of luxury is not a conspicuous feature, the book became an influential benchmark in the socioeconomic analysis of status based on consumption. Veblen was a critic of the assumptions of the recent development in economic theory of the notion of marginal utility. With the emergence, commencing in the nineteenth

22   Christopher J. Berry century, of “economics” as a distinct discipline, a technical understanding of luxury as having high income elasticity was formulated. With that emergence there developed eventually an interest in the “history of economics” which incorporated some discussion of the role of luxury. Yet aside from Sombart and chapters in Joseph Spengler (1942) and D. C. Eversley (1959), together with a brief survey in Schumpeter (1954), passing references in Eli Heckscher (1955) and a discussion in a neglected book by Hazel Kyrk ([1923] 1976), there was no dedicated treatment. On a less specific front there was something of a lull in the disengaged analysis until the book by John Sekora (1977). This is a valuable treatment, but its focus is the work of the eighteenth-​century novelist Tobias Smollett and the treatment of luxury takes up only about a third of the book. The next fully dedicated treatment was provided by Christopher J. Berry (1994), who provides both a conceptual analytical account and a self-​styled “episodic” historical investigation. Since his book was published the subject has flourished. I will confine the remainder of this brief literature review to the subject of this chapter and to work since Berry’s widely cited volume (see References for earlier works). The subject has attracted more popular studies and historical surveys (e.g., Adams 2012; Castarède 2014; Lipovetsky and Roux 2003). An increasing number of more specialised accounts have appeared. These include studies of particular thinkers (e.g., Camcastle 2008, on Beccaria; Ramos 2011, on Steuart; Sassatelli 1997, on Mandeville; Susato 2015, on Hume) and examinations of periods (e.g., Berg and Eger 2003, have edited a collection on eighteenth-​century Britain, while Berg and Helen Clifford 1999, edited another volume with a broader scope; Hill and Lennon 1999, edited a selection of conference papers that focus on Ireland; Shovlin 2006, on France; Wahnbaeck 2004, on Italy). Economic, intellectual, social and cultural historians have discussed the role of, and attitudes to, luxury. Informative and contextual books and articles have been written by E. J. Clery (2004), Istvan Hont (2016), Sarah Maza (1997), Peter McNeil and Giorgio Riello (2016), Cosimo Perrotta (2004), Linda Peck (2005), Alison Scott (2015), Paul Slack (2015), and Woodruff Smith (2002). Building on the work of Alan Hunt (1996), sumptuary legislation, an important aspect of luxury, has been an increasing focus of study in early modern research, manifest in Catherine Killerby (2002), and Giuseppina Muzzarelli (2009), who has also coedited a useful collection of texts with Antonella Campanini (2003), while Emanuela Zanda (2013) has provided a thorough analysis of the earlier Roman legislation. In a similar mode, studies of fashion, and consumption more generally, often discuss the role of luxury; it is the focus of a comprehensive and informative volume edited by Olivier Assouly (2005), specialised treatments are offered by Robert Fox and Anthony Turner (1998) and Carolyn Sargentson (1996), alongside more wide-​ranging studies by Jan de Vries (2008) and Frank Trentmann (2016) which contains an extensive bibliography. This chapter focusses on one particular but historically crucial aspect of the understanding of luxury. Berry’s (2004: ch.5) term ‘de-​moralisation—​which has been widely adopted—​captures what is at issue, namely, how in broad terms, in the seventeenth and eighteenth centuries, luxury was increasingly no longer judged as a threat but as a

The History of Ideas on Luxury in the Early Modern Period    23 positive force. To appreciate this transformation it is first necessary to sketch briefly the “moralised” conception of luxury in classical and medieval thought.

Moralisation In Greek, Roman (especially), and on into Christian thought, “luxury” (truphan, luxuria) is not a neutral term. It belongs in a moralised vocabulary, where it had the generic meaning of a corruption of virtue. In particular, luxury was judged to undermine the virtues of temperance and continence and their expression in lives of poverty, frugality, simplicity, and austerity. To be austere is to be in control of oneself and thus of one’s actions. This self-​command is captured in Stoic philosophy which depicts in the figure of the sage a person who will drink but not get drunk. One consequence of situating poverty in this evaluative context is that it is not synonymous with “necessity”; penury as a result of external circumstances is not here the morally relevant issue. Instead of “necessity”, this moralised discourse frequently and deliberately talked of “voluntary poverty” (Seneca 1932: I, no. 17 § 5; Tierney 1959: 11). This had the further implication that the subjects of moral criticism were not the necessitous poor but either corrupt aristocrats (like Catiline who was the target of the polemic by Sallust (1921), against the moral laxity of the age) or the upwardly mobile (who were the focus of the sumptuary laws of early modern Europe). The significance of this will become apparent. It follows that when luxury is juxtaposed to the virtues of poverty, austerity, and self-​ command, it is a vice. This manifested itself at both the individual and social level. To live luxuriously is to wallow in self-​indulgence. Pointedly, men who live a life of luxury become effeminate. That is, they become “soft” like women, unable to endure hardship and act in a virile “manly” fashion, where that means acting in the public arena, including risking death and acting courageously. It is not mere coincidence that in both Greek and Latin the words for “man” have the same root as those for “courage.” Such a life has social consequences. A society where luxury is established will devote itself to private, self-​regarding ends and men will be unwilling to act for the public good or fight for their patria. This society, it follows, will be militarily weak—​a nation of cowards will easily succumb. The only way a luxurious, soft nation could meet its military commitments was by hiring others to play that role. Hence arose an important negative association between luxury, wealth (commerce), and mercenary armies. It is this moralised picture that is demoralised in the early modern period. But before turning to that, it will be helpful to elaborate one particular aspect of this moralised picture. This elaboration focusses on the role of desire. The concept of desire can be aptly contrasted with that of need. Whether or not you need something is not definitively answered by your beliefs about that something, whereas to desire or want something depends on your subjective state of mind. Hence (drastically simplified) you need a liver transplant without wanting surgery, and, conversely, you desire another piece of pie without needing it to ensure your daily intake of calories. From the moralised

24   Christopher J. Berry perspective of frugality, taking that extra piece is a luxurious indulgence, a deleterious lack of resolve that by pandering to desire betrays a defect in character. An informative illustration comes from the late Stoic philosopher Epictetus. He is recorded as saying that the measure for a slipper is the foot, where “measure” means not merely the correct size but, more significantly, that a slipper is needed for the purpose of foot protection. Once that appropriate or “natural” measure of needfulness is forsaken, then there are no limits and, as a result, there becomes nothing inappropriate about, successively, desiring a gilded, a purple, and an embroidered slipper (Epictetus 1932: § 39). It was this limitlessness associated with “desire” that made it so threatening, and, as this example intimates, these gilded slippers are unneeded luxury items. The classically virtuous life was a “natural life”. Cicero (1927: V § 102) declares it to be self-​evident that Nature’s requirements are few and inexpensive. This “natural life” is the “simple” or Christian ascetic life. Those who live simply will not be poor because poverty is only experienced by those who have exceeded the natural limits, that is, by those who desire more. Once the natural limit is passed then, as Epictetus’s slippers illustrate, there is no resting place. And writ large, viewed from that perspective, life itself will always appear too short, so that those who “wallow in luxury” become afraid of death (Seneca 1932: II, no. 78 § 25). Such fear is unmanly, hence the association between luxury, softness, and effeminacy mentioned earlier. As Cicero (1913: I § 106) summarises it, this association exemplifies turpe, a corrupt way of life, in contrast to which a frugal life of temperance, sobriety, and austerity is worthy or honestum. There are two corollaries of this moralisation of luxury. The first is the somatic focus. It was held to be the definitive characteristic of desires that focus on the body that they are boundless. For example, Seneca (1932: III, no. 119 § 3) disparages the enjoyment of fine food. To give one of his examples, bread made from inferior flour assuages hunger as effectively as that baked from better-​quality ingredients; the purpose of food is to fill the stomach not indulge it. From this perspective, what the desire for luxuries amounted to was investing inappropriate value in bodily satisfactions. For Sallust (1921: § 2), it is against nature to treat the body as the source of pleasure and the soul (anima) as a burden. The second and related corollary is that those activities that serviced these bodily satisfactions have their own appropriate sphere. This was the “household” (oikos), which is to be understood as an “estate” not the dwelling of a nuclear family. The task or function of the household was, in Aristotle’s formative analysis, to meet limited needs. This literally “economic” task may, within limits, go beyond the immediate confines of the estate. Accordingly, olives may be exchanged for some honey, as long as—​and these are the limits—​the recipient uses the olives for their proper or natural purpose, that is, consumes them. But this process of exchange (“economics”) remains an instrumental task subordinate to the intrinsically worthwhile activities that constitute the “good life” of “politics”, that is, engagement in matters of general or public concern. If the merely instrumental became instead an end, then that was an unnatural perversion. From this it followed that “economics” was embedded in a moralised context; it had its proper (subordinate) place. This moralisation ultimately rested on a conception of a worthwhile

The History of Ideas on Luxury in the Early Modern Period    25 human (male) life of freedom that is debased if it is spent slavishly pursuing merely necessary (unfree) existential ends. A significant consequence of this moralised hierarchy was that traders or merchants (i.e., those who engaged in exchange for a living) lived less than fully human lives. These individuals were thus disparaged. According to Aristotle, for example, in the best “state” (polis) those who live a “mercantile life” will not be citizens because such a life is ignoble and inimical to virtue (Aristotle 1944: 1328b40-​41).1 It was not that men could not adopt the commercial life, but that such a life was unworthy; it was akin, as Seneca and others had observed, to the inferior preoccupation with mere living that was the object of animals, slaves, and women. Women, moreover, were weak or soft and were associated with indulging themselves in luxuries so much so that, on one account, they sought to overcome sumptuary laws that restricted their desires for bodily adornment. For example, according to Livy’s (1919: Bk 34 §§ 2–​4) reconstruction, Cato described women as having “uncontrollable natures” because they wanted to repeal the Lex Orchia, 215 bce, which, inter alia, limited the amount of gold they could possess and forbade them from wearing a coloured cloak and riding in a carriage inside the city. Similar sentiments were expressed in early Christian thought.2 These adornments, along with opulent furnishings, exotic foodstuffs, and other goods deemed luxuries by critics were, of course, not supplied by the home estates but by merchants. This reinforced the judgement that merchants were not merely superfluous but also potentially corrupting intermediaries. Need-​determined exchange was indeed “natural”, but traders or merchants functioned to furnish and fuel desires, especially for goods to satisfy bodily satisfactions (like embroidered slippers), and their motive for so doing was to enrich themselves.3 And given the normative hierarchy of ends over means, then the actions and motives of merchants were morally suspect. Merchants are motivated by their private interest, whereas a citizen in the full sense, that is, the independent male head of the household, dedicated his life to the common interest or public good. In sum, luxury undermines for both individuals and their societies the virtues that come from living where the values of the good life obtain. The negation of this moralised context for luxury centrally concerns a revaluation of the place of desire and the role played by commerce.

Demoralisation The process of “demoralisation” is, of course, part of a broad shift. There are no sharp edges. The evanescence of the “classical” disparagement of commerce and its practitioners is uneven as well as gradual. This attenuation does not operate in a vacuum. In grand simplifier mode, three contextual developments should be noted. First with the post-​Reformation emergence of centralising sovereign (national) states came a recognition that crucial to their viability was the command and development

26   Christopher J. Berry of material resources. This is the source of political economy as an intellectual enquiry. Its earliest explicit practitioner, Antoine de Montchrétien in his Traicté de l’oeconomie politique ([1615] 1889), while explicitly criticising Aristotle’s (and others) downgrading of “economics” (1889: 31–​32), maintains the ruler should attend to manufactures, commerce, and navigation (these are the titles of the first three of his four chapters). The reference here to navigation picks up the second development. Accelerated by the voyages of discovery and the development of plantations, foreign trade becomes increasingly salient in discussions of political power along with the identification of problems surrounding exchange, money, and credit. For example, the role of the East India Company (and other such) is a focus for much English pamphleteering. Finally, Galilean science not only overturned Aristotelian physics, it also contributed to the overturning of Aristotelian teleological ethics; the focus is increasingly on “how” things happen not “why.” Isaac Newton didn’t know what gravity was, but it was sufficient that it could be measured and its operation was law-​like. Similarly, why pleasure pleases is unknown, but it is sufficient to know that humans like it and their actions are, in consequence, predictable.

The Rehabilitation of Merchants Against this broad backcloth, the debate over “commerce” was a crucial component in the reevaluation of luxury, which is not to say, of course, that it is the sole factor. Many writers sought to vindicate the role of merchants and traders. English authors were particularly well represented. Thomas Mun, for example, in his England’s Treasure by Forraign Trade (published in 1664 but written in the 1620s) opens that tract by addressing “the nobleness” of the “profession” of merchant thus distancing himself from the Ciceronic denigration of their way of life. Mun was not alone. Indeed, Edward Misselden went beyond affirming the nobility of the mercantile profession to give a forthright defence of its activity, asking rhetorically, “is it not lawful for Merchants to seeke their Privatum Commodum in the exercise of their calling?” Indeed, implicitly rejecting the classical privileging of “politics” over “economics”, he declares there is no one “more fit to make a minister for a King than an expert and judicious merchant” (Misselden 1723: 17, 19). Misselden was in dispute with Gerard Malynes who nonetheless in his dedicatory epistle to his monumental Lex Mercatoria (1622) also affirmed the “great dignitie” of “the State of a Merchant.” But exemplifying the gradualness of the change from classical to early modern perspectives there remains a residual defensiveness, which also affected the assessment of luxury. Hence Mun declares that the activity of a “perfect Merchant” will, and here making the standard defensive manoeuvre, be such that “the private gain may ever accompany the publique good” (Mun 1928: 1). In a similar vein, in his advocacy of a favourable “balance” of trade, he argues against “excessive consumption of foreign wares in our diet and rayment” and, though this is for the sake of national wealth, his phrasing suggests here and elsewhere that he is not yet ready to jettison entirely

The History of Ideas on Luxury in the Early Modern Period    27 moralistic language. Indeed, later Mun labels the imported silks (cf. raiment), sugars (cf. diet) and the like as “unnecessary wants” since we (England) are “too much affected to Pride, monstrous Fashions and Riot”. As a remedy, he implicitly endorses sumptuary laws in the guise of the “good laws” of other countries that restrict such consumption. Yet indicative of the weakening of the hold of the classical legacy, he also allows that “all kinds of bounty and Pomp” are not to be avoided; frugality can be overdone (Mun 1928: 72, 7, 60). Malynes (1601: 55–​56), for his part, while articulating a careful account of exchange and finance, still distinguished in moralistic Aristotelian terms between “the right use of exchange” and “merchandising exchange” or trade for monies. However, abetted by the propaganda of Daniel Defoe (e.g., 1728) and the influential journalism of Joseph Addison’s Spectator (1712) (Aitken 1898), by the mid-​ eighteenth century the value of merchants was commonly accepted. That “value” was intimately connected to an increasing recognition of the positive role played by luxury consumption.

Desire and Motivation Apart from this gradual rehabilitation of the role of merchants there was another concurrent but more profound shift. It was this which underwrote that positive assessment of luxury by establishing the philosophical basis for its demoralisation. What this shift represented was a different reading of human nature. The crux of this reading was the identification of a regularity or constancy in human motivation that is rooted in the passions, in desire, and in aversion. It is a predictable constant that all humans move towards whatever pleases them and away from whatever pains them. Pleasure is good; pain is bad. The corollary to the universality of passionate motivation is that reason plays an instrumental role, it “reckons” or calculates the best (most efficient) way to bring about what is desired (Hobbes [1651] 1991: ch.5). This is a reversal of the classical account which saw reason in the role of commander and the bodily passions as subservient. And since on that account to enjoy luxury was to be enslaved by desires, then this reversal now permits a positive assessment of luxury. One indication of this implicit reassessment is a negative attitude to sumptuary legislation. For example, Dudley North, ([1691] 1952) argues that sumptuary laws impoverish a country because “the main spur to trade or rather Industry and Ingenuity is the exorbitant Appetites of Men” (528). This unabashed conclusion obtains regardless of any moralistic indictment of such appetites and signals the extinction of any residual classical critique. As North pointedly observes, if men contented themselves with “bare Necessities we should have a poor world” (North 1952: 528). That “world” is undesirable. He is not alone in this. Earlier Nicholas Barbon ([1690] 1905) argued against sumptuary laws, singling out Mun as an advocate. Barbon distinguishes between “wants of the body” and “wants of the mind.” It is the latter where an overturning of the classical account is most evident. The wants of the mind are declared to be infinite as “Desires are inlarged”; they increase with wishes, which are for “every thing that is rare, can gratify

28   Christopher J. Berry his Senses, adorn his Body and promote the Ease, Pleasure and Pomp of Life” (Barbon 1905: 11). The decline in sumptuary legislation, which happened sooner in England than elsewhere, is symptomatic of the new role played by “desire.”4 On the moralised view, desire transgressed a value-​laden purposive order with definite limits (recall Epictetus’s slippers). The premodern moralists (and their early modern avatars like, for example, Bishop Berkeley, [1721] 1953) sought to police these desires in the light of the certainty that “l’excès d’un luxe déréglé” will ruin a State (a 1644 declaration of Louis XIV, quoted in Galliani 1989: 110) or threaten “good and politic order” (English Act of Apparel of 1533, quoted in Harte 1976: 139). But once desires are seen as the source of value (pleasure is good), then any individual self-​discipline is a matter of calculation—​my desire for the piece of pie against the desire to look good in my bikini. The social counterpart is a matter of weighing up the merits of freeing or restricting commerce. Hence the construction of a positive role for luxury goods; not only did they serve as aspirational incentives, leading to increase in employment and diffusion of pleasing/​desirable goods, but also they brought with them the crucial corollary that, as objects of universal desire, everyone is entitled to these aspirations and the free enjoyment of those goods. In contrast, the moralised world was in reality a world of strict, enforced hierarchy and slavery. North and Barbon’s expressions of “demoralisation” were later amplified by Bernard Mandeville in the increasingly elaborate argumentation in his The Fable of Bees ([1721–​ 1732] 1988: I, 107–​123). Mandeville was a deliberately provocative figure. Central to his notoriety was his open, if still oblique, defence of luxury and critique of frugality. This kept the moralistic critique alive and ensured that there was a “luxury debate” in the eighteenth century. This was not confined to England. In part inspired by Mandeville and equally provocative, Voltaire, in his poem Le Mondain ([1736] 2003), took aim at Bishop Fénelon whose influential Les aventures de Télémaque ([1699] 1962) reiterated the classical disparagement of luxury as “evil” (mal) and poisonous (Fénelon 1962: 455). Symptomatic of the challenge Voltaire laid down, and the reaction it stimulated, is his Mandevillean-​type aphorism, “le superflu chose très nécessaire” (Voltaire 2003: 296). What Mandeville and Voltaire provoked or highlighted was contemporary unease at the emergence of what Adam Smith called “a commercial society.” “Luxury”, because of its association with the long-​standing legacy of distrust of merchants and commerce, provided a conceptual resource with which to criticise a society where as Smith had it “every man” becomes “in some measure a merchant” and where, in his often quoted phrase, “it is not from the benevolence of the butcher, baker and brewer that we expect our dinner but their regard to their own interest” (Smith 1981: 37, 27). This unease is represented—​if in one of its most vehement expressions—​by John Brown in his immensely popular An Estimate of the Manners and Principles of the Times (1757: I, 29, 67, 129). This book’s popularity suggests it hit some contemporary nerve, despite (or perhaps because of) its unsubtle argumentation. On a more sophisticated plane the issues raised by “luxury” were debated across Europe and although there were different contexts, that themselves evolved, the contours of the debate remained much the same.5 This is illustrated concisely in Jean-​François

The History of Ideas on Luxury in the Early Modern Period    29 (Marquis de) Saint-​Lambert’s article “Luxe” in Denis Diderot’s Encylopédie (1765: IX, 763–​770). On the one hand, luxury encourages the population and the well-​being of states by circulating money, it serves to replace savage with polite civilised manners, to advance progress and the cultivation of the fine arts and to increase the happiness of individuals and the power of nations. On the other, according to the luxury critique, it sustains inequality in wealth, it ruins the countryside by encouraging city living, it leads to depopulation, stifles patriotism, and weakens courage.

Hume Taking Saint-​Lambert’s summary of the debate as representative, and in order to probe the issues at stake more deeply, I examine in detail the argument of David Hume. Not only is he one of the most incisive and informative participants in the debate, but he was also very influential, being quickly translated in France (twice) where his Political Discourses ([1752] 1987) played a significant role in mid-​eighteenth-​century discussions (Charles 2008). Indicatively, those translations swiftly passed into Italy to influence, amongst others, Antonio Genovesi, and his work was in turn taken up in Spain by Bernardo Danvila y Villagrassa (2008) who in his Lecciones (1779), like Genovesi (1962) in his Lezioni (1765), devotes a whole chapter to “luxury”. In addition, of course, Hume’s argument was significant in British discussions. Hume opens his essay “Of Refinement of Arts” ([1752] 1987) by stating that “luxury” is a word of “uncertain signification” (1987: 268) (so much so perhaps that he changed the original 1752 title “Of Luxury” to “Of Refinement of Arts” for the 1760 edition). He is not alone in this detection of uncertainty. Other Scots adopted a similar position, as did Diderot after and Jean-​François Melon (1735) before him.6 In line with his general strategy in these essays, Hume is seeking to dispel shallow thinking, aiming to penetrate beneath the overwrought extremes of the debate. His motivation is not merely irenic; he is also pushing an agendum in favour of a modern commercial society. Hence while he opens in a seemingly even-​handed manner by juxtaposing the argument of the “severe moralists” (as he calls them—​Sallust is named as an example), for whom “luxury” is a vice, to Mandeville’s (though he is unnamed) defence, it is clear that it is the former that is chiefly in his critical sights. For the Sallustian moralist, “poverty” is an expression of virtuous self-​command. For Hume, and for Adam Smith (1981: 10), there is nothing virtuous in poverty. It is, rather, a condition of necessitous misery, a painful lack of the material basics of life (Berry 2013: ch. 3, 2018: ch. 13). What commerce holds out is the way to alleviate impoverishment, and integral to that alleviation is giving value to the production of luxury goods. There are two aspects to this positive valuation. The first reflects his exposition of the relative role of reason and desire. In a powerful metaphor that constitutes a direct reversal of the Stoic and classical view, he declares that reason is “the slave of the passions and can never pretend to any office than to serve and obey them” (Hume 1978: 415). Reason does not move humans into action, it is inert

30   Christopher J. Berry (1978: 458); what does motivate are the passions (our desires). This is the key premise of the “modern” account of motivation. The modern view rejects the classical teleological perspective, whereby food is eaten for the purpose of assuaging hunger or a slipper is worn for the purpose of foot protection. In rejecting this perspective, the “modernist” also rejects the idea that desires can be limited to some fixed end. As Thomas Hobbes starkly argued, the classical ideal of “tranquillity of mind” does not exist; humans are always in motion so the only way to be free of desire is to be dead (Hobbes 1997: 46). Similarly John Locke argued that desire is an “uneasiness of mind for want of some absent good” and then remarked that this uneasiness is the chief spur to “human industry and action” (Locke 1854: II, 377, 353). The further consequence, picked up and drawn out by Hume from these earlier accounts, is that whether an action is virtuous or vicious is “because its view causes a pleasure or uneasiness of a particular kind” (Hume 1978: 470). Pleasure and pain are sensory responses. This now keys into Hume’s case for luxury, because, despite his remarks on the term’s uncertainty, he provides a definition—​luxury is “great refinement in the gratification of senses” (1987: 268). Its role as a counter to the “severe” position is made apparent by his generalising remark that “luxurious ages” or “ages of refinement” are “both the happiest and most virtuous” (1987: 269). In a clear break from the luxury critique Hume is coupling luxury/​refinement with happiness/​ virtue not opposing them. Luxury goods, while dangerously superfluous and corrupting from the Sallustian moralised perspective, represent a source of pleasure or enjoyment that is intrinsically valuable in its own right. Central to this enjoyment is having the fruits of commerce—​better food, clothing, and lodging. This is the second positive aspect of Hume’s argument. As well as the intrinsic value there are the instrumental benefits. These flow from the production of luxuries as consumption goods in a system of commerce. These benefits redound to the general advantage. To seek to remove the production and consumption of luxury goods not only impoverishes, it also runs counter to the “natural bent of the mind”, to the fact that humans are governed by the passions and not by a suppositious disinterested concern for the public good (1987: 262–​263). Hume identifies Sparta as a polity where that disinterestedness was alleged to exist but observes that to govern men along Spartan lines would require a “miraculous transformation of mankind” (1987: 280). The invocation of Sparta as an ideal community had a long history and in the eighteenth century it was given an influential outing in Jean-​Jacques Rousseau’s thorough-​going critique of luxury in his prize-​winning Discours sur les Sciences et les Arts ([1750] 1962), a work which was conceivably the target of Hume’s jibe. While Rousseau laments the corruption of Spartan ideals of austere public virtue, Hume accepts not only the reality of the modern world of commerce but also its superiority. What motivates humans are “avarice and industry, art and luxury” (1987: 263). “Avarice”, which Hume depicts as both an “obstinate” and a “universal passion”, was uniformly condemned by the severe moralists (emphatically so by Sallust [1921: 5, 12]) and their modern followers. But for Hume, it is commendably “the spur of industry” (1987: 93,113). This spur is central to the benefits that flow when industry abounds since

The History of Ideas on Luxury in the Early Modern Period    31 then individuals will be not only opulent but happy as they “reap the benefit of  . . .  commodities so far as they gratify the senses and appetite” (1987: 263). Not only is industry advanced to the benefit of all but, with the attendant desires for “a more splendid way of life than their ancestors enjoyed”, men are roused from “their indolence” to obtain commodities (“objects of luxury”) (Hume 1987: 264). There is an implicit dynamism here. Hume recognises, as did Melon (1735:  123) and Mandeville (1988: 1.169–​172) before him and François Forbonnais (1754: 230) andKames (1779: I, 363–​364) after him, that one-​time luxuries become necessities, which implies that the relation between them is relative. There is not some fixed intrinsic natural criterion (need) to distinguish them as implied by the critics of luxury and advocates of sumptuary law. There is not some immutable or given norm in terms of which appropriate limits can be established. The effect of this dynamism is in an improvement in the conditions of the poor, who can possess not only the necessaries but also “many of the conveniencies” of life (Hume 1987: 256; cf. Smith 1981: 10). Hume, again implicitly contrasting the restrictive hierarchy of “the classical world”, explicitly states that in ages of refinement “many” can now “enjoy” the “finer arts”; such pleasures are not the prerogative of the (few) rich. What “refinement” (and “delicacy”) (Hume 1987: 264) indicate is the recognition of qualitative differences. The “severe” view treats all departures from functionality as superfluous (recall Seneca’s comment on the moral failing of valuing the quality of food). To develop refinement, as manifest both in the presence of qualitatively differentiated goods and in the ability to appreciate both the skill and the beauty of a fine meal or splendid apparel, is not to indulge in excess. Excess is mere quantitative increase beyond some fixed sum, but, as such, it is conceptually distinct from qualitative refinement. This separation of luxury from excess was followed, despite their divergences, by others, for example, by his fellow Scot James Steuart (1805: I, Bk 2, ch. 20), by the Physiocrats who distinguished between that “luxe de décoration” which was “sterile”, that is, was devoted to unproductive rather than productive ends, and “luxe de subsistance” (Mirabeau 1760: VI, 103), and by Genovesi who distinguished moderato” (or “gentilezza”) luxury from prodigality (1962: 162). Hume himself allows that luxury can be “vicious” as well as innocent (virtuous). What he means by vicious is nonbeneficial or without advantage to the public (1987: 269, 278). His argument permits him to dismiss Mandeville’s position as casuistry; he sees no need to deny that pernicious luxury is poisonous (1987: 279). Neither does he need, again unlike Mandeville, to accuse of hypocrisy those who decry luxury.7 In effect, “vicious luxury” for Hume describes an individual who, by confining gratification to himself, is unable to execute those “acts of duty and generosity” that his station and fortune require. Even here the thrust is that the virtue of relieving the poor (1987: 279) disperses gratifications more widely to public advantage. At the heart of this is a utilitarian calculation. While Hume allows that luxury “when excessive” can generate both private and public ills, it is still, on balance, better to accept rather than attempt vainly to eradicate it (1987: 279–​280). Without the spur to industry that luxury supplies, individuals (and thence their society) will fall into sloth and idleness. The social and individual cost of

32   Christopher J. Berry such outcomes outweighs any benefits that might conceivably accrue from a proscribing luxury—​a circumstance, he holds, the historical record bears out.8

Effeminacy and Martial Virtue Nonetheless, this positive argument might still fall foul of the Brownian luxury critique. Brown’s recurrent and representative criticism of luxury was that it manifested the fact that the “dastard Spirit of Effeminacy hath crept upon us, and destroyed the national Spirit of Defence” (Brown 1757: 91). Luxury made men gentle or soft when—​so the moralised argument goes—​hardiness is vital to national greatness, as measured by military strength. This argument was particularly strong because it formed a significant component in the arsenal of “republican” theorists, for whom Sparta and the early years of the Roman republic were exemplars. Taking their cue from Aristotle’s remark that the true mark of a citizen is to bear arms (Aristotle 1944: 1297b), this republican motif passed on into Rome, in Cicero, Livy, and many others; it reemerged in the Renaissance where Machiavelli is the best-​known adoptee and then into English theorising, exemplified by James Harrington and Algernon Sidney, in the seventeenth century. Given this pedigree, this line of argument constituted a formidable bastion against the corrupting dangers of luxury. This issue of military capability became in this way a central feature of the luxury debate. It was, accordingly, important to the argumentative success of the defence of luxury and a commercial society that this view of manly virtue as the bulwark against weakness and mainstay of societal strength is undermined. Hume again can be pressed into service. In his rebuttal he appeals to the evidence (a ploy also adopted by Mandeville 1988: I, 122–​123). The supposed causal link between luxury and military weakness fails the test of constant conjunction, as manifest by the cases of France and England, that is, the two most powerful because most polished and commercial societies (1987: 275; cf. 1894: I, 598–​599). Their military power stemmed from their commercial strength and the professionalism of their armies. For the republicans, military strength lay in a citizens’ militia and they vehemently opposed both mercenaries and a standing army. But, as Adam Smith appreciated, there is nothing incongruous in a commercial society, where the division of labour is at the root of prosperity, to have men whose job it is to be soldiers. While Smith did, indeed, comment adversely on the effects of an intensive division of labour on martial virtue (1981: 782) he was not nostalgic. Modern society has resources to help offset that effect just as these professional soldiers will benefit from the technology that a commercial society can command and from the greater discipline that professionals exhibit (Smith 1981: 699). In Hume’s version in the absence of the “indissoluble chain” that links “industry, knowledge and humanity” that is found in “luxurious ages” (1987: 271) then armies are composed of the “ignorant and unskilful” (1987: 261).9 We can now appreciate how Hume, by calling the luxurious ages the “most virtuous”, is implicitly declaring that the quintessentially male virtue of courage is now passé.

The History of Ideas on Luxury in the Early Modern Period    33 Once the military virtues are downgraded, then the accusations of effeminacy and feeble commitment to the public good levelled at merchants together with the sapping of virility that comes from enjoyment of luxury can be dismissed as untenable. Hence his judgement, that “merchants are one of the most useful races of men” because not only do they “beget industry” they are also the “best and firmest basis of public liberty” (1987: 277). As Adam Smith, in his Glasgow University lectures, professed, “opulence and freedom [are] the two greatest blessings men can possess” (Smith 1982: 185, 453). From this it follows that sumptuary legislation, much practised in republics, is “the highest impertinence and presumption” assumed by governors in their attempt to regulate the “oeconomy of private people” (Smith 1981: 346); an attempt Hume called “ridiculous” (Hume 1894: I, 535).

Conclusion Luxury in the classical world signified a corrupt state of affairs or, in the early Christian construction, as a synonym of “lust”, was one of the deadly sins. The early modern world saw a gradual overturning of that opprobrium, a process here labelled “de-​moralisation.” Given the weight of the classical legacy and the extensive and disruptive social (economic and political) changes that began in the sixteenth century, then, this process occasioned an extensive debate. Hume emblematically identified what was at stake in this debate within his rebuttal of the negative moralised construal of luxury. His widely shared, but, of course, not universally accepted, claim was that a commercial society is one that recognises the value of luxury. That recognition went hand in hand with the judgement that the practicesand assumptions of commerce accord with the “natural bent of the mind” (1987:  263). Central to this “bent” is the acceptance of the evidentially based fact, as exemplified by Smith’s butchers, of the motivational role of self-​interest. The classical moralised disparagement of merchants, because they devoted themselves to private commercial pursuits, became modified, deflected, and ultimately neutered by a succession of early writers on commerce. The decoupling of luxury from its role as the negative counterpart to the virtue of poverty meant it could be viewed positively because of its beneficial social effects; it promotes employment, industry, population, and, significantly, given its salience in the moralised indictment, military strength. It also chimed with the early modern emphasis on the happiness and delight that comes from the legally unrestricted personal choice of, and desire for, consumption goods—​for such luxuries as delicately embroidered slippers. Of course, the evolution of ideas is not smooth. The notion of a commercial society that underpinned the shift to demoralisation was assailed by a variety of critics of what, in the nineteenth century, became known as capitalism. Karl Marx (1967, 1971) is, of course, the best known with his argument that capitalist relations of production were inherently and necessarily exploitative and alienating. While Marx claimed to be providing

34   Christopher J. Berry a scientific rather than a moralistic dissection, a more overtly moralised critique of luxury was also expressed by, for example, Pierre-​Joseph Proudhon who defended the austere virtue of honest poverty ([1861] 1927: 338–​339) or Henry David Thoreau who, in his essay Walden (1854), judged that most luxuries are “positive hindrances to the elevation of mankind” (1973: 14). In the late nineteenth and early decades of the twentieth century there was a flurry of publications worried about “luxury” and the development of mass consumption (for Germany, see Breckman, 1990/​1991; for France, see Williams, 1982; for a more general British emphasis, see Hilton, 2004, and Roberts, 1998). And there has been an outcrop of writings from the late twentieth into the twenty-​first century that, in effect, seek to remoralise “luxury” (Berry 2016) and a broader emergence of a field of enquiry “critical luxury” (Armitage and Roberts 2016). In many ways, these writings are a reaction to de-​moralisation. Luxury goods both instantiate and detrimentally valorise the intemperance of desire that is stimulated by incessant incentives to consume more which both damages the planet and sustains the capitalist entrenchment of inequality. In a different register, the commercial fact that “luxury” can without hesitation be tacked on to almost any article of merchandise from pizza to handbags, from a cell phone to toilet tissue has resulted in a search by commentators for criteria of authentic or meta or true luxury (see, inter alia, Pinkhasov and Nair 2014; Ricca and Robins 2012; Thomas 2007). The manufacturers of luxury goods have not been immune. Many now stress the sustainability of their products, seek to demonstrate that their sourcing of materials and supply chains are nonexploitative, and emphasise the virtues of craftmanship that their products embody. From this variety of perspectives and concerns, it is clear that the early modern debates over luxury set the agenda for what was to follow.

Notes 1. Similar sentiments can be found in Plato and Xenophon, while amongst Roman authors Cicero (1913: 1, § 150), for example, judges merchants to be engaged in a sordid or demeaning activity; indeed, they have to tell lies to make a living. 2. See the fulminations of Clement of Alexandra (1891: 439/​440) and Tertullian (1869: 331) who strikingly refers to female luxury as effeminising the manliness of faith (fidei virtus effeminari). The role of Eve, as first manifesting weakness by succumbing to the wiles of the serpent and then exhibiting guile to get Adam to eat the forbidden fruit, added another dimension to this misogyny. 3. Aristotle (1944:  1256b) distinguished between “legitimate exchange” (oikonomê) and “money-​making” (chrêmatiskê). 4. This is not to deny that sumptuary laws were also enacted for economic or protectionist reasons to restrict the consumption of imported goods. 5. Hont (2016) provides a survey of the first half of the century though confined to Britain and France. There is a large literature on the French debate; the most thorough is Shovlin (2006). The debate elsewhere is not well covered, but for Italy there is a dedicated study (Wahnbaeck, (2004); for a brief comment on Spain, see Herr (1958). The Cameralist notion

The History of Ideas on Luxury in the Early Modern Period    35 of Polizei incorporated the regulation of luxury; for the broad context, see Priddat (2008) and for Austria more specifically, see Bauer (1976). For Sweden, see passing comments in Koerner (1999), while the most intense debates in the Low Countries took place in the seventeenth century. The Dutch with their supposed frugality were a polemical object lesson for English pamphleteers, while the Dutch themselves passed sumptuary laws (see Schama 1987:  186–​187). In the eighteenth century there was a preoccupation with “decline,” and while familiar laments about effeminacy were made the Dutch were distinctive in that for them, the decline was from their eminence as a commercial nation and its attendant virtues (see Jacob and Mijnhardt 1992). 6. For Scotland, see, for example, Adam Ferguson (1966: 244). Melon declares “le terme luxe est un vain nom” that conveys “les idèes vagues, confuses, fausses” and advises it be banished when considering “de police et de commerce” (1735: 130). Melon’s Essai was influential—​ Voltaire drew upon it in Le Mondain and Hume cited it. Diderot (1755: V 636r) in his article titled “Encyclopédie” cites “luxe” as an example where its application to an infinity of objects means it escapes exact definition. 7. Mandeville’s characterisation of the “main Design” of the Fable was that it was impossible for moralists simultaneously to enjoy, as is evidently the case, “all the most elegant Comforts of Life” (as found in “an industrious, wealthy and powerful Nation”) while judging that the benchmark of proper conduct is to be “bless’d with all the Virtue and Innocence that can be wish’d for in a Golden Age” (1925: I, 6). 8. See his account of England under Elizabeth when the “nobility were by degrees acquiring a taste for elegant luxury”; though this led to the decay of “glorious hospitality”, yet it is “more reasonable to think that this new turn of expense promoted arts and industry, while the ancient hospitality was the source of vice, disorder, sedition and idleness” (1894: II, 601). 9. In his History, Hume implicitly connects the development of artillery with humanity (the third link in the chain) when he observes that, though “contrived for the destruction of mankind,” it has “rendered battles less bloody and has given greater stability to civil societies” (1894: I, 498).

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Chapter 3

Cri tical Th e ory a nd t he Singu l ar I nsta nt of Lu xu ry On Contemporary Conceptions of Luxury Customer Experience John Armitage

This chapter deals with critical theorist Theodor Adorno’s major essay ‘Veblen’s Attack on Culture’ ([1967] 1981: 73–​94), and that essay’s engagement with the twin influences of The Theory of the Leisure Class ([1899] 2009)  by nineteenth-​century sociologist Thorstein Veblen and the dual philosophical character of luxury. The subject matter, purpose, and value of this chapter lies in its sustained engagement with these twin influences, particularly as they are manifested in ‘the singular instant of luxury’. To comprehend the importance of this perspective, and thus to build a foundation for a new understanding of luxury as a business, we need to look at the singular instant of luxury and then at how contemporary conceptions of luxury customer experience can be developed and revised. Accordingly, this chapter is initially concerned with the provision of a conceptual narrative regarding critical theory, a concept created in the 1930s to designate the fusion of Marxist social theory, German idealist philosophy, and Freudian psychoanalysis expounded by members of the Frankfurt Institute for Social Research or ‘Frankfurt School’ such as Adorno and Max Horkheimer ([1944] 2002), Herbert Marcuse (1964), and, later, Jürgen Habermas ([1962] 2015). The second section is an endeavour to enhance the contemporary understanding of critical theory through an appreciation of luxury. Attention is paid to the central themes and import of ‘Veblen’s Attack on Culture’ (Adorno [1967] 1981: 73–​94) and Adorno’s analysis of The Theory of the Leisure Class (Veblen [1899] 2009). Yet, while Adorno’s

42   John Armitage critical analysis of Veblen’s critique of luxury is theoretically significant, of equal importance is the singular instant of luxury. The singular instant of luxury is that distinct split second, minute, hour, or even longer when we as autonomous subjects sense luxury as that element that shatters the instrumental effects of mass production. It is that disruptive element of instrumentality that is the mass consumption associated with the culture industry, wherein we feel that we have been emancipated, if only for an extraordinary flash, from contemporary capitalism’s realm of utility. As the chapter’s title suggests, the concepts of critical theory and the singular instant of luxury are paramount in an interpretation of contemporary conceptions of luxury customer experience. Naturally, in attempting to make a critical and theoretically specific contribution to our understanding of luxury within the confines of a single chapter, one cannot contend with every imaginable contemporary managerial conception or professional approach to luxury customer experience (see, e.g., Chevalier and Gutsatz 2020; Lent and Tour 2009). For this reason, the third and final section of this chapter provides an in-​depth focus on The New Luxury Experience (Batat 2019). Nonetheless, that focus is not to make a wholesale critique of Batat’s ideas concerning the marketing of luxury brands but to illustrate how her book is representative of an increasingly ‘rational’ way of thinking about luxury consumption, luxury customers, and luxury experience within the context of contemporary capitalism. Consequently, this section is not a denunciation of experiential luxury strategies, luxury management, luxury design, or the branding of luxury goods and services. Rather, it is an analysis of some of the contradictions of contemporary approaches to luxury customer experience that pursues a rapprochement between critical theory and corporate luxury marketing. A conclusion is reserved for a critical evaluation of the theoretical work of the Frankfurt School and an assessment of the concept of the singular instant of luxury and its likely impact as a counterveiling sensibility to dominant contemporary conceptions of luxury customer experience. But let us begin with the concept of critical theory.

Critical Theory Although not an established academic subject, critical theory has had a substantial effect upon business and management studies (Scherer 2011: 29–​51). Today, the term ‘critical theory’ no longer operates as a cypher for Marxism. Rather, contemporary critical theory offers philosophical explanations for the development of capitalism and, for example, its impact upon questions of social authority and the cultural relevance of mainstream business thinking and practice. Critical theory is consequently wedded to a belief in the necessity of challenging and changing prevailing institutional managerial arrangements and systems of domination as well as to promoting and developing alternatives to such systems in the world of business practice. Furthermore, by the

Critical Theory and the Singular Instant of Luxury    43 1960s, critical theorists, such as Adorno and Horkheimer, Marcuse, and Habermas had produced several important themes relevant to luxury business. Thus, to appreciate the significance of these critical theorists for luxury business, it is vital at the outset to discuss their collective evolution. Critical theorists have forged pathbreaking studies of, for instance, the authoritarian personality (Adorno et al. 1950); the effects of mass production and mass consumption and the appearance of a mass culture industry; the change from liberal capitalism to corporate welfare capitalism; and, most distinctively, the appearance of modern nihilism and totalitarianism in an era of scientific reason or what Adorno and Horkheimer ([1944] 2002) called the ‘dialectic of enlightenment’. All through its history, the Frankfurt School kept a constancy in its critical direction, despite the different standpoints of its associates. The School’s first phase (1923–​1931) saw a critique by Georg Lukács ([1962] 1980) of the positivism and economic determinism of Marxist convention; of the dialectical idea of reason motivating Marx’s explanation of history as impelled by class struggle; and of natural science, analytical reason, and scientific reductionism. This conception of ‘revolutionary praxis’ also informed the School’s mixture of analytic–​empirical social science and dialectical moral philosophy. However, during the School’s second phase (1931–​1941), Adorno, Horkheimer, and Marcuse became less hopeful than Lukács concerning the achievement of the Bolshevik Revolution in Russia in 1917 and the ability of the proletariat to attain revolutionary class consciousness. They identified the structural characteristics of the developing corporate welfare state, the rise of economic regulation combined with assured welfare benefits, and high employment powered by military spending that helped to alleviate economic crises and frustrate international proletarian solidarity. Accordingly, Adorno, Horkheimer, and Marcuse affirmed the significance of democratic political struggle and the ideological role of culture in furthering or delaying the appearance of critical abilities. Adorno, Horkheimer, and Marcuse thus turned aside from Marxism’s insistence on the role of theory in directing revolutionary practice. Indeed, they turned their concentration to philosophical issues regarding epistemology and metaphysics. Thus, the School’s third post-​World War II phase (1945–​1964) stands out as a turnaround in its previous direction. Writing in exile in the United States throughout the war, Adorno and Horkheimer cooperated on Dialectic of Enlightenment ([1944] 2002), which argues that rationality deteriorates into an instrument for self-​preservation. In place of achieving its potential of emancipation, enlightenment appears as a scheme of scientific-​ technological power wherein critical reflection is eclipsed. ‘Enlightenment’ wrote Adorno and Horkheimer ([1944] 2002: 1), ‘understood in the widest sense as the advance of thought, has always aimed at liberating human beings from fear and installing them as masters. Yet the wholly enlightened earth is radiant with triumphant calamity’. Adorno especially drew negative conclusions from this analysis of ‘triumphant calamity’. Doubtful of revolutionary praxis, he sought to recuperate repressed indications of utopian reconciliation and liberation in theology and aesthetics (Adorno [1970] 1997). Marcuse (1964) was less negative. In his view, what Adorno and Horkheimer

44   John Armitage identified as the dialectic of enlightenment was a contingent deformation of scientific-​ technological rationality produced by the growth requirements of capitalism. Employing classical metaphysics and aesthetics, Marcuse argued that scientific technological rationality could be transformed under socialism in ways that would release its initial emancipatory promise. Marcuse’s rift with Adorno and Horkheimer over the dialectic of enlightenment anticipates the fourth phase (1964–​) of the Frankfurt School’s history, introduced in the 1960s by Habermas ([1962] 2015). Like Marcuse, Habermas was immersed in the New Left student movement. Different from Marcuse, Habermas’s answer to the dialectic of enlightenment did not take the form of a tentative reconceptualization of science and technology. As an alternative, Habermas argued that moral–​practical reason and critical emancipatory thought are already present in ordinary communicative interaction. For Habermas, the idea of attaining an unforced agreement or shared understanding that we associate with rational persuasion already suggests ideas of dialogical reciprocity or equality, receptivity and openness, liberty, and inclusiveness or solidarity that can be appealed to as critical values and norms in interrogating the moral legitimacy and justice of institutions that claim to be democratic. The shift in philosophical paradigm initiated by Habermas—​from a philosophy of subjective consciousness to a philosophy of intersubjective communication—​is a divergence from Marxism, with its stress on labor as the medium of dialectical praxis, even if Habermas’s censure of the intrinsic contradiction between capitalism and democracy remains, for him, the main institutional incarnation of dialectical reason. Thus, the Frankfurt School continues with Habermas, his supporters, and in the thought of other contemporary continental philosophers, such as Axel Honneth (2006:  336–​360), who are influenced by Friedrich Nietzsche and Martin Heidegger, both German philosophers who had a profound impact on questions of autonomy, subjectivity, and existence. The poststructuralist examinations of power and philosophies of domination by Michel Foucault (2002) are similar to those expounded by critical theory. Jean-​François Lyotard ([1979] 1984) and Jacques Derrida ([1967] 1976) equally converge in their postmodern interpretations of language, reason, and knowledge with the critique of identity thinking and progress developed by Adorno and Horkheimer. Lyotard’s support for a postmodern pluralism regarding questions of ethics and knowledge, for example, has converged with contemporary conceptions of language, literary critical theory, and its reading strategies (Sawyer 2014). Likewise, Derrida’s advocacy of a strategy of deconstruction, wherein the examination of texts is commenced with the object of questioning oppositional structures of meaning to consider the identification and interrogation of hierarchically organized rational conceptual regimes, converges with Adorno’s work in critical theory (see, e.g., de Vries 2002: 1276–​1294). This poststructuralist and postmodernist reception of critical theory—​with its refusal of the revolutionary affectations of realizing total historical knowledge for the sake of total emancipation and reconciliation—​indicates its continuance in the present period as a school of thought that is conscious of its own historical contingency and indeterminacy.

Critical Theory and the Singular Instant of Luxury    45

The Singular Instant of Luxury In this section I shift to my attempt to improve the contemporary awareness of critical theory not through Marxism, idealism, or Freud but through an understanding of luxury as understood by Adorno’s examination ([1967] 1981: 73–​94) of Veblen’s analysis of luxury in The Theory of the Leisure Class ([1899] 2009). For Adorno, Veblen is the main spokesperson of all those who seek an answer to the following question:  how does the denial of instrumental rationality through luxury occur? Veblen’s critique argues that there is no distinction between luxury and ostentation. For Veblen, this absence of distinction is the consequence of anthropological belief. Veblen’s critique of luxury is thus the result of his conviction that we do not freely do things that are deliberately irrational, extravagant, and superfluous without either pursuing a concealed purpose or being coerced into it, or both. For Veblen, our cultural existence is governed by utilitarian, instrumental values and rules that shun purposeful extravagance and ‘unnecessary’ and ‘irrational’ leisure. For Veblen, there must forever be a concealed purpose that makes our extravagance rational and utilitarian: ‘Even in articles which appear at first glance to serve for pure ostentation only’, Veblen ([1899] 2009: 100) writes, ‘it is always possible to detect the presence of some, at least ostensible, useful purpose’. Veblen thought that he knew best about this concealed purpose. This is because for Veblen, there is only one cause. We are extravagant and leisurely only because this is our way of showing our ability to spend or because our business circumstances require it. According to Adorno, a theoretical distinction between luxury and ostentation is for Veblen unfeasible. For, once our experience is separated from Veblen’s notion of luxury or luxury is assumed to be a plain status symbol, luxury consumption can no longer be deemed purposely trivial, ridiculous, or disobedient but has to be deemed instead a utilitarian status symbol of wealth. Consequently, for Adorno, Veblen’s standpoint is that this is the only way either form of contravention of instrumental activity—​for Veblen ‘conspicuous consumption’ (i.e., the use of money and material resources towards for display of higher social status [e.g., haute couture clothing]) and ‘conspicuous leisure’ (i.e., the use of extended time for pleasure [physical and intellectual], such as sport)—​ can be comprehended. In Adorno’s interpretation, Veblen essentially repudiates the idea that luxury is a reality because the conspicuous consumption of luxury goods and services is simply proof of wealth. From Veblen’s perspective, there is no such thing as useless extravagance. Here, Veblen not only condemns luxury but seeks to obliterate any desire for it by attempting to show that luxury is the very thing that we do not want it to be: utilitarian, efficient, and rational. Nevertheless, although Adorno’s critical scrutiny of Veblen’s assessment of luxury is philosophically important, of equivalent significance is the singular instant of luxury: that unique temporal space when we as autonomous subjects intuit luxury as

46   John Armitage that component that splinters, for example, the instrumental effects of mass production, as that unsettling component of the instrumentality that is the mass consumption correlated with the culture industry, in which we experience that we have been emancipated, if only for an astonishing moment, from contemporary capitalism’s realm of utility. Constructing an idea of the singular instant of luxury is vital because it points to the possibilities for autonomous subjects to escape nihilism, totalitarianism, and the rule of scientific reason, which amounts to a slavery to utility exemplified by our co-​ option into increasingly functionalized societies. Adorno’s historical and critical theoretical orientation, and particularly his viewpoint on luxury, consistently argues that the duty of the philosopher is to develop definitions for concepts such as luxury that cannot be stated conclusively. Eschewing the idea of progress in philosophy, Adorno’s critical theory of luxury not only proceeds from the study and disruptive reexamination of the realm of utility but also from the supposition that our connection to them is always such that it signifies another attempt to resolve, from the beginning, the conundrum of luxury that is almost certainly insoluble in theory. Adorno’s original assessment of the philosophy of luxury is thus concerned with its stubborn, indescribable, and multifaceted characteristics rather than with its conceptual and theoretical history. For Adorno, the question ‘what is luxury?’ is not only a solemn philosophical question but also one with an infinite magnetism, even if all arguments about luxury tend to conclude inconclusively in denouncing it morally or admiring it economically. Adorno’s idea of luxury must be understood to be that of a philosophical social and moral problem, of a fascination with, and question about, what luxury is after we have accepted that describing it conclusively will remain a problem that is most likely irresolvable. Nevertheless, Adorno’s critical theory of luxury positively supports the belief that a flourishing life is attainable, if not always through the search for what is enjoyable, practical, and purposeful. But, in a society dominated by instrumental and utilitarian thinking, luxury appears to entail unnecessary exertion. In his ‘Veblen’s Attack on Culture’, Adorno is critical of Veblen refusing us even the option of considering that we might be able to resist the utilitarian rationality of our administered world, a world that spreads into the predictabilities of everyday life, such as luxury functioning for us as a way of us succumbing to the other, to the social pressures for self-​presentation, even if luxury is also to be enjoyed for oneself. In line with Lukács’s earlier critiques of positivism and economic determinism, Adorno furnishes a severe judgement on Veblen’s explanation of luxury as irrational and economically unproductive, unnecessary, and extravagant. Moving beyond Marxist orthodoxy, Adorno’s critique of Veblen is not concerned with questions of history, class struggle, natural science, or scientific reductionism but with the question of luxury concerning the presence of autonomous subjects and the social danger that we as such subjects confront in a world propelled by the dialectic of enlightenment. Adorno’s conception of luxury is revolutionary in the sense that it highlights the practices and possibilities of social contravention, of moral resistance, and of emancipation from the realm of utility. Unlike Veblen, who explains luxury away into nothing more than

Critical Theory and the Singular Instant of Luxury    47 rational behaviour, Adorno’s philosophical, critical, and theoretical approach is hopeful in that it acknowledges autonomous subjects and their ability to resist being deceived by functionalized societies and to achieve another, perhaps revolutionary, kind of consciousness. What Adorno is pointing to is that even within the structural confines of the corporate welfare state, economic regulation, guaranteed welfare benefits, and high employment, we still seek to resist these and other dictates, such as militarism, economism, and instrumental reason through luxury. For Adorno, unlike Veblen, luxury must be classified as culturally meaningful, as the ostentatious display of all those striving for an autonomous subjective existence. Indeed, Adorno affirms the importance not only of struggles for autonomy through luxury but also of individuals consciously contravening against political, ideological, and cultural demands to be sensible and rational. The refusal of a utilitarian orientation towards use, Adorno argues, results from the desire for a critical or examined life, for a critical or a worthier culture. Here there is, turning away from Marxism’s insistence on necessity as Adorno indicates as a theoretical reason for owning luxury, a faith in a modernity that has become humane: the role of luxury is to guide us to paths of flight, to find new critical practices and new cultural principles. Adorno’s critical theory thus turns its attention towards the philosophical problems associated with luxurious living, with an epistemology and metaphysics that favours luxury unreservedly. Hence, Adorno’s concentration on the common ground between our personal life and luxury is notable for its refusal of the direction of our function-​dominated world. Luxury’s purpose is not clear-​ cut because if it was, it would never attain the thing that expresses it: the singular instant of autonomous subjectivity activates an inexpressible, unresolvable, and individualized sensation that signals the possibility of our emancipation from the realm of utility. Writing as an émigré in the United States in 1941, Adorno’s corrective to the dialectic of enlightenment thus argues that rationality and functionality are no toolkit for self-​ preservation let alone a successful, happy human life. Instead of fulfilling a promise of a means to an end, luxury emerges as something that is emancipatory, enlightening, or simply human in which critical deliberation on human lives dominated by the systemic functioning of science and technology is encouraged. Luxury, argues Adorno, must be understood in its broadest meaning as having to do with human relationships, as always aiming at liberating us from the realm of utility and installing people in the good life. Here, luxury is luminous with a life lived beyond the sake of efficiently serving a purpose. Adorno draws such life-​affirming deductions from his critique of Veblen. Dubious of practices that are conservative rather than utopian and no more than efficient means to a repressed end, Adorno seeks to reassert and reconcile the structural affinity between the liberating quality of a human life and the liberating quality of luxury. Veblen, the evangelizing antiaesthete and leading exponent of efficiency and means–​end thinking, is, by contrast, pessimistic and reductive. In Adorno’s critical theory, what Veblen identified as The Theory of the Leisure Class was a theory that acclaimed scientific–​ technological rationality whilst denying the fact that luxury is necessary for a good human life and is brought about by the imperative to escape capitalism’s increasing

48   John Armitage reliance upon the growth of instrumental reason. Drawing upon classical metaphysics and aesthetic notions of the good life, Adorno maintained that scientific, technological, and utilitarian rationality must be transformed under luxurious conditions in ways that would restore its original emancipatory potential to produce a better, convivial, and contented life. Adorno’s break with Veblen over The Theory of the Leisure Class anticipates Adorno’s historically informed approach to luxury as a social strategy, inaugurated in the 1940s by him as a contribution to the likelihood of a more humane world. Unlike Veblen, Adorno was involved with luxury because he was concerned with the development of society from a point of view that refused the utilitarian orientation. For Adorno, however, Veblen’s theoretical ‘solution’ to the ‘problem’ of the leisure class took the form of a doubling down on the ever-​expanding use of science and technology. Instead, Adorno argued that reason must be combined with the morals and practices associated with individual perception, and that any truly critical emancipatory reflections must be combined with private feelings that are already existent in everyday life and in our communicative relations with other people manifest as the desire to flee the enslavement to utility. For Adorno, the notion of such uncoerced yearning among human beings attempting to mutually understand each other as autonomous subjects is critical. The change in philosophical paradigm inaugurated by Adorno—​from a philosophy of subjective conscious longing to a philosophy of intersubjective luxury communicated as contravention—​signals a departure from Veblen, with his stress on luxury as the instrument of dreadful ostentation, for the longing to escape the slavery of goals is Adorno’s critical reason for classifying luxury as the autonomous subject’s answer to a contradictory capitalist world controlled by dialectical reason and utility. As a result, Adorno lives on in this longing, in his conception of luxury, and in my own thinking as a contemporary continental philosopher of luxury who takes his compass readings not from Veblen but from Adorno’s designation of an almost utopian power and meaning to luxury. My theoretical examination of the singular power of resistance luxury has against every kind of social compliance is, partially, based on those powers and meanings expounded by Adorno’s critical theory. I similarly converge in my view of luxury’s lack of social function with the critique of Veblen and the utility principle clarified by Adorno: Luxury has a dual character. Veblen concentrates his spotlight on one side of it: that part of the social product which does not benefit human needs and contribute to human happiness but instead is squandered in order to preserve an obsolete system. The other side of luxury is the use of parts of the social product which serve not the reproduction of expended labor, directly or indirectly, but of man in so far as he is not entirely under the sway of the utility principle. (Adorno [1967] 1981: 86)

Yet how can critical theory as a school of thought help us to understand this dual character of luxury and its singular instant that manifests itself as a refusal and a denial

Critical Theory and the Singular Instant of Luxury    49 of the utility principle? Let us consider various contemporary conceptions of the luxury customer experience with a view to offering an unorthodox interpretation of and critical theoretical contribution to our comprehension of luxury for managers and professionals.

On Contemporary Conceptions of Luxury Customer Experience This section concentrates on The New Luxury Experience (Batat 2019), not to provide a comprehensive analysis of Batat’s viewpoint regarding the marketing of luxury brands but to demonstrate how her book is illustrative of an increasingly ‘rational’ way of reasoning about luxury consumption, luxury customers, and luxury experience within the setting of contemporary capitalism. Therefore, this section is not a condemnation of experiential luxury strategies, luxury management, luxury design, or the branding of luxury goods and services. Instead, the section is an examination of the contradictions of contemporary attitudes to luxury customer experience, which seeks to reconcile critical theory and corporate luxury marketing. For Batat, the new luxury experience is a question of luxury consumption as a response to customers’ search for emotions, pleasure, exclusivity, sensitivity, and delightful services. The New Luxury Experience argues that luxury customers do not want ostentation but to live experiences. For Batat, luxury customers have moved beyond Veblen’s anthropology of buying luxury products or services. The New Luxury Experience is thus not aimed at critics of luxury but at meeting the new demands of customers. Sidestepping the consciously irrational, the extravagant, and the unnecessary, the overt purpose of Batat’s book is to offer a real vision of the new luxury experience. For The New Luxury Experience, the new cultural demands of customers can be determined and met by utilitarian values and rules that can help create memorable and ultimate luxury experiences, both online and offline. Indeed, defining luxury experiences as luxury branded is about the instrumental principles of design, efficiency, and rationality. Leisured enjoyment and memorable luxury experiences are not only the overt purpose of luxury brands but also a way of making their customers aware of how each luxury brand differentiates itself from its competitors. This is not a world of deliberate extravagance or ostentation but a world of rational strategies and utilitarian values and rules. The New Luxury Experience’s overt purpose is not then to question rationality but to further its industrialization through luxury businesses. Eschewing profligacy if not leisure and lavish spending, the book offers luxury businesses a specific and systematic vision of the luxury customer experience. According to Batat, when considering the implementation of luxury experiences in domains such as luxury hotels, restaurants, and retail, what matters is not Veblen’s conceptual differentiations between luxury and ostentation but considerations of new

50   John Armitage luxury experiences that have to do with luxury business practices. Thus, the symbolic dimensions of luxury customer consumption are set aside to some extent in favour of the utilitarian dimensions of luxury business expertise concerned with the creation of memorable luxury experiences for the wealthy. As a result, for Batat (2019: 7 (emphasis in the original)), and developing Veblen’s rather than Adorno’s views on the purchase of luxury goods, much conspicuous consumption and conspicuous leisure can be understood as ‘excessive, outrageous, and socially unacceptable’ behaviour ‘associated with the desire to make luxury not only visible but also transgressive’ of instrumental activity (Batat cites Tumblr’s #richkidsofinstagram as an example). Here, moneyed luxury is communicated without disgrace or dishonor on social media; expensive material resources like supercars are displayed; and high social status is awarded through luxury-​branded clothing such as Louis Vuitton, extended leisure time, the pursuit of enjoyment, and inflammatory physical gestures when on vacation, at parties, or on the obligatory private jets. In Batat’s view, much like Veblen’s, ‘excessive’ luxury should not exist. For The New Luxury Experience, the existence of ‘outrageous’ luxury is ‘socially unacceptable’ since, in reality, this kind of conspicuous consumption of luxury goods and services is merely evidence of prosperity made visible for no other purpose than unrestrained desire. From Batat’s standpoint, ‘useless’ extravagance should be invisible. Consequently, The New Luxury Experience does not just criticize the luxurious lives of the #richkidsofinstagram but endeavours to destroy any aspiration to luxury as excess by trying to prove that luxury as transgression is mere showing off by shameless customers living uninhibited lives of luxury beyond any utilitarian concerns associated with efficiency and rationality. Batat’s contemporary critical analysis of ‘excessive’ luxury in The New Luxury Experience is theoretically significant because, different from Adorno’s but similar to Veblen’s, it denies that transgressors or transgressive acts of luxury can transport customers to singular temporal places and spaces where they do not have to observe the niceties of manners, civility, or stylishness. This last is important because Batat’s ideas concerning the ‘outrageous’ and ‘socially unacceptable’ visible behaviours of the #richkidsofinstagram deny the fact that the singular instant of luxury is an act of transgression (on transgression, see, e.g., Bataille [1962] 2012: 63–​70 and Foucault 1977: 29–​ 52). It is the instant when the #richkidsofinstagram as autonomous subjects sense luxury as an inner experience, as individual customers who for an instant exceed the bounds of the instrumental, everyday effects of mass production and consumption. No longer constrained by the culture industry’s considerations of profit, according to Adorno’s analysis of luxury, such customers feel that they have been emancipated from contemporary capitalism’s realm of utility and productivity. The inner experience of the singular instant of luxury as an instant of transgression is indissociable from the consciousness of the #richkidsofinstagram as autonomous subjects and from their consciousness of the constraints of nihilism, totalitarianism, scientific reason, and the dialectic of enlightenment the singular instant of luxury disrupts; indeed, it is by and through the transgression of the dialectic of enlightenment’s advocacy of our slave-​like social utility and co-​opted functionality that the force of its constraints become fully realized.

Critical Theory and the Singular Instant of Luxury    51 Batat’s contemporary yet somewhat indiscriminating theoretical perspective, and especially her stance on luxury experiences that are tailored to the emotional and functional needs of luxury customers, presents an important challenge to contemporary continental philosophers, which is to work out new meanings for concepts such as luxury that draw on the inner experience of the singular instant of luxury as an instant of transgression. Resisting Batat’s definitions of luxury utilizing expert opinions or those provided by luxury brands themselves, any continental philosophy or Adorno-​ influenced critical theory of luxury must advance from the analysis of consciousness and the unsettling questioning by autonomous subjects of the realm of utility. The assumption must be that any relationship to luxury is always such that it represents another effort to transgress or to profane, from the outset, the constraints that the singular instant of luxury disrupts. Batat’s ‘new’ view of the philosophy of luxury is consequently involved with its implementation processes, with experiential luxury marketing, and with experiential luxury strategies sooner than with searching for the intractable, indefinable, and complex conceptual, theoretical, and historical limits to break. For Batat, the question ‘what is luxury?’ is not a serious philosophical question but one that addresses the ‘functional’, emotional, hedonic, and relational needs of the new luxury customer. Her rather moralizing argument centers on experiential luxury strategies, praising them all economically. Batat’s conception of luxury cannot, then, be perceived to be that of a philosophical social and moral problem, since her interest in, and questions about, what luxury is only recognizes definitions related to the ‘problems’ of implementing experiential luxury strategies such as the near impossibility of ‘capturing’ luxury customer values. However, any Adorno-​influenced critical theory of luxury must defend the view that a successful life is achieved in pursuit of what is beyond the limits of pleasurable practices and purposes or what we might call the singular instant of luxury as experiential transgression. For, if we are to move beyond a society controlled by the instrumental and utilitarian thinking that is the ‘experiential branding of luxury’, then luxury itself must be conceived of as involving the transgression of limits and demarcation lines of a passage that is also a trajectory. Contra Batat’s The New Luxury Experience, with its emphasis on, for instance, ‘experiential setting design’, we should celebrate those customers like the #richkidsofinstagram who transgress and resist the utilitarian rationality of our administered world by crossing and recrossing the line into a another world that, if only for a short duration, extends beyond the banalities of everyday life to the horizon of uncertainty, such as luxury operating for customers as a way of them surpassing the social pressures for self-​presentation. This last is an important argument since beyond the lives of the #richkidsofinstagram are the day-​to-​day lives of consumers experiencing poverty. Such poverty-​stricken consumers are significant because their luxury consumption also frequently functions as moral emancipation from the world of production and helps construct discourses and practices of the luxurious self that avoid ostentation in favour of a ‘little bit of luxury’ in everyday life (Mansvelt, Breheny, and Hay 2016: 88–​107). Contrary to Lukács and Adorno’s analyses of positivism and economic determinism, Batat delivers a luxury experience strategy related to the ‘human dimension’ in luxury

52   John Armitage through a chapter on luxury staff training. As in Veblen’s interpretation of luxury, rationality is all when it comes to ‘efficiently training luxury employees’. Disdaining the economically ‘unnecessary’ and the ‘extravagant’, Batat’s theoretical alliance with Veblen is less about the question of luxury regarding the existence of autonomous subjects and the social threat that we as such subjects face in a world driven by the dialectic of enlightenment and more about the question of luxury regarding ‘quality of service’, ‘customer satisfaction’, and ‘coherence’ in the luxury experience. Yet, building on Adorno’s idea of luxury requires us to emphasize that there exists an unqualified contingency between a limit and social transgression: they are ‘unthinkable’ forms of moral confrontation and opposition, ‘futile’ emancipatory acts, and ‘meaningless’ attempts to escape from the realm of utility in isolation. Similar to Veblen, Batat interprets the problem of luxury as nothing more than rational behaviour by luxury companies. Batat’s strategic, customer centric, efficiency is thus ‘empathic’, yet it does not recognize autonomous subjects, only trained luxury staff, not the capacity of customers to resist, only the continued functioning of ultimate luxury experiences. What Batat is indicating is that luxury experience strategies are a form of consciousness raising wherein customers are ‘initiated’ into luxury. Casting aside any notion of resistance to economic instrumentality and rationality through luxury, Batat, instead, writes of customers being ‘educated’ about luxury as a strategy luxury companies should implement. For Batat, like Veblen, luxury must be identified as a customer-​led enjoyable experience. There is little indication here that the cultural meaning of luxury for autonomous subjective existence derives from the singular instant or that the intersection between the two elements of limit and transgression and from all that follows in the wake of this intersection. For, along with Adorno, we should uphold the significance not only of battles for independence through luxury but also of the unavoidable ferocity in the collision of limit and transgression. Through luxury, customers at once consciously transgress against expectations to be reasonable and rational and knowingly celebrate that singular instant as the juncture at which both limit and transgression discover meaning. Limit discovers meaning through the frailty of its having been uncovered as utilitarian, and transgression discovers meaning through the critical revelation of the possibility of an examined life and a worthier culture before its temporal exhaustion and spatial disappearance. Here Batat turns away from luxury’s evolutionary insistence on the necessity of the luxury object as she specifies as a theoretical basis for possessing luxury a belief in a contemporary occurrence that has developed into luxury experience: the role of luxury experience is to steer us to original typologies of escape into luxury, to discover new shifts from the traditional perspective on luxury related to conspicuous consumption to the emergence of the ‘luxury experience’. Batat’s theoretical approach thus turns its attention to the emotional, sensory, and symbolic consumption of luxury. Thus, Batat’s focus on customers’ motivations to purchase and consume luxury products and services stands out as an uncritical set of cultural values and rules, philosophical ‘problems’, epistemology, and metaphysics. This last is not only because of Batat’s rejection of luxury without reservation and support for luxury as conspicuous consumption but also because of her refusal of luxury as transgression and thus her acceptance of our

Critical Theory and the Singular Instant of Luxury    53 function-​dominated world. Luxury’s purpose is straightforward for Batat because it can achieve the thing that defines it: and the thing that defines luxury for her is not the singular instant of autonomous subjectivity but individualized customer experience, not the possibility of our emancipation from the realm of utility but the operationalization of new experiential luxury marketing. Writing in contemporary France, Batat has no antidote to the dialectic of enlightenment, only individualized customer experience marketing, arguing that rational cross-​sectional analyses and diverse studies in the human sciences are instruments for the self-​preservation of luxury businesses seeking success through the provision of blissful luxury customer experiences. In preference to realizing a promise of emancipation, luxury customer experience arises as something that ‘happens’, something that ‘transforms’, or just allows luxury brands to ‘differentiate’ their ‘offers’, ‘retain’ their customers, and ‘attract’ new ones. Traditional luxury marketing, argues Batat, must be apprehended as somewhat limited by human relationships, as holding back the liberation of contemporary luxury businesses that need to consolidate the realm of utility and what passes for the good life through the efficient and purposeful implementation of experiential luxury marketing. Batat obtains such experiential conclusions from her acritical approach to luxury marketing communication and staff training, digital strategies, sales techniques, and how luxury businesses can differentiate themselves and acquire a robust and sustainable competitive advantage. Unconvinced by practices that are utopian or transgressive instead of luxury branded, and which potentially offer a powerful and energetic means to a liberated end, Batat seeks to emphasize the structural affinity between luxury customer experience, evolving luxury customer behaviours, and new luxury trends. Batat, a prominent advocate of efficient contemporary luxury consumption and means–​end thinking such as twenty-​four-​hour instant accessibility to luxury products and services, is, therefore, expectant that luxury experiences will become ever more personalized. In her acritical theory, what Batat diagnoses as The New Luxury Experience is a philosophy that commends the scientific–​technological rationalization of human emotions whilst repudiating the fact that luxury, as opposed to luxury brands, is necessary for a decent human life and is caused by the obligation to escape capitalism’s designation of human beings as ‘customers’ or as mere instruments or algorithms that can be used by Google and Facebook, Apple, or Instagram to construct the latest ‘social trend’ among luxury experience customers. Employing contemporary meanings, messaging, and product-​ driven ideas of luxury to be found in the marketplace, Batat argues in favour of scientific, technological, and utilitarian rationality transforming luxurious customer behaviours because the creation of new luxury trends not only affects customer experience but also offers huge potential to luxury businesses that design experiences founded on meeting human emotional needs. Yet Batat, much like Veblen, theorizes leisure and luxury not as sociohistorical human needs but as contemporary strategies businesses should implement to design ultimate luxury experiences. Distinct from Adorno, Batat is concerned with luxury because she is concerned not with the improvement of society but with the improvement of strategy from a perspective that accepts, for instance, the utilitarian ‘capturing’ of luxury

54   John Armitage customer values. For Batat, again similar to Veblen, the theoretical ‘solution’ to the ‘problem’ of leisure and luxury is to focus on the ever-​growing use of science and technology by luxury businesses through, for example, digital communication, data capture, data sharing, and ‘connecting’ with luxury customers. Hence, Batat is arguing that rational strategies are not only critical for luxury brands but should also be blended with an understanding of the personal perception of luxury value, for any genuine enjoyment should be mixed with the satisfaction of customers. Of huge significance for luxury brands, therefore, is a definition of customer value that, on the one hand, factors out any critical emancipatory reflections yet, on the other, strategizes and communicates with the private feelings of those same customers in everyday life. In other words, luxury brands must seek to communicate and interact with customers as long as that communication and interaction do not involve customers questioning and/​or escaping the values that enslave them to the utility of luxury-​branded data capture, data sharing, and ubiquitous connectivity. For Batat, the idea of such questioning and escape from slavery among luxury customers bidding to reevaluate luxury goods and services and appeal to each other as autonomous subjects are ideas and perceived alternative sets of values that are to be avoided. Any shift in the current philosophical paradigm of luxury is thus not to be expected from Batat: for hers is a philosophy of luxury centered on a tightly circumscribed definition of ‘experience’, one that at some level must include subjective conscious desire and intersubjectivity, but, at another, excludes luxury communicated as the power and energy of transgression. Indicating a continuation rather than a divergence from Veblen, Batat’s emphasis on luxury as the vehicle of business strategy disdains the transgressive, sometimes amoral, desire to escape the slavery of goals through an emotional ‘inner’ or ‘interior’ experience that is less about ‘connecting’ the customer to the luxury brand and more about connecting the autonomous subject to a luxurious experience free of capitalist, rational, and utilitarian constraints—​one which relentlessly questions, aggravates, and unsettles all the things that are generally taken as certainties in the world of luxury brands. Thus, unlike Adorno, Batat conforms to the slavery of the goals of luxury branding, luxury marketing, luxury design, and luxury consumption. My own thought as a contemporary continental philosopher of luxury does not, of course, take its directions from either Veblen or Batat. Instead, in the vein of Adorno, I emphasize the essentially visionary power and many meanings of luxury as well as its significant compulsive cultural components that can never be eradicated from luxury customer experiences. My theoretical analysis of the extraordinary power of resistance luxury has against all kinds of social submission is, to a degree, grounded in those powers and meanings elaborated by Adorno’s critical theory because, ultimately, the question of luxury is not one of experiential strategies, settings, design, and so on, but one of society. As an advocate for luxury businesses, Batat, understandably, prefers to write of luxury’s digital aspects rather than its absence of social function, of luxury’s physical places and digital spaces rather than the utility principle elaborated by Adorno. Yet, despite all the effort that is expended on designing luxury experiences and settings, neither luxury businesses nor anyone else can escape the fact that luxury really does have a dual character. Batat

Critical Theory and the Singular Instant of Luxury    55 focuses on the seemingly ever-​expanding socialization of luxury products and services which, although memorable and rewarding, do not benefit true human needs or contribute to human happiness (Armitage and Roberts 2014: 113–​132). For no amount of extravagance on luxury experiences will be able to maintain the increasingly outdated system of luxury-​branded goods and services wherein the physical and especially the digital experiential journey of the customer is in reality today a journey into ‘the third realm of luxury’ in which the knowable and the unknowable, the real and the imagined, become a temporal space that permits luxury brands to commodify the sought-​after emotional experiences (fantasies, sensations, visualizations, etc.) of customers (Roberts and Armitage 2020: 15). In contrast, I make the case for what Adorno ([1967] 1981: 86) calls the ‘other side of luxury’, for the use of luxury experiences not as part of a business strategy but as a human social value that has nothing to do with, for instance, the production of staff training manuals or the reproduction of high-​quality staff service and everything to do with people insofar as they are not completely under the influence of the utility principle that manifests itself in, for example, such commonplace expressions as ‘customer satisfaction’. This dual character of luxury, then, is not related to the social product as true to false human needs, the happiness of people to their unhappiness, the squandered to the preserved, or the obsolete to the up to date. Rather, their systemic relationship takes the form of a double helix which no straightforward description of the other side of luxury can deplete. It is a singular instant of luxury in the social world which, from the creation of time and space, has produced a repudiation of the endless collective reproduction of exhausted labor, which refutes the world of the utility principle from the inside and yet owes to the social world of luxury the unambiguous transparency of its appearance, its astonishing and immediate singular instant; the singular instant leaves itself behind in this space it denotes with its dominion and becomes imperceptible, hidden, almost imaginary again when it has assigned a designation to the transgression that is luxury.

Conclusion In closing, it is evident that critical theory, despite its indebtedness to Marxist social theory, German idealist philosophy, and Freudian psychoanalysis, has much to teach businesses not only about contemporary massified societies, politics, and aesthetics but also about luxury. Adorno’s critique of enlightenment rationalism, which he understood as complicit with totalitarianism and the administered societies of contemporary capitalism, laid the basis for his much-​neglected study, ‘Veblen’s Attack on Culture,’ an unrelenting critique of what Adorno perceived as Veblen’s denial of the existence of luxury in The Theory of the Leisure Class. Still, for all Adorno’s excellent criticisms of the conformist banalities of a manipulative mass culture and critical examination of Veblen’s effort to present luxury culture as a falsehood, as a situation wherein we as autonomous subjects are deprived

56   John Armitage of the possibility of even thinking that we might be able to resist the utilitarian rationality of our administered world, his theoretically important work does not tell us how that thinking and resistance operates within the everyday lifeworld. Thus the important concept of the singular instant of luxury was introduced. The singular instant of luxury is not only distinct but also a disruption in the ‘obvious’ meaning of the time and space of luxury and corresponds to a transgressive meaning for autonomous subjects. The singular instant of luxury is that component, or number of components, which breaches the consciousness of the autonomous subject, splintering and shooting out of the instrumental effects of mass production like an existential arrow. The singular instant of luxury disrupts the ‘obvious’ meaning of the instrumentality that is the mass consumption connected with the culture industry and, accordingly, encroaches on or penetrates the consciousness of the autonomous subject: the singular instant of luxury is that ‘accident’ which informs the autonomous subject of the possibility of emancipation (but also often only for an astonishing moment). Remaining outside the communal customs and practices of contemporary capitalism, the singular instant of luxury is that consciousness which is simultaneously inside luxury and which also interrupts luxury’s ‘obvious’ meaning and creates, for individual autonomous subjects, the temporal–​spatial enjoyment of a dual-​sided importance beyond the realm of utility. The concepts of critical theory and the singular instant of luxury remained key points of reference in the subsequent discussion and interpretation of contemporary conceptions of luxury customer experience. Challenging acritical and atheoretical managerial conceptions, this chapter offered and maintained an analysis of some of the contradictions of luxury within contemporary society when perceived from the perspective of the professional approach to luxury customer experience. Although in this sense indebted to critical theory, I looked to the autonomous subject of the singular instant of luxury for a countervailing sensibility to contemporary conceptions of luxury customer experience rather than to the more traditional offering of Batat (2019) in her The New Luxury Experience. Batat’s thoughts regarding the marketing of luxury brands, along with many other authors with comparable thoughts, are acritical and illustrative of an ever more ‘rational’ way of considering luxury consumption, luxury customers, and luxury experience. Indeed, within the framework of contemporary capitalism, such considerations are grinding down the consciousness of the autonomous subject and threatening to absorb all but the most uncompromising of transgressive luxury culture such as that presented by the #richkidsofinstagram. Then again, although I do not share Batat’s standpoint, my work does not seek to deprecate her or any others’ writings on experiential luxury strategies, luxury management, luxury design, or the branding of luxury goods and services. Instead, the exploration here of some of the contradictions of contemporary approaches to luxury customer experience searches for an understanding between critical theory and corporate luxury marketing. Any future critical appraisals of the theoretical work of the Frankfurt School must appreciate that the concept of the autonomous subject is part of any new luxurious configuration—​a luxurious configuration that is utopian sooner than negative. My conception of the singular instant of luxury likewise ascribes an affirmative critical role to

Critical Theory and the Singular Instant of Luxury    57 the impact of transgressive luxury, though in terms and sensibilities based on but beyond those of critical theory and the orthodox and currently prevailing contemporary conceptions of luxury customer experience. In conclusion, critical theory must exercise a broader influence upon subsequent social, cultural, and marketing theory. Some may reject the association of rationality with totalitarianism or with luxury-​branded managerial capitalism of the sort made by Adorno. A few may find Adorno’s criticism of Veblen unhelpful. Yet, together with others (e.g., Lehmann 2016: 78–​79), I am persuaded by the seemingly rising neutralization of the critique of luxury in the contemporary era and of the suitability of Adorno’s analysis. This chapter is a further development of Adorno’s, which I have associated with the singular instant of luxury and cognate work in critical luxury studies (Armitage and Roberts 2016). The idea of the singular instant of luxury, by which the principles of contemporary luxury are simultaneously critiqued and radicalized, is a speculative model of the new critical theory of luxury needed to rise to the transformed luxury culture of globalization. Such a theory must be reflexive, critical, and disruptive of the assumptions of the very project of enlightened luxury business.

References Adorno, Theodor, Else Frenkel-​Brunswik, Daniel Levinson, and Nevitt Sanford. 1950. The Authoritarian Personality. New York: Harper and Brothers. Adorno, Theodor. [1966] 1973. Negative Dialectics. New York: Seabury Press. Adorno, Theodor. [1967] 1981. “Veblen’s Attack on Culture.” In Prisms, 73–​94. Cambridge, MA: MIT Press. Adorno, Theodor. [1970] 1997. Aesthetic Theory. Minneapolis: University of Minnesota Press. Adorno, Theodor (with Max Horkheimer). [1944] 2002. Dialectic of Enlightenment. Stanford, CA: Stanford University Press. Armitage, John, and Joanne Roberts. 2014. “Luxury New Media: Euphoria in Unhappiness.” Luxury: History, Culture, Consumption 1, no 1: 113–​132. Armitage, John, and Joanne Roberts, eds. 2016. Critical Luxury Studies: Art, Design, Media. Edinburgh: Edinburgh University Press. Bataille, Georges. (1962) 2012. “Transgression.” In Eroticism, 63–​70. London: Penguin. Batat, Wided. 2019. The New Luxury Experience: Creating the Ultimate Customer Experience. Cologne, Germany: Springer. Chevalier, Michel, and Michel Gutsatz. 2020. Luxury Retail and Digital Management: Developing Customer Experience in a Digital World. Hoboken, NJ: John Wiley & Sons. Derrida, Jacques. (1967) 1976. Of Grammatology. Baltimore: Johns Hopkins University Press. de Vries, Hent. 2002. “Jacques Derrida and the Theodor W.  Adorno Prize of the City of Frankfurt,” MLN 131, no 5: 1276–​1294. Foucault, Michel. 1977. “A Preface to Transgression.” In Language, Counter-​memory, Practice, 29–​52. Ithaca, NY: Cornell University Press. Foucault, Michel. 2002. Power:  The Essential Works of Michel Foucault 1954–​ 1984. London: Penguin.

58   John Armitage Habermas, Jürgen. [1962] 2015. The Structural Transformation of the Public Sphere. Cambridge, UK: Polity. Honneth, Axel. 2006. “A Social Pathology of Reason:  The Intellectual Legacy of Critical Theory.” In The Cambridge Companion to Critical Theory. Edited by Fred Rush, 336–​360. Cambridge, UK: Cambridge University Press. Lehmann, Ulrich. 2016. “The Luxury Duality: From Economic Fact to Cultural Capital.” In Critical Luxury Studies: Art, Design, Media. Edited by John Armitage and Joanne Roberts, 67–​87. Edinburgh: Edinburgh University Press. Lent, Robin and Genvieve Tour. 2009. Selling Luxury: Connect With Affluent Customers, Create Unique Experiences Through Impeccable Service, and Close the Sale. Hoboken, NJ:  John Wiley & Sons. Lukács, Georg. [1962] 1980. The Destruction of Reason. London: Merlin. Lyotard, Jean-​Francois. [1979] 1984. The Postmodern Condition:  A Report on Knowledge. Minneapolis: University of Minnesota Press. Mansvelt, Juliana, Mary Breheny, and Iain Hay. 2016. “ ‘Life’s Little Luxuries?’ The Social and Spatial Construction of Luxury.” In Critical Luxury Studies: Art, Design, Media. Edited by John Armitage and Joanne Roberts, 88–​107. Edinburgh: Edinburgh University Press. Marcuse, Herbert. 1964. One Dimensional Man: Studies in the Ideology of Advanced Industrial Society. Boston: Beacon Press. Roberts, Joanne, and John Armitage. 2020. “The Third Realm of Luxury:  Conceptualizing the Connections Between Real Places and Imaginary Spaces.” In The Third Realm of Luxury: Connecting Real Places and Imaginary Spaces. Edited by Joanne Roberts and John Armitage, 1–​24. London: Bloomsbury. Sawyer, David. 2014. Lyotard, Literature, and the Trauma of the Differend. Basingstoke, UK: Palgrave. Scherer, Andreas Georg. 2011. “Critical Theory and Its Contribution to Critical Management Studies.” In The Oxford Handbook of Critical Management Studies. Edited by Mats Alvesson, Todd Bridgman, and Hugh Wilmott, 29–​51. Oxford: Oxford University Press. Veblen, Thorstein. (1899) 2009. The Theory of the Leisure Class. Oxford:  Oxford University Press.

Chapter 4

Luxury as an I ndu st ry Pierre-​Y ves  Donzé

For more than two decades, the luxury industry has experienced a dramatic growth. According to the consulting company Bain and Co. (2017), the global sales of personal luxury goods went from €85 billion in 1996 to €262 billion in 2017. This represents an average annual growth of 6 percent during the period, while world gross domestic product (GDP) grew on average at 3  percent per annum (World Bank 2019). Consequently, luxury has grown twice as fast as the world economy since the mid-​1990s. Despite this tremendous development and the success story of numerous luxury brands throughout the world, it is a challenge to estimate properly the scope and the boundaries of the luxury industry. Consulting firms often distinguish different sectors by products or services. Personal goods, which include fashion, leather goods, watches, jewellery, and cosmetics, are usually the core of the attention of managers and scholars discussing luxury. For Bain and Co. (2017), other major sectors include luxury cars (€489 billion in 2017), luxury hospitality (€191 billion), wines and spirits (€70 billion), fine food (€49 billion), and art (€40 billion), for a total of €1,160 billion in 2017. In this context, personal luxury goods only represent about one-​quarter of the overall luxury industry. However, regardless of this classification, there is no commonly shared definition of what a luxury good or service is and of what the boundaries of the luxury industry are. The methodology of industry studies developed by Kurosawa (2018) is a useful tool to start discussing the nature of the luxury industry. In his discussion about the dynamics of competitiveness, he stressed the necessity of focusing on the industrial level rather than firm or region, and to identify the specificities of any industry. He emphasized that an industry as an analytical concept and as the arena for competition can be defined by a specific good (like the car industry), service (like the banking industry), or production process (like the chemical industry). However, luxury cannot be defined in this way. It is rather defined by a market position (high-​end). It can hence be considered a transversal industry that includes goods and services from other industries. Basically, in nearly any industry we can find luxury goods and nonluxury goods. The main implication of this definition is that there is a need to discuss the uniqueness of luxury goods and services. What makes them different from other goods and services? Another issue

60   Pierre-Yves Donzé is to define the border between luxury and nonluxury—​that is, the boundaries of the luxury industry. Moreover, research in organization science about the emergence of new industries is another important approach through which to consider the historical development of the luxury industry (Peltoniemi 2011). Gustafsson, Jääskeläinen, Maula, and Uotila (2016) have shown that the initial stage of industry emergence is characterized by a disruption in terms of technology, cultural values, regulation, or demand. They argue also that the transition from disruption to the formation of an industry requires the action of entrepreneurs and nonmarket actors who engage in collaborative actions which result in the formation of the boundaries of the new industry. Then, companies can enter a phase of growth on this basis. Such works can contribute to a better understanding of the conditions of the formation and evolution of the current luxury industry because they go beyond the descriptive accounts provided by historians. In order to discuss these issues, this chapter offers two main perspectives. Section on The Nature of Luxury presents the various contributions in management and social sciences regarding the definition of ‘luxury’ and ‘luxury industry’. It introduces the most important models and concepts, and the implications resulting from them. Section on The Historical Evolution of the Luxury Industry focuses on the transfromation of this industry since the 18th century. It shows how historians have defined ‘luxury’ from various perspectives and sheds light on the evolution of this concept over time.

The Nature of Luxury There is no clear and shared definition of luxury used by management scholars. Although all of them consider the luxury industry as a specific segment of the market, they have no consensus on the issue of the boundaries of luxury and on the elements that make luxury different from other goods. The discussion of the nature of luxury in management falls into two major areas.

The Boundary of Luxury The first is the problem of the boundary of luxury. Considering the differences between luxury and nonluxury goods, some scholars have argued that ‘luxury’ itself was not a homogeneous category and that there were several kinds of luxury, all with their own positioning, strategies, and management. Allérès (1991) spoke of ‘inaccessible luxury’, ‘intermediary luxury’, and ‘accessible luxury’ (see Figure 4.1). Each of these three layers has its own type of goods (models, reproductions of models, and new lines) and customers (wealthy people, intermediary, and middle classes). With each type requiring a specific marketing strategy (e.g., product development, brand management, distribution, and price).

Luxury as an Industry    61

Wealthy class

Intermediary class

Middle class

Inaccessible luxury Models Reference goods

Intermediary luxury Reproduction of models Fashion goods

Accessible luxury New product ilnes Mass produced goods

Figure 4.1.  Varieties of luxuries. Source: Adapted from Allères (1991: 72).

The problem is that Allérès (1991) was not very clear about the differences between these categories and did not really explain what ‘luxury’ itself is. Barnier, Falcy, and Valette-​Florence (2012) showed that, from a consumer perspective, there is a continuum between these categories of luxury, and their boundaries are rather unclear. Moreover, Allérès (1991) did not explain the differences between ‘accessible luxury’ and non-​luxury-​brand consumer goods. She also showed that the same company and the same brand could have products in different categories of luxury. This idea of vertical segmentation between different levels of luxury became popular among scholars and managers to define the shift of some luxury brands (such as Armani and Gucci) towards mass markets, a ‘vertical extension’ (Keller, 2009). Silverstein and Fiske (2008) named it ‘new luxury’, whereas Truong, McColl, and Kitchen (2009) proposed the concept of the ‘masstige brand’ (from mass prestige). They argued that mass consumption and democratized luxury can cooperate in various ways, such as via the hiring of celebrity designers to create collections for fast fashion (e.g., Karl Lagerfeld for H&M). The perspective of consumer behaviour enabled some scholars to offer a different classification of the various kinds of luxuries. Vigneron and Johnson (1999) developed a model based on five functions of luxury goods, gathered into two groups: brands that embody prestige (functions: conspicuous consumption, identity expression, and social distinction) and others that express perfection (emotional and utilitarian functions). Vigneron and Jonhson (2004) refined their model and built a brand luxury index (BLI) scale that makes it possible to identify groups of consumers in which brands have a specific image in terms of luxury level. It shows that the same luxury brand can have a different image among various customers. Moreover, the cultural environment has also an impact on the image and the consumption of luxury goods, as demonstrated by scholars working in China (Zhan and Yanqun 2012). Consequently, research on consumer behaviour shows that the definition of luxury results not only from the strategy defined by companies but also by the kind of consumer.

62   Pierre-Yves Donzé Finally, the best and most intensively developed discussion of luxury from a management perspective is undoubtedly Kapferer and Bastien (2009). Based on various definitions made by former researchers, they used six common features shared in the literature to define a luxury good: a product that gives a qualitative hedonistic experience; sold for a price that exceeds its functional value; whose brand is linked to a heritage; available in a restricted and controlled distribution network; accompanied by personalized services; and representing a social marker. Moreover, although they acknowledge that luxury can take several functions in society and that there are various kinds of luxury consumers, their focus on brand management makes it possible to clearly identify pure luxury brands and to differentiate them from premium goods or fashion goods. In their perspective, the marketing strategy adopted by firms makes it possible to clearly draw a line between luxury and nonluxury goods. They maintain that luxury is defined by antilaws of marketing which strengthen the uniqueness and the excellence of a luxury brand (product development without consideration of clients, no search for production cost reductions, no relocation of production, forget about positioning, dominate the customer, restrict supply, never sell on discount, increase prices, the role of advertising is not to sell, keep celebrities out, etc.). From this perspective, Kapferer and Bastien (2009) do not consider the existence of three layers of luxury like Allérès (1991) but rather of a single segment of real luxury, while other segments should rather be considered as premium brands.

Luxury, Fashion, and Premium Goods Hence, Kapferer and Bastien (2009) propose a triangle model that distinguishes luxury from fashion and premium (cf. Figure 4.2). With regard to ‘fashion’, this has been defined as a ‘system of signifiers’ (Barthes 1967) and a ‘manufactured cultural symbol in an institutional system’ (Kawamura 2005), which results from the combined action of producers, consumers, and intermediaries. Beginning in the late 19th century, some authors argued that conspicuous consumption (Veblen 1899) and fashion (Simmel 1904) enabled the higher classes to distinguish themselves from the rest of society. Most religions have criticized social distinction through consumption, particularly as a waste of resources and a surge of vanity (Morand 2012). Fashion is indeed a way to express social and gender identity (Bourdieu 1979; Crane, 2000) so it can be linked to luxury in some cases, such as ‘luxury fashion’ (Fionda and Moore 2009); these concepts are not synonymous, however. Hence, when Vickers and Renand (2003) maintained that luxury products could be defined as ‘symbols of personal and social identity’, they were actually giving them a meaning that resembles that developed by social science scholars with regard to fashion. They considered luxury goods a tool for identification with a social class or personal taste, as is the case for fashion. This perspective does not precisely express the nature of luxury, however, as luxury brands are intimately linked to a market segment.

Luxury as an Industry    63 As for premium products, they embody goods for which a higher price than that of common consumer goods is based on rational factors (quality, performance, durability, etc.). Consumers make a quality/​price ratio-​based investment when acquiring premium products, but their high price does not mean they are luxury products, although most of companies launching premium products claim they are their luxury line. The border between luxury, premium, and fashion is thin, as all these sectors use similar strategies to establish and strengthen a strong position in the market, particularly in regard to distribution and retail. They add value to consumer goods through marketing activities, but, as exposed in Figure 4.2, the relation to customers—​and consequently the objective of marketing strategy—​differs strongly. Luxury products make people dream, and lead them to spend large amounts of money to acquire relatively rare goods, but fashion relies on the seduction of customers in a short-​term perspective as it is based on constant change, and premium goods attract customers because of their intrinsic nature. Due to the proximity between these concepts, there is often confusion in the literature (Berghaus, Reinecke, and Müller-​Stevens 2014; Briot and De Lassus 2014; Chevalier and Mazzalovo 2008; Hoffmann and Coste-​Manière 2012). Chevalier and Mazzalovo (2008) argued, for example, that because ‘publications [on luxury] have the tendency to be largely conceptual, and not adequate for practical management purposes [. . .] we decided to write that first textbook on the topic’ (xivi). They offered hence their own definition of ‘luxury’ which contributes to the blurring of the boundaries with fashion and premium: ‘luxury product [. . .] must have a strong artistic content, it must be the result

Luxury Social elevation Timelessness Self reward Hedonism

Princeless Gift Non-comparable Rare

Dream

Social imitation Tribal Ephemeral

Seduction

Realism

Fashion

Quality/Price ratio Investment Performance Comparability

Premium

Figure 4.2.  Luxury, fashion, and premium positioning triangle. Source: Adapted from Kapferer and Bastien (2009: 32). © Jean-​Noël Kapferer and Vincent Bastien, 2009. Adapted with permission of the Licensor through PLSclear.

64   Pierre-Yves Donzé of craftsmanship, and it must be international’ (xviii); luxury ‘must be beautiful’ (xix). Besides, this confusion is maintained by the publication of numerous nonacademic books that have a strong social impact, including on academics, especially as they are often published by the same publishers as academic-​oriented books, like Kogan Page or Palgrave Macmillan. General books published by business strategists, managers of luxury firms and consultants, based on secondary sources, websites, and personal experience, offer a general overview full of facts, but the perspective is usually more descriptive than analytical. These publications are often textbooks for business schools and consequently mix an academic view and discourse from companies. For example, the preface of Briot and De Lassus (2014) was written by Frédéric Bernardaud, a general manager of the family firm Bernardaud, a French manufacturer of luxury porcelain. Michel Chevalier, the coauthor of several books for luxury management, is a consultant trained at Harvard Business School who worked as a chief executive officer (CEO) of Paco Rabanne Parfums and as an executive vice president of the distributor of luxury goods Bluebell Asia (Chevalier and Lu 2010; Chevalier and Mazzalovo 2008). Erwan Rambourg, the author of a book on Chinese luxury shoppers, was a manager in Cartier and Christian Dior, before becoming a financial analyst specialized in luxury after the publication of his book (Rambourg 2014). Moreover, these books have a strong tendency to stress the continuity of luxury over time (from Old Egypt to Bernard Arnault), rather than discussing changes and breaks, so that they emphasize and diffuse the idea that luxury is something special, timeless, and glamorous (Okonkwo 2007; Tungate 2009). Hence they give a kind of academic justification to companies’ discourse and do not contribute to a better understanding of the luxury industry. Hoffmann and Hoffmann (2012) wrote a paper on ‘luxury innovation’ and stressed the importance of craft and excellence, claiming for example that ‘the French Ministry of Culture created in 1994 the title of ‘Maître d’Art’ to recognize exceptional professionals in the art craftsmen. For example, the 2006 batch includes artisans from Hermès, Louis Vuitton, Chanel and Baccarat’ (186). There is, however, no analysis of the construction process of such a tradition and its use by luxury companies to build and develop brands for the global market. This perspective was severely criticized by Sicard (2010):  ‘Owing to a surprising consensus, no one—​neither the media nor the analysts nor the authors writing on a given subject—​dares challenge conventional wisdom. Stereotyped language prevails, whose only purpose seems to be mutual reinforcement of each other’s advertising supports’ (21). She is one of the very few analysts to offer an independent perspective and to shed real light on the strategy of luxury companies. Consequently, this literature review of works discussing the nature of luxury and the boundaries of luxury industry in management science expresses a lack of consensus between scholars. Even the approach of Kapferer and Bastien (2009), which defines the limits between luxury and nonluxury on the basis of marketing strategy, is not unambiguous as numerous luxury brands developed a brand extension strategy towards premium (Stankeviciute and Hoffmann 2010). Moreover, research in business, economic,

Luxury as an Industry    65 and social history demonstrates that the position of ‘luxury’ as an industry changed considerably over time.

The Historical Evolution of the Luxury Industry The lack of a precise definition of ‘luxury’, particularly regarding the boundaries between luxury goods and general consumer goods, has important implications regarding the historical evolution of the luxury industry. The high growth experienced by this industry since the 1990s has led numerous social, cultural, and economic historians to carry out historical surveys, mostly based on specific industries and countries—​some of them commissioned by the owners of luxury brands. Luxury goods have, of course, always existed, considered goods destined for a social elite, and some scholars, both in history and in management, have traced the evolutionary path of the consumption of luxury goods from antiquity to the present time (Allérès 1992; Castarède 2011; Marseille 1999). Such works undeniably strengthen the idea of a continuum through centuries, hence supporting current marketing strategies that are built on those used in the past. However, a proper understanding of the development of luxury as an industry and a business over time requires a focus on ruptures as much as on continuities. Some important changes regarding markets and consumption, business models and the organization of firms, and technological innovations impacted deeply on the way luxury goods have been manufactured, distributed, consumed, and considered. The theories on industry emergence as exposed by Gustafsson et al. (2016) can help conceptualize the conditions in which the modern luxury industry emerged during the mid-​18th century onwards. It is essentially a disruption in terms of demand and a change of cultural values, focused on urban upper middle classes that created the conditions for the formation of a new industry based on the foundation of new firms and the action of new entrepreneurs.

Before Industrialisation (1750–​1850) Although the social elite has always consumed distinctive goods, a major change occurred during the 18th century regarding consumption in Northern Europe, particularly in the UK and in the Netherlands. Economic growth, international trade, and the ‘industrious revolution’—​the growth of a market economy based on household production and consumption rather than being the outcome of an ‘industrial revolution’ based on new production technology (De Vries 1994)—​led to the development of middle classes, and, consequently, to an enlargement of consumption. Studies in economic and social history largely considered luxury goods to be consumer goods that are not

66   Pierre-Yves Donzé necessities. Berg (2007) also discussed ‘new consumer products’ (7) and ‘populuxe’ (25), while Verley (2006) and Coquery (2009) introduced the idea of ‘half-​luxury’ (demi-​luxe in French). Berg (2007) gave the following explanation about the nature of these new products: ‘Luxuries, formerly negatively associated with foreign imports and with elite ostentatious display, gave way to consumer goods identified with middling-​class domestic interiors and dress. Distinctive British consumer goods connected the middling classes to an economy extolling the virtues of quality, delight, fashion and taste, comfort and convenience, and variety and imitation’ (21). The coexistence of various levels of ‘luxury’ was the outcome of the emerging consumption society, in which consumption had become an expression of social distinction based both on imitation and distinction (Bourdieu 1979; Simmel 1904). Consequently, economic historians working on the emergence of a consumption society in Europe during the 18th century give a new definition to the concept of ‘luxury’ (Berg 2007). Although it used to be associated with wealth, status, and the power of the aristocracy, and criticized for this reason by Christian thought (see Berry, this volume), the meaning of luxury shifted to the consumption of products that were more than merely necessary (Berg and Eger 2003). Rather than emphasizing the rarity of goods, which characterized most of the products imported from Asia to Europe since the Middle Age (such as spices, silk, and porcelain) (Frankopan 2015), Berg argues that craftsmanship and quality became distinctive features of luxury in the 18th century (Berg 2007). Hence luxury is not considered a product consumed as a signal of social distinction but as a good that goes beyond the basic needs and which is purchased by the new urban middle classes that enjoy a growing disposable income. Carnevali (2003, 2007, 2011) showed, for example, that the production of cheap jewellery for the masses developed in this context. Moreover, this phenomenon was not limited to London and the United Kingdom. It can be observed in very similar forms in the United States (Anderson 2012), continental Europe (Sougy 2013), and Japan (Francks 2009). Some scholars emphasized that this new consumption of luxury sometimes had to be approached from the perspective of cultural history and gender studies. For example, Simonton, Kaartinen, and Montenach (2015) demonstrated that 18th-​century authors linked the growth of the consumption of luxury goods in European cities to women, seduced by the acquisition of unnecessary products. The frivolous female consumer became a major character of literature until the late 19th century, like Gustave Flaubert’s Madame Bovary. While Berg (2007) and others emphasized trade with Asia as a major channel for the supply of luxury goods during the 18th century, some scholars focused on the emergence and growth of a craft industry in Europe that responded to the new needs of the middle classes. In this context, Bergeron (1998) showed that the growing demand for luxury goods at the beginning of the 19th century led to the creation of numerous companies that remain today among the best-​known luxury brands, such as Hermès and Louis Vuitton. Woronoff (1994: 220, 332) argued that the development of the manufacturing industry in Paris and its suburbs during the 19th century relied on numerous small enterprises specialized in the production of high-​quality nonstandardized goods called luxury. For example, the Parisian watch and clock industry experienced a golden age

Luxury as an Industry    67 during this period (Dequidt 2014). From this perspective, it is a change in demand and market conditions that led to the formation of luxury firms. Hence a luxury industry focused on the fulfilment of needs for urban middle classes emerged between the mid-​18th century and the mid-​19th century. A remaining challenge is to discuss the problem of the border between luxury goods for wealthy people, new consumer goods considered ‘half-​luxury’, and basic consumer goods. Only a few historians have tackled this issue. One of the most important contributions is the ‘trickle-​down theory’ developed by McKendrick (1982). He argued that the social elite represented a model for middle classes in terms of taste and consumption, and that the will to imitate upper classes was a driving engine of consumption and economic growth. However, the way artisans and entrepreneurs understood this process and implemented specific strategies in their companies is still an underresearched topic. Domestic markets were, however, not the only outlet of the emerging luxury industry during the period 1750–​1850. Verley (2006) has demonstrated that the growth of luxury production in the early 19th century in France, and to some extent in the UK, relied on foreign markets, particularly the United States. Although international trade during the 17th and 18th centuries was characterized by the import of luxury goods from Asia to Europe, the development of luxury production in Western Europe led to a change of trade structure with the export of luxury goods to America. Between 1790 and 1817, the champagne company Moët produced more than 1.2 million bottles and sold only 23.5 percent of them on the French market (Musset 2011: 124). Moreover, for some specific goods like automatons and watches, China also became an important market at the end of the 18th century. Several watchmakers from Switzerland established in London in order to benefit from the trade facilities to East Asia (Girardier 2013).

The Industrialisation and the First Democratisation of Luxury (1850–​1945) The extension of demand resulting from the growing urban middle classes and the opening of foreign markets, as well as new production technology stemming from the industrial revolution, led to a major change in the luxury industry between the mid-​19th century and World War II. Numerous industrial enterprises specialized in luxury production were founded and grew fast during this period. For example, the production of the French perfume industry went from 2 million francs in 1810 to 80 million francs in 1900 (Briot 2014: 83). It benefited from the development of the chemical industry, which enabled the production of new artificial fragrances. For instance, Firmenich and Givaudan, respectively, founded in Geneva in 1895 and in Zurich in 1897, were originally close to the chemical industry (Briot 2015). During the interwar years, several haute couture houses in Paris, including Chanel and Madeleine Vionnet, employed more than 500 workers (Grumbach 2014). In this context of general growth, some authors have spoken of a ‘democratization of luxury’ (e.g., Albert 2015; Daumas and Ferrière le Vayer 2007), as the outcome of a process of imitation of the upper social classes as described by Bourdieu (1979). For example, Carnevali (2007) considered cheap, mass-​produced

68   Pierre-Yves Donzé jewellery as ‘luxury for the masses’. One can, however, argue that such products should be looked at as ‘fashion products’ rather than proper ‘luxury’ (as distinguished in section on The Natrure of Luxury). The issue of the boundaries of luxury is indeed a major problem of this period and it was intensively discussed by the actors in several industries. For example, in the Parisian fashion industry, although the manufacturers of haute couture and the makers of clothing had been gathered in a same trade association since 1868, the former decided in 1911 to build a distinct organisation in order to regulate separately the business of haute couture (Pouillard 2016). Yet, despite this strong will to distinguish haute couture from confection (ready-​to-​wear production) for the mass markets, many French couturiers launched perfumes during the interwar in order to increase sales and improve the profitability of their firms (Grumbach 2014). Similarly, in the champagne industry, there had been intense debates since the 1880s between the traders of champagne (like Moët & Chandon, the largest company) and the independent winegrowers that supplied them with grape. While the former supported a large and flexible definition of the Champagne region, the latter were attached to a more restrictive approach in order to limit competitors. The legal definition of supply areas and production methods for champagne was gradually realized between 1905 and 1936. It contributed to the stabilization of the boundaries of this industry. The enlargement of production and the democratization of consumption was, however, still possible through the improvement of grape productivity within the region (Guy 2003). Yet, in some sectors like watchmaking and jewellery, there was no institutional separation between the producers of luxury goods and those of common goods. Economic and social historians have presented two main approaches regarding the industrialization of luxury goods. Some authors have maintained that the introduction of methods of mass production enabled a high growth of production, without having any negative impact on the quality of goods or brand image. Hence, from this perspective, they argued that modern production technology, such as mechanization, supported the growth of the luxury industry. This was, for example, demonstrated by Tesson (2013) with the case study of the champagne maker Moët & Chandon. However, some other authors present a much more pessimistic view of these changes. Ferrière le Vayer (2007) lamented the industrialization of production in the traditional French luxury goods industry, stressing the ‘dichotomy between production and creation’ (161). According to this approach, modern production methods threatened a major characteristic of luxury goods (i.e., handcraft manufacture). Standardized products made by machine cannot be considered real luxury goods.

The Early Globalisation of Markets (1945–​1980) Although the manufacturers of European luxury goods had been exporting since the early 19th century, their internationalization relied essentially on Western Europe, the United States, and Latin America until World War II. They did not expand beyond the

Luxury as an Industry    69 West, except for specific niche markets, because the first democratization observed after industrialization was concentrated on Western markets. One of the most important changes after 1945 is the expansion of the mass consumption of European luxury goods beyond the West. The globalization of markets started with Japan during the 1970s (see chapter by Donzé, this volume) and continued with China and other emerging countries after 2000 (see chapters by Wang and by Atwal, Bryson, and Kuehlwein, this volume). The scope of the European luxury industry expanded to the whole world during this phase (Donzé & Pouillard 2019). However, despite the worldwide extension of markets, the organization of luxury companies did not fundamentally change. Most of them were still family owned and managed small and medium-​size enterprises (SMEs). Parisian haute couture, French champagne, Italian fashion, and Swiss watch companies were essentially independent and unlisted SMEs. There were few exceptions, Christian Dior SA being the most famous (Jones and Pouillard 2017; Palmer 2009). This company was founded in 1946 by Boussac group, the largest French textile company. It dispatched a manager to run the business, while Dior himself was in charge of creation and relations with customers. It became world famous with the launch of New Look (1947) and expanded abroad through the opening of subsidiaries in New York (1948), London (1952), and Caracas (1953), as well as the adoption of several license agreements around the world (see chapter by Okawa, this volume). It became a large company that employed more than 900 persons in 1952 and engaged actively in public relations, making Dior a famous brand. This successful expansion was made possible by the capital and management expertise provided by Boussac. A similar perspective can be observed in Italian fashion, where the Gruppo Finanziario Tessile (GFT), one of the largest textile firms in the country, founded in 1930, engaged in various business relations with high-​fashion designers. For example, GFT set up a joint venture with Biki in 1957 and later produced clothes for Valentino and Giorgio Armani (Merlo and Perugini 2020). The sustainability of luxury enterprises was a key issue, even for those who benefited from the support of large textile firms. They adopted various strategies to improve their profitability and support their global expansion. For haute couture, licensing became a widespread practice, Dior, but also Pierre Balmain and Pierre Cardin, making intensive use of such contracts to enter new markets and attract new customers from middle classes with affordable accessories (Okawa 2007). The development of ready-​to-​wear and mono-​brand stores was another way for couturiers to expand their sales. In 1968, Yves Saint Laurent was one of the first to open a stand-​alone ready-​to-​wear boutique, Saint Laurent Rive Gauche, in Paris. In 1975, there were thirty such stores throughout the United States, which sold that year some 48,000 pieces of clothes (Grumbach 2014). Finally, for some products like watches, the development of automated production technology enabled the manufacture of high volumes of precision goods. Rolex succeeded in making mass-​produced quality watches a symbol of individual success for middle-​ class urban males during the 1960s (Donzé 2011). The consequence of the various strategies adopted to extend product lines to accessible luxury in order to keep enterprises profitable and to expand on the global market is

70   Pierre-Yves Donzé that the boundaries of the luxury industry became vaguer and more ambiguous. In particular, the fast increase of license agreements resulted in the transformation of luxury fashion items like those of Dior or Cartier into merely branded goods, with the risk of losing the exclusive, excellent, and rare image attached to luxury.

The Formation of Luxury Big Business (Since the 1980s) The luxury industry since the 1980s is characterized by a deep reorganization (or a ‘deconstruction process’ according to Okonkwo 2007) and the globalization of brands and markets, as well as new democratization of consumption (Donzé and Fujioka 2015). Although luxury companies were until then essentially small and medium-​size family firms, which lacked capital to extend production and sales on world markets, a few entrepreneurs, like Henri Racamier (CEO of Louis Vuitton, 1977–​1987, and co-​ founder of LVMH, 1987), Bernard Arnault (CEO of Christian Dior since 1984 and of LVMH since 1989), and Anton Rupert (founder of Compagnie financière Richemont, 1988), adopted a new business model characterized by the financialization of the luxury industry through listing in stock exchanges (see chapter by Bonin, in this volume). The capital provided by investors was used to take over numerous luxury family firms and transform them into cash-​making global businesses. These conglomerates benefit from economies of scale for finance, logistic, and distribution (wholesale and retail). Their management is based both on a strong centralization of brand management in headquarters and on a fast expansion of the sales network around the world. Moreover, the development of accessories makes it possible to target new customers through a process of brand democratization (Donzé 2018). These conglomerates transformed the luxury industry and became the new benchmark of this sector. Table 4.1 shows the clear domination of these diversified groups over the global luxury industry in 2017. Moreover, independent luxury companies followed their model and implemented a similar strategy based on financialization through an initial public offering (IPO). Among these twenty firms, only two were not listed in 2017 (Chanel and Rolex). In 1980, only three companies were already traded in stock exchanges (L’Oréal, PHV, and Shiseido). Some of these companies needed cash to expand on their domestic markets (fashion in the United States for PHV and cosmetics in Japan for Shiseido) and on the global market for L’Oréal. Then, during the 1980s, five new companies entered stock exchanges, among which three general luxury companies which dominate the industry today:  LVMH (1987), Richemont (1988), and Groupe Pinault (1988, today: Kering). The remaining three companies were specialized firms (Swatch Group and Tiffany). Next, five more companies were listed in the 1990s and five others after 2000. All are specialized luxury firms. This data on IPOs of luxury firms shows that although companies and brands can have roots going back to the early 19th century, the turning point of their recent history dates back to the 1980s–​1990s. The new management implemented by these companies since the 1980s is characterized by the takeover of brand management by headquarters. Conglomerates

Table 4.1. World’s Top 20 Largest Luxury Companies, 2017

Country

FY2017 FY2017 Luxury Total goods sales revenus (US$m) (US$m)

FY2017 Net profit margin (all Core company) business

France

27,995

48,057

13,2

Diversified 1987

1987

13,683

13,683

8,1

Cosmetics 1946

1995

Compagnie Financière Richemont SA

Switzerland 12,819

12,819

11,1

Watches

1988

1988

Kering SA

France

12,168

17,446

12,1

Diversified 1963

1988

10,322

10,322

11,4

Eyewears

1961

1990

1954

NO

Name of company LVMH Moët Hennessy-​Louis Vuitton

The Estée Lauder USA Companies Inc.

Luxottica Group Italy Sp

Foundation IPO

Chanel

France

9,623

9,623

18,6

Fashion

L’Oréal Luxe

France

9,549

9,549

n/​a

Cosmetics 1909

1963

The Swatch Group Ltd.

Switzerland

7,819

8,082

9,5

Watches

1983

1983

Chow Tai Fook Hong Kong Jewellery Group Limited

7,575

7,575

7,1

Jewellery

1929

2011

PVH Corp.

USA

7,355

8,915

6

Fashion

1881

1978

Hermès International SCA

France

6,255

6,255

22,1

Leather goods

1837

1993

Ralph Lauren Co. USA

6,182

6,182

2,6

Fashion

1967

1997

Tapestry, Inc. USA (formerly Coach, Inc.)

5,880

5,880

6,8

Fashion

1941

2000

Rolex SA

Switzerland

5,686

5,686

Watches

1905

NO

Lao Feng Xiang Co., Ltd

China

5,346

5,346

Jewellery

1848

1992

Shiseido

Japan

4,748

4,748

n/​a

Cosmetics 1872

1949

Michael Kors Holdings

UK

4,719

4,719

12,5

Fashion

1981

2011

Tiffany & Co

USA

4,170

4,170

8,9

Jewellery

1837

1987

Burberry Group plc

UK

3,619

3,619

10,7

Fashion

1856

2002

Pandora

Denmark

3,452

3,452

25,3

Jewellery

1982

2010

Source: Adapted from Deloitte (2019: 21). Note: Foundation and IPO years added by the author.

n/​a 3,7

72   Pierre-Yves Donzé like LVMH or Swatch Group started cancelling licensing agreements during the 1990s, in order to achieve a strong and centralized control over brand identity. There is a will to bring brands like Dior or Omega back to luxury (Donzé and Wubs 2019). The effect of such a strategy is to make clearer brand positioning in luxury, either exclusive or accessible, and to draw a strict line with fashion and premium brands. Hence the first works by management scholars on the different kinds of luxury and the boundaries of the luxury industry precisely go back to these years, because they address a need for such knowledge among the managers of luxury brands. However, the new marketing strategy adopted after 1990 is often far from the purist approach proposed by Kapferer and Bastien (2009). The pressure from financial markets to increase profits—​nearly all luxury companies being listed in the early 21st century—​ led to the extension of the democratization of luxury consumption through the development of accessories. However, unlike during the previous period, the conception and management of accessories are decided and controlled by headquarters rather than autonomously by numerous licensees, so that the consistency of brand identity is not damaged. Moreover, the merger and the gathering of multiple former independent luxury companies into large conglomerates supports the growth of accessories, as they can benefit from the technical expertise of other brands in the same conglomerate, an action described as the ‘parenting advantage’ of luxury groups by Moore and Birtwistle (2005). For example, two years after the takeover of Swiss watch companies Tag Heuer and Zénith in 1999, LVMH opened in La Chaux-​de-​Fonds, Switzerland, a facility to assemble watches for its subsidiaries, Christian Dior, Fred, and Louis Vuitton. In 2002, Louis Vuitton launched its first collection of watches, equipped with movements manufactured by Zénith. A similar process can be observed for the production of perfumes. Synergies between subsidiaries made it possible for the fashion brand Kenzo to launch its own perfume in 2000. Then, in 2010, the group founded LVMH Fragrance Brands, a company expressly dedicated to making perfumes for its fashion brands (Donzé and Wubs 2018). Consequently, luxury fashion companies today maintain an ambiguous position regarding the luxury identity of their brands. While the core of the brand and main products—​handbags for Louis Vuitton, haute couture for Christian Dior, or jewellery for Bulgari—​present usually a consistent positioning as a luxury good, the extension of product lines to accessories exposes the often thin boundary between luxury and fashion and premium goods.

Conclusion The literature review of works on luxury in management, social sciences, and history has shown that the clear definition of the boundaries of the luxury industry is problematic from both the perspectives of business practice (brand management and marketing strategy) and academic analysis (discussion of luxury as a business). The ambiguity of

Luxury as an Industry    73 the boundaries of the luxury industry goes back to the emergence of this industry, in mid-​18th-​century England. The development of a new urban middle class benefiting from increasing disposable income led to a disruption in terms of market demand and cultural values. The consumption of products which were not necessities are considered by Berg (2007) as the first luxury goods of the modern era—​products defined by their high quality rather than their rarity. Entrepreneurs took the opportunities offered by this new market condition to engage in the manufacture of luxury goods and created numerous firms between 1750 and 1850. However, since the second part of the 19th century, the development of industrial technology, the growth of income of upper and middle classes, and the expansion on foreign markets gave way to an enlargement of production and a first phase of democratization of luxury consumption. The boundary between traditional luxury (high-​quality goods made by artisans), half luxury (high-​quality goods made by machine), and common consumer goods became vague during this period. Parisian couturiers reacted in separating from confection companies and founded their own trade association in 1911. This was, however, an exception; most of the actors in other sectors did not create clear distinctions between luxury and nonluxury manufacturers. Moreover, the limit became even more imprecise after World War II, when Parisian couturiers adopted new strategies to increase their sales towards middle classes, through the launch of ready-​to-​ wear and accessories. Finally, the deep transformation of the luxury industry in the 1980s and 1990s was the opportunity to reconsider the boundaries of this sector. The construction and management of globalized luxury brands, in order to increase profit, made it necessary to identify precisely what the core of these brands’ identity was, and how to add value to products through narratives and practices that strengthen their position as luxury items. In this context, scholars in management science answered the high demand by luxury firms and conglomerates for knowledge regarding luxury-​brand management. Consequently, most of the works in social sciences about the boundaries of the luxury industry are an outcome of the birth of luxury big business.

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Chapter 5

Luxury, Bank i ng , a nd Finan c e Hubert Bonin

Far from the stunning world of luxury, from the storytelling (BalistikArt 2016) and the magic of creators (Bourdieu and Yvette Delsaut 1975) within a high-​end world (Chevalier and Mazzavolo 2012), this chapter focuses on money, on the relations between finance and luxury companies within the high-​end circuit of luxury goods and services, based on authenticity–​that is high-​range products of strong quality, fostering durable trust and entertaining some immaterial capital linked to the legacy of a memory of creativeness (Michaud 2013; Wided 2017). It discusses the financial basis of the growth of luxury firms, predicated essentially on European cases. The chapter reflects the path, among various models of financing, followed to find out the leverage of asset managers, cash flows, credits, and market finance. These forces support the durability and growth of luxury houses, whether family firms or listed companies, through well-​ oiled operations. Unfortunately, available sources do not provide an exhaustive survey of statistics and of the luxury companies. This chapter succeeds anyway in outlining the whole array of financial issues associated with luxury business, and most importantly, it asks how entrepreneurs can sustain the momentum of investments and the development of luxury houses through capital and debt. Readers will thus detect the scent of banking brains more than ‘the perfume of gems’ (Marchetti 2018), and the chapter will reveal that luxury business is about ‘design for cash, not just for flash’ (Socha and Kaplan 1996). Organizational changes, the recurrent emergence of markets, and now global luxury (Donzé 2018) had no other role than to mobilize the capital of competences of bankers to shape the financial basis of this productive and commercial system. French banks even had the rare opportunity to profit from such reshuffling, because Paris played a key role in the revolution of financiarization (Bonin 2012). In this chapter, Europe will draw most of the attention, as it has been a broad field for luxury houses (Daumas and De Ferrière Le Vaye 2007) and outlets, but worldwide perspectives will also emerge,

80   Hubert Bonin because non-​European shareholders are present in the capital of a few globalized luxury groups. Managing foreign exchanges in worldwide places for the accounts of ever internationalizing houses (flagships in London for French firms, then European and transatlantic sales across high-​end bourgeoisies before the momentum of globalization from the 1970 to the 1990s) epitomized the discrete activities of luxury business, which relied on clearing bills of exchange—​as was the case by the Medici (Roover 2017) in the fourteenth and fifteenth centuries at the service of the European circulation of luxury goods—​then, later, on trading rooms managed by bank employees and managers (Atkin 2004). The management of luxury brands and luxury groups might seem somewhat specific (Chevalier and Mazzavolo 2012; Kapferer and Bastien 2009). To build a luxury brand with a strong financial valuation implies that the financial strategy will be to maximize not the net profit but the luxury brand’s value. Another consequence is that since brands have never been valued on the balance sheets at their true worth, successful luxury companies generally have a very high return on equity (Ait-​Sahalia, Parker, and Yogo 2004. The Journal of Finance), and thus very high profitability. Given the importance of the investment that luxury firms make in creation, communication, and distribution, which are strongly qualitative and only profitable over the long term, a high gross margin is crucial to the company’s durability (i.e., its survival as an independent entity) (Gauberti 2013). A whole range of stakeholders support growth: business bankers and lawyers for structural moves, day-​to-​day bankers for credit and the management of the means of payment, and asset managers and brokers to fuel the stock markets. More recently, junior luxury start-​ups and so-​called unicorns (companies that have reached the threshold of €1 billion/​$1 billion in turnover) have seduced private equity funds. A chain of value thus structures this productive system, which delivered an overall turnover in 2012 of about $1.8 trillion, and which fosters banking flows and accounts that are sometimes difficult to locate. The relative opacity of the luxury business explains why big consulting cabinets (BCG, Deloitte, Mazars, etc.) and The Economist (Unger 2014) publish dedicated reports that extract case studies of relevant and acute management, in search of practical solutions to address the toughest challenges, and to manage financial risks, including currency risk management. This chapter includes five sections. The first gauges the strength and persistence of family firms, which are able to foster worldwide growth and innovation thanks to an array of financial levers. The second section analyses how the need for ample permanent funds has been satisfied, thus helping companies to remain resilient. The third explores how broadening the financial base of luxury firms opened doors to the fragmentation of the control of capital and to risks of hostile bids by competitors or conglomerates. The fourth section looks at the way luxury groups rely, in their financial life, on their ‘house banks’, using investment banking to raise capital, to conceive the purchase of other companies, and even to design offensive or defensive instruments through financial battles on the stock exchange–​thanks to tailored services by investment bankers. The final section considers how the call for permanent funds and the financialization

Luxury, Banking, and Finance    81 of luxury (Karel 2000) companies led to the emerging function of asset-​management firms, in search of long-​term profits, dividends, and the growth of share values. A financial system has therefore been diversified and reinforced.

Finance and Family Luxury Firms (From the 1850s) Finance and banking have been integral to the building of luxury firms from the mid-​ 19th century times. To study this challenging connection, one must scrutinize the financial aspects of family companies from the mid-​nineteenth century to the present. The lack of transparency in the finances of luxury firms can be illustrated by a quote from Crédit Lyonnais, which once complained that ‘the Chanel house [led by Crédit Commercial de France in  1950] transmits its balance sheet to nobody, even to its bankers’1. In addition to considering the design talent, creative use of fashion models, and art of connections among the high bourgeoisie, all of which made possible the rise of luxury houses, one must also evaluate the financial life of the companies, even if a comprehensive study of this topic is impossible, except through some rare case studies. This section selects conceptual subjects and examines how finance was key to leveraging the durability of family luxury firms. In fact, luxury business—​including the fashion industry (Blaszczyk and Pouillard 2018; Grumbach 2008), specialized department stores (Brachet-​Champsaur 2007), and the Swiss watch industry (Donzé 2011)—​has long been a financially risky sector. It consisted mostly of small family firms, relying on the aptitude of a few managers, the reliability of their balance sheet, and self-​financing.

Missing Data: Self-​Financing Ahead The first revealing case study is that of Jeanne Lanvin (1867–​1946). She came from a popular family and was a worker at a millinery craft shop; she set up her own hat business in 1885 in Paris. The company expanded rapidly thanks to growing sales once she launched a clothing collection for ladies in 1909. Inventiveness and diversification pushed the house upwards until its apex in the 1920s–​1930s, when Lanvin’s firm employed more than 1,000 employees and created a fashion Griffe, perfumes (1924), and household ornaments. It became the eldest house of French haute couture after World War II. But fragmentary data (Merceron 2007; Picon 2002) prevent the disclosure of the financial aspects of these developments: substantial profit margins, cash flows, and self-​financing might be the most powerful levers indeed. The case of Chanel2 confirms the importance of plentiful permanent funds. Considering only the perfume sector (Charles-​Roux 2005) throughout the 1950s

82   Hubert Bonin (since Chanel’s haute couture was not operational from 1939 to 1953) reveals that most of the profits were accumulated as reserves, then transformed into capital or immediately pumped into capital. Capital was raised from FRF 4.2 million to FRF 12.6 million in June 1946, thanks to the 1945 profits; then to FRF 50.4 million in April–​November 1949, owing to the 1948 profits; increased again to FRF 100.8 million in July 1950 and to FRF 168 million in September 1950 through a transfer from the 1949 profits. Then, the reserves fuelled the rise to FRF 200 million in October 1952. Two increases were achieved through the growth of reserves: to FRF 300 million in December 1956 and to FRF 400 million in December 1957.3 The balance sheet of Parfums Chanel (its name at this time) in 1949 (with assets of FRF 349.5 million) was stabilized, owing to FRF 50.4 million in capital and FRF 79.7 million in permanent funds, supplemented by a special reserve of FRF 68.1 million and FRF 7.7 million in state securities. Profits reached FRF 131.6 million, with debts of only FRF 24.4 million, against a stock of goods of FRF 46.6 million and customers’ debt of FRF 46.6 million. Growth could be easily engineered by self-​financing, but expansion was focused on French and European customers attending the Paris house. This huge, permanent influx of cash made possible Chanel’s worldwide expansion at the turn of the twenty-​first century.

Finance at Stake by Moët & Chandon The growth of the champagne house Moët & Chandon exerted a financial impact on the company’s life (Charters 2011; Desbois-​Thibault 2003). From 1880 to the 1910s, permanent funds doubled (to FRF 57.7 million: 2.3 percent each year, as compared to an average 7.6 percent in 1833–​1881), despite the distribution of dividends in a few of the years. But a policy of reserves complemented such a financial policy, with FRF 29 million accumulated from 1882 to 1913 thanks to growing profit margins (as part of a total of FRF 85 million from 1882 to 1913), where a quarter of the profit margins were designated for the reserve account. In the meantime, a permanent supplier credit policy was entertained in favour of winegrowers and goods suppliers, causing an elastic level of debt. Later on, a series of data4 helps us understand the key role played by permanent funds and their reinforcement in sustaining the momentum of growth. Moët & Chandon had transformed itself into a société anonyme in 1923, then twice in 1962, after a period of being classified as a limited responsibility company (société à responsabilité limitée, or SARL) from 1941, but the family kept its control, with Count Paul Chandon-​Moët as chairman and CEO in the 1950s. The company profited from its properties (331 hectares of planted vineyards) and its sales; it reached one million bottles in France and 1.5 million on foreign markets in 1950,5 which was 9.74 percent of the overall sales of champagne (30.2 million bottles). That year, the profit account provided FRF 5.395 million; it was cut into two main parts: FRF 2.8 million put in the general reserves, and FRF 2.3  million distributed as dividends. These data thus buttress the key point of this

Luxury, Banking, and Finance    83 chapter: fuelling permanent funds in the long term was the main tool to finance growth and preserve independence—​as shown for the 1952–​1962 period (Table 5.1).

A Few Comparative Studies of Luxury Finance Even if a comprehensive study on the finances of luxury firms is not available, producing profit margins, self-​financing cash flows, and building prudent reserves is the second mission of a luxury house, beyond conceiving seductive goods. As Bernard Arnault of LVMH has said, ‘what’s luring me is the idea to transform creativity into profitability’ (Michaud 2013: 69). A comparison between a few luxury houses confirms this dependence on gross and operating margins and net income in 2000 (Table 5.2). The challenge is, therefore, to maintain a balance between the production of added value through creativity, know-​how, and reliability, on the one hand, and to have the ability to fuel enough returns and profits to set up commercial networks, high-​end communication events, and an overall policy of costly advertising on the other. Delivering substantial gross and operations margins is a basic requirement because of the expense processes imposed by inventiveness and craftsmanship upstream and commercial attractiveness downstream. Immaterial expenses structuring the capital of reputation are equivalent to material investment by industrial firms. A recent survey by Deloitte Touche Tohmatsu (Table 5.3) confirmed the ability of top-​tier luxury groups to deliver such self-​financing capabilities, through either yearly profits or returns on assets, as a beacon for the rentability of capital mobilised in current business. The case of Hermès confirms that the mix of profitability, ample permanent funds, and self-​financing of investments enables growth and independence (Table 5.4). The return on capital employed is plainly a result of the position of the company on the market, but it is also a lever to produce net treasury and then to sustain momentum in renewing creativity, recruiting a workforce among craftsmen, and extending attractive boutiques. The attractiveness and charms of luxury goods are made possible by endless thickening of financial reserves thanks to high-​level profits and useful cash flows that allow self-​financing. The Hermès case study reveals a great deal about how some family firms maintain growth. The Richemont group also epitomizes the connections between growth, operating profit, and production of cash flow. Although the group occasionally experienced commercial tensions, as in 2015–​2016, it relied on ‘a very comfortable treasury’ (€5.39 billion) (Vulser 2016). Its performance from March 2017 to March 2018 reflects the recent trajectory of the group: a gross profit of $7.15 billion (65.8 percent), an operating profit of $1.844 billion (a 16.8 percent margin, against an $11 billion turnover; and an increase of cash flow from $827 million in 2017 to $2.723 billion in 2018. This allowed a net cash disposal to reach $5.3 billion in March 2018, after $5.8 billion in March 2017 (Richemont 2018). Such facilities explain, for example, how Richemont could easily pay between €200 million and €300 million to purchase the jeweller Buccellati from a Chinese investor in September 2019.

Table 5.1. The Balance Sheet of Moët & Chandon, 1956–​1962 (in thousands of francs, then new francs from 1960) Ratio raw Raw losses and profits/​assets profits account Profits 1950

79

Short-​term Stock of champagne Permanent funds Long-​term debts Middle-​term debts (mainly Balance (gross value, without and reserves (mortgage loans) debts suppliers) sheet: assets the legal discount) 1,031

7

/​

482

2,164

1951

25.2

694

?

1,031

7

/​

338

2,753

2,044

1952

24.5

697

71

1,602

7

/​

506

2,844

2,589

?

80

1,645

7

/​

355

2,667

2,710

1954

?

98

1,734

7

/​

454

2,883

2,833

1955

560

100

2,397

17

/​

649

3,211

3,154

1953

1956

11.1

572

118

4,132

17

50

824

5,140

3,392

1957

18.6

675

124

2,592

6,2

200

655

3,629

3,474

1958

18.1

949

146

2,846

5,6

450

1,731

5,231

3,848

1959

17.9

1,516

23

6,442

379

1,575

8,478

4,472

1960

14.9

15,658

1,11

72,300

0,059

4.7

28.1

105.3

75.1

1961

11

12,952

3.6

72,150

0,057

5.5

36.5

117.8

86.35

1962

12.1

16,073

5.4

80,730

0,055

4.5

41.8

133.1

95.6

6.1

Source: Annual reports, Historical archives of Crédit Agricole SA, Credit Lyonnais fund.

Luxury, Banking, and Finance    85 Table 5.2. Comparison of a Few Luxury Houses in 2000 Net income Sales (billion US$) (million US$)

Gross margin (%)

Operating margin (%)

Armani

1

113

66.3

18.7

Gucci

2.3

340.3

65.8

14.4

LVMH

10.9

678

68.2

16.9

41.4

-​1.3

Polo Ralph Lauren 2

59.3

Source: Heller, ‘Armani the Indispensable’.

Table 5.3. Financial Data From the Main Luxury Groups in 2017 Total revenues Luxury goods sales (billion US$) (billion US$)

Net profit margin (%)

Return on assets (%)

LVMH

48.1

28

13.2

8.2

The Estée Lauder Companies

13.7

13.7

8.1

8.8

Compagnie financière Richemont

12.8

12.8

11.1

4.8

Kering

17.5

12.2

12.1

7.3

Luxottica Group

10.3

10.3

11.4

10.4

Chanel

9.6

9.6

18.6

19.6

L’Oréal Luxe

9.5

9.5

?

?

The Swatch Group

8.1

7.8

9.5

5.6

Chow Tai Fook Jewellery Group

7.6

7.6

7.1

7.3

PVH Group Top 10 Hermès International (11th) Top 100

8.9

7.4

146.1

118.9

6

4.5

11.6

7.8

8.9

7.4

6

8.5

276.8

246.7

22.1

7.6

Source: Deloitte, Global Powers of Luxury Goods, 15. Note: PVH Group was purchased by Chow Tai Fook in 2019.

The ultimate case might, of course, be LVMH: this luxury group encapsulates the interlocking of luxury, profitability, self-​financing of organic growth, and external growth from the 1990s. In the 1970s–​1980s, the balance between the rush to reach top luxury positions and the struggle for durable balance sheets set the stage for the building of the LVMH group (Tesson 2018). Moët & Chandon purchased Ruinart in 1962 and

Table 5.4. Hermès’ Financial Data, 2002–​2017 (in millions of euros, except where noted) Turnover

Self-​financing Return on capital Operational results Net profit Net treasury capacity Investments Permanent funds employed (ROCE) (%)

2002

1,242

320

215.5

375

273

102

979.5

25

2003

1,230

332

217

484

259

94

1,095

23

2004

1,331

336

214

535

292

119

1,216.5

25

2005

1,427

383.5

247

584.5

306

118.5

1,380

27

2006

1,515

415

268

536

322

134

1,409

26

2007

1,625

424

288

485.5

357

156

1,460

25

2008

1,765

449

290

432

379

160

1,588.5

22

2009

1,914

463

288

576

401

207

1,790

21

2010

2,400

668

421

828.5

571.5

154

2,150

32

2011

2,841

885

594

1,038

723

214

2,313

42

2012

3,484

1,118

740

686

885

370

2,344

46

2013

3,755

1,218

790

1,021

1,016

232

2,826

41

2014

4,119

1,299

859

1,494

1,049

322

3,449

43

2015

4,841

1,541

973

1,614

1,218

267

3,742

45

2016

5,202

1,697

1,100

2,345

1,439

285

4,383

49

2017

5,549

1,922

1,221

3,050

1,598

270

5,039

57

2018

5,966

2,128

1,405

3,615

1,863

312

5,503

67

2019

6,883

2,339

1,528

4,562

2,063

478

?

?

Source: Hermès annual reports.

Luxury, Banking, and Finance    87 Mercier in 1970—​whilst getting 30 percent of Parfums Dior (Le Monde 1971) in July 1968 and 50 percent in May 1970. Moët & Chandon then merged with Hennessy in 1971 before finally merging with Louis Vuitton in 1987 to become LVMH (Moët-​Hennessy Louis-​Vuitton) (Le Monde, 23 December 1970; Le Monde, 17 February 1971). The family managers involved in these mergers understood a basic issue: to guarantee the international developments of their brands whilst preserving their commercial autonomy, they had to mutualize financial processes and broaden the scale of their self-​ financing. First, Kilian Hennessy, Robert-​Jean de Vogüé (Tesson and Rivaud 2016) and Fred Chandon (both of Moët & Chandon), and Henry Racamier—​since 1977 the head of Louis Vuitton, which had already joined the Paris Stock Exchange (Le Figaro, 2007) in 1984—​decided to federate their houses in order to deepen their ever renewed cushion of reserves and to improve cash flow. Their intent was to achieve successive processes of ‘mergers between equals’, respecting the influence and specificity of each brand and each family branch. They were committed to stimulating the overall financial resiliency of the group by building an efficient financial toolbox—​as the Hennessy family embodies it. Keeping the managerial reins of the affiliate Hennessy until 1998, it bet on Moët-​Hennessy (within B. Arnault’s LVMH group) either to accelerate international development or to consolidate individual fortunes, like that of Gilles Hennessy, who was still one of the richest French bourgeois at the turn of the twenty-​first century–​the twenty-​first largest fortune in France in 2019 (Garnier, Leparmentier, and Vulser 2019)–​thanks to his small stake in LVMH’s capital. LVMH financial data (Table 5.5) help provide a better understanding of the irresistible growth of the firm, led by B. Arnault since 1987 (Forestier and Ravai 1990). It has been able to self-​finance its evolution thanks to an abundant cash flow, which more than quadrupled between 2006 and 2018, and strong self-​finance flows, which doubled in the same period. Beyond arguments about the type of family and financialized capitalism symbolized by LVMH, the key topic is actually its comparative edge over several competitors because of its ample finances, as a result of an efficient toolbox for the management of brands and networks. A key source of leverage is the fine-​tuned management of the available treasury: in order to enable its growth, LVMH set up a special unit in 2008 to consolidate the current reserves of its affiliates into a broad pool of cash. If the strategy of a luxury group is to preserve the creative and financial specificity of each brand to stimulate its originality, it also has to reap cash reserve funds and to mutualize them. For LVMH, this process commenced in Europe (2009–​2014), then extended to the United States and finally to Asia, under the direction of Bruno Amadei, a financing and treasury manager (Lefebvre 2014), and with the guidance of Jean-​Jacques Guiony, the global head of finance since 2004, who had been an investment banker at Lazard from 1990 to 2003 before joining LVMH as the deputy head (2003) then head of finance (2004).6 Such a financial position explains how LVMH set about to purchase the US jeweller Tiffany for the huge amount of €16 billion at the start of 2020 (Le Monde 28 October 2019; Le Monde 26 November 2019, Garnier 2019b), thus compelling Tiffany to hire two investment banks (Centerview and Goldman Sachs) to ponder and negotiate

88   Hubert Bonin Table 5.5. Financial Levers to LVMH’s Growth in 2006–​ 2018 (in billions of euros) Operational Available Self-​financing Turnover Net result result cash flow availability 2006

15.306

1.879

3.172

1.539

3.504

2007

16.481

2.025

3.555

1.506

4.039

2008

17.193

2.026

3.628

1.331

3.008

2009

17.053

1.755

3.352

2.205

2.843

2010

20.320

3.032

4.321

3.073

4.848

2011

23.659

3.065

5.263

2.177

6.137

2012

27.970

3.909

5.921

2.474

7.113

2013

29.016

3.947

6.017

3.057

7.277

2014

30.638

6.105

5.715

2.832

7.080

2015

35.664

4.001

6.605

3.679

7.945

2016

37.600

4.453

7.026

3.911

4.066

2017

42.636

5.840

8.293

4.696

5.365

2018

48.826

6.990

10.003

5.452

6.354

Source: Annual reports of LVMH.

the operation (Cobley 2019) with their counterparts on the side of LVMH (JP Morgan and Citi). A final agreement was reached after the Covid-​19 crisis imposed to cut into the price of the offer to 15.7 billion dollars to match the fall of the turnover of Tiffany (Garnier 2020).

Financial Shortages and the Risk of Over-​Indebtment Another key issue for luxury companies is the continuity of family property, which is necessary for the stability of their finances. Renewed agreement about strategy and day-​ to-​day good personal and generational relations provides the cohesion necessary to retain control of capital, but companies must also invest in commercial networks and diversification channels. Routine self-​financing capacity might not be sufficient forever, and companies might find that their own funds are too small to foster internal or external growth and struggles for competitiveness. A firm might eventually drift towards too much debt, as was the case with Lanvin. Highly specialized in haute couture, it resisted to competition and expansion, and remained in the hands of the same family for four generations: Jeanne’s daughter, Marie-​ Blanche, was the owner until her death in 1958, and designer Bernard Lanvin, a grandnephew of Jeanne, and his wife, stylist Maryl, kept control until the late 1980s. While

Luxury, Banking, and Finance    89 in the hands of the fourth generation, despite efficient designers, ‘financial difficulties’ arose and hindered growth. Although little is known about the causes, they could have included strong competition, insufficient margins, lack of elasticity, or lack of differentiation to globalize the brand. In any event, Midland Bank International came to the rescue and took 34 percent, then 40 percent, of the capital in 1989, but only temporarily (Kapferer and Tabatoni 2012). This capitalistic and banking anchor was in fact not enough to guarantee success. It was therefore a strategic and managerial failure and a bank overload that explained the end of the family status of Lanvin and drove its financial shift towards groups: first the holding company Orcofi, belonging to the Louis Vuitton family, in 1990, and finally L’Oréal. The latter increased its share in 1990–​1996 and refocused Lanvin on perfumery, quite abandoning the other activities, until the 2001 buyout by investors, who then dislocated the portfolio of specialties before the haute couture label was taken over by Chinese Fosun in 2018. ‘The auditor had alerted the Paris Commercial Court about the company’s critical situation  . . . , forcing the Taiwan group to look for ways to recapitalize, in order to cope with its liquidity difficulties’ (Adam 2018), and to declare cumulative net losses of €55 million in 2015–​2017, €100 million was to be found. As an intermediary conclusion, one lesson is learned: reliance on bank credit becomes critical when a brand does not have enough strength to produce sufficient revenues and margins, and when family management hits barriers of (relative) incompetence. Crumbling returns and profits choke cash flows and self-​financing. This fragility of the financial base justifies calling for investors. Any creator (and sometimes collector and artist) has to rely on one or more investors at some stage in the history of his or her house, even if the investor is an individual with capital or capitalist partners. In the 1920s, for example, Georges Aubert, a banker and international trade specialist, placed his fortune in houses of Paris haute couture: Germaine Patat, Paul Poiret, Georges Dœuillet, Jacques Doucet (Chapon 1983) in 1925 (which merged into Dœuillet-​Doucet, until the company closed in 1937), Maison Agnès, and Drecoll & Beer (which became Agnès-​Drecollin in 1930) (Pouillard 2015). But Aubert’s death in 1933 destabilized these houses, although a few did survive. In another example, long after Frédéric Boucheron, from 1858 to 1902, had led his jewellery house in Paris, his descendants decided to cede the family company in 1994: the business shifted to a more global approach, selling out to Schweizerhall, then Gucci; after that, was included in the Kering group.

Capital at Stake: Successes Owing to Stable Capital A determining basis for the durability of luxury companies is their capital. Either they succeed and efficiently broaden their capital, or they might be submitted to offensive bids and dismantled. Luxury firms must develop processes to stabilize capital, then

90   Hubert Bonin management, and finally, their style of creativity and brand development. A few case studies will help to understand altogether the resistance of family alliances and the fragility of their cohesion when confronted with financial uncertainty, needs for investment, strong competition, and opportunities for immediate returns by luring offers from other familial investors, competitors in the field of luxury, or investment funds.

Chanel as a Case Study on Family Resilience Chanel is one family business that has demonstrated its resilience. When the fashion company staggered at the start of the 1980s, owners Alain and Gérard Wertheimer pondered the feasibility of a renewal instead of a cession. They managed the legacy of Pierre and Paul Wertheimer, the owners of Parfums Bourjois, who had been associates of Gabrielle Chanel until her death in 1971, developed her perfumes since 1924, and purchased the capital of Chanel SA after the merger of Chanel couture and perfumes in 1954. This led to the recruitment of Karl Lagerfeld as head designer in 1982, a choice that confirmed the Wertheimers’ will to retain a family business profile whilst opening doors to Lagerfeld’s creativity and contribution to the renewal of the brand image (Garnier 2019a). No financial data had been available (Dromard 2014a) from the company until 2017 when Chanel Ltd. revealed its consolidated operational profit of $2.7 billion and a turnover of $9.6 billion. The London-​based head financial entity of the group since 2018, transferred from the United States, plays the role of upper property head of the various parts of the conglomerate, in parallel with Chanel International BV, a holding company that since 2014 has controlled Chanel SA and some one hundred affiliates (through the process of vertical diversification and integration of Chanel). Such a financial construction helps the Wertheimers retain ownership of Chanel, along with their various investments in luxury assets (Dromard 2014b).

Hermès’s Family Business Contested, then Confirmed Hermès has followed the same track of financial stability as Chanel. With the day-​to-​day support of its three bankers (in 1990, BNP, BFCE, and Hottinguer), the group diversified through vertical integration (like the purchase of the Lyon silk companies Perrin and AS), and through the diversification of products and brands7 (in 1989, Cristalleries de Saint-​Louis, in Lorraine; in April 1990, Jean-​Louis Scherrer, with the Seibu group, which distributed Hermès in Japan). In the meantime, Hermès launched its network abroad, while also defining a strict financial strategy which allied vigorous internal growth, huge profits, and reinvestment of 90 percent of the latter: ‘The policy of opening foreign shops (thirty in two years) was almost entirely self-​financed. The indebtment of Hermès is neglectable’ (Adams 2014).

Luxury, Banking, and Finance    91 Later on, the same topics could be detected: Despite a rapid growth under manager Patrick Thomas, its turnover jumped from €1.23 billion in 2003 to €3.48 billion in 2012, when the leader of the sixth generation, Axel Dumas, became head manager. Why such an exception? The net result tripled in a decade to reach €740 million in 2012, whilst the self-​financing capacity amounted to €885 million. The strategy of identity (climbing towards more luxury) was the springboard for the financial strategy (broadening profit margins, with an operation margin of 32 percent in 2012). All this time, Hermès remained a family business: the descendants still held control of 70 percent of the capital. The société civile Émile Hermès (the personal company heading the group) had been transformed into a limited partnership society (société en commandite par actions) in July 1989—​with several familial members controlling it altogether. At the same time, an executive company (SARL) became downwards the ‘commandité’—​that is, the entity financed by Émile Hermès, the leading parent in charge of management. It expressed the desire to cement the control over the house before a future flotation, which was achieved in 1993. Such familial pacts can sometimes reach some limits when financial greed gets involved, or when generational transmission of capital opens doors to less embeddedness and commitment. Hermès is thus also a relevant case study in that field because it went through a financial and predatory offensive during 2006–​2013 (Bonin 2017). At Hermès, most of the descendants stuck to their faithful commitment to the family company, thus resisting the offensive launched by LVMH, which was able to seduce only a minority. In Fall 2010, B. Arnault, head of LVMH, seized the opportunity created by the retirement of Jean-​Louis Dumas, manager of Hermès, in 2006, then his death in May 2010. As fifty-​ two inheritors bore the responsibility of familial participation, B. Arnault believed that he might seduce at least one or two of them. Through Nicolas Puech-​Hermès’s Swiss wealth manager, Éric Freymond, Arnault convinced Puech-​Hermès to sell his package (about 6 percent) (Vulser 2013a). In parallel, a discrete operation to pick up Hermès securities directly on the stock exchange succeeded to collect 17.1 percent of the capital (October 2010), then 22.3 percent (on January 2013), for an average price of €85. Experts proved afterwards that LVMH was hidden under the coverage of portage societies (Grégory 2013; Vulser 2013b), which was denounced by the French state regulatory agency AMF (Autorité des marchés financiers). Rothschild, Lazard, and business lawyer Bredin-​Prat conceived such back-​channel practices:  LVMH subsidiaries in Luxemburg and Delaware (5 percent); an Irish subsidiary of Natixis, the investment bank of Caisses d’épargne (savings banks) group (4.7 percent); Société Générale (4.5 percent); and Crédit Agricole (through two funds, 3 percent) (Pechberty 2010) got packages through ‘swaps’ operations, permanent renewable promises of purchases (equity swaps) as fluid assets, that ended by being bought by LVMH in June–​October 2010. The fifty-​one other family holders at Hermès accepted that they would keep their stocks for twenty years:  they brought them to the financial holding H51 created on 14 December 2011, with 51 percent of the capital. The fifth and sixth generations unified to block LVMH’s offensive (Letessier 2016). Lawsuits filed in 2012 ended with an

92   Hubert Bonin agreement:  LVMH sold its stake at a profit of €1 billion. This legal drama involving Hermès, LVHM, and the Paris Stock Exchange evokes the ‘gray shades of capitalism’ (Seifert 2017). But the family members’ fidelity was rewarded, as the value of the Hermès International share grew to a capitalization of €56 billion in June 2018, when it was admitted to the CAC40 index, rejoining LVMH, L’Oréal, and Kering.

Italian Family Business at Stake Luxury companies in Italy have also faced tensions around family capital. A  stimulating case study is Armani: in 2001, ‘having avoided expensive brand acquisitions, the company had $300 million in cash at the end of last year. Armani owns almost 100% of it. His net worth is conservatively estimated at $1.7 billion’ (Heller 2001), whereas he had started his business with just $10,000 in 1975. He used part of his cash to purchase semi-​industrial suppliers upstream and distributors downstream. Thus, at the age of 83, in 2017, Giorgio Armani created a foundation in order to stabilize the control of his Milanese company (dating from 1975) and to avoid its dismantling after his death (Moore, and Doyle 2010). The Prada family (led by head manager Patrizio Bertelli and his spouse, Miuccia Prada) was tempted in 2007–​2008 to sell part of its capital, either on the stock exchange or to investors from the Middle East. Prada joined the Hong Kong Stock Exchange in 2011, intending to lure Chinese investors close to a market of luxury which grew strongly: it raised $2.14 billion (16.5 percent of its new capital) (Barreto 2011) to finance its Asian development and to alleviate the load of debt. Raising funds on the international market while keeping the Italian anchor seemed a relevant equation. But the financial future of Prada is still subject to finding investors and assuming the succession of its owners and managers. We can therefore conclude that such case studies about French and Italian luxury companies confirm the frailty of family business and reveal how generational transmission can weaken faithfulness and commitment by a few groups of inheritors, as they can be seduced by competitors challenging the historical roots of the company and desiring to diversify their portfolio of brands. But these histories can also foster positive views of the embeddedness of many family branches that remain respectful of capital built through the reputation and creative arts of their predecessors. A last point could be made about the balance between the strong and quick move to financialization by luxury firms and the preservation of the capitalistic base of the more recent family groups that emerged thanks to mergers and acquisitions in the 1980s and 1990s. It might seem difficult to understand how such companies can preserve their independence as they are exposed to the openness of financial markets and thus to the risk of offensives, mainly by investment funds. The latter might wish to prey on well-​ known and profitable luxury brands, even perhaps to resell them afterwards through a process of dismantling the groups in exchange for ripe, attractive profits. But such risk has largely been surmounted by clever systems of shares with special voting rights and

Luxury, Banking, and Finance    93 of superposed shell holdings. Despite a large flotation of these groups, their stability is therefore guaranteed as a mere minority share of capital paves the way to capitalistic stability. This allows the Arnault, Pinault, Rumpert, or Hayek families, for instance, to keep control of LVMH, Kering, Richemont, or Swatch Group with a minority share of capital.

Capital at Stake: Failures Conversely, the respect for legacy (brands, prestige, style of design, craftsmanship) can be dismantled when family stakeholders no longer feel invested in the mission of safeguarding the historical root of the company—​when they do not entertain an entrepreneurial philosophy to sustain momentum for durable growth, to tackle cash flow requirements, or to grapple with managerial issues, especially as they perceive competition as hardening: they are not committed to a durable partnership. These family stakeholders end up being tempted by the sale of their stake to financial investors or, more frequently, to competitors rushing to broaden their own array of brands. A few case studies reveal how family firms fail sometimes to maintain independence from outside investors. An emblematic one is Taittinger. The De Chambrun family—​ which had controlled Baccarat (Saulot 2003) since the marriage of Joseph de Chambrun in 1853 to the lady Godard-​Desmarest, who had inherited Cristallerie de Baccarat—​sold its stake to the Taittinger group in 1989. The Josée and René de Chambrun Foundation had concluded that it no longer had the financial resources to fuel the renewal of the luxury company. Later on, the Taittingers themselves, who had launched their champagne firm in 1932, agreed to sell their shares to the US investment fund Starwood in 2005 (for €2.5 billion). Despite owning luxury nuggets in the hotel business and crystal, the diversification of Taittinger towards middle-​range activities (hotels, perfume) revealed cash swallowing: the company lacked efficient leverage forces to amplify self-​financing. But, conversely, the family could rely on the French bank Crédit Agricole to profit them from the disinvestment by Starwood from Taittinger champagne, which then came back under the familial umbrella; earlier, Starwood had dismantled the group by selling its crown jewels to worldwide investors. Crédit Agricole du Nord-​Est, the sixth Regional Caisse of the Crédit Agricole group, drew from its corporate banking toolbox, in association with the Caisse Nationale de Crédit Agricole (in Paris), and redeemed Taittinger, the seventh largest champagne producer in the world, for €660 million, almost urgently in order to preserve the firm’s French heritage (Cougard 2007). Then it designed a financial arrangement in order to transfer it to the Taittinger family in December 2007 (Ducourtieux 2006; Challenges 2006; Les Échos 2017). Such fluidity of family capital was also found by the Italian fashion house Fendi, created in 1925. After the second generation had kept hold since 1946, the second (then five daughters) and third generations (eleven children) ceded control to LVMH in 2001. Beyond their internal divisions, they estimated that high net income, assets,

94   Hubert Bonin and revenues were not sufficient to consolidate the financial foundation necessary for a globalized luxury firm. Another family put its assets into consideration when Bulgari joined LVMH in 2011 (Kapferer 2012): it perceived that its financial basis could no longer guarantee enough forces to develop the brand (Kapferer 2016: 225). When Jean-​Noël Kapferer (2016: 220) pondered why no huge group—​like Kering, LVMH, or Richemont—​emerged in Italy, he underlined the profile of several main luxury families in Italy: ‘People like Diego Della Valle, Francesco Trapani or Domenico De Solo (by Gucci) are immensely talentuous to develop their brand on foreign markets, but not to manage groups rich with several brands and sectors’, as it would require them to master the art of finding efficient financial toolboxes to pick up capital. And he seized on the issue debated in this chapter—​‘the necessary support of financial markets’, which asserted themselves as the main source used to finance the international and commercial development of luxury brands (Kapferer 2016: 236–​38). ‘If Bulgari had been listed since 1995, its constant needs of financings put brakes on its expansion’, and big groups get easier access to investors. The Italian company Versace had been considered the last independent haute couture firm. ‘The family owns 80 percent of the business, with Gianni Versace’s niece Allegra Versace Beck, 32, holding a 40 percent stake worth €732m (£654m). Allegra’s mother and Gianni’s sister, Donatella Versace, holding 16 percent, and Gianni’s older brother Santo owning 24 percent’ (Neate 2018). But the luxury company had to join the Michael Kors group in 2018 (renamed Capri Holdings), even while creative director Donatella Versace remained in charge: Versace could not finance by itself the extension of the international shops’ network and had to rely on fresh inputs of capital to fuel competitive growth. In the meantime, Kors succeeded in designing the first real US luxury investment group (Rupert 2018), and one might tell that the deal marks one of the first times an American company has cracked the code of super high-​end luxury fashion (Friedmann 2018; Hirsch 2018). Kapferer (2016) argues that the issue of capital has to be balanced by the issue of brand image. Indeed, for a luxury brand, it is one thing to receive money from an investment fund, but it is another thing to receive money from LVMH or another luxury group. The latter includes the principles of a true luxury strategy, which is not the case for an investment fund. These groups are not only sources of funding and cash; they also bring skills, expertise, synergies, talents, and institutional support. But above all, they are generous in terms of time. ‘No financial fund can give the time it takes to build prestigious brands. B. Arnault gave ten years to Christian Lacroix to take off. On the contrary, the Swedish fund EQT Partners, which bought Vertu in 2012, resold it in 2016 to another fund, based in Hong Kong, Godin Holding’ (Kapferer 2016: 229). We can conclude that when the timetables of profitability and durability do not converge, when family stakeholders are impatient about stable dividends even though their company needs to reinvest profits to fuel investments, and when they are convinced that their chances to reach competitiveness are doubtful, faithfulness to the family firm and respect towards their legacy can fall apart, which opens doors to the dismantling of

Luxury, Banking, and Finance    95 family business. Personal financial issues struggle against business self-​financing issues, and wealth management therefore often wins over business finance.

Investment Banking to Build Luxury Groups Case studies and overall analysis will help to cover a range of issues about the building, diversification, and growth of luxury groups from the 1970s until today. By scrutinizing balance sheets and banking involvement, this section outlines how developments in luxury companies were financed. The design of strong brands, competitive edges, and capital of reputation enticed luxury firms to build internationalized groups, for instance, in Italy, France, the UK, or the United States. Strategies were engineered either in the name of economic patriotism, to resist competition, or to dispose of leverage forces to develop internationalization through mutualized commercial and financial toolboxes. Then the move towards the transnationalization of luxury items pushed companies into a trend of cross-​border amalgamation, whether they were family-​owned firms, broadly open to financial markets, or controlled by finance investors. ‘Their practices became those of financial capitalism’ (Michaud 2013: 72), mainly because of the move towards ‘the industrial production of luxury’ (Michaud 2013:  63). These companies are focusing on mergers and acquisitions (M&A) because the market is in a transition phase. Pursuing a buy-​and-​build strategy can be the only way to reinvent the business and survive against increasing competition coming from strategic players in the European luxury and fashion market. The development of assets demands sources of permanent funds and treasuries made possible by some kind of financialization, which requires frequent and large calls to financial markets. A balance between supplying money and the preservation of the control over property has to be empirically found, and is sometimes a source of fragility. Moreover, bad strategies, commercial failures, or a crisis of trust can weaken some companies. Opportunities were therefore offered to heads of finance and bankers to organize offensive or negotiated operations to weave diversified and reinforced groups, rich with brands and multinational offshoots. Battles on stock exchanges also occurred, some successful, some not. Despite the high-​range positioning of luxury groups, they had to join, to some extent, the fray of ‘commoditization’ like commonplace industrial or services groups, and to be involved in large operations on financial markets. They could often rely upon syndicates of banks able to help them through specialists from departments of commercial and investment banking. The building of national luxury groups demanded financial infighting to impose amalgamation required by the strategies of diversification and international development, in order to mutualize expenses and balance assets. For instance, Michel Dyens

96   Hubert Bonin & Co. specialized in luxury operations from New York and Paris (Boucheron sold to Gucci in 2000, jeweller Harry Winston to Aber Diamond Corporation in 2004, Hublot to LVMH in 2008, etc.), as did Vendôme Global Partners, from New York, a boutique which is specialized in mergers, acquisitions and sales in the luxury sector (Adam 2013), as this little investment bank is reputed for the agility and skilfulness of its associates. Big banks entertain specialized teams of investment bankers, as ‘lead financial advisers’, whose names appear then in the business community or the Dealogic journal, specialised in financial operations, as experts of tailor-​made operations (Le Journal de l’Économie 2016) (personal advising, business valuation, strategic consulting services, etc.). They have a deep understanding of the evolution and challenges of the industry and are able to conduct a strategic dialogue with their clients and to propose an advisory and financing offering adapted to their specific needs. Goldman Sachs and JP Morgan advised Michel Kors in 2017 on the acquisition of the UK shoemaker Jimmy Choo, itself working with Bank of America Merrill Lynch and Citigroup. This reaffirms the status of US banks (like Morgan Stanley) as the go-​to advisers for consumer companies looking to carry out deals in capital markets and M&A in Europe. Big operations fostered active communities of engineering contracts. From the turn of the 2010s, beyond the support of investment funds, bankers were mobilized to complete negotiations for middle-​ sized companies (Spencer 2017), whether they were targeted by bigwigs or investors (Amed 2016) or they wished to preserve their independence. Ancient companies (Tiffany, Chopard, Fabergé) and ‘young turks’ (or upstarts) were ever gauged as targets by investors and bankers (Sherman 2017), igniting markets (Socha and Diderich 2014). The upsurge of new holdings (US Michael Kors, Paris Renaissance Luxury Group, Chinese holdings, etc.) also opened doors to a new cycle of operations. Even peaceful moves rely on financial advice from bankers and lawyers. The fate of Cartier, for instance, was determined by a fully negotiated process. Owned by French industrialist Robert Hocq and financier Joseph Kanoui since 1972, ‘the development of Cartier required more capital. Their new owners turned to Anton Rupert, a major entrepreneur and investor in South Africa, who wanted to diversify his assets. He took over Cartier in 1988’ (first operation) (Donzé 2018: 26–​27). Then, Rupert set up the holding firm Richemont, which was listed in Zurich, Switzerland (second operation), with the family keeping special voting rights and overall control. Richemont divested from its media and tobacco sectors (three operations in 2000–​2008), and going forward it focused on luxury (through Vendôme Luxury Group in 1993) thanks to a strategy of purchasing renowned brands (Cartier, Piaget, etc.) (Tissier 2018). Pierre-​Yves Donzé (2018) recounted nine operations between 1988 and 2000, then seven from 2006 to 2015, with luxury assets jumping from €5.2 billion in 2004 to €20 billion in 2016. Each operation is supposed to involve investment bankers to engineer them in a manner relevant to both sides of the partnership. These facts lead us to conclude that the recent history of luxury firms fostered dedicated branches of commercial and investment banking. The huge amount of assets involved on the side of the clients, the abundant layers of commissions to be earned,

Luxury, Banking, and Finance    97 and the capital of reputation among investment bankers were all factors that strongly influenced this development. As a successor to heavy industry (which predominated in the previous decades until the 1970s–​1980s), luxury business paved the way to broad and intense operations of ‘industrial finance’ and investment banking. Portfolios of expertise among bankers were thus carved to take into account the needs of family stakeholders, investment funds, and of course diversifying luxury groups, like that of B.  Arnault, endlessly relying on its pool of bankers (at Crédit Lyonnais, then Crédit Agricole Commercial and Investment Bank-​CACIB) to negotiate fresh operations of external growth.

Luxury Within the Financial System of Assets Management This final section studies the role of gold and diamond mining securities and luxury groups in the strategy of asset managers for the accounts of institutional investors and wealth managers active in private banking (Harrington 2016). Wealthy individuals entrust part of their fortune to fund managers, either in wealth management banks or in dedicated investment funds. The connections between luxury business and financialization of the economy in the twenty-​first century play an important role in such processes (Lazonick and O’Sullivan 2000). Private banking is used to promote luxury financial assets as a complement to material investments in luxury goods: ‘The key thing is whether you feel listened to, are in good hands, that you are exceptional and unique, or at least the bank gives you that feeling, and it doesn’t push products that you are not looking for . . . . Performance aside, the intangible brand merits that Swiss banks typically sell their clients on—​stability, robustness, history, exclusivity, impeccable service—​are much the same as many luxury houses’ (Bart 2016). Personal or collective asset management is sustained by several factors of financial trust or investment choices. The (generally) endless growing valuation of listed luxury firms, the opportunities to jump over the short-​term variations of the value of their stocks (along with commercial results), the economic conjuncture on some key markets (China, United States), or even tensions on customs tariffs. One cannot understand the recent history of luxury without such a background as the fate of luxury business also depends on the financial markets, both because firms must often gather capital to fuel growth and because the volatility of the market affects the value of their shares. Analysts are pondering the evolution of the values of these shares (Ait-​Sahalia et alii, 2004; Atkinson 2019), whilst taking into account opportunities for restructurings, the quality of management, the perspectives of consumer markets, and the purchasing strategies of the upper classes. They bet on less volatility and more return on investment and on overperformance (Pinkhasov and Nair 2014). They fill baskets of data about brand value, stock performance, quality of management, revenue and earnings per

98   Hubert Bonin share, dividend and payout ratios, dividend yields, price to earnings ratios, and return on equity, return on asset, and return on investment, among others (Heininen 2016). They grapple with algorithms to assess the promised middle-​and long-​term future values, factors of resistance, and the evolution of ‘bullish canals’ and of the ‘comfort zone’. They have to ponder the eventuality of M&A (mergers and acquisitions) prospects (Sant’Elia 2017), and their contribution to ‘wealth creation’ (Königs and Schiereck 2006). The value of luxury companies seems even more attractive than mining values (gold and silver) (Bary 2019), because they are less volatile. Even financial products like exchange-​traded funds (ETFs) or baskets of securities that trade on an exchange, just like a stock, are involved in luxury (Jark 2016). That is the case for instance of the GLUX–​ Amundi ETF S&P Global Luxury, set up in 2008 to track and match the S&P Global Luxury Index’s performance, or the LUXU–​Amundi ETF S&P Global Luxury (2016). The luxury-​goods index often surpassed the MSCI World Index active in two dozen global markets. This explains why Société Générale created two funds: SGAM Invest Secteur Luxe (in 2002) and SGAM Fund–​Equities Luxury and Lifestyle (in 2006): just before the 2007–​2008 crisis, the former increased by 68 percent between 2005 and 2007. One might think that the profits of firms can only grow faster than inflation: for example, from 1980 to 2007, the Cost of Living Extremely Well Index (CLEWI), which measures the evolution of a basket of luxury products and services, multiplied by seven, while the American Consumer Price Index only tripled (Pellecuer 2007). The current of specialization continues today, as with Pictet-​ Premium Brands (created in 2005), Crédit Suisse’s Global Prestige, or Compagnie Benjamin de Rothschild Conseil, which directs its clients to corporate titles that own real estate managed by groups of luxury hotels. But wealth or asset managers had to include the Asian market more and more in their portfolios, either because of the outlets found there by luxury brands or because of a growing number of Asian investors there, who serve as drivers of change (PriceWaterhouseCoopers 2019). A commonplace objective is to anticipate fluctuations in the profits of the luxury groups: is it worthwhile to invest in their stocks which have become expensive, at the risk of reducing their annual income (price-​earnings ratio), in return for the promise of sustainable capitalization? ‘Are luxury brands really a financial dream?’ (Kapferer and Tabatoni 2011). The value of LVMH stock jumped so much that it became the first capitalization on the Paris Stock Exchange in 2017–​2019—​still growing from 50 percent in 2019. Managers also bet on M&A operations as competition has intensified among European groups, Chinese investors (like Haidian), investment funds (Starwood Capital, which was set up in 1991, DGC Frank Muller Luxury Fund, in 2014, etc.), and private equity managers (Change Capital or Catterton Partners, Swiss Notz Stucki, Genthod Global Wealth Management–​Franck Muller Group, etc.) (Wendlant 2014). ‘Private equity is a natural investor in luxury, given the industry’s relative resistance to economic cycles compared to other sectors, making it possible to borrow against a business. The proportion of deals in the sector involving private equity has steadily increased over the past several years, rising from 36 percent in 2013 to 51 percent in 2017’ (Spencer 2017). And big consulting cabinets like Deloitte (Deloitte Touche Tohmatsu 2014, 2018),

Luxury, Banking, and Finance    99 Bain (Bain & Company 2015, 2018), Aranca (Chrite-​Shembekar 2016), Roland Berger, or the Boston Consulting Group (Bellaiche, Mei-​Pochtler, and Dorit 2010) did not lose time to supply their own overview about private equity and venture capital (55 percent of the financial bidders in 2017), market trends, lasting changes in consumer behaviour, expectations on M&A activity, the attractiveness of the sector, the resilience of luxury goods, the growth performance, and the changing global landscape, pending further contractual missions. Everyone seems to be willing to put a price on getting hold of promising companies, as indicated by LVMH’s July 2014 acquisition of Loro Piana for nineteen times earnings. Fung Brands, backed by Hong Kong billionaires Victor and William Fung, purchased the Sonia Rykiel and Cerruti brands and invested in the Belgian leather-​goods firm Delvaux. The Qatar Luxury Group and the Qatari Mayhoola fund joined the fray too in the 2010s. Targets can appear in a few months, which explains why analysts watch and select securities on the ‘hunting ground’. But Chinese insurance group Anbang and private equity firm Primavera Capital had to renounce their bid on the Starwood luxury hotels group in 2016. Spin-​offs add opportunities if groups decide to float some high-​end affiliates: that was the case with Ferrari IPO in 2015 and its divestment by Fiat-​ Chrysler. Meanwhile, Italian equity fund Investindustrial listed Aston Martin in 2018, advised by Lazard and using three banks to complete the operation. We understand therefore that luxury brands constitute key immaterial assets, sustained by specialized productive systems and craftsmanship. But the globalized economy of business relies on both self-​financing cash flows and financial markets. Wealth managers at specialized bank units, asset management groups, or investments funds—​either some kind of hedge fund or family groups from emerging countries—​ assert themselves as key stakeholders of luxury business, now key players in financial transactions far beyond the mere management of balance sheets and treasuries. One possible effect of all this is that asset management practices place pressure on luxury firms to distribute growing dividends whilst respecting the requisites for permanent funds.

Conclusion Leaving aside the life of diversified groups that manage a luxury subdivision internally—​as is the case for L’Oréal (Collin and Rouach 2009; Dalle 2001; Marseille 2009) or Pernod-​Ricard Group (1999)—​and focusing on a few case studies of high-​end companies, this chapter followed three paths. The first one led to an overview of day-​to-​ day operations fuelled by the management of worldwide connections and of networks of suppliers and customers, through commonplace banking operations (a range of credits, FOREX, management of means of payment). The second one raised the issue of the durability of companies (family or not) against competition and recessions, thanks to a relevant management of profits during booming years in favour of permanent funds,

100   Hubert Bonin reserves, anticipation of risks, and so on. And the third one underlined the eminent role played by asset management to support the development of the financial basis of luxury firms. Despite its large immaterial capital (reputation, artistry and craftsmanship, brand perception, designing stars, etc.) (Donzé and Pouillard 2020), luxury business also depends on commonplace material levers, such as financial issues. The daily life of luxury companies has ever relied on their ability to create strong and durable self-​financing flows, to finance the current expenses (mainly the creators and expensive materials to be transformed into luxurious objects or products), and to face the variation of values (diamonds, gold, silk, grapes for grands crus, etc.) thanks to a layer of availabilities due to a durable policy of reserves. On the one hand, discreet finance managers have been of key importance in the history of luxury. On the other hand, the connections with a few banks practicing long-​term ‘relational banking’ have been an essential tool to guarantee their support through periods of difficulty. Luxury companies could not live independently from financial institutions and had to penetrate the intricacies of banking marketplaces. In the meantime, the fate of many luxury companies depended more and more on their financial stability. They had to check the cohesiveness among their shareholders and the philosophy of key stakeholders—​that is, the leaders of family branches. Struggles fuelled by individual greed (when family stockholders fall tempted by short-​ terms gains), by ambitious challengers betting on external growth to broaden their portfolio of brands and their market shares, or even recently by investment funds have favoured volatility, thus questioning durability. The issue of legacy and faithfulness among shareholders has therefore come into sharper focus.

Acknowledgements This chapter received the support of ERC CoG grant 818523, CREATIVE IPR The history of intellectual property rights in the creative industries.

Luxury, Banking, and Finance    101

Notes 1. Note from Crédit lyonnais, 23 November 1943, ‘Chanel’, Historical Archives of Crédit Agricole SA, Fund Crédit Lyonnais, Financial Studies, 39005. 2. ‘Chanel’, Historical Archives of Crédit Agricole SA, Fund Crédit Lyonnais, Financial Studies, 39005. 3. Journal spécial des sociétés (26 December 1957), Historical Archives of Crédit Agricole SA, Fund Crédit Lyonnais, Financial Studies, 39005. 4. ‘Maison Moët & Chandon, 1947 à 1955’, Historical Archives of Crédit Agricole SA, Crédit Lyonnais Fund, DEEF 52719/​1. ‘Maison Moët & Chandon, 1956 à 1962’, Historical Archives of Crédit Agricole, Crédit Lyonnais Fund, Deef 64779/​2. 5. Moët & Chandon general assembly of 17 May 1951. 6. ‘Jean Jacques Guiony, Finances’, LVMH website, [https://​www.lvmh.fr/​groupe/​identite/​ gouvernance/​comite-​executif/​jean-​jacques-​guiony/​] (consulted on 23 February 2021). 7. ‘Hermès file’, Historical archives of Crédit Agricole SA, Fund Crédit Lyonnais, 91AH123.

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Chapter 6

Lu xu ry an d t h e Entrepre ne u r A Story of Meissen Porcelain, Harlequins, and Creative Destruction Robin Holt

There is something romantic in configurations of the entrepreneur, or at least for Joseph Schumpeter (2003: 160) there was. The entrepreneur can be slightly disreputable and dissolute, a figure steeped in an archaic atmosphere that the modern manager in a transparent, bureaucratic organization would find dark and ungovernable: For him [the manager] and from the standpoint of his individualistic utilitarianism, the behavior of that old type would in fact be completely irrational. He loses the only sort of romance and heroism that is left in the unromantic and unheroic civilization of capitalism—​the heroism of navigare necesse est, vivere non necesse est [seafaring is necessary, living is not necessary, carved above doorway of an old house in Bremen]. And he loses the capitalist ethics that enjoins working for the future irrespective of whether or not one is going to harvest the crop oneself.

Right away we get a sense of the entrepreneur as something different from the leveraging, asset-​ stripping, wilfully adapting, free-​ floating hunters of arbitrage that make up the modern masquerade of commercial figures. Though idealized, Schumpeter’s romanticising reveals a form of entrepreneurship that is something more than extracting economic rents in situations where others fail, or fear to tread. In addition to an opportunistic earning of money, and much more compelling, Schumpeter (1947, 2006) feels entrepreneurial experience also has to incur the disturbance of settled practices, what he calls a process of creative destruction, to the point where they transform in some way: in the wake of entrepreneurial forces we sense and emotionally feel the world a little differently. The phrase ‘creative destruction’ was taken from Werner Sombart’s (1913) War and Capitalism, as were many other ideas. So somewhat ironically,

108   Robin Holt though influential, Schumpeter’s ideas were not unique, and borrowed much from the milieu of intellectual debates in which he came to intellectual maturity (Reinert 2003). Having suffocated under bourgeois settlements, and witnessing a rising bureaucratic class, German political economists like Schumpeter and Sombart were becoming increasingly both weary with and wary of the dark-​suited predictabilities of managed capitalism. Schumpeter (through Sombart) finds in the entrepreneur a fêted figure, part innovator, part trickster, part stubborn autonomist, riffing off norms as lightly, but also as seriously, as lips might carry a tune along the barrel of a pipe: The music draws an audience along who knows where, and they do not worry too much about specificities, it is the open atmosphere of speculation and risk that attracts them. It is an audience of investors, would-​be partners, suppliers, customers, and regulators, all of whom are being gathered by the creative acts of a figure in whose hands imperfections can be turned to profitable settlement. There is something of the alchemist here, where base matter becomes silver or gold, muck becomes brass, problems become opportunities; within the open stretch of entrepreneurial activity the old and faded become recast with the lustre of inexplicable novelty. The dark allure of the occult tones entrepreneurial talk with melodious but distant timbres, the sound is arresting, its song can compel even the strongest to stop listen, and be taken in. This chapter will keep to, though develop, the idea of creative destruction. It is undoubtedly a contested view, one prone to idolise an isolated, maverick figures, posed, almost in caricature, as the opposite of all that predictably straight. Who would not want to be the entrepreneur in such a story, if the alternative is the dour routine of management? As I will show, even when isolated in an experimental bunker for nigh on a decade, an entrepreneur cannot work in isolation. They are part of a wider ecology of forces and things. Indeed, the setting is everything, for it colours and shapes the possibilities for growth: It is that by which what another great theorist of entrepreneurship, Edith Penrose (1959: 37), calls ‘the imaginative effort, the sense of timing, and the instinctive recognition of what will catch on or how to make it catch on’, gains its organizational momentum. Nevertheless, Schumpeter’s (and Sombart’s) entrepreneurial figure carries within it an important observation that has subsequently been somewhat concealed:  Making money, as a settled practice, is not entrepreneurial. The entrepreneur requires money but is not defined by money. With money comes possession, but as with the old house Schumpeter notices in Bremen, assets can be heavy constraints when setting out opportunely into the open sea. Seafaring is an apt metaphor, given ‘opportunity’ comes from the Latin for port or harbour, and what impels the attempt to realize opportunities is an obsessive ‘setting out’, but which always involves a return, to then show others what has been found, and how it might change lives, even if only in small ways. As such, the entrepreneurial process is just that, a sequential narrative of events and characters immersed in irreversible changes to the way things are: There is little that is discrete or momentary here, so to understand it is to approach it as a story with its own temporal rhythms (Wadhwani and Jones 2013). As Riot (2019) reminds us,

Luxury and the Entrepreneur    109 Schumpeter especially was concerned to get the plot clear in such stories: Entrepreneurs should not be valued ex post for their personal success as capitalists but rather for their transformatory force in disturbing the dominant economic and social orders. This chapter details one such story: the discovery of porcelain and the founding of the Meissen pottery. To get at the story can be done through biographical and archive work of historians, but also through fiction. In fiction, notably the novel, the facts are being spoken for and imaginatively assembled for the purpose of revealing not just a plot but an interiority of subject being coupled continually to experiences of subjection. Fiction charts possible ways of historical being, not just in terms of content (the events being narrated remain fictional) but, more truthfully, by revealing the criteria that shape how we sense and interpret events. Fiction touches on the reality of how our social relations work (or fail to work); it provides connects the presentation of facts with means of making them intelligible (Beyes et al. 2019; Holt and Zundel 2018; Levine 2015). This chapter makes use of both historical and fictional forms, borrowing somewhat shamelessly from already well-​researched accounts of the emergence of Meissen porcelain, as well as from Bruce Chatwin’s novel Utz, a remarkable fictional foray into the willing subjectification of an obsessive porcelain collector.

Reinventing Porcelain History is veined and enlivened with examples of the transforming power of obsession, not least the story of Augustus the Strong, Elector of Saxony and King of Poland (1670–​ 1733) He is an extravagant overlord who equates effective governance with the forms of self-​elevation to which ornament and adornment were significant propellants: uncut suits of red velvet stitched with gold thread, bejewelled automata, peacock feathers to camouflage himself from everyday eyes. Augustus’s rule is in jeopardy. He funds his excessive personal expenditure through aggressive taxation of a beleaguered people for whom, quite naturally, the crust of a loaf matters more than a passing glimpse of a gilded carriage cushioning a king as he moves aimlessly from palace to palace. The people could not be pushed much harder without the risk of revolt, and Augustus is on the hunt for alternative sources of wealth, no matter how meagre or uncertain. So when he hears his troops have arrested an absconding alchemist, Frederick Böttger, he is intrigued: could this man really transform base matter into gold? It was Frederick of Prussia who had first put out an alert for Böttger, having heard of a precocious youth trained in the unstable art of making precious metal, but Augustus has got there first. It is as if fate is throwing this lucrative figure into Augustus’s lap. Perhaps it is a sign that he Augustus, and not Frederick, is the elect, the sun of his kingdom. True to his calling as a despot, Augustis imprisons Böttger, with the promise of release once the magic works. It is not just the money that attracts Augustus: He has always been lured to the fantastical and exotic, and been lavish in its pursuit. Alchemy, though, was risky philosophical terrain populated by credulous schemers and canny fraudsters, and Augustus remains alive

110   Robin Holt to its falsities. But here was real possibility: it turns out that Leibniz himself, at Frederick’s behest, had investigated the integrity of Böttger’s schemes. We might label Böttger a protoentrepreneur. After all, as Schumpeter was to go on to argue, entrepreneurs are often experimenting types: “The artist who at the same time was an engineer and an entrepreneur—​the type immortalized by such men as Vinci, Alberti, Cellini; even Dürer busied himself with plans for fortifications—​illustrates best of all what I mean” (Schumpeter 2003: 124). Such a figure typically uses others’ capital, entrepreneurship being a condition of creativity not ownership (Dimov 2017). As such the entrepreneur is marginal and not at all limited by class, and can as easily come from the poor house as from the manor house. Böttger seems to fit such a mould, lying somewhere in-​between penury and riches. His origins are opaque, but he emerges onto the historical record as an inventive if unruly apprentice to a Berlin apothecary called Zorn, for whom he had been trained in the mixing of compounds. As well as for Zorn, Böttger has worked zealously on the side, seeking the company of esteemed glassmakers and learned monks, becoming skilled in the use of white and red arsenic, believed to be the minerals most proximate to the lapis philosophorum, the mystical stone through whose fluxing medium lead might become silver and gold. His skills have even been witnessed: Indeed, just prior to absconding from his apprenticeship he has allegedly transformed silver coins into gold before an amazed audience including Zorn (Gleeson 1998), and word had got to Frederick. Here, it seems, is an example of what Suddaby, Bruton, and Si (2015) call entrepreneurial disturbance because, if true, alchemy was more than the mere adaption, extension or revision of what already existed and was already being planned for. Alchemy was more than an imperfect condition of information asymmetry affording opportunities to command higher prices or lower costs. It was, rather, an imperfection seeking perfection, and its nature continued to be a puzzle, indeed the more it was witnessed the more confounding and attractive it might become—​it was change that changed everything. To succeed, Böttger’s experiments require investment, meaning his imprisonment is no ordinary affair. From 1702 onwards he spends much of his time in a huge laboratory in Dresden called im Goldhaus, in the company of a gifted experimenter and mathematician E. W. von Tschirnhaus. The presence of von Tschirnhaus’s experience and equipmental reach had been another reason why Augustus felt able to take a punt on Böttger. In von Tschirnhaus, Augustus employs (not imprisons) a supremely capable mathematician and natural philosopher skilled in the use of burning lenses and parabolic mirrors who has already dedicated years to the study of another form of transmutation—​combining kaolin clay, quartz and alabaster, gypsum or feldspar into porcelain (Zumbulyadis 2010). Augustus’s abiding obsession is porcelain, the white ceramic that took translucent though adamantine form: it was, like precious metal, immune to decay, and its hard fragility refined this immunity to an almost metaphysical pitch. Self-​diagnosed with porcelain sickness, Augustus had not been content with owning as many pots as the oriental traders could supply (he died with a collection of over 35,000 pieces), he also craved the secret of its production, and von Tschirnhaus was obliging him in the quest. If von Tschirnhaus might discover the recipe for porcelain

Luxury and the Entrepreneur    111 which the Chinese so cleverly protected, so Böttger might discover that for silver and gold: After all, the materials were almost synonyms in the closed-​off language of an avaricious narcissist obsessed with creating a regal legacy of peerless strength, virility, and taste. And Böttger himself seems to have quickly caught on to Augustus’s motivations, albeit under duress, embodying what, referring to the entrepreneurial process, Reckwitz (2017: 98) argues is the ‘enormous affective intensity’ of working in ways that strain and occasionally break prevailing patterns, potentially to revitalize them. In their experimenting, neither Böttger nor von Tschirnhaus are acting alone. They are relying on a wealth of indigenous expertise: im Goldhaus has been long established in the Frieberg region as a centre of expertise in mining and mineralogy, and Augustus’s enthusiasm for pots is itself an intense line of flight from a wider, collective passion for, and interest in, metals, glass, and precious stones. A geologically obsessed culture and ecology sedimented in and around Dresden, as hard as the surrounding Bavarian mountains: im Goldhaus is its lodestone, a place of subtle, inimitable techniques and whispered chemical combinations that became a source of regional pride (Cho 2019). It is in this minerally obsessed setting that the experiments gain their traction as well as distinction. The entrepreneur always acts in the company of others. Though sharing the same space, the two experimenters are of different temperaments, so the arrival of Böttger in the laboratory has been a complication. According to a wonderful account of De Waal’s (2015), whilst von Tschirnhaus’s inquiries are diligent, patient, and intellectually reasoned, young Böttger’s are wildly intuitive, promising the earth and yielding dust. The proximity of clashing styles, however, becomes its own experiment, and gradually the more experienced man has been able to reign in and channel the impetuous apprentice who may, or may not, have transmuted metals, but whose capacity to act without the need for warrants and to work along the edges of plausibility is becoming of great value in a laboratory long sunk in stale procedure. Skeptical of alchemy, von Tschirnhaus is able to divert Böttger towards the more tractable task of making porcelain. And Böttger needs little persuading. Frustrated with his experiments and under pressure to deliver something, anything, he has been sending increasingly florid messages to Augustus, extravagant in his expectations but evading specifics. So why not throw in his lot with von Tschirnhaus, whose prospects seem altogether more rosy, not least because they were working on something that had been actually realized elsewhere, in the Far East. The entrepreneur recovers and transforms what is already known.

Entrepreneurial Genius What emerges, eventually, around 1707/​1708, from a particular mix of Saxon kaolin clay, alabaster, and quartz fused at 1450°C, is the translucent, white, porphyry-​hard body called porcelain. Augustus is ecstatic; alchemy gets put aside, for here is a cure to his Porzellankrankheit: He can have more, indeed as much porcelain as he wants,

112   Robin Holt because more is never enough. By 1710, Böttger and von Tschirnhaus have been joined by two more mineralists and naturalists to form a porcelain contuburnium (team) experimenting with clay mixes, kiln construction, and temperature; the experiments are becoming a manufacture (Queirioz and Agathopoulos 2005). During this transition, Böttger has been moved from the laboratory in Dresden to the fairytale absurdities of Albrechtsburg Castle in Meissen, still imprisoned, but now in a large factory. His job had been to oversee experimental mixing and firing, and now that it has borne fruit, it is being transformed into an enterprise: The company known as Meissen is being founded. Almost immediately, and sadly, von Tschirnhaus dies, leaving Böttger alone with the records of the test mixes and temperatures, with the experimental nous, and with the chutzpah to pull off a brazen elevation of himself to manufacturing figurehead. It is, for De Waal (2015: 193), the mathematical von Tschirnhaus, pupil of the glass-​grinding Spinoza and confidant of Leibniz, who has invented the first European porcelain: It is a product of patient experiment, learning, and collaboration. But it is Böttger who gets the recognition, gathering the audience and garnering praise from the elect, finally securing his release in 1714, dying in 1719, the year before Meissen trades under its marked brand. Böttger’s story (initially written in eulogy by his brother-​in-​law Johan Steinbrück), exhibits the characteristics both Schumpeter (1947) and Sombart (1913, 1967) attribute to the entrepreneur: a stubborn wilfulness and assertiveness which persists in the face of disapproval and indifference; an altered way of sensing and seeing things; and an emotional rather than just rational relation to the practices of discovering and scaling new products. In framing, the entrepreneurial role quite distinctly Schumpeter and Sombart are attempting to differentiate the entrepreneurial from technical and administrative development on the one side (which can be awfully dry by instituting repetition without difference) and invention on the other (which can be wildly erratic). Entrepreneurship, like an ancient virtue, occupies a golden mean: It is passionate but without the delirium, and it is organized, but without bureaucratic rigidity. Under the compelling force of entrepreneurship the novel spills into actual practice, and practices are gathered into new organisational forms. Somewhat erratically, and without forward planning, Böttger seems to have navigated such a golden mean, albeit always erring towards the inventive and relying on others to settle into more predictable organisation. In the wake of Böttger’s death, the early pieces being made by Meissen are plain, hesitant, quiet, but their miraculous translucence quickly makes room for enamelling and gilding, for ever more fanciful moulding, and for the use of mercury-​backed pink blush glazes. These pieces are then being assembled in collections and tea and dinner services to be placed by customers in display cabinets, along sideboards, and atop metropolitan and even provincial dining tables. The material revealed by the diligent and brilliant experimental intellect of von Tschirnhaus has been let loose by the tenacious, imaginative, and duplicitous Böttger. It has then been seized on by a royal collector whose Porzellankrankheit is advertised to an elite corps of visiting dignitaries upon whom Augustus festoons newly modelled pieces from his own industrial arcanum; revelling in the ceremonial fecundity of offering what he himself ‘discovered’, and which is decidedly and gloriously useless.

Luxury and the Entrepreneur    113 Yet it is not really useless; indeed, it comes to have lasting social function. In being distributed and displayed across Europe by the minor royals and ambassadors who have attended Augustus’ court, Meissen reveals itself as a desirable but also accessible object. As a factory it begins to produce multiples, that are for sale, and Meissen is being stitched into the savoir vivre of commercially active purchasers increasingly alive to how carefully selected and expensive objects of domestic display and use can hint at the ingenuity, refinement, and attainment of their owners (Berg 2005: 25). The most celebrated pieces at Meissen become those of Joseph Kändler, a sculptor brought in to service the capacious needs of Augustus who was planning the building of a magnificent porcelain palace that could boast a ceramic chapel complete with altar and life-​size apostles. But it is Kändler’s figurines from the Italian Commedia dell’Arte that are most distinct:  Columbine, Pulcinella, Pantaloon, and Harlequin. They are figures from satirical theatre:  playful, scurrilous, bedecked with tricks, distracting gestures, playful asides, cunning, and mirth. They are ostensibly servants, but they upset and belittle the stuck-​up ways of the elite and its orthodoxies; there is a profundity in their unruliness. Kändler’s modelling revelled in asymmetric poise and eccentric gesture, revealing an energy caught fast and held by the porcelain, a gesture of disturbance and shock forever on the cusp of its own dissolution. Is this the figuration of Böttger himself perhaps? The imprisoned servant whose promise of white gold teased the passions of his master, taunting him with promises of more whilst knowing that more is never enough. Harlequin is the entrepreneur figure, the one who changes lifestyles by goading them, disturbing them out of their complacency, using vague claims and vaguer commitments to offer a way through the confusion they have done much to create. Harlequin cannot be the mainstay, the ribbed force of order and control, and if it should appear in such a position it would be in parody, aping the sombre and refined pretensions of official form, much as Kändler has his porcelain models ape the gestures of the Laocoön group, the unearthed Roman copy of a Greek statue that was regarded by art academies as the most refined and elevated expression of civilized values ever to have materialized from human hands (Völkel 2011). Böttger, Kändler, Harlequin: All have about them an entrepreneurial irreverence for established order and values, a kind of mannered radicalism. If we liken Böttger to the Harlequin, it is as a provocation to Augustus which intensifies an already existing mania for the possession of luxury objects with which he might pillow himself against the realities of the world. Böttger, like many entrepreneurs, has an acute sensitivity to this compulsion to collect and own things; indeed, this is how he ends up in Augustus’s ‘service’, as yet one more possession. His survival and distinction come with his eventual submission to the situation: Though first he resists and tries to escape, he then realizes it is more productive to work in the brazen light of Augustus’s interests. And work he does. It is not as if Meissen is already there, waiting for him, like a vein of silver in the deep in the Bavarian hills: Meissen arises from his, and others’, work, coupled to an opaque flurry of happenstance off which his diligent experimenting riffs. Böttger is both powerless and canny, surviving his repeated failure by using pleading and promises in such a way that Augustus the investor is kept hanging, longing. Like

114   Robin Holt Harlequin, Böttger taunts and beguiles his master with the promise of a gilded future. He becomes himself a Meissen figure, Harlequin, who has about him the thing-​power to which even Electors like Augustus are subservient. He appreciates that Augustus’s largesse is bound by whim not reasoning, and that as a consequence investment decisions are being driven by an addiction that has to be kept in play so that he, Böttger, might organize, and be organized by, the means to meet it. He appreciates his harlequin role as a provocateur, the ‘other’ by which the establishment is delighted and against which it continues to measure its distinction.

A Market in Amiability Böttger’s own distinction comes in the twisting limbs of Kändler’s harlequins. They have their own effulgent excesses of sinuous and cunning experimenting fixed in clay, immune to decay, so that centuries later their force is as exacting upon the eponymous character in novel Utz (Chatwin 1988: 17) as it ever has been on the Elector of Saxony: It was at Céske Krížové that this precocious child, standing on tiptoe before a vitrine of antique porcelain, found himself bewitched by a figurine of Harlequin that had been modelled by the greatest of Meissen modellers, J. J. Kaendler. The Harlequin sat on a tree trunk. His taut frame was sheathed in a costume of multi-​coloured chevrons. In one hand he waved an oxidised silver tankard; in the other a floppy yellow hat. Over his face there was a leering orange mask. ‘I want him,’ said Kašpar. The grandmother blanched. Her impulse was to give him everything he asked for. But this time she said, ‘No! One day perhaps. Not now.’ Four years later, to console him for the death of his father, the Harlequin arrived in Dresden in a specially made leather box, in time for a dismal Christmas celebration. Kašpar pivoted the figurine in the flickering candlelight and ran his pudgy fingers, lovingly, over the glaze and brilliant enamels. He had found his vocation: he would devote his life to collecting—​‘rescuing’ as he came to call it—​the porcelains of the Meissen factory.

Chatwin’s novel gives the lie to those who would seek to explain commercial markets in luxury goods as a price-​bound interaction of demand and supply, as if the protagonists in trade were somehow able to momentarily disentangle themselves from sensation and passion to make perceptive decisions. It also gives the lie to those attempting to write off luxury products as trinkets and baubles. Utz’s luxury objects are larded with association, and they have an aesthetic force that belies their moulded manufacture. The coloured overglazes glisten, the postures are poised with the mischievous and lascivious wit of Kändler’s modelling, each figure and group an intimate unity from along whose edges spill stories and gossip about this or that courtier in Augustus’s palace, stories Utz knows intimately and is only too willing

Luxury and the Entrepreneur    115 to share. Then there are Utz’s stories of their purchase: the subterfuge and greed of the dealer, the patina of previous ownership, the accompanying bills and notes of provenance, the stretching of his finances, the feelings of disappointment and loss on having missed pieces at auction. The narrator tries to get Utz to expand upon their price, how much money he might have made, why he bought the piece in the first place, but knows there is no sensible reply. Like Augustus, Utz is caught in the market, and the market is a cultural creation of personality, symbolism, resentments, addiction, historical determination, aesthetic charm, material sensuality, and manipulation (Miller 2002: 225–​226). And no matter how comprehensively Utz appreciates this totality of conditioning force, the exact nature of his compulsion will still not emerge: It is not something from which he can emerge and gain a perspective. In Utz we have a collector for whom trade is a passion, an addiction, to which luxury is appending itself as the pilot fish lingers along the bows of a ship. ‘Who is leading who?’. It is a question that requires a response far beyond the reach of those analysts and researchers who presume to understand consumption through the framing of option sets, relative costs and benefits, rhetorical strategies or branding. In Utz’s case it seems to be a basic question of being: his ‘rescued’ Meissen figures are his only real interlocutors in life, a life that is stoically absorbing the repeated incursions of a socialist Czechoslovakian state system to which he is forced to ‘donate’ his collection on his death. Utz was once wealthy enough to outbid a Rothschild, but World War II snuffs out much of his largesse, and having escaped Germany, he finds himself living in Prague, his collection intact, though now shelved in a small flat: an innocuous concrete shell with iridescent interior. Like Böttger, he thinks about escaping, he even has enough put aside in a Swiss account and the odd piece of Meissen to make a new start in the West. Indeed, he manages to secure permission to visit Geneva, Vichy, and Paris, treating himself to lavish meals and spa hotels, contemplating the move. But he would have to leave the collection, to which he devoted his life, and which, having breached the limits of classification, has become his life. He returns to his Meissen. Utz hits here on the uneasy ‘thing-​power’ of some luxury things, uneasy because a luxury thing cannot fall back on any functional intimacy with a user to warrant its value: it does exist to meet needs. Luxury goods, as Utz has long known, are evaluated on the basis of signalled distinctions and comparison. The most basic of these distinctions was assumed to be between those who have and those who do not, and in the case of luxury this can get amplified to those who have more than enough (an abundance, through which they are indulged and can offer indulgences) and those who barely scrape by (a deficit, through which they are deprived). By pimping social distinctions luxury is associated with moral depletion and social unrest; it is, to use an adverb commonly applied by eighteenth-​century writers, vicious. These writers were observing the emerging popularity of goods like Meissen, and became concerned by the moral turpitude being carried in their wake. Others, however, among them David Hume, in his 1752 essay Of Refinement in the Arts, somewhat mischievously upended these concerns, arguing that the distinctions and comparisons signalled by luxury can actually enjoin rather than divide a people.

116   Robin Holt Progress in the mechanical arts and agriculture, Hume argues, allows people to create and enjoy objects of luxury as well as necessity, which in turn elicits feelings of involvement and creative complicity in makers and users alike. Hume notices how the wealth inherent in things, and notably luxury objects, extends to their affective force, a thing-​ power to which, without exaggeration, he ascribes a civilizing impress. Meissen can take its place alongside the other well-​chosen objects of the aspirant home, provoking conversation and eliciting aesthetic feeling that, in turn, contribute to an atmosphere of civility through whose affect liberty fuses with amiability, with pleasure, and with the free and open movement of ideas. As Cunningham (2005) notices, what is novel about Hume’s argument is his emphasis on the affective power of luxurious things which, if used appropriately, refine the gratification of human senses to the benefit of society. The invisible wealth of stocks and shares has no civilising force as it is not witnessed and elicits no cultural learning, and nor do the empty swathes of aristocratic landholdings.1 Whereas luxury objects do have such force. For some, like William Hazlitt, a brilliant critic of Hume, such objects are rare, indeed limited to the masterpieces of high art found in connoisseurs’ collection. The trinkets of the marketplace designed to distract the eye rather than arrest the mind have no such claim (see Richter 2008). Hazlitt’s tasteful elitism made little room for the gaudy, effeminate objects of the shop, bought objects, which he associated with distraction, indolence and exotic excess. Hume is more sanguine, more expansive in his sensibility, more democratic in his association of shop bought objects and affective power. Luxury objects—​those serving ornament—​arouse a passion for living, and when set amid human gatherings can provoke and sediment civilized conversation where knowledge mingles with wit, and manners vie with provocation. Hume (1752/​1987b: II,II, 5) has in mind the commercially-​charged salon society of his native Edinburgh, newly prosperous, its town houses replete with bourgeois attainment, its citizens caught on uplifting currents of aesthetically formed mutual esteem which then descends steadily, sedimenting as style. The more these refined arts advance, the more sociable men become: nor is it possible, that, when enriched with science, and possessed of a fund of conversation, they should be contented to remain in solitude, or live with their fellow-​citizens in that distant manner, which is peculiar to ignorant and barbarous nations. They flock into cities; love to receive and communicate knowledge; to show their wit or their breeding; their taste in conversation or living, in clothes or furniture. Curiosity allures the wise; vanity the foolish; and pleasure both. Particular clubs and societies are everywhere formed: Both sexes meet in an easy and sociable manner; and the tempers of men, as well as their behaviour, refine apace. So that, beside the improvements which they receive from knowledge and the liberal arts, it is impossible but they must feel an increase of humanity, from the very habit of conversing together, and contributing to each other’s pleasure and entertainment. Thus industry, knowledge, and humanity, are linked together by an indissoluble chain, and are found, from experience as well as reason, to be peculiar to the more polished, and, what are commonly denominated, the more luxurious ages.

Luxury and the Entrepreneur    117 Hume grants that in some—​in figures such as Augustus—​luxury so monopolizes a character they lose any sense of generosity and collective refinement: their luxury objects are, like the pool of narcissus, reflecting back and re-​enforcing a gilded circle of self-​ idolatry. But even in Augustus’ case the vicious luxury is preferable to sloth and idleness (II, II, 2), it creates the employment at Meissen and catalyses the porcelain industry in Europe. Augustus presides over a culture of courtly life in which manners mixed with excess, sensuousness with formality, and production with the spectacle, legitimating a spirit of luxuriousness that then licenses the fulsome and even excessive pursuit of owning things—​the goods—​by which that spirit is enriched and spread. Indeed, according to Sombart (1913/​1967) it is nobles like Augustus, and entrepreneurial figures like Böttger who, in creating manufacturers like Meissen, originate capitalism, origins that were cultural as much as they were economic. And it was of Meissen porcelain, and other cultural objects of taste, that Hume is thinking when talking of townsfolk enjoined in more innocent and hence productive forms of luxury, ones where pleasure is enjoyed in the society of those appreciative of finery and the collective civilising force through which it is instituted. Pleasure is being admitted as something quite basic for human relations, an emotion leading to the intimacy of mutual appreciation, friendship and civility. For Hume, luxury works because it connects our selfish inclinations to ‘own’ things of value with a passionate and so active sensibility; it reflects and encourages an urge not only to make and possess but also display and receive others’ approbation, to elicit their comment and to foster a culture of refinement. Far from being enervating, luxury can be socially animating; and through its active pursuit, properly managed through manners, society at large is enriched. This is especially so with quality porcelain: a prestige, expensive yet still accessible commodity for the aspiring middle classes that can be used and displayed: the cup and saucer held with polite poise during a conversational pause over afternoon tea; inwardly the objects hold newly imported tea, whilst outwardly they are adorned delicately, perhaps with sprouting sprigs of spring, the pale buds hinting at new possibility (see Berg 2010). It is in such rather ordinary ways that Hume finds luxury conferring a sense of belonging, as Virginia Woolf confirms centuries later in A Room of One’s Own (1929: 19), having found herself overlooking the city of Oxford: It was very beautiful, very mysterious in the autumn moonlight. The old stone looked very white and venerable. One thought of all the books that were assembled down there; of the pictures of old prelates and worthies hanging in the paneled rooms; of the painted windows that would be throwing strange globes and crescents on the pavement; of the tablets and memorials and inscriptions; of the fountains and the grass; of the quiet rooms looking across the quiet quadrangles. And (pardon me the thought) I thought, too, of the admirable smoke and drink and the deep armchairs and the pleasant carpets: of the urbanity, the geniality, the dignity which are the offspring of luxury and privacy and space.

Woolf, though, is observing a society less mobile than the one Hume hoped for, a society of exclusion in which urbanity, geniality and dignity remained utterly class-​based,

118   Robin Holt and were more male than female experiences. Indeed, as Woolf wistfully notes, if women are noticed at all in bourgeois society, it is as luxury items parading the drawing rooms as mobile extensions of the household cabinet of curiosities. They do not belong to academia or commerce or politics; luxury has them trapped as objects. As to the working majority, the masses that Woolf herself is accused of ignoring, they too, given they are required to maintain their station in life, feel little from the offspring of luxury.2 They too are kept out by the sumptuary styles in which they had no schooling. It appears that the commerce of gentility can harden into something far less amiable and more exploitative than Hume seems prepared to admit. Rather than beckoning people into civil society, luxury can refuse them, more a barrier than gateway, protecting those for whom living and living well are one and the same, and for whom luxury items are signals of distinct, impermeable style. Yet the imagined possibility of a character like Utz belies this stratified reading of luxury. With Hume and Woolf we are made aware that, as a cultural creation, the marketplace is a space of symbols, signs bearing meaning that direct us toward signified things, and in the process creating a network of material objects, evaluations and possibilities for their active management. Yet Utz’s Meissen pieces resists being reduced to such signified things. They have a price, they are bought, sold and stored in vaults, they are displayed and jealously guarded, they are used and used again, but they are never used up. They overspill categories, somewhat wantonly, unwilling to conform fully to the movement prescribed by style. As pieces of entrepreneurial genius their affective reality goes beyond the capacity of signs to reach them, and Utz’s being is as much enveloped in this inscrutability as it is the practice of collecting, to which he is expertly submitting himself. Their affective power releases Utz from class divisions that have been breached by what Reckwitz (2017: 187) calls a ‘sensuous, affective aestheticisation’ inherent to the thing itself, an affective force with its own métier, stretching beyond the above/​below binary of social status.

Luxury Thing-​Power Luxury things can fend for themselves, they do not need organising, indeed by definition they transgressed their allotted and hence mute status as one item or other. To take up an observation of Georges Bataille (1988: 129), luxury objects upset the capitalist impulse ‘to place what is essential—​what causes one to tremble with fear and delight—​ outside the world of activity, of things’, they restore the sense of provocative intimacy that had been organized into a world of the outside, a world of metaphysical gods, back to the realm of things. It is this sensory and aesthetic capacity of luxury goods that affords ‘users’ the opportunity to breach prevailing styles and practices, and to embody a disturbing mobility that can rationalise what might, on the surface appear, absurd. Utz senses how Meissen sits on this fault line, or some pieces do. Born from the privileged, erotic delinquency of Augustus, and bourn along by the entrepreneurial zeal and skill of Böttger, Meissen crosses swords with the world, not simply as a brand, but as

Luxury and the Entrepreneur    119 things refusing to be understood, either as an amalgam of smaller components such as raw materials, or as part of broader social forces such as symbolic orders; they have what Bennett (2010: 4–​17) calls thing-​power. Though the figures are being repeated, becoming multiple units made on moulded platforms, and so risk being little more than Hazlitt’s gaudy, showy trinkets, they also resist this categorization. Especially when Kändler comes along. He, being a genius, makes irresistible harlequins: the limbs kick out, and both the raw materials and the market brand have to yield to the thing itself, giving way to an unruly, delightful being that must be touched, gazed at, remembered, forever gathering toward it the stories of multiple ‘rescues’, without its potency ever being exhausted or depleted, always transgressing what is expected, and compelling those in their company to do likewise, to become entrepreneurial. Utz understands the distinction between luxury goods with thing power and those that are just wanton. He is visiting Vichy and searching for ‘where to find the best “quenelles aux écrevisses”, the best “cervelas truffé” or a “poulet à la vessie”.’ He settles on a meal of trout covered in Gruyère cheese and stuffed sucking pig, yet comes ‘to a depressing conclusion: that luxury is only luxurious under adverse conditions.’ (Chatwin, 1988). Not the adversity of impersonal rules but of living alongside his figures. He remembers one figure in particular, a line of flight from Meissen, a spaghetti-​eating Pulchinella made in Naples at a factory founded in 1739 by Queen Maria Amalia of Naples, granddaughter of Augustus: The spaghetti was a marvel. Pulchinella’s nose was a marvel. The enamels surpassed in subtlety the colours of Meissen. He had done the right thing. It was cheap. Cheap, when one thought of it. Besides, he adored it! And when the time came to return it to its stainless-​steel coffin, he hesitated. ‘No,’ he told himself. ‘I cannot leave it here.’ Thus, when others were bent on smuggling out of Czechoslovakia, in diplomatic bags or a foreign friend’s suitcase, any article of value they could lay their hands on —​a snuffbox, an ancestral decoration, or a vermeil dessert service, fork by fork —​Utz embarked on the opposite course. ‘I smuggled it in,’ he whispered. (Chatwin 1988: 79)

Utz’s transgressive move rescues Pulchinella from coarse dealers, from duplicitous auction houses, from illiterate collectors, and from the denatured existence led by objects in a museum (Chatwin 1988: 20), all of whom are caught fast in an ever-​expanding affective circulation of diverting, distracting and attention-​grabbing signs, signs that are stamped on the base, carrying the promises of prestige motivated by envy laced with an espoused appreciation of skill. Whereas he, Utz, wants nothing other than the company of the figures, his 7-​inch high friends. This is the adversity he aches for: the impenetrable presence of what resists markets (Berger, 1972: 152–​154; Thomas, 2007), but which we might still call entrepreneurial.

120   Robin Holt Sitting in his French restaurant Utz’s depression is emerging from a disgust at freedoms to which there are no constraints, no edges, no definition: just more, aware, like Augustus, that more is never enough. On returning to Prague and his Meissen, however, Utz is still troubled. He realizes his wish to be simply in the company of his enigmatic, hard paste figures is unrealistic, they are re-​exerting the power of snobbery. Far from retaining their enigma, they begin speaking to him, encouraging him to think of himself as an expert, one who knows how the ancient tales from China equate unblemished porcelain with the inscrutable justice of wise Emperors, one who knows that Böttger had hung a sign above his workshop: God, Our Creator Has Turned a Goldmaker into a Potter, and who knows that this turn from metal to clay was no turn at all, for the materials are intimate, and both serve the alchemist’s real objectives of wealth, invulnerability and immortality. Utz is worrying that the figures are, after all, not at all adverse in their presence, that they are beginning to seduce him into thinking himself distinct from the ordinary swell of events, into thinking himself above others. The figures are proving too comforting. Perhaps they should be destroyed? Maybe the wake of such destruction reveals the real quality of luxury: The true luxury and the real potlatch of our times falls to the poverty stricken, that is, to the individual who lies down and scoffs. A genuine luxury requires the complete contempt for riches, the sombre indifference of the individual who refuses work and makes his life on the one hand an infinitely ruined splendour, and on the other, a silent insult to the laborious lie of the rich (Bataille, 1988: 76–​77),

Maybe this is the ultimate entrepreneurial act, one revealing how monetary wealth and privilege and courtly manners matter not one jot? This revealing has two aspects. First, it shows how expressions of wealth are necessarily evanescent, contingent on agreements, whereas things, the permanent timeless things of luxury made by Kändler and his ilk, transgress and mock this flux. Second, it shows how the undiminishing permanence of such things itself becomes a valued and vaunting quality, a seduction that is irresistible, as the narrator in Chatwin’s novel has witnessed when watching Utz with his figures: One by one, he lifted the characters of the Commedia from the shelves, and placed them in the pool of light where they appeared to skate over the glass of the table, pivoting on their bases of gilded foam, as if they would forever go on laughing, whirling, improvising. Scaramouche would strum on his guitar. Brighella would liberate people’s purses.  . . .  And Harlequin  . . .  The Harlequin  . . .  the arch-​improviser, the zany, trickster, master of the volte-​face  . . .  would forever strut in his variegated plumage, grin through his orange mask, tiptoe into bedrooms, sell nappies for the children of the Grand Eunuch, dance in the teeth of catastrophe  . . .  Mr Chameleon himself! (Chatwin, 1988: 94)

Luxury and the Entrepreneur    121 The only way out for Utz, the only move left, is to reintroduce time once more by smashing the figures, a creative destruction, clearing the ground for the making of new history.

Conclusion Schumpeter and Sombart acknowledge creative destruction is neither common nor easy. By definition what is newly emerging cannot be predicted or read off from the past, and so is experienced as a disturbance, one typically met with resistance and attempts at correction. Rather than accede to correction entrepreneurship is the experience of pushing on, sensing how things could be otherwise, and attempting to organize things and relations differently as a consequence. If the effort takes hold there can be no going back, the world looks a little different. The story of Meissen tallies with but then diverts from Schumpeter’s and Sombart’s conceptual framing. Perhaps most tellingly it reveals creative change to be a more haphazard, collective and embedded experience than either Schumpeter or Sombart envisage but which nevertheless conforms in part to their ideas. Meissen’s emergence conforms with Sombart and Schumpeter’s theory of entrepreneurship in four ways. First, people think and behave differently: No longer dependent on imports from the Far East, a broader class of porcelain consumers become increasingly confident that they too have taste, not just their aristocratic betters. This social fluidity emerges because of manufacturing enterprises like Meissen: the capacity to experiment with and then scale the making of hard paste porcelain makes an object of taste increasingly available in a wider market. Second, the characters in the story seem to embody the slightly idealized traits that excited both Schumpeter and Sombart. Here Böttger stands out. Without the comforts of settled social status he has skill and wit enough to understand the chemistry of both materials and human credulity. He is also aware of his own limits, coming to absorb rather than resent his condition of forced labour. Indeed his confinement seems to have become a provocation which afforded him the space for innovation and imagining new ways of experimenting (Spinosa et al., 1997). Third, as Schumpeter and Sombart admit, the entrepreneur never acts alone. Böttger is nothing without the paired motive force of an entitled aristocrat’s well financed obsession (in this story there was no opposition from the establishment figures, indeed positive encouragement) and a gifted and learned experimenter, himself schooled in broader setting of humanist enquiry. This pairing is further supplemented by an entire region steeped in the lore of mining and mineralogy. Schumpeter and Sombart allow for and indeed laud such a constellation of differing sources of creative but unmanaged energy. And fourthly, it is a story riven with accident, happenstance, open conjecture, and luck. There is very little in the way of overplanning. Though central to the story, Böttger is at no point in control of anything, indeed no one seems to be. There is no

122   Robin Holt management. An avaricious Augustus is creating an atmosphere of bullying excitement, a diligent von Tschirnhaus is insisting on experimental procedure, and Böttger seems to be just surviving, and it is from this slightly wild crucible that a luxury object breaks free, unorganized, profaning its own subjectivity, without need of mediating warrants or explanations. The story, however, also unsettles the spirit of Schumpeter’s and Sombart’s argument, or perhaps, better put, its conformity reveals the somewhat conformist nature of creative destruction. Even though the market for luxury goods can be vaporous and elusive in its excitements, it is far from transgressive. Indeed, as Hume was keen to point out, the shift in style is more an extension of social virtues, not a transformation. It is adornment of aspiration, luxury sustains social and cultural ties, it does not loosen them (Thomas, 2007). To associate entrepreneurship with an unpredictable and underdetermining destruction of the old orders, and to talk of entrepreneurs as mercurial figures of transgression able to uproot and yet resettle human practice, is to ascribe it a political and social power that it rarely evinces, or even desires. The destructive force is more fireworks than it is guns. To the extent that figures like Böttger do disturb and unsettle, they do so within the confines of an established order looking to further sediment itself. Schumpeter (1943/​2003: 134) and Sombart are sensitive to these limits, indeed they seem to encourage them: the idea being to contain and direct entrepreneurial energy. Böttger is an almost perfect embodiment of this excited restraint. The harlequin Utz, however, seems too unruly, and in the interests of maintaining the integrity of Schumpeter’s and Sombart’s theory, it is best he remain the fiction that he is.

Notes 1. Hume (1987a: II, IX, 23) categorizes stockholders as an enervating, wanton class: [T]‌hese are men, who have no connexions with the state, who can enjoy their revenue in any part of the globe in which they choose to reside, who will naturally bury themselves in the capital or in great cities, and who will sink into the lethargy of a stupid and pampered luxury without spirit, ambition or enjoyment.’ He is similarly critical of those looking to use luxury to preserve their privilege, for example the use of sumptuary laws that rule by decree who is able to wear certain colours (regal purple), material (ermine) and insignia (heraldry), and where (see also Hooper 2015). Luxury should excite, not curtail commerce. 2. John Cary, for example, argues that Woolf found workers a class to be shunned, not individuals to be allied with. Even on its own empirically restricted terms his argument is somewhat egregious, given that in the very act of shunning comes a disturbing acknowledgment that workers must now be counted on, and encountered, rather than simply ignored. Moreover, as Cary (2000) himself acknowledges, in A Room of One’s Own Woolf irresistibly criticizes the snobbery of her own class.

Luxury and the Entrepreneur    123

References Bataille, Georges. 1988. The Accursed Share:  An Essay on General Economy. New York: Zone Books. Bennett, Jane. 2010. Vital Materialism:  A Political Ecology of Things. London:  Duke University Press. Berg, Maxine. 2010. “Britain’s Asian Century:  Porcelain and Global History in the Long Eighteenth Century.” In Birth of Modern Europe—​Culture and Economy, 1400-​1800: Essays in Honor of Jan de Vries. Edited by Laura Cruz and Joel Mokyr, 133–​156. Leiden, The Netherlands: Brill. Berg, Maxine. 2005. Luxury and Pleasure in the Eighteenth Century. Oxford:  Oxford University Press. Berger, John. 1972. Ways of Seeing. Harmondsworth, UK: Penguin Books. Beyes Timon, Jana Costas, and Günther Ortmann. 2019. “Novel Thought: Towards a Literary Study of Organization.” Organization Studies 40, no. 12: 1787–​1803. Cary, John. 2000. Pure Pleasure:  A Guide to the Twentieth Century’s Most Enjoyable Books. London: Faber. Chatwin, Bruce. 1988. Utz. London: Jonathan Cape. Cho, Hee-​Kyoung. 2019. “Goryeo Celadon.” In A History of Intellectual Property in 50 Objects. Edited by Claudy Op den Kamp and Dan Hunter, 8–​15. Cambridge, UK:  Cambridge University Press. Cunningham, Andrew. 2005. “David Hume’s Account of Luxury.” Journal of the History of Economic Thought 27, no. 3: 231–​250. De Waal, Edward. 2015. The White Road. London: Chatto and Windus. Dimov, Dimo. 2017. The Reflective Entrepreneur. London: Routledge. Gleeson, Janet. 1998. The Arcanum. London: Bantam Books. Hooper, Wilfrid. 2015. “The Tudor Sumptuary Laws.” The English Historical Review 30, no. 119: 433–​449. Holt, Robin, and Mike Zundel 2018. “Using Fiction in Organization and Management Research.” In Unconventional Methodology in Organization and Management Research. Edited by Alan Bryman and David Buchanan, 45–​63. Oxford: Oxford University Press. Hume, David. 1987a. “Of Public Credit.” In Essays: Moral, Political, and Literary. Part II. Edited by E. Miller, 349–​366. Indianapolis, IN: Liberty Fund. Hume, David. 1987b. “Of Refinement in the Arts.” In Essays: Moral, Political, and Literary. Part II Edited by E. Miller, 268–​282. Indianapolis, IN: Liberty Fund. Levine, Caroline. 2015. Forms: Whole, Rhythm, Hierarchy, Network. Princeton, NJ: Princeton. University Press. Miller, Danny. 2002. Turning Callon the Right Way Up. Economy and Society 31, no. 2: 218–​233. Penrose, Edith. 1959. The Theory of the Growth of the Firm. Bloomington:  Indiana University Press. Queiroz, Carlos Araújo, and Simeon Agathopoulos. 2005. “The Discovery of European Porcelain Technology.” In Understanding People through Their Pottery (Trabalhos de Arqueologia; No. 42). Edited by Isabel Prudencio, Isabel Dias, and Joao Warenborgh, 211–​215. Lisbon: Instituto Português de Arqueologia. Reckwitz, Andreas. 2017. The Invention of Creativity. Translated by Stephen Black. London: Polity Press.

124   Robin Holt Reinert, Erik. 2003. “Steeped in Two Mind-​sets. Schumpeter in the Context of the Two Canons of Economics.” Joseph Schumpeter: Entrepreneurship, Style, Vision. Edited by Jürgen Backhaus, 261–​292. New York: Kluwer. Richter, Anne. 2008. “Spectacle, Exoticism, and Display in the Gentleman’s House: The Fonthill Auction of 1822.” Eighteenth-​Century Studies 41, no. 4: 543–​563. Riot, Elen. 2019. “Patterns of Intention:  Oberkampf and Knoll as Schumpeterian Entrepreneurs.” Entrepreneurship & Regional Development 31, nos. 7–​8: 623–​651. Schumpeter, Joseph. 1947. “The Creative Response in Economic History.” Cambridge Journal of Economics 7, no. 2: 149–​159. Schumpeter, Joseph. 2003. Capitalism, Socialism and Democracy. London: Routledge. Schumpeter, Joseph. 2006. The History of Economic Analysis. Edited by Elizabeth Brody Schumpeter. London: Routledge. Spinosa, Charles, Flores, Fernando, and Hubert Dreyfus. 1997. Disclosing New Worlds. Cambridge, MA: MIT Press. Sombart, Werner. 1913. Krieg und Kapitalismus. Munich: Duncker and Humblot. Sombart, Werner. 1967. Luxury and Capitalism. Translated by W. R.  Dittmar. Ann Arbor: University of Michigan Press. Suddaby, Roy, Gary D. Bruton, and Steven X. Si. 2015. “Entrepreneurship through a Qualitative Lens:  Insights on the Construction and/​or Discovery of Entrepreneurial Opportunity.” Journal of Business Venturing 30, no. 1: 1–​10. Thomas, Dana. 2007. Deluxe: How Luxury Lost Its Lustre. London: Allen Lane. Völkel, Michaela. 2011. “Laocoön in Disguise:  Johann Joachim Kaendler and the Art of Antiquity.” Haughton International. https://​www.haughton.com/​articles/​2011/​6/​16/​ laocon-​in-​disguise-​johann-​joachim-​kaendler-​and-​the-​art-​of-​antiquity. Wadhwani, Dan, and Geoffrey Jones. 2013. “Schumpeter’s Plea:  Historical Reasoning in Entrepreneurship Theory and Research.” In Organizations in Time: History, Theory, Methods. Edited by Marcelo Bucheli and Dan Wadhwani, 192–​216. Oxford: Oxford University Press. Woolf, Virginia. 1929. A Room of One’s Own. London: Hogarth Press. Zumbulyadis, Nicholas. 2010. “Böttger’s Eureka! New Insights into the European Reinvention of Porcelain.” Bulletin for the History of Chemistry 35, no. 1: 24–​32.

PA RT I I

P RODU C I N G LU X U RY

Chapter 7

Luxury Supply C ha i n M anage me nt Alessandro Brun and Hakan Karaosman

The turn of the century was characterised by the globalisation of markets, extreme levels of outsourcing of activities, customers asking for more innovative and customized products in small volumes, with high quality and high service level, in an unpredictable way. All these changes had a major impact on both managerial research and practice, leading to the birth and growing importance of supply chains and networks (Harland et al. 2006; Squire et al. 2006). Supply chain management (SCM) emerged as fundamental in order to remain competitive in a context where most activities are outsourced and the interplay of multiple actors is critical to ensure the delivery of products to the customer (e.g., Stevens 1990). In other words, SCM rapidly evolved from being a ‘necessary evil’ to the now-​well-​established status of source of competitive advantages (Hines and McGowan 2005). The luxury industry was not spared by the aforementioned changes. Operating in a sector in which quality is paramount, luxury firms had to find ways to increase control over the supply chain, in order to guarantee the same standards which once were easier to achieve due to local production, smaller volumes, and less complexity. If we look at the graph shown in Figure 7.1, excerpted from the Bain & Co and Altagamma’s yearly report on the market of luxury, the constant growth of the personal luxury goods market over twenty years is stunning. The market of personal luxury goods ‘exited from the temple’ in the mid-​1990s (Nueno and Quelch 1998) to become a full-​ fledged industry—​and the top ten luxury good companies (which, according to Deloitte 2020, include giants such as LVMH Moët Hennessy-​Louis Vuitton SE, the Estée Lauder Companies Inc., Compagnie Financière Richemont, Kering SA, Luxottica Group SA, and, the Swatch Group Ltd.) have become powerhouses owning several brands and featuring a growing yearly turnover of tens of billions of US dollars. Bain and Company (2020) forecast the market to reach between €320 and €365 billion by 2025. It is not surprising that scientific research focused on the concept of luxury and luxury management has a long history. One of the most quoted books is The Theory

128    Alessandro Brun and Hakan Karaosman Personal Luxury Goods Market Size

€245B €244B

€254B €260B

€219B €207B €212B €186B

€116B €122B €122B €120B €76B

€84B €88B

€128B

€139B

€150B

€161B €159B

€167B €147B

€98B

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Figure 7.1.  Personal luxury goods market growth 1996–​2020(E). Source: Data from Bain & Company (2020).

of the Leisure Class (Veblen 1899). At the moment of writing this chapter, the Scopus database contains 1,688 documents having ‘luxury’ as a keyword, but the research on luxury SCM is still relatively new and limited. Researchers in the disciplines of marketing, retailing, and sociology studied luxury management with greater emphasis placed on consumer behaviour and the front-​end activities of the brand—​commercial, marketing, brand management and customer relationship management, than on the back-​end activities—​purchasing, manufacturing, and logistics, which are studied by SCM scholars. One relevant area of interest for researchers studying the front-​end side of the business is related to the mechanisms employed in the luxury industry to create brand reputation and, in turn, transform it into a source of value. With the ‘mass marketing of luxury’, brands’ activities have been focused on building prestige and establishing brand image (with monobrand stores in the luxury shopping capitals of the world, and the highest-​priced items), which would then allow the extension of the distribution to smaller cities and thereby reaping the benefits of a broader mass market especially via lower-​priced items (Nueno and Quelch 1998). Yet, as the American journalist Dana Thomas notes in her book Deluxe: How luxury lost its luster, since the 2007–​2008 global financial crisis, luxury businesses, like businesses more generally, have had to rethink their strategies including the management of their global supply chains (Thomas 2008). For this reason, it is relevant to provide a synthesis of the research on luxury SCM, highlight the critical success factors (CSFs) for luxury companies at a supply chain level, explain why the new trends are placing a lot of stress on supply chain managers in this industry, and illustrate—​through case studies and examples—​how luxury companies are being organised in response to current conditions. The remainder of the chapter will be organised as follows: first, we will introduce the concepts of supply chain and SCM, highlighting the most relevant definitions, and then provide a brief review of the extant literature specifically focusing on luxury SCM. A discussion of luxury SCM CSFs will follow. The core section of the chapter considers

Luxury Supply Chain Management    129 three clusters of companies that form around typical structures evident in luxury supply chains, and investigates the sources of complexity apparent within such structures. An account of main trends, best practices, and future scenarios will complete the analysis.

Introducing Supply Chain Management The concepts of supply chain (SC) and SCM have been studied by researchers and practitioners, with a constantly growing number of scientific papers being published since the 1980s. The rise of attention to these topics is linked to the critical role of SCM in many industries today. The role of SCM has increased as a result of the growing complexity of the market, due to factors such as (a) customer demand volatility; (b) request for new products, more variety, faster processes; (c) internationalisation and market globalisation, leading to the need to cut costs and to challenges concerning international compliance. Furthermore, recent trends in the industrial footprint of many companies created complexity on the upstream side of the supply chain: (a) offshoring production activities in low-​labour-​cost countries (LLCC), (b) externalisation of production activities outsourced to external suppliers (often carrying out offshoring and outsourcing simultaneously), (c) new process technologies and manufacturing paradigm, such as Just-​in-​Time, (d) new organisational forms, including ‘Virtual Enterprises’ (made possible thanks to the accessibility of information and communications technology (ICT) solutions), further stressing the need for coordination among actors. The aforementioned trends clearly show that the firm is not a stand-​alone entity but, rather, part of a network of interconnected firms. Optimising internal processes is no longer enough: Managers now need to control processes going beyond the boundaries of the company. ‘There is a growing recognition that individual businesses no longer compete as stand-​alone entities but rather as supply chains’ (Christopher 2000: 39). The relevance of SCM issues led to the creation of a number of organisations and institutions where managers, consultants, and academicians joined forces to collaborate to create cross-​industry standards and to support SC managers managing their complex appointments. Established in 1957 by twenty prominent production control managers, the American Purchasing and Inventory Control Society (APICS) supported companies in their growing need for rigorous methodologies and reference frameworks (most noticeable, the production planning and control process) and training and certification of supply chain professionals. Another prestigious not-​for-​profit institution is the supply chain council (SCC), which developed the supply chain operations reference (SCOR) model in 1996. The SCOR model describes the business activities associated with satisfying a customer’s demand (namely, Plan, Source, Make, Deliver, Return, and Enable), and is arguably the cross-​industry, global standard framework for SCM. In 2014, APICS and SCC merged, to become the most prominent SCM institution on a global scale. Founded in 2019 and built upon APICS global standard, the Association for Supply Management (ASCM) aims to become the global leader in supply chain organisational

130    Alessandro Brun and Hakan Karaosman transformation, innovation, and leadership, showing that the interest in the topic is still alive (www.ascm.org). To better understand what set of practices goes under the SCM umbrella, it is important to go through some of the most quoted works defining SC and SCM. The APICS Dictionary (American Purchasing and Inventory Control Society 2020) defines a supply chain as: • The processes from the initial raw materials to the ultimate consumption of the finished product linking across supplier-​user companies; and • The functions within and outside a company that enable the value chain to make products and provide services to the customer. An early definition from the SCC stated: The Supply Chain—​ a term increasingly used by logistics professionals—​ encompasses every effort involved in producing and delivering a final product, from the supplier’s supplier to the customer’s customer. Four basic processes—​Plan, Source, Make, Deliver—​broadly define these efforts, which include managing supply and demand, sourcing raw materials and parts, manufacturing and assembly, warehousing and inventory tracking, order entry and order management, distribution across all channels, and delivery to the customer. (Supply Chain Council 1997)

Quinn defines the supply chain as ‘all of those activities associated with moving goods from the raw-​materials stage through to the end user. This includes sourcing and procurement, production scheduling, order processing, inventory management, transportation, warehousing, and customer service. Importantly, it also embodies the information systems so necessary to monitor all of those activities’ (Quinn 1997). Following the trend of a growing customer orientation, Childerhouse et  al. (2002) introduces the concept of ‘demand chain’, originally defined by Brace (1989, quoted in Childerhouse et al. 2002: 675) as: ‘the whole manufacturing and distribution process may be viewed as a sequence of events with one purpose: to serve the ultimate customer’. The set of managerial processes in a SC are typically referred to as supply chain management. According to Cooper and Ellram, SCM is ‘an integrating philosophy to manage the total flow of a distribution channel from supplier to ultimate customer.’ (Cooper and Ellram 1993: 13), whereas integrated SCM, according to Monczka and Morgan, ‘is about going from the external customer and then managing all the processes that are needed to provide the customer with value in a horizontal way’ (Monczka and Morgan 1997). They propose that SCs as a whole should compete between each other, not single firms; thus, those who will be the strongest competitors are those that ‘can provide management and leadership to the fully integrated supply chain including external customer as well as prime suppliers, their suppliers, and their suppliers’ suppliers’ (Monczka and Morgan 1997).

Luxury Supply Chain Management    131 From these definitions we can gain an all-​encompassing view, according to which the concept of SC concerns all the activities involved in transforming raw materials and components in space, time, and matter, in order to obtain economic goods (end products):  These activities include, according to the summary definition given by Lummus and Vokurka, sourcing raw materials and parts, manufacturing and assembly, warehousing and inventory tracking, order entry and order management, distribution across all channels, delivery to the customer, and implementing and adopting the information systems necessary to manage and monitor all of these activities. (Lummus and Vokurka 1999: 2)

Thus, modern and effective SCM integrates in a seamless way all these activities into a single, encompassing set of processes. SCM is then needed to link all of the actors along the SC: various department within the company, suppliers, subcontractors, distributors, third-​party logistics providers (carriers, warehouses), consultants, and information systems providers. Managers of the companies should have an alignment of goal and interests and work together in order to create a whole SC that is as competitive as possible. Technology can support managers to collect information about the markets, manage processes, and control the flows of activities along the chain in a transparent way. Furthermore, the concept of SC is linked to the concepts of global commodity chains and of global value chains. According to Gereffi (2014), the recent trend of market globalisation could be divided into different eras: first was the era of manufacturing-​ driven product chains, in the 1970s and 1980s, followed by a shift in focus, with the so-​ called customer-​driven chains; since the 2000s a new paradigm emerged, which Gereffi refers to as global value chains. Today the organisation of the global economy is entering yet another phase, characterised by a number of major changes—​in particular verticalisation and value chain concentration (Gereffi 2014), which, as we will illustrate in the following section, are trends that also characterise the luxury industry worldwide.

Scientific Research on Luxury Supply Chain Management Luxury is one of the concepts that has fascinated mankind since ancient times. Nowadays, in mature economies, ‘luxury is everywhere’ (Kapferer and Bastien 2009) and today ‘nouveau riche consumers and entrepreneurs can afford to indulge in the purchase of luxury brands’ (Nueno and Quelch 1998). The phenomenon of middle-​class consumers saving money on ordinary expenses in order to be able to afford some luxury goods is referred to as ‘trading up’ (Silverstein et al. 2003). Luxury is no longer a privilege

132    Alessandro Brun and Hakan Karaosman of a few, but rather it is accessible to a large portion of population:  this justifies the growing interest in the topic recently shown by the scientific communities including sociology, since the seminal work of Thorstein Veblen (Veblen, 1899), marketing (Kapferer 1997; Nueno and Quelch 1998; Quelch 1987), and operations and SCM, where the luxury sector ignited the interest of researchers much later, with the first papers appearing in 2008 (Brun et al. 2008; Brun and Castelli 2008). Given the paucity of research concerning luxury SCM (to date, a keyword search on the Scopus database of all papers containing both ‘luxury’ and ‘supply chain’ in the keywords will provide just thirty-​nine documents, one-​third of which have been published in just the past three years), especially in comparison with the abundant production of academic publications on SCM in general and its application to such industries as automotive and fast moving consumer goods, the reader might be interested in reading on, to find the answer to the following questions: • If the overarching goal of any supply chain is to coordinate the flow of materials and information, in order to deliver end products to the final customer in an efficient and effective way, what are the specific goals of a luxury supply chain? • What is the anatomy of the typical luxury supply chain? How are companies organized along the chain, and how do they interact with one another? • What are the main criticalities and sources of complexity in luxury SCM, and how is luxury SCM evolving to face these challenges?

Luxury Supply Chain Management Critical Success Factors Lately, three papers provide interesting reviews of the most prominent scientific works attempting to define the concept of luxury (Brun and Castelli 2013; Kapferer and Michaut 2016; Sjostrom et al. 2016). The three articles argue that the most practical way to define the term luxury is through a list of attributes that are associated with luxury products (and services): to this aim, they introduce comprehensive lists highlighting the contribution of the most prominent publications, classifying attributes into two groups (core and long tail), or along three (material, individual and social) or four (form vs. contents and social vs. personal) dimensions. Later on, Brun and Lideo (2019) merged the three lists of attributes, and proposed a single, unified list, highlighting that, notwithstanding the general consensus amongst the most prominent authors on the attributes, no two papers share completely the same view. Said list of attributes, summarised in box 7.1, could be regarded according to two perspectives: • the marketing school of thought regards them as ‘attributes [that] consumers associate with luxury’, thus emphasising the customers’ perspective (Kapferer and Michaud 2016; Sjostrom et al. 2016: 81), whereas

Luxury Supply Chain Management    133

Box 7.1. Luxury Defined Luxury is a transversal concept, applying to a wide array of product categories, from apparel, footwear, and accessories to cars, yachts, and luxury services. Generally speaking (i.e., without referring to a specific category), luxury products are characterised by a mix of the following attributes:

• premium quality of materials and craftsmanship of the production;



• a marketing approach aiming at creating exclusivity and emotional appeal, through a combination of factors such as (natural or artificial) paucity (scarcely available raw materials, limited production, limited distribution), premium price, superior shopping experience;



• elements of uniqueness and/​or extreme personalisation;



• global reputation of the brand, conveying the idea of world-​class excellence—​which, in case of “technical” brands such as Ferrari, is linked to best-​in-​class technical performances and innovation;



• association with a country of origin or a region with a strong reputation for specific product categories (Italian shoes and yachts, Swiss watches, German cars, or more specifically wines from Bordeaux or Champagne);



• a recognizable style, often associated with iconic designs, “emblematic” products, or even signature colours (e.g., Louboutin red soles);



• Brand authenticity, supported by ongoing consistency with values and personality of the creator or maison, and creating a lifestyle. The list could be complemented with aspects inherent to a specific conception of luxury:



• link with a “patrimony” and “heritage”, lifestyle and “Art de Vivre”, “creativity” (typical of the French vision, embraced by Comité Colbert);



• creativity, Italian culture and style, beauty (in the sense of aesthetically beautiful object) (according to the Italian vision, brought forth by Altagamma);



• tradition and innovation, design and style, and “impeccable service” (according to the British vision, promoted by the Walpole Committee);



• “passion for perfection”, creativity, craftsmanship and technical know-​how, are at the core of the culture of excellence in Germany (represented by Meisterkreis).

Source: Adapted from Brun and Lideo (2019).

• the operations and SCM school of thought considers them critical success factors, which a company shall cultivate to ‘pursue a luxury positioning for their brands and products’, thus stressing the managerial strategic perspective. (Brun and Castelli 2013: 830) The former perspective is useful to understand antecedents of luxury purchase intentions (why consumers would want to buy a certain brand or product); the latter is focusing more on the implication of managerial choices (what a company should do to be successful in the market).

134    Alessandro Brun and Hakan Karaosman

The Anatomy of a Luxury Supply Chain The central contribution of this chapter is to describe the typical structure of a luxury supply chain. Let’s start from the general observation that any SC should, ultimately, encompass the same five groups of actors. The first of these are the suppliers, which are sources of raw materials, component parts, semimanufactured products, and other items that occur early in the supply chain—​unfinished or nonconsumable products. Second, there are the manufacturers, which are the companies actually in charge of making end products. Many consider them to be the heart of the supply chain. Actually, both suppliers and manufacturers are making the products. Suppliers produce components or subassemblies, while manufacturers perform the task of final assembly or product integration. The third group of actors are the distributors, responsible for the packaging, storing, and handling of materials at receiving docks, warehouses, and retail outlets. The fourth group are the retailers, which are the manufacturer’s customers—​the stores that buy the actual products. Sometimes in fashion luxury (especially with the quintessentially Italian perspective, according to which the brand owner is most often a manufacturer), retailers are also referred to simply as customers. The fifth group of actors are consumers, who are the final customers—​people visiting stores (or eCommerce sites) and buying the products. Notwithstanding the identification of five common actors, one cannot find any two luxury companies with exactly the same supply chain. Of course, the past three decades have been characterised by some common trends; yet, rather than being global trends moving most of the companies in the sectors in the same direction, it is possible to notice pairs of diverging trends, thus creating two dichotomies. These dichotomies result from four opposing trends, which help introduce the forthcoming analysis: small luxury boutiques versus large global groups, and outsourced activities versus vertical integration. The first dichotomy concerns small luxury boutiques versus large global groups. On the one hand, the business of luxury includes a huge number of companies that are not just ‘small’ but extremely small indeed. Some niche brands have a single, still quite artisanal manufacturing facility; also very common is the case of brands working with a small-​size design office with most activities subcontracted through leases and distributions. So, besides the design office that creates trends, most of internal resources are dedicated to the management of contracts and orders with suppliers and external partners, logistics and export management, and marketing and communication. Small luxury boutiques exist in all product categories (even though the concept of ‘small’ has a different meaning in different sectors):  Bugatti manufactures around seventy-​five supercars a year, and Greubel Forsey produces no more than a hundred extremely complicated timepieces a year. The Venetian shoemaker Rene Caovilla produces around

Luxury Supply Chain Management    135 80,000 pairs of jewel-​sandals a year; 80,000 bottles is also the production of the top small champagne producer Bertrand Devavry. On the other hand, most of the turnover is generated by a few luxury groups, with the top ten having a combined sales of $143.7 billion (as illustrated in table 7.1), thus resulting in an economic concentration with the top ten groups accounting for 51.2 percent of luxury goods sales (Deloitte 2020). Most groups are leveraged on a multibrand strategy (with some exceptions such as Chanel) with a plethora of acquisitions over the years, and some of them also expanded significantly thanks to licensed brands (especially in eyewear—​see Luxottica—​and beauty—​Estée Lauder and L’Oréal—​as summarised in table 7.2). The second dichotomy is related to outsourced activities versus vertical integration. In a relentless effort to search for the best capability, while maintaining flexibility and the possibility to scale up volumes, most luxury companies relied heavily on third-​party manufacturing, outsourcing activities to a network of specialised subsuppliers. So, there is no such (physical) thing as the production plant of prêt-​à-​porter and leather goods of Chanel, or the shoes manufacturing plant of Jimmy Choo. Many luxury firms have one or two production plants that create prototypes and some product line; whereas the majority of the production volumes is strongly controlled and managed, but externally produced. This is true, also, for the major Swiss watch brands: the dial is produced in one place, the hands of the watch in another one, the strap in another, and the calibre in yet another; then, all these components are collected and assembled in-​house. When journalists interview car manufacturers, they talk about their production plants and about investment in facilities and equipment, because these elements represent the most important aspects of a car company; to the contrary, when you interview managers coming from the luxury sector, they will speak about the design, marketing, and communication of the brand rather than its manufacturing plants. How many consumers know that companies such as LVMH, Prada, or Bally make their products (or part of them) offshore? Given that the scandal, reported by The Guardian (Lembke 2017) concerning Louis Vuitton (LV) producing shoes in Romania, did not seem to negatively affect the brand’s sales, it is likely that LV’s customers are more interested in CSFs such as ‘premium quality’, ‘emotional appeal’, and ‘global reputation of the brand’ rather than the ‘country of origin’. The advent of big powerhouses somehow reverted the trend, and vertical integration is back in fashion. Conglomerates did not only pursue horizontal integration, acquiring established luxury brands:  since the turn of the twenty-​first century, they started acquiring raw materials suppliers and also internalising manufacturing (a few examples are illustrated in box 7.2). The motives of acquisitions could be reaping the supplier’s margin (Bulgari with Crova), securing continuity of supply (Hermès with crocodile skin, Zegna with Merino wool), even protecting a disappearing heritage (Loro Piana with Vicuña); in technical brands, the ownership of a key component manufacturer ensures the technical leadership versus the competition and the protection of

Table 7.1. Top 10 Luxury Groups Companies by Sales ($Billions) Rank Company name

Country

Main brands owned

2019 Luxury goods sales

1

LVMH Moët Hennessy-​Louis Vuitton SE

France

Louis Vuitton–​Christian Dior–​Fendi–​ Bvlgari–​Guerlain–​TAG Heuer–​ Zenith–​Moët Chandon–​Veuve Clicquot

$37.5B

2

Kering SA

France

Gucci–​Saint Laurent–Balenciaga –​Bottega Veneta–​Brioni

$17.8B

3

The Estée Lauder Companies Inc.

USA

Estée Lauder–​Clinique–​Tom Ford Beauty–​Bobby Brown–​Jo Malone London–​Aveda

$14.9B

4

Compagnie Financière Richemont SA

Switzerland

Cartier–​Van Cleef & Arpel–​Jaeger-​LeCoultre–​Officine Panerai–​Piaget–​ $13.8B Vacheron Constantin –​ Montblanc–​Dunhill

5

L’Oréal Luxe

France

Lancôme–​Kiehl’s–​Biotherm–​Cacharel–​Helena Rubinstein

$12.3B

6

Chanel Limited

UK

Chanel

$12.3B

7

EssilorLuxottica SA

Italy

Ray-​Ban–​Persol–​Oakley

$10.6B

8

Chow Tai Fook Jewellery Group Ltd.

Hong Kong

Chow Tai Fook–​Atrium–​Hearts on Fire–​Monologue–​T Mark–​Soinlove

$8.4B

9

PVH Corp.

USA

Calvin Klein–​Tommy Hilfiger

$8.1B

10

The Swatch Group Ltd.

Switzerland

Blancpain–​Omega–​Longines–​Glashütte Original–​Harry Winston–​Rado–​Tissot

$8.0B

Source: Adapted from Deloitte (2020)

Luxury Supply Chain Management    137 Table 7.2. Luxury Groups Leveraging on Licenses Group

Sector

EssilorLuxottica SA Eyewear

Owned Brands

Licensed Brands

Ray-​Ban–​Persol–​Oakley–​ Vogue Eyewear–​Oliver Peoples

Prada–​Chanel–​Giorgio Armani–​Dolce & Gabbana–​ Versace–​Burberry–​Tory Burch–​ Coach–​Bvlgari–​Polo Ralph Lauren–​Tiffany & Co.

The Estée Lauder Companies Inc.

Cosmetics and Bobby Brown–​Clinique–​ Fragrances Estée Lauder–​La Mer–​MAC Cosmetics–​By Kilian–​Edition de Parfums Frédéric Malle–​ Jo Malone London–​Le Labo–​Aveda

Tom Ford Beauty–​DKNY Fragrances–​Ermenegildo Zegna Perfumes–​Kiton–​Michael Kors Beauty–​Tommy Hilfiger Toiletries–​Tory Burch Beauty

L’Oréal Luxe

Cosmetics and Lancôme–​Kiehl’s–​Biotherm–​ Fragrances Helena Rubinstein–​Atelier Cologne–​Vichy–​LaRoche-​ Posay

Yves Saint Laurent Beauté–​ Giorgio Armani Beauty–​Diesel–​ Viktor & Rolf–​Ralph Lauren Fragrances–​Cacharel–​Guy Laroche–​Paloma Picasso–​ Maison Margiela–​Proenza Schouler

Source: Deloitte (2020) and company websites.

internally generated innovation (ETA is a calibre manufacturer owned by the Swatch group, manufacturing movements for the group’s brands). Arguably, storytelling could also be a strong motivation. Mario Ortelli, head of the luxury goods sector at Sanford C. Bernstein, says: Vertical integration allows you to secure sources of precious materials and expertise that give you a competitive advantage, and it is also a way of marketing to convey to the customer that your products are unique and of superior quality. (Safe 2017)

In order to understand whether there are at least some major similarities in the SC configuration of major players in the luxury field, Politecnico di Milano launched in the early 2000s a permanent research observatory, with the aim of building and analysing a large number of case studies. Based on the findings of the cases, several criteria for classification emerged (and were introduced in some research papers published later). Considering the goal of this chapter, it seems particularly interesting to adopt a classification framework grouping companies according to their selling volumes (high–​ low, in terms of units sold worldwide per year) and product complexity (high–​low), as discussed by Caniato et al. (2011).

138    Alessandro Brun and Hakan Karaosman

Box 7.2. Vertical Integration Is Back in Fashion and Making the Headlines 21st Century—​Two Decades of Vertical Integration in the Luxury Sector 2001: Gucci Logistics S.p.A. (part of the French group Kering) acquires 51 percent of the tannery Caravel; with the support of the new stakeholder, the tannery immediately started the designing and building of a newer and larger plant. In 2008, Gucci Logistics acquired the remaining 49  percent of the shares, becoming the only shareholder of Caravel Pelli Pregiate S.p.A. (www.caravelspa.com) 2002: Bulgari acquired the 50 percent of its major supplier, Crova, and three years later the world’s third largest jeweller bought 100 percent of the stakes. “The 100% acquisition will allow the company to move up to 50% of production in-​house, from a previous 10% and help it deliver goods quickly to the market. In 2003, Bulgari chief financial officer Ernesto Greco said that acquiring Crova would help the company boost its gross margin by 80 to 100 basis points in 2004” (Tanna 2005). 2008: Loro Piana opens the Dr. Franco Loro Piana Reserva in Peru, to acquire the control of the majority of world production of Vicuña. “About three million vicuña once roamed the rocky terrains of the Andes [ . . . but by the 1960s] there were less than 5,000 of the creatures left in the Andes” (Ahmed 2017). Today, the total global supply of vicuña wool produced annually that can be transformed into yarn is only about 12 tonnes, compared to approximately 25,000 tonnes of cashmere” (Ahmed 2017) but the supply of this precious material could have been much less, let alone altogether disappeared, if it weren’t for Loro Piana who “worked a lot to reintroduce vicuña to the commercial world” (Ahmed 2017.) 2009:  Hermès resorted to breeding their own crocodiles. “It can take three to four crocodiles to make one of our bags so we are now breeding our own crocodiles on our own farms, mainly in Australia,” [Hermès’ chief executive] Patrick Thomas told the Reuters Global Luxury Summit in Paris (Jones 2009). 2011: LVMH Moët Hennessy Louis Vuitton gained majority control of Singapore crocodile tannery Heng Long International Ltd (Socha 2011). “Heng Long is a valued and trusted supplier of fine quality crocodilian leather to luxury and high-​end fashion products manufacturers globally, including LVMH,” the French luxury group declared in the press release (LVMH 2011). 2013: Kering announces the acquisition of a majority stake in the elite producer of tanned crocodile skins, France Croco, a move being “part of the strategy of Kering to better support its brands to better reach their potential” (Socha 2013). 2019:  Louis Vuitton opens a state-​of-​the-​art leather goods facility in France’s Maine-​ et-​Loire region, in a commitment to keep the majority of the production in France (Williams 2019).

This leads to the following three clusters, that proved internally homogeneous with respect to the practices in use along the SC: • Cluster 1 typically includes large fashion luxury companies, with worldwide renowned brands, selling high volumes of products—​brands such as Louis Vuitton, Gucci, Hermès, Prada, and Chanel fall into this cluster;

Luxury Supply Chain Management    139 • Cluster 2 encompasses niche brands, selling relatively low volumes of excellent quality products:  the niche luxury boutique brands such as René Caovilla, Champagne Bertrand Devavry, and Greubel Forsey fit into this cluster; • Cluster 3 is constituted by fairly large firms, manufacturing and selling complex products in extremely low volumes:  Cars and yachts are typical examples here; Bugatti and Ferrari will fall in this same cluster, because of the complexity of their products is similar, even though in terms of annual production volumes the latter is about one hundred times larger than the former. Here we also find luxury furniture brands such as Boffi and superyacht builders such as Perini Navi. The following results are based on the original research carried out at Politecnico di Milano on a group of Italian companies working in the luxury–​high-​end sector, and characterised by being internationally renowned as leading brands in their own industry. Companies in the sample have been selected considering both the headquarter based in Italy and the core production stages being ‘made in Italy’. For confidentiality reasons, names of companies participating in the survey cannot be revealed. In Cluster 1 we have large companies producing such ‘fashionable’ products as apparel, footwear, and accessories. These companies are global players, placing most emphasis on building an emotional appeal for the brand as well as emphasising premium quality; other relevant aspects are style and design, country of origin, and heritage of craftsmanship. However, common operational performances are also highly relevant, especially service level and delivery lead time to retail stores. Facing a short product life cycle and a scarcely predictable demand, the SC has to be efficient in the production phase and flexible during the replenishment phase in order to follow a demand pattern that is quite unpredictable. Firms typically apply a make-​ to-​stock strategy for just a part of the product range, whereas some other products are made to order. Information systems are used to manage purchasing orders and to monitor sales. Continuative items (for which obsolescence risk is lower) are planned and produced in large batches. Luxury has also globally dispersed and fragmented SCs. In terms of geographical spread, noncore items are produced offshore, whereas critical materials of the finest quality are sourced from areas of excellence (such as Italy for leather and cotton) and relationships with suppliers are long term with dedicated investments, and in some cases vertical integration with strategic suppliers (as illustrated in box 7.2). Quite obviously, brands belonging to this cluster decided to have a strategy of massive growth, which could be pursued by guaranteeing availability and variety of the product range. As a consequence, these brands have global distribution networks encompassing several hundred retail stores. Quite often, the control over the distribution channel (measured in terms of percentage of monobrand stores, either owned or directly operated or franchised) is increasing with the company turnover. This is the result of the reinforced loop illustrated in Figure 7.2. The control over the retail outlet  allows large brands to implement a number of practices aimed at increasing the stock service level while keeping the inventory level

140    Alessandro Brun and Hakan Karaosman

The brand turnover is growing

By controlling retail, the brand turnover is larger than in the case of distribution through wholesale channels

Larger turnover allows the creation of a larger product range

A larger product range justifies the opening of monobrand stores

Figure 7.2.  The reinforced loop of getting control over the retail.

under control. In particular, electronic ordering systems allow the time between the sale and the consequent replenishment to be minimised, and accuracy of the reordering process to be improved; transshipment allow stores to ‘virtually’ share the stock among multiple stores. The diffusion of monobrand stores also allows these companies to implement fidelity programs, with the aim not only to increase the average revenue per customer but also to collect real customer data in their customer relationship management (CRM) systems. A second cluster emerging from Politecnico research includes small luxury fashion companies, typically niche brands, selling low (to extremely low) volumes of excellent quality products. Indeed, the reputation of such companies reflects the content of their products (materials and manufacturing processes) rather than the symbolic value of their brands. Brands belonging to Cluster 2 are typically niche players able to create a solid base of loyal customers all over the world leveraging on premium quality, country of origin, and craftsmanship; the reputation of these companies is also based on excellent service levels. Attention to costs is higher than in the previous cluster. Due to their small size, these players have less freedom in formulating their strategies; for instance, they can hardly own a network of directly operated points of sale and their bargaining power over suppliers is limited. Regarding manufacturing, due to their size, these companies often adopt a purchase-​ to-​order or make-​to-​order policy, with orders to be placed soon after the presentation of new collections, as required by their long manufacturing lead times; furthermore, due to small production volume and significant demand variability, these companies prefer not to carry the stockholding costs implied by a make-​to-​stock approach. In contrast to brands in Cluster 1, these players offer to large independent retailers the possibility of exclusive customised products.

Luxury Supply Chain Management    141 The products of these firms often require high-​quality handmade details; hence the availability of specialised craftsmen is fundamental. Handcrafting also contributes to making each item a unique piece, thereby increasing its degree of exclusivity. Outsourcing is a common practice, but only within national boundaries (inshore): As the ‘country of origin’ is fundamental, all production phases (even when outsourced) should actually take place in Italy. For companies in this cluster the label ‘made in Italy’, synonymous with high quality and original design, strongly contributes to justifying the premium price. There are further reasons to keep production local: offshoring may require a significant investment and would have a negative impact on service level. Suppliers and outsourcers of specific phases are carefully selected and the company strictly monitors their operations. In some cases, these firms outsource all phases of manufacturing to several neighbouring craftsmen or small companies often belonging to the same industrial district, which are virtually considered their own production department. Typically, each product line is assigned to a single outsourcer in order to ensure consistency in the product’s aspect. For these firms, it is essential to maintain long-​term relationships with suppliers (even though, unlike bigger players, these companies more often than not lack the financial resources required to pursue vertical integration). Suppliers of critical materials are evaluated on the basis of quality, while those supplying standard materials are assessed on the cost-​vs.-​service-​level ratio. Other relevant criteria when selecting a supplier are past experiences working for other fashion luxury players and exclusive specialisation or unique expertise on a certain material or manufacturing process. These companies are product-​oriented, while distribution and marketing investments are very limited. Often, they do not own monobrand stores but rather prefer (or are obliged) to rely on the reputation of experienced luxury retailers, thus creating a network of official resellers. This explains why these companies exploit the flexibility of their small-​scale manufacturing facilities by creating exclusive customised products: an ‘Exclusive for Harvey Nichols’ ready-​to-​wear collection could partially offset the lack of a monobrand boutique in a certain city. However, the lack of directly operated points of sale makes it harder to control the distribution network and to access sales data and customer information. The research on Italian companies highlighted a third cluster, including large firms that sell low volumes of complex products that can be included in the fashion market if this is broadly defined (i.e., beyond apparel and leather goods, also home-​decor, furniture, watches and jewellery, etc., have now assumed a fashion value in the consumers’ mind). The technical performance of such products is at the origin of their brand’s prestige. In terms of manufacturing, these companies produce based on actual orders (make-​ to-​order). Due to the request for customised products, manufacturing processes must be flexible enough to accept even last-​minute order changes. Here vertical integration is very common, thus revealing the desire to exert direct control over most of the production process in order to ensure quality and uniqueness. Outsourcers, when used, are selected on a national base in order to achieve flexibility, short lead times and service level. Thanks to long-​term relationships, strengthened by dedicated investments, these firms are obtaining from their supplier base outstanding process and product quality.

142    Alessandro Brun and Hakan Karaosman Due to product complexity, the upstream network is very entangled and coordination tools and vendor-​rating processes are needed. Company size and long-​term relationships allow companies to strictly control their first-​tier suppliers and to help them in their technical development. Suppliers are selected primarily for quality, reputation, and innovation capabilities. Depending on the product category, these companies might prefer to distribute their products through monobrand, directly operated stores or multibrand independent dealers. The selling process is accomplished through an intense dialogue among the customer, dealer, firm, and other relevant actors such as architects before the product takes its final shape. These firms pay great attention to service level, which is achieved through initial advising, on-​time delivery, before-​and after-​sales assistance and other benefits needed by luxury customers. As a consequence, no matter what the distribution channel selected, these companies monitor strictly the service level of their dealers.

Sources of Complexity Now let us see how recent trends in the fashion luxury business created new challenges for the brands’ SCM. We can consider, as a starting point, the analysis of luxury trends presented by CB Insights (CB Insights 2019), organized according to the NExTT framework, which in particular classifies trends in four groups (products and services; distribution; marketing; technology) and then places them on a two-​dimensional matrix having on the x-​axis the market strength (low to high) and on the y-​axis the industry adoption (low to high). The trends poised to redefine luxury in 2019 are the following:  In the products and services category we can see the following trends—​ luxury street wear; personalising goods; wellness for luxury travel; concierge-​like services; smart apparel and accessories; brandless luxury; virtual goods. There are three major trends related to distribution: China’s online channel; resale channel; the Instagram store. In the marketing category there are the following: pop-​ups; attracting millennials with collaborations; artificial scarcity; renting luxury goods; ethical consumption; subscription service model. And, finally, in terms of technology-​related trends: connectivity for luxury services; empowering sales associates; RFiD tagging; AR/​VR experiences; personalised hotel rooms; anti-​aging therapies; authentication tech; lab-​grown luxury materials; crypto payments; flying cars; AI designer; luxury goods on block chain. Even though most trends still seem quite futuristic, some of them are having a strong impact on the way the luxury supply chains are managed. Indeed, several trends are just the confirmation of a tendency that started some years back. The first of these trends concerns evolving customers’ needs and priorities—​due, for instance, to shifting demographics (emerging economies are in general younger, while mature economies are aging) but also to a change in mindset (see, e.g., the attention of Gen Z for sustainability aspects). The second trend relates to shorter product life cycles (also linked to

Luxury Supply Chain Management    143 developing technologies, such as 3D printing or virtual prototyping)—​even if this trend received strong criticisms during COVID-​19 crisis, with many influential voices accusing fashion luxury of running too fast (time will tell whether the industry pace will slow down). A third trend is the redesign of retail to provide customer experience—​the need for social distancing triggered by the COVID-​19 pandemic amplified this phenomenon, with companies focusing on private appointments in store, giving at the same time the opportunity to implement social distancing and to offer an unprecedented first-​class customer experience. A further trend is the management of a portfolio of (sub)brands following a differentiated approach—​with the top ten luxury powerhouses controlling the majority of the luxury market, and eager to acquire even more brands to expand their portfolios, this will be more and more relevant in the future. Success in recent years was based on building brand image and extending product range. This eventually led to the loss of ‘material’ competitive advantages, as well as the risk of diluting brand exclusivity into accessible lines. Thus many brands reorganized their operations and supply chains, going ‘back to basics’ (namely, market orientation, product quality, service level, mastering core competences), to regain the ability to deliver the promises made by the brand. Although from the 1990s luxury went ‘out of the temple’ and a revolution named ‘mass marketing of luxury’ began, in which brand owners stretched their brands through line extensions and launched ‘junior’ versions of their brands ‘to tap into the broader market of consumers who can afford and aspire to own luxury brands’ (Nueno and Quelch 1998: 65), by the late 2000s the perspective changed. One of the most influential men of the luxury world, Bernard Arnault (CEO of the LVMH group), at the International Herald Tribune’s Luxury Business Conference in 2007, declared that ‘high standards can and must be maintained throughout the SC, from production to distribution in retail stores’. A further eminent opinion comes from François Pinault (CEO of the Kering group) who (at the at International Herald Tribune 2006 Luxury Conference) suggested a return to considering ‘product’ as the fundamental element for competing in the luxury business (i.e., paying more attention to the product itself would allow a company to focus on the highest end of the luxury market). In 2020, during the COVID-​19 pandemic outbreak that stimulated deep societal reflections around the main theme of the future of humanity, Giorgio Armani penned an open letter to WWD, in which he challenged the current fast-​fashion mindset, saying he believes in an ‘approach to the design and making of garments that suggests a way of buying them: to make them last’ (Zargani 2020). Thus, the trend of going back to the basics of focusing attention on the product and the product quality is definitely here to stay. Consumers are getting more and more literate as to what constitutes quality in products and services, and they only accept paying a premium price when their requirements are satisfied. One obvious challenge is being able to guarantee adequate quality even though the production process (or at least part of it) is outsourced. In apparel, footwear, and accessories, no brand can escape the so-​called fashion effect: product life cycles are continuously becoming shorter. The challenge is to create more flexible and responsive supply chains. In many companies and groups, there is

144    Alessandro Brun and Hakan Karaosman obviously a rising attention to operations and SCM, with a number of companies currently restructuring their supply chains. SCM is now one of the top priorities in management’s agenda. This is because such operations are more stressed. In the fashion sector the competition is fierce, especially on the retail side. The soaring of scale and bargaining power of major retail buyers in the market, the advent of own-​brands retail networks, and the increasing globalisation of sourcing and supply chain decisions are just some of the issues that have contributed to this complexity. Indeed consumers are no longer focused only on product characteristics; their purchasing attitude is everyday more influenced by the ‘complete shopping experience’ provided in the point of sale (i.e., the contact point between the consumer and the supply chain). In luxury, even a negative event, such as the need for an after-​ sales repair, should be managed perfectly to leave the customer happy about how well the problem was handled and solved. Furthermore, increasing brand awareness sets the requirements for aligning operations along the supply chain with the personality of the brand and its positioning. Hence, commercial success or failure in fashion is largely determined by the performance of the downstream supply chain (distribution network) in terms of flexibility and responsiveness. The wide use of outsourcing of manufacturing processes, the offshoring of manufacturing activities, and the sourcing on a global scale sparked the need to control and coordinate a large and geographically scattered network of actors. Indeed, the road towards competitiveness should go far beyond the management of a single company or even a supply chain, but passes through the management of the whole supply network, and sustainable competitive advantages through low cost or high differentiation can be achieved only by managing the interconnections among the various organisations within a large network. New and aggressive players are now entering the market. This gives rise to the need to create a sustainable competitive advantage, leveraging the capability of all the ‘partners’ within the supply network. As a consequence of more refined segmentation strategies, now companies have different business requirements depending on the level of positioning of the brand (e.g., accessible lines require availability; exclusive segments require superior service). Thus, companies now need to follow a differentiated approach.

Supply Chain, Counterfeits, and Block Chain As illustrated in the previous section, there are multifaceted challenges to the current state of luxury. On the one hand, globally dispersed and fragmented production and distribution channels might impede originality, individuality, and exclusivity; on the other hand, there are serious risks and matters associated with counterfeiting. According to the International Chamber of Commerce, counterfeit and pirated products are estimated to eliminate $4.2 trillion from the global economy with 5.4 million legitimate jobs at risk by 2020 (International Chamber of Commerce 2020). Counterfeiting and

Luxury Supply Chain Management    145 lack of authenticity are inherent problems within the luxury industry for which robust, systemic, and applicable solutions are needed. Can technology save luxury? Counterfeiting and (lack of) traceability are problematic constructs in and across luxury supply chains. Recent contributions, however, show that innovation and technology can actually help enhance traceability in fashion (and luxury) supply networks (Brun et al. 2020). Block chain is a distributed ledger technology that transfers material data throughout SCs. The block chain technology is applied within a wide range of industrial settings that can provide some illustrative examples. As such, it enhances efficiency and improves visibility in maritime shipping SC (Yang 2019). Furthermore, it helps consumers get more product-​related information in rental service platforms (Choi et al. 2020). In the context of fashion, Hugo Boss is piloting the use of block chain technology in its cotton supply chain. In 2015, Everledger began to track and trace the authenticated source of diamonds. By closely working with their manufacturers and retailers, they have thus far encrypted the source of more than 2 million diamonds. Another example coming from the jewellery industry sees De Beers developing Tracr, an inclusive mine-​ to-​customer traceability solution for the diamond industry. Designer Martine Jarlgaard, another pioneer in the use of block chain, registers each step of the production process to create unique, digital, and traceable stories while ensuring authenticity and honesty. Although the block chain technology is perceived as a promising solution that can tackle counterfeiting and can ensure source of origin, supply chain actions, and all kind of transactions in and across networks, some prerequisites are required. Strong organisational and operational capabilities entailing collaboration, governance, and leadership are needed (Hastig and Sodhi 2020). It must be remembered that this is a technological application that is to be used by humans. That said, ethics and accountability must be ensured at the individual level. To illustrate, data to be entered into the block chain must be correct and lower-​tier suppliers that become visible through the block chain must not have any shortcomings behind the scenes associated with modern slavery or child labour, for example. Block chain can improve traceability and ensure authenticity while fighting against counterfeiting and saving jobs and livelihoods and supporting a clean economy. It is therefore crucial to create a system within which supply chain dynamics pertaining to collaboration, power use, and relations are established, coordinated, and improved to excel in both technology-​driven and human-​ driven instruments in and across luxury supply chains.

Main Trends, Best Practices, and Future Scenario A research project, recently conducted at Politecnico di Milano, involved managers of four important luxury groups (LVMH, Kering, Chanel, Prada). Interviews with the managers (reported in details in Vaglia 2019) indicate that the SC strategies of these four

146    Alessandro Brun and Hakan Karaosman groups are quite aligned (at least in terms of high level decisions) in the areas of inventory management, sourcing strategies, and vertical integration. Key findings regarding inventory management include the quite unsurprising fact that the inventory level must be maintained as low as possible, and a general attempt (witnessed by ongoing improvement projects, carried out internally or with the support of external consultants) must be made to optimize and reduce the number of stock keeping units (SKUs), in order to reduce the ‘cost of complexity’ and further reduce the stock; in particular, there is special attention to identifying less efficient SKUs, trying to eliminate them from the stock, in accordance with relevant departments, in favour of more efficient SKUs. The main key performance indicator (KPI) is related to the days of coverage; in general, the metric should not exceed 180 (which means six months of stock). Stock movements are coordinated centrally in order to optimize the sell-​through. When focusing on sourcing strategies, one surprising finding is the fact that the importance of sourcing raw materials from Italy is not so relevant; what is extremely important is the excellence of the raw materials: They may come from Spain, in the case of cattle’s hide for example, because it is one of the best leathers markets in the world, due to its perfect ecosystem. There is a growing importance to be able to guarantee suppliers’ traceability. Furthermore, frequent and systematic audits and controls are implemented across the chain; yet knowing that audits are not enough to guarantee the full control over external players, these groups are building mutual trust between suppliers and companies through long-​lasting collaborations. Finally, there are some fundamental key points on the topic of vertical integration and the choices between internally owned and outsourced activities. The most frequently adopted strategy is to vertically integrate upstream in the supply chain, acquiring the strategic suppliers; this strategy has the main goal to own the best know-​how in the market, to guarantee competitiveness in the long term. It must be noted that, even if the vertical integration is not 100 percent effective, the purpose is to progress towards an internalisation of more strategic and project-​based activities, as opposed to the day-​by-​day, process-​based activities. The interviewed companies admitted that some manufacturing activities are outsourced in (far) Eastern Countries for cost reasons, even though this is normally rather confidential information, but, at the same time, they are all directly managed by Italian managers; for outsourced activities or ‘not directly controlled’ ones, the frequency of audits is very high. Whatever the small differences in the implementation of SCM, all the respondents confirmed that the luxury positioning of the managed brands is not affected by supply chain choices: the excellence and sustainability factors must be maintained at any cost.

Concluding Remarks Luxury is seen as a privilege for a few, but it creates desire and beauty for many. Because of this, the luxury supply chain should be carefully managed by those brands and

Luxury Supply Chain Management    147 (group of) companies that want to represent the best in class. This is possible only by maintaining factors such as high-​quality products, scarcity, high-​skilled manufacturers, specificity and high-​yield raw materials, and mutual trust with suppliers, artisans, and retailers supported by continuous audits managed directly. Another important action that should be implemented by luxury companies is to increase engagement with their stakeholders, to listening and learning about how to achieve their objectives and ambitions faster, and with even more positive impact. A stronger and deeper engagement should be the very best way to fulfil obligations, and to be exemplary and even more competitive in this extremely complicated sector.

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Chapter 8

Lux ury, Craft, C re at i v i t y, and Innovat i on Joanne Roberts

Luxury is often associated with the preservation of traditional craft skills, such that the importance of age-​old methods of production is emphasised in the heritage stories of many luxury brands (Cox 2013). Yet, simultaneously, luxury is linked to creativity and innovation in terms of new and technologically advanced goods and services (Roberts and Armitage 2015). Indeed, luxury brands promote their association with creativity by commissioning renowned artists, designers, and architects. For instance, Louis Vuitton has joined forces with a wide range of artists and designers from Yayoi Kusama to Jeff Koons and Karl Lagerfeld to create products and concept store interiors (Joy and Belk this volume), while Prada’s iconic stores in New York and Tokyo have been designed by “starchitects” Rem Koolhaas and Herzog and de Meuron, respectively (Sharr 2016).1 Of course, creativity is central to luxury goods and services, and particularly to luxury fashion, which, by its very nature, is in a perpetual cycle of change. Yet, key attributes of many luxuries are timelessness, durability, and craftsmanship; attributes that seem to be in opposition to present-​day luxury fashion cycles and the development of high-​tech luxury items like high-​performance cars and yachts that require extensive investments in research and development (R&D) to bring about significant innovations. How, then, are creativity and innovation, with their drive for change, related to the timelessness of craftsmanship in the production of luxury goods? To address this question this chapter critically considers the relationship between luxury, craft, creativity, and innovation. Drawing on relevant academic literature concerning craft, creativity, and innovation (e.g. Adamson 2013; Ahmed and Shepard 2010; Dormer 1997; Howkins 2007; inter alia), the relationship between these three concepts is considered in the context of the development and production of luxury-​branded goods. Of course, craft, creativity and innovation are features of luxury goods and services; however, for the purposes of this chapter the focus is on tangible luxury-​branded goods. Based on secondary sources, examples are presented to analyse and shed light on the complex connections and

152   Joanne Roberts tensions between craft, creativity, and innovation in the development and production of present-​day luxury-​branded  goods. Definitions of luxury-​branded goods and services refer to artisanship and craftsmanship (Ko, Costello, and Taylor 2019). Yet, the luxury sector as a whole is viewed as a part of the high-​end cultural and creative industries (Frontier Economics 2014; EC 2012) and is, therefore, associated with creativity and innovation (Foray 2010). The importance of intellectual property (IP) to the luxury sector highlights the significance of creativity and innovation: there is a need to secure control over the production of novel luxury goods and services to guarantee a return on the investments made to develop them (see Pouillard this volume). Nevertheless, many luxury brands have a well-​ honed heritage story linking today’s offerings to a craft-​based past that evokes notions of quality and timelessness which consumers can adopt to imbue their purchases with individual meaning and value (Kapferer and Bastien 2012; Dion this volume; Roberts and Armitage 2020). Additionally, the notion of craftsmanship suggests handmade qualities with the human touch making each good or service unique. Consequently, such handmade outputs are characterised by what Karpik (2010) refers to as a singularity—​one of a kind, at least in the mind of the consumer. Indeed, exclusivity gives luxury the quality of a positional good that signals the status of its consumer through their conspicuous consumption of expensive items (Veblen 1899). The status of a positional good can be protected in three ways: preventing copying and imitation thus securing lasting exclusivity; continuous innovation to change the good as soon as it is copied; and selective distribution to control sales outlets (Foray 2010: 3–​4). However, luxuries do vary in their degree of exclusivity. For instance, Allérès (1990) defines three types of luxury based on accessibility:  inaccessible—​exclusive unique items; intermediate—​ expensive replicas of unique items; and accessible—​ factory produced in large production runs. This classification recognises that many of the major luxury-​brand companies provide a range of accessible and intermediate luxury items alongside exclusive items that might be referred to as meta-​luxury or über luxury (Quintavalle 2013; Ricca and Robins 2012). The greater accessibility of luxury reflects the drive for increasing profits among luxury companies wishing to deliver increasing returns to their shareholders by extending their sales to wider markets. Often referred to as the democratisation of luxury (Kapferer and Bastien 2012), this increased accessibility of luxury involves the fragmentation of the production process, such that the design process may involve significant artistic inputs and craftsmanship, but the final luxury goods are mass-​produced (Thomas 2007). As Kapferer (2012) notes, through the move to the mass production of high-​quality goods, the significance of craft is diminished as luxury transitions from scarcity to abundant rarity. Yet, despite the growth of mass-​produced luxuries, rarity of materials or high levels of skill and craftsmanship ensure the continued production of scarce and exclusive luxuries, such as the outputs of bespoke tailoring or haute couture and individually designed items from jewelry to yachts.

Luxury, Craft, Creativity, and Innovation    153 This chapter proceeds by exploring the notion of craft before examining the concepts of creativity and innovation. The relationship between these three concepts is then considered. Examples highlight how craft, creativity, and innovation interact in the production of luxury-​branded goods, from bespoke shoes and limited-​edition scarves to luxury cars. These examples serve to show the significant variations in craft, creativity, and innovation for different types of luxury goods. From this investigation, luxury-​ branded goods are classified according to the nature of craft, creativity, and innovation employed in their design and production. The chapter concludes with consideration of the implications of the findings for managers of luxury businesses and for scholars concerned with the development and production of luxury goods.

Craft, Creativity, and Innovation This section examines the notions of craft, creativity, and innovation, which will provide the backdrop for an exploration of the connections between craft, creativity, and innovation within the field of luxury-​branded goods.

Craft The idea of craftsmanship has become fashionable today (Frayling 2011). Yet, as an idea, craft developed alongside industrial manufacturing and was viewed as the opposite to high-​volume mechanised production (Adamson 2013). In the contemporary era, the term “craft” is applied in a wide variety of contexts (Shales 2018). Craft can refer to a set of knowledge providing a skill in many different domains from jewelry making to governance (i.e., statecraft).2 Craft can also be used to refer to the process of producing tangible items like a hand-​thrown pot or abstractions such as crafting an argument. When characterised in relation to the production of tangible objects, craft may be narrowly defined and reserved for the activities of ceramics, metalwork including enameling and jewelry, textiles art, glass-​making, and woodwork (Adamson 2010). But, as Adamson (2010: 2–​3) notes, a more open-​ended definition ‘as the application of skill and material-​ based knowledge to relatively small-​scale production’ provides a broader approach that includes architecture, painting, printmaking and sculpture; the creation of design prototypes, including digital rendering; routines of maintenance and repair; couture; gardening and cookery; factory, dockyard and construction work and so on. (Adamson 2010: 2–​3)

154   Joanne Roberts Craft is, then, a process of producing certain objects. In this chapter, the term is used to refer to a skill and process usually related to making objects by hand and/​or delivering services in person. Craft skills are often associated with an individual working alone to produce a handcrafted item. However, in contrast to this romanticised view of craft advanced by the key figures of John Ruskin and William Morris in the nineteenth-​century arts and crafts movement, Shales (2018) argues that craft skills are as likely to be found in the context of a factory. Hence, craft production is not necessarily a solitary pursuit. Nevertheless, a craftsperson is someone skilled in the techniques of an art or craft and may also be referred to as an artisan. Mastering craft knowledge requires an apprentice to learn to replicate a certain set of tasks within a particular sociocultural and technological setting (Amin and Roberts 2008). In medieval times, crafts were protected by Guilds, which were established to safeguard craft knowledge and to control the supply of crafts skills through an apprenticeship system (Epstein 1998). In this way, the production of crafted items was limited to prevent price reductions due to increased market supply. Much of the knowledge acquired by craft workers is tacit embodied know-​how gained through constant learning and the development of a kinesthetic awareness and an aesthetic sensibility. This awareness and sensibility require engagement with tools and materials that mediate and facilitate action and imagination (Sennett 2008). Craft skills take time to acquire. Sennett (2008: 20) refers to a commonly used measure of ten thousand hours of experience required to produce a master carpenter. However, in addition to learning by doing, in many fields, to attain the highest level of skill, a certain innate capacity is required (Roberts 2000). Considering craft an output of craft processes within a consuming society, Gloria Hickey (1997: 85) notes that a handicraft object may be promoted as ‘ “special” or rare because it is handmade and perhaps customised: sophisticated because the making of the object requires skill; it is precious due to materials or time invested in labour; it is expensive—​in terms of subject-​matter, function, tradition or historical reference; and it is enduring.

The appeal of many crafted objects derives from their timeless qualities and resistance to fashion (Rees 1997). Although the appeal of others may be their almost ephemeral qualities, such as elaborate gourmet meals that are consumed for pleasure and/​or in displays of conspicuous consumption. Furthermore, although craft skills may be employed to produce fine art, craft objects are normally distinct from fine art in that the outcomes of craftwork serve some specific practical purpose whereas art’s purpose is primarily related to its aesthetic or emotional power (Klamer 1996:  21). As Luckman (2015) notes, the studio model of craft production, which emerged in the twentieth century with its focus on the individual designer/​designer-​maker producing unique, one-​off art objects, strengthened the link between art and craft. Moreover, like art, studio craft is produced for aesthetic rather than functional purposes and it is more innovative than traditional craft (Adamson 2007).

Luxury, Craft, Creativity, and Innovation    155 Nevertheless, as the promoters of the nineteenth-​century arts and crafts movement argued, craft output produced for functional purposes can be aesthetically pleasing. Yet craft more generally is also associated with creativity and innovation. For instance, innovation occurs through what David Pye (1968) called ‘the workmanship of risk’, which leads to the evolution of techniques and tools and the discovery of new materials through craft production (KPMG 2016). For instance, in relation to the production of jewelry by highly skilled experts, Oakley (2015): 2 notes that ‘over the past decade 3D printing has become widely accepted as the most effective and reliable way of creating wax models for the very popular technique of wax casting, with the resulting cast gold and silver pieces then being finished using traditional methods.’ Therefore, new techniques and tools have been introduced to the craft of jewelry production. However, it is important to note that traditional craft skills are developed and preserved through repetition. Indeed, as Roberts and Armitage (2015) note, some luxury producers eschew technological change and persist in the use of age-​old production methods. Moreover, because such methods of production are high-​skilled and labour intensive with few opportunities for the application of technological advances, there is limited scope for productivity gains and, therefore, any rise in the cost of labour is passed on to the consumer. In contrast, mass-​production benefits from the application of technological and organisational innovations and subsequent labour productivity gains, which more than counteract cost-​of-​living rises in the price of labour. In this way, craft production suffers from what has become known as Baumol’s cost disease (Baumol and Bowen 1966; Heilbrun 2003). Nevertheless, the handmade quality of craft objects ensures that they are unique, and when this characteristic is combined with the high value of inputs, they become highly desirable yet inaccessible in terms of categorisation of luxury (Allérès 1990).

Creativity In contrast to craft skills that preserve existing methods of production, creativity is the capacity to bring into being original ideas whether embodied in tangible or intangible forms. Like craft skills, creativity is often considered in relation to the talents of individuals (Amabile 1997; Csikszentmihalyi 1996). For example, Amabile (1997) distinguishes three elements that constitute an individual’s creativity:  expertise, creative-​thinking skills, and intrinsic task motivation. The role of creative individuals and their need for freedom to express their talent or vision is evident in popular debates (Bilton 2007). In the field of luxury fashion, for instance, this is manifest in the emphasis placed on the designer. Luxury fashion houses from Chanel and Dior to Yves Saint Laurent and Alexander McQueen bear the name of their original designers and subsequent designers are promoted in their own right as well as part of the fashion house. By linking the product to an individual designer, luxury brands attempt to reinforce the importance of the individual’s creative talent that inspired the product. Yet, such creativity is more often than not the work of many individuals working as a team (Cummings,

156   Joanne Roberts Bilton, and ogilvie 2015) situated within a particular sociocultural and locational context (Cohendet et al. 2014). So, for instance, the creative talents of the late fashion designer Karl Lagerfeld at Chanel were facilitated and realised by a team of individuals working closely with him, including the many métiers d’art upon which Chanel couture designers rely (Colapinto 2007). Moreover, Lagerfeld’s creative talents must be considered within the context of the Parisian haute couture community together with the broader global fashion culture. Creativity occurs at numerous levels and with varying degrees of originality. As noted, those working in craft occupations create objects, but these are not necessarily novel, although through the hand-​making process they become, to some degree, unique. In relation to Allérès’ classification of luxury, the creativity evident in the production of luxury may result in a one-​off unique item as in a piece of fine art or bespoke jewelry, or intermediate items as in the development of limited-​edition designs, or indeed creativity may result in accessible mass-​produced luxuries such as the leather goods produced in the Mulberry factory in Somerset, England.

Innovation Given that all definitions of innovation include the development and implementation of something new (Engen and Holen 2014), it is not surprising that the terms “creativity” and “innovation” are often regarded as synonymous. The difference between them has become increasingly blurred in the last decade or so with the rising amount of attention given to creativity as a driver of economic development (Howkins 2007; United Nations 2010). Consequently, it is useful to highlight the distinction between creativity and innovation. Creativity, as in the invention of something new, is a necessary component in innovation; however, creativity does not guarantee innovation. Innovation involves the development of an invention such that it can result in intermediate and/​or final products and services available in commercial markets. Innovation, then, necessitates the development of value through the implementation of an invention. Hence, although in contemporary discussions the concepts of creativity and innovation are often conflated, it is important to recognise that they have distinct meanings. In addition, innovations vary in their degree of novelty. The concepts of incremental innovation and radical (discontinuous or disruptive) innovation can be seen as representing opposite ends of a novelty continuum (de Brentani 2001). Benner and Tushman (2003) note that incremental innovation is characterised by small changes that build on current technical capabilities, whereas radical innovation involves a fundamental change to the technological trajectory. Moreover, it is important to note that innovation encompasses more than the development of new or improved goods or services. As Schumpeter (2008) argued, the innovative activity of the entrepreneur includes the development of new methods of production and distribution, the opening up of new markets, the identification of new sources of raw materials or components, and the creation or destruction of market

Luxury, Craft, Creativity, and Innovation    157 power. So, for example, LVMH’s luxury watch brand Hublot has cultivated a link with football to open up a new market for its timepieces, whereas its use of ceramic and rubber materials reflect the brand’s search for new materials.3 Innovation is associated with investment in R&D, a highly skilled workforce, the adoption of high technology, and the use of IP  –​particularly patents (Ahmed and Shepard 2010). Furthermore, innovation is often associated with industrialisation and the development of sophisticated high-​tech and R&D-​intensive products and production systems. This is because investment in innovation requires the incentive of a return beyond the mere covering of costs. Therefore, production at a sufficient scale is necessary for investors to earn an attractive return while competition is limited by a patent. Indeed, the identification of IP as a characteristic of the luxury, noted earlier, reflects not only the importance of protecting luxury brand names through copyright but also the significance of patented innovations to luxury businesses (Frontier Economics 2014). According to the classification of levels of luxury by Allérès (1990), we might associate innovation with accessible large batch factory-​produced luxury goods. But new technologies, innovations in themselves, are also allowing cost-​efficient intermediate or bespoke production. In addition, when serving the high-​end luxury market, where price is not a factor in a customer’s decision to purchase, it may be possible to recoup all development costs and secure an attractive return on investment with the sale of one bespoke item. For instance, a made-​to-​order private yacht may require the development of innovative designs and materials.

Interactions between Luxury, Craft, Creativity, and Innovation Today, when most everyday objects can be mass produced and priced accordingly, much craft production is associated with the manufacture of luxury goods and services. Moreover, when price competition reigns supreme in general markets, the luxury sector is an important support for craft skills. For example, the luxury brand Chanel established its subsidiary Paraffection in 1997 to acquire independent ateliers and thereby safeguard their specialty skills in the fields of embroidery, feathers, shoemaking, buttons, artificial flowers, goldsmithing, millinery, knitwear, glove making, and pleat making (Abnett 2014). As a result, luxury companies help to safeguard the survival of craft skills. The Heritage Crafts Association (2019), a UK-​wide champion defending intangible heritage craft skills, recently highlighted thirty-​six crafts in critical danger of becoming extinct in the UK, including damask weaving, fan making, oak bark tanning, and watchmaking. Without the consumption of luxury, many other crafts might become endangered to the detriment of human creativity and culture. Craft production involves creativity in the sense that outputs are created. Craft practices tend to follow tradition, yet there is scope for the introduction of new ways of

158   Joanne Roberts working and novel designs. Although not engaged in radical innovation, craft knowledge does develop, albeit gradually, in response to the changing environment, modification to customer requirements, and evolving craft community practices. Therefore, craft-​based innovations are usually of an incremental nature, directed towards the production of a customised product often characterised by aesthetic and craft awareness (Amin and Roberts 2008). Nevertheless, craft skills might be central to innovation processes in terms of the making of prototypes of new products that may eventually be produced in high numbers. For example, innovation is often associated with taking an innovative prototype derived from the creativity of, for instance, designers and engineers, into the large-​scale manufacture of a commercially viable product or service. Although, the craft element of luxury suggests tradition and continuity of methods, in many highly skilled and craft produced items there is a great deal of creative and innovative activity. Indeed, creativity is central to the image that many luxury businesses seek to promote (Donzé and Wubs 2018). To foster creativity, luxury brands often work with artists to produce limited-​edition items or even mass-​produced goods. Collaborations between luxury brands and artists have a long heritage that can be traced back to the 1930s association between the luxury fashion designer Elsa Schiaparelli and the surrealist artist Salvador Dalí (Secrest 2015). More recently, in 2016, the French luxury crystal and glass manufacturer Lalique collaborated with Damien Hirst to produce a limited-​ edition collection of crystal panels named ‘Eternal’, available in twelve different colors (Armitage 2020). Similarly, Louis Vuitton has collaborated with artists from Yayoi Kusama to Jeff Koons (Joy and Belk this volume). In 2017, for instance, Louis Vuitton launched a collaboration with Jeff Koons that reference his ‘Gazing Ball’ series with his re-​creations of masterpieces by da Vinci, Titian, Rubens, Fragonard, and Van Gogh transposed on to a range of Louis Vuitton bags (Louis Vuitton 2020). High levels of creativity involving the exploration for new knowledge together with craft skills are also evident in the production of luxury watches. For example, the production of Richard Mille watches draws on innovations in materials from Formula 1 and the aviation industries (Hoffmann and Hoffmann 2012). Similarly, the development of Patek Philippe’s 175th anniversary timepiece, the Grandmaster Chime, priced at $2.63 million, gave rise to six patents (Patek Philippe 2014). The transformation of the creative ideas embedded in new watch designs through to the actual production of the final product involves a complex innovation process. However, the profitability of luxury watch producers like Patek Philippe depend on the sales of their expensive but accessible timepieces. Publicising the technical achievements of the innovations embedded in special pieces like the Grand Master Chime serves as an innovative way to generate demand for accessible luxury watches. Indeed, as Jeannerat and Crevoisier (2011) argue in relation to the Swiss watch industry, nontechnical innovations related to communications, marketing, and fine arts have become a critical component of the sector’s complex systems of production-​consumption of authenticity. Indeed, such nontechnical innovations are of relevance across the luxury sector. Nevertheless, luxury can be at the leading edge of innovation, as newly developed goods and services are expensive with their price falling as they become more widely

Luxury, Craft, Creativity, and Innovation    159 available. Moreover, the demand for luxuries facilitates the R&D that can result in major innovations and new technological developments. Newly developed products are often expensive, and therefore, for many consumers, they are luxuries. The demand from early adopters, who have the resources to try expensive new products, helps producers to rectify any faults in product design and to scale up for more cost-​efficient production (Ahmed and Shepard 2010). Hence, as many products transition through their life cycles their prices fall and markets expand (Vernon 1966). For instance, less than forty years ago, the mobile telephone was a luxury. However, today, in most parts of the world, a mobile telephone is a necessity. Nevertheless, mobile telephones that are solid gold and diamond encrusted, such as those designed by Stuart Hughes, remain a luxury due to their production requiring rare or expensive materials and highly skilled craft labour derived from the field of jewelry production (Stuart Hughes 2020). The exclusive element of luxury requires that it should always be beyond the reach of many people. Yet, as incomes rise and technologies of production evolve, more luxuries become accessible to more people, and, in the process, they become commonplace and lose their exclusive quality. Certainly, many exclusive goods and services over time become more widely available either through diffusion into wider markets or reductions in cost or through the production of lower-​cost versions through product differentiation or imitation. For this reason, innovation to develop novel high-​quality goods and services is vital for the sustainability of many luxury brands. Accordingly, as the European Cultural and Creative Industries Alliance (2017:  7) notes, the luxury ‘sector is a constant driver of innovation, with long-​term strategies and high investments into product and services innovation’. New or enhanced luxuries replace those items and experiences that fall from luxuriousness due to their widespread availability. Furthermore, manufacturing tools, such as 3D prototype rendering, Internet and online tools are influencing the development of luxury goods (Sanderson 2018). For instance, Sanderson (2018) reports on the mix of craft and technology in the Thélios eyewear factory, a joint venture between French luxury goods group LVMH and Italian eyewear manufacturer Marcolin, whereby technical designers work on computers to turn a pencil sketch of sunglasses by Celine designer Hedi Slimane into precise technical drawings, which are sent to 3D printers. The prototypes are then hand-​ buffed to a high shine by artisans. In this example, Internet communications and 3D printing allow a designer’s sketches produced in Paris to be turn into a physical product in Italy in less than two hours. Additionally, today, when sustainability and ethical production are increasingly at the fore, innovative activity in the field of, for instance, lab-​grown leathers, silks, and diamonds are of increasing interest to luxury producers (Sheppard 2017). Moreover, even those luxury brands that emphasise heritage and craftsmanship happily employ new technologies where they offer a competitive advantage (Oakley 2015). Hermès is a case in point. Originally founded as a harness and bridle workshop, Hermès has been making saddles since 1867—​a line of business that continues on a small scale today. Each saddle is custom made by a single craftsman and, with the exception of the saddle’s core structural element, is assembled entirely by hand. Hermès launched the innovative

160   Joanne Roberts Talaris saddle in 2010, which incorporates a core structure made entirely of carbon fiber polymer. The master saddler Laurent Goblet designed the lightweight and flexible core structure using advanced technology and computer-​aided design to optimize the saddle’s function and durability (Wierzba 2015: 15). Similarly, luxury products, like expensive cars, yachts, and private jets, involve high levels of creativity in their design and development and in the integration of new materials and technologies. While the production of such luxuries requires extensive innovation processes to bring incrementally and radically creative ideas through to the production of marketable products, they also involve the exploitation of much existing craft knowledge. Consequently, many categories of luxury evolve through the application of creativity inputs that feed into complex innovation processes, which result in the production of new luxury goods and services or production and delivery processes. However, there are some luxuries whose very essence is a sense of timelessness and unwavering continuity. As noted earlier, such luxuries do not become widely available as incomes rise because a major component of their costs, that is, labour, rises as incomes increase. Luxuries that are handmade, using only traditional tools and techniques, or that involve personal delivery by highly skilled individuals, persist in their capacity to command high prices beyond the reach of the general population (e.g., bespoke tailoring or haute couture). Moreover, they might even become rarer as the skills required in their production become increasingly scarce. According to Foray (2010: 4), within the luxury sector there is a convergence of innovation originating from the development of traditional know-​how, namely, craft-​based knowledge, innovation originating from purely artistic creativity, and science-​driven innovation, which is associated with high levels of R&D spending. These three types of innovation can be aligned with craft, creativity, and innovation. Hence, luxury goods and services may be positioned in relation to the three characteristics of craft, creativity, and innovation (Figure 8.1.). To illustrate the connections between craft, creativity, and innovation in the luxury sector, the remainder of this section elaborates a number of examples of luxury-​branded goods, beginning with bespoke shoes, which are highly craft based, then, luxury goods

Craft

Luxury Goods & Services

Creativity

Innovation

Figure 8.1.  Luxury goods and services in relation to craft, creativity, and innovation.

Luxury, Craft, Creativity, and Innovation    161 with creative input through the involvement of artists, and, finally, the development of innovation intensive luxuries, specifically luxury cars.

Luxury Goods and Craft A prime example of craft-​based luxury is a pair of bespoke shoes. The age-​old techniques of handmade customised production are central to the luxurious quality of bespoke shoes. They command a price far in excess of factory-​made shoes and consumers must have the patience to wait for them to be made; a process that involves a number of fittings. Thus, bespoke shoes are generally the preserve of the wealthy.4 Luxurious bespoke shoes require the preservation of shoe-​making knowledge and skills and they command a high price because of the sheer time, labour, and skill involved in their production. An example of a bespoke shoemaker is Dimitri Gomez who works out of the luxury brand Crockett & Jones’s Parisian Flagship store at 14 Rue Chauveau-​Lagarde, in the neighbourhood of La Madeleine (Crockett and Jones 2021). He is a master of the five core processes needed to handcraft footwear from fitting, last making, and pattern cutting to closing and bottom making. Shoemakers often specialize in one or two areas working within a team that together holds all the skills required of the shoemaking process. A minimum of sixty hours of work is required to produce the first pair of shoes for a new customer. Dimitri Gomez’s shoes are constructed completely by hand and they take from four to six months to produce. The production process involves engagement with the customer, for instance, for the initial discussion of the customer’s desires and the measurement procedure; later there is the testing of a trial shoe before the final product can be constructed. The price of Dimitri Gomez’s bespoke shoes begins from €3,500 (Dimitri Bottier 2020). Although the bespoke production of shoes follows traditional craft processes, it does not exclude creativity. For example, Dimitri Gomez exercises his creative skills in the selection of materials and shoe designs. His website details ‘new creations’, which, for example, make use of the availability of the quality materials including crocodile, water Buffalo, elephant, and shark hides. Moreover, the production of bespoke shoes does not preclude the use of innovative ways of reaching customers. Dimitri Gomez’s shoemaking services are, for instance, advertised on the Dimitri Bottier (2020) website. Furthermore, shoemakers at John Lobb Ltd travel across the globe to meet the needs of their bespoke clients—​a service that is advertised on the company’s website and facilitated by innovations in transportation and communications (John Lobb Ltd. 2020). Here, the use of the Internet has become necessary as a means of marketing to old and new clients alike. A combination of the Internet and jet engine flight technology safeguards the sustainability of handcrafted shoes by ensuring a sufficient yet niche global market for craft skills to be sustained. However, the fundamental production of the shoes remains the same. Shoemakers must undergo a lengthy period of apprenticeship before they are competent to practice their

162   Joanne Roberts knowledge to produce luxury footwear for their wealthy customers. Moreover, artisans of this type are not driven by market competition. Rather, they endeavor to practice their skills for the satisfaction of producing a well-​crafted good. However, the combination of old craft skills and new technologies in the form of the Internet allow the supply of a sustainable market.

Luxury Goods and Creativity The design activities of luxury brands require creativity, which often goes beyond function towards an aesthetic appeal. Situated among the high-​end cultural and creative industries (European Commission 2012), luxury brands draw on cultural resources for inspiration and collaborations. Accordingly, there are strong connection between art and luxury, including collaborations between luxury brands and artists (Armitage 2020; Joy and Belk this volume). Importantly, the association with fine art not only offers luxury brands creative resources but also cultural capital. Hermès regularly engages with artists and encourages their development through its artist’s residencies, which facilitates artists’ engagement with workshops of craftsmanship excellence through the Hermès Foundation (Fondation d’Enterprise Hermès 2020). In 2019, for the first time, Hermès offered artists, whether they are illustrators or graphic designers, the opportunity to reimagine the Parisian label’s iconic silk scarf through an artists’ contest (Klein 2019). In the past, Hermès has worked with specifically selected artists on scarf designs. One such collaboration with the Japanese artist Hiroshi Sugimoto is explored by Serdari (2016). This particular example illustrates the creativity of the artist who constructed a crystal lens that refracted sunlight onto a blank wall creating color fields, which he then photographed with old Polaroid film. The resulting color images were transferred onto a series of silk scarves. However, because the normal silkscreen printing used at the firm’s Lyon factory was unable to capture the intracolors present is Sugimoto’s images, experimentation and innovation in the silk printing process was necessary. This involved innovative inkjet printers of sufficient size and with the capacity to accurately transfer Sugimoto’s images on to silk (Serdari 2016). In this instance, then, the realization of the artist’s creative vision required more than their work being transposed into the usual silkscreen production process. New printing techniques had to be developed through incremental innovation and adopted by the company to bring the artist’s creative intention to fruition. In this case, then, the combination of craft skills and knowledge concerning printing on silk combined with the creative vision of the artist and the innovative printing technologies was required to produce the final luxury item. Hence, although creativity is a dominant feature in the development and production of Sugimoto’s Hermès scarf, to realize the final product craft skills and innovation were necessary.

Luxury, Craft, Creativity, and Innovation    163

Luxury Goods and Innovation Many luxury goods require extensive investment in innovation whether in materials, production, or delivery. Luxury vehicles of transportation offer examples of high-​tech innovation involving high levels of investment in R&D, which has produced both incremental and radical innovations. The development of passenger air travel, which was very much a luxury until the 1970s, required significant R&D as has the production of passenger shipping from the transatlantic passenger liners of the late 1800s to the luxury cruise ships and private yachts of today. Since its emergence in the eighteenth-​century steam propulsion prototypes to today’s electric-​and solar-​powered versions, the car has been at the center of technological innovations, whether related to speed, safety, comfort, efficiency, material development, fuel type and consumption, emissions, or design. In the early decades of the twentieth century, owning a car was a luxury. It was not until 1913 that the mass production of cars began, with the Model T Ford, which brought the price down and therefore made car ownership affordable to a mass market. However, cars at the leading edge of technology have remained luxury goods. Currently, innovative activity in the car industry is focused on the production of high-​ performing electric vehicles with low emissions as well as self-​driving models. Luxury car producers are at the forefront of such developments. Some of these developments require radical innovations that are disrupting long-​standing aspects of vehicle production and use. For instance, the development of electric cars introduces a major disruption to car production and the fuel and services networks that support their use. The evolution of electric cars has benefited from early adopters able to afford the luxury prices of newly developed vehicles that are exclusive by virtue of both their price and low production numbers. In 2006, Tesla, the American electric vehicle and clean energy company, launched the Tesla Roadster, an all-​electric sports car costing $98,000, a price that made it a luxury at the time (Bendell and Thomas 2013). Although still a luxury for most people, electric cars are becoming more affordable, and they have the potential to generate huge benefits for the environment when they become widely adopted. Moreover, the emergence of such luxury vehicles also paves the way for the development of the network of support required for their widespread adoption, including recharging facilities and the capacity for repair and servicing of vehicles. Tesla has now moved from producing only luxury goods to producing premium goods with the launch of its first mass-​market vehicle, the Model 3 sedan, with a starting price of $35,950 (Bomey 2019). The production of Tesla cars has followed the path of many highly innovative goods that begin as luxuries, affordable only by wealthy individuals, but as the technology develops and manufacturing methods advance the production of such goods is scaled up with subsequent economies of large-​scale production lowering costs and reducing price. Technologically intensive goods, whose production can be scaled up, and for which there is a large potential market at a lower price, can, over time, move from luxury

164   Joanne Roberts to premium and eventually reductions in prices can bring them into line with normal goods in their product category. Of course, craft skills and creativity are also embedded in the production of luxury cars. The design of car bodies produces an aesthetically pleasing object as well as an aerodynamic profile. Similarly, the leather upholstery and wood paneling that feature in luxury vehicles require craft skills. For instance, British luxury car manufacturer Bentley motors, owned by the German multinational VW Group, combines traditional craft techniques with technological innovation to enhance its distinct appeal. Moreover, craft innovation is evident throughout Bentley’s manufacturing process, with three-​quarters of its production line staff using craft skills and applying innovative techniques in paintwork, woodwork, leatherwork, and needlework (KPMG 2016: 23). Where the exclusivity afforded by craft skills is an intrinsic element of the attraction of a luxury car, the scope for scaling up production is restricted, thereby ensuring the luxury status of such cars. Even so, luxury car manufacturers that incorporate craft skills into their products do pursue technological advances. For example, the future of cars is being envisaged by companies such as Bentley and Rolls-​Royce. In 2019, Bentley motors unveiled its EXP 100 GT concept car as part of its centenary celebrations. Representing Bentley’s vision of the future luxury car as electric, zero emissions, and self-​driving, the EXP 100 GT is also equipped with an AI (artificial intelligence) assistant to adjust the driving style, and the car’s ambiance, including lighting and scent, to suit the driver’s mood (Wright 2019). Similarly, Rolls Royce offers an innovative interpretation of the future driving experience in its 103EX VISION NEXT 100 luxury car (Rolls-​Royce Motor Cars 2020).

Discussion The examples outlined indicate that the relationships between luxury and craft, creativity and innovation are varied and complex. Moreover, it is often the case that craft, creativity, and innovation are conflated in discussions of luxury-​ branded goods such that the differences between these distinctive characteristics become blurred. Nevertheless, as the examples considered in the previous section illustrate, luxury brands may be pulled in different directions with regard to their product development and production methods depending on the emphasis that they place on craft, creativity, and innovation. Even so, the development of a luxury-​branded good, although it may in large part depend on craft, creativity, or innovation, in most cases requires inputs of all three but in varying degrees. However, it is possible to situate the relative position of luxury-​branded goods in relation to their connections to craft, creativity, and innovation (Figure 8.2). Products which require a significant proportion of craft skills in their production, such as bespoke shoes, will cluster towards craft whereas those in which new goods are developed that draw on the creative talents of artists will cluster toward creativity. Yet the realisation of the creative vision of artists often depends on the use of

Luxury, Craft, Creativity, and Innovation    165 Craft Dimitri Gomez Bespoke Shoes

Hermès Silk Scarf

Creativity

Tesla Cars Innovation

Figure 8.2.  Situating luxury goods in relation to craft, creativity, and innovation.

craft skills and sometimes requires innovations to bring such visions into material form, as demonstrated by the example of the development and production of the Hermès silk scarf designed by the artist Hiroshi Sugimoto. Technically advanced luxury goods requiring high levels of R&D, like Tesla cars, will cluster towards innovation. However, like the example of Hiroshi Sugimoto’s Hermès scarf, the production of many luxury goods involves a combination of craft, creativity, and innovation. Table 8.1 further explores the relationship between craft, creativity, and innovation for the three goods included in Figure 8.2. The production of each of these goods requires elements of craft, creativity, and innovation. However, the relative proportion and nature of craft, creativity, and innovation varies in each case. By making use of the framework offered in Table 8.1, it is possible to assess the relative importance of craft, creativity, and innovation to luxury-​branded goods as well as the interaction between these aspects and how this interaction determines the source and character of the luxury embedded in the good considered. For high-​tech goods like Tesla cars, their luxury qualities may be temporary, based as they are on a technological lead. For other goods, like the bespoke shoes produced by Dimitri Gomez, their luxury character is ensured by traditional craft production methods, which depend on highly skilled labour. Offering little scope for labour productivity increases, craft production ensures limited supply and high price. Yet for other luxury goods, including the Hiroshi Sugimoto-​designed Hermès silk scarves, there is the combination of technological innovation and artistic creativity embedded in a limited-​edition luxury good. The relationship between luxury, craft, creativity, and innovation may also vary across the range of goods offered by a luxury brand. Some goods may be handcrafted in small-​ scale workshops while others are mass produced in factories. However, luxury brands mobilize the image of small-​scale workshop production to market mass-​produced goods (Wierzba 2015). For instance, Louis Vuitton produces made-​to-​order and other leather goods by hand at its historic workshop (established in 1859) in the Paris suburb of Asnières-​sur-​Seine. Yet, Louis Vuitton does mass-​produce goods in low-​cost locations. Its Italian shoes, for example, which customers might expect to be produced at its Fiesso d’Artico workshop near Venice, are largely manufactured in a Romanian factory and

Table 8.1. Luxury Goods: Nature and Importance of Craft, Creativity, and Innovation

Luxury good

Classified by dominant character: craft, creativity, or innovation

Source of luxury (beyond high price)

Nature of craft

Nature of creativity

Nature of innovation

Dimitri Gomes’ Handmade shoes

Craft

Bespoke; quality, exclusiveness

Preservation of existing craft knowledge

Customisation to Traditional methods of consumer’s requirements production: potential for and availability of materials incremental innovation

Hiroshi Sugimoto designed Hermès Silk Scarves

Creativity

Brand name; Limited edition, art collaboration

Traditional skills in the production of silk scarves and in screen printing

Artist-​produced image

New means of printing scarves to ensure image reproduction involving incremental innovation

Tesla Cars

Innovation

Leading-​edge technology

Craft in prototyping designs

Design and technological development feeding into innovation

Development and application of new technologies involving electric battery technology, efficiency, autonomous driving etc. with scope for further radical innovation

Luxury, Craft, Creativity, and Innovation    167 only finished in Italy (Lembke 2017). Hence, for Louis Vuitton and many other luxury brands, the notion of the local craft-​based workshop is the narrative on which the demand is built to sustain a global factory mass-​production system supported by complex supply chains. For a luxury brand to maintain its luxury status, the goods it offers must be commensurate with that status. The foundations of a luxury position may derive from the use of expensive craft skills and rare materials, from harnessing creativity to produce aesthetically appealing objects, from developing leading-​edge technological goods, or from a combination of these sources. Moreover, luxury brands also deploy skillful presentation craft, creativity, and innovation in the framing of its luxury goods in promotional, marketing, and communications activities. Indeed, the production of craft-​ based, creative and innovative goods is a core element of many luxury-​brand narratives. Such narratives are directed not only at customers but also at investors. For example, in its 2019 Annual Report, the luxury conglomerate LVMH states its philosophy to be ‘Passionate about Creativity’, and the first of its three core values is given as: ‘Innovation and creativity:  Because our future success will come from the desire that our new products elicit while respecting the roots of our Maisons’ (LVMH 2019: 2). Although luxury is often associated with highly creative and innovative products, from haute couture to luxury cars, some luxury-​branded goods are less dependent than others are on high levels of creativity. Undeniably, the very attraction of certain luxury goods is that they remain a constant, offering continuity in an ever-​changing world. Nonetheless, even these luxury goods are touched by the creativity and innovation that has facilitated recent technological changes such as the Internet and social media, which are today mainstream means of communicating with customers and clients. However, a core component of certain luxury goods remains timeless. The exploration of the relationship between luxury, craft, creativity, and innovation presented in this chapter suggests that luxury-​brand managers need to reflect on the place of craft, creativity, and innovation in the goods that they produce and deliver. It is vital that managers identify where preserving existing production and delivery techniques is central to the maintenance of the luxury status of their goods. There may be occasions when managers need to avoid change and put resources into ensuring stability and continuity of certain core craft activities. In other instances, change through the introduction of incremental or radical creativity and innovation may be vital to ensure the survival of the luxury brands. Importantly, the realization of creative ideas is not always conducive to the survival of a luxury brand. Consequently, knowing when creativity should be embraced and when it should be resisted is vital for the successful management of luxury brands. In the contemporary era, the challenges arising from the need to produce in a sustainable and ethical manner are important driving forces behind the search for new materials, methods of production, and ways of consuming. Growing interest in faux leather, energy efficiency, durable and repairable products, and renting rather than buying goods are driving luxury brands to explore new ways of producing and delivering luxury goods. Hence, there is a growing need for luxury producers to embrace creativity

168   Joanne Roberts and innovation whilst rethinking traditional materials and methods of production and delivery. For instance, alongside a range of initiatives to bolster its sustainability and ethical credentials, including going fur free, Burberry has financially backed the Burberry Material Futures Research Group in partnership with the Royal College of Art to invent new sustainable materials (Newbold 2018). Such initiatives, evident among leading luxury conglomerates such as LVMH and Kering, are increasingly important given the acute environmental and ethical concerns of young consumers, namely, Millennials and Generation Z, who are a growing proportion of luxury consumers (Euromonitor International 2019).

Conclusion Through an examination of luxury, craft, creativity, and innovation, including the varied cases of bespoke shoes, an artist’s silk scarf collaboration, and leading-​edge car design, this chapter has illustrated the complex interactions between craft, creativity, and innovation in the contemporary production of luxury-​branded goods. There is great variability in the role of craft, creativity, and innovation in the production and delivery of luxury goods. This is evident in the way that knowledge is employed in the production of luxury. In some instances, luxury goods are produced through the use of existing craft skills applied in new contexts, or through the creative understanding that designers or artists contribute to new products, giving rise to incremental innovations. However, where luxury goods are dependent on technologically advanced inputs, the boundaries of knowledge are pushed back through radical innovation. Some luxury goods are luxuries because they are handcrafted and produced in small quantities, making them expensive but exclusive. Other luxury goods gain their status from their link to named designers or artists. And yet other luxury goods arise from leading-​edge technology, which gives them a novelty value. Gaining a deeper appreciation of the nature of craft, creativity, and innovation of relevance to particular luxury goods would be of benefit for those managers engaged in the development and production of luxury goods. For instance, such an appreciation would allow managers to identify where change and new technologies can be introduced to enhance rather than diminish the luxuriousness of a good. Managers and scholars must recognize the variety that exists among luxury goods. They must, therefore, adopt a nuanced approach to understanding luxury’s complex relationship with craft, creativity, and innovation.

Notes 1. Starchitects are architects whose critical acclaim has given them celebrity status. 2. The term “craft” has many meanings, including as a mode of transportation, as in aircraft.

Luxury, Craft, Creativity, and Innovation    169 3. See https://​www.hublot.com/​en-​gb/​partnerships/​football and https://​www.hublot.com/​ en-​us/​craftsmanship/​innovative-​materials. 4. Public health care systems may provide free or subsidised handmade shoes to those whose health and mobility are impaired by the lack of availability of suitable footwear.

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Chapter 9

Licensing a nd t h e M ass Produc t i on of Lu xu ry  G o od s Tomoko Okawa

Licensing is defined as an agreement in which one company gives another business permission to use their intellectual property rights on products or services in exchange for a financial consideration, typically a royalty (Battersby and Simon 2018: 1). The licensing business for fashion brands mainly aims at two types of market expansion: (a) overseas expansion and (b) diverse forms of product development, especially in fashion-​related goods. Licensing grew significantly during the 1970s and the 1980s. Numerous luxury brands launched their licensing businesses because of the lure of international expansion and the associated growing revenue. The luxury-​goods industry has undoubtedly been one of the fastest-​growing sectors since the 1970s, mainly from expansion through overseas retailers and the licensing business (Donzé and Fujioka 2018: 1). However, when luxury companies underwent transformation in the 1990s, they tried to strengthen the rare and exclusive image of their goods. Brands like Christian Dior, Gucci, and Yves Saint Laurent, among others, were then compelled to reconsider licensing because of the potential conflict it generated with the luxury business. Their international expansion through licensing during the previous decades had indeed damaged their image in terms of brand-​image consistency. Luxury companies have two options to develop on foreign markets: maintaining brand value while expanding their business or moving into the licensing business. Another issue is the appropriate mode of entry for each overseas market (Beamish et al. 1994). It depends on the company’s resources and can take several forms (Lane et al. 2011), including exports and foreign direct investment (FDI). Another intermediate business format is a strategic alliance, in which independent organizations form a partnership to cooperate on product development, production, and sales in the foreign markets (Barney 2003: 6–​7). Licensing business is classified as intermediate governance, but it often features strategic alliances across borders. International partnerships can be a source of sustainable

174   Tomoko Okawa Nontechnical type

Copyright

Trademark right

Technical type

Design right

Patent right

Utility model rights

Figure 9.1.  Types of intellectual property rights. Source: Kusama (2017: 2). Reprinted by courtesy of the author.

competitive advantage for luxury firms if the partnering companies can add value by handling scarce resources and capabilities. Licensing directs cooperation between companies through contracts without holding shares or creating independent organizations. Licensing enables strategic alliances between companies when they cooperate in the development, manufacture, and sale of products and services. Cooperating firms jointly develop, manufacture, or sell products and services but do not hold shares in each other’s companies or create independent organizations to manage a joint venture. In general, licensing refers to the right to use patents and manufacturing methods. In the case of fashion, it may also refer to the right to use a brand name or trademark. Licensing laws belong to the realm of intellectual property rights, which are approximately divided into nontechnical and technical types (see Figure 9.1). Nontechnical licensing law applies to the fashion industry, where a product licence gives the right to sell products by including the owner’s trademark. In fact, fashion brands rarely use patents to protect innovation; instead they use copyright, industrial property, trade secrets, and branding (trademark law). Through access to specific intellectual property rights, licensing can be a lucrative source of commercial activity for the licensee. For the licensor it can be source of secondary income (Kusama 2017). A mediator between the licensor and the licensee is called a licensing agent. The licensing agent retains the management function of maintaining and developing the brand value appropriately. The agent’s role is to represent the licensor’s property and to help build the brand and ancillary business based on an agreed-​upon strategic road map (Battersby and Simon 2018: 92). The US International Licensing Industry Merchandisers’ Association (LIMA), now Licensing International, founded in 1985, has more than 1,200 member companies representing forty countries from all areas of the licensing industry. They consist mainly of ten major fields (see Table 9.1). According to the Annual Global Licensing Industry Survey, the worldwide sales of licensing products in 2017 amounted to $2.716 billion, of which nearly half were related to entertainment (Licensing International 2018). In the fashion industry, licensing products often include the name of the licensor’s company. Penrose claims that companies focus on maximizing profits because of several factors. She wrote that ‘the general direction of innovation in the firm is not haphazard but is closely related to the nature of existing resources’ (Penrose 1995: 84). Licensing is

Licensing and the Mass Production of Luxury Goods    175 Table 9.1. Classification of 10 property categories by LIMA ① Art

⑥ Fashion

② Celebrity

⑦ Music

③ Collegiate

⑧ Nonprofit

④ Corporate

⑨ Publishing

⑤ Entertainment

➉ Sports

Source: Battersby and Simon (2018).

a way of using existing resources, including brand equity, efficiently. The direction and means of growth for luxury brands are, however, a challenge. Kapferer (2017) argues that because luxury goods follow the concept of rarity, the luxury industry faces problems when considering business expansion. Therefore, licensing essentially conflicts with luxury business because luxury is associated with craftsmanship, a long history, excellent quality, and high prices. However, despite the threat that licensing presents to the preservation of the authenticity of luxury value, many companies adopted it in order to increase their scope and their profit. Licensing emerged as a popular business model because it complemented the uncertain, labour-​intensive luxury industry, provided high royalties, and was reliably profitable (Grumbach 2008: 73). A licensor uses its brand capabilities to accomplish three objectives: (a) to earn a stable royalty, (b) to develop a promotional approach towards customers who would not be reached otherwise through existing products, and (c) to secure legal protection. In overseas markets, product development based on country preferences advances objectives (a) and (b) for the licensor (Keller 2000). Clothing preferences reflect the personal and cultural characteristics of the local consumer. European fashion brands chose to adapt to the international market in terms of size, fashion taste, and pricing rather than selling their original garments around the world, notably through FDI. Even if they could bring their own products to international markets without modification, they would face obstacles, including having to come up against customs duties and distribution-​channel barriers. Licensing is an intermediate international strategy adopted as a control mechanism that minimizes the transaction costs in terms of rationality, opportunism, and asset specificity (Williamson 1971, 1981). It does so by collaborating with well-​informed companies in the new market under uncertain circumstances. For example, for fashion products that are complicated to adapt, a partnership with a well-​informed company in the market can reduce the transaction costs. Moreover, with brand power as an advantage, licensing methods may facilitate profit maximization through product development. From the perspective of branding, this ‘new product development strategy’, as indicated by Ansoff (1965), is also a ‘market expansion strategy’, using different items. This is also known as ‘brand extension’ (Aaker

176   Tomoko Okawa 1997; Ansoff 1965; Keller 2000). Kotler (2001) presents three methods for expanding brands: (a) using the same brand name for new products in existing categories (line extension), (b) using the same brand name in new product categories (brand extension), and (c)  using the same brand name in different industries (brand stretching). Line extension is advantageous, because it facilitates the use of an established merit in the category and is more cost-​effective than introducing new item names or products to increase brand awareness. Copied products dilute and spread without surpassing or even meeting the quality of the genuine product. Benjamin (2011) once used the word ‘aura’ to describe the element that copied products lack. This represents the inevitable loss of value and quality between the original and the mass-​produced copy. In the fashion market, a product’s grade and price are generally pyramid shaped. In terms of the diffusion of fashion products such as apparel, there are two production models in the fashion industry. In the first model, each product is planned and produced by an independent department within the brand (sewing is done outside the company). In the second production model, known as the bridge line, the product is developed independently by a licensee with the approval of the licensor. Brand extension is an effective practice in that it creates considerable growth for a brand. Yet, it is not without risk. Keller (2000) listed the following risk factors evident in the licensing business: (a) cannibalising a parent brand, (b) harming the parent brand image if the brand extensions failed, (c) damaging the parent brand’s image, even if the brand extensions are successful, and (d) losing the opportunity to think of a new brand name. Given the nature of luxury brands, the risks associated with licensing are of particular significance. Licensing in luxury business flourished from the 1970s to the 1980s. To maximise sales and profits on a global scale, it was necessary for companies to respond to the growing buying power of the middle classes. The licensing business, one of the appropriate methods to expand during that era, offered cheaper goods than the originals and made them more affordable to the masses, giving way to the so-​called democratisation of luxury. This increase of consumer base occurred through four different approaches: (a) embracing the consumer’s perspective (brands that are already perceived as ‘lifestyle’ brands and associated with specific values expanding into more product categories for brand extension); (b) innovating the extended category (strengthening the link between the brand’s core product and the extended product); (c) continuing to nurture the core business; (d) defining the right business model (Corbellini and Saviolo 2009: 243). Baudrillard (1993: 308) once said, ‘Consumption is a process of absorption of signs, and absorption by signs’. This implies that everything is just a symbol to be consumed. For middle-​class consumers, a symbolic brand name (including the logo), which aligned with the label of a licensed product like an afterglow, is recognized as an added value. Particularly, embroidering or printing a brand’s logo onto a product differentiates it from a product without the logo. This allows consumers to identify themselves as having a social status to afford buying the derived brand’s items. Owning licensed products also signalled that consumers were flaunting their economic power and showing that they

Licensing and the Mass Production of Luxury Goods    177 shared the interests of others. Currently, luxury companies have expanded to overseas markets through licensing a diverse range of products.

The Development of Licensing in Luxury Fashion Luxury fashion is an excellent example to illustrate how and why companies adopted a licensing strategy after World War II. These firms had three main objectives: (a) expansion to overseas markets, (b) extension of their product line, and (c) broadening their customer base. Licensing agreements were preferred to FDI due to the small size of haute couture houses. Jones (2005) asserts that a company tends to adopt licensing when it has little overseas business experience and limited financial resources. He also argued that FDI in manufacturing seldom occurred in very labour-​intensive industries. This is applicable to the fashion industry as well. Additionally, because fashion goods tend to reflect the physical characteristics and regional and ethnic preferences of the customers, product adaptation is a big challenge to enter a new market without understanding these factors.

Expanding Abroad As Ansoff (1965) indicates, luxury firms tend to adopt a market-​expansion strategy through overseas development in order to foster the unique character of their goods, backed by their long history. Launching an haute couture product originally required at least three fitting processes at a Paris atelier, as defined by a provision of the Chambre Syndicale de la Couture Parisienne. It also prohibits relocation of production outside Paris. Therefore, haute couture firms had to find other ways to internationalise. Beginning in the late 1920s, to reduce the physical distance and time required for wealthy foreign customers to receive products, the sale of paper or fabric patterns increasingly brought French haute couture designs to foreign retailers and clothing manufacturers (Palmer 2001; Pouillard 2011). The United States promoted mass production while partially using European creations as models (Green 1997; Pouillard 2013). The practice of copying, adapting, and redesigning couture clothes was one of the great strengths of the North American fashion industry (Palmer 2001). Copying haute couture was not, however, restricted to overseas markets. Driven by market competition, employees of fashion houses, manufacturers, and clients themselves engaged in this activity. Manufacturers reproduced or copied the original prototypes of designs. Copying without legally purchasing a design was considered illegal in France, but the fines paid by convicted plagiarists were too low to deter them entirely (Pouillard 2013). It is still a constant challenge for the fashion industry, which

178   Tomoko Okawa faces a high incidence of counterfeiting to this day (see Gistri in this volume). Even before World War I, some haute couture houses were actively trying to develop ready-​ to-​wear garments as a measure to prevent illegal copying; they provided their own mass-​ produced copies of their creations (Brachet-​Champsaur 2012; Kirke 1991). After World War II, one breakthrough was the introduction of full-​scale ready-​to-​ wear fashion by haute couture houses. In 1948, Christian Dior opened a ready-​to-​wear boutique on Fifth Avenue in New York. A direct operating system was opened with this US branch as an initial step (Grumbach 2008; Palmer 2009; Pouillard 2018). In 1952, the company also established a branch in London as CD Models, and owing to the strengthen of the ready-​to-​wear market, a licence agreement for hats was signed with Simone Mirman (Musée Christian Dior 2006:  22). In the case of clothes, launching products adapted to overseas markets was the highest priority in order to be able to access proper sales channels for business expansion (Okawa 2008). Ready-​to-​wear clothing was modified for each country under a licensing contract that controlled licensees through approvals. This helped address issues arising spontaneously on account of inexpensive and illegally copied products of largely inferior quality, which were inevitably labelled name-​brand products. In some cases, the licensor directly contracted with specialised manufacturers. This was optimal for creating the product globally as long as the manufacturers, as key licensees, were conversant with local circumstances. In some cases, subsidiaries in the main overseas market managed licensees by themselves, and in another case, a trustworthy company was entrusted with the responsibility of overseeing product development and selecting sublicences.

Product Development: Extending the Line of Items Revenues generated from the licensing of perfumes, fashion accessories, and ready-​ to-​wear clothing are a major source of profit for luxury firms (Jarnow and Judelle 1974: 182–​183). French couturier Paul Poiret was the first to launch a perfume in 1911 (White 1973). Since then, luxury fashion firms have expanded product diversification beyond perfumes, developing a broad range of goods like accessories, shoes, bags, and makeup, and, more recently, opening cafés, restaurants, and hotels. For example, Emaar Properties PJSC with Armani and Marriott with Bulgari have developed hotels under the name of supervision. All things surrounding people can be considered ‘fashion’ goods. In principle, in the fashion industry, a licensor cannot extend the product line alone; it requires an industrial partnership with specialised manufacturers because original equipment manufacturing (OEM) production is adopted. Once the extended product and the target market are determined, the contract with the optimal licensee is signed. Simultaneously, the licensor establishes the terms and royalty rates. The terms of any licence agreement will define the brand’s history, and the storytelling that justifies the payment of a premium.

Licensing and the Mass Production of Luxury Goods    179 Although brands integrate manufacturers as subsidiaries, as in the case of Gucci in the 1990s (Moore and Birtwistle 2005: 262), this is not a common strategic approach due to the investment needed and the question of its subsequent payback. Leveraging a brand name facilitates the expansion of a luxury company’s product line with the support of specialised manufacturers. The reason for brand extension is to strengthen the core business and build relationships with appropriate business partners (Corbellini and Saviolo 2009:  239–​240). The Italian-​born designer Elsa Schiaparelli, who had experienced living in the United States and opened a prominent fashion line in Paris, was the first haute couture designer who worked on licensing a product. She entered into a contract with New York stocking manufacturer Kayser Inc. in 1940 (Grumbach 2008: 115; Palmer 2009: 93). In 1949, Christian Dior also signed a contract with a US stocking manufacturer. By 1953, there were 2,500 Dior stocking distributors in the United States (Palmer 2009: 93; Pochna 1994:  259–​260). Benjamin Theise, a US textile company, offered to produce Christian Dior’s range of men’s neckties. This marked the first combination of a women’s clothing brand and a men’s accessories brand (Grumbach 2008: 115). The advent of Christian Dior ushered in the combination of fashion and licensing. Moreover, these examples were characteristic of the beginning of mass production. Grumbach (2008: 73) points out that ‘Christian Dior firmly believed in the alliance of capital and talent’, and the financial strength of the Boussac Group, which wholly owned Christian Dior, clearly showed that cash flow is an absolute necessity (Okawa 2008; Palmer 2001). By this time, the industry’s managers had understood that licensing was a solid component of their core business. The so-​called Christian Dior model had a significant effect on licensing in the luxury industry (Grumbach 2008: 109–​118). In 1950, Jacques Rouët, general manager of Christian Dior, founded a wholesale division to distribute licensing products and ready-​to-​wear garments. The department store Galeries Lafayette in Paris sold Dior branded stockings, gloves, and neckties made by Grimonprez in France, a subsidiary of the Masurel Group. This was the first case in which an haute couture label appeared in a department store in France (Grumbach 2008: 113). The final business format of licensing agreements included the prepayment of royalties every quarter (or every season) and setting up a minimum-​deposit payment system. This format expanded rapidly, and there were 150 licensed European fashion brands in 1990. In the case of Christian Dior, the licensing business accounted for 95 percent of its global sales at that time, 45 percent of which was from Japan (Grumbach 2008: 118). The licensors of luxury brands adopted an approval process to confirm that the products made by the licensee were in accord with the brand image. This is an important process that cannot be neglected if the uniformity of the brand image is to be maintained. In general, the licensee cannot release a product unless an agreement from the licensor is obtained. This dependency on the licensees is a challenge for fashion brands because the factories that produce various items are organised by product line. Except for large-​scale

180   Tomoko Okawa factories such as those in China, garment factories are divided between women’s and men’s clothing and among fabrics, knits, and types of clothing. Similarly, fashion-​related accessories, such as bags, shoes, and eyewear, are also manufactured by specialised companies. Some countries specialise in specific types of products, as Italy does with leather goods, in particular handbags and shoes. Therefore, fashion brands usually designate a main licensee in each country to avoid complicated production and maintain a unified brand image. In some industries, the production of licensed goods is not carried out by OEM and subcontractors but by large multinational enterprises that have a competitive advantage in making some specific goods. This is particularly true for cosmetics and eyewear companies. For example, Shiseido entered into a global licence agreement with Dolce & Gabbana for perfume, makeup, and skincare products in 2016. Estée Lauder Companies Inc. holds the exclusive rights to Donna Karan and Tom Ford perfumes. Hermès has also announced in 2020 the release of new skincare and cosmetics lines for the first time in their 183-​year history. These products were developed in-​house but manufactured by third-​party suppliers, mainly in France and Italy (Guilbault 2019). As for Luxottica of Italy, the global leader in the eyewear sector, it has contracted with Chanel, Prada, and other luxury brands as of 2020. They promoted the integration of their wholesale and retail vertical model, which is unique to this sector (Tonchia and Quagini 2010). Similarly, Safilo manages several luxury eyewear brands such as Jimmy Choo and Max Mara. Also, Fossil Inc., a US watchmaker based in Hong Kong, is making watches for fashion brands such as Burberry and Marc Jacobs (Donzé 2017). Given that eyewear, wallets, and watches are often cheaper than clothes and handbags, these items are valuable as brand entry items mainly because they are purchased by younger consumers.

Expansion of the Customer Base Because of the rarity and cost of its products, a luxury brand typically targets relatively few high-​income individuals, even on a global scale. Haute couture traditionally targeted wealthy people. However, the haute couture industry faced a dramatic decline after the 1920s. The number of employees in this industry decreased from nearly 350,000 people in 1930 to 3,120 people in 1973 to 928 people in 1990 (Grumbach 2008: 118). This decline mirrored the fading power of the industry and made companies look for new sources of growth outside haute couture itself. The haute couture industry has adopted a strategy of expanding its customer range towards lower social classes through the use of the brand image. It is, therefore, imperative to create and maintain a longing for a status brand and to help consumers feel that the brand can be owned even if they overreach a little. Extending the product line is one method of inclusively strengthening the brand with heterogeneous items. Additionally, depending on the price range of an item, it is possible to consider the product as an entry item targeting customers who cannot purchase a core product.

Licensing and the Mass Production of Luxury Goods    181 Thus, broadening the targeted consumer group is one method to maximize market expansion. In several cases, this includes young and middle-​aged people from middle classes as well as consumers in emerging economies. Individuals in this group cannot purchase an $8,000 Chanel ready-​to-​wear jacket, but they can perhaps purchase a $600 pair of Chanel glasses. Although there are limited occasions on which a characteristic Chanel jacket can be worn, eyewear can be matched with any style, which makes the product very versatile. But, to be able to sell high-​priced and profit-​making accessories, luxury fashion companies need to keep alive their creative activities; although haute couture itself is carried out at a loss, it has become an investment in brand-​making (Donzé and Wubs 2019; Okawa 2008). Originally, making ready-​to-​wear products was thought to be a career-​ending act for a leading designer. However, Pierre Cardin is one of the haute couture designers who strongly promoted the licensing business. He contracted licences consecutively and promoted the democratization of high fashion (Lorenz 2006). In 1965, André Courrèges assembled an epoch-​making presentation of ready-​to-​wear products on the same stage as his haute couture collection (Grumbach 2008: 131). In the case of garments, licensing a product in a derived product line, called a ‘diffusion line’ and a ‘bridge line’, is meant to appeal to the middle class. These garments are relatively lower priced and more wearable in daily life.

The Historical Evolution of the Licensing Business: The Example of Japan Japan is one of the major markets in which Western luxury fashion expanded through licensing after World War II. This example sheds light on the implementation process of licensing contracts in luxury fashion, as well as the consequences for both licensors and licensees. The Japanese market was difficult to access until the 1990s, due to strict regulation and a closed distribution system (Ito 1993; Miwa 2002). Hence, licence agreements enabled foreign brands to enter Japan and to experience rapid growth in the country, which became the first non-​Western market of European luxury companies. In the 1950s, the Japanese apparel industry was still nascent, but the ready-​to-​ wear garment sector was gradually expanding (Ishii 2004; Kajima 2006). Licensing agreements offered Japanese firms access to European and American designers’ names, designs, and techniques for the manufacturing of fashion goods. It was a typical case of technology transfer. As mentioned earlier, the Japanese government regulated imports for its own economic recovery; therefore, licensed products could provide the market with branded clothing, as if they were nearly genuine. However, with deregulation and the rise of globalisation, licensing gradually diminished in importance.

182   Tomoko Okawa

The Heyday of Licensing Starting in the 1960s, with the democratisation and popularisation of fashion, licensing models became very popular in Japan. High-​end department stores were major partners of European companies (Fujioka, Li, and Kaneko 2018). The first licensing partnerships in Japan were between Pierre Cardin and Takashimaya (Takashimaya Archives), and Louis Féraud and Seibu Department Store, both in 1959 (Yui 1991: 210). They specialised in ready-​to-​wear clothing lines. Then, in the 1960s, other types of companies started signing licensing contracts, like the knitted apparel maker Kosugi Sangyo (now Kosugi), with the American sport knit brand Jantzen (1962); the textile company Kanebo, with Christian Dior (1963); and the general trading company Itochu, with Munsingwear (1964). The popularization of Western apparel products, both luxury and sportswear brands, was the key driving force behind these developments. In particular, general trading companies were recognized as major intermediaries, and even today they play this essential role in Japan. For example, Mitsui & Co. contracted with Paul Stuart (2013–​), Pierre Cardin (1997–​), and an Italian luxury food store, Eataly (2015–​), and Mitsubishi Corporation contracted with Old England (1991–​2013). The domestic Japanese apparel industry was in a transitional phase in the 1970s, within the general context of a national textile industry shifting its focus from foreign markets to a growing domestic market, and against the backdrop of the strengthening yen and the appearance of apparel industries in emerging countries. In this context, Japan gradually surpassed the United States as the most important partner of European luxury fashion companies for licensing contracts. After 1975, Japan’s licensing business matured and diversified (Okawa 2008). Japanese licensees ruled over several Western brands because they knew how to sell a broad variety of products by brand name and logo, which then increased the licensors’ profits. This led to a stable income, and licensees could enjoy full product development and production capability and accept orders from multiple brands. Indeed, Japan was characterized by an oligopoly of excellent OEMs. Although the Japanese textile industry has a long history before World War II, the apparel industry began developing in the 1960s in the context of an increasing Westernization of lifestyle (Ishii 2004; Kajima 2006). As the country was still immature in terms of occidental fashion design, licensing transactions enabled Japanese apparel makers to acquire new techniques and styles through the approval process. The Christian Dior–​Kanebo licensing agreement continued to popularise the Dior brand by launching high-​quality goods on the market, after more than five years of much trial and error (Kanebo 1984). The breakthrough was a nylon stocking that accompanied the boom of the miniskirt. Figure 9.2 shows an innovative, sophisticated packaging design. Osamu Nakabayashi, a packaging designer at Kanebo from 1964 to 1984, agreed that his design sense improved through exchanges with Christian Dior. This reveals Kanebo’s motivation in trying to reproduce Christian Dior’s luxury world in Japan during this era.

Licensing and the Mass Production of Luxury Goods    183 (a)

(b)

Figure 9.2.  Packaging of Christian Dior products in 1970. Source: Yasuko Ueda Museum (donated by a relative of Osamu Nakabayashi).

Christian Dior’s licensing business in Japan, representing the firm’s overseas expansion, is an excellent example of successful product diversification through licensing. However, the limits of this model were exposed later. Figure 9.3 shows the flow of Christian Dior’s business in Japan in 1984. It indicates the year of product release for each Japanese licensee between Christian Dior and Kanebo. Handbags, cosmetics, and perfumes directly entered Japan through independent importers who purchased the products from Dior Paris and then sold them through the wholesale market. Products such as garments and shoes required adaptation in terms of size and market preference. Thus, a wider product range of the sublicensee facilitated the development of diverse products. Jacques Rouët, the successor president of the brand after the death of Christian Dior in 1957, when interviewed in Japan, stated that ‘the difference between Dior’s licensing products and the others is particularly about quality’ (Nikkei Ryūtsū, Kurihara 1981). Licensing fees were an important source of revenue for Dior’s business. Kanebo’s Dior revenue increased from ¥2.5 billion in 1972 to ¥140 billion in 1982, and profits increased from ¥100  million to ¥800  million (Kanebo 1984). The licensing business mainly supported Kanebo’s fashion division, which traded many brands besides Christian Dior. The number of Dior licensed products on the Japanese market ultimately reached nearly 10,000 items. An exhibition for buyers was held in the early 1990s at Makuhari Messe, a huge exhibition hall near Tokyo (WWD Japan, Miura 2015). Given the vast number of

184   Tomoko Okawa Christian Dior

Parfums Christian Dior

Chief Designer: Marc Bohan

Promotion to the Japanese Market

Design Approval

Christian Dior Japan Branch

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Licensee Product Group Importers Jewelry Furs Ladies’ Shoes Men’s Shoes Moonbat C.D. Jewelry Union Lily 1965

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Watches Kosaido

Handbags Fujita Shoten

Cosmetics Jardine Matheson

1977

Ladies’ Apparel Dior Div.

Men’s Apparel Dior Monsieur Div.

Figure 9.3.  Related business of Christian Dior brands in Japan (1984). Source: Yano Research Institute (1984: 74). Reprinted by courtesy of Yano Research Institute.

items, Kanebo considered that volume expansion was important to reach the terms and conditions contracted with Dior. Although the approval process is of utmost importance in licensing partnerships, to cohere to brand image, volume expansion caused a malfunction in this process. This issue often appears when brands seek expansion by volume. As exemplified by ck Calvin Klein of Calvin Klein, and DKNY of Donna Karan in the 1990s, the impact of overextending a brand can also lead to the brand’s failure. The phenomenon of excessive licensing of products is illustrated in Figure 9.4, which shows an article from 1977 in the fashion magazine J.J. that includes several brand names. By the 1980s, more than two hundred Western brands had entered into licensing agreements with Japanese companies, despite little differentiation between brands (Yano Research Institute 1984). In the 1970s, luxury brands had witnessed immense growth, but the pursuit of sales by expanding inventory was a deviation from the concept of singular form and substance that characterised luxury business.

From Licensing to Direct Operation For the luxury brands, creating products from scratch under their own control, or providing feedback on licensees’ finished products through the approval process, are two different skills. Initially, the latter was believed to be a profitable and efficient model. However, parallel imports (imports by unofficial importers through third countries, in order to cut prices) posed a problem from the late 1970s. These imports damaged the brand image and depended on importers, which sometimes brought in intended counterfeits.

Licensing and the Mass Production of Luxury Goods    185 (a)

(b)

Guy Laroche

Courrèges

Céline

Valentino

Lanvin

Cassandre

Figure 9.4.  ‘Yūmei Brand wo Kirunomo Hitotsu-​no Shudan’ (It’s a good idea to wear the famous brands’ polo shirts for Sporty Elegance Style). Source: J.J. (1977: 20). Reprinted by courtesy of Kobunsha.

The Japanese yen strengthened after the Plaza Agreement in 1985. Consequently, large numbers of cheap imported goods flooded Japan. The market for licensed products gradually declined. Excessive dependence on the licensing business came at a disadvantage to both the licensor and the licensee. For the first time, the licensing market began to decline in Japan, from a maximum of ¥2.648 trillion in 1992 (Figure 9.5). In 1994 the market report referred to the year when the yen appreciated, and low prices were established in the market. The greatest advantage of a licensed product is its pricing (Yano News 1995). The pricing of licensed products is in between that of an imported product and a domestic product. However, as consumers overall favour low prices, a significant shift occurred in overseas production, such as in China and other Asian countries, to reduce production costs to match the market price orientation. Consequently, it became impossible to maintain standards of high quality and a brand name to license a product. This effect has been more apparent in fashion products since the burst of the bubble economy, after 1991. Conventional wholesale manufacturers find it difficult to acquire customer information at stores as well as to maintain price flexibility. Therefore, since the late 1990s, wholesale manufacturers are shifting to specialty retail of private-​label apparel following the example of Limited, The Gap, and Esprit (Yamazaki 2007). In 2008, H&M and other retailers offering fashion at low prices entered the Japanese market. Domestic manufacturers could not sustain low prices, so they moved production to Southeast Asia.

186   Tomoko Okawa 26.8 billion yen (1991)

30 25

18.8 billion yen (2002)

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12.3 billion yen (2015)

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Figure 9.5.  Evolution of licensing market in Japan (1988–​2015). Source: Yano Research Institute (1998: 3, 2003: 20, 2016: 15).

The number of licensees per brand also began to decline. Licensing contracts, in particular in fashion-​related goods, were concentrated in the hands of influential manufacturers. The Yano News (1990) claims that the top ten companies producing each type of licensed item had created an oligopolistic market (average 60 percent). For example, the production of licensed handkerchiefs, which is a distinctive Japanese lifestyle item, was dominated by two companies (Kawabe and Blooming Nakanishi) that had a share of over 80 percent of the market. Kawabe works for companies such as Lanvin, POLO Ralph Lauren, and Vivienne Westwood; meanwhile, Blooming Nakanishi produces items for Fauchon, Nina Ricci, and Wedgewood, among others, as of 2020. As the licensing business peaked in the late 1970s and 1980s, the refocus on essential products led to the embattled relationship between licensor and licensee. In sum, the race for increased turnover and the ease of developing products that embodied the brand also led to a lack of an effective check on production. Consumers’ pursuit of authenticity as well as a strong yen led to the decline of the licensing business, which led to the direct import of goods. Licensing production bases were relocated overseas to overcome the challenge of low prices. According to the Yano News (1995), only 11.8 percent of licensors did not allow overseas production. Overseas relocation enabled cutting production costs. However, it had a bad impact on quality. Simultaneously, the liberalization of finance and foreign investments enabled Western luxury fashion companies to operate directly in Japan (see Fujioka and Pitkänen in this volume). Moreover, in the mid-​1990s, several licensing businesses shut down because headquarters wanted to strengthen their control over brand management (Senken 2008). An early example was the Boussac Group, the parent company of Christian Dior, which became virtually bankrupt in 1978 and was taken over by Bernard Arnault in

Licensing and the Mass Production of Luxury Goods    187 1984. The haute couture company was reestablished after several modifications, such as changing designers and management. Building and managing a strong global brand was at the core of Arnault’s strategy. After 1992, Christian Dior gradually exited the licensing business despite earning 40 percent of their total sales through such partnerships in the early 1990s. Known as the ‘Dior Shock’, the exit was reported as heralding the demise of the European fashion-​ house licensing business (Senken 1997; WWD Japan 1997). In fact, however, their licensing business sales steadily increased to promote Kanebo. However, the licensing business was terminated due to the crash in stock prices soon after Christian Dior’s listing in 1991, which resulted from investors’ concern about the potential future of the luxury brand, with licensing business sales constituting much of the business results. Nevertheless, relinquishing 40  percent of sales must have been a difficult decision. Finally, Christian Dior completely ended its licensing business in 2001 in Japan (Senken 2001). The Dior licensed products in Japan were replaced by imports under the global operation strategy. Burberry followed a path very similar to that of Christian Dior (Senken Shinbun 2016). The brand entered Japan in 1970 with a licensee contract signed with Sanyo Shokai, an apparel manufacturer. They also formed a strategic alliance for production in 1985 with Mitsui & Co., a trading company. Sanyo Shokai–​Mitsui & Co. made several attempts to renegotiate their contract renewal with the UK head office to maintain their licensing business by developing derivative brands (e.g., Burberry Blue Label for young women and Burberry Black Label for businessmen) while focusing on expanding their business in the Japanese market. Both Burberry and Sanyo Shokai were successful and generated profits. Because their relationship was strong, they entered an exceptional twenty-​year licensing contract, which ended in 2015. In the 1990s, considering the brand’s future, Burberry chose to terminate their licensing business to enhance their brand value, following a strategy similar to comparable luxury brands such as Dior. However, Burberry could not completely suspend its licensing business, which still continues to this day. Sanyo Shokai negotiated the right to use Burberry’s iconic blackwatch check, but they lack authorization to use the brand name Burberry (Nikkei MJ, Sugigaki 2014). In this bargain, Sanyo Shokai maintains operation of Blue Label and Black Label brands, for which Burberry receives licensing fees. Burberry’s brand suffers less damage if Sanyo Shokai develops products without the brand’s name in Japan. However, the loss of Burberry impacted Sanyo Shokai’s business. Sales dropped by nearly 10 percent, and the operating profit shrunk by 97 percent. Although the company downsized its workforce, it has not yet, as of 2019, developed a brand that can compensate for Burberry (Senken 2019). This indicates the possible legitimacy of savouring the honeymoon relationship of a licensing partnership and later exiting to attain maximum benefits. Therefore, it is imperative that Burberry does not completely abandon the licensing fee. The examples of Dior and Burberry illustrate a move towards increasing a product’s true value. The goal is not an easy expansion of business, and the permanence of the

188   Tomoko Okawa luxury industry is unrivalled. The new strategy implemented by European luxury fashion companies is characterized by a will to manage global brands with a consistent image around the world. It was therefore necessary to take control over product diversification and production under license. This does not mean that licensing business is over, but it has to align with two significant points: (a) merchandising must be coherent with brand value, and (b) constitution of the effective OEM database must correspond to market needs. The case of Louis Vuitton demonstrates the success of this method. This firm actively developed lifestyle-​related goods (e.g., cards, candles, dishes, cups, jumping rope, volleyballs, and furniture). For the LVMH (Moët Hennessy Louis Vuitton) conglomerate, internal synergetic effects are one of the most important subjects because of the brand’s fresh topics. For example, Dior collaborated with Rimowa to create a line of luxury luggage in 2020. With such internal synergy between brands, they are likely to be active in the future. On the other hand, the remarkable growth of affordable luxury brands, like Coach, Furla, and Michael Kors, is also major competition for luxury brands. Retail layout, publicity, and sales are almost equivalent. However, the quality of their products is not the same, and prices are at less than half that of luxury brands. Although the licensing market has gradually shrunk, these affordable luxury brands have to some extent replaced it. This signifies that although the conventional licensing market for mass-​ produced luxury items appears to be declining, people continue to purchase more valuable and reasonable items at the same price. Affordable luxury supplanted a part of the regular licensing market.

Conclusion: Is Licensing a Démodé Business Model? Due to a strong yen and the bubble economy, the 1980s and 1990s witnessed a clamouring for genuine luxury products in Japan. As highlighted in the case of Kanebo, a spurt in the licensing business led to incoherent merchandising. And also, the relocation of production to other countries in pursuit of lower prices led to issues of quality. Several Japanese OEMs that had relied on brand-​based business filed for bankruptcy by the turn of the century. The move towards thoughtless merchandising, sometimes using just a logo, had resulted in serious consumer disaffection. Since the 1990s, a great majority of luxury brands have experienced a deep transformation, characterized by a refocus on rarity and exclusivity. Abolishing licensing businesses was hence a major issue. After all this, is the licensing of products, which reflects mass production, looked down upon by the current luxury fashion market? Is licensing a dying business model? Looking at a few recent examples, one may argue that this business model has not disappeared, particularly in Japan.

Licensing and the Mass Production of Luxury Goods    189 For example, Pierre Cardin signed a licensing contract with Mitsui in 1997 and subsequently developed ready-​to-​wear apparel and fashion accessories. In addition, Itochu, a trading company with a leading position in the textile and fashion fields, has acquired master licences of Western brands and has a network of over 250 sublicensee companies and distributors, all of whom are working to maximise brand value in the global market. Licensing still ensures stable revenue for a brand. However, in the case of luxury brands, firms encounter more delicate problems when establishing a licensing business. It is not obligatory to harbour prejudice towards licensing because, realistically, a partnership with specialized manufacturers (i.e., OEMs) is inevitable when luxury brands try to expand their product range. As shown in the section “Product Development: Extending the Line of Items,” licensing allows a brand to extend into an area in which it does not have expertise (e.g., perfumes, eyewear, and watches), which is significant for the growth of the brand. However, careful deployment is needed so that it does not damage the brand in an era of a market saturated with licensing products. It is important for luxury firms to select an apparel or accessories manufacturer that excels in each particular product category as a sublicensee and to form an alliance. To expand the customer base, licensing businesses must create a relationship in which the prestigious first line and the licensing product coexist peacefully. To that end, the licensor, together with the in-​house licensing division or the main licensee of each country, must not only customise products according to the taste of consumers in each country but also centrally control the sales channel and brand image to prevent the loss of brand reputation. As mentioned earlier, licensing as a business model is essentially irreconcilable with the luxury business. However, as sociologist Gabriel Tarde (1890) stated, the progress of industry is a capital fact, and without it our immense industrial wealth and luxury would be impossible. There was a time when a luxury brand that was focused on rarity, limited availability, and craftsmanship was against industrialisation, and mass production was considered inappropriate. It can be argued that the licensing business helped increasing the economic power of the middle class. Luxury brands, such as Armani, Bulgari, Louboutin, and Moschino, have currently extended licensing to include hotels. There is probably no limit to how much the luxury field might continue to improve its performance by using licensing based on a single item for stronger branding, as all things surrounding us are ‘fashion’. Brand stretching is becoming a more generalized approach as luxury firms move towards inclusion in consumers’ lifestyles. Luxury brands, which have always had to innovate and be nimble in their long histories, imply that merchandising the consumer’s entire lifestyle is a current trend in the context of innovation. This signifies that the licensing business is still feasible. However, there is no established best practice for defining the right business model for every brand. Brands attempt to address the contradiction of maximising profits through the expansion of product ranges versus adhering to the rarity of luxury items and sustaining a homogeneous brand value.

190   Tomoko Okawa

Acknowledgments This chapter received the support of ERC CoG grant 818523, CREATIVE IPR The history of intellectual property rights in the creative industries.

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192   Tomoko Okawa Miwa, Ryoichi. 2002. Gaisetsu Nihon Keizai-​shi, Kingendai [An Outline of Japanese Economic History, since the 1850s]. Tokyo: University of Tokyo Press. Moore, Christopher M., and Grete Birtwistle. 2005. “The Nature of Parenting Advantage in Luxury Fashion Retailing: The Case of Gucci Group NV.” International Journal of Retail and Distribution Management 33, no. 4: 256–​270. Museum Christian Dior. 2006. Christian Dior et le monde. Versailles, France: Éditions Artly. Okawa, Tomoko. 2008. “Licensing Practices at Maison Christian Dior.” In Producing Fashion. Edited by Regina L. Blatszczyk, 82–​107. Philadelphia: University of Pennsylvania Press. Palmer, Alexandra. 2001. Couture and Commerce: The Transatlantic Fashion Trade in the 1950s. Vancouver, British Columbia: UBC Press. Palmer, Alexandra. 2009. “Global Expansion and Licenses.” In Alexandra Palmer, Dior: A New Look, a New Enterprise (1947–​1957). Edited by 76–​98. London: V&A. Penrose, Edith. 1995. The Theory of the Growth of the Firm. Oxford: Oxford University Press. Pochna, Marie-​France. 1994. Christian Dior. Paris: Flammarion. Pouillard, Véronique. 2011. “Design Piracy in the Fashion Industries of Paris and New York in the Interwar Years.” Business History Review 85, no. 2, (Summer): 319–​344. Pouillard, Véronique. 2013. “Keeping Design and Brands Authentic: The Resurgence of the Post-​War French Fashion Business under the Challenge of US Mass Production.” European Review of History 20, no. 5: 815–​835. Pouillard, Véronique. 2018. “Christian Dior–​New  York:  French Fashion in the Luxury US Market.” In Global Luxury: Organizational Change and Emerging Markets since the 1970s. Edited by Pierre-​Yves Donzé and Rika Fujioka, 111–​129. London: Palgrave Macmillan. Senken Shinbun. 1997. “Kanebō-​Christian Dior; Fujin-​fuku no Keiyaku-​kaishō” [Kanebo-​ Christian Dior; Cancellation of Women’s Apparel Contract] February, 1. Senken Shinbun. 2001. “Dior Men’s; License Seisan Shūryō” [Dior Men’s; The End of Licensing Production]. 24 January, 1. Senken Shinbun. 2008. “Seni-​fashion Business no 60-​nen; Brand Business” [60-​years of Textile-​Fashion Business; Brand Business]. 3 September, 7. Senken Shinbun. 2016. “Fashion Business, Sengo 70-​nen; License Business no Hensen” [Fashion Business, 70 years after the World War II; Evolution of Licensing Business]. 9 May, 6. Senken Shinbun. 2019. “Semarareru Keiei no Sai-​ Seibi” [Improving Management Restructuring]. 5 November, 3. Sugigaki, Yuko. 2014. “Burberry, License-​keiyaku Shūryō” [Burberry, Licensing Contract Has Terminated]. Nikkei MJ. 21 May, 9. Tarde, Jean-​Gabriel. 1890. Mohō no Hōsoku [Les Lois de l’Imitation]. Translated by Ikeda, Yoshifusa, Murasawa, Mahoro. 420. Tokyo: Kawade Shobō Shinsha. Takashimaya Archives. n.d. ‘Takashimaya Archives; Takashimaya no Rekishi 1946–​ 1988 [History of Takashimaya 1946–​ 1988]. Accessed 28 September 2020. https://​www. takashimaya.co.jp/​shiryokan/​history/​index3.html. Tonchia, Stefano, and Luca Quagini. 2010. Performance Measurement:  Linking Balanced Scorecard to Business Intelligence. New York: Springer. White, Palmer. 1973. Poiret. London: Studio Vista. Williamson, Oliver Eaton. 1971. “The Vertical Integration of Production:  Market Failure Considerations.” American Economic Review 61: 112–​123. Williamson, Oliver Eaton. 1981. “The Economics of Organization:  The Transaction Cost Approach.” The American Journal of Sociology 87, no. 3: 548–​577.

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Chapter 10

Syst emic Luxu ry St rat e g y Jonas Hoffmann

Luxury business has been on a remarkable journey over the past four decades, turning elitist and confidential maisons into some of the world’s most powerful and profitable brands (Hoffmann and Coste-​Manière 2012, 2013). Luxury is understood as a deviation1 referring to a certain context in time and space (Sicard 2010); as a supplément d’âme (Blanckaert 1996)—​a little extra soul, in other words, as being unique, with exceptional quality, strong artistic content, exceptional aesthetics; as being about desires, dreams, and emotions; a matter of values, passion, and details; and integrating some level of craftsmanship (Chevalier and Mazzalovo 2008; Kapferer and Bastien 2012; Morisset 2012). Bain and Altagamma (2018) classification defining categories in the luxury business is adopted in this chapter. Where, in past decades, the globalisation of luxury and the emergence of the Chinese clientele benefited the whole luxury sector, the current turbulent context (Hoffmann, Ramirez, and Lecamp 2018) results in distinct fortunes for luxury actors (Bain and Altagamma 2018). The COVID-​19 pandemic, the accelerated pace of change in client behaviour (e.g., the role of Chinese millennials), and the fluidification and exponential density of interactions enabled by the Internet (e.g., the role of influencers and social networks and online distribution platforms) have all forced luxury actors to dynamically (re)consider and act on strategic issues. These issues include the breadth and depth of brand portfolio (e.g., investments in ‘experiential’ luxury, like LVMH’s acquisition of Belmond hospitality group); distribution modes—​self-​owned versus third party, online versus offline, international retail footprint (e.g., Richard Mille and Audemars Piguet’s moves to self-​owned distribution); creative and management talent strategy (Shipilov and Godart 2015), sourcing strategy, and so on. In this uncertain world of business, strategy approaches (e.g., Porter 1995) that assume a stable environment fare poorly (Ramirez and Mannervik 2016), and (luxury) strategy is better understood by integrating insights from the socioecological approach (Normann 2001; Normann and Ramirez 1993; Ramirez and Selsky 2016), service-​ dominant logic (Vargo and Lusch 2004, 2017), and institutional theory (Lawrence and Suddaby 2006).2 This integrated approach provides a clearer understanding of how

196   Jonas Hoffmann luxury actors design and institutionalise systems for value cocreation (micro-​level), how they reshape the luxury ecosystem (meso-​level), and how they assess and influence developments in the contextual environment (macro-​level). This chapter begins with a review of the neoclassical approach to strategy, before presenting the value cocreation and service-​dominant (S-​D) logic turn at the micro-​ level. It explains how value cocreation takes place in value-​creating systems. The chapter continues with an exploration of strategy in the ecosystem (meso-​) and contextual environment (macro-​)levels, paying particular attention to the socioecological approach to strategy. Next, it reviews the role of institutional work in strategy which leads to a broadened view on innovation. It then considers how institutional change requires a reframing of mental maps. The chapter concludes by identifying how luxury strategy can be enacted and promising journeys of inquiry.

The Neoclassical Approach to Strategy Freeman (2013) in his history of strategy traces its origins as a military and political science on how to get more power, involving strength (e.g., Clausewitz, Napoleon) or deception (e.g., Machiavelli). Although there is no agreed-​upon definition of strategy, one common definition describes it as ‘being about maintaining a balance between ends, ways, and means; about identifying objectives; and about the resources and methods available for meeting such objectives ( . . . ) by and large, strategy comes into play where there is actual or potential conflict, when interests collide and forms of resolution are required’ (Freeman 2013: p. xi). Rumelt (2012) concurs, affirming that a ‘good strategy’ contains three elements: ‘a) a diagnosis that defines or explains the nature of the challenge; b) a guiding policy for dealing with the challenge; and; c) a set of coherent actions that are designed to carry out the guiding policy’ (77). Strategy as a business field started in the 1960s, when large organisations (like big armies) faced new forms of competition (abroad, home markets, etc.). Whittington (2019) details how corporate strategists and strategy consultants evolved strategy practice from the 1960s to the 2010s through three stages: strategic planning, strategic management, and open strategy. Arguably, the best-​known strategy approach is Porter’s neoclassical one (Porter 1995). This structuralist approach to strategy builds on industrial organisation economics and is environmentally determinist, taking the market structure as given and posing the strategic challenge of competing for a known customer base (Freeman 2013). Porter (1995) defines value as outcomes achieved per dollars spent where exchange value is captured in goods and delivered by the firm to the consumer (Woodall 2003). Competitive advantage comes from doing better than competitors, via either differentiation or low cost. Success means addressing the supply side to find the optimal position by analysing the five forces

Systemic Luxury Strategy    197 of industry (i.e., industry rivalry, bargaining power of suppliers, bargaining power of buyers, threat of new entrants, and threat of substitutes) and the value chain (Porter 1995). This value chain view is widespread in luxury consulting and trade reports. The Business of Fashion (BoF) and McKinsey (2018) report that value chain improvement and digitisation are top priorities among fashion and luxury executives. Bain and Altagamma (2018) refer to technology implementation opportunities throughout the value chain, and Som and Blanckaert (2015: 6) claim that ‘it is important to understand why certain brands are called luxury brands and what justifies the superior positioning they command’, using, if not in spirit at least in form, language from this approach. Mintzberg, Ahlstrand, and Lampel (1998) refer to this structuralist view as the positioning school of strategy. Exogenous limits are assumed in a zero-​sum game where the share gained by one would be lost to another in the value chain. Kim and Mauborgne (2005: 209) state that ‘systemwide changes are induced by factors that are external to the market structure, such as fundamental changes in basic economic conditions and technological breakthroughs’. Ramirez and Mannervik (2016) show that several of these assumptions fare well in a linear industrial logic but less so in a networked world of business. For instance, viewing value creation as sequential and unidirectional, where all managed values can be measured in monetary terms, where values are either objective (exchange) or subjective (utility) and customers as consumers destroy value, seems a poor fit for the luxury business. This is a firm-​centric view where the agency of actors like consumers or citizens is discounted or missing.

The Value Cocreation and Service-​D ominant Logic Turn McColl-​Kennedy and Cheung (2019) affirm that the concept of value cocreation can be traced back to Normann and Ramirez (1993). Instead of viewing consumers as passive receivers of value situated at the end of the value chain, Normann and Ramirez (1993) suggest that consumers come together in value constellations to co-​produce value. Value creation can therefore be understood as a synchronic and interactive process, rather than being sequential or added at the end of the value chain—​value being mutually created and re-​created among actors (Ramirez 1999). This work was central in the shift from firm-​centric to customer-​and actor-​centric conceptualisations of value creation and has been influential in inspiring developments in S-​D logic (Michel, Vargo, and Lusch 2007; McColl-​Kennedy and Cheung 2019). Vargo and Lusch (2004) elaborate the emergence of S-​D logic in opposition to goods-​ dominant logic. This theoretical framework originally identified eight foundational premises (FP) that have evolved to the current (as of 2019) eleven FPs. Five FPs have been identified as core and have received the status of axioms (Vargo and Lusch 2019) –​ see Table 10.1.

198   Jonas Hoffmann Table 10.1. S-​D Logic Axioms (A) and Foundational Premises (FP)

A1/​FP1. Service is the fundamental basis of exchange

A2/​FP6. Value is cocreated by multiple actors, always including the beneficiary

FP5. All economies are service economies

FP3. Indirect exchange masks the fundamental basis of exchange

A3/​FP9. All social and economic actors are resource integrators

A5/​FP11. Value cocreation is coordinated A4/​FP10. Value through actor-​ is always and generated phenomenologically institutions and determined by the institutional beneficiary arrangements

FP4. Operant resources are the fundamental source of strategic benefit

FP7. Actors cannot deliver value but can participate in the creation and offering of value propositions

FP8. A service-​ centred view is inherently beneficiary oriented and relational

FP2. Goods are distribution mechanisms for service provision Source: Vargo and Lusch (2019).

S-​D logic is structured on the foundational concepts of service, actors, resources, value, and, more recently, institutions (Vargo and Lusch 2019). Service (singular) is what is exchanged in value cocreation; service is conceptualised as the application of resources, like competences, knowledge, and skills, by one party for the benefit of itself or another party (Lusch and Vargo 2014). Service can be provided directly or indirectly (e.g., through a good), goods being a distribution mechanism of a service. ‘Actor’ serves as a generic term for stakeholders in their roles of client, producer, influencer, or regulator who fundamentally perform resource integration and service exchange. S-​D logic implies that actors have agency. Resources are the source of service provision. They are tangible or intangible, operand or operant. Operand resources are those ‘that require other resources to act on them to provide benefit—​often, they are static and tangible, such as natural resources’ and operant resources are those ‘that are capable of acting on other (potential) resources to create benefit—​they are often intangible and dynamic, such as knowledge and skills’ (Vargo and Lusch 2019: 8). All social and economic actors are resource integrators, and resources only come into being in context. Value is an indication of benefit for an actor, and value creation is the reason for exchange. Value is contextual in nature and always defined by the beneficiary. Ramirez and Mannervik (2016) explore the case of Facebook and the invention of the like feature. Although there is no monetary transaction in a click and as such no value-​added tax, resources like time, attention, reputation, and data are being exchanged. Customers (as

Systemic Luxury Strategy    199 actors) create value when they use and share their use of products and services. Here, the focus is on relationships, which are contingent, interactive, dynamic, and mutual. The consequence of this is that actors cannot deliver value, as such, but can only participate in creating and offering value propositions. The role of institutions in enabling and constraining value cocreation was a late addition to the S-​D logic framework and is developed in the section ‘Systemic Strategy and Institutional Work’. Although the seminal article on S-​D logic (Vargo and Lusch 2004) is the most cited in the history of marketing, S-​D logic is yet to be explored in relation to luxury business. Given the role of materiality in luxury offerings (according to Jony Ive, former chief designer officer at Apple: ‘objects are extremely powerful, but they are powerful beyond our ability to describe why’—​BoF 2020), some may question whether luxury goods are in fact a distribution mechanism of a service. Luxury goods as creative products have two dimensions: (1) a material base and (2) semiotic codes (Jones, Lorenzen, and Sapsen 2015). Clients buy a bag that will enable them to cocreate value and meaning in a specific sociohistoric context (Arnould and Thompson 2005). Actors assign ‘meanings to signs—​which then become symbols—​according to particular rules (i.e., institutions) of interpretation that define their social world’ (Akaka et al. 2014: 314). Ian Rogers, chief digital officer at LVMH, affirms that LVMH sells ‘culture before product’ (Rogers 2016). This resonates with the understanding of Swiss luxury watches as a S-​I-​G-​N: S for social status, I for investment, G for gift, and N for narrative. Hermès elevated craftsmanship and is intransigent on the meaning of its métier: ‘never create an ugly product because you risk someone buying it’3. Even if luxury fashion has been criticised for favouring certain silhouettes over others, it attends to multiple aesthetic sensibilities by its diverse offerings. These values and meanings are constantly negotiated (Moeran and Pedersen 2013) as shown by Blanckaert (2011) and Thomas (2007) on how greed can lead to the denial of the essence of luxury (e.g., in the 2000s, by outsourcing manufacturing at a significant and rapid pace, some luxury companies ended up compromising the quality of their products).

Value Cocreation in Value-​C reating Systems Normann and Ramirez (1993) state that actors cocreate values via interactions in value constellations or value-​creating systems with a networked structure (Barabasi 2016; Ramirez and Mannervik 2016)  –​see Figure 10.1. Systems thinking (Meadows 2008; Vargo and Lusch 2017) is central here. Capra and Luisi (2014) claim that a unified systems view of life is emerging based on the fundamental ideas of complexity, networks, and patterns of organisation (Maturana and Varela 1980; Morin 2015). Capra and Jakobsen (2017) argue that ‘the dynamics of such an open system are nonlinear and involve multiple interconnected feedback loops, which allow the system to

200   Jonas Hoffmann Value Creating System Service Service

Actor Actor

Actor

(Resource Integrator/ Beneficiary)

Service

Actor

Service

Service Service

Service

Service Service

Actor

Service

(Resource Integrator/ Beneficiary)

Service Actor

Actor

Service Service

Service

Figure 10.1.  Value-​creating system—​micro-​level.

regulate and balance itself. On the other hand, there is always a potential for the spontaneous emergence of new order at critical points of instability’ (835). This demands an ontological shift in how we see the subject matter of science to consider wholes instead of parts, relationships rather than objects, and processes as much as structures (Vargo and Lusch 2019: 45). Value cocreation is about the design of offerings that articulate systems of interactions where actors integrate resources to cocreate different forms of value (Normann and Ramirez 1993:  69). Value propositions are defined as a ‘communication device for articulating the resource offering of one actor to others ( . . . ); from an ecosystem perspective, value propositions provide the means for promoting resource integration that seeks resource density and the emergence of the ecosystem’ (Frow and Payne 2019: 86). Designing and reconfiguring offerings, business models, and value-​creating systems is a central strategy task at the micro-​level (Ramirez and Mannervik 2016). The strategic ability to invite, interest, enrol, and mobilise clients and actors into a brand value-​creating system is a distinctive capability of successful luxury actors. For example, Henry Racamier designed a value-​creating system where Louis Vuitton controlled manufacturing and owned distribution enabling LV to grow from two boutiques in 1977 to seventy in 1986 (Blanckaert 2011). In the watch industry, Donzé (2011) shows that the successful comeback of the Swiss in the world watch market was not the result of product innovation (e.g., Swatch) but rather to a completely reconfigured value-​ creating system, integrating changes in both production and marketing strategy. Currently, luxury’s digital transformation exemplifies the role of value-​creating systems. Digitalisation results in the liquification and densification of resources enabling novel business models (Normann 2001). Ian Rogers (2016) from LVMH points out that ‘Internet is Culture’. Apple, Facebook, Google, Amazon, and Airbnb have leveraged technology and designed and redesigned offerings repeatedly to create powerful platforms. Mobile platforms like YouTube, Instagram, and WeChat gave birth to an

Systemic Luxury Strategy    201 influencer economy with massive impact in luxury, fashion, and beauty. Kylie Jenner, to cite one example, built a $1 billion brand with an innovative offering which overturned the cosmetics sector playbook: first community, then product; snowball versus blockbuster. After some hesitation, luxury conglomerates embraced digital and emerging technologies to design and reconfigure unique online and offline value-​creating systems and offerings (Hoffmann and Lecamp 2015). Value-​creating systems are dynamic, ‘each instance of resource integration, service provision, and value creation changes the nature of the system to some degree and thus the context for the next iteration and determination of value creation’ (Vargo and Lusch 2008: 5). In summary, a systemic (vs. neoclassical) strategy approach better corresponds to the current world of luxury business, with design and reconfiguration of offerings, value-​creating systems, and business models as central strategy tasks.

Systemic Strategy at Ecosystem (Meso-​) and Contextual Environment (Macro-​)levels Actors and their value-​creating systems jointly constitute a social space at the meso-​level that influences and is influenced by several stakeholders as well as by the natural ecosystem. The scope and designation of this meso-​level space has evolved over time. Emery and Trist (1965) advance the construct of ‘transactional environment’ to designate those actors, potentially coming from several fields, with whom a focal actor interacts. DiMaggio and Powell (1983) define the organisational and institutional fields as including ‘those organisations that, in the aggregate, constitute a recognised area of institutional life:  key suppliers, resource and product consumers, regulatory agencies, and other organizations that produce similar services or products’ (148). Fligstein and McAdam (2012) highlight that ‘we can only make sense of any given field by embedding it in the broader environment of other fields that powerfully shape its fate over time’ (213). Hoffmann et al. (2018) empirically explored how a field view expands the industry view associated with neoclassical strategy. Iansiti and Levien (2004) introduced the concept of a ‘business ecosystem’, that is, a networked system of actors, often centred on a configuring actor, analysed at the micro-​ level of the value-​creating system (e.g., Apple software ecosystem). S-​D logic (Vargo and Lusch 2017) speaks of the (service) ecosystem, defined as a ‘relatively self-​contained, self-​adjusting system of resource-​integrating actors connected by shared institutional arrangements and mutual value creation through service exchange’ (Vargo and Lusch 2016: 161)4. Ecosystem is understood here in coherence with its ecological origins as a holistic construct where actors cannot be separated from their sociomaterial and natural

202   Jonas Hoffmann Nature Ecosystem Human ‘Socio-Material’ Ecosystem Value creating system II

Value creating system n

Ecosystem

Value creating system I

Stake holder I

Stake holder II

Stake holder III

Stake holder IV

Stake holder n

Figure 10.2.  Ecosystem—​meso-​level.

environment (Capra and Luisi 2014). As the pioneering work of Kering (2015) on environmental profit-​and-​loss assessment demonstrates, externalities and materiality are an integral part of an organisation’s ecosystem. An ecosystem encompasses multiple value-​ creating systems, stakeholders, the sociomaterial, and the natural environment (see Figure 10.2). It thus expands the industry, field, business ecosystem, and transactional environment constructs. At the macro-​level, the analysis of geopolitical, economic, social, technological, legal, and environmental (PESTLE) forces is a cornerstone of the neoclassical approach to strategy, resulting in the identification of opportunities and threats in the environment (for a review, see Mintzberg et al. 1998). Whereas this approach assumes a stable environment, the socioecological approach to strategy considers the macro-​environment as dynamic, uncertain, and turbulent at times. This approach is grounded in an open-​ systems view of an organisation’s strategic situation, where the core unit of analysis is the shared field of interorganisational action (Lewin 1952). Causal Texture Theory (CTT) (Emery and Trist 1965) studies environmental types and how an organisation relates with its environment (composed of factors, actors, and interactions). Factors are forces in the broader contextual environment that a focal actor cannot influence alone (Ramirez, Selsky, and Van der Heijden 2008). Emery and Trist (1965) crafted the concept of turbulence, a complex and unpredictable causal texture of the organisational environment, ‘where the whole common shared ground is felt to be in motion, with contextual environment elements becoming inter-​ connected in ways that make them become uncertain and changing’ (Hoffmann et al. 2018: 102). Conditions of turbulence, deep uncertainty, novelty, and ambiguity (TUNA) are ever more present (Ramirez and Wilkinson 2016) as the dramatic sanitary and economic impact of the COVID-​19 pandemic demonstrates. In addition to pandemics, some overarching contextual developments seem set to play a significant role in the future of luxury business. First, the collective realisation that we have entered the Anthropocene—​‘This changes everything’ (Klein 2015)—​and the massive scale of transformation required by climate change make us part of a unique historical moment. States and civil society are

Systemic Luxury Strategy    203

Figure 10.3.  Contextual environment—​macro-​level.

ever more vocal about the need for capitalism and the market economy to become more inclusive, regenerative, and supportive of the social and natural ecosystems that life on our planet is built upon (Raworth 2017; Sempels and Hoffmann 2013). This is the reason for choosing to situate our planet as encompassing all other human-​made systems in Figure 10.3. Second is the exponential development and convergence of technologies in areas like computing, machine learning, Internet, connectivity, life sciences, and so on, in what the World Economic Forum named the fourth industrial revolution (Schwab 2017). The third developments is the rise and affirmation of China as a global superpower and the reemergence of ‘Eurasia’ or the ‘Silk Roads’ (Frankopan 2015) as a focal point. Fourth, inequality (Piketty 2013) and the capture of a disproportionate share of wealth by rent capitalism (Mazzucato 2018) threatens the institutional and social fabric able to generate wealth in the first place. The interaction among these forces and others like demographic evolution, urbanisation, and (de)globalisation results in a world where Knightians’ uncertainty (Knight 1921) is ever more present, resulting in nonlinear systemic changes.5 Ramirez and Selsky (2016) suggest that a distinctive contribution of the socioecological approach to strategy is to ‘examine unpredictable uncertainty as 1) a contextual-​level phenomenon, produced in a field of tightly coupled interactions which can produce unexpected bifurcations (Prigogine 1996) and field-​level unintended consequences; and 2) as a distinguishing property of a distinct texture of the environment that is felt to be so by an individual actor in that field’ (94). Hoffmann et al. (2018) have empirically explored how the socioecological approach extends and enriches current theory on fields by studying Swiss watchmaking in the turbulent causal texture of the 2010s. They examined the locus of strategic action (intrafield vs. interfield) by incumbents and challengers and how both parties enacted the strategic stances of preparation, relocating, and reinventing collaboration. In turbulent conditions, collaborative strategies among distinct organisations become necessary. The emphasis of collaboration is not only intraecosystem, like creative collaborations (e.g., Louis Vuitton and Supreme collaboration, Hermès and Apple Watch, Moncler Genius), horizontal partnering with competitors (e.g., in negotiations with landlords in China), and vertical integration ventures with supply-​chain partners (e.g., Chanel partnering with Farfetch to reconfigure its retail experience; Kering

204   Jonas Hoffmann partnering with Apple on its digital strategy; Richemont—​YNAP joint venture with Alibaba/​Tmall for online luxury sales in China; Reuters, 2018a, 2018b). Collaboration involves a much more diverse set of actors and stakeholders in the ecosystem and in other ecosystems in which organisations operate (Ramirez and Selsky 2016), as actors seek to jointly face contextual-​level factors that affect or may affect all actors in an ecosystem (e.g., Stella McCartney and Dame Ellen McArthur Circular Textiles Economy initiative, Eva Kruse’s Global Fashion Agenda). In the wake of the COVID-​19 pandemic, this is the sort of collaboration engaged in by independent designers, chief executive officers (CEOs), retail executives, and journalists to rethink and advocate for change in the fashion system, particularly on the fashion calendar, at fashion shows, and in discounting (rewiringfashion.org 2020).

Systemic Strategy and Institutional Work The study of institutions has a long history in the social and human sciences (see Scott 2001 for a review). In organisational science, institutional logics or arrangements are defined as ‘the socially constructed, historical patterns of material practices, assumptions, values, beliefs, and rules by which individuals produce and reproduce their material subsistence, organize time and space, and provide meaning to their social reality’ (Thornton and Ocasio 1999: 804). Via social skill (i.e., ‘the ways in which skilled actors use empathy and the capacity to fashion and strategically deploy shared meanings and identities in the service of institutional projects within fields’) (Fligstein and McAdam 2012: 53), actors perform social–​symbolic work at different levels: the level of the self, the organisation, and the institution (Lawrence and Philipps 2019). Institutional work, the purposive action of individuals and organisations aimed at creating, maintaining, and disrupting institutions (Lawrence and Suddaby 2006), plays a key role as markets are formed and evolve through social processes and are embedded within sociomaterial, political, and discursive processes (Lawrence and Phillips 2019; Wieland et al. 2019: 512). S-​D logic acknowledged its importance with a foundational premise having axiomatic status (A5/​FP11): ‘Value cocreation is coordinated through actor-​generated institutions and institutional arrangements’ (Vargo and Lusch 2019). As such, S-​D logic ‘includes a systematic and explicit treatment of the notion of value ( . . .  ) by emphasising the phenomenological nature of value and the relevance of the institutional context and institutional work in value cocreation’ (Berthod, Helfen, and Sydow 2019: 329). Delmestry and Greenwod (2016) explored the constitution of new product categories and institutional maintenance by studying how the Italian spirit grappa, made from the waste products of winemaking, elevated its status. They proposed ‘theorization by allusion’ as the process by which grappa emulated and eventually detached itself from other high-​status categories like cognac. Through the lens of institutional theory, Raffaelli (2019) examines the processes and mechanisms whereby market demand for a ‘dying’ technology (i.e., Swiss mechanical watches) reemerged. He shows that changes in the

Systemic Luxury Strategy    205 product, and in the organisational and community identities associated with a legacy technology, could be reconstituted to reconfigure a field. In a similar vein, Khaire and Wadhwani (2010) and Khaire (2017) explored the construction of meaning and value in the emergence of categories in the creative industries. Building on Lawrence and Suddaby (2006), Berthod et  al. (2019) identify several forms of institutional work: -​ Creating:  advocacy, defining, vesting, constructing identities, changing normative association, constructing normative networks, mimicry, theorising, educating, standardisation; -​ Maintaining:  enabling work, policing, deterring, valorising and demonising, mythologising, embedding and routinising, storytelling, risk theorising, repairing; -​ Disrupting:  disconnecting sanctions, disassociating moral foundations, undermining assumptions and beliefs, external and internal identity work; and -​ Cross-​category: boundary, practice, negotiation, preservation, leadership, design, rhetorical. Meaning is everywhere in institutional theory and this resonates with luxury in its capacity to build and institutionalise meaning in a certain sociohistorical moment. When Stella McCartney affirms, ‘My personal idea of luxury is having a voice, having freedom, clean air to breathe, animals by our side that are happy and healthy having pure water to drink, having mother nature and planet Earth as the ultimate. I don’t know what else luxury is’ (BoF Voices 2018), she is performing institutional work. Collectively, in the past 40 years, European luxury fashion houses like Louis Vuitton, Dior, Chanel, Gucci, and Hermès have developed unique value-​creating systems to institutionalise beliefs, enabling them to become global influencers of aesthetics, taste, and refinement. Asia and China’s love affair with European luxury brands (Chadha and Husband 2006) is an extraordinary luxury business success story. As social norms and cultural values evolve, so do actions from luxury actors. Louis Vuitton’s appointment of Virgil Abloh, previously at Off-​White, as men’s creative designer, acknowledges the cultural importance of streetwear and street culture manifestations. Institutional work cannot be understood without examining the path dependencies and lock-​ins that constraining institutions provide. The emergence and prominence of luxury business in France owes substantially to the policies of Jean-​Baptiste Colbert, Minister of Finances from 1661 to 1683 under the rule of King Louis XIV, to attract the best craftsmen to France. This institutionalised system of rules, norms, and beliefs (e.g., French as the language of cultural elites; Paris as the capital of fashion) is used as a historical narrative (Donzé and Wubs 2019) aiming to buttress the contemporary active work from luxury actors (e.g., the active patronage of artists and cross-​category interaction at Cartier Foundation and Louis Vuitton Foundation) and from stakeholders (e.g., the Comité Colbert, the French State, and design and business schools). At the European level, the European Cultural and Creative Industries Association (ECCIA) integrates luxury’s national associations, such as the aforementioned

206   Jonas Hoffmann Comité Colbert in France, Fondazione Altagamma in Italy, Walpole British Luxury in the UK, Meisterkreiss in Germany, and Circulo Fortunio in Spain. The ECCIA promotes European luxury as a substantial arm of Europe’s soft power (Académie des Technologies, 2018; European Cultural and Creative Industries 2017) and lobbies for rules and regulations to enact (e.g., anticounterfeit policies in Europe and abroad). Furthermore, institutional theory and S-​D logic bring a broadened view of innovation as the development and institutionalisation of systems for value cocreation (see Box 10.1). Systemic luxury strategy thus engages with the micro-​, meso-​, and macro-​levels in a dynamic outside-​in and inside-​out movement (Vargo and Lusch 2014). By highlighting

Box 10.1. A Broadened View on Innovation Hoffmann and Laurent (2015) explored how independent luxury companies innovate by designing unique offerings and value-​creating systems to thrive in the face of ongoing consolidation in the luxury field. They identified four innovation strategies: ‘back to the roots’ refers to companies innovating in the essence of luxury:  extreme quality and extraordinary craftsmanship to create the ultimate sensorial and emotional experience (Ricca and Robins 2012). For companies such as Hermès, Sheme, Thomas Mercer, Mirazur by Mauro Colagreco, Norlha, and Brunello Cucinelli, luxury is rooted in a terroir and a sense of purpose permeates this endeavour. ‘Code breakers’ play with product and societal codes to culturally innovate by reaching out to a certain number of stakeholders such as artists, designers, cultural organizations, and media experts that can nourish them and later on help to legitimise a breakthrough proposal (Hoffmann and Hoffmann 2012; Holt and Cameron 2010; Verganti 2009). Examples include Demna Gvasalia, Martin Margiela, Yohji Yamamoto, and Miuccia Prada in fashion; Fernando and Humberto Campana in furniture design; and HYT in watchmaking. ‘Eagle in the aquarium’ are actors who disrupt the way that luxury companies create, deliver, and capture value (Christensen 1997). Globalisation and digitisation are powerful enablers to reconfigure resources at the levels of funding (e.g., crowdfunding platforms), design (e.g., Dassault Systèmes Fashion Lab), manufacturing (e.g., 3D printing), distribution (e.g., Farfetch, Yoox—​Net-​à-​Porter), and marketing and communication (e.g., Instagram,YouTube and Holition). The eagle in the aquarium symbolises these invaders in the luxury ecosystem. ‘Game changers’ build breakthrough innovations at the product and business model levels (Baden-​Fuller et  al. 2010). Comme des Garçons, Iris van Herpen, MB&F, and W Motors are independents taking bold initiatives in a fascinating and inspiring journey. Undoubtedly, the most important game changers in luxury business have been luxury conglomerates LVMH, Kering, Richemont, and Swatch Group. Viewing innovation as the design and institutionalisation of systems for value cocreation encompasses and expands the innovation strategies identified by Hoffmann and Leccamp (2015) and approaches like ‘blue-​ocean’ innovation (Kim and Mauborgne 2005), disruptive innovation (Christensen 1997), business model innovation (see Baden-​Fuller et al. 2010 for a review), or platform innovation (Gawer and Cusumano 2002).

Systemic Luxury Strategy    207 the link between forces in the contextual environment and their consequences in the luxury ecosystem, systemic luxury strategy outlines how luxury actors (1) design and institutionalise systems for value cocreation (micro-​level), (2) reshape the luxury ecosystem (meso-​level), and (3) assess and influence developments at the contextual environment (macro-​level) –​see Figure 10.4. The systemic luxury strategy approach is exemplified in Kering’s Environmental Profit and Loss (EP&L) account. Back in 2010, PPR (then Kering’s name) owned Puma, the sportswear brand. Jochen Zeitz, then CEO of Puma and chief sustainability officer at PPR, wanted to identify how it could reduce its environmental impact. Building on the United Nations study on ‘The Economics of Ecosystems and Biodiversity’, it commissioned audit firm PriceWaterhouseCooper (PwC) and environmental research group Trucost to attribute an economic valuation to ecosystem services along the company’s entire supply chain. EP&L results were released in 2011 covering six environmental impact areas: greenhouse gas emissions (GHG), water consumption, water pollution, land use, air emission, and waste (The Guardian 2011). Kering then rolled out the EP&L to all the brands in the group, engaging with its respective supply chains and, in 2015, published its first group EP&L. This covered indicators in the environmental areas along the supply chain divided in five tiers: 0) operations and stores; 1) final assembly; 2) preparation of subcomponents; 3) raw material processing; 4) raw material production. It defined costs as ‘environmental degradation and negative environmental impacts on society (e.g. conversion of natural ecosystems, or emissions of air pollutants’, revenues as ‘environmental improvement and positive environmental impacts (e.g. restoration of natural ecosystems, or a reduction in air pollutants’, losses where costs exceed revenues, and profits where revenues exceed costs (Kering 2016, p. 7). Kering estimated its environmental impact (cost) at €792.8mn in 2014 and at €514.3mn in 2018 (Kering 2015, 2019). The EP&L has become a business management tool integrated in the group strategic (e.g., brand portfolio) and operational decisions informing product design, sourcing, and manufacturing. It features a modelling tool with dynamic visualisation of results so that the impact of a potential decision or future project on the EP&L footprint is available in real time (Kering 2020). It is complemented by life-​cycle inventories and the definition of the Kering Standards for raw materials and manufacturing processes. Kering reports a 14 percent reduction in its EP&L intensity between 2015 and 2018 and it aims to achieve a 40 percent reduction across its supply chain in 2025 and relative to its growth, using a 2015 baseline (Kering 2019). The EP&L serves as a dialogue platform with suppliers, business partners, and stakeholders being a cornerstone in the group sustainability strategy where ‘luxury and sustainability are one and the same’. Kering Chairman and CEO François-​Henri Pinault currently frames its business as rooted in generous capitalism where profits go hand in hand with purpose, empowerment, sustainability, and social responsibility. In 2019, Kering was ranked the second most sustainable company in the world across all sectors in the Corporate Knights Global 100 ranking, topping the textile, apparel, and luxury sectors (Kering 2020).

208   Jonas Hoffmann

Figure 10.4.  Systemic luxury strategy at micro-​, meso-​, and macro-​levels.

Whereas competitive advantage was and remains a central motivation in developing this innovative value-​creating system, the Kering group also saw the potential to shape the fashion and luxury ecosystem more broadly. It decided in 2019 to launch an open-​ source platform allowing access to its EP&L results and to enable other luxury and fashion players to develop their own EP&L analysis. As such, it is taking a leading role in framing the environmental conversation not only inside the luxury sector but also in society. For instance, French President Emmanuel Macron gave a mission to Kering Chairman and CEO François-​Henri Pinault that resulted in the Fashion Pact, ‘a global coalition of companies in the fashion and textile industry (ready-​to-​wear, sport, lifestyle and luxury) including their suppliers and distributors, all committed to a common core of key environmental goals in three areas: stopping global warming, restoring biodiversity and protecting the oceans’ (thefashionpact.org 2019). Results were presented to heads of state at the G7 Summit in Biarritz in 2019. Another example of institutional

Systemic Luxury Strategy    209 work by Kering is its participation in the United Nations Fashion Industry Charter for Climate Action launched at COP24 in Katowice, Poland, in 2018 (BoF Voices 2018).

Reframing Mental Maps Central to institutional change is the question of ‘how actors, who are guided by rules, norms, and taken-​for-​granted assumptions and beliefs, (1) are able to imagine alternatives to the current institutional order and (2) can influence, and possibly change, the very institutions that ‘govern’ them (agency vs. structure)’ (Wieland et al. 2019: 513). Senge (2006), Normann (2001), and Ramirez and Wilkinson (2016) make a compelling case for the role of learning and reframing capabilities. This logic is not foreign to groundbreaking creative directors: Alessandro Michele at Gucci, Karl Lagerfeld at Chanel, Rei Kawakubo at Comme des Garçons, Nicolas Gesquière at Balenciaga and now at Louis Vuitton, and Demna Gvasalia at Vêtements and now at Balenciaga. They have all created universes as did Gabrielle Chanel, Christian Dior, Yves Saint-​Laurent, and Martin Margiela in their time (Hoffmann and Lecamp 2015). Ramirez et al. (2017) explore how scenario planning can be a useful approach to reframe mental maps in conditions of TUNA (Ramirez and Wilkinson 2016). Scenarios are memorable, coherent stories describing a small set of possible futures contexts and how they might come about. These descriptions of plausible future contexts in which we might find ourselves are a suitable way to learn about the future implications in the present. It is studying ‘what if ’ to prevent ‘if only’. Scenarios are neither forecasts nor visionings. They direct attention to the sense of future (Beckert 2016). This explicit and flexible sense of the future can be enabled by contrasting plausible, alternative future contexts through an iterative process of reframing and reperception, as thoroughly exposed by Ramirez and Wilkinson (2016). Attention is particularly focussed on reconsidering assumptions through a process of discovery, interactive learning, and invention. As Pierre Wack (1985) put it, scenario planning aims to help people gently consider alternative perceptions and conceptions about their contexts. One example of reframing failure is China’s antigraft campaign. Back in November 2012, Xi Jinping gave his first speech as the new leader of China’s Communist Party promising a strong campaign to fight corruption. Chinese clients represent nearly 30  percent of the luxury market since 2013 (Bain and Altagamma 2018), and Hong Kong had been the main export destination of Swiss watches. Several senior Swiss watchmakers ignored the threat assuming business would continue as usual. They planned and invested under this assumption. Xi Jinping turned out to be the most assertive Chinese leader since Deng Xiaoping and the antigraft campaign was anything but trivial—​marking the beginning of a turbulent period which saw a very significant reduction in luxury watch sales (Hoffmann et al. 2018). As Chinese clients are likely to represent almost half of all luxury purchases by the mid-​2020s (Bain and Altagamma 2018) and China is expected to have a stronger stance on international affairs, the stage seems set for further episodes of turbulence in the

210   Jonas Hoffmann years to come. This seems even more likely to be the case in the turbulent and uncertain context of the COVID-​19 pandemic where contingency and scenario planning are central practices to navigate the crisis (McKinsey 2020). Under these conditions, it is the role of CEOs and boards to reframe an organisation’s official future by engaging strategic conversations to question explicit and implicit assumptions and foster processes (like scenario planning) of inquiry and learning.

Enacting Luxury Strategy There is nothing quite so practical as a good theory (Van de Ven 1989). Interestingly, S-​D logic’s central pillar, the value-​cocreation construct, was defined in a practitioner outlet emerging from Richard Normann and Rafael Ramirez (1993) emerging from their reflective advisory practice. As acknowledged by Vargo and Lusch (2017), ‘academics don’t lead (marketing) thought as much as they make sense of it, report it, codify it, and disseminate it. Often, the “front line” in this process is the consolidation of recent observations of shifting, successful practices by practitioners, consultants and consulting academics’ (56). Engaged scholars (Van de Ven 2007) and reflective practitioners (Schön 1984) aim to describe and account for unfolding processes but also to influence them. As stated by Meadows (2008), ‘systems can’t be controlled, but they can be designed and redesigned’ (169). A pioneer in this sense is Normann (2001), who developed a process he likened to a crane or scaffold. This process has been revisited and further developed by Ramirez and Mannervik (2016: 190) to outline six stages in designing ‘strategy for a networked world’: (1) purposing (e.g., defining purpose); (2) backframing (e.g., mapping the current value-​creating system and its historical emergence with actor-​network theory analysis—​Czarniawska 2017); (3) upframing (e.g., mapping actors in systems, testing different systems logics, and searching for invaders); (4) foreframing (e.g., exploring global trends and uncertainties, structuring future developments into contextual scenarios, and reframing configuring offering); (5)  downframing (e.g., reperceiving support offerings, identifying underutilised resources, and defining opportunity areas); (6)  defining (e.g., configuring and supporting offerings, estimating resourcing and revenues, and planning realisation and early actions). Design thinking and practice (Martin 2009; Verganti 2009) underpin this process ‘as action-​oriented professional practice concerned with change or transformation’ (Windahl and Wetter-​Edman 2019: 679) enabling the reconfiguration of institutional structures by (1)  operationalising service experiences as situated and systemic and (2) breaking institutions through interventionist and transformative action. Four areas of inquiry seem promising to elicit research. First, an empirical exploration is needed of S-​D logic and institutional theory applied to luxury business, in the footsteps of Delmestri and Greenwood (2016), Raffaeli (2019), and Khaire (2017). Second, the systemic luxury strategy approach outlined here has an ontological and epistemological

Systemic Luxury Strategy    211 process stance, ‘the world as constantly becoming’ (Langley and Tsoukas 2017: 4) where temporality, activity, and flow play a central role (Langley et al. 2013). An empirical exploration is necessary of the process and patterns of systemic luxury strategy: its triggers (e.g., effectuation—​Hoffmann 2013; Sarasvathy 2001), its capabilities for purposeful emergence (Hoffmann and Lecamp 2015; McCann and Selsky 2014), as well as the emergence, design, and reconfiguration of luxury value-​creating systems and ecosystems (Geels 2018; Ramirez and Mannervik 2016). Next, relating this approach to strategic and operational challenges in luxury business like internationalisation strategy, portfolio strategy, ambidexterity, supply chain strategy, innovation, and luxury-​brand strategy calls for further inquiry. Finally, what could the broader strategy field learn from luxury and luxury business? Freeman (2013) concludes his strategy history by pointing to the promising role of narratives in strategy. As the value attached to luxury is a crucial component in any society’s self-​ understanding (Berry 1994), it seems worth exploring the social–​ symbolic work (Lawrence and Phillips 2019) processes by which European luxury companies shape and maintain institutional legitimacy.

Conclusion This chapter conceptualises a systemic luxury strategy approach integrating insights from the socioecological approach to strategy, S-​D logic, and institutional theory. It puts forward a definition of the meso-​level of strategic action as the ecosystem, encompassing multiple value-​creating systems, stakeholders, the sociomaterial, and the natural environment. By highlighting the link between forces in the contextual environment and their consequences in the luxury ecosystem, it presents the processes enacted by luxury actors to (1) design and institutionalise systems for value cocreation (micro-​level), (2) reshape the luxury ecosystem (meso-​level), and (3) dynamically assess and influence developments at the contextual environment (macro-​level). The systemic luxury strategy approach is understood as a learning journey to reconfigure and reframe luxury business and luxury itself, enabling actors to be resilient and to thrive in the current uncertain world of business.

Notes 1. In French: ‘écart’ (Sicard 2010). 2. A  clarification:  luxury strategy is broader than luxury brand strategy or management (Chevalier and Mazzalovo 2008; Som and Blanckaert 2015). Sure, the brand is of utmost importance as expressed by Kapferer and Bastien (2012): ‘in luxury, the brand comes first’, ‘there is no luxury without brands’, and ‘the pricing power is in the brand’ (140), but a misunderstanding may emerge when these authors refer to ‘the luxury strategy’ as a strategy at the brand and marketing level (‘break the rules of marketing to build luxury brands’).

212   Jonas Hoffmann 3. Personal correspondence with former Hermès senior manager. 4. There is some disagreement in S-​D logic on the definition of ecosystem where authors like Frow and Peyne (2019) speak of ecosystem at different levels—​from micro-​to mega-​, whilst Vargo and Lusch (2019) currently refer to service ecosystem at the meso-​level. 5. Frank Knight (1921) identified three types of uncertainty:  the first one associated with the notion of risk consists of a future which can be known; the second one associated with uncertainty consists of an unknown future that can be estimated; the third one, true (or Knightian) uncertainty, consists of a future that is unknown and unknowable. It acknowledges some fundamental degree of ignorance, a limit to knowledge, and an essential unpredictability of future events.

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PA RT I I I

LU X U RY B R A N DI N G AND MARKETING

Chapter 11

Luxu ry Bra ndi ng Benjamin Berghaus

Luxury and branding share a symbiotic relationship. The luxury market relies heavily on brand building to steer operations and entice consumers (Kapferer 1997). Conversely, luxury brands constitute the top segment of the market (Vickers and Renand 2003) and luxury branding trends and tactics are commonly being translated from luxury into the lower market segments (Kapferer 2004) as mainstream brands seek to strengthen their margins. Branding is a well-​defined concept while luxury is not. Thus, a careful introduction of definitions and the fundamental mechanics of both concepts is a prerequisite to the later elaboration on luxury branding as a topical composite.

Branding Branding emerged as a methodology to mark goods with the name or signet of a supplier for identification and differentiation from competing offers (Aaker 1991). While a figurative term today, “branding” originated as literal: brandings once differentiated cattle of one farm from that of another. Branding is commonly associated with higher-​quality offers since suppliers can help safeguard their investment in providing greater quality by using branding as an informational foundation for recognition, trust, and loyalty amongst customers whose return they need to ensure (Keller 1993). For example, the long-​time legendary attention to detail that Apple invested in its consumer electronics products drove costs to a degree that there was little alternative to also heavily investing in branding. The consequence is one of the world’s most valuable companies that owns one the world’s best-​differentiated and fleshed-​out brands. Today, branding extends beyond its basic informational function into elaborating and embellishing what a branded offer stands for (Miller and Mills 2012) and what customer experience can be expected (Ko et  al. 2016). While Coca-​Cola and Pepsi

220   Benjamin Berghaus offer interchangeable products, their branding campaigns turn otherwise indifferent consumers into staunch proponents of one and opponents of the other. Branding achieves this not only by highlighting factual differences between the products, but by eliciting identification patterns that consumers can buy into. Brands, and especially luxury brands, are a densely compressed and thus particularly efficient means of communication: if I were to mention that I am thinking of a car, you would only have the most generic object in mind. If I mention the brand name BMW, instead, the established branding will elicit a complex set of memories, ideas, experiences, and evaluations that extend that of “car” by orders of magnitude. Both three-​letter terms carry vastly different amounts of information. The cause of that difference is the brand owner’s invested effort to enrich the brand name with a well-​orchestrated meaning. Brands can facilitate consumer-​directed communication to a degree that competing suppliers of lesser recognition or esteem may try to jump on the bandwagon of a successful brand by imitating those signals that stand for quality and free-​ride on seeming association with recognition, trust, loyalty, and willingness to pay (Commuri 2009). Thus, it is no surprise that counterfeiting is amongst the most prominent literature streams on branding, particularly luxury branding. In today’s hypercompetitive markets, branding’s role in generating value has shifted from the position of an advertising side effect to that of the guiding concept that does not only illustrate what an offer functionally constitutes but what it ought to be like—​from the perspectives of customers and employees alike. This points to the dual role of branding as an instructional leadership tool and a promise to the consumer (Henkel et al. 2007). Thus, for example, the Lufthansa brand is just as much a promise to its passengers as it is a set of explicit and implicit instructions that ideally steer the behaviour of Lufthansa personnel in terms of branded behaviour. In consumer culture, brands resemble a complex vocabulary that describes offers which require as much literacy from the customers as they do design capability from the managers.

Luxury While most people have a clear idea of what constitutes a luxury to them, finding two people who share the same idea of luxury is difficult: luxury is both conventional as a conceptual container and subjective in terms of that container’s tangible contents. People’s ideas of luxury relate to their individual preferences and aversions combined with their experienced realities of abundance and scarcity. Primarily, luxuries are individuals’ unfulfilled desires (Dubois and Paternault 1995) driven by preference and scarcity (Phau and Prendergast 2000; Tian et al. 2001). If a particular luxury is a tradeable good (as opposed to noncommercial luxuries like time, peace, freedom, etc.), it adopts the role of a commercial offer sold at amongst the highest

Luxury Branding   221 prices in its category (Hwang, Yookyung, and Megehee 2014). Thus, commercial luxury goods might turn into attainable and consumed goods. From desirable to attainable and to consumed goods, the nature and value combination of luxury changes from dominantly individual value (Hirschman and Holbrook 1982) to increasing social value (Berger and Heath 2007; Escalas and Bettman 2005; Han et al. 2010). Those who can afford to extensively spend resources to own what is preferred are envied. Envy introduces a social dimension of value as those who are envied will be emulated. Driving a fancy car may become fashionable—​just like being able to spend time away from demanding but also sustaining employment in order to enjoy but also demonstrate a more balanced lifestyle. Consequently, we enter a virtuous circle of commercial value generation (D’Arpizio et al. 2018). As the designation of a luxury is socially prescribed, this updraft only lasts if the conditions of desirability and positive social connotations are given: offers can fall from the grace of being considered a luxury if preference and/​or scarcity fade. Here, luxury differentiates from trend or fashion: generally, luxury offers show greater continuity in design and value (Kapferer and Bastien 2012) while trends and fashions show more distinct life cycles (Okonkwo 2007). Consequently, luxury is commonly illustrated through the example of iconic product designs like Rolex Oyster wristwatches, Rolls Royce Phantom (see Box 11.1), and Eames armchairs.

Box 11.1: Rolls Royce and the Claim to Be at the Top The automotive market features numerous well-​known luxury brands. One brand that others in the industry conventionally revere is Rolls Royce (founded in 1906). This is, to a large degree, to the credit of the careful stewardship of the brand’s owners, BMW Group. By strategic definition, Rolls Royce has confined itself to producing at standards that limit their production line to never exceed four-​figure production quantities per year (Ewing 2019). While many smaller brands make their production limitations a virtue in this way, Rolls Royce combines this strictly quality-​and design-​driven conviction to exclusivity with a history of over a century. This heritage is not only mirrored in the company but also in its core product lines like the rediscovered and reinterpreted Silver Ghost or Phantom car lines. While the Rolls Royce brand emerged from a series of records and awards in the early decades of the twentieth century and from the role of being a purveyor to the British royal family in the 1950s, the brand ceased to chase opportunities to renew evidence of its leadership thereafter. Rolls Royce had generated one of the key tenets of a credible luxury positioning: enough credence to avoid comparisons with others because it managed to be perceived as thoroughly differentiated. While there are many automotive brands that produce more powerful or faster cars, Rolls Royce has established itself as the largely unrivalled leader of automotive culture for the passenger rather than the driver (Berthon et al. 2009).

222   Benjamin Berghaus

Luxury Branding Luxury branding marries two complementary components: luxury introduces the content of desirability and scarcity while branding contributes a management methodology of design, differentiation, and illustration. For example, a Patek Philippe watch in and of itself is a scarce and—​at least in the eyes of those interested in mechanical watches—​desirable good. What turned it into a commercially palpable and successful offer, however, was its branding. For more on this case, see Box 11.2. In a commercial context, there are no competitive and sustainable luxury offers that do not require at least rudimentary branding as a consumption facilitator. The reason for that is that the offer’s positioning will lead to extensive production cost which in turn drives asking prices that require comprehensible differentiation. It may be impossible to sell most fountain pens for a thousand Euros—​but it is day-​to-​day business and conceptually essential for Montblanc to sell fountain pens for three times that price. The definition of luxury branding leads to the challenging delineation of luxury from premium. While many aim to conceptually differentiate the terms (e.g., D’Arpizio et al. 2018; Kapferer and Bastien 2012; Vickers and Renand 2003) or even set distinct price limits (e.g., a past convention in the German luxury market appeared to be that any car with a MSRP above €80,000 or any writing instrument over €100 is considered a luxury product; Pflanz and Beil 2013), no delineation has proven thoroughly reliable. Upon closer inspection, we find that the terms are difficult to delineate since they stem from different roots:  “premium” describes a generic positioning as opposed to

Box 11.2: Patek Philippe’s Positioning Beyond a Lifespan Patek Philippe, founded in 1839, is today one of the largest manufacturers of luxury watches. The high quality of the products and the organization of the firm (independent family firm with its own production capacity) explain its success, as does the marketing strategy of the firm. “You never actually own a Patek Philippe. You merely look after it for the next generation.” is a slogan widely used in advertising that emphasizes the timelessness of the brand. The advertising campaign is over twenty years old and remains a cornerstone in crafting a commercial message. Patek Philippe adopted a luxury position and has kept it consistently since the 1980s by highlighting that its products do not serve the goal of sporadic and fleeting enjoyment but rather a sense of immortality of style, culture, and relationship. (Naas 2016). While many luxury brands position themselves as lifelong companions, Patek Phillippe managed to establish itself beyond the span of a lifetime. The brand possesses the necessary heritage to support the larger-​than-​life claim by holding several impressive records linking back to the era when New Yorker industrial captains competed with Patek Philippe pocket watches in particularly ostentatious consumption (Adams 2014).

Luxury Branding   223 mainstream or budget—​it is a marketing term from the management domain. Premium describes a pricing strategy that leads to a positioning: while a mainstream supplier of fashion might dabble in the premium segment to generate higher profitability, it will not easily stumble into the luxury fashion market. The requirements for a credible luxury fashion brand positioning are far more complex and include time to grow. Luxury, on the other hand, describes a complex amalgamate of a producer’s heritage, its ambition, and its reflection in employee and consumer behaviour. For a closer examination of the implications, see the discussion of Bentley in Box 11.3. Consequently, it might not only be difficult but impossible to find the delineation between premium and luxury: both concepts are bound to orthogonal dimensions. While every luxury brand follows a premium strategy, not every brand following a premium strategy evokes those elements in positioning that established luxury brands associate with (heritage, bespoke offers, craftsmanship, cultural depth, performance, experience, etc.). Luxury brands that begin to neglect these positional elements begin to fall from their perception as being a luxury brand. For an interesting case on a brand whose success threatens to risk the luxury distinction, see Box 11.3. While I acknowledge that there is a distinct need for market researchers to segment markets on the supplier side,

Box 11.3: Bentley’s Perfect Skirting of Luxury and Premium Roles A modern Bentley first and foremost evokes the associations of an established British racing car manufacturer—​but also the implied care for detail and performance of those who design and build the cars as well as a distinguished customer group in a position to appreciate a car of Bentley’s calibre. What makes a Bentley a luxury good, however, is that this car is validated through a more or less unwavering scarcity and desirability in the eyes of its fans, prospective and actual customers. One might say that Bentley is very close to exemplifying the notion of a luxury car. When considered critically, it is impressive how little it appears to matter that today, Bentley’s cachet rests on heritage and branding. Owned by a German mass producer, sharing platforms with other sedans and SUVs, and with a share of its cars manufactured in Germany and Slovakia, Bentley has become a prime example to illustrate the degree to which the operationalisation of luxury branding can generate value through meaningful evocation and illustration. Thus, one might argue just as well that Bentley is very close to exemplifying the notion of a brand portfolio manager’s optimal implementation of a premium brand asset in its market. Bentley—​like many other successful luxury brands—​is characterised by being an icon of heritage (founded in 1919), culture, and ambition and a gradually and carefully developed brand asset that serves a strategic purpose in the premium segment of a brand portfolio. The substance of the former gives credence to the brand’s differentiation and attractiveness while the necessity of the latter provides the necessary framework for the business to survive. This constitutes one of the key and distinctive management tasks that branding managers in the luxury market take responsibility for: the mediation between the cultural and the commercial.

224   Benjamin Berghaus qualitative dimensions appear more useful than the hunt for what may be an imaginary delineation between premium and luxury.

Contemporary Research on Luxury Branding In comparison to the importance of branding for luxury, there is surprisingly little research directed explicitly at luxury branding. While a research discipline on luxury has emerged, there is hardly any readily distinguishable literature canon that speaks distinctively of the luxury brand and as well as of luxury consumption, counterfeiting, businesses, or other related facets. In March 2019, a search of the term “luxury brand” in all journals evaluated three or four in European Journal of Information Systems (EJIS) 2007 (Harzing 2019) and categorized as economics (83 journals), management and strategy (16), international business (2), marketing (13), organisational sciences (25), psychology (25), and sociology (15), yielded a return of 143 documents published between 1982 and 2019. The identified publications emerged predominantly in marketing journals (121 articles) and marginally outside (18 in management-​focussed and 4 in economics journals). More than half of the articles were published in Journal of Business Research (JBR; seventy-​four articles). Even though research in luxury is a broad, cross-​disciplinary, and growing field, the focus on luxury branding is less pronounced in leading academic journals: with on average less than four publications per year in the identified period, luxury branding remains a niche subject here. Topical categorization of these articles leads us to the article groups illustrated in Figure 11.1 and presented in this section.

Consumer Psychology The largest and most versatile group of papers related to luxury branding deals with studies of consumer cognition and behaviour:  contributions range from consumer choice (Ardelet et al. 2015; Keaveney et al. 2007; Khan and Dhar 2006; Pietrykowski 2004) over perceptions of success (Lee Baumgartner, and Winterich 2018; Mandel, Petrova, and Cialdini 2006; Whelan and Hingston 2018), the ability to nurture attitudes towards luxury brands (Kim et  al. 2012), consumer brand enactment (Megehee and Spake 2012), loyalty (Khalifa and Shukla 2017; Shukla Banerjee, and Singh 2016; Topaloglu and Gokalp 2018), pride (Bellezza and Keinan 2014; McFerran Aquino, and Tracy 2014), narcissism (Kang and Park 2016), corruption (Tajaddini and Gholipour 2018), the impact of social context (Kim, Park, and DuBois 2018; Pozaharliev et al. 2015), and the role of terror management in conspicuous consumption (Fransen Smeesters, and Fennis 2011; Lacroix and Jolibert 2017) and its unintended consequences (Kessous,

Luxury Branding   225 Luxury Branding Foundations Consumer Psychology

References insights on key consumer behaviour related to luxury consumption: consumer choice, perceptions of success, attitudes towards luxury, brand enactment, etc.

Social Economics

References insights on behavioural economics related to luxury consumption: interdependence of demand, social reference effects, and its implications for pricing, etc.

Characteristics of Luxury References insights on the nature of two critical balances: a luxury brand’s conspicuousness versus its subtlety and, likewise, a luxury brand’s awareness versus its rarity. Further insights include an integrative theory on luxury.

Luxury Branding Core Tasks Luxury Brand Targeting

Luxury Brand Shaping

Luxury Brand Experience Design

Luxury Brand Extension

Luxury Brand Protection

References insights on segmenting by age, gender, and culture, including a focus on Asia.

... brand narrative, reviving dormant brands, art, and cooeffects, etc.

... retail and online exp., purchase process, co-creation, and social media.

... strategies and potential as well as authenticity as a limiting factor.

... consumer motives towards and justification of counterfeits, etc.

Case Studies References studies on Burberry, Kering, LVMH, Prada, as well as critical challenges illustrated by fictitious brands.

Figure 11.1.  Systematic sorting of surveyed contemporary literature on luxury branding.

Valette-​Florence, and de Barnier 2017). Furthermore, two groups of papers investigate the interesting juxtapositions of luxury’s wasteful splendour with more prosocial goals, trying to link conspicuous consumption with sustainability (Achabou and Dekhili 2013; Han, Nunes, and Drèze 2017; Torelli, Monga, and Kaikati 2012; van der Wal, van Horen, and Grinstein 2016) and with charity (Hagtvedt and Patrick 2016; Strahilevitz 1999; Strahilevitz and Myers 1998). Luxury is a market segment that generates most of its value by evoking notable and nonstandard consumer behaviour. While many readily agree to aggregate the details of this behaviour as irrational or emotional, luxury branding experts cannot shy away from understanding the origins and ramifications of those mechanics that drive the value perception in the mind of the consumer. Those will be the insights that steer their decisions when either researching or managing brands that depend on their being well versed in these fundamentals.

Social Economics Two groups of papers link the nature of consumer behaviour back to its academic origin:  economics (Achabou and Dekhili 2013; Amaldoss and Jain 2008; Bagwell and Bernheim 1996; Bearden and Etzel 1982) and research on pricing and price perception (Gunasti and Baskin 2018; Hwang et al. 2014; Kapferer and Laurent 2016; Langhe et al. 2014; Parguel, Delécolle, and Valette-​Florence 2016; Sethuraman 1996).

226   Benjamin Berghaus Just like the literature on psychology, this foundational literature on behavioural economics is important to understand the difference between classical and more modern economic thought on a macrolevel and specific insights on pricing as the most fundamental of positional queues.

Characteristics of Luxury First, conspicuousness versus subtlety has been explored (Berger and Ward 2010; Han et al. 2010; Janssen Vanhamme, and Leblanc 2017; Kauppinen-​R äisänen et al. 2018; Nunes Drèze, and Han 2011; Wilson Eckhardt, and Belk 2015), and second, the roles of awareness versus rarity have been critically weighed (Kapferer and Valette-​ Florence 2018; Yoo and Park 2016). Two broadly positioned articles focus on the ephemerality of luxury offers (Berthon et  al. 2009) and on the theory of luxury (Cristini et al. 2017). To luxury branding experts, the insights in this set of papers are of a critical nature because they discuss several of the fundamental workings that encourage or suppress the social motivation of consumers. Both the balance of conspicuousness versus subtlety and the compensation of awareness with rarity are key management dimensions that need to be informed by branding considerations. The key, here, is not to consider the terms at face value but in light of the brand’s positioning and its targeted audience: “By which means do we achieve a tasteful and attractive balance between conspicuousness and subtlety in the eyes of our target group?” Here, a strategic luxury branding provides guidance to facilitate key decisions on communication, sales network development, customer experience, product design, and other facets.

Luxury Branding Core Tasks In the following five segments, you will find the bulk of the surveyed literature on luxury branding. To provide a guiding narrative that compartmentalises and moderates these contributions, we will follow a process of what may appropriately be labelled a set of luxury branding core tasks: those steps that are required to build a luxury brand. To facilitate the presentation of the contributions, we follow this process as if we were to establish a hypothetical luxury brand from its targeting, shaping, experience design, and extension to its protection.

Luxury Brand Targeting The first of five core tasks of luxury branding concerns itself with going beyond the too-​ broad description of operating in the luxury market. Just like the traditional branding methodology suggests, we need to understand which part of the market we aim to target. To arrive at this conclusion, the first task is to segment the market and evaluate these segments.

Luxury Branding   227 In the literature survey, we find insights on segmenting the market by age (Amatulliet Guido, and Nataraajan 2015; Gentina Shrum, and Lowrey 2016; Gil et al. 2012; Schade et al. 2016; Swimberghe et al. 2018), gender (Lee, Ko, and Megehee 2015; Roux Tafani, and Vigneron 2017; Stokburger-​Sauer and Teichmann 2013; Wang and Griskevicius 2014), and culture (Bian and Forsythe 2012; Shukla and Purani 2012; Strebinger et al. 2018) with a specific focus on Asia (Bartikowski and Cleveland, 2017; Li, Li, and Kambele 2012; Liu et al. 2016; McEwen et al. 2006; Shukla, Singh, and Banerjee 2015; Zhan and He 2012).

Luxury Brand Shaping Continuing on the guiding process of more conventional branding, brand owners follow up the segmentation and targeting of the most attractive share of the market by shaping the brand to the necessary positioning. Shaping a luxury brand is the process in which key decisions are being made on how to speak to those the brand owners aim to target. Our survey shows that recent research focussed on the role and methodology of brand communication to build a luxury brand’s narrative (Godey et al. 2012; Melnyk, Klein, and Völckner 2012; Pike 2013), to incorporate the role of a brand’s design (Liu et al. 2017; Venkatesh et al. 2010), to develop strategies to revive dormant brands (Dion and Mazzalovo 2016), and to implement the role of ingredient branding in luxury (Moon and Sprott 2016). Two distinct research streams with ample examples from luxury branding practice discuss shaping luxury brands by linking them to art (Chailan 2018; Hagtvedt and Patrick 2008a, 2008b; Joy et al. 2014; Koronaki, Kyrousi, and Panigyrakis 2018; Lee, Chen, and Wang 2015) and emphasizing country-​of-​origin effects (Godey et al. 2012; Melnyk et al. 2012; Pike, 2013). Given that these brand-​shaping efforts ought to be closely monitored and measured, it is critical to keep in mind recent research on the brand luxury model and luxury brand equity (Liu et al. 2017; Miller and Mills 2012).

Luxury Brand Experience Design After having carefully positioned the luxury brand in the most attractive target audience in the market, the time has come to set up a meaningful and impressive differentiation for the brand: the next core task of luxury branding is to develop a brand experience design second to none. Key to the luxury brand experience will likely be the personal encounter of the customers with the traditional retail environments. The literature survey finds a large group of contributions discussing the luxury retail experience (Baek Choo, and Lee 2018; Dion and Arnould 2011; Dion and Borraz 2017; Kim et al. 2016; Klein et al. 2016; Madzharov Block, and Morrin 2015; Ward and Dahl 2014; Willems et al. 2012), purchase process (Lim et al. 2016), and strategies to optimize (retail) talent acquisition and development (Shipilov and Godart 2015). Of course, the luxury customer experience goes far beyond the traditional retail store to include online shopping (Zhao, Zhao, and Deng 2016). Burberry provides an excellent example to explore how integrating both types of experiences allowed the fashion brand to turn their comeback into a bid on the leadership of the luxury fashion market.

228   Benjamin Berghaus Beyond the particularly commercial environment of the purchasing experience, there is another level of experience that is more concerned with consumers involving themselves with creating and embodying the brand. The survey shows an interesting vein of research on the merit or detriment of co-​creating luxury offers (Choi, Ko, and Kim 2016; Essamri, McKechnie, and Winklhofer 2019; Fuchs et al. 2013; Kim and Kwon 2017; Quach and Thaichon 2017; Tynan, McKechnie, and Chhuon 2010). Of course, the concept of co-​creating the products or perceptions of a brand has been greatly aided by consumers’ opportunity to broadcast their experiences in social media. Thus, it is not surprising to find a distinct vein of research on the role of social media in luxury marketing (Culotta and Cutler 2016; Godey et al. 2016; Kim and Ko 2012; Lee and Watkins 2016; Walasek, Bhatia, and Brown 2018). The hesitant acceptance of social media in the communication toolkit of luxury brands is an interesting testament to traditional luxury brands’ difficulties with managing change. In the first years after its inception, social media appeared as an unsuitable communication channel to many luxury brands of esteemed pedigree. Several of social media’s key functions (increasing accessibility, co-​creation, and third-​party brand representation) appeared incompatible with the management of a luxury brand. With time, however, luxury brands have adopted social media as a key communication path to engage younger audiences. Given that one of today’s greatest challenges for luxury brands is to remain relevant with every new generation of customers, social media has become a critical communication medium, which requires some interpretation to work for luxury brands: while sharing of luxury experiences is welcome, luxury brands strive to create delineated opportunities to become more accessible to fans, to engage fans in co-​ creation, and to extend public relations into the influencer domain. To learn more about how the rejuvenation of an established luxury brand requires careful balance and may cause turbulence even for some of the biggest brands, see the case of Cartier in Box 11.4.

Luxury Brand Extension Once the luxury brand is perceptively differentiated, the next core task of luxury branding is to carefully grow and extend the brand. Two reasons drive this decision: first, a sensibly extended brand will help diversify and recuperate the substantial investments incurred so far, and second, a suitably extended range will feed positively into the credibility of the brand. Researchers explored both the potential of brand extensions for luxury (Biel 1994; Dall’Olmo Riley, Pina, and Bravo 2013; Hagtvedt and Patrick 2009; Pina, Dall’Olmo Riley, and Lomax 2013; Reddy and Terblanche 2005; Shen, Choi, and Chow 2017) and the role of authenticity limiting the potential for extensions and constructing narrative (Beverland 2005; Beverland 2006; Cheah, Zainol, and Phau 2016; Jones, Zainol, and Phau 2005).

Luxury Brand Protection As a response to growth in the luxury market, nefarious actors identified counterfeiting luxury brands as a lucrative even if illegal path to commercial success. Given the effort invested in the success of their brand by following the five core tasks of luxury branding, it is no surprise that the final step will need to deal with the protection of the key asset.

Luxury Branding   229

Box 11.4: Cartier’s Abrupt Brand Rejuvenation The Parisian jewellery maker Cartier (founded 1847) is commonly mentioned as an archetypical luxury brand. Just like Rolls Royce, Cartier builds on the long echo of aristocracy and distinction to position its brand as a constant of highest value in a market of ephemeral competition. While Cartier used to be comparable to Rolls Royce if at least in heritage, its positionings started to diverge in the past years: after the financial crisis around 2009, Cartier became considerably more market oriented. A distinctive apex in Cartier’s turn is notable between 2012 and 2017, again highlighted by marketing campaigns: while Cartier still fostered its image of French grandeur in its brand campaign L’Odyssée de Cartier (Cartier 2012), the brand introduced an entirely different message and style in its campaign on the new product line Juste un Clou (Cartier 2017). Both campaigns could hardly be more different: where one illustrated the far-​flung historical journeys of the brand’s godfathers and customers in a beautiful but also somewhat cryptic illustration, the other showed classic sports cars, fashion, dancers, and skateboarders. Cartier had taken a corner—​at speed. The abruptly increasing orientation towards the customer came as a double-​edged sword: on one side, the evolution is welcome and necessary as Cartier’s positioning as a heritage-​driven brand previously risked becoming stale and out of touch with younger audiences’ preferences. At the same time, it is unmistakable that by implementing this change as quickly as it did, Cartier began communicating a decidedly less unique and differentiated brand: showing the new campaign to consumers without revealing the logo left the audience clueless about whose brands communication they saw and, in some cases, what the category of the brand owner would be. The abrupt rejuvenation of the brand appears to have called the long-​term value of the brand into question. While the old campaign showed the signature of Cartier at the risk of losing touch with younger customers, the new appeared to be shaped according to younger customers’ preference at the risk of losing touch with Cartier. Carefully balancing both signatures to combine heritage, identity, and an innovative sense of customer orientation becomes apparent as a feat not easily realized, even for the most experienced brands.

Research explored the phenomenon of counterfeiting and its impact on luxury brands from a consumer behaviour perspective to investigate how consumers’ motivations are structured to buy counterfeits (Amaral and Loken 2016; Bian et  al. 2016; Eisend, Hartmann, and Apaolaza 2017; Geiger-​Oneto et al. 2013; Kaufmann et al. 2016; Marticotte and Arcand 2017; Randhawa, Calantone, and Voorhees 2015; Romani, Gistri, and Pace 2012; Wilcox, Kim, and Sen 2009; Yoo and Lee 2012) and justify owning copies (Poddar et al. 2012; Pueschel, Chamaret, and Parguel, 2017) and how different similarities between the original and the copy shifts the counterfeit’s impact (Gao, Lim, and Tang 2017; Le Roux, Bobrie, and Thébault 2016), and what role brand parodies play (Burgunder 2008). Interestingly, articles frame the purchase of counterfeits as conscious consumer decisions—​a perspective that remains challenging to accept for the brands that still dominantly entertain the conviction that consumers are being tricked into a lesser experience. Surveying the published insight makes unmistakable that luxury branding is an impressively multifaceted and interdisciplinary topic which requires insight into both

230   Benjamin Berghaus branding fundamentals and luxury market specifics. However, while the published insight indeed provides ample support to researchers in the field and managers tasked to steer luxury brands, there are distinct limitations: first, research on the subject is notoriously fraught with inconsistencies on definitions and delineations of the market. This is not due to inaccuracies but to the nature of the subject and the methodological influence of research being contributed from a number of different disciplines and research styles. Second, research on luxury tends to conflate the immutable mechanics of the market with the malleable trends and fashions emerging in it. It is not always easy to tell apart which insight is of which trajectory. Given the presented overview of research and the critical distance assumed by recalling the limitations of such a study, we can sketch preliminary conclusions: reviewing the contemporary research landscape on luxury branding allows us to identify the prerequisite foundations, characteristics, core tasks, and case studies that are important to keep in mind when engaging with luxury brands as a researcher or manager. The research can help on two levels: on the microlevel, each study contributes to a better understanding of one facet and on the macrolevel, the presented structure helps to make sure that none of the key topics fall victim to a blind spot.

Roots of Contemporary Research on Luxury Branding While the overview of contemporary and visible contributions to the research stream relating to luxury branding provides a sense of the field’s extent, it only allows us to look at the surface of the field. To go deeper into which concepts find recognition amongst researchers focussing on the topic of interest, I  carried out an analysis of literature references in the previously listed documents to arrive at the most important and prominently cited roots of the field today. From the 143 articles identified, I extracted 7,248 literature references. I  focussed my analysis on those researchers who aggregated at least five cited first authorships across all articles (298 authors accounting for 48 percent of all identified references). Based on this broad approach, key documents emerge that find recognition by the community interested in the subject. The discussion that follows focusses on the fifty most cited documents in the sample described, grouped in key categories as illustrated in Figure 11.2.

Seminal Work on Luxury Starting with a recognition of the origins of the field of luxury research, there is no way around highlighting the seminal Theory of the Leisure Class (Veblen 1899) as the central root of modern thought on conspicuous consumption as well as the later elaboration on

Luxury Branding   231 Seminal Work on Luxury Branding’s Components Seminal Work on Luxury

Foundations on consumer behaviour at the intersection of economics, sociology, and cultural studies. E.g., Veblen (1899), Leibenstein (1950), Bourdieu ([1979] 1984)

Seminal Work on Branding

Foundations on the marketing methodology of branding and its related toolkit E.g., Aaker (1991), Keller (1993), Kapferer (2004)

Luxury Branding Dychotonomy Consumer Perspective

Insights on the ramifications of luxury as a (realizable) dream, the motivational structure driving prestigeseeking consumption, and the differentiation of customer segments for the luxury market. E.g., Dubois and Paternault (1995), Vigneron and Johnson (1999, 2004)

Managerial Perspective

Integrative proposals for understanding and managing luxury brands as well as more specialized discussions on key managerial challenges that arise from a democratised luxury positioning. E.g., Kapferer and Bastien (2012), Berthon et al. (2009)

Specialized Topics of Luxury Branding Individual Dimension of Luxury Consumption

Social Dimension of Luxury Consumption

Cross-Cultural Diff. in Luxury Consumption

Counterfeiting of Luxury Brands

Further Sources Consulting Reports

Interest Groups and Associations

Specialized Journals

Figure 11.2.  Roots of contemporary luxury branding insight.

Veblen’s prior foundation by Leibenstein (1950). Both were economists who explored the sociological domain to expand economic theory from classical to modern understanding. The sociological treatise on consumption being driven by social trends and tastes by Bourdieu ([1979] 1984) completes the historical foundations for research on luxury consumption, going in the opposite direction of extending his sociological field into economics and illustrating group dynamics in consumer behaviour in a comprehensive contribution. To those interested in researching or tasked with managing luxury brands, reviewing these works will be helpful since they embody the nature of their subject: luxury consumption is neither a purely economic nor a purely cultural phenomenon. Luxury itself is an interdisciplinary subject and challenge. Since luxury brands capture one instance of this interdisciplinarity, they cannot be built purely from a commercial, cultural, or any other individual standpoint—​luxury branding means capturing an amalgamate.

Seminal Work on Branding While the documented roots of today’s luxury research reach further back, there are just as important and frequently cited foundational documents on branding recognized by this analysis: both Aaker and Keller contributed the two fundamental brand-​related publications detailing the management and evaluation of brand-​equity in the early 1990s (Aaker 1991; Keller 1993) while others published explorations into brand extension, a branding technique that became important to the growth of luxury brands (Park,

232   Benjamin Berghaus McCarthy, and Milberg 1993). A fourth, more recent contribution on brand management is notable because it has been authored by one of the key contemporaries of luxury branding (Kapferer 2004). Since we have come to understand luxury branding as very much a topic driven by dualities, it does not surprise us to find that key influences on modern academic thought originate at the intersection of academic research and business consulting. While luxury is an intricate subject matter, branding is a methodology. Even though ardent proponents of luxury brands and the luxury market may argue that a positioning in the luxury market will turn all previous notions on branding upside down, that is not the case. Luxury branding is a specialisation of traditional branding and equivalent in its key functions of capturing and communicating differentiation. While it is true that several key concepts of branding follow different rules in the luxury market compared to the more accessible segments, knowing the key tenets of branding is key to cleverly breaking these conventions to generate new, meaningful perspectives and not accidentally create an awkward or incomprehensible brand experience. Today’s more specialized contributions will not help as much as those listed above.

Core Canon At the heart of the survey of the contributions on luxury branding most commonly taken into consideration today, there is a group of documents that assume the role of the core literature canon on luxury research—​and thus a central foundation for luxury branding insight. The core canon of literature which finds resonance in contemporary research on the luxury market may be most easily differentiated by its perspectives: first, those contributions on consumer attitudes and behaviour, and second, those contributions discussing potential managerial strategies and implications.

Consumer Perspective Dubois introduces this canon with earlier contributions together with Duquesne and Paternault. The authors illustrate the notion of a dream value with a luxury brand and how this value changes when luxury consumption is not only dreamt about but realized (Dubois and Paternault 1995). Both contributions by Vigneron and Johnson (1999, 2004) remain essential reading with regard to the fundamental set of motives that drive luxury consumption. Going into greater detail on luxury as a segment and developing subsegmentations, Dubois and Duquesne (1993) as well as Wiedmann, Hennigs, and Siebels (2009) explored the role of culture and value orientation as segmentation standards.

Managerial Perspective Kapferer (1997), on the other hand, introduces an early contribution on luxury that does not focus on consumer behaviour but rather on management concept, much like Vickers and Renand (2003) contributed a conceptual development on the marketing of

Luxury Branding   233 luxury goods. Kapferer’s paper will have served as a basis for his later, particularly prominent book on luxury management from a brand manager’s perspective together with Bastien (Kapferer and Bastien 2012). Foreshadowing one of the central challenges of the market, early contributions illustrated the emergence of “masstige,” the marketing tactic that makes otherwise luxury-​positioned brands much more accessible to fans who could not otherwise afford the branded product (Nueno and Quelch 1998; Silverstein and Fiske, 2003). More specialized on luxury fashion, Okonkwo (2007) found notable resonance with her book on luxury branding. Finally, and most recently, Berthon et al. (2009) illustrate an integrative perspective on luxury consumption and implications for developing luxury brands. Their contribution is amongst the most comprehensive journal publications that found broad recognition amongst its peers. Both hemispheres of luxury research’s core canon constitute an important reminder to scientists and managers in the field. Even though companies in the luxury market have a tendency to follow an inside-​out perspective, a luxury branding must predominantly be designed for its target group. Thus, understanding the complex sociopsychological process of consumers coveting and realising luxury possessions is just as important as knowing the arsenal of tactics and tools available to shape the perception of an offer to facilitate, trigger, and complete these processes.

Specialized Contribution With both sources for the literature delta identified in fundamental research on luxury consumption and branding as well as the core canon highlighted, we follow the individual streams of more specialized research. This set of publications finds just as much resonance in the luxury research community but tends to have greater focus than the contributions introduced above. To delineate substreams, we first differentiate publications that deal with the individual experience of luxury consumption from those that focus on the involved social behaviour, intercultural differences, and brand counterfeiting. First, we find a literature substream on the individual facet of consumption with seminal contributions on the role of experiential and hedonic consumption (Hirschman and Holbrook 1982; Holbrook and Hirschman 1982) and more recent and applied investigations into how hedonic positioning provides a foundation for extending brands (Hagtvedt and Patrick 2009). Second, we discover a larger set of documents on the social facet of consumption, reflecting on both the role of consumers’ self-​concept as well as their response to social inference (Escalas and Bettman 2005; Richins 1994). Here, we find key contributions to the role of uniqueness and rarity (Phau and Prendergast 2000; Tian, Bearden, and Hunter 2001), the role of consumption and brands being used by consumers to extend their self-​concept (Belk 1988; Fournier 1998; Sirgy 1982; Tsai 2005; Tynan, McKechnie, and Chhuon 2010), as well as consumers’ active communication and competition for status (Amaldoss and Jain 2005; Bearden and Etzel 1982; Berger and Heath 2007; Berger

234   Benjamin Berghaus and Ward 2010; Han et al. 2010; Kastanakis and Balabanis 2012; Kim and Ko 2012; O’Cass and McEwen 2004). Finally, two further substreams emerge, one providing differentiating insight into luxury consumption across cultures (Wong and Ahuvia 1998; Dubois et  al. 2005; Bian and Forsythe 2012; Shukla and Purani 2012; Zhan and He 2012) and the other investigating the threat of counterfeiting for luxury branding (Bloch, Bush, and Campbell 1993; Commuri 2009; Grossmann and Shapiro 1988; Nia and Zaichkowsky 2000; Wee, Ta, and Cheok 1995; Wilcox et al. 2009). Specialists in luxury branding will not be surprised to find that, once again, a dyad of facets requires their consideration: luxury branding must cover both individual and social dimensions of experience. A luxury brand built purely on social benefit and devoid of hedonic experience is not a luxury but self-​chastisement while a luxury brand built purely on an excellent individual experience and devoid of social function lacks the communicative nature of a luxury. Finally, those involved with understanding or managing luxury brands will agree that it takes a keen understanding of how they need to adjust their brand’s local implementation to target a regional taste and how they need to defend their key asset from those seeking to illicitly profit from it.

Discussion and Conclusion The nature of luxury brands has distinctive implications for their stakeholders. Five of those have particularly prominent roles because they present a distinctive set of consequences.

Consumer Perspective For consumers, luxury brands hold great potential for social interaction and signalling (Berger and Heath 2007; Han et al. 2010). This attribute of luxury brands propelled most of the democratization drive that luxury brands experienced in the early 2000s (Nueno and Quelch 1998). Particularly in economies that only recently opened to consumerism and experienced growth of wealth, it became important to consumers to demonstrate their own socioeconomic mobility (Zhan and He 2012). With this ability to communicate comes the learning effect of brand literacy which first drives sales of established brands and later, when later-​movers adopt a brand, push the consumer avant-​garde to the brand that signals not only affluence but connoisseurship. However, in mature consumer societies, particularly ostentatious luxury brands have seen increasingly raised eyebrows as an undiscerning display of consumerism has become a byword for vulgarity and lacking cultivation. Consequently, stealth luxury became a trend (Berger and Ward 2010). While Watzlawick’s saying holds true that “you cannot not communicate,” consumers appear to learn with growing brand consumption experience that you can at

Luxury Branding   235 least try only to speak to those whose approval you seek. The implication is that brand managers find themselves pushed to construct more culturally intricate and detailed brands in consumer cultures that are more mature than others (Dubois and Duquesne 1993; Hagtvedt and Patrick 2008b; Kim et al. 2016).

Employee Perspective With a growing luxury brand market, the number of employees working at prestigious brands has risen sharply: businesses in the luxury market are estimated to employ 1,7 million people in Europe (European Cultural and Creative Industries Alliance 2019), up from one million in 2011 (European Cultural and Creative Industries Alliance 2011). While signalling today is more frequently discussed in the context of consumption, it emerged in the field of employees communicating their performance through prior engagements (Spence 1973). Consequently, working for luxury brands comes with its own, distinct set of implications: prestigious brands are reported to pay less (Bidwell et al. 2014), have larger applicant pools (Turban and Cable 2003), and can, by extension, build their teams from a selection of higher-​performing applicants (Cable and Turban 2003), and do all that at lower cost than those companies that do not have the same reputation (Podolny 1993). In times of “the war for talent” and talented teams quickly assuming the key role for business success, brands of high reputation appear to have a substantial advantage. However, prestige-​focussed people may introduce careerism (Finn 1961; Lea and Webley 1997), antisocial behaviour (Charness, Masclet, and Villeval 2014), and overconfidence (Bothner, Kim, and Smith 2012) into organisational behaviour. Interestingly, given the strength of the consumer side of brands in the luxury market, only few companies have successfully and convincingly launched employer branding initiatives at the brand level. The implication of the notable reputational radiance of luxury brands as employers towards their applicants and employees, mastering a human resource relationship system that accounts for the depth of the brand instead of the comparative shallowness of mere prestige will be challenging. At the same time, luxury brands can only remain competitive if they master this challenge (Shipilov and Godart 2015).

Corporate Perspective From a corporate or ownership perspective, the brands of companies in the luxury market become particularly relevant in terms of their value as an asset of the owned entities. Since differently positioned brands in a brand portfolio will respond differently to market trends, brand portfolio owners can balance their brands’ fluctuations in terms of being in vogue, seeing strong growth, or facing a brand-​or sector-​born downswing (Ijaouane and Kapferer 2012). Corporate owners have a substantial advantage of allowing employees a broader range of employment opportunities without

236   Benjamin Berghaus having to lose talent to the outside competition (Shipilov and Godart 2015). As an implication, individually owned brands need to generate an even more sticky retention concept for their teams to not only build but nourish a brand culture that can then be communicated. Furthermore, stand-​alone brands face the particular challenge of striking a balance between establishing a positioning that can be defended over time but that can also be adapted to the market context.

Business Partner Perspective From the perspective of a luxury brand’s business partner—​be it a supplier or a distribution facilitator—​the luxury brand is an important tool to demonstrate its own positioning, quality, and value of offers. While distribution partners establish their own positioning by trading with luxury goods in a critical position between the brand and its customers, suppliers build to a greater degree on the certification by being a purveyor to—​if not the king, then at least those who used to serve the royal courts. In the past two decades, luxury brands’ business partners have found themselves under increasing pressure as brands vertically integrate both up-​and downstream. While suppliers found themselves acquired or replaced by otherwise acquired in-​house capabilities, retail partners encountered the new reality of luxury brands’ aim to generate an immediate relationship with “their” customers. The implications of this change are particularly visible in the mechanical watchmaking sector, where individual boutiques and small watch retail chains have long held the access to customers for watches. Driven by the brands’ push to create a seamless, single-​brand connection to the customer on the one hand and digitalisation’s impact on physical retail on the other, retail partners without their own branded products and a reasonable innovation strategy have found their days numbered.

Managerial Perspective For brand managers, developing a luxury brand means demonstrating greater attention to detail when it comes to capturing and communicating the cultural, technological, experiential, social, and artistic dimension of offers. Luxury brands generate their value by extending the traditional, functional dimension of a product by adding these sometimes called emotional, but more aptly put, intangible facets of performance. While car brand managers of other segments largely differentiate based on function or even price, car brand managers of luxury car makers need to shape brand experiences that speak to a higher-​level set of cultural, intellectual, stylistic, or communicative motives. These experiences are often much more intricately constructed since making a convincing case requires an enormous amount of insight into the target demographic and a talent to create offers that resonate with that demographic. The implications from this general trajectory are, however, that brand managers need to be able to bridge the more intricate

Luxury Branding   237 desires of mature markets with the more ostentatious and basic requirements of markets with lesser maturity. The challenge here is that most luxury brands find growth in those markets that are not yet particularly mature but at the same time cannot afford to do away with cultural depth for the sake of short-​term gains in the sales department. Having reviewed impressions of brands as steadfast as Rolls Royce and Patek Philippe, and the situation of brands that can be considered both premium and luxury, like Bentley, as well as evolving brands such as Cartier, we find that while luxury brands have unique heritages and starkly different approaches, they face the same questions. One core question for most luxury brands concerns the role of growth. This question is immediately linked to the related perspective of whether a luxury brand is a consequence—​ then, growth is the answer—​or an antecedent—​then, adhering to the standards set by the brand, even at the cost of stagnating growth, is the answer. Ultimately, the careful combination of both perspectives will be necessary to ensure that a good stewardship of the cultural heritage site that genuine luxury brands resemble does not result in smothering its commercial potential for survival.

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Chapter 12

Lux ury Brand E xt e nsi ons and Perceived   Lu x u ry Insights from the Australian Market Nicole Stegemann and Sara Denize

Many leading luxury goods companies have been using brand extension strategies to leverage the brand’s power for greater profitability (Dall’Olmo et al. 2004). They have introduced new product lines, product categories, and names (Albrecht et  al. 2013; Roux and Boush 1996). Examples include Christian Dior using its company name for various categories (prêt-​à-​porter fashion, perfumes, cosmetics, skincare products, and jewellery) and Hermès (prêt-​à-​porter fashion, watches, and china). Brand extensions strategies must be developed with care, as they impact the parent brand’s value and vice versa. Brand extension strategies also tend to increase the level of brand exposure, which may have further negative impact on the perceived value of luxury brands and brand perceptions. There are numerous studies examining the impact of brand extensions and exposure on brand perceptions for non-​luxury brands (Boisvert and Ashill 2018; He et al. 2016; Morrin 2018). However, this general brand literature requires careful consideration in its application to luxury brands (Albrecht et al. 2013; Eren-​Erdogmus et al. 2018; Lye, Venkateswarlu, and Barrett 2001; Monga and John 2010; Völckner and Sattler 2007). Consumer evaluations of luxury brands are mainly based on symbolic and abstract concepts, whereas concrete attributes are more important for non-​luxury brands; this difference in evaluation may lead to different cognitive processing behaviour (Park, Lawson, and Milberg 1989). Clarifying the impact of brand extension strategies on consumer perceptions of luxury brands is crucial for managing luxury brands. Positive brand perceptions directly influence consumer attitudes (Dubois et al. 2001), buying intentions (Keller 1993; McGivern 2006; Roux 1995; Spears and Singh 2004), and willingness to pay a premium price (Truong et al. 2009), amongst other outcome variables. Brand managers who understand these influences can improve the performance of their luxury brand.

250    Nicole Stegemann and Sara Denize This chapter presents the results of a study that explores the impact of brand extensions, perceived fit, and exposure on consumer perceptions of luxury brands. The study is set in Australia, and it complements the existing, predominantly European, work on luxury brands. This discussion concludes with the development of a model and hypothesis that we test in our empirical study. In the later part of the chapter, we describe the results of our research. Here we consider how the number of luxury-​brand categories and more intensive distribution affect perceptions of luxury brands. We conclude this chapter by considering the limitations of the research, highlighting several theoretical and managerial implications, and outlining future research that may contribute to the understanding of luxury brands.

Luxury Brands in Australia Most research on luxury brands and brand extension strategies is Europe-​centric. The development of global luxury markets and new non-​European luxury brands suggests that a greater focus on consumer perceptions of luxury brands outside the European market is warranted. Thus, this chapter focuses on perceptions of luxury brands in Australia. The Australian market has developed into a surprise success story for the luxury industry with the beginning of the new millennium. Although the Australian luxury fashion and accessories industry reported a peak growth rate of 16  percent in 2016 (Carruthers 2018; Deloitte 2018), luxury brands are forecast to grow at 6–​8  percent until 2025 with a revenue of about $4.6 billion in 2020 (Statista 2020). Euromonitor (2019) stated that ‘the three most important macroeconomic factors affecting sales were increased population growth, higher per capita purchasing power and increasing tourism.’ Amid the pandemic, luxury brands have been forced to rethink their distribution strategies with a decline in tourism, and increased focus on local markets and e-​commerce (Achille and Zipser 2020). Prompted by increased immigration and rising numbers of ultra-​affluent consumers along with higher disposable income in the wider community (Luxury Daily 2017), the luxury market in Australia has flourished in recent years. Growing demand from affluent tourists, predominantly from China, has accelerated this demand (Carruthers 2018). Although Melbourne and Sydney are the main markets for luxury brands, shopping malls in major tourist destinations such as Brisbane and Gold Coast have seen an increase in luxury retail stores (Deloitte 2018). High-​end and haute couture brands such as Saint Laurent, Balenciaga, and Alexander McQueen have now set eyes on the growing luxury market (Starling 2019). These changes in the retail sector have resulted in a growing number of luxury brands, the arrival of new and bigger flagship stores, and a new generation of consumers who embrace the luxury online experience (Deloitte 2018). Australian women have embraced online shopping to keep up with the latest fashion trends (Lester 2018).

Luxury Brand Extensions and Perceived Luxury    251 Favourite online retailers for luxury brands in Australia include Net-​A-​Porter, The Outnet, MatchesFashion, and Farfetch amongst others (Cribbin 2020; Doyle 2018). In the next sections, we consider the extant work on brand extensions in luxury brand settings before presenting an empirical model that shows the specific impact of brand extensions and their perceived fit, as well as the level of exposure on luxury-​brand perceptions.

Luxury-​Brand Extensions, Perceived Fit, Level of Exposure and Brand Perceptions Brand extensions occur when an established brand name is used to launch a new product, commonly as a line or category extension (Keller and Swaminathan 2019: 471). Category extensions occur when the brand is extended into new categories as seen in Chanel extending from haute couture and fashion into categories such as accessories including bags and jewellery as well as skincare and makeup. Line extensions may consist of new flavours, features, forms, and sizes; examples include Chanel’s bag line extensions ‘Boy’ and ‘Gabrielle’. Extant work on brand extensions for non-​luxury brands highlights many of the advantages for the brand extension. These include increased brand equity (Spiggle et al. 2012), improved brand evaluations (Keller and Aaker 1992) and brand image, improved brand awareness (Aaker 1990), increased acceptance of new products, reduced perceived risk, and enhanced quality assurance (Hem at el. 2003). Despite these benefits, there are also risks when extending a brand. Researchers have highlighted instances where the brand extension has impacted the parent brand, including decreased brand equity and dilution of perceived brand image (Aaker 1990; Kesler 1987; Martinez and de Chernatony 2004; Ogiba 1988; Tauber 1988) and negative brand evaluations (Aaker and Keller 1990). The impact of brand extension strategies on consumer perceptions of luxury brands is important for brand managers, as they directly influence consumer attitudes (Dubois et al. 2001), buying intentions (McGivern 2006; Keller 1993; Roux 1995; Spears and Singh 2004), and willingness to pay a premium price (Truong et al. 2009). In the following sections we discuss a range of factors to consider when extending luxury brands, including perceived fit and the level of exposure and their respective impacts on luxury-​brand perceptions.

Luxury-​Brand Extensions and Perceived Fit Research on luxury emphasises the unique and distinct characteristics of luxury brands and the difficulties associated with extending them (Dubois and Paternault 1995;

252    Nicole Stegemann and Sara Denize Eren-​Erdogmus et al. 2018; Kapferer and Bastien 2009). This work suggests that luxury brands will lose their exclusive position if extended and the result will be a dilution of brand image (Dubois and Laurent 1994; Erdogmus et al. 2018; Keller 2009). Luxury-​ brand researchers Vigneron and Johnson (2004) explain this effect as a consequence of changes in the way consumers evaluate the capacity of the luxury brand to fulfil nonpersonal needs (conspicuousness, uniqueness, and quality). Roux (1995) showed that that brands perceived as more luxurious could be extended further. However, this research also showed that the ‘logic’ of the extension is crucial. If consumers perceive brand extensions as ‘logical’, the luxury brand could maintain or even strengthen its core brand image. If extensions are not consistent, brand confidence will decrease and lead to brand image dilution (Roux 1995). More recent work shows that when the extension is unrelated, negative impacts on brand image will occur, as consumers question the transferability of parent brand perceptions (Baek and King 2015; Yeo and Park 2006). In contrast, Park et  al. (1991) found that prestige brands seem to have greater possibilities for extension even with low feature similarity. Despite this work, most other researchers regard perceived fit as a crucial moderator of consumer perceptions when extending brands (Aaker and Keller 1990; Boush and Loken 1991; Bridges, Keller, and Sood 2000; Chakravarti et al. 1990; Keller and Aaker 1992; Minnesota Consumer Behavior Seminar 1987; Park et  al. 1991; Völckner and Sattler 2006). Indeed, Eren-​ Erdogmus et al. (2018) found perceived fit to be the most significant driver for luxury brand extension success. When companies extend their luxury brands, they often simultaneously widen the distribution channel, some have even offered their brands through independent retail outlets such as department stores (LVMH 2009). The next section discusses the implications of increased exposure and decreased perceived exclusivity on consumer perceptions of luxury brands.

Exposure of Luxury Brands Researchers have highlighted the need for luxury brands to be perceived as limited and exclusive (Keller 2009; Phau and Prendergast 2000; Roux and Floch 1996; Vigneron 1998; Vigneron and Johnson 1999, 2004). The task of marketers of luxury brands is to juggle the apparent conflict between widening distribution and maintaining the market’s perception that luxury and limited supply coexist as key indicators of luxury from the consumer’s perspective. However, there is very little research that has investigated the impact of the level of exposure and perception of luxury. Historically, luxury brands have been distributed using an exclusive distribution strategy (Kapferer and Bastien 2009). Indeed, luxury brands like Hermès enjoy a high degree of luxury due to their brand’s highly limited distribution through company-​ owned retail boutiques only. Various researchers have suggested that if the distribution for luxury brands is too wide, then they will lose their perceived exclusivity and damage

Luxury Brand Extensions and Perceived Luxury    253 their brand image (Dubois and Laurent 1994; Dubois and Paternault 1995). This is because consumers buy luxury products for the very reason that they are not available to everyone (Kapferer and Bastien 2009; Truong et al. 2009; Vigneron and Johnson 2004). Having exclusive exposure is a clear indicator to the consumer that they will be part of a small club of consumers and, hence, not part of the group. Interestingly, conventional wisdom asserts that limited supply is a good thing from the perspective of the producer. This conventional wisdom has been elevated to the ‘rarity principle’, which suggests that luxury brands must achieve and maintain high levels of brand awareness and keep brand diffusion limited in order to enhance exclusivity and preserve the level of luxury (Dubois and Paternault 1995; Mason 1981). However, there is no empirical evidence to support this perspective. In the next section we take a closer look at the nature of luxury-​brand perceptions, which, as discussed, are shaped by both brand extensions and their perceived fit as well as exposure.

The Nature of Luxury-​Brand Perceptions The early work of Vigneron and Johnson (2004) on brand luxury established that the luxuriousness of a brand could be measured by non-​personal-​oriented (interpersonal) and personal-​oriented perceptions. Non-​personal-​oriented perceptions of brand luxury pertain to an individual’s thoughts as to how other individuals may perceive them when buying and using luxury brands and include dimensions such as conspicuousness, uniqueness, and quality. In contrast, personal-​oriented perceptions reflect an individual’s inner desires and needs and include dimensions such as hedonism and extended self. In reality, consumers perceive brands as multifaceted combinations of these dimensions. Thus, when evaluating luxury brands, consumers will trade off less salient dimensions of luxury for more salient ones (Vigneron and Johnson 2004). Drawing on the work of Veblen (1899), who identified conspicuous consumption as a means of status seeking, perceived conspicuousness is defined as the extent to which an individual believes that consumption of a luxury brand enhances one’s social status or social prestige. Exclusive consumption of high-​priced goods enables consumers to demonstrate their higher social standing or status (Mason 1992). Thus, the perceived uniqueness of a luxury brand may enhance its value. The phenomenon where demand for goods increases as price increases is described in microeconomic theory as the snob effect (Leibenstein 1950). The perceived quality is the extent to which a brand is valued because of its quality and has been described as the perfectionism effect of luxury brands (Vigneron and Johnson 1999). Though originally described as a personal-​oriented dimension of luxury brands (Vigneron and Johnson 1999), Vigneron and Johnson (2004) later classify this effect as a non-​personal-​oriented dimension. Here we note that evaluations of brand quality are often based on nonpersonal considerations such as the brand’s exclusive attributes

254    Nicole Stegemann and Sara Denize and premium prices; thus we prefer Vigneron and Johnson’s later classification of the perceived uniqueness as a non-​personal-​oriented dimension of brand luxury. Hedonism is an affective state achieved through the satisfaction of desires or the pursuit of pleasure or self-​indulgence (Stanford Encyclopedia of Philosophy 2013). Thus, the perceived hedonism of a brand is the extent to which the brand is regarded as indulgent or pleasure fulfilling—​its hedonic effect or emotional value (Vigneron and Johnson 1999). Perceived self-​extension reflects the individual’s perception that the symbolic value and meaning of a brand enhances or extends their perceptions of self (Holt 1995). Consumers’ perceptions of each of these dimensions of brand luxury will therefore drive the overall perceived luxury of a brand. Thus, higher levels of perceived luxury are positively associated with each of the dimensions of brand luxury indicators (perceived conspicuousness, uniqueness, quality, hedonism, and self-​extension) (Dubois et  al. 2005; Vigneron and Johnson 2004). This well-​established connection between luxury-​ brand dimensions and perceived luxury provides a mechanism for marketers to enhance brand equity. In the next section, we explore potential risks associated with overuse of the luxury brand.

Conceptual Framework Research findings suggest that luxury brands, if overdiffused, will lose their exclusive position and the result will be a dilution of brand image (Dubois and Laurent 1994; Dubois and Paternault 1995). This is because consumers buy luxury products for the very reason that they are not available to everyone (Kapferer and Bastien 2009; Truong et al. 2009; Vigneron and Johnson 2004). Thus, the brand is luxurious in nature. Historically, luxury brands have been distributed using an exclusive type of strategy (Kapferer and Bastien 2009). Therefore, we explore the literature pertaining to brand extensions and extension fit as well as brand exposure as the basis for the development of a conceptual model of luxury-​brand perceptions.

Number of Brand Extensions The main management decision considered in this research is the number of brand extensions into divergent product categories. As discussed, brand extensions are created from existing family brand names and extended to new-​product categories. Furthermore, a category is defined as a collection of products that are seen to have a logical connection and shared attributes, benefits or image related associations (Bridges et  al. 2000) plus secondary associations and attitudinal components (Boush and Loken 1991; Cohen and Basu 1987; Dawar and Anderson 1994; Park et al. 1991). For example, many luxury fashion brands like Chanel, Dior, and Armani have extended into

Luxury Brand Extensions and Perceived Luxury    255 categories such as skincare, makeup, and homeware. Even more category-​focussed brands like Hermès are exploring the wider market with their lipstick launch (Gill 2020). Drawing on the luxury literature, it is seen that the perceived luxuriousness of a brand might be influenced whenever a manager decides to extend to previously unused brand categories (Dubois and Laurent 1994; Dubois and Paternault 1995; Reddy et al. 2009; Stankeviciute and Hoffmann 2010). This is because consumers may use the number of brand extensions to which a luxury brand is attributed as an indicator of how truly luxurious this brand is. Researchers and practitioners alike have implied that luxury brands such as Gucci (Galloni 2005; Reddy et al. 2009) and Pierre Cardin (Dike 2015) diluted their brand image due to their broad licensing and their subsequently wider distribution strategies (see Tomoko Okawa in this volume). The general marketing literature also suggests that the presence of brand extensions can have a diluting effect on consumers’ perceptions of a brand image. This research has suggested that a brand’s effectiveness may diminish as the number of extensions associated with it increases (Aaker 1990; Kesler 1987; Ogiba 1988; Tauber 1985, 1988). This phenomenon has been explained by the categorization theory, which suggests that an increasing number of products associated with a brand will dilute the meaning of that brand. With this dilution of meaning the brand will no longer act as a point of differentiation. Dubois and Paternault (1995) support this when they note that luxury brands lose their prestigious character when overdiffused, which can happen through multiple brand extensions. Although this does not provide an account that addresses the number of extensions or the impact on perceived luxury, it does provide a foundation from which we can derive a hypothesis. As luxury context relies heavily on the branding of the product, it can be inferred that brand extensions may also have a diluting effect on how luxurious a brand is perceived to be. Indeed, as the number of brand extensions increases, it will be expected that this dilution of perceived luxury would continue. This is because such extensions indicate to the consumer that the brand is more widely available, less rare, and thus less likely to be of a luxurious nature. This led to the development of hypothesis 1. Hypothesis 1:  The greater the number of extensions the lower the level of perceived luxury in a brand.

Brand Extension Fit One important caveat to consider is that this relationship between the number of brand extensions and perceived degree of luxury may be influenced by perceived fit between the brand and the nature of the products to which the extensions have been made (Albrecht et al. 2013; Eren-​Erdogmus et al. 2018). Perceived fit is explained as the salient shared associations between parent brand and brand extension (Keller 1993). For example, Diane von Furstenberg, known for her multifunctional wrap dress, extended

256    Nicole Stegemann and Sara Denize her brand to everything from beauty products, perfume, luggage, eyewear to jeans and books. Consumers could not see the fit between fashion and luggage and goods, and the brand removed the nonrelatable categories (Reddy and Terblanche 2005). Literature suggests that under some circumstances extensions may not have a negative effect on perceived luxuriousness of brands. One such situation in which this may be the case is when then there is perceived fit between brand and the type of brand extensions. Keller and Aaker (1992) found that brand evaluations can be improved through successful brand extensions. Reddy et al. (2009) determined in their study that perceived fit determines a luxury brand’s extension a success or failure: ‘Luxury brands are most comfortable in a portfolio that makes sense, where the perceived premium degree fits closely with adjacent extended categories’ (p. 196). This suggests that it is important to control for the effectiveness and suitability of the proposed brand extensions and, therefore, perceived fit between the brand and the brand extensions is measured. A measure for fit will then control for variations in consumer evaluations, as evaluations vary due to variations in perceived fit (Park et al. 1991). For these reasons perceived fit has been included in the model. Considering the nature of this influencing effect it can be reasoned that if there is a high degree of perceived fit between a brand and its extensions, any negative effect of the extensions may be reduced or negated. This led to the development of H2. Hypothesis 2: Perceived fit will positively influence the relationship between number of extensions and luxury brand perceptions.

Level of Exposure The level of exposure of a brand can be defined as the perceived availability and visibility of brands. In other words, the level of exposure relates to the level of distribution as in intensive, selective, and exclusive distribution. Managers can influence the level of exposure by size of retail network and type of retail outlets through which the product and brand are distributed. This research considers two types of exposure: selective and exclusive. Here, exclusive exposure of luxury brands is considered when brands are distributed through a brand-​ specific boutique and not through any other source. For example, Ferrari is only sold through authorised Ferrari dealers worldwide; there are five Ferrari dealers in Australia offering that exclusivity in their exposure. In contrast, selective exposure consists of a network of brand-​specific boutiques, which may also be found in leading department stores. For example, Ralph Lauren is available through company-​owned boutiques and high-​end department stores but not through any more general outlets, thus offering a selective level of exposure. This selection of exposure level by a manager is anticipated to have a direct effect on the extent to which a consumer perceives a brand to be luxurious. The manager’s choice of selective or exclusive outlets acts as an indicator to the consumer that this is not a mass consumption product. As luxurious products are one

Luxury Brand Extensions and Perceived Luxury    257 category in which the products are not intended for mass consumption, this decision is expected to have a direct effect on whether the consumer perceives a brand as luxurious or not. It is for this reason that the manager’s decision regarding the exposure level is included in the model. Drawing on evidence provided by the literature, it is expected that the greater the level of exposure, the less luxurious the brand will be perceived to be. Various researchers suggest that luxury brands, if overdiffused, will lose their position and the result will be a dilution of brand image (Dubois and Laurent 1994; Dubois and Paternault 1995). This is because consumers buy luxury products for the very reason that they are not available to everyone (Kapferer and Bastien 2009; Truong et al. 2009; Vigneron and Johnson 2004). Having exclusive exposure is a clear indicator to the consumer that the brand is relatively unique. Historically, luxury brands have been distributed using an exclusive strategy (Kapferer and Bastien 2009). To allow for comparisons between the historical strategy and the more contemporary use of selective exposure, the strategies will be examined separately (so that the effects of each can be observed independently). This requires that a separate hypothesis be developed for each exposure strategy. As a result of the previous insights, it is therefore, hypothesized that the exclusive exposure level will result in higher perceptions of luxury in a brand. This led to the development of H3a. In contrast to the exclusive exposure, selective exposure has not often been used as an indicator of luxury. As a result, it is expected that, when employed, it will have a negative effect on the perceived luxuriousness of a brand. This resulted in H3b. Hypothesis 3a: Exclusive exposure will have a positive effect on the perceived level of luxury when compared to a nonspecified exposure level. Hypothesis 3b: Selective exposure will have a negative effect on Brand Luxury Index when compared to a nonspecified exposure level.

A Model of Brand Extensions and Exposure to Luxury-​Brand Perceptions The hypothesised relationships between number of brand extensions, brand category fit, and level of exposure and their impact on brand luxury perceptions form the basis of the conceptual model shown in Figure 12.1. With such a model, it is possible to begin to understand how brand extensions and level of exposure influence brand perception formation of luxury. The figure presents a model analysing the impact of brand extensions and level of exposure on luxury-​brand perceptions. It summarizes each of the hypotheses and shows the relationships between them. As shown in Figure 12.1, we add the constructs perceived fit to the conventional model of luxury-​brand extensions and brand perceptions. We expect that this covariate will moderate the role that brand extensions play in forming brand perceptions for luxury

258    Nicole Stegemann and Sara Denize

Perceived Fit

H2

Number of Brand Extensions H1

Level of Exposure

Luxury Brand Perceptions

H3a H3b

Figure 12.1.  Model of luxury brand extensions and brand perceptions.

brands. In the following section we present the results of a study to investigate the proposed model.

The Impact of Brand Extensions on Luxury Perceptions The examination of luxury-​brand perceptions requires consideration of specific brands in order to develop a framework for individuals’ decision-​making process. This research used an experimental design asking respondents to consider either one of six luxury brands (LB) or one of two non-​luxury brands (NLB). The chosen brands in two product categories included cars (Ferrari LB, Porsche LB, Mercedes LB, and Toyota NLB) and fashion apparel (Prada LB, Ralph Lauren LB, Calvin Klein LB, and Levis NLB). These brands (with varying degrees of luxury) were identified through a pretest with 541 respondents who had sufficient knowledge of each brand and category to categorize their luxury status.

Approach and Methods In the main study, data were collected using a survey that included several multi-​and single-​item measures. The Appendix provides details of the operationalization of each of the main constructs, which are briefly summarised here. Perceived brand luxury was measured using a refined seventeen-​item 7-​point scale (Stegemann et al. 2011) based on the Brand Luxury Index (BLI) originally developed by Vigneron and Johnson (1999, 2004). The scale captures consumer perceptions of the

Luxury Brand Extensions and Perceived Luxury    259 degree of luxury of specific brands and products and captures consumer perceptions of the brand’s conspicuousness, uniqueness, quality, hedonism, and self-​extension. The number of brand extensions was measured by manipulating the scenarios in the experimental design. There was limited extant work to guide the selection of these brand extension scenarios particularly the upper-​bound. Due to the constraints of the factorial design, the study included three scenarios: no extensions, one extension, and four extensions. These scenarios were established in the pretest as producing just noticeable differences between the possible numbers of brand extensions. The perceived brand category fit between parent brands and hypothetical extensions was measured along the lines developed by Bridges et al. (2000). Respondents were asked to evaluate perceived fit between parent brand and hypothetical extensions by providing their fit assessment in respect to five items using a Likert-​type 7-​point scale. Higher levels of perceived fit are indicated by higher scores on the scale. The experimental design included two levels of exposure: selective and exclusive. The pretest established that statements indicating brand distribution via department stores or exclusive boutique retail outlets as effectively describing selective and exclusive exposure. A convenience sample of 1,440 undergraduate and postgraduate business students in Australia (66 percent local and 34 percent international) were asked to fill in the survey (with 180 respondents for each brand evaluation). The majority of students work full-​ time (21 percent) or part-​time (49 percent). The use of the convenience sample was justified as the purpose of the study is model testing rather than generalization. There are other quantitative research studies that used business student respondents to measure changes in brand-​related elements. Dubois et  al. (2001) showed that management students are suitable as research subjects when investigating the diversity of consumers’ attitudes towards luxury. Kapferer (1998) emphasized that management students are current and potential consumers for luxury products.

Analysis Approach and Cleaning Variables The use of specific brands provides an important framing for respondents within which to contextualize their responses, whereas the use of multiple brands (six luxury brands and two non-​luxury brands) provided the opportunity to consider multiple settings. However, this approach also increases the possibility of brand-​specific biases or distortions and the risk that these effects would confound the evaluation of the hypothesized effects when data are aggregated. To address this potential difficulty, we calculated regression coefficients for each of the brand-​specific effects and used these ‘cleaning terms’ to partition the potential distortion from the main and interaction effects by incorporating them in the model as dummy variables. The regression coefficients or ‘cleaning terms’ were calculated using Ralph Lauren as the reference brand. Thus, any significant brand coefficient can be interpreted as the different effect of the target brand when compared to Ralph Lauren. We expected a mix of both significant and nonsignificant results for each of the

260    Nicole Stegemann and Sara Denize brand-​specific cleaning terms, the outcomes of which have no theoretical implication for the model. Note, that as Ralph Lauren was used as the reference brand it is not shown in the final regression model.

Results and Findings Table 12.1 presents the results of the regression model to test the hypothesis. The overall model is significant with F = 115.463 and with the coefficient of determination (R2 = 0.412) explaining over 41 percent of the variation in the model. Sufficient variability is explained to continue interpretation. It is now possible to examine which coefficients influence the dependent variable, perceived degree of luxury of a brand. As stated earlier, this regression needed several cleaning terms to ensure the most reliable measure of the relationship between the constructs. Coefficients #1–​7 are the alternative specific constants (ASCs) of each brand’s effect on the perceived degree of luxury of a brand. By including these ASCs (or cleaning terms), the effect of each brand is partitioned out of the main effects of interest. Likewise, coefficients #8–​ 14 measure the brand-​ specific effects of number of extensions on the perceived degree of luxury of a brand. Coefficients #15–​28 partition out the brand-​specific effects of exposure on the perceived degree of luxury of a brand. Coefficients #29–​35 measure the brand-​specific effects of fit on the perceived degree of luxury of a brand. We do not interpret these cleaning terms. We also note that the fit’s main effect is not of interest as it was not suggested by theory. It was included in the model to offer the purest measure of the interaction term by portioning out any variation that the main effect could explain. This offers the strongest test on the interaction term for fit and number of extensions. Similarly, the interactions between extensions and exposure, and exposure and fit were also measured to provide the ‘cleanest’ model possible.

Number of Brand Extensions Hypothesis 1 considers the impact of the number of brand extensions on how luxurious that brand is perceived. The theory suggested that extending a brand beyond its core products will result in lower perceived luxury. It was hypothesized that the greater the number of extensions, the lower the level of perceived luxury in a brand. Table 12.1 shows that the standardized beta for number of extensions (H1) is significant (t = -​2.294) indicating a relationship exists. The beta coefficient is -​0.092 indicating a significant negative relationship between number of brand extensions and the perceived degree of luxury of a brand. This result is in line with the literature whereby the perceived degree of luxury of a brand may be lowered whenever a manager decides to extend into new brand categories (Dubois and Laurent 1994; Dubois and Paternault

Table 12.1. Regression Output on Perceived Degree of Luxury of a Brand #

Effects

B

Std. Error

Constant

4.106

.130

β

t

Sig.

31.550

.000

1

Mercedes

.923

.156

.260

5.936

.000

2

Ferrari

1.348

.156

.387

8.625

.000

3

Porsche

1.300

.152

.368

8.566

.000

4

Toyota

-​1.123

.157

-​.318

-​7.149

.000

5

Calvin Klein

-​.200

.164

-​.057

-​1.219

.223

6

Prada

.383

.157

.107

2.439

.015

7

Levis

-​1.034

.156

-​.290

-​6.635

.000

H1

Number of Extensions

-​.072

.031

-​.092

-​2.294

.022

8

Number of Extensions* Mercedes

-​.029

.028

-​.025

-​1.040

.298

9

Number of Extensions* Ferrari

-​.109

.028

-​.094

-​3.877

.000

10

Number of Extensions* Porsche

-​.012

.029

-​.010

-​.410

.682

11

Number of Extensions* Toyota

.044

.028

.036

1.551

.121

12

Number of Extensions* Calvin Klein

.095

.032

.067

2.973

.003

13

Number of Extensions* Prada

.011

.029

.009

.396

.692

14

Number of Extensions* Levis

.112

.029

.094

3.896

.000

H3a

Selective Exposure

.060

.112

.024

.537

.591

H3b

Exclusive Exposure

.059

.110

.024

.538

.591

15

Selective Exposure* Mercedes

.103

.105

.017

.983

.325

16

Selective Exposure* Ferrari

.079

.102

.014

.776

.438

17

Selective Exposure* Porsche

.187

.104

.032

1.805

.071

18

Selective Exposure* Toyota

-​.008

.104

-​.001

-​.081

.936

19

Selective Exposure* Calvin Klein

.045

.111

.008

.408

.683

20

Selective Exposure* Prada

.445

.104

.077

4.292

.000

21

Selective Exposure* Levis

-​.018

.105

-​.003

-​.167

.868

22

Exclusive Exposure* Mercedes

-​.330

.103

-​.057

-​3.194

.001

23

Exclusive Exposure* Ferrari

-​.079

.103

-​.014

-​.775

.438

24

Exclusive Exposure * Porsche

.129

.104

.022

1.243

.214

25

Exclusive Exposure * Toyota

-​.070

.105

-​.012

-​.671

.502

26

Exclusive Exposure* Calvin Klein

-​.238

.104

-​.041

-​2.293

.022

27

Exclusive Exposure* Prada

.172

.105

.029

1.633

.103

28

Exclusive Exposure* Levis

.170

.106

.029

1.603

.109

Perceived Fit

.020

.029

.022

.673

.501

Perceived Fit* Mercedes

.003

.033

.004

.105

.916

29

Continued

262    Nicole Stegemann and Sara Denize Table 12.1. Continued #

Effects

B

Std. Error

30

Perceived Fit* Ferrari

.097

.033

31

Perceived Fit* Porsche

-​.095

32

Perceived Fit* Toyota

.143

33

Perceived Fit* Calvin Klein

34

Perceived Fit* Prada

35 H2

β

t

Sig.

.115

2.918

.004

.034

-​.107

-​2.827

.005

.034

.140

4.205

.000

-​.039

.035

-​.044

-​1.122

.262

-​.004

.034

-​.004

-​.115

.909

Perceived Fit* Levis

.121

.035

.106

3.484

.000

Number of Extensions* Perceived Fit

.031

.006

.176

5.103

.000

Number of Extensions* Selective Exposure

.009

.017

.011

.523

.601

Number of Extensions* Exclusive Exposure

-​.091

.018

-​.108

-​4.944

.000

Selective Exposure* Perceived Fit

-​.019

.020

-​.031

-​.955

.340

Exclusive Exposure* Perceived Fit

.008

.021

.013

.403

.687

Notes: All terms relevant to testing the research hypotheses are in bold. 1 to 7 = Alternative Specific Constants of each brand’s effect 8 to 14 and 15 to 29 and to 35 = Cleaning Terms. F = 115.463, Significance p = 0.000, R2 = 0.412, Adjusted R2 = 0.408. B = unstandardized regression coefficient, β = standardized regression coefficient; t = t-​value.

1995; Reddy et  al. 2009). This is because consumers may use the number of brand extensions to which a luxury brand is attributed as an indicator of how truly luxurious this brand is. Reddy et al. (2009) implied that Gucci diluted its brand image due to its broad licensing strategy. The presence of more brand extensions can have a diluting effect on consumers’ perceptions of a brand image (Aaker 1990; Kesler 1987; Ogiba 1988; Tauber 1985, 1988). Hypothesis 1 is supported.

Brand Extensions Fit Theory suggested that perceived fit will positively influence the relationship between number of extensions and the perceived degree of luxury of a brand. Specifically, the hypothesis (H2) considers the possibility that the negative effect of the number of extensions on the perceived degree of luxury of a brand can be moderated by improving the perceived fit of the extension. The beta (0.176) for the interaction term is significant (t = 5.104) and positive. Thus, the hypothesized relationship is confirmed. To better understand this effect, the outcome for perceived fit and number of extensions on the perceived degree of luxury of a brand was graphed. Figure 12.2 shows that a greater fit between a brand extension and the parent brand reduces the negative effect of the number of extensions on the perceived degree of luxury of a brand.

Luxury Brand Extensions and Perceived Luxury    263 This outcome is supported by literature that identifies circumstances where extensions may not have a negative effect on perceived luxuriousness of brands. Notably, the work of Keller (2009) and Keller and Aaker (1992) envisages that brand evaluations can be improved through successful brand extensions. This result offers support for hypothesis 2.

Level of Exposure Next, we consider the effect of the level of exposure on the perceived degree of luxury of a brand (H3a and H3b). Theory suggests that selective exposure will generally have a negative effect on the perceived degree of luxury of a brand whereas an exclusive exposure level has a positive effect on the perceived degree of luxury of a brand. Theoretical discussions imply that selective exposure will have a negative effect on the perceived degree of luxury of a brand when compared to a nonspecified exposure level (H3a), and exclusive exposure will have a positive effect on the perceived degree of luxury of a brand when compared to a nonspecified exposure level (H3b). The beta coefficients for both selective and exclusive exposure are not significant (t = 0.537, and t = 0.538, respectively). These results suggest that the distribution strategy may play less of a role in the formation of consumers’ perceptions of the luxuriousness of a brand than previously thought. This surprising result may reflect the present evolution of the role of luxury in society. Further research is required in this area. Hypotheses 3a and 3b are not supported.

Other Effects We did not predict a direct effect for perceived fit on perceived luxury, nor did we find such an effect in the analysis presented in Table 12.1. Similarly, there were no significant interaction effects between perceived fit and the distribution strategy (selective and exclusive exposure) on perceived luxury. However, we note that there was a significant interaction effect between the number of extensions and exclusive distribution on the perceived degree of luxury of a brand (t= -​4.944, β= -​0.108). This interaction effect was not expected, and the significant negative impact suggests that although perceived fit can counterbalance the potentially negative effects of an overextended brand, the choice of an exclusive distribution channel may erode this positive effect. More research is needed to consider this interaction.

Discussion and Conclusion The results of this research indicate that the more marketers extend their luxury brands into other categories, consumers will perceive these brands as less luxurious. This

264    Nicole Stegemann and Sara Denize

DEGREE OF LUXURY

6 5 4 3 2 1 0

0

1

2 3 NUMBER OF EXTENSIONS Perceived Fit

1

4

5

7

Figure 12.2.  Interaction between perceived fit and number of extensions on luxury.

is a particularly important finding as the degree of luxury determines a brand’s position in the marketplace. Luxury manufacturers can demand premium prices based on the luxuriousness of a brand. Although managers have long been aware that there are constraints on luxury-​brand extensions, this research provides practical guidance on the implications of the number of extensions. Literature concerning marketing strategy suggests that brand extension can have a diluting effect on consumers’ perceptions of a brand image (Aaker 1990; Kesler 1987; Ogiba 1988; Tauber 1985, 1988). Such a dilution has the effect of lowering the brand equity and, as such, the brand’s perceived level of luxuriousness. This effect is explained in these studies using categorization theory (Loken et al. 2008). This theory suggests that increasing the number of products associated with a brand will dilute the meaning of it and does not provide a differentiation basis for the categorization of following extensions. The results here demonstrate the application of the principles of categorization to luxury-​brand management. As a manager chooses to extend the number of product lines of a brand into more divergent product categories, the perceived luxuriousness of that brand decreases. This result provides empirical support for the work of Dubois and Paternault (1995) who argue that luxury brands may lose their prestigious character when overdiffused. An important part of this management decision is into which product categories any extensions are to be made. This study found that if a manager chooses to extend a brand into alternative product categories, they must be careful to select categories that consumers believe to be fitting matches for the original brand. This will allow the manager to obtain the benefits associated with extending the brand into new markets while not suffering the damages associated with the dilution of perceived luxuriousness of the brand. This is a particularly useful insight for managers to be aware of. Extant empirical work establishes the importance of the fit of luxury-​brand extensions on the overall success of the extension (Albrecht et al. 2013; Reddy et al. 2009; Roux and Boush 1996). In contrast, this work provides empirical support for the mechanism by which perceived fit moderates the potential negative impacts of extensions on the parent brand and its perceived luxury.

Luxury Brand Extensions and Perceived Luxury    265 The other marketing management decision considered was the level of exposure of the brand in the market. Managers influence the perceived level of exposure through their selection of both the size and type of retail outlets through which the brand is available. Although there is virtually no literature that considers the implications of the level of exposure in luxury brand management, managers often espouse that exclusive exposure is a necessary characteristic for a brand to be adequately perceived as luxurious. This research found no empirical support for this idea. Consequently, we argue that the exposure level of a brand as a function of its distribution strategy may play less of a role in the formation of consumers’ perceptions of the luxuriousness of a brand than has been previously thought. This surprising result highlights the importance of empirical-​ based investigations of the lore associated with luxury-​brand management. Further research is required to investigate the impact of various distribution strategies including online distribution on luxury-​brand management. This study provides empirical support for the impact of management decision on brand luxury perceptions. It has highlighted the need to test commonly held perceptions about strategy and luxury-​brand management as well as providing practical advice for brand managers. Although, this study was conducted in Australia, the sample was internationally diverse with about one-​third of the sample from other countries (mainly Asia). Additionally, the local population was also from diverse backgrounds. This diversity provides some indication that it is possible to extend these findings to other luxury markets, particularly in Asia. The study uses a convenience sample of students. Although this research strategy has provenance and has been argued as suitable for investigations of consumer behaviour, the use of a consumer panel would add further knowledge to the model’s applicability and could provide longitudinal, rather than cross-​sectional, data only. Such a panel could provide valuable insight into consumer responses to a wider variety of distribution strategies including the impact of online distribution of luxury brands. This research study included two product categories assessing four clothes brands and four automobile brands. As no category-​or brand-​specific analysis was undertaken, future research could consider category-​and brand-​specific differences. Although we are confident that the study can be generalized, we note that some of the brand-​specific effects (see Table 12.1) are significant. Longitudinal panel data may provide additional information to explore brand-​and category-​specific effects. Further research on brand extensions in diverse markets will be useful. For example, there is relatively little recent work on the impact of culture on perceived luxury, the impact of brand extensions, or the level of exposure. In particular, greater focus in Asian markets, specifically, those of China and Japan that have the second and third largest luxury brand markets, respectively (Statista 2020). Further research will provide new insights that will build on our understanding of the luxury-​brand decision process and the formation of luxury-​brand perceptions. This research has shown that conventional models do not always apply, and that luxury brands require adapted or different sets of models.

266    Nicole Stegemann and Sara Denize The literature concerning the management of luxury brands identified two particularly important decisions by managers that could influence the level of perceived luxury a brand possessed. These two decisions are the number of product categories into which the brand has been extended and the level of exposure the brand has in the market as a reflection of the distribution strategy in place. Although other management decisions are clearly able to influence the level of perceived luxury, research suggests that these two are the most important. The empirical work presented here illustrates the importance of investigating commonly held assumptions of brand extension management. The level of exposure is not a reliable tool for luxury-​brand managers; however, both the number extension and the perceived fit will substantially impact customers’ perceptions of brand luxury.

Appendix: Operationalization of Constructs Perceptions of the Degree of Luxury: Brand Luxury Index (BLI) Cronbach alphas between 0.69 and 0.95 (Vigneron and Johnson 2004), and 0.85 and 0.92 for refined scale (this study). Refined seventeen-​item 7-​point scale (Strongly Disagree—​Strongly Agree) for each brand including six luxury brands (Ferrari, Porsche, Mercedes, Prada, Ralph Lauren, Calvin Klein) and two nonluxury brands (Levis and Toyota). This brand is:

1. For Elitist

10. Superior

2. Extremely Expensive

11. Exquisite

3. For Wealthy

12. Attractive

4. Very Exclusive

13. Stunning

5. Unique

14. Leading

6. Rare

15. Very Powerful

7. Crafted

16. Rewarding

8. Best Quality

17. Successful

9. Sophisticated

Level of Exposure In this study two levels of exposure were considered, namely, selective and exclusive. After extensive pretesting, the following two scenarios were given to the subjects in the final experiment.

Luxury Brand Extensions and Perceived Luxury    267 Scenario Selective Exposure: Recently, Brand X has started offering some of these product categories through retailers. Retailers enthusiastically support these product lines and they are available through selected department stores. Scenario Exclusive Exposure: Recently, Brand X has started offering some of these product categories through retailers. Retailers enthusiastically support these product categories and they are available through exclusive boutique retail outlets.

Number of Brand Extensions While the final choice had a strong subjective element, it was finally agreed that the research should focus on 0, 1, and 4 extensions on the luxury brands chosen. The choice was also influenced by the constraints of the factorial design. Respondents were asked to indicate their familiarity with brands with respect to existing product offerings.

Car Brand Extensions

Clothes Brand Extensions

• Stationery such as pens

• Stationery such as pens

• Watches

• Cars

• Clothes such as jeans, jackets, t-​shirts, etc.

• Hair care products such as shampoo & conditioner

• Fragrances

• Cosmetics

Perceived Fit The perceived fit scale provided by Bridges et  al. (2000) was used to measure fit (perceived logical category extensions) between parent brands and hypothetical extensions. The respondents were asked to evaluate perceived fit between parent brand and hypothetical extensions by providing their agreement to five items using a Likert-​ type 7-​point scale.

1. How appropriate do you think a product 2 is for the company that makes brand/​product 1? Not at all appropriate :_​_​_​:_​_​_​:_​_​_​:_​_​_​:_​_​_​:_​_​_​:_​_​_​: very appropriate for company

2. To what extent do you think it makes sense for brand–​product 1 and –​product 2 to have the same brand name? Makes no sense at all :_​_​_​:_​_​_​:_​_​_​:_​_​_​:_​_​_​:_​_​_​:_​_​_​: makes a lot of sense 3. What do you think about the fit between the brand–​product 1 and –​product 2 and company that makes it? Bad fit between company and product :_​_​_​:_​_​_​:_​_​_​:_​_​_​:_​_​_​:_​_​_​:_​_​ _​: good fit between company and product

268    Nicole Stegemann and Sara Denize 4. How well do you think you understand the relationship or connection between brand–​ product 1 and brand–​product 2? Don’t understand at all :_​_​_​:_​_​_​:_​_​_​:_​_​_​:_​_​_​:_​_​_​:_​_​_​ : understand very well 5. How confident are you that you can explain why the makers of brand–​product 1 are planning to introduce a –​product 2 under the same brand name? Not at all confident :_​_​_​:_​_​ _​:_​_​_​:_​_​_​:_​_​_​:_​_​_​:_​_​_​: extremely confident

Source: Refined by Stegemann et  al. (2011); based on Vigneron and Johnson (1999, 2004).

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Chapter 13

How to M a nag e H eritage Bra nd s  The Case of Sleeping Beauties Revival Delphine Dion

Established in the 1910s by French designer Jean Patou, the brand became a dominant force in the Parisian and American fashion scenes following World War I. Patou died prematurely in 1936, though his brand survived through many iterations. Marc Bohan helmed the label from 1954 to 1956, Karl Lagerfeld designed it from 1960 to 1963, Jean Paul Gaultier was its steward from 1971 to 1973, and Christian Lacroix created fanciful collections under the Jean Patou label from 1981 to 1987. The brand Jean Patou ceased operations in 1987, but LVMH acquired it in 2018 and named Guillaume Henry as its new creative director to resurrect the brand. Other investors have also been trying to revive luxury brands from the past; examples include shoemaker brand Roger Vivier in 2003, fashion house Elsa Schiaparelli in 2013, leather goods firm Moynat in 2011, and the Orient Express train in 2019. Managers refer to these dormant brands as “sleeping beauties”, a term that highlights their potential. Sleeping beauties are no longer active on the market but retain potential brand equity that can be conjured up in the minds of consumers by rearticulating the brands’ heritage (Dion and Mazzalovo 2016). Behind the revival of sleeping beauties lies the question of how to manage heritage brands, that is, brands that embed their value proposition in their heritage (Urde, Greyser, and Balmer 2007). Heritage is often the only asset held by sleeping beauties after they have ceased their productive and commercial activities. This chapter aims to illustrate the management of heritage brands by studying the revival of sleeping beauties. First, we define heritage brands and differentiate heritage brands from brands with heritage. Then, we present three branding strategies used to revive sleeping beauties: brand revitalisation, brand copying, and retro branding (Dion and Mazzalovo 2016). Finally, we investigate three issues that play a key role in the successful

274   Delphine Dion management of heritage brands: brand awareness in the market before its revival, heritage reinterpretation, and heritage authentication.

Heritage Brands vs. Brands With Heritage Aaker (1996) was the first to identify heritage as a component of brand equity. He showed that heritage is an important value driver. A brand that is infused with heritage stands for authenticity, credibility, and trust, and it can also provide leverage for that brand, especially in global markets (Aaker 1996). Heritage is specific to the brand and difficult for competitors to imitate, and it can also provide a basis for distinctiveness in positioning (Keller and Richey 2006). The concept of “heritage brand” has been developed recently and now constitutes a different branding category with its own set of defining criteria and necessitates a specific approach to effective management and leadership. “A heritage brand is one with a positioning and value proposition based on its heritage” (Urde et al. 2007: 4). Brand management scholars focus on the corporate brand heritage, that is, the specific firm or organisation from whose history, beliefs, and practises this “heritage” emerges over time (e.g., Urde et al. 2007). This is the case of many luxury brands. Consider Hermès, Dior, Louis Vuitton, or Chanel, to name a few. Their heritage shapes their brand identities and drives their marketing actions such as product development, store design, communication, selling ceremony, and so on. For instance, Louis Vuitton shapes its brand identity around the “spirit of travelling”, referring to its history. The Louis Vuitton label was founded in 1854 in Paris. Louis Vuitton observed that trunks could be easily stacked and introduced his flat-​topped trunks with trianon canvas, making them lightweight and airtight. Even though the brand now sells a wide diversity of products ranging from leather goods to ready-​to-​wear, shoes, watches, jewellery, accessories, sunglasses, perfume, and books, the brand refers to the “spirit of travelling” within each product category. There are many brands with heritage. However, not all of those are heritage brands (Hakala, Lätti, and Sandberg 2011). Having a heritage does not in itself create value and does not constitute the foundation of brand identity. To make heritage part of brand value is a strategic decision (Urde et al. 2007). For instance, L’Oréal is not a heritage brand but, rather, a brand with a heritage, because L’Oréal’s brand identity and legitimacy do not draw on its heritage. Founded in 1909 by Eugène Schueller, L’Oréal has become the number one cosmetic group in the world. On its website, L’Oréal Paris is defined as follows: “As the top beauty Brand sold in retail outlets, L’Oréal Paris makes the most innovative products accessible to everyone. Its ambassadors embody a certain beauty ideal summed up in the legendary signature:  ‘Because you’re worth it’. L'Oréal Paris offers from all continents male and female beauty products of all types

How to manage heritage brands    275 (makeup, skin care, hair care, styling, hair color and men), from the excellence of its research laboratories” (https://​www.loreal.com/​brand/​consumer-​products-​division/​ l%E2%80%99or%C3%A9al-​paris). The brand builds its legitimacy on innovation, technology, and research. It is a legal–​rational legitimacy. Similarly, many high-​tech luxury brands such as Tesla or Audi base their legitimacy on technology and not on their heritage. Other brands prefer not to mention their history altogether. This is the case of the German brand Hugo Boss. Founded in 1924 by Hugo Boss, the firm originally produced general-​purpose clothing. With the rise of the Nazi Party in the 1930s, Boss began to produce and sell Nazi uniforms. Boss supplied the wartime German government with uniforms for organisations such as The Hitler Youth and Waffen-​SS, resulting in a large boost in sales. Obviously, the brand does not mention these past activities and does not draw its brand identity from its history. Thus, not all luxury brands are heritage brands; some draw their legitimacy from other elements such as technology or the charisma of their creative directors (Dion and Arnould 2011). Brand-​management scholars show that brand heritage can play strategic and operational roles. They discuss how companies include some historical elements in their brand management and how the emphasis on these elements can add more value to brands (for a review, see Pecot and De Barnier 2017; Rose et al. 2016). From their perspective, the notion of heritage is based on an objectivist vision of history (Donzé and Wubs 2019). A heritage brand captures aspects of a brand’s history in a manner that allows that history to be communicated as an authentic foundation for brand identity and communications (Schroeder, Borgerson, and Wu 2015). However, brand heritage is a social construction that managers format to fit in with their business issues. For instance, Dion and Mazzalovo (2016) show how managers crafted Moynat’s heritage even though they had very little information about the brand’s history. Analysing Christian Dior, Donzé, and Wubs (2019) demonstrate that heritage is based on strong narratives rather than the mere outcome of a brand’s history. At the other extreme, a brand may be based on a story created around a person who really existed but who did not actually create the brand or even the focal product (Chandon, Laurent, and Valette-​Florence 2017). This is the case of Dom Pérignon. This monk (1638–​1715) developed several winemaking innovations in the Champagne region but not the “méthode champenoise” that only appeared in the 19th century. Two centuries after the death of Dom Pérignon, a champagne producer used the monk’s name to create the luxury “Dom Pérignon” brand, the first vintage being 1921 (Chandon et al. 2017). What is important is not simply the history but the myth that can be created around it (Holt 2006). Brand-​management scholars consider longevity a core element of heritage brands (Urde et al. 2007). Even if they do not define longevity precisely or specify that longevity alone does not necessarily result in a heritage brand, they all agree on the fact that longevity is key (Rose et al. 2016). Longevity is related to the idea of a rich history and the brand’s track record, that is, “demonstrated performance that the company over time has lived up to its values and promises” (Urde et al. 2007: 9). Brand longevity is a proof of brand credibility and trust (Urde et al. 2007). The archetypical case would be Mellerio, a Paris jewellery firm that has been run by the same family since its creation in 1613. They

276   Delphine Dion claim to be the oldest family business in Europe (Chandon et al. 2017). Yet paradoxically, not all heritage brands have such longevity, and longevity is not a necessary condition for a heritage brand. Some heritage brands are very recent. This is the case of Shang Xia, a Chinese luxury brand launched by Hermès in 2008. The goal of Hermès was to create the Chinese Hermès, a modern Chinese heritage brand. As specified on the brand’s website, “Shang Xia expects to bridge the gap between the tangible and the intangible, tradition and present. The brand will continue to use its distinctive combination of contemporary design with exquisite hand craftsmanship, Chinese culture, and the highest quality standards to champion the dazzling grace of everyday modern life” (http://​www.shang-​ xia.com/​EN/​brand.html). They have developed savoir-​faire on traditional Chinese craftsmanship (i.e., bamboo marquetry, bamboo weaving, eggshell porcelain, cashmere felt, wooden furniture, kesi embroidery, and wood furniture making) to create goods in line with contemporary aesthetics. In this case, the brand does not embed its heritage in corporate brand heritage but in cultural heritage (Schroeder et al. 2015). Cultural heritage, in the brand management context, has been described as “a composite of the history and coherence and continuity” of defining characteristics (Hakala et al. 2011: 450) like culture, an object, a people, or a nation. Whereas corporate heritage is focussed on a specific corporation or institution—​its origins, founders, and history—​cultural heritage is not limited to, or even singularly attached to, a particular organisation’s or institution’s own narrative, history, or heritage (Schroeder et al. 2015). Consequently, we argue that longevity is not a core element of a heritage brand. Following Schroeder et al. (2015), we extend the definition of brand heritage by considering not only corporate heritage but also cultural heritage. A heritage brand is not primarily about a corporation and its history but also about cultural heritage. Marketing managers design heritage brands by selecting elements from both corporate heritage and cultural heritage. Companies do not necessarily need to look at what their histories were but instead construct a narrative that may include elements that are more or less strongly linked to their past (Donzé and Wubs 2019). What is important is not simply the history, but the myth that can be created around it (Holt 2006). This chapter aims to illustrate the management of heritage brands by studying the revival of sleeping beauties.

Branding Strategies in Revitalisation of Sleeping Beauties Dion and Mazzalovo (2016) identified three branding strategies to revive sleeping beauties: brand revitalisation, brand copying, and retrobranding. These strategies diverge in the way they associate the brand with the past (Hallegatte, Ertz, and Marticotte 2018). Brand revitalisation focusses on the present. The goal is to modernise the brand without placing its heritage at the core of the brand identity. Brand copying focusses on the past. This strategy consists of copying an old brand without updating it.

How to manage heritage brands    277 Retrobranding associates the brand with the past but harmonises the past with the present. This strategy places heritage at the heart of the brand’s value proposition. The goal is to use the history of the brand and turn it into a heritage brand.

Brand Revitalisation Brand revitalisation focusses on the present. The goal is to modernise the brand without placing its heritage at the core of the brand identity. Brand revitalisation refreshes traditional sources of brand equity and creates new ones to transform perceptions of an outdated brand from the past into a contemporary brand. Managers prefer to avoid overspecific reference to the past. In contrast to heritage brands, these brands do not embed their value proposition in their past. They refer to their past to demonstrate their longevity and to highlight the success of the brand in the long run. Rather than the history of the brand, the focus is on its longevity. The revival of the watchmaker DuBois & Fils has followed this strategy (Dion and Mazzalovo 2016). DuBois & Fils, one of Switzerland’s oldest watch brands, has been a specialist developer and maker of high-​quality timepieces since 1785. After a serious continuous decline, Thomas Steinemann took over as owner and CEO in 2010. The firm now focusses on a small collection of classically styled mechanical timepieces. DuBois & Fils has deliberately broken away from the old brand and its past and only retains the statement “Swiss watches since 1785”. They have drastically modernised DuBois & Fils to create a contemporary brand. There is no intention of drawing from the brand’s heritage. Rather than the brand’s heritage, they use its history to stress its Swiss origin and longevity. The only important element is being able to add “since (date)” to the brand motto.

Brand Copying The second branding strategy used to revive sleeping beauties, brand copying, focusses on the past. This strategy consists of copying an old brand without updating it. The danger of this approach is that exact reproductions may not meet today’s standards of performance, operation, or taste (Brown et al. 2003). For instance, the most comfortable, modern, and luxurious train of the 1920s would seem noisy, bumpy, and uncomfortable to contemporary travellers. Brands that cannot escape the old style run the risk of losing relevance and eventually disappearing from the market (Dion and Arnould 2011). This is what happened to Courrèges, a fashion brand famous in the 1960s and 1970s (Dion and Mazzalovo 2016). André Courrèges created his fashion house in 1961. His streamlined minimalist style, influenced by modernism and futurism, came to mark the 1960s. After becoming a direct competitor of Dior and Chanel, Courrèges waned. Despite several efforts to revive it, the brand remained dormant. In 2011, two former advertising executives acquired the brand and have been trying ever since to restore it to its former glory. A new designer

278   Delphine Dion took over, but instead of reinterpreting the style to incorporate contemporary cultural trends, he kept too close to the original iconic designs. The brand’s image has not evolved and its designers have kept on copying the original products. The only possible strategy, if they persist in copying their clothes from the past, would be to try to bring that look back into fashion—​but this is a short-​term strategy because the style may not stay in fashion for long. The brand’s relaunch has never really managed to get the company off the ground, particularly abroad where the label is less well known than in France. In 2017, the company posted a net loss of €18.4 million (Ezhova 2018). Faced with this situation, a restructuring phase began in 2018. Courrèges notably had to reduce its workforce and close its historic factory in Pau. Artemis, the holding company of Kering, then acquired all the Courrèges shares in September 2018. Artemis announced it was about to give up plastic and no longer use it in production. Yet, at the heart of the brand’s heritage was vinyl, which for many years was used in jackets, trenches, and mini-​skirts symbolic of the Courreges brand. But a new chapter is on the horizon for the label. With the change, the brand intends to address a younger, international audience and better stick to the prospects of a postplastic environment. The press release said: “Courrèges is now determined to use its resources and influence to transform ideas and solutions into positive energy”, restating its new motto: “The future is behind you” (Ezhova 2018). Therefore, the firm is shifting from a brand copying to a retrobranding strategy, based on the reinterpretation of the brand’s heritage.

Retrobranding Retrobranding, in contrast, consists of relaunching a brand by associating it with the past. This does not simply mean reproducing past products, because exact reproductions would not meet today’s standards of performance, operation, or taste. Retrobranding associates the brand with the past (Brown et al. 2003) but harmonises the past with the present. This strategy places heritage at the heart of the brand’s value proposition. The goal is to use the history of the brand to turn it into a heritage brand. Retrobranding involves combining old-​fashioned forms with cutting-​edge functions to update the product and harmonise the past with the present (Brown, Kozinets, and Sherry 2003). Caffrey’s Irish Ale, for instance, amalgamates cutting-​edge brewing technology with cod-​Celtic iconography to concoct a brand-​new old-​fashioned beverage (Brown 2000). Similarly, Burberry’s revival strategy has focussed on innovating with core heritage products. As its CEO explains: “We [reinforced] our heritage, our Britishness, by emphasizing and growing our core luxury products, innovating them and keeping them at the heart of everything we did” (Ahrendts 2013: 41). Another case is the Elsa Schiaparelli revival. Elsa Schiaparelli started her own business in Paris in 1926. She had close links to the surrealist movement and collaborated with Salvador Dali, Man Ray, and other prominent artists of her time. Her couture house closed in 1954. Diego Della Valle (Todd Group) acquired the brand in 2007. When Marco Zanini was appointed creative director in 2013, the brand’s revival became public. The

How to manage heritage brands    279 house presented its first haute couture fashion show in 2014. Managers have revisited the brand based on the persona of its founder (Dion and Mazzalovo 2016). They have identified the symbolism of the Schiaparelli look and the values of the brand. But this approach avoids any outright duplication, which could lead to routinisation and brand decline. Through a renewed artistic vision, they are recovering the aura of the brand (Bourdieu and Delsaut 1975; Dion and Arnould 2011). This process is enabling managers to transform a brand with heritage into a heritage brand. They embed the brand’s value proposition in its heritage. This heritage has value for customers and other stakeholders because, as a historical character, Elsa Schiaparelli brings to the brand both authenticity and uniqueness that are specific to the brand and difficult for competitors to imitate. In this case, managers base their revival strategy not only on the brand’s founder but also on numerous other elements related to the history of the brand.

Brand Awareness We can differentiate sleeping beauties based on their reputation on the market before their revival. Some of them have kept a strong market reputation amongst the public. Their reputation persists because they are embedded in individual and/​or collective memories, like the Orient Express. However, most sleeping beauties retain no reputation in the market. After many years out of the market, almost nobody remembers them. They are forgotten brands with a heritage. At best, they have retained a reputation with experts (people working in the industry, collectors, historians, journalists, etc.), but consumers do not know them. The brand is not part of the individual or collective memory of the consumers. One example is the fashion brand Paul Poiret, which ceased operations in 1929. Paul Poiret (1879–​1944) was the most fashionable pre-​World War I couturier. He made his reputation through his use of neoclassical and Orientalist styles and by advocating for the replacement of the corset by the brassiere. In 1929, the Poiret fashion house closed. News broke in December 2014 that the investor Luvanis had taken control of the brand and was putting it up for sale, as it did for Vionnet and Moynat. The South Korean fashion and luxury conglomerate Shinsegae International was thus chosen to reawaken the Poiret brand. The Korean company distributes more than thirty luxury brands—​amongst them Givenchy, Dolce & Gabbana, and Celine—​ in approximately 260 stores throughout Korea (Muret 2015). Shinsegae officially confirmed in January 2018 the international relaunch of Poiret from Paris with Belgian businesswoman Anne Chapelle, who is also managing Ann Demeulemeester and Haider Ackermann, at the helm, and Paris-​based Chinese couturiere Yiqing Yin as its artistic director. Poiret showed its first new collection in Paris in March 2018 after a ninety-​year hiatus. Since then, Yiqing Yin has headed up two runway shows in Paris, the first of which was commended for having resurrected the label’s codes, notably its oriental motifs, with great delicacy. Her tenure has been short-​lived, however, because she stepped down as artistic director of the historic womenswear label in December

280   Delphine Dion 2018, after only two runways, and Anne Chapelle left the company at the same time (Lerévérend 2018). Since then, the brand has not appointed a new creative director or organised any new fashion shows. This distinction between sleeping beauties based on their residual prerevival market reputation is key because it affects branding revival strategy. The sleeping beauties with the greatest potential to succeed are not always the brands with the strongest brand awareness. Brand awareness can be a handicap in reviving a sleeping beauty, as the case of the Orient Express exemplifies (Dion and Mazzalovo 2016). The Orient Express was a luxury passenger train service created in 1883 which ran until 1977. In 2011, the French national railway company SNCF decided to relaunch the brand. Orient Express has extremely high brand awareness in Europe, China, and the USA, but that only makes the revival work more difficult. The Orient Express is one of the most iconic brands of the 20th century. The brand retains a strong reputation because many novels and films have scenes set on the train (e.g., the James Bond movie From Russia with Love and Agatha Christie’s famous and much-​filmed novel Murder on the Orient Express). These have fed the public imagination, building a strong collective memory. Therefore, managers anticipated extensive criticism if they designed an updated version of the Orient Express because the brand meaning may be far removed from modern consumer expectations. Thus, rather than launching a new train, managers have preferred reviving the brand in another product category. SNCF, owner of the Orient Express brand, partnered with AccorHotels to launch a new collection of hotels. The first Orient Express hotel of the brand’s new era opened in the King Power Mahanakhon Building in Bangkok in the last quarter of 2019, 136 years after the Orient Express train made its maiden voyage from Paris. Management drew on the multicultural heritage, mystery, and exoticism of the legendary Orient Express brand to create a unique hotel experience. Orient Express redefined rail travel in the 1900s, introducing the first sleeper cars linking West to East and delivering unprecedented levels of comfort and dining. The aim of the firm is to bring this same luxury and refinement to the new incarnation of Orient Express hotels. The new Orient Express Hotels take several of its brand and service cues from the famed railway trains, notably the property’s design that features an Art Deco styling. The original Orient Express trains were famous for the highest standards of fine craftsmanship, the newest innovations, and the most exquisite dining, and so Orient Express Mahanakhon Bangkok brings together the best names in these fields to reinterpret the art of luxury travel. This is how the brand is presented on its website: “A myth over 130 years, Orient Express remains the symbol of luxury travel and timeless refinement. The multicultural heritage of the legendary train will soon be transported to a collection of Orient Express hotels, taking travellers on a captivating journey to the elsewhere”. SNCF retains ownership of the seven original Orient Express carriages which have been restored and now provide a new and exceptional setting for the organisation of events. Both groups, SNCF and AccorHotels, are committed to preserving, promoting, and sharing the heritage connected with the legendary brand. A lack of reputation (a forgotten brand) allows more latitude for defining the brand strategy. However, the purpose is not to reinvent the brand history but to curate it purposely (Zanon 2018). There is nothing to erase, and managers can select the most

How to manage heritage brands    281 relevant features from the brand’s heritage. This avoids the risk of consumer criticism and resistance described by Cervellon and Brown (2014). In the case of forgotten brands, managers cannot draw on personal nostalgia for memories from an individual’s past but only on shared nostalgia linked to historical events or a specific period in history. It is even possible to reactivate a brand without many archives. Moynat was such a brand. Moynat, a company founded in 1849, used to be one of the leading names in the luxury leather goods industry. The brand ceased operations in 1976, but Bernard Arnault, chairman of LVMH, acquired it in 2010 through its personal holding company. After thirty-​five years of inactivity, Moynat opened a new store in 2011 and has since expanded worldwide. The brand now operates fourteen stores in Europe, Asia, the Middle East, and North America. However, before the brand’s revival, managers had only collected limited archives on the brand history. Despite these difficulties, the managers succeeded in reactivating the brand by embedding it in a cultural heritage, here of the belle époque era in Paris (see next section). Consequently, the key factor in reviving sleeping beauties is the way the brand can resonate with the collective memory. By inserting the brand into the collective memory, managers can transform it into a heritage brand—​even if memory of the brand has been lost. It does not matter that a sleeping beauty brand was not a cult brand as long as managers can create symbolic stories, narratives, metaphors, and a sense of an idealised past (Dion and Mazzalovo 2016).

Heritage Shaping To shape a heritage brand, managers draw on the aesthetic and/​or symbolic dimensions of the brand history (Dion and Mazzalovo 2016): –​product features (design, technology, and know-​how); –​important people related to the brand’s past (the founder, iconic clients, historic personalities); –​places (original locations and, more broadly, the town or country where the brand has its roots); and –​past competitors that are now market leaders and historical events contemporary with the brand. This is illustrated by the way Moynat reinterpreted its history. Moynat was one of the very first leather goods houses of its day. Known for its traditional know-​how and skills base in handcrafting made-​to-​order luggage and travel goods, the house became famous for its designs for automobiles, technical innovations such as making its trunks lighter and waterproof, and its notable participation in various World Fairs. From 1900 onwards, Moynat became the indisputable market leader in automobile luggage, a market for which the house developed several patented products including the limousine trunk. In 1928 came the side, or lateral, sliding trunk, a mechanism that foreshadowed the development of integrated trunks in vehicles from the 1930s onwards. Moynat collaborated with a number of different car designers such as Bugatti, Binder, Voisin, Labourdette, and the Mühlbacher House. Managers reinterpreted

282   Delphine Dion Table 13.1. Reinterpretation of Brand Features: The Case of Moynat Brand features

Original feature

Reinterpretation

Physical element Design Technology

Invention of a limousine trunk for automobiles, with a curved base to fit the rounded roof of a car Invention of specific trunk clasps and other patented elements (e.g., handles)

Product design using the same curved shape Store designed with many round features Product name: limousine Handbag clasps inspired by the original product design

People Founder Iconic clients Historic personalities

Pauline Moynat, the brand’s founder Réjane, a famous actress of the belle époque (turn of the 19th and 20th centuries) who was an important client

Product names: Réjane and Pauline

Place and events Store or factory location Period

The original store in Paris was located on avenue de l’Opéra, opposite the city’s most important theatre at the time The belle époque with the emergence of the motor car, lively nightlife in Paris, the world exhibitions, etc.

Reference to Paris in brand storytelling to embed the brand in the myths related to Parisian life of the belle époque Product name: relating to dance, opera, and ballet Product design that references steam trains Collaboration with the Orient Express Store design inspired by the design of the Orient Express train

Competitors

The procurement agreement between Au Départ, Louis Vuitton, Moynat, and Goyard signed in the 1930s

Reference to Louis Vuitton in brand storytelling to position the brand in the market

Source: Dion and Mazzalovo (2016).

many elements of the brand heritage (see Table 13.1). They shaped the brand heritage by inserting the brand history into an iconic, idealised collective memory. Moynat has set its brand in the mythical late 19th-​century Paris, when the city was one of the world’s leading capitals. As noted in Table 13.1, the brand refers to many elements of that period: the emergence of the motor car and travelling, the vibrant nightlife in Paris of the belle époque, world exhibitions, and so on. For instance, this is illustrated by the way Moynat presents their iconic bag on their website: In the glittering world of Paris’s Belle Epoque, at the turn of the 20th century, a talented actress named Gabrielle Réjane reigned supreme. Independent, modern, and highly educated she soon became a lifelong friend with the only woman trunk-​maker

How to manage heritage brands    283 in history, Pauline Moynat. Réjane inspired the first women’s handbags designed by Moynat. Smaller, lighter and shapelier than the bags in use at the time, they proved an immense success and ushered ladies’ handbags into the modern era.

Similarly, Elsa Schiaparelli resonates with the collective memory of the history of fashion and feminism. There is the potential to resonate with the collective memory and mobilise an ideal vision, engendering a longing for an idealised past or community (Brown et al. 2003) related to 1920s fashion, the Surrealist movement, the emergence of feminism, women’s emancipation, and so on. The video, “A homage to the famous firsts of a legendary couturier”, featured on the brand’s website, shows how Elsa Schiaparelli revolutionised fashion and collaborated with Dali and Cocteau.

Heritage Authentication Sleeping beauties need to authenticate both their heritage and the rearticulation of that heritage. Because sleeping beauties have been economically inactive for several years, few retain any significant archives. The first step is thus to collect both tangible and intangible features that will authenticate the brand heritage. All managers engaged in retrobranding strategies have put great effort into collecting brand archives to enhance their understanding of the brand and acquire brand artifacts. Ownership of such objects legitimises the authenticity of the brand heritage (Grayson and Martinec 2004). These authenticating objects are both proof of and links with the brand’s past activity and are integrated into the brand story and customer experience. The goal is to authenticate both the brand’s heritage and the rearticulation of that heritage. Consider the DS flagship store. The PSA Group (owners of Peugeot, Citroën, DS, Opel, and Vauxhall) reactivated the DS brand in 2010, building on an exceptional heritage of the DS cars. The DS car, originally launched in 1955, was a symbol of French luxury cars at the time. The DS brand reactivates the values of innovation, excellence, and pioneering spirit carried by this legendary car. However, contrary to the revival of the Volkswagen New Beetle, the firm has not tried to reinterpret the car’s peculiar aesthetics. As the DS CEO explains on the brand’s website: “Founded in 2014, the French automotive brand DS is built on an exceptional heritage, that of the DS 19 born 60 years ago. This legendary vehicle expresses the values of innovation, excellence, and avant-​garde technology. With its sibling, the SM, it symbolises French executive vehicles”. The DS flagship store, DS World, takes customers on a journey through all the stages in the creation of a DS, offering an insight into the brand’s unique expertise and heritage (Dion and Borraz 2015).

The customer journey comprises three steps: the heritage of the brand (with an old DS car), the excellence of the firm’s savoir-​faire in terms of creativity and technology (with

284   Delphine Dion a concept car), and finally the new DS collection. The customer journey emphasises the heritage of the brand and the rearticulation of the brand heritage. It shows the aesthetic, technical, and symbolic links between the past cars and the new ones. Consumers can understand both the brand’s heritage and how this heritage has been reinterpreted in the new product range. However, the brand does not draw on nostalgia. The focus is on the pioneer spirit. To strengthen authentication of the brand heritage and its reinterpretation, managers also rely on institutional actors such as journalists, collectors, historians, and museums (Dion and Arnould 2011; Kawamura 2018). Brand heritage must be sanctioned by authorities—​that is, cultural intermediaries with a publicly recognised capacity to appreciate the value of heritage and authenticate a brand’s history. These authorities also explain and validate the reinterpretation of the heritage. Such intermediaries are qualified to authenticate heritage because they are in the know (journalists) or are opinion leaders (celebrities), or hold appropriate qualifications (museum curators, historians, academics, etc.). All have acquired a cultural capital that allows them to authenticate the work (Dion and Arnould 2011). Relying on these cultural intermediaries is key to authenticating the brand heritage because in many cases there is no awareness of sleeping beauties in the market. In the fashion and leather goods industries, retrospective exhibitions showcased by a major art and design museum can play an important role in bringing a brand being revived into the public eye. For instance, the Metropolitan Museum of Art organised an exhibition in New York in 2012 entitled “Schiaparelli and Prada:  Impossible Conversations”. The exhibition explored the striking affinities between Elsa Schiaparelli and Miuccia Prada, two Italian designers from different eras. Inspired by Miguel Covarrubias’s “Impossible Interviews” for Vanity Fair in the 1930s, the exhibition featured orchestrated conversations between these iconic women to suggest new readings of their most innovative work. Iconic ensembles were presented with videos of simulated conversations between Schiaparelli and Prada directed by Baz Luhrmann, focussing on how both women explore similar themes in their work through very different approaches. The exhibition showcased approximately one hundred designs and forty accessories by Schiaparelli (1890–​1973) from the late 1920s to the early 1950s and by Prada from the late 1980s onwards.

Conclusion Heritage is an important value driver (Aaker 1996). A brand that is infused with a heritage stands for authenticity, credibility, and trust and can provide leverage for that brand, especially in luxury markets. Heritage is specific to the brand, is difficult for competitors to imitate, and can also provide a basis for distinctiveness in positioning (Keller and Richey 2006). According to that perspective, many firms relaunch sleeping beauties, that is, brands that are no longer active on the market but still have potential brand equity that can be

How to manage heritage brands    285 conjured up in the minds of consumers by rearticulating their heritage. Heritage is often the only asset held by sleeping beauties after they have ceased their productive and commercial activities. Managers rearticulate the history of the brand to turn it into a heritage brand. They draw on the aesthetic and/​or symbolic dimensions of the brand. They do not necessarily need to look at what the brand’s history was but should instead construct a narrative that may include some elements that are more or less strongly linked to its past (Donzé and Wubs 2019). However, turning a brand into a heritage brand is difficult. Heritage does not guarantee the brand any success, which becomes apparent when considering, for example, the financial difficulties that Courreges, Poiret, and Vionnet brands have gone through since their renewal. Reviving sleeping beauties is an exciting but difficult journey.

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286   Delphine Dion Hakala, Ulla, Sonja Lätti, and Birgitta Sandberg. 2011. “Operationalising Brand Heritage and Cultural Heritage.” Journal of Product & Brand Management 20, no. 6: 447–​456. Hallegatte, Damien, Myriam Ertz, and François Marticotte. 2018. “Blending the Past and Present in a Retro Branded Music Concert: The Impact of Nostalgia Proneness.” Journal of Product & Brand Management 27, no. 5: 484–​497. Hartmann, Benjamin J., and Jacob Ostberg. 2013. “Authenticating by Re-​enchantment:  The Discursive Making of Craft Production.” Journal of Marketing Management 29, nos. 7–​8: 882–​911. Holt, Douglas B. 2006. “Jack Daniel’s America:  Iconic Brands as Ideological Parasites and Proselytizers.” Journal of Consumer Culture 6, no. 3: 355–​377. Kawamura, Yuniya. 2018. Fashion-​ ology:  An Introduction to Fashion Studies. London: Bloomsbury. Keller, Kevin Lane, and Keith Richey. 2006. “The Importance of Corporate Brand Personality Traits to a Successful 21st Century Business.” Journal of Brand Management 14, 1–​2: 74–​81. Lerévérend, Anaïs. 2018. “Poiret Is No Longer Under the Creative Direction of Yiqing Yi.” Business of Fashion, December 12, 2018. Retrieved from https://​uk.fashionnetwork.com/​ news/​Poiret-​is-​no-​longer-​under-​the-​creative-​direction-​of-​yiqing-​yin,1044479.html#. XYpMCCgzbb0 Merchant, Altaf, and Gregory M.  Rose. 2013. “Effects of Advertising-​ Evoked Vicarious Nostalgia on Brand Heritage.” Journal of Business Research 66, nos. 12: 2619–​2625. Muret, Dominique. 2015. “Paul Poiret Label to Be Revived by a Korean Company.” Business of Fashion, March 15, 2015. Retrieved from https://​uk.fashionnetwork.com/​news/​poiret-​s-​ flair-​filled-​rebirth,954669.html#.XYpPMigzbb0 Pecot, Fabien, and Virginie De Barnier. 2017. “Brand Heritage: The Past in the Service of Brand Management.” Recherche et Applications en Marketing (English ed.) 32, nos. 4: 72–​90. Rose, Gregory M., Altaf Merchant, Ulrich R. Orth, and Florian Horstman. 2016. “Emphasizing Brand Heritage: Does It Work? And How?.” Journal of Business Research 69, nos. 2: 936–​943. Schroeder, Jonathan, Janet Borgerson, and Zhiyan Wu. 2015. “A Brand Culture Approach to Chinese Cultural Heritage Brands.” Journal of Brand Management 22, nos. 3: 261–​279. Urde, Mats, Stephen A.  Greyser, and John M.  T. Balmer. 2007. “Corporate Brands With a Heritage.” Journal of Brand Management 15, nos. 1: 4–​19. Zanon, Johanna. 2018. “Reawakening the ‘Sleeping Beauties’ of Haute Couture: The Case of Guy and Arnaud de Lummen.” In European Fashion: The Creation of a Global Industry, edited by Regina Lee Blaszczyk and Véronique Pouillard, 86–​115. Manchester, UK: Manchester University Press.

Chapter 14

C onsum ers’ Perc e p t i ons and Evaluat i ons of Lu xu ry a nd Lu xu ry  Bra nd s Klaus-​P eter Wiedmann

To answer the question of what luxury is, it makes sense to take the perceptions and evaluations of consumers into account. Ultimately, the important issue is what consumers consider a luxury and how they reward accordingly with corresponding behavioural patterns. When consumers have a positive attitude, an important behavioural category is the willingness to pay a price premium, sometimes even without questioning the objective quality the consumer receives. Deeper insights into consumers’ perception and evaluation processes regarding luxuries are thus becoming the linchpin of luxury marketing and promote attempts to influence consumer perceptions to establish successful luxury brands. At the same time, it must be noted that in line with societal change, luxury markets have faced major changes and challenges in recent years. Important factors are, for example, the ‘democratization of luxury’ (Cristini et al. 2017), the increasing need for responsibility and sustainability and the megatrends of digitization and globalization. Together, these factors have a significant impact on what luxury means and how individual forms of luxury are valued, both at the societal level and at the level of individuals (Kapferer 2017). Adjusting to a possibly new understanding of luxury presents a great challenge to luxury goods providers, who face ever-​increasing competition in the extremely attractive luxury market. However, a closer look reveals that existing attempts to capture the perceptions and assessments of luxury goods and related patterns of consumer behaviour still need some broadening and deepening. There is thus a lack of a suitable basis for comprehending and situating the recently emphasized trend towards a new understanding of luxury. Therefore, it makes sense first to establish the appropriate basics to be able to support

288   Klaus-Peter Wiedmann entrepreneurial practice. A bottleneck is a convincing conceptualization of customers’ information processing and the attribution of value, especially against the background of insights from neuroscience (Harris et  al. 2018). To raise awareness of this bottleneck, it seems appropriate to provide a comprehensive framework to identify the different facets of the phenomenon of luxury. The second part of this chapter focuses on a brief overview of existing methods for recording customer luxury perceptions and appraisals. The critical acknowledgment of these approaches reveals some striking deficits. For example, the detection of relevant reference points of the perception and appraisal of luxury does not take place in a sufficiently differentiated and, above all, systematic way. Furthermore, the interplay of the conscious and unconscious perception and appraisal of relevant characteristics of luxury goods must receive much more attention; accordingly, the capturing of value associations requires more sophistication. Without progressing along with these three points, it will be difficult to understand consumers’ perception and assessment processes sufficiently and thus to concretely capture an emerging new understanding of luxury. The third section will provide initial suggestions regarding the direction of a viable conceptualization of consumer perception and evaluation processes.

Defining the Luxury Construct First, it is necessary to understand the different facets and levels of luxury.

Considering Different Facets of Luxury and Their Relation to Consumers In a fundamental sense, [we define luxury as] something that has do with standing out far beyond the normal level, the necessities and/​or the usual limits either in a material or in an immaterial sense. Luxury is more or less strongly connected with feelings of independence, exceptionality, admirableness, mightiness, superiority, immensity as well as enjoyment and pleasure on the one hand and with ratings of exaggeration, ostentatiousness, waste, excess on the other hand. (Wiedmann 2014a: p. 23)

Although this characterization may be at the heart of any existing definition, there is still no consensus in the literature about what is meant by luxury. There is agreement only about the fact that luxury is an extremely complex, multidimensional and multilevel construct that refers, for example, to a certain lifestyle (see Veblen 1899, to a ‘specific tier of offer in almost any product or service category’ (Dubois et al. 2005: p. 115)

Consumers’ Perceptions and Evaluations of Luxury    289 or even to a particular emotional state. The latter also refers to the subjectivity and relativity of luxury, the definition of which differs depending on time and place and on the observer’s point of view (Phau and Prendergast 2000: 122ff.): ‘One person’s functionality may be another person’s luxury’ (Bernstein 1999: 48). The interplay between the various aspects and perspectives mentioned seems important for understanding the relationship between luxury and consumers as well as the constitution of luxury brands (see Figure 14.1). In the present context, brands play an important role in reflecting the accents in the value propositions for a specific lifestyle, goods category, and/​or emotional state on the part of marketers as well as perceptions and assessments on the part of consumers and other stakeholders. Especially with regard to luxury brands such as Armani, Bentley, BMW, Chanel, Burberry, Hermès, Gucci, Louis Vuitton, Rolex, and Rolls Royce, it can be stated that the perception of luxury is only partly determined by the specific characteristics of the respective product or service. Rather, the intangible qualities and assessments, stories, and myths that are reflected in the form of a brand identity turn a good into a luxury item. Therefore, when we talk about luxury goods, they are unimaginable without the entire world of experience above the products and services, which is captured with the brand. Although some of the aforementioned brands are publicly accentuated as luxury brands (e.g., BMW), from the perspective of specific individuals, they may just be premium brands. However, the relationship between public opinion and personal appraisal by particular audiences with respect to the identity of each brand plays an important role. To better assess the nature and degree of differences in subjective interpretations on the part of the customers as well as other stakeholders, it may make sense to introduce in the form of ‘the perspective of the consumers’ a sort of reference point as indicated in Figure 14.1. Regardless of how the perspective of ‘the’ consumers is operationalized in detail, the contrast between such a majority opinion and the opinion of individual consumers or consumer segments can be very enlightening to better understand the perception and evaluation of luxury. To obtain a deeper and more contrasted insight, the approach of a triangulation is expedient, in which, for example, the manufacturer’s

Luxury and the relationship with consumers against the background of societal and personal living conditions

Luxury Lifestyle

Luxury Goods

(product & services)

Luxury Sensations,

Luxury as an emotional state

Societal conditions

Luxury Brand = a brand with a luxury shaped identity Personal living conditions

Perspective of “the” consumers (societal or public perception) Type and degree of contrast

Perspective of an individual consumer

Luxury brands as communication and projection surface for the perception and evaluation of luxury by social institutions and the consumers

Figure 14.1.  Various facets of luxury and their relation to consumers.

290   Klaus-Peter Wiedmann perspective is also included. This either directly reflects what they themselves call a luxury or is objectified by, for example, the stipulations of professional syndicates (e.g., Comité Colbert in France, Altagamma in Italy, Meisterkreis in Germany).

Luxurious Lifestyles as Basis for Definition of Continuum of Luxury Brands The recourse to ideas of a luxurious lifestyle is a central issue in the characterization of luxury and luxury brands or luxury goods. From a societal perspective, luxury is primarily associated with the lifestyle of the ‘happy few’, which in the past was attributed to the aristocracy but for many decades has been aligned with financial wealth and ascribed to so-​called ‘HNWIs’ (high net-​worth individuals) (Capgemini and Lynch 2011). Historically, and depending on the cultural background, the focus of assessing luxury or, more specifically, a luxurious lifestyle has alternated between moral criticism of exaggeration, ostentatiousness, excessiveness, excess, and waste on the one hand and fascination with the extraordinary, admirable, and desirable on the other hand. The latter was and remains connected with the fact that luxury is associated with ideas of a good, comfortable, subtle, and artistic life, which can provide a good role model for one’s own life. At the same time, the rise of social problems is fuelling critical assessments or the search for new forms of luxury that are more aligned with postmaterialistic values, especially with sustainability, having time and being healthy and safe. Ultimately, however, luxury is still mainly associated with material values and remains ambiguous, suspenseful, and sparkling and therefore emotionally touching. This kind of tension seems to be very important for both those who can afford a luxurious lifestyle and luxury goods and for those who cannot. In connection with the growing trend toward the democratization of luxury, the differentiation of several levels of luxury has prevailed. In most cases, three levels can be distinguished: absolute or inaccessible luxury, aspirational or intermediary luxury, and affordable or accessible luxury (De Barnier et al. 2012). Figure 14.2 briefly illustrates the three levels of luxury and indicates various extensions. Beyond the usually exposed three levels of luxury, another level should be introduced that is more or less independent of financial aspects and, above all, addresses a self-​ granting dimension apart from financial efforts (perhaps also in the sense of a ‘small sin’ in relation to one’s otherwise applicable own rules (e.g., not to eat too much chocolate)). Moreover, in addition to market goods, nonmarket goods should be taken into account in view of the ‘new luxuries’ such as health and time. However, especially with regard to those dimensions, a strong tendency towards commercialization and conversion into marketable goods can be identified in recent years (e.g., in the form of superfood offers, special tourism, or wellness offers). In the course of this commercialization and marketing, variants of a lifestyle of health and sustainability, which are not only not cost-​ neutral but also quite expensive, have especially gained attractiveness.

Consumers’ Perceptions and Evaluations of Luxury    291

“Democratization of Luxury”

Market Goods

Price

Absolute Luxury

Non-Market Goods

The traditional may lose its

Inaccessible Luxury

price/quality ratio clear relevance

Super Luxury

High-end Options regarding Time / Free Time

Aspirational Luxury

Health / Fitness

Intermediary Luxury

Luxury

Sustainability Fairness

Affordable Luxury Accessible Luxury

………….

Near Luxury Super Premium

………….

Ultra Premium

Premium “My little Luxury”

Upmarket

More or less regardless of financial value

Quality

Tendency for commercialization and marketing

Extension and refinement of the understanding of quality

Figure 14.2.  Capturing different levels of luxury.

In the present context, the quality dimension comes into play and must be considered alongside the price dimension to capture different types of luxury. In connection with very high prices, luxury goods are usually ascribed by the characteristic of very high quality. Following the ‘pay more, get more’ pattern, the quality of absolute luxuries should be the highest, followed by the quality of aspirational luxury. However, very different opinions exist in the literature regarding this matter. Although some authors explicitly emphasize very high quality as a central feature (Dubois et al. 2001), others emphasize its relative importance only. The latter on the one hand, with regard to prices that are far above what performance and utility would command (Bastien and Kapferer 2013); on the other hand, especially with reference to a differentiation from premium brands, which function according to the ‘pay more get more’ pattern (Kapferer and Bastien 2017: 74).

Attempts to Capture Consumers’ Perceptions and Assessments of Luxury In the literature, many previous studies have attempted to grasp the perception and assessment of luxury primarily based on accentuating the characteristics of luxury or luxury goods that are relevant to consumers. Unfortunately, the existing feature listings are characterized by the fact that perceptual patterns regarding the characteristics of goods, fulfilled need categories, and attributed values are usually unclear or at least not clearly aligned with any of these patterns. In addition to the sometimes unclear assignment to specific patterns of perception, the accentuation of very different thematic

292   Klaus-Peter Wiedmann emphases plays a central role. This situation leads to the fact that so far, no uniform and convincing feature list is available as a luxury perception/​evaluation scale. Table 14.1 provides an initial overview of the most prominent feature lists or scales in the literature. The scale of Dubois, Czellar, and Laurent (2005) is especially frequently cited. The scale of Kapferer and Michaut (2016) is not only the latest but also the scale that follows a convincing critical literature review to define the concept of luxury. The different scales found in the literature, especially those presented in Table 14.1, are substantiated either by appropriate literature reviews or by qualitative studies. Moreover, some of these scales have been used in quantitative empirical studies to (a) crystallize relevant factor structures via factor analyses (e.g., De Barnier et al. 2012), (b) capture the perceptions and associations of consumers in different countries and, in some studies, in view of different product categories (e.g., Hennigs et al. 2013), and (c) identify consumer segments with different emphases in the perception and evaluation of luxury (e.g., Kapferer and Michaut 2016; Wiedmann et al. 2009). In the first step, the identification of factor structures needs to be addressed to discover the relevant relationships or patterns that are hidden behind the surface of the assessment of individual luxury characteristics. Special attention should be paid to the results of the meta-​study by De Barnier et al. (2012), in which three of the well-​known luxury perception scales were used to crystallize and compare the respective factor structures. Figure 14.3 shows the factor structures. This figure also displays the factor structure of another scale as well as consumer segments identified based on that scale. The meta-​study of De Barnier et al. (2012) reveals only one clear convergent dimension, elitism. On the Vigneron and Johnson scale, this dimension is strongly associated with uniqueness. The three scales highlight affective dimensions of luxury from different angles: hedonism and distinction (Dubois et al.), refinement (Vigneron and Johnson), and creativity (Kapferer). De Barnier et al. (2012) further note: these affective dimensions turn out to be less strongly correlated than the others to the elitism and uniqueness dimensions. The quality dimension also emerges significantly in two of the scales, formally in the Vigneron and Johnson scale implicitly in the renowned Kapferer scale, but conveying similar content from the standpoint of their strong correlation. Finally, only the Vigneron and Johnson scale brings out a ‘power of the brand’ dimension linked to the predominant position of the luxury brands in the market. This dimension, like the affective dimensions, turns out to be markedly less correlated than the other dimensions to the elitism and uniqueness factors.” (De Barnier et al. 2012: 631)

The meta-​analysis by De Barnier makes it clear that the perception of luxury is not just about elitism and uniqueness but also about other factors. Furthermore, it also becomes clear that one should avoid jumping to conclusions. Considered superficially, one might guess that the ‘power factor’ of the brand is closely correlated with the desire to radiate elitism. However, this is not the case. Hence, a valid understanding of the luxury conceptions of consumers requires a much deeper immersion in their perceptions and

Consumers’ Perceptions and Evaluations of Luxury    293 Factor Structures of different Luxury Perception & Evaluation Scales based on quantitative empirical studies Elitism

Elitism

Elitism

Social value

Renown

Distinction

Uniqueness

Functional Value

Creativity

Hedonism

Quality

Individual Value

Refinement

Financial Value

Power Empirical study of De Barnier et al. (2012) Based on Kapferer‘s (1998) scale

Based on Dubois et al‘s (2005) scale

Based on Vigneron & Johnsons‘ (1999) scale

Consumer Segments identified in the empirical study of Wiedmann et al. 2009 Cluster 1: The Materialists (22.4%; female 54.5%, mean age 34.4 years) Highest on materialistic and usability value, lowest on self-identity, quality and prestige value

Cluster 2: The Rational Functionalists (23.7%, f 56.5%, ma 33 y) Highest on quality, followed by uniquiness and self-identity value, lowest on hedonic luxury aspects

Cluster 3: The Extravagant Prestige-Seekers (26%, 56.4%, 30.8) Highest on social value aspects (e.g., prestige) followed by extravagance and usability, low on uniquiness,

Cluster 4: The Introvert Hedonists (17,2%, female 48,1%, m. age 35)

Empirical study of Wiedmann et al (2009) as well as e.g., Hennigs et al. (2013)

Highest on hedonic value aspects (self-directed pleasure and life enrichment), exclusivity, low on social value as well as usability, extravagance, self-identity, and self–gift giving

Figure 14.3.  Factor structures of luxury perception and evaluation scales and an example of consumer segments identified based on one scale.

associations and finally (yet importantly) taking into account the differences that may exist between assessments in different countries and consumer segments. The latest study in which corresponding associations with luxury or luxury goods were collected by international standards is that of Kapferer and Michaut (2016). These authors interviewed a total of 3,217 buyers of previously defined luxury goods through online panels in six countries (Brazil, China, France, Germany, Japan, and the United States) to identify differences as well as similarities regarding the attributes that define luxury. Some selected results of this study will be briefly mentioned to further support our plea for a more nuanced view. Kapferer and Michaut revised the original Kapferer scale, leading to the items listed in Table 14.1—​unfortunately, without any further explanation. In any case, the scale was empirically tested and performed well, and the authors were able to identify a common core of attributes defining luxury as well as some nuances across countries, which can be attributed to cultural differences as well as varying levels of economic growth. Across all countries, the top three items defining luxury with a substantial gap between the next frequently mentioned attributes are ‘high quality’, ‘expensiveness’, and ‘prestige’ (see Table 14.2). Kapferer and Michaut see this as confirmation of the central role of price in defining luxury as well as ‘elitism’, which was highlighted as a basic dimension in the meta-​analysis of luxury scales by De Barnier et al. (2012); they state, ‘[L]‌uxury rests, above all else, on a promise of exclusivity’ (Kapferer and Michaut 2016: 12). With reference to the fourth item, which involves hedonist consumption (pleasure), the two authors note some differences:  ‘This attribute ranks especially highly among Brazil consumers, but also in France, the United States, and Germany. In contrast, Chinese and Japanese seldom mention pleasure in their luxury definitions; what counts more is ‘fashion’ in China and ‘heritage’ in Japan’ (Kapferer and Michaut 2016: 12). In addition to a country analysis highlighting relevant differences across countries, Kapferer and Michaut (2016) conducted a cluster analysis to identify relevant types with respect to the definition of luxury. In particular, the combination of this cluster analysis with the country analysis provides good insight into the differences and similarities in the definition of luxury across different countries (see Table 14.3). The names of the

Table 14.1. Existing Scales to Capture the Characteristics of Luxury or Luxury Goods

Kapferer (1998) Extremely expensive Its price Elitist Exclusiveness Its uniqueness Best quality Product Excellence Craftsman Its great creativity Beauty of object Its sensuality Its magic Successful

Dubois, Czellar & Laurent (2005)

Vigneron & Johnson (1999)

Wiedmann, Hennigs, and Siebels (2009)

Godey et al. (2013)

De Barnier and Valette-​Florence (2013)

Very High price -​ Expensive, elite, and premium pricing Excellent quality -​ Exceptional ingredients, components, delicacy and expertise, craftsmanship Scarcity and Uniqueness -​ Restricted distribution, limited -​ number, tailor-​made Aesthetics and Poly-​sensuality -​ Piece of art, beauty, dream Ancestral heritage and personal history -​ Long history, tradition, pass on to generations Superfluousness -​ Uselessness, non-​functional

For rich people Elitist Selective Precious Unique Rare Luxurious Sophisticated Superior Top quality Refined Attractive Dazzling Leading Successful Powerful Gratifying

Price Value Quality Value Uniqueness Value Usability Value Prestige Value Self-​Identity Value Hedonic Value Materialistic Value Conspicuous-​ ness Value

Expensive Elitist Desirable Sophisticated Extravagant Emotional Exclusiveness Prestigious Conspicuous Snobbish

Expensiveness Premium Quality Functionality Aesthetics Aspiration Conspicuousness Luxury Atmospherics Uniqueness Personal history Self-​pleasure

Kapferer & Michaut (2016) Expensive High quality Pers. services Innovation Rarity Minority Beauty Art Dream Prestige Timeless Heritage Fashion Pleasure

Table 14.2. The Attributes That Best Define Luxury around the World France

USA % in

China % in

Brazil % in

Germany

Japan

% in

% in

Total % in

% in

N

country

N

country

N

country

N

country N

country

N

country N

country

High quality

320

60.04

347

69.26

302

44.94

329

61.15

291

56.84

344

74.62

1933

60.09

Expensive

221

41.46

265

52.89

388

57.74

169

31.41

236

46.09

184

39.91

1463

45.48

Prestige

295

55.35

243

48.50

269

40.03

167

31.04

163

31.84

257

55.75

1394

43.33

Pleasure

200

37.52

200

39.92

99

14.73

224

41.64

174

33.98

63

13.67

960

29.84

Beauty

161

30.21

124

24.75

81

12.05

178

33.09

155

30.27

146

31.67

845

26.27

Fashion

111

20.83

127

25.35

296

44.05

119

22.12

153

29.88

54

11.71

860

26.73

Dream

194

36.4

100

19.96

94

13.99

173

32.16

185

36.13

51

11.06

797

24.77

Minority

91

17.07

78

15.57

244

36.31

175

32.53

124

24.22

84

18.22

796

24.74

154

28.89

84

16.77

172

25.60

116

21.56

90

17.58

148

32.10

764

23.75

Personalised services

84

15.76

96

19.16

206

30.65

178

33.09

104

20.31

41

8.89

709

22.04

Heritage

82

15.38

62

12.38

161

23.96

76

14.13

68

13.28

187

40.56

636

19.77

Timeless

77

14.45

115

22.95

130

19.35

25

4.65

129

25.20

134

29.07

610

18.96

Art

91

17.07

69

13.77

148

22.02

103

19.14

96

18.75

117

25.38

624

19.40

51

9.57

94

18.76

98

14.58

120

22.30

80

15.63

34

7.38

477

14.83

Rarity

Innovation N Total

533

Source: Kapferer & Michaut 2016, p. 11.

501

672

538

512

461

3217

296   Klaus-Peter Wiedmann Table 14.3. Country-​Level Consumer Segmentation by the Five Types of Luxury France

USA

Type

N

%

1= Prestige first

177

33,2 164 32,7

2 = For minority

78

3 = Pleasure first

137

4 = Fashion first

97

5 = Heritage Sine qua non Total

44 533

N

China

14,6

%

N

Brazil %

N

%

Germany

Japan

N

N

%

%

82 12,2 101 18,8 103 20,1 146 31,7

96 19,2 140 20,8 129 24,0 122 23,8

49 10,6

25,7 128 25,5 124 18,5 195 36,2 157 30,7 101 21,9 18,2 8,3

68 13,6 235 35,0

74 13,8

45

39

9

100 501 100

91 13,5

93 18,2

7,2

672 100 538 100

37

46 10,0 119 25,8

7,2

512 100 461 100

Source: Kapferer and Michaut (2016: 18).

What defines a luxury or luxury good?

Brainware

Supplier's Corporate Marketing Mix as well as his Identity & Reputation

Hard and soft Infrastructure of the Consumption Culture

Personality and Lifestyle System 1 Automatic Implicit Information processing Spontaneous

Software Hardware

Seeing Hearing Smelling Tasting Touching Feeling Imaging Believing ...

e.g., the

Product

Services

Societal Conditions and Developments

Overall Experience Offer

implicit implicit cognitive affective

Motives and Needs Implicit Value Associations

Explicit Value Associations

Rational

explicit explicit affective cognitive Conscious explicit Information processing Controlled System 2

+

Emotional

Societal Conditions and Developments

Entire Environment of use, ownership and availability

Values, Norms, Attitudes

Personal Living Conditions

What drives the perception and evaluation of a luxury experience?

Figure 14.4.  Drivers of the perception and evaluation of luxury goods. Source: Own representation based on Wiedmann (2014b).

various clusters or types illustratively address the core of the respective focus of orientation (see following Kapferer and Michaut 2016: 19). With the exception of Type 1, ‘Prestige First’, none of the other types feature the top three items in defining luxury. For example, Type 2, ‘For a Minority’, does not mention prestige as one of the top four defining attributes, and both expensiveness and prestige are virtually absent from Type 3 customers’ most salient attributes. They focus strongly on pleasure, and the cluster is therefore named ‘Pleasure First’. Type 4 (‘Fashion First’) does not consider high quality relevant for defining luxury goods (at least in the top four items), and expensiveness is not truly present in Type 5 customers’ definition; due to their specific focus on heritage and timelessness, this type is named ‘Timeless Heritage Sine Qua Non’. With regard to the presence of the five types in the different countries (see Figure 14.5), Kapferer

Consumers’ Perceptions and Evaluations of Luxury    297 Benefit and Reward by Satisfaction of Functional needs

Soul and spirit needs

(basic benefit)

(additional benefit)

Economic-material needs (cost/benefit-relation)

Social needs

Individual needs Needs of Enjoyment needs, Needs for Needs for Needs for individual aesthetic, sensual selfself-discovery & social well-being pleasures realization -empowerment integration

Needs for social approval

Needs for positive societal development

Way and/or amount of satisficing needs that is perceived as standing out far beyond the normal level, the necessities and/or the usual limits either in a material or immaterial sense

CPLV (Customer Perceived Luxury Value) Functional Value

Individual Value

Social Value

Financial Value

Figure  14.5. The link between normally differentiated quality dimensions and customer-​ perceived (luxury) value. Source: Adapted from Wiedmann (2014a).

and Michaut (2016) found a strong common representativeness of Type 1 (prestige first) and Type 3 (pleasure first) in traditional luxury consumption settings (United States, France, Japan, and Germany). Type 2 luxury buyers (a rarity for a minority) are prevalent in China and Brazil as well as Germany. Type 4 (fashion first) is strongly represented in China, Type 5 (timeless heritage sine qua non) in Japan, and Type 3 (pleasure first) in Brazil. The brief sketch of some of the results of the study by Kapferer and Michaut (2016) shows the importance of not being guided solely by the ranking of items defining luxury resulting from all respondents (even if one concentrates on one particular country). This is mainly because the weights of the respective items between different segments can vary markedly. In addition, it is not only the ranking of individual items that determines the thinking, feeling, and acting of the consumer but also, above all, the relationship between the different items and their weightings to each other. The resulting overall pattern is ultimately decisive. Although the immaterial aspects of luxury (e.g., time and love) have a significant impact on the assessment of luxury features, existing studies focus mainly on material aspects. However, the relative importance and interrelations of both dimensions should be examined. Finally, it should not be overlooked that the approaches mentioned so far rely solely on the use of features that are more or less frequently attributed to luxury goods as characteristics. If one wants to advance to relevant perception and, above all, evaluation, one cannot avoid also explicitly paying attention to the perceived value of the respective features of luxury goods. Perhaps I see the very high price, high exclusivity, and high prestige as fundamentally relevant features of luxury goods, but I attach little

298   Klaus-Peter Wiedmann or no importance to these characteristics in my purchasing decisions. In other words, attention should always be paid to both the perceived markedness of a feature and its perceived relevance to a person. This is why Wiedmann et al. (2009) strongly emphasize (see Figures 14.4, 14.5.) the perceived value of luxury goods. This measurement concept has already proven itself in various studies and can be used to identify relevant clusters or consumer segments (see Figure 14.3). With reference to the identified consumer segments (see Figure 14.3), it is merely stated that they accentuate very different value perspectives and that the cleavage line does not run solely between those who want to show off before others and those for whom prestige is rather unimportant; instead, only personal enjoyment counts. Relying entirely on Wiedmann et al.’s scale to measure luxury value perception falls short. Hence, a combination and extension of the outlined approaches seem appropriate to obtain deeper and valuable insights.

Extension of Existing Approaches for Capturing Consumers’ Perceptions and Evaluations of Luxury (Goods) Some of the key elements of a useful theoretical framework are outlined in the next sections.

Attention to Relevant Reference Points for Perception and Assessment of Luxury Goods The first step is to clarify which reference points must be considered with regard to the perception and appraisal of luxury brands. To better assess the perceived quality of an offer, it makes sense to distinguish three different levels. First, the core offering might be a specific product or service. Second, the accompanying or complementary services facilitate, complete, enrich, or extend the targeted product or service use. In our conceptualization, we speak in the first case of the ‘hardware’ and in the second case of ‘software’. In addition to this distinction, another performance category should be explicitly considered. At its core, this category is about the experience above the product and the service and is conveyed more or less directly through the product’s use, possession, or availability as well as through the entire environment of use, ownership, and access. The latter includes, among other things, the specific context of use, which makes use possible and makes it appear more or less pleasant. This approach addresses the actual, or at least assumed, reactions from other persons, groups, or institutions (e.g., virtual institutions such as public opinion) that are assigned to a certain property and/​or its use as well as to the supplier of the offering. These include, for example, perceived

Consumers’ Perceptions and Evaluations of Luxury    299 exclusivity and personal social elevation as well as the risk of being stigmatized by envious people or robbed by criminals. Of course, it is certainly not a matter of dispute that only the overall experience that is perceived and evaluated by the consumer ultimately counts. That such a holistic experience can arise primarily in the perception of relevant customers is the challenge for integrated corporate marketing of the respective luxury provider. Such an integrated luxury marketing must not be limited to a target-​oriented design of the marketing mix. In addition, it is more important to build up a suitable identity and reputation as a whole and to influence the entire relevant consumer culture or at least its perception by customers accordingly. Figure 14.4 illustrates the various factors or factor fields leading to such a comprehensive experience. At first sight, all the features considered in the previously presented scales (Table 14.1) may be assigned to the different performance levels or to the preceding context field. For instance, high price and quality, aesthetics, creativity, sophistication, craftsmanship, beauty, and so on, may be treated as product features. In the form of the feature ‘personalized service’, we find only on the scale of Kapferer and Michaut a corresponding example for the field of services. Image, prestige, exclusiveness, uniqueness, minority, and so on are items that could be assigned to the existing environment of use. Pleasure, dream, aspiration, and magic may initially be understood as experience dimensions. Upon closer inspection, however, all these items together, and especially their specific interplay, constitute the overall experience offer, which, in the case of a luxury, needs to be outstanding, above usual expectations, and aligned with something special that is more than one would normally expect. The briefly sketched part of the model presented in Figure 14.4 shows that future research should focus on identifying and classifying relevant features along the various fields, which are important for creating a comprehensive experience offer that actually meets the requirements for a luxury item. In addition to the fact that product or hardware characterizations may need more sophistication, too little attention has been given to the whole field of services as well as to the environment of use, ownership, and access. For instance, the offer to be able to properly drive one’s Lamborghini or Ferrari in closed city districts or on racetracks not only makes the hearts of vehicle owners beat faster but also, depending on the personality, may be an exciting facet of a convincing luxury story for some potential customers. At the level of the ‘accessible luxury’, the sensory design of a flagship store or actual or virtual participation in a fashion show may give rise to a high level of fascination that mediates the feeling of luxury.

More Detailed Discussion of Human Information Processing on an Implicit and Explicit Level The existing situation and hardware and software features, as well as their specific interaction and experience-​relevant accentuation in the sense of the overall offered ‘Brainware’, form the more or less objectively detectable input into the perception and evaluation processes of individual consumers. At the same time, these are also reflected

300   Klaus-Peter Wiedmann as ideas or knowledge elements in the cognitive system of consumers. These knowledge elements are therefore already specifically networked within affective and cognitive assessment and classification patterns. Both the information recording as well as the processing takes place against the background of specific living conditions and the comparison of these with general societal conditions and developments and is influenced by the existing personality traits, individual motives, needs, values, norms, and attitudes of each consumer. Ultimately, there are corresponding value associations that are connected to a certain luxury item (see Figure 14.4). Figure 14.6 roughly indicates the perception and evaluation of all the signals linked to a luxury good. Referring to the findings of neuroscience, it is especially important to note that human information processing and evaluation always include affective and cognitive processes on both an implicit (subconscious) and an explicit (conscious) level. The distinction between implicit and explicit levels refers to differentiation by Kahneman (2003) in System 1 and System 2 as the two closely interlinked subsystems of the human brain. System 1 represents intuition, which is fast, parallel, automatic, effortless, associative, slow-​learning, and emotional. System 2 represents reasoning, which is slow, serial, controlled and effortful, rule-​governed, flexible, and neutral. Camerer et al. (2005) contribute a more differentiated distinction with their four-​field matrix. They differentiate between implicit-​cognitive and implicit-​affective processes as well as between explicit-​affective and explicit-​cognitive processes (see Figure 14.4). Based on this matrix, human information processing is explained as follows. In the first step, incoming signals are rapidly noted at the implicit level and assigned meaning against the background of existing knowledge, ideas, routines, and so on, especially the expectation pattern stored on this basis (implicit cognitive effect). Almost simultaneously, an evaluation takes place in light of existing needs and motives that leads to positive or negative feelings or emotions (implicit affective effect). These emotions are aligned with preliminary decisions and lead to explicitly positively or negatively valued emotions (explicit

Adventure

Brainware

Brand Attitudes -Brand Feeling -Brand Esteem -Brand Trust -Brand Admiration -….

Brand Relationships

Security

-Brand Attachment -Brand Identification -Brand Love -…..

Functional Value

Brand Behavior Individual Value

Social Value

Overall Experience Offer

Financial Value

Total Customer Perceived Value

-BuyingIntension -Price Premium -Brand Loyalty -….

Perception and appraisal of stimuli that emanate from a comprehensive range of experiences aligned to a luxury brand

Figure  14.6. Two modes of information processing and appraisal of provided luxury experiences.

Consumers’ Perceptions and Evaluations of Luxury    301 affective effect), which further reinforce the preliminary decisions and possibly—​ especially in the case of perceived cognitive dissonances—​drive the search for ‘good reasons’ in a certain direction (explicit cognitive effect). In addition to the active search for good reasons, the suppression or devaluation of negative points plays a considerable role, even to the point that the corresponding stimuli are already sorted out on the implicit level. According to Kahneman (2003), more than 95 percent of people’s decisions are made at the implicit level. Contrary to the paramount importance of implicit information processing, attempts to explore the perception and evaluation of luxury goods are dominated by approaches that rely solely on the explicit assessment of the characteristics of luxury goods. Of course, in surveys’ articulated assessments of luxury characteristics and explicitly related value associations might reflect the output at the end of information processing and decision-​making. In addition to the fact that interviewees are only able to assess the features that are included in the survey, in practice, at least two biases must be considered. First, participants are not always aware of all the reasons that drive their perception and behaviour. Second, participants regularly do not express their true attitudes and beliefs by giving wrong answers out of concerns for social desirability. There is thus a high risk that follow-​up statements regarding possible behavioural effects (buying intention, price premium, etc.) or corresponding behavioural predictions, which are made on the empirically collected value associations, miss the reality. In contrast to solely explicit measures that are based on the ability and willingness of consumers to answer correctly, implicit measures focus on consumers’ unconscious and mostly automatic reactions toward different marketing stimuli (Camerer et al., 2005; Hubert & Kenning, 2008). Of course, implicit measures cannot be seen as a better indicator per se, but they represent another form of evidence. Both implicit and explicit measures evaluate different shades of consumers’ attitudes and beliefs; only together can they truly help to predict perception and behaviour. Regarding the capture of implicit processes, neuroscience has made great progress in measuring neural correlates of important constructs (Schmidt et al., 2018). A few examples are the state of arousal via biometric measurement, reward potential and degree of wanting via EEG (electroencephalography), extent of saliency via eye tracking, manifestation of emotion via facial coding, and the strength of associations via reaction time measurement (e.g., implicit association tests). The systematic combination of different measurement approaches within purposefully planned experiments will undoubtedly lead to important insights. In principle, it is important to understand that explicitly conscious and implicitly unconscious evaluations constitute different types of consumer attitudes and behaviours (e.g., influencing memory, perception, images, and buying intention within the implicit system and understanding, credibility, likes/​dislikes, and satisfaction within the explicit system). Young consumers, for example, show positive attitudes toward Versace female and male fragrances that use strong symbols of sexual attraction, although negative associations come to light at the implicit level (Labenz et al. 2018). An explicitly positive assessment may have something to do with the image of the brand, but this image will

302   Klaus-Peter Wiedmann suffer if such ads run over a longer period. This insight needs to be taken into account and leveraged intelligently, as became clear in the case of Porsche. In this example, the motive patterns that are very pronounced on the implicit level for many Porsche drivers were accentuated in ads slightly too much and too flatly. Reactions included many letters of protest. One customer wrote, ‘Somewhere we know or at least suspect the motives that drive us to buy a Porsche, but we do not want those mirrored in your advertising’ (Wiedmann 2014b: 754).

Capturing Existing Value Associations in a More Differentiated Way As a central output of the entire process of perception and appraisal (which cannot and should not be retraced in detail at this point), it makes sense to emphasize the construct of ‘value associations’. In these value associations, which exist on the implicit and explicit levels, all influences are ultimately processed accordingly. The interplay between implicit and explicit value associations results in the overall balance in the total customer perceived value (TCPV) and forms the basis for the shaping of further attitudes and behaviour patterns among consumers (e.g., price premium readiness, purchase intention, brand satisfaction, and loyalty). The term ‘value associations’ refers in the present context to the type and extent to which, in the opinion of a consumer, the characteristics of a luxury good or its overall experience fulfil the expected benefits and thus have convincing quality features that are desired against the background of the consumer’s specific needs and wants in a given situation. Value associations exist both in the sense of an overall judgement (holistic perspective) and with reference to single characteristics of a luxury item or a luxury brand perceived by consumers (detailed or reductionist view). From the point of view of marketing planning, it makes sense to pursue both perspectives, the holistic and the reductionist view, by means of systematic consumer research. Which value associations are connected with luxury goods or the luxury brand, and which specific value associations characterize individual features of the entire luxury experience? Especially with regard to those variables that are repeatedly accentuated as important drivers of a particular perception of luxury, more sophisticated knowledge about their mode of action and influence should be developed. Typical examples are features such as the very high price, the craftsmanship, the heritage, the very limited availability or even uniqueness, the chance to be welcomed into an aspirational group, and the feeling of being admired or envied by peers, to name just a few. With regard to the attribution of a more or less high value to a luxury item or a luxury brand in general and to individual features of a luxury experience in particular, the fulfilment of concrete benefit expectations plays a central role. Accordingly, returning to the previously mentioned scale of customer perceived luxury value introduced by Wiedmann et al. (2009), a question needs to be answered: To what extent does a luxury good, in the opinion of a consumer, offer a functional, financial, social, and personal

Consumers’ Perceptions and Evaluations of Luxury    303 or individual benefit and thus a high overall benefit? This scale (see Table 14.1) was first developed based on theory, drawing upon existing customer value proposition (CPV) research (Payne et al. 2017) and especially on the well-​established approach of Smith and Colgate (2007). In addition, the scale builds on fundamental concepts of quality measurement that highlight the lines of connection between the satisfaction of basic needs and the resulting value of consumers (see Figure 14.5). At the same time, this connection provides the opportunity to elucidate the range of contents of individual and social needs and their potential value associations in more detail than the approaches available so far. For example, it must be considered that social needs are not just about the need for social recognition associated with prestige value; the need for positive social development can also play a major role. In fact, in our corporate studies, this need was repeatedly emphasized by HNWIs. The investment in very expensive and high-​quality products is understood not least as a contribution to positive economic development and, for example, the special promotion of art and culture, engineering, craftsmanship, and social development. Above all, direct investment in pieces of art, charity donations, and activities in the field of ‘good deeds’ are highlighted when the question arises of what perceived luxury is to consumers. The recourse to dimensions that are used in classical approaches to measure the quality of products and services naturally raises the question of where good quality or premium quality ceases and luxury begins. A certain approximation of a demarcation may be possible through recourse to our initially proposed definition, according to which luxury involves the satisfaction of needs that goes far beyond the normal measure of existing needs and/​or limits, whether material or immaterial. Therefore, it is not so much about specific quality features as about the way quality expectations are met. Of course, even in luxury marketing, the formula is that some existing expectations—​ though not all—​ultimately should be exceeded to be successful. Ultimately, however, luxury always remains highly subjective, and this also applies in light of the possibility of exceeding existing expectations (e.g., emotionally more thrilling than expected). The subjectivity of luxury perception and appraisal is also expressed in the fact that specific features of a luxury may be assigned to different value dimensions and sometimes even to different value dimensions at the same time. The extremely high price for a luxury watch, a luxury car, a luxury villa, or the like is, for one person, above all, an indicator of extremely high quality, which is mainly related to perceived high functional value. Another person emphasizes the combination of the opportunity for social recognition with a very high price. A third person associates with the high price the opportunity for a strong self-​reward and the underlining of their own personality; what others think of them is not relevant. Therefore, it is about a purely individual value. Yet another person considers the high price from the perspective of an investment that will pay off someday and thus accentuates the financial value (e.g., in the case of works of art). Similarly, different assignments apply to other features of luxury goods (e.g., uniqueness, aesthetics, sophistication, and prestige). Furthermore, multiple assignments are possible for individual features. As a result, complex patterns of value associations are present in each case. These perceived complex value patterns need to be grasped if one

304   Klaus-Peter Wiedmann wants to understand the perception and evaluation of luxury goods, or any other goods, by consumers. However, it is noteworthy that in the empirical study by Wiedmann et al. (2009), four consumer segments could be identified that, at least in terms of their dominant orientation, go in the four directions of the highlighted basic value dimensions (see Figure 14.3). Nevertheless, in contrast to merely accentuating the dominant orientation, more attention should be paid to the complex patterns concealed beneath it. A sense for subtleties is important, especially if one wants ‘to hit the right note’ in the luxury market or, perhaps even more aptly formulated, tell ‘the right luxury story’. The need to identify consumer segments with relatively similar value-​association patterns does not only refer to the sometimes very different results of the rational cognitive processes of value appraisal. The possibly strongly differing motivation and emotion patterns associated with the respective consumer personalities and the resulting differences in emotional assessment must also be considered. There is no doubt that marketing has considerable influence potential and that it can appeal to specific motivation patterns and thus trigger corresponding emotions. Following the findings of neuromarketing and the importance of implicit evaluations, it can be assumed that the greater the success of marketing measures, the better the fit between the addressed and target groups’ motivation and emotion patterns. Regardless of whether it is influenced by marketing or simply adeptly addressed, the emotional assessment and its associated influence on the attribution of value should be observed. Persons with a strong sense of dominance are likely to be persuaded by arguments related to high performance, self-​ determination, individuality, and tailor-​made service. By contrast, people with strong security aspirations will most likely respond to arguments such as tradition and heritage, high quality, and safety standards as well as services; these are less tailor-​made but highly experientially based. Heritage can also be a convincing argument for people with a very strong desire for dominance. This does not have an emotional embedding or safety motives but involves the desire for fortitude and powerfulness. At first glance, it does not seem necessary to consider the different ways of estimating a feature such as heritage, as long as it works regardless of which motivational and emotional system exists. However, this ignores the fact that it always depends on the way an argument is staged by means of a multisensual framing that makes consumers feel and believe that they are experiencing something truly extraordinary and thus are actually experiencing a sensation of luxury. In addition to the fact that the variety and complexity of relevant motivation and emotion patterns has not yet been taken into account, it does not make sense to apply individual emotion patterns (e.g., pleasure) in measurement scales at the same level as concrete goods characteristics (e.g., rare, expensive, and timeless) (Table 14.1). It is much more important to understand the interplay between cognitive and affective appraisal, rational and emotional evaluation, and implicit and explicit processes in the context of information processing. In this case, even possible negative value associations must not be ignored. It should be emphasized that individual characteristics can lead simultaneously to both positive and negative value associations. When planning to buy a Bentley or Rolls Royce Oldtimer, the true rarity may, on the one hand, be associated with

Consumers’ Perceptions and Evaluations of Luxury    305 genuine happiness, such as the prospect of experiencing real and rare craftsmanship or the expectation of being envied by others and receiving special recognition from like-​ minded peers. On the other hand, under certain circumstances, there is the fear that the car no longer meets current safety requirements and, in the event of breakdowns or damage, finding a garage or spare parts may not be possible. The influences from the personal social environment should not be underestimated. Even if the prospective buyer is willing to ignore the negative sides, significant others may ensure that potential risks are highly weighted and ultimately become relevant to the decision. At this point, it is unfortunately not possible to go deeper into the perception and evaluation processes of luxury goods or brands. Figure 14.6 illustrates the approach of a more differentiated consideration of the attribution of value associations to luxury goods or to the range of experiences offered by a luxury brand in addition to the basic model presented in Figure 14.4. For the classification of relevant motivation and emotion patterns, the approach of Scheier and Held (2012) was used as an example. Our central hypothesis here is that the more a brand reaches the inner motivational set points of a customer regarding any given luxury product on both a conscious and subconscious level, the higher the perceived value is. To avoid complicating the illustration further, Figure 14.6 does not emphasize the influencing factors shown in Figure 14.4. However, relevant output variables are sketched that, given a positive overall balance, may result from the attribution of value associations.

Conclusion Understanding what consumers mean by luxury and how they perceive and value appropriate luxury goods is a dominant bottleneck if a company wants to succeed in the rapidly growing luxury market. Although existing scientific research has addressed this problem and presented proposals for conceptual penetration and operational measurement, closer examination reveals that those approaches still have some shortcomings in terms of sufficiently differentiated recording of consumers’ perception and evaluation processes. Based on an initial introduction to a more subtle understanding of luxury, this chapter critically reviews existing approaches that have received particular attention in the literature. To develop a framework to guide future research, three tasks were identified, for which corresponding conceptualization proposals were made: (a) identifying relevant points of reference for the perception and evaluation of luxury goods in a more differentiated and systematic way; (b) considering the interplay between conscious and unconscious perception and appraisal; and (c) grasping the resulting value associations in a more differentiated way. To support the planning of promising luxury marketing, the presented framework needs to be elaborated, particularly with reference to suitable market research and analytical tools. This chapter provides a variety of suggestions for this issue and can help to

306   Klaus-Peter Wiedmann raise awareness that consumers’ perception and evaluation processes should be analysed in a much more sophisticated manner to better understand consumers and, if necessary, pinpoint new trends accordingly.

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308   Klaus-Peter Wiedmann Wiedmann, Klaus-​ Peter. 2014b. “The Future of Brand and Brand—​ Some Provocative Propositions from a More Methodological Perspective.” Journal of Brand Management 21, no. 9: 743–​757. https://​doi.org/​10.1057/​bm.2014.39. Wiedmann, Klaus-​ Peter, Nadine Hennigs, and Astrid Siebels. 2009. “Value-​ Based Segmentation of Luxury Consumption Behavior.” Psychology of Marketing 26, no. 7: 625–​651. https://​doi.org/​10.1002/​mar.20292.

Chapter 15

Why Lu xu ry Bra nd s Partner with A rt i sts Annamma Joy and Russell W. Belk

From Elsa Schiaparelli’s 1937 collaboration with Salvador Dali, which produced the elegantly surreal “Organza Dinner Dress with Painted Lobster” to Alexander McQueen incorporating Damien Hirst’s kaleidoscopic entomology motifs in a limited-​edition skull print scarf in 2003 to Prada showcasing its Spring/​Summer 2005 collection in a site-​ specific art installation in tiny Marfa, Texas, luxury brands in synergistic partnerships with artists have produced objects that transcend beauty and utility to become works of art themselves (Dion and Arnould 2016; Fondazione Prada 2019; Joy et al. 2014). Through such partnerships, artists gain increased exposure and, should they wish, a market-​blessed legitimacy. The brands in turn benefit from a perception of épater la bourgeois legitimacy (and thus authenticity) through their alliances with street-​wise avatars of youth, rebellion, and cutting-​edge modernism—​which, in expanding customer demographics to encompass younger, potentially more fashion-​forward consumers, may ultimately be of greater value than the artists’ increased commercial legitimacy (Cadogan 2017; Day 2019). Fewer media have been a more effective fit in the world of luxury-​brand marketing than collaborations with artists, whether in the short term, as in Louis Vuitton’s series of limited partnerships with multiple contemporary artists, or over decades (Palmitessa 2012), as seen in Tiffany’s collections of artist-​designed and -​branded jewellry; in every case, the brand of the artist and that of the corporation are each enhanced by the other. This chapter studies how luxury brands deepen consumer consciousness of their brand stories through the medium of art, including fashion photography, and in the process both reinvigorate themselves and lionise artists (Joy 1993; Weidemann and Hennings 2017). We provide a case study of Louis Vuitton, currently the world’s most highly valued luxury brand, and on the forefront of partnering with a uniquely varied range of artists (Bullock 2017). Additionally, we examine the appropriation of luxury-​brand status signifiers by street fashion, as artists reinvented themselves as

310    Annamma Joy and Russell W. Belk fashion designers and crashed the gates of the traditional luxury arena, claiming and remaking branded luxury as their own. The future of partnerships between luxury brands and artists is examined, as social media amplify a new kind of megacelebrity artist, the multihyphenate: artist–​fashion designer–​muse–​influencer–​musician–​actor–​ Instagram colossus (Harris 2019). Known not only to the cultural cognoscenti but also to the broader public, such icons have the ability to reach across the cultural spectrum and throughout the industrialised world. How many Gen Z’ers are familiar with Renoir (featured in Louis Vuitton’s partnership with artist Jeff Koons) versus Rihanna (whose new fashion brand debuted in 2019 under the auspices of Louis Vuitton)? In closing, we address a major issue in any discussion of art and luxury brands: the role of fashion itself as an art form (Moss 2018). In blending high (fine) art with low (commercial) art, luxury brands have, in league with artists, co-​created both a new kind of luxury, one freed of the constraints of the classical refinement traditionally associated with such brands, and a new kind of artist. No longer deemed a corporatised sell-​out, the artist whose works serve the brand even as the brand serves the artist is today an avid self-​promoter who embraces consumerism in all its banality and gloriousness (Dion and Arnould 2011).

Telling the Brand Story The rise of luxury brands as a widely recognised signifier of quality, taste, and class during the 1800s was closely linked to the growing phenomenon of travel by the affluent, whether by horse-​drawn carriage, sea, or railways (Judah and Pouillard 2010). The first luxury leather goods brand, Delvaux, a maker of luggage and trunks, was founded in Belgium in 1829; Au Départ, a Parisian maker of trunks and other travel-​related products, followed in 1834; and Hermès debuted in Paris 1837. In the same year, the jeweller Tiffany opened in New York City, followed by Cartier in Paris in 1847. Trunk maker Louis Vuitton started the company that still bears his name in Paris in 1854. The first international couture house, Maison Lucile, debuted in London in 1894 and by 1915 had expanded to Chicago, New York City, and Paris (Safer 2011); designer Lucy, Lady Duff-​Gordon, known as Lucile, was the first to offer catwalk shows in highly theatrical settings (her runway floors were mirrored, for an added frisson for those in the front rows (Calahan 2013) and she exploited her connections with celebrity clientele, including Mary Pickford and Billie Burke. Duff-​Gordon employed teams of sketch artists to convey her design ideas in-​house; such drawings were featured in news and magazine articles about her gowns (Mendes and de la Hay 2009). By 1928, a luxury directory, Pan Annuaire Du Luxe A Paris, edited by the French fashion designer Paul Poiret, appeared, featuring Au Départ amongst its listings; advertisements for an assortment of luxury brands highlighted in the directory were created by such artists as Raoul Dufy and the early multihyphenate writer–​director–​artist Jean Cocteau (Poiret 1928). In common

Why Luxury Brands Partner with Artists    311 with any successful brand, luxury brands initiate and sustain their hold on consumer consciousness through stories (Kapferer 2012). Early on, the role of artists in telling such stories was recognised as essential (Roll 2018). Since the further rise of luxury brands in Europe in the latter half of the 1800s, the story of luxury goods has typically centred on the high quality of the brand; its elegance, desirability, and artisanal production values; and its au courant modernity. As luxury brands entered the fields of accessories and apparel in the early 1900s, including Maison Paul Poiret in Paris in 1903, those stories expanded to include marketing images of idealised womanhood reflecting beauty norms of the day, offering the implicit hope that such beauty would be transferred to those who possessed clothing or other objects affiliated with the brand.

Luxury Brands and the Avant-​garde In the 1920s, the luxury brand Louis Vuitton, having expanded from its former sole focus on luxury travel goods, allied itself with the avant-​garde movements, forming affiliations with artists who freely broke with tradition. For example, in 1922 the renowned artist and furniture designer Pierre-​Émile Legrain created a dressing table for Louis Vuitton, arresting in its day and even now, its swooping, austere lines startling in their simplicity (HPrints 2019). In a precursor to the audacity of artists working for various luxury brands more than one hundred years in the future, Legrain melded the influence of African art’s stark, even brutal lines with the art deco movement. In Legrain’s time, African art was both lauded and implicitly devalued by the term primitive imposed by Western cultural arbiters (Torgovnick 1990). Through melding such so-​called primitive art with the cleanly curvilinear lines of art deco, a ground-​breaking cultural radicalisation took root, spurred by artists such as Henri Matisse, who incorporated African, Islamic, Moorish, and Japanese influences in his art, and Pablo Picasso, who entered the angular vitality of his African period in 1906. Moreover, the rising use of organic form in fashion design was exemplified by artist Camille Cless-​Brothier, whose 1922 “L’Arbre Pleureur” (the Crying Tree), a sensuously curved crystal perfume bottle enamelled with a wisteria tree in bloom, was an art deco masterpiece created on commission for Louis Vuitton. The wisteria was also featured in art nouveau stained glass Tiffany lamps (Kastner 2007). The intertwining relationship between these striking new genres was on full display at The Exposition Internationale des Arts Décoratifs et Industriels Modernes, a world’s fair for the decorative arts (and the origin for the term art deco) held in Paris in 1925. In elevating decorative arts to the domain of fine arts, the exhibition implicitly showcased the essential role of artists in the luxury industry. The symbiosis of luxury brands and art, initiated early in the twentieth century, found an even fuller expression during the youth culture of the 1960s (Palmitessa 2012).

312    Annamma Joy and Russell W. Belk

Art, Fashion, and Photography: Synergistic Forces in the YouthQuake Era The soigné models of the post-​World War II era, sleek, impassive adult women with hourglass bodies and lacquered hair, abruptly gave way to the seemingly prepubescent waifs of the 1960s, who arrived in tandem with the in-​your-​face freshness of pop art. In 1965, Yves Saint-​Laurent Couture offered the first instance of fashion partnered with pop art, in shift dresses reproducing the Dutch Modernist artist Piet Mondrian’s instantly recognizable geometric color blocks (painted from the 1920s through the early 1940s). Saint-​Laurent perceived his Mondrian Collection as “young, young, young”. In 1966–​1967, Saint-​Laurent’s new collection, officially named the Pop Art Collection, incorporated art by Andy Warhol (Carré D’Artistes n.d.); daringly above-​the-​knee dresses, gowns, and pantsuits nearly vibrate with high-​contrast colors. The message was clear; contemporary art not only lent cachet to fashion, it also imbued it with the vibrancy of youth. Youth was the future of fashion, personifying the excitement generated by a cultural break with the past. Moreover, youth was the future of consumption: the most desirable demographic imaginable, an entire generation whose spending habits were not shaped and constrained by memories of the Depression and war. Selling youth, as embodied by contemporary art, was initially accomplished through the medium of another form of art decisively breaking from the past: fashion photography.

The Photographers The first fashion photography shoot arguably occurred in 1911, when the photographer Edward Steichen’s images of Paul Poiret dresses were published in the magazine Art et Décoration (Niven 2004). As photography took hold amongst the general population beginning in the second decade of the previous century, its use as an advertising medium became a fait accompli. Drawings and paintings of products for sale, and the models hawking those products, inevitably were increasingly replaced by photographs; photographers themselves became integral to fashion, and thus to luxury brands. By the mid-​1960s, the men and women who photographed for luxury-​brand marketing campaigns and featured fashion icons of the day started gaining recognition as artists in their own right. Richard Avedon, with his daring images of models leaping in mid-​air across the pages of Vogue, along with the pop-​culture star David Bailey (who appeared as a fashion photographer, in an early precursor of multiplatform mastery, in Michelangelo Antonioni’s 1966 classic film Blow-​Up), embodied a countercultural modernity in fashion photography. Photographic stars of the 1970s and later, such as Guy Bourdin, Helmut Newton, Sarah Moon, and Deborah Turbeville, brought a new edge

Why Luxury Brands Partner with Artists    313 and iconoclasm to fashion, in images both shocking (e.g., Newton’s sadomasochism; Bourdin’s hypersexualised splayed bodies) and moodily surreal (e.g., Moon’s soft-​edged, faded images; a deep anxiety implicit in Turbeville’s dreamscapes) overtly challenging then-​current notions of refinement and good taste. Avedon in particular pioneered the blurring of the formerly separate spheres of art for wholly artistic purposes and art for hire, as his commercial photographs potentially obtained the same high art status, and concomitant investment value, of his fine arts photographs. Such overlap signalled the increased acceptance of commercial partnerships between luxury brands and artists, as the aura of art extended to high-​fashion apparel and goods themselves.

The Brand-​Within-​Brand Partnership The 1968 advent of Andy Warhol’s jazzy Absolute Vodka advertising campaign images debuted the use of high art in service to marketing, which further paved the way for a growing consumer perception of products themselves as worthy of being termed art (Schroeder 2005; Schroeder and Saltzer-​Morling 2006). When the Italian artist Elsa Peretti entered into a long-​term partnership with Tiffany in 1974, affluent consumers eagerly followed (Reginato 2014). Peretti’s jewellry collections were sold within the store but identified specifically as her work (a brand within the brand), as was also the case with the French designer Jean Schlumberger, Andy Warhol’s Christmas cards for Tiffany (from 1956–​1962), and Paloma Picasso, who partnered with Saint-​Laurent before designing jewellry lines for Tiffany starting in 1979. Peretti in particular was a shock to the old system: Her organic, overtly sensual designs in sterling silver—​at a time when sterling silver was perceived as downmarket in luxury terms—​were grounded in an ethos of naturalness, embodying modernity and simplicity, and quickly achieved iconic status. As of 2012, Peretti designs accounted for an astonishing 10 percent of all Tiffany net sales worldwide (Reginato 2014) Partnerships between luxury brands and artists could produce memorable objects, but they could also be shockingly lucrative. With the ascent of the American fashion designer Marc Jacobs as the creative director at Louis Vuitton towards the end of the 1990s, the marketing of nonart commodities as art fully took hold, as luxury brands forged collaborations with artists in the design of luxury goods collections as a natural order of business—​indeed, as a key element of the brands’ core identities (Gasparina 2009).

A Case Study: Louis Vuitton’s Alliances With Artists In the mid-​nineteenth century, Louis Vuitton catered solely to those who could afford the ultimate luxury of travel and therefore required luggage. Today, Louis Vuitton Moët

314    Annamma Joy and Russell W. Belk Hennessy (LVMH), formed when Louis Vuitton merged in 1987 with Moët Hennessy, offers some seventy brands under its corporate umbrella, including Bulgari, Dior, Givenchy, Guerlain, and Marc Jacobs. Art drives and informs Louis Vuitton’s story (Joy et  al. 2014); flagship stores display products with the same theatricality as art. They also display art, routinely serving as both retail emporiums and art galleries, and incorporating art installations into their store design. The choice of art can honor, sustain, and deepen bonds with clientele via homage to a given country’s heritage (Masè and Cedrola 2017). For example, a Vuitton flagship store in Florence, Italy, showcased works by such artists as Massimo Listri, a contemporary photographer known for the grandeur and the large scale of his images, and Osvaldo Medici del Vascello, a bold, modernist painter active in the previous mid-​century (Grassi 2019). When visitors enter luxury brand stores, they enter the brand itself; the building, as seen from outside and experienced within, must embody the brand. Louis Vuitton has worked with a number of star architects to design buildings engineered to dazzle, including Frank Gehry, Peter Marino, and Moshe Safdie, amongst others; Gehry even designed a handbag, the Twisted Box (an homage to one of his own buildings) as one of six artists selected to honor Louis Vuitton’s 160-​year anniversary since its founding with the 2014 collection, Celebrating Monogram (Giannino 2015; Rus 2014). Store interiors both intimidate and exalt (the Champs-​Élysées flagship store features a twenty-​meter animated fiber optics wall); lighting shimmers, glitters, and glows throughout stores and on building exteriors. Enter the store, and you enter a rarefied environment not fully of this world. Make a purchase, and you take some of that world home with you (Joy 1993; Joy and Sherry 2003).

Breaking the Rules During his tenure as Louis Vuitton’s creative director from 1997 to 2013, Marc Jacobs spearheaded partnerships with a series of artists far from the refined aura of upper-​class elites that was once the natural default milieu of an entrenched luxury brand (Mendes and Rees-​Roberts 2015). Jacobs’s successor as creative director, Nicolas Ghesquière, who previously partnered with artists as the creative director of Balenciaga, has sustained and expanded Jacobs’s alliances. Through these partnerships, affluent consumers gained the opportunity to possess works of art by celebrated artists whose efforts would normally be far beyond their reach, whilst the artists reached a far broader base than the limited world of art collectors could ever provide. The next sections discuss some of the more prominent artistic collaborations.

Stephen Sprouse In a clear sign of his decisive break from tradition, Jacobs’s first partnership, in 2001, was with artist Stephen Spouse, formerly a fashion designer affiliated with Debbie Harry of the punk/​pop group Blondie, the 1980s hair band Duran Duran, and the punk star Billy Idol; the collaboration was so successful that Sprouse partnered with Louis Vuitton

Why Luxury Brands Partner with Artists    315 again in 2009. Sprouse was known for his neon graffiti-​printed clothing collections mixing neo-​1960s pop with a streetwise irreverence. According to Simon Doonan, creative director of Barneys New York, Sprouse’s fashion sense was “punk couture” (Norwich 2004), an entirely new phenomenon: Sprouse was by any measure far from a safe choice as a collaborator for a luxury-​brand conglomerate.

Richard Prince In 2007 Jacobs sought out Richard Prince, an artist known for his controversial practise of rephotographing photographs for his own uses without permission, indulging his fascination with subcultures such as cowboys, surfers, and motorcycle gangs. Prince’s Louis Vuitton handbag collection was dominated by a sense of kitsch, with degradation of the iconic brand key to the collection; as an example, his 2008 Monogram Jokes collection featured hoary jokes imprinted on heavily distressed and faded handbags (a sample: “Every time I meet a girl who can cook like my Mother  . . .  She looks like my Father”, featured on a handbag from the Mancrazy Jokes collection); being in on the joke is essential to appreciating such goods. The fact that the jokes are mired in a 1950s mentality of gender politics is part of the ironic discourse between creator and consumer. If the jokes were actually humorous, or at the least reflected forward-​thinking sexual mores, they would fail to achieve their ironic clout. For Marc Jacobs, himself an avowed fan of SpongeBob SquarePants, playing with pop cultural references was all part of the mix.

Yayoi Kusama and the Chapman Brothers In 2012 Louis Vuitton partnered with the Japanese painter and sculpture Yayoi Kusama. Kusama’s limited edition handbags and other accessories featured her iconic vermilion polka dot patterns, which evoke otherworldly undulating life forms; the shapes are organically realistic, whilst the colors and patterns are the stuff of nightmares, triggering a disturbing visual dissonance. Similar dissonance occurs in the designs of Jake and Dinos Chapman, British artists whose 2013 bug-​eyed phantasmagoric beasts and monsters printed on handbags, apparel, and accessories evoke Hieronymus Bosch, and whose satanic, cartoonish drawings of rhinoceros, elephants, giraffes, and others beasts associated with Africa burst through the staid traditional background of the Louis Vuitton quatrefoil pattern in their 2017 collection. In addition to an irreverent embrace of all that was new, Marc Jacobs further blurred the usual lines separating “good” taste from “bad”; he also blurred the separation between “East” and “West”; and deconstructed what the current culture deemed desirable. (Did consumers crave a handbag featuring a gothic beast with wild eyes and sharp teeth in a tattoo-​like black-​and-​white graphic save for the blood red of an angry mouth? Yes, they did.) Jacobs in essence invited pop and punk sensibilities to wreak havoc on the classic elegance typically associated with a venerable luxury brand, even as the artisanal high quality of Louis Vuitton product lines remained as reliably dependable as ever. Louis Vuitton has not only been willing, it has also actively invited artists to deconstruct, deface, and otherwise reimagine formerly familiar objects as unmistakable works of

316    Annamma Joy and Russell W. Belk art. In cultivating artists associated with outsider status, the company rejuvenated its own status, sustaining its traditional collections whilst sparking a sea change in what comprised high status (Dion and Borraz 2017).

Takashi Murakami In likely his most lucrative artist alliance during his time at Louis Vuitton, in 2002 Marc Jacobs joined forces with the contemporary Japanese artist Takashi Murakami in a thirteen-​year-​long partnership (Riot, Chamaret, and Rigaud 2013). The selection of Murakami, at a time when Japan, as it is today, was a key market share of Louis Vuitton sales (second only to the USA as of 2018), undoubtedly intensified the bond between consumers and the brand (“Takashi Murakami would ‘be very happy’ ”, 2018). Murakami’s first collection, 2003’s Murakami Multicolore monogram collection, replaced the hallowed Louis Vuitton brown monogram pattern with bright primary colors reminiscent of Japanese anime and manga on a white rather than the traditional dark background; the handbags “galvaniz[ed] the staid French luxury house with a shot of cutting-​edge culture”, according to Ferraro (2017). Murakami further produced the Monogramouflage collection, which debuted, fittingly enough, at a museum (the Brooklyn Museum), reimagining a prosaic military pattern as high art (Favell 2012; Giannino 2015). Moreover, through Louis Vuitton’s association with Murakami, the brand embraced the concept of localisation, in which artists via their ethnicity in essence serve as cultural ambassadors, connecting consumers to the brand through their shared national origins (much as in-​store works of art produced by artists whose ethnicity is shared by local consumers creates connection). Through Murakami, the brand itself became, to a degree, Japanese as well, with products showcasing elements of Asian culture. Deemed “the most important player” in Japanese contemporary art (Favell 2012), Murakami chose deliberately to secure his niche in the Western art market in order to expand his artistic reach (Sivanandan 2018).

Jeff Koons The artist and provocateur Jeff Koons partnered with Louis Vuitton to design what has arguably been the most iconoclastic of all Louis Vuitton’s artistic collaborations, the Masters collection, which debuted in 2017. The collection comprised twenty handbag varieties and various accessories using old master images long in the public domain (from paintings originally created from 1503 to 1889). The artist self-​described as “waging a one-​man war on taste” (Tully 1991), and once known for his X-​rated art, appropriated celebrated paintings from such artists as Vincent van Gogh, Leonardo da Vinci, and Claude Monet, repurposing them as luxury handbags. The original artists become playthings, ripe for parody, appropriated by a cheeky upstart who insolently places his own signature amulet (a flattened balloon bunny hung from the handbag handle), setting his own initials on the handbag along with the traditional LV initials. Through the Masters collections, Koons, already famed for his massive pop art balloon dog sculptures (combining the weightless concept of balloons with the reality of heavy stainless steel for the maximum in cognitive dissonance as well as shine), reached

Why Luxury Brands Partner with Artists    317 an even broader audience; via his partnership with Louis Vuitton, his work has been featured in advertising campaigns around the industrialised world. Louis Vuitton, by being allied with Koons and by extension with artists who are inarguably amongst the most recognised in human history, positions its handbags as themselves potentially high-​end works of art. Collections designed by artists, renowned as much for their iconoclasm as for their artistic prowess, offered consumers a significantly different experience in self-​perception; carrying an “it” bag certified as art conferred an aura of being not only “in the know” in terms of good taste but also as being knowledgeable about the latest and most exciting developments in the creative arts (Bullock 2017). As Barneys’ creative director Doonan stated, art couture signified “informed consumption”:  “They [artist-​designed luxury brand objects] say [of the consumer]: ‘I’m not just a shopper, I’m a groovy shopper” (Ghorashi 2015).

The Subversive Power of Appropriation Appropriation is a recurring element of many of the artists with whom luxury brands have forged alliances. Consider Stephen Sprouse’s use of graffiti associated with gang members reconceived as luxury goods that, through the artist’s choice of graphics, become hybrid items, both as signifiers of high status within the elite and as statements of outsiderism; through the repurposed retro pulp fiction covers used by Richard Prince to the Old Masters and Impressionists’ paintings reimagined in the Louis Vuitton handbags of Jeff Koons to the manga and anime of Asian culture that enlivens the commercial designs of Murakami. Murakami’s traditional dark monogrammed handbags in his Cerise collection were sparked with a pattern of cartoonish scarlet cherries, and would have been right at home dangling from Snow White’s cherubic arm; the cherries are further brightened by cheery little faces that seemed poised to burst into song. We argue that such appropriation is inherently subversive, as source materials are removed from their original context and reimagined as something undeniably different, capable of shocking the sensibilities of those who perceive highly recognizable works of art as anchored to their original intention; appropriation in this context is inevitably experienced as an act of transgression. For example, the intense, roiling misery of van Gogh’s devastating struggle with mental illness—​a key element in his paintings—​is entirely out of place in the carefree, indulgent world of luxury; the visual expressions of the artist’s tumultuous inner life, repurposed from their prior framing as high art, are brought to their metaphorical knees within the new frame of a commercial product—​ note the soothing, happy, baby-​blue color of the handles and other monochrome features of Koons’s handbags and backpacks featuring van Gogh’s “Wheat Fields With Cypresses”. The resulting product, no longer suffused with the artist’s harrowing sense of foreboding, is diametrically opposed to the original painting. As Louis Vuitton chief executive Michael Burke prophesised, “People are going to be upset about the sacred

318    Annamma Joy and Russell W. Belk entering the realm of the profane. But we like to do things that can be perceived as politically incorrect. If we are getting flak, we think we are doing something right” (Friedman 2014). Aside from flouting traditionalist sensibilities, Koons further offers a dare: See van Gogh’s painting in a new light, apart from the perception that our knowledge of van Gogh’s tragic history automatically provokes; view “Wheatfield With Cypresses” removed from any and all preconceptions. Such reframing can lead to a witty, winking knowingness, as, for example, in Koons’s appropriation of Jean-​Honoré Fragonard’s naughty “Girl with Dog”, in which a near-​ nude fleshy young girl, in all her rococo glory, frolics in bed with her puppy, offering a voyeuristic view veering joyously into soft core pornography. Seen apart from the usual frame of being a circa-​1770 fantasy of pink-​toned innocence, Fragonard’s nudes can be experienced anew for the unabashed celebration of unfettered sexuality that they likely always were. Appropriation was assuredly key to Richard Prince’s work, leading to his being sued in 2008 for copyright infringement; in Prince’s view, whatever existed in the wider cultural ferment, whatever its source, was his to steal as his fancy dictated. Prince’s lack of restraint regarding morality and behavioural norms, whilst belying the complexity of his artistic repurposing, in essence gives away the game of his self-​perception; he is a consummate outsider, a fan and a denizen of the underworld, his substantial wealth and celebrity notwithstanding, and therefore the usual rules do not apply—​which has an undeniable appeal, particularly for those of us for whom the usual rules very much do apply. To a significant extent, Sprouse, Prince, Koons, and Murakami played with violating tradition and refinement, and through such desecration redefined taste, allowing for a sense of freshness and play. However, appropriation—​and its implicit potential, whether for desecration or repurposing, or as an act of cultural reclamation—​could go both ways.

Turning the Tables: Street Fashion Becomes High Fashion Historically, luxury brands sought out artists with whom to forge partnerships. With the rise of street fashion, something quite different occurred. By appropriating and reconstructing branded designs, artists breathed fresh life into the luxury experience, and in the process made themselves indispensable to the brands. A brand that once sued an artist for copyright infringement (e.g., Dapper Dan) would later go into partnership with him. The term street fashion incorporates a near-​infinite range of interpretations, covering fashion trends that originate from the bottom up (i.e., from the street) rather than from the top down (i.e., the fashion world). From punk to preppy, Goth, hipster, or hip-​hop, from any subculture that in whatever way expresses the wearer’s personal identity, street fashion serves as a personal manifesto, a declaration of self, defined solely by the self. Above all else, one could argue, street fashion embodies a disengagement from normative social structures. One could further argue that street fashion is antithetical to luxury

Why Luxury Brands Partner with Artists    319 goods, given the latter’s implicit role in signifying acceptance into rather than rejection of an upper social strata (Vinken 2004), which nonetheless does not obviate its potential for wealth signaling. A luxury brand logo, as the Harlem-​based couturier Dapper Dan noted to an interviewer in 2018, was like a diamond: “A diamond signals you have money. A logo had the same effect” (Nas 2018). Dapper Dan was a pioneer in the art and artisanship of cultural appropriation; self-​ taught, he was a key figure in promulgating street fashion in the 1980s, deploying the tools of high fashion: fine leathers, furs, solid gold accessories, bespoke tailoring, and repurposed luxury-​brand logos. Dapper Dan’s aesthetic overlaps significantly with the Congolese subculture La Sape (“Société des Ambianceurs et des Personnes Élégantes”, loosely translated as the Society of Ambiance-​Makers and Elegant People), which appropriates and reimagines colonial style, emphasizing elegance and beauty through designer tailoring (Steinkopf-​Frank 2017). With roots in the 1920s, La Sape is currently enjoying a resurgence—​as is Dapper Dan. When Dan opened his first store, Dapper Dan’s Boutique, in 1982, it quickly became “the go-​to for rappers, gangsters, boxers and anyone else looking for even more Gucci, Fendi, and Louis Vuitton than could be found at Gucci, Fendi or Louis Vuitton” (Schneider 2017). As a Dapper Dan customer recalled in 2017, “Dap  . . .  taught an entire generation [of African Americans] how to engage with luxury brands. Luxury brands, at that point, were not for us” (Cooper 2017). Dan saw himself as filling a need: “I didn’t do knock-​offs”, he told an interviewer in 2014, long after his business was shut down in 1992 following litigation from Fendi. “I did knock-​ups!” (Brumfitt 2014). A few decades later, what was once deemed déclassé, not to mention illegal, was reborn as the opposite. In 2017, Gucci creative director Alessandro Michele debuted a bomber jacket, resplendent with 1980s-​era massively puffy sleeves, that was to educated eyes a knockoff of a 1989 Dapper Dan jacket that was, Dapper Dan’s protestations notwithstanding, itself a knock-​off, since it boldly featured counterfeit Louis Vuitton logos; Michele had replaced those logos with Gucci’s famed interlocking Gs. One of Dapper Dan’s former customers posted a side-​by-​side comparison on Instagram of Dan’s original jacket and its Gucci counterpart (later described by Michele as an homage), demanding that Gucci credit Dan. Gucci did more than meet her demand; the brand went into partnership with Dan, producing a menswear line in 2017. The following year, again in partnership with Gucci, Dan opened a luxury fashion store—​the first of its kind—​in Harlem. Both street fashion and traditional high fashion benefited from the partnership. As with Louis Vuitton’s collaborations with artists, Gucci found its brand reinvigorated, its customer demographics broadened, and its product line ever more Instagram-​ready (Schneider 2017). As for Dan, his status as a cultural icon is now secure; 2019 saw the release of his best-​selling Dapper Dan: Made in Harlem: A Memoir, and, as of this writing, a film adaptation is in the works. For Virgil Abloh, an American multihyphenate artist, music producer, DJ, and fashion designer from Chicago who started his career as an intern at Fendi in 2009, street fashion was ripe for experimentation, and to be taken seriously as a couture art form. In 2013, Abloh opened the luxury fashion brand Off-​White, referencing, as he

320    Annamma Joy and Russell W. Belk explained to an interviewer, “the gray area between black and white (Yotka 2018). Only five years later Abloh became Louis Vuitton’s artistic director for menswear. In 2018, highlighting Abloh’s stature as a serious artist, London’s Gagosian Gallery presented “Future History”, an exhibit of painting and sculpture collaborations between Abloh and Takashi Murakami. Half the artworks were sold before the exhibit even opened, as The New York Times reported (Schneier 2018). During 2019, Abloh’s art was showcased at the Museum of Contemporary Art in Chicago. In the same year, in partnership with Ikea, he produced a low-​priced playful collection of furniture and home décor, the Markerad (a Swedish term referencing clean, crisp lines) Collection (McGrath 2018), melding the high end with the mass market: a strategy no designer today, even one at the pinnacle of luxury, can ignore. Democratization of the brand can increase market share, as long as the brand aura is sustained. Lucy, Lady Duff-​Gordon (see section “Telling the Brand Story”) agreed; in 1916, the couturier to the stars entered into a licensing arrangement with Sears, Roebuck, and Co., for modestly priced (relatively speaking) fashion collections under her brand, designed, as the catalogue stated, “For the women of America”, and displayed in a special-​edition stand-​alone catalogue, enlivened by languorous art nouveau drawings and photographs (Calahan 2013). Rihanna, the multihyphenated musician, actor, designer, entrepreneur, and former muse of the late Tunisian couturier Azzedine Alaïa, employs the same strategy (Harris 2019). Her newly debuted brand (as of 2019) under the auspices of LVMH, Fenty Maison, offers high-​end logoed fashion with moderately accessible prices (again relatively speaking) in a wide range of sizes, reaching a far broader demographic than the typical luxury brand. Fenty’s debut collection, Release 5-​19, is an homage to the American photographer and activist Kwame Brathwaite, who documented life in Harlem in the 1960s and 1970s, and photographed such superstars as Muhammed Ali and James Brown; Brathwaite championed the cultural movement encapsulated by the phrase “Black is beautiful” (KwameBrathwaite.com 2017). Rihanna’s choice to invoke Brathwaite speaks volumes for the worldview implicit in her brand. As The New York Times noted: “the elite fashion world is in disarray, splintered by the rise of the street, direct communication and a growing awareness of its lack of diversity  . . .  [Rihanna has]  . . .  an ability to disrupt the status quo” (Friedman, 2019). Such disruption is not only long overdue; the luxury brands themselves actively seek it. A brand without sociocultural relevance is a brand without sales.

Brand Enhancement: The Rise of Luxury-​Brand Museums The reach of luxury brands into art extends far beyond artist alliances and the incorporation of artistic influences in product lines, as luxury brands enter the world of private museums, taking it upon themselves to curate and bring art to the general public. Private museums (also known as single-​donor museums) are a relatively new phenomenon; 70

Why Luxury Brands Partner with Artists    321 percent of the world’s privately funded such museums were founded since 2000, according to the private art museum report by art collector database Larry’s List (2016) as the world’s ultrawealthy increasingly become a driving force in art markets, with a lasting impact on cultural infrastructure. Luxury brands have joined the fray, with the act of founding a museum further intertwining consumer perceptions of the brand with the rarefied world of high art. Whilst some brand-​sponsored museums showcase a private art collection (e.g., LVMH’s Foundation in Paris; the Fondazione Prada; and The Palazzo Grassi and the Punta Della Dogana, owned by François Pinault, owner of Gucci, amongst other conglomerates), others focus on the brand’s history and cultural impact, and its product lines through time (e.g., Gucci Garden in Florence; Gucci 2016); in both cases, the brand itself is inevitably enhanced. As latter-​day Medicis, luxury brands via their museums bring contemporary art to new audiences; because of their extreme wealth (Bernard Arnault, chairman and CEO of LVMH, is reportedly the second wealthiest person in the world (Forbes 2020), brand representatives can afford to pay stratospheric auction prices to bring particular works of art into their museums that would typically be financially out of reach for public museums; they also commission specific works of art (Verghis 2016). Luxury brands have further expanded into the art world via other pathways; Cartier, for example, as of 2019 has become an associate sponsor of the international art fairs Art Basel and Art Miami Beach (Artdaily.org 2019), thus showcasing their clout in the art market, whilst Rolex is a major sponsor of opera singers, classical music, and yacht races.

The Process of Artification In some cases, products in luxury-​brand collections produced in collaboration with artists are presented from the start as embodying artistic endeavors despite their inherent commercial properties. In other cases, objects of fine art are initially presented as commercial entities, and therefore of limited and short-​term value, as in Avedon’s commercial photographs (see section “The Photographers”), only to be transformed into art through the sheer power of their undeniable emotional impact and timelessness (Chailan 2013; Shapiro and Heinich 2012). The transition of luxury goods from beautiful objects to full-​blown works of art falls under the term artification (Kapferer 2012) (see section “The Process of Artification”). With Louis Vuitton’s wholehearted collaboration, for example, the brand’s handbags and backpacks have been torn, defaced, patchworked, painted, spoofed, and otherwise playfully deconstructed and reconstructed, refinement be damned, turned from one thing (the classically beautiful handbag everyone craves) to another (an actual object of fine art). Whilst a luxury handbag is undeniably a useful object, and may confirm one’s personal elegance and signal status, a luxury handbag created by a bona fide artist is something quite different, capable of conferring an aura of edginess, youth, and ahead-​ of-​the-​curve modernity on those who display the artist’s work on their bodies. An essential element of artification is displacement of an object from its usual context (Shapiro and Heinich 2012). Thus, in Louis Vuitton’s flagship Maison Vendôme in Paris, opened

322    Annamma Joy and Russell W. Belk in 2017, thirty-​two works of art are not relegated to galleries within the store but rather are integrated throughout the store, a clear indication that their value is deemed equal to those of the luxury goods for sale—​which in turn indicates that the luxury goods are themselves as important as the works of art. The process of artification raises an inevitable question: Can fashion itself be reimagined as art (Venkatesh et al. 2010)?

Understanding Luxury Through the Lens of Art The entwined, symbiotic roles of luxury brands and artists, each benefiting from the other, are rooted in what we see as a simple truth: luxury as embodied by fashion is itself an art form. Since Paul Poiret first disdained the corset starting at the turn of the previous century, replacing it with draped fabrics that allowed women to breathe freely; followed by Madeleine Vionnet taking possession of the bias cut in the 1910s and early 1920s; and Coco Chanel opening the world’s first fashion boutique in Paris post-​World War I, catering to au courant flappers, high fashion has seen all the elements of artistry fall into place—​color, form, texture, and movement—​working in complementarity with a woman’s body (and not coincidentally, in parallel with the rise of modernist music such as jazz) (Davis 2006). Daring new directions in one branch of the arts tend to co-​occur amongst other branches; for example, Jean Cocteau’s assessment of the spare music of a young Erik Satie as offering “the greatest audacity—​simplicity” (Vechten 1918) could as easily be applied to the couture designers Poiret, Vionnet, or Coco Chanel. Also, not coincidentally, each of the three exemplified a particular approach to fashion: that women should be able to live in full awareness of their bodies, as the modernity and artistry of fashion, and of the arts in general, both enabled and reflected women’s increased social and cultural freedom—​thus Vionnet’s famous dictum that when a woman smiled, her dress should smile too (Benbow-​Pfalzgraf and Martin 2002). Chanel’s famed sporty tweeds, melding a masculine austerity with feminine athleticism, first appeared in 1924, finding ever-​increasing favour in the decades that followed (Chanel.com 2011). Gendered expectations were now open to discussion (Stewart 2008). The American designer Claire McCardell’s 1930s through 1950s breezy sportswear for women highlighted the pleasure and allure of dresses that popped over one’s head with no fuss whatsoever. In combination, these artistic fashion designs from the turn of the new century through the postwar period embodied the notion that women could be possessed of free agency—​ the ultimate in luxury—​and that such agency could be fun (Yohannan and Nolf 1998). The advent of Dior’s far more restrictive New Look in 1947, on the one hand set back women’s collective sense of freedom—​the nipped-​in waist, the exaggerated femininity of full skirts, and triangle-​toed heels were hardly designed for ease of movement—​but on the other, they further fuelled the idea of fashion as an artistic endeavour, one that continually reflected changing socioeconomic and cultural times (Jones and Pouillard 2009). Public perception of what constitutes art can evolve, if not within the flicker of an eye, then within a matter of years. Tastes change (Venkatesh et al. 2010). One could argue that fashion cannot be art because it is predicated on the twin ideas of beauty and utility, whereas art must be free of either constraint; from this perspective,

Why Luxury Brands Partner with Artists    323 fashion is merely design, whereas art is in a specialized realm entirely separate from commerce. We argue that contemporary high fashion is in fact no longer limited by a need for either utility or, in a pedestrian sense, beauty, with designers increasingly deliberately eschewing both in pursuit of more arresting statements, ones that interrogate the very meaning of fashion (Venkatesh et al. 2010). Moreover, an essential definition of art is its ability to transcend time. Whatever is beautiful or ugly, startling or shocking, soothing or revelatory—​in other words, whatever elicits a powerful and lasting emotional response from the viewer—​can arguably be considered art, and by this definition, fashion assuredly falls under the rubric of artistic expression. Yet high fashion is intrinsically transitory: One season’s collection is another’s old clothes, its motivating conception now stale, its claim to being on trend swept aside in favor of new collections for a new season. Vionnet famously declared herself “an enemy of fashion” with its “seasonal and elusive whims” (Mears and Boyer 2014; Springsteel 2013; Stern 2005). Nonetheless, certain items of high fashion have transcended such whims and indeed time itself, as we see in the continued reverence for designs by, for example, Mariano Fortuny, the Spanish luxury fashion designer and textile artist whose couture house, from 1906 to 1946, produced finely pleated, flowing dresses that were marvels of hand-​dyed color and architectural design. Or consider Givenchy’s little black dress, whose minimalist verve, as worn by Audrey Hepburn in Breakfast at Tiffany’s in 1961, has yet to forfeit its iconic status as the ultimate in chic (and continues to spur the democratization of luxury, with its overt implication that being chic is a universal right, a high price point be damned). Coco Chanel’s original 1926 couture version (introduced at a time when the color black was reserved for servants and funerals) was only the first of many variations to come. The fluid movement of fabric, the use of traditionally masculine cuts denoting feminine power and freedom, the saturated colors that celebrate being fully alive, the bias-​cut swing of Vionnet’s smiling silk dresses, have endured, and will surely continue to do so. Moreover, to relegate high fashion, given its implied limited shelf life and context as sited primarily within a women’s sphere, as therefore excluded from consideration as a genuine art form is to permit a lack of imagination in combination with gender bias to deform perception. As luxury-​brand houses further strengthen their ties with artists, and further blur the lines between art and commerce, such limited thinking misinformed by outdated gendered conceptions regarding what matters, may, in time, be swept into the dustbin of history.

The Future of Collaboration Between Artists and Luxury Brands All art embodies flux, and thus all fashion imperatives endemic to luxury brands are vulnerable to the whims of change. As social media outlets such as Instagram increasingly serve as ad hoc pathways for consumers to be exposed to fashion, the stars of such media are a natural draw for luxury brands eager to appeal to young consumers. Will the

324    Annamma Joy and Russell W. Belk need to expand their demographic lead brands to emphasize partnerships with other top social influencers in addition to Rihanna, with whom younger consumers are deeply engaged? Can artists (as we traditionally understand the term—​i.e., people who specifically and only make fine art), hold the same degree of sway over consumers as a star whose face is instantly recognizable and constantly on display? Such stars can become avatars, their sultry, self-​possessed images onscreen serving as guides to aspirational fashion choices. For luxury brands, the constant battle to stay not only relevant but also magnetically desirable to ever-​younger audiences means the marketing methods of one era may not always translate into those of another.

Fenty Maison: The New Guard If the definition of “artist” is elastic, which definition plays well with younger consumers? One answer amongst others is clearly the multihyphenate megacelebrity, as embodied by Rihanna (see the section “Turning the Tables:  Street Fashion Becomes High Fashion”). Robyn Rihanna Fenty, an immigrant to America originally from Barbados, is young, beautiful, and amongst the most famous people on earth. With Fenty Maison, she is today the first woman and also the first person of color thus far to have her own independent fashion label within LVMH (BBC News 2019). Fenty Maison’s flagship store exists only online (barring occasional pop-​up stores in New York City and Paris); the visually entrancing architecture and interior designs of luxury-​brand stores, the precisely orchestrated customer experiences implicit in luxury shopping experiences, defined by architecture, interior design, lighting, temperature, the background soundscape, attentive customer service, and the like, are now pixels, the experience self-​ curated by the customer. Tellingly, the name Louis Vuitton or LVMH is nowhere to be found on Fenty.com: Louis Vuitton needs the demographic reach of Fenty more than the reverse. Like Dapper Dan, Rihanna produces apparel emblazoned with large logos—​ however, the logo in question is entirely her own. Fenty Maison designs are bold and big, incorporating strong echoes of costume design in the 1982 dystopian science fiction film Blade Runner (coincidentally set in 2019)—​think 1940s jutting shoulders, leg-​revealing corset dresses, and vertiginous stilettos with exaggerated triangle toes extending far beyond a wearer’s actual toes like open switchblades. Tailored rigidity (boning is a recurrent theme) coexists with oversized puffy-​sleeved coats, sunglasses so large they are described as masks, pearl and brass slave armbands, and flowing, transparent gowns, simultaneously signalling submission and aggression. Partnering with the young artist/​ photographer Sharna Osborne (whose work strongly evokes Guy Bourdin, see section “The Photographers”), Maison Fenty images on the site for the Release 9-​19 collection present louche, confrontational young models of color, often androgynous, bare legs often splayed, juxtaposing the exposure of vulnerable skin with manspreading, a universal signifier of dominance. The message is clear: As the site states, “a static institutional environment  . . .  [is]  . . .  everything Fenty seeks to destroy” (Fenty.com). No one is about to make nice. That the clothes are likely excruciatingly uncomfortable

Why Luxury Brands Partner with Artists    325 or unwieldy, impossible to walk any great distance in (even the flowing gowns must be worn with stilettos, else they drag on the floor), is irrelevant; what counts is that they are impossible to ignore. What Rihanna explicitly sells on the site, in addition to the apparel, accessories, and jewellery, is inclusivity and empowerment: as the site states, “Express yourself, no matter your gender, shape, size, or background”. The artist of the future must stand for more than beauty, irony, flippancy, and/​or cool, all elements that allow a consumer to be what Simon Doolan once described as “groovy”. Today’s customers want more than to feel in with the in crowd; they want, and demand, to be both heard and seen. Buoyed by consumers’ conflicting desires—​nostalgia for the 1970s and 1980s, with an undercurrent from the 1960s, as personified, for example, by Dapper Dan’s designs; a craving to embrace culture whether high or low; a readiness for inclusion as embodied by luxury brands’ embrace of African-​American, Asian, nonbinary, gender-​fluid, and transgender models—​the opening up of luxury brands to a multitude of influences can only be beneficial, for consumers and brands alike. Whether partnerships with artists will further deepen brands’ holds on consumers’ collective imaginations over time, or exist in tandem with or continue to give way to the pull of new partnerships with social media stars with direct access to consumers’ deepest yearnings, is a story still unfolding.

Acknowledgements The authors acknowledge receipt of SSHRC council grant: 435-​2013-​1211

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328    Annamma Joy and Russell W. Belk Norwich, William. 2004. “Stephen Sprouse, Design Pioneer, Dies at 50.” Retrieved from https://​ www.nytimes.com/​2004/​03/​05/​nyregion/​stephen-​sprouse-​design-​pioneer-​dies-​at-​50.html Palazzo Grassi. n.d. “History.” Retrieved from https://​www.palazzograssi.it/​en/​about/​history/​ Palmitessa, Martina. 2012. “The Use of Art for Branding Purposes—​A Study of Louis Vuitton’s Art Collaborations.” Retrieved from http://​lup.lub.lu.se/​luur/​download?func=downloadFil e&recordOId=3437046&fileOId=3437047. Poiret, Paul. 1928. Pan. Annuaire Du Luxe A Paris, An 1928. Paris: Devambez. Reginato, James. 2014. “Elsa Perretti’s Great Escape” (July). Retrieved from https://​www. vanityfair.com/​style/​2014/​08/​elsa-​peretti-​halston-​studio-​54 Riot, Elen, Cecile Chamaret, and Emmanuelle Rigaud. 2013. “Murakami on the Bag : Louis Vuitton’s Decommoditization Strategy.” International Journal of Retail & Distribution Management 41, no. 11/​12: 919–​939. Roll, Martin. 2018. “Hermes:  The Strategy Insights Behind the Iconic Luxury Brand” (September). Retrieved from https://​martinroll.com/​resources/​articles/​strategy/​ hermes-​the-​strategy-​behind-​the-​global-​luxury-​success/​ Rus, Mayer. 2014. “Six Artists and Designers Reinvent Louis Vuitton’s Unmistakable Monogrammed Canvas” (November. Retrieved from https://​www.architecturaldigest.com/​ gallery/​louis-​vuitton-​monogram-​project-​slideshow Safer, Samantha E. 2011. “Designing Lucile LTD: Couture and the Modern Interior 1900-​1920s.” In Performance, Fashion and the Modern Interior, edited by Fiona Fisher, Trevor Keeble, Patricia Lara-​Betancourt, and Brenda Martin, 97–​109. London: Berg. Schneier, Mathew. 2018. “First Came the Sneakerheads, Then the Blue-​Chip Art Collectors.” The New York Times, February 27, 2018. Retrieved from https://​www.nytimes.com/​2018/​02/​ 27/​fashion/​virgil-​abloh-​takashi-​murakami-​gagosian-​gallery.html Schneider, Matthew. 2017. “Did Gucci Copy ‘Dapper Dan’ or Was It “Homage?” The New York Times, May 31, 2017. Retrieved from https://​www.nytimes.com/​2017/​05/​31/​fashion/​ gucci-​dapper-​dan-​jacket.html?ribbon%20adidx=7&rref=fashion&module=inline&ver sion=context®ion=Header&action=click&contentCollection=Fashion%20%26%20 Style&pgtype=article. Schroeder, Jonathan. 2005. “The Artist and the Brand.” European Journal of Marketing 3, 1/​ 1: 1291–​1305. Schroeder, Jonathan, and Miriam Saltzer-​ Morling, eds. 2006. Brand Culture. Oxon, UK: Routledge. Shapiro, Roberta, and Natalie Heinich. 2012. “When Is Artifaction?”Contemporary Aesthetics [Special volume 4]. Sivanandan, Natasha. 2018. “Takashi Murakami, 1962-​” (February). Retrieved from http://​ www.hasta-​standrews.com/​birthdays/​2018/​2/​5/​takashi-​murakami-​1962-​ Springsteel, Lisa. 2013. Becoming a Fashion Designer. Hoboken, NJ: John Wiley & Sons. Steinkopf-​Frank, Hannah Rose. 2017. La Sape: Tracing the History and Future of the Congo’s’ Well-​Dressed Men. Eugene: University of Oregon Scholars’ Bank. Stern, Radu. 2005. Against Fashion: Clothing as Art, 1850–​1930. Cambridge, MA: MIT Press. Stewart, Mary Lynn. 2008. Dressing Modern Frenchwomen: Marketing Haute Couture, 1919–​ 1939. Baltimore: Johns Hopkins University Press. “Takashi Murakami Would ‘Be Very Happy’ to Collaborate With Louis Vuitton Again.” 2018. The Fashion Law. Retrieved from https://​www.thefashionlaw.com/​takashi-​ murakami-​would-​be-​very-​happy-​to-​collaborate-​with-​louis-​vuitton-​again/​

Why Luxury Brands Partner with Artists    329 Torgovnick, Marianna. 1990. Gone Primitive:  Savage Intellects, Modern Live. Chicago: University of Chicago Press. Tully, Judd. 1991. “Jeff Koons’ Raw Talent.” The Washington Post, December 15, 1991. Vechten Carl Van. 1918. “Erik Satie: Master of the Rigolo.” Vanity Fair (March). Retrieved from https://​archive.vanityfair.com/​article/​1918/​3/​erik-​satie-​master-​of-​the-​rigolo Venkatesh, Alladi, Annamma Joy, John Sherry, and Jonathan Deschenes. 2010. “The Aesthetics of Luxury Fashion, Body and Identify Formation.” Journal of Consumer Psychology 20, no. 4: 459–​470. Verghis, Sharon. 2016. “Modern-​day Medici’s: Behind the Private Art Museum Boom.” Retrieved fromhttps://​www.theaustralian.com.au/​arts/​review/​modernday-​medicis-​behind-​the-​private-​ art-​museum-​boom/​news-​story/​fa2397ee49a1dc18a7ab971d9848be37. Vinken, Barbara. 2004. Fashion Zeitgeist:  Trends and Cycles in the Fashion System. New York: Berg. Weidemann, Klaus-​Peter, and Nadine Hennings, eds. 2017. Luxury Marketing: A Challenge for Theory and Practice. Weisbaden, Germany: Springer Gabler. Yohannan, Kohle, and Nancy Nolf. 1998. Claire McCardle:  Redefining Modernism. New York: Harry N. Abrams. Yotka, Steff. 2018. “A Brief History of Virgil Abloh’s Meteoric Rise” (2018). Retrieved from https://​www.vogue.com/​article/​virgil-​abloh-​biography-​career-​timeline

PA RT I V

DI ST R I BU T I N G LU X U RY

Chapter 16

De partment Store s a nd Luxu ry Bu si ne s s Rika Fujioka and Jouko Pitkänen

A successful luxury business needs to be able to build a strong brand with a marketing strategy that considers pricing and target segmentation, and it needs to create customer value. But beyond the customer relationship, it is also crucial to design an effective sales channel for its products. One of the world’s leading academics in marketing, Philip Kotler, has pointed to the importance of marketing channels, and observed that these must not just serve markets but also make them (Kotler and Keller 2005). Luxury brands design their marketing channels to reach customers effectively in various ways. Although they could sell their products in their own outlets and retain control over their sales channels, this often requires more financial resources than if they sell their products to retailers, who usually achieve superior access to luxury brands’ target markets due to their reputations and sales experience (Kotler and Keller 2005). Using retailers as intermediaries is therefore a useful option for luxury brands. This has meant that some luxury brands—​whose reputation was built on exquisite traditional craftsmanship, and who previously sold only to local wealthy customers—​began to move beyond this constrictive business model and develop their marketing strategies alongside those of department stores, which proved to be crucial sales channels. Department stores were seen as revolutionary retail innovations in the mid-​nineteenth century in France, the United Kingdom, and the United States. Pasdermadjian (1954) summarised these innovations through the example of Bon Marché. First, it sold its merchandise with a small mark-​up, a higher sales volume, and a more rapid stock turnover. Second, it offered fixed and marked prices. Third, it introduced the principle of free entrance to the store, with no obligation to buy anything. Fourth, it introduced the practice of returns and refunds. Capitalizing on the free entrance policy, department stores created incredible displays of merchandise to rival the great spectacles seen at world expositions (Miller 1981), and these attracted a much wider range of consumers to the store. As a result, this retail format expanded across the world, and department stores became one of the most suitable outlets to sell luxury products.

334    Rika Fujioka and Jouko Pitkänen Contemporary department stores can be large metropolitan establishments or smaller suburban outlets in shopping malls and include a variety of boutiques selling a wide range of mid-​priced to luxury merchandise. Luxury department stores have a cohesive space with high-​end and multibrand offerings, and these are the main sales channels for luxury brands. In Sybarite’s report, luxury department stores are defined by the estimated sales per square foot, which measures the financial productivity of space at each department store (Sybarite 2018). According to Bain and Company (2017), 23 percent of the luxury goods market was captured by department stores in 2016, although this dropped to 21 percent in 2017; department stores also lost their position as the second biggest sales channel for luxury products to speciality stores, which secured 22 percent of the market in 2017, behind luxury-​branded monostores with 30 percent. However, sales of luxury brands at department stores across the world grew by 1.36 percent between 2014 and 2017, while their sales of mass products decreased by 1.3 percent (Sybarite 2018). The retail market has seen a big wave of consumers with luxury aspirations in emerging countries, whose increased demand has fuelled the growth of luxury sales in department stores around the globe. The world’s most famous department store, Harrods, offers an excellent section of luxury brands and benefits from its reputation of being an expert in luxury brands as well as one of London’s well-​known landmarks. Its customers, now mostly from China and Southeast Asia, enjoy the high-​quality shopping experience at the store, and in 2017 Chinese nationals overtook the British to become Harrods’s biggest-​spending consumers. SKP in Beijing was once a shopping mall but has now been categorised as a luxury department store according to Sybarite’s definition and has become one of the world’s largest luxury department stores in terms of turnover and sales per square foot. A new generation of wealthy Chinese consumers are starting to buy more luxury goods in China itself, and department stores there are redesigning themselves to offer more engaging experiences to these newly affluent customers (Sybarite 2018). With increasing access to new markets and new customers such as people in China, luxury brands have developed and grown. According to Deloitte’s report, France’s luxury industry depends on tourists from all over the world for more than half of its €16 billion in revenue across all luxury sectors. Paris is the world’s top shopping destination, followed by London, according to four of the top ten global shopper nationalities, which includes Chinese and US citizens (Deloitte 2014). Department stores such as Harrods and Selfridges in London and Printemps and Galeries Lafayette in Paris have become tourist attractions. International consumers enjoy the experience of being surrounded by the iconic architecture of these world-​famous department stores and the convenience of shopping in a single luxurious environment with many different brands on offer. Department stores therefore provide something more than just the opportunity to buy things. Sybarite’s report cited the words of the founder of Selfridges: ‘a department store should be a social centre, not merely a place for shopping’ (Sybarite 2018). Department stores have had a major role in developing the luxury business, and they have extensive experience of being leading retailers. However, little scholarly attention has so far been given to the distribution channels of luxury brands and their features, which differ from market to market. This chapter, therefore, focuses on the relationship

Department Stores and Luxury Business    335 between luxury brands and department stores and investigates why and how department stores managed to keep their market share as a sales channel for luxury goods and how, from a historical perspective, department stores contributed to the expansion of the luxury market. This chapter is divided into two main sections. First, we present the relationship between luxury brands and department stores, both of which originated in the West, and show how together they developed and expanded the luxury market. Second, we take a look at the emerging luxury market in Asia, examine its changing features, and show the effect it has had on the global strategy of luxury brands. We conclude this investigation with several suggestions for future research.

Western Department Stores and Luxury Business Department stores were the world’s first modern retailers. Since the nineteenth century, department stores in Western capital cities such as Paris and London have impacted consumption and consumer behaviour through their innovative sales methods such as window displays, a one-​price policy, and a wide range of merchandise including clothing and household goods (Whitaker 2006). The arrival of department stores meant that for the first time, middle-​class consumers could join the upper classes in enjoying the experience of shopping (Williams 1982). As Rappaport pointed out in her investigation of Selfridges, this was the beginning of a new urban culture of shopping as a social leisure activity (Rappaport 2000). The first department stores were seen as the creators of a culture of consumer capitalism (Leach 1994), cathedrals of consumption (Crossick and Jaumain 1999; Miller 1981), and social institutions (Howard 2015). The visual display techniques used by nineteenth-​century department stores created symbolic new forms of consumption among their middle—​and upper-​class—​customers, as illustrated by Zola ([1883] 1928) in Au Bonheur des Dames. Consumers enjoyed shopping not only for the value of the goods themselves but also for the whole experience of being immersed in a luxurious world of galleries, chandeliers, ornate wall engravings, fountains, and pillars—​the whole environment was a symbol of luxury (Parker 2003). It was therefore the case that the establishment of department stores and the subsequent huge change in consumer behaviour served as a powerful foundation for the development of the luxury business.

Department Stores and Haute Couture Department stores initiated democratized luxury alongside the development of the fashion industry, which included haute couture. Department stores and haute couture appeared at roughly the same time in Paris (Brachet Champsaur 2012a, 2012b). For

336    Rika Fujioka and Jouko Pitkänen example, Aristide Boucicaut took part in the management of one of the first department stores, Bon Marché, in 1852. Charles Frederick Worth, who earned the title of being the ‘father of haute couture’, opened his own firm, the House of Worth, with a business partner in 1858 (Krick 2004). Both of these stores became extremely fashionable, and they were highly influential in expanding the fashion market through their targeted customer advertising. They achieved this by transforming their merchandise from low-​margin, low-​priced products to higher-​priced luxury products in order to transfer their target market to more sophisticated customers, as Malcolm McNair explained with his ‘wheel of retailing’ hypothesis (Hollander 1960; McNair 1958). By the 1930s, most Western department stores had homed in on the luxury market. Galeries Lafayette, for example, confirmed its positioning strategy toward upgrading by deciding to produce its catalogue in a more luxurious style in 1936 (Brachet Champsaur 2012b). Although the only access department stores had to couture houses before World War II was by attending their fashion shows, they were able to copy these couture designs to meet the demand of customers who wanted to wear the latest fashion designs. At the time, the trade association for haute couture had regulations in place to prevent the illegal copying of their designs; however, they allowed foreign buyers to buy several examples of a model for authorized reproduction. Harrods in London and Wanamaker and Lord and Taylor in the United States, for example, bought designs from Parisian couture houses along with the right to reproduce them, as long as copyright labels were included in each garment (Brachet Champsaur 2012a, 2012b; Pouillard 2008). As a result, haute couture companies could turn an easy profit from foreign stores, while their latest models became diffused across transatlantic countries. Harrods, for example, sold Chanel’s haute couture dresses from the mid-​1920s, as well as licensed products of Chanel designs made in the store’s own fashion workrooms; this included a coat that was an original Paris model and was copied exactly by the store’s own manufacturers.1 Harrods also bought the copyright to make and sell Christian Dior dresses and coats, which were included in the store’s 1950 spring fashion show.2 In 1953, Dior established C.D. Models (London) Ltd to manufacture new models under his close supervision, and he showcased the launch of his first British-​made ready-​to-​wear collection in Harrods’s newly opened Dior Room.3 Another leading department store in London, Liberty’s, also sent buyers to Paris to purchase couture houses’ patterns in order to reproduce them for its eager London customers. The store announced its new collection of Paul Poiret models in 1932: On May 2nd we are inaugurating A MODEL GOWN DEPARTMENT, when a fresh collection of new Models executed under the direct supervision of a Paris dress designer will be shown at extremely attractive prices and made in the well-​known Liberty materials. Our workrooms and, in fact, everything to do with our dress departments are being re-​organised. (Adburgham 1975, 119)

Department Stores and Luxury Business    337 Since this practice of selling reproduction rights was only available to foreign buyers, and French department stores were excluded from striking the same deals with couture houses, Parisian department stores instead hired their own designers and imitated certain styles of couture clothing. Meanwhile, during the interwar period, the haute couture industry began to develop in two different directions: one group focusing on tailor-​made clothing and another on ready-​made clothing. Department stores invested in the latter, and established the mass production of designer ready-​made clothing. This tied in with the new business model of French department stores, which had moved its focus from fabrics to ready-​made clothing. At Galeries Lafayette, for example, fabric and haberdashery products formed about 86 percent of their total sales in 1899; by 1930, this had decreased to about 30 percent, and sales of ready-​made clothing for women increased to 21 percent (Brachet Champsaur 2012b). In this way, as department stores developed and altered their retail format, they also created a new form of luxury consumption through an expanded clothing market that included Parisian haute couture and ready-​made clothing. Couture houses no longer solely determined the world’s fashion, as department stores themselves also became leaders of fashion and actively participated in the luxury market.

The Development of Department Stores and Luxury Brands After World War II After World War II, department stores continued to develop and grow in parallel with luxury brands. In the late 1940s and early 1950s, Bloomingdale’s in the United States, for example, attempted to change dramatically by focusing more on upscale and high-​ fashion merchandise in an effort to overturn its bad reputation as a bargain-​basement second-​rate retailer. To achieve this, Bloomingdale’s contracted a young designer, Ralph Lauren, to upgrade the store’s image. He first launched a men’s ready-​to-​wear line with a style that was fresh, innovative, and cosmopolitan but not avant-​garde. He soon moved on to women’s fashion, and within a short period of time he became the store’s best-​ selling designer and a highly successful entrepreneur. In this way, both Bloomingdale’s and Lauren succeeded in their aim to upgrade the image of the store and become leaders of fashion (Stevens 1979). Nordstrom was another department store that developed along with its fashion designers. Unlike its competitor Dillard, a centralized department store that dealt with a narrow core group of suppliers to make more efficient bulk purchases, Nordstrom, which had built its success on a one-​to-​one marketing approach with its customers, introduced a decentralized buying system in order to stock the products that its local customers wanted. Its buyers were responsible for a relatively small group of stores and had the freedom to purchase merchandise only for local needs; they were therefore able to give opportunities to small new suppliers who wanted to get their foot in the door by working with their local stores. The American designers Anne Klein and Calvin Klein

338    Rika Fujioka and Jouko Pitkänen were two such examples of small suppliers whose business contracts with Nordstrom launched their careers. Another was Donna Karan, designer of DKNY (which was run by LVMH between 2001 and 2016), who was quoted on the back cover blurb of The Nordstrom Way as saying that ‘their professional salespeople bridge the gap between the designer and the consumer. The Nordstrom way is what the ’90s are all about!’ (Spector and McCarthy 1995). Another significant movement was the rise of a large variety of fashion icons. American department stores, such as Hudson’s, held fashion shows with the Hollywood star Gloria Swanson, to promote her own brand of clothing in 1952 (Hauser and Weldon 2004). In the twentieth century, typical fashion icons were famous celebrities including Hollywood movie stars and European royalty, who enjoyed luxury brands as status symbols. Grace Kelly, Princess of Monaco and American film actress, was one of the most famous luxury-​brand fashion icons. She starred in the 1954 film To Catch a Thief, in which she had a Hermès bag that she completely fell in love with. When Kelly got married, her photograph with this bag was widely shared and it became known as the Kelly bag. Gucci was another example of this kind of aspirational brand, and has been a favourite among Hollywood movie stars since the 1950s (Moore and Birtwistle 2004). Giorgio Armani also shot to fame by working with celebrities, after starting his career at the Italian department store La Rinascente in charge of its window displays, then moving on to work with French fashion designer Emanuel Ungaro (Tsukada 2012). He established his own brand in 1975 and designed clothes for actor Richard Gere in the 1980 film American Gigolo. Since then, his designer clothes have appeared in more than two hundred films, and he became a regular designer for famous actors and actresses making red-​carpet appearances (Ahmed 2019). Consumers long to imitate celebrities, and luxury brands provided opportunities for consumers to grant themselves occasional gifts, as if it were some sort of democratic right to happiness (Chandon, Laurent, and Valette-​Florence 2016). Department stores also took advantage of this opportunity. In 1930, a leading American department store, Macy’s, became the first department store to offer film-​inspired fashion, selling items ranging from evening dress to casual wear at prices comparable to today’s moderate-​ to-​high fashion range of US$200 to US$500 (Reyer 2017). After World War II, this relationship between luxury-​brand designers and fashion icons became even stronger, and department stores turned a large profit by providing luxury products for mass customers who wanted to imitate their Hollywood idols. However, Western department stores introduced luxury brands into their stores at a slower pace than their Japanese counterparts. While Japanese department stores opened luxury-​brand boutiques in their stores in the 1970s, as discussed later, it was not until the 1980s when Harrods, for example, opened its first luxury-​brand counter of Chanel perfumery. Years later, in 1991, it established a Louis Vuitton boutique in its International Accessory Room, which was the brand’s first appearance at a department store in the United Kingdom; then later that year came the introduction of Ferragamo, Hermès, Loewe, and Gucci in the same room. In 1997, Harrods followed this with the establishment of a Chanel boutique with a ready-​made clothing collection, accessories, shoes,

Department Stores and Luxury Business    339 and watches in its International Designer Room on the first floor, which again was the brand’s first boutique in a UK department store and only its third outlet in London.4

Department Stores as Tourist Attractions As many studies have described, department stores have not merely been places to go shopping; by displaying a huge variety of products including luxury goods, and by holding exciting events and interesting exhibitions, they became seen as iconic social spaces and important city landmarks (Kashima 1991; Miller 1981). Due to their sheer luxury, some department stores such as Harrods and Galeries Lafayette became world-​ famous tourist attractions. These stores successfully deepened the engagement of their customers with the shopping experience and encouraged them to stay for longer. More customers began travelling across the world to buy luxury products, and more luxury brands extended their range of products. Luxury brands, including Burberry, Gucci, Armani, and Ralph Lauren, not only had clothing, perfume, and jewellery boutiques within department stores, but also launched their own in-​store luxury restaurants to expand their offering with exquisite food and drink experiences for their customers (Sybarite 2018). Department stores had become tourist destinations even before World War II. For example, Mitsukoshi, a leading Japanese department store, opened an overseas branch in colonial Seoul in 1906, and this Western-​style store attracted wealthy Korean customers in addition to the Japanese expatriates who were its main target. They enjoyed browsing new products from Japan and it became a landmark in Seoul and a symbol of a modern city (Fujioka 2019). Many high-​end Japanese department stores also welcomed overseas tourists after World War II. Takashimaya launched its outlet within the Paris department store Printemps in 1973, and its competitor Matsuzakaya did the same within Galeries Lafayette in 1978, as their Japanese customers preferred to visit Japanese department stores rather than Parisian ones, so that they could enjoy a familiar service and environment (Matsuzakaya 2010; Takashimaya 1982). Another Japanese department store, Daimaru, opened a branch in Hong Kong in 1960 to cater to Japanese tourists (Daimaru 1967). At this time, only Japanese department stores had focused on tourists as their target customers, and this targeting strategy led to an increase in sales of luxury products. Nonetheless, in 2016, Galeries Lafayette opened a ‘shopping and welcome centre’ at its flagship store annex for Chinese tourists, which stocked carefully selected products including luxury leather goods, accessories, souvenirs, and cosmetics; as much as 50 percent of its flagship store’s customers were foreign tourists—​especially from China, Russia, and the Middle East—​and they were a major source of profit (Yamakawa 2017). Overseas tourists enjoyed shopping at these department stores because they offered a one-​stop shopping facility for luxury products, for which they could also claim tax refunds. As tourist attractions, some other European department stores also began to

340    Rika Fujioka and Jouko Pitkänen cater to the needs of these overseas tourists, who had already experienced the democratization of luxury in their home countries.

Asian Department Stores and Luxury Business Nobbs, Moore, and Sheridan (2012) asserted that a flagship store should be large enough to have its complete collection on display, and that this should encompass a wide and deep range of products; the flagship store should also be at the top of the distribution hierarchy for luxury brands. Burberry, for example, has four different tiers of store: flagship stores, regular retail stores, boutiques within department stores, and factory outlets. Even so, Asian department stores, especially in Japan, have been the main and highest tier of outlet for luxury brands and were the only sellers of imported products before World War II. This section sheds light on the expanding process of the luxury market in Asia.

The Development of the Japanese Luxury Market As Fujioka (2019) and Fujioka and Stobart (2018) observed, department stores dominated the retail market in Japan since their inception. Japanese department stores made a major contribution to the Westernisation of Japanese society and led to the creation of an entirely new form of consumer culture in Japan. Leading department stores such as Mitsukoshi and Takashimaya stood at the forefront of Westernization before World War II. From 1905, Mitsukoshi imported hats and children’s clothing from France and the United Kingdom, in addition to cosmetics (Mitsukoshi 2005). Takashimaya had a representative office in Lyon from 1899 and started to import high-​end textile fabrics and ribbons in 1905 (Takashimaya 1982). They introduced Western lifestyle into Japanese market and sold Western products to their upper-​class and wealthy customers. After the postwar reconstruction, Japanese department stores introduced Western luxurious clothing. Daimaru, for example, struck a licensing agreement with Christian Dior and held fashion shows to exhibit Dior’s designs in 1953 (Daimaru 1967). In later years, Japan had become a more important market than the United States, in terms of diversity of its products (Okawa 2008). Takashimaya signed a contract with Pierre Cardin in 1959 and held fashion events in 1960 (Takashimaya 1982). But, these fashion shows focused on haute couture for wealthy customers, not affordable fashion for mass consumers. The democratization of luxury in Japan started with the licensing of prêt-​à-​porter clothing in the early 1960s, when Japan experienced rapid economic growth. In addition to the relationships between Daimaru and Dior and Takashimaya and Cardin, other department stores went on to negotiate licensing agreements with other upcoming

Department Stores and Luxury Business    341 fashion designers in anticipation of growing demand for licenced products, one after another: Matsuzakaya signed up with Nina Ricci in 1961, Mitsukoshi with Guy Laroche in 1963, and Isetan with Pierre Balmain in 1963. There was more than one way for department stores to approach luxury brands with offers of collaboration. Daimaru and Takashimaya, for example, had exclusive agreements with Dior and Cardin, respectively, in the Japanese market, and other companies had agreements that covered one specific category only, such as women’s clothing. Sanyo Shokai, a leading clothing company, made its own licensed agreement with Burberry in 1969. Sanyo Shokai and other Japanese manufacturers paid Western designers a licensing fee for their trademarks and logos and proceeded to produce many branded products in Japan by using the pattern-​cutting designs that were provided; in this way, they supplied Japanese department stores using the same strategy as their American counterparts. Pierre Cardin, for example, had licensing agreements with thirty-​two Japanese manufacturers, not only clothing companies but also companies producing bags, accessories, umbrellas, and shoes in 1983 (Yano Keizai Kenkyusho 1984). With these licensing agreements, department stores expanded their target customers to mass customers and subsequently increased their sales. This was the catalyst for the democratization of luxury in Japan (Fujioka, Li, and Kaneko 2018). In this way, Pierre Cardin made over 30 billion yen in sales of licensing products in 1983—​US$120 million with the exchange rate at the time (Yano Keizai Kenkyusho 1984). Pierre Cardin wrote an essay in the Japanese newspaper Nikkei Shimbun on 16 April 1996, saying that his company had expanded its business through licensing agreements with department stores from the beginning of the 1960s, not only at Printemps in Paris but also at La Rinascente in Milan, Selfridges in London, and Takashimaya in Tokyo; as a result of this business, customers could find the same clothing in fashion capitals such as Paris, London, and Tokyo. The mass media called this movement the ‘democratization of fashion’ (Cardin 1996). The enhancement of their new high-​end products brought increased sales for all department stores, and their total sales increased from 407 billion yen in 1960 to 1,824 billion yen in 1970 and 6,832 billion yen in 1985 (Japan Department Store Association 1998). However, the growing popularity of licensed products meant that fashion-​conscious consumers were no longer satisfied with this type of product and started looking for more authentic products directly from luxury brands. The business model of licensed products subsequently began to weaken in this maturing market, as the margin for licensed products was lower than for imported products (Donzé and Fujioka 2015). As a result, department stores and some manufacturers gradually terminated their licensing agreements with luxury brands in the 1980s.

The Unique Development of the Japanese Luxury Market The path from licensed products to imported products was unique to the development of the Japanese luxury market. In the 1970s, department stores in Japan strengthened

342    Rika Fujioka and Jouko Pitkänen their imported branded products rather than their licensed products, and some opened new sales areas that displayed imported luxury products from France, Italy, and the United States. In order to establish the supply route for imported luxury products to obtain the latest fashions from Europe, Mitsukoshi launched Mitsukoshi France S.A. in 1970 and opened its first Paris store in 1971, followed quickly by a second in 1973. It went on to launch a store in Rome in 1975, and then three more in London, Dusseldorf, and New York in 1979. These stores not only sold products but also served as overseas strongholds for purchasing. With its imported luxury products, Mitsukoshi hosted Tiffany’s first overseas outlet in 1972 and a special imported goods salon for Dunhill and Céline at its flagship store in Tokyo in 1975. Moreover, Mitsukoshi dramatically transformed the sales floor of its flagship store by creating twenty-​eight separate boutiques for imported luxury brands including Lanvin, Givenchy, Tiffany, and Courrèges in 1977 (Mitsukoshi 2005). It was also a time when luxury brands expanded their new overseas market in Europe by launching flagship stores. Yves Saint Laurent, for example, launched one in London in 1966, as did Céline in 1969 and Hermès in 1974. These flagship stores developed steadily and grew significantly from the late 1980s (Fernie et al. 1997). Louis Vuitton then experimented with opening franchised stores in the United States and Japan, but it soon abandoned this path in the 1980s because it could not maintain control over prices, invoicing currency, or stock levels at these stores. Instead, it introduced concessionary deals as a useful strategy for upscaling its products in department stores (Laulajainen 1992). Japanese department stores were good partners for concessionary deals. They had loyal customers with middle to high incomes, and their in-​store luxury boutiques gave them a competitive advantage by upgrading the department store’s merchandising and creating a luxurious atmosphere that made the store feel very special in the 1970s. At the time, Western luxury brands did not have suitable strategies for accessing the Japanese market by themselves. It was not easy even for world-​famous international luxury brands to open their own stores independently in Japan, since Japanese regulations made it very difficult for a foreign company to open a bank account and to rent a retail outlet there in the early 1980s. Department stores were therefore ideal business partners and an efficient route for luxury brands to enter the Japanese market; these stores could provide sales spaces throughout their chain stores in major cities all over Japan, introduce their loyal customers to the brands, and remodel their sales displays at very little cost. This was a very mutually beneficial relationship between Japanese department stores and Western luxury brands (Donzé and Fujioka 2015; Fujioka, Li, and Kaneko 2018). The macroeconomic environment—​ especially the strong yen against other currencies, which followed from the Plaza Accord on exchange rates in 1985—​boosted this expanding luxury market in Japan. It encouraged retailers dealing with imported products from the West to lower their prices, which then made it easier for Japanese customers to afford to buy them. Mitsukoshi, for example, reduced the price of 35 of its Tiffany products, which were direct deals with Tiffany in March 1986, and of a further

Department Stores and Luxury Business    343 633 products of other luxury brands in September of the same year by importing these goods via agencies (Mitsukoshi 2005). During the late 1980s, Japanese private final consumption expenditure (PFCE) increased from 190,763 billion yen in 1985 to 252,581 billion yen in 1990 (Cabinet Office, Government of Japan), and consumer confidence continued to rise until the economic bubble burst in 1991. Under these economic conditions, the Japanese luxury market expanded to encompass a younger generation—​ even teenage girls were buying Louis Vuitton purses—​and this further increased the democratization of luxury in the 1980s (Fujioka, Li, and Kaneko 2018). With the addition of these younger customers during the late 1980s and 1990s, Japan became one of the biggest luxury markets in the world. LVMH, for example, increased its sales at this time, and between 1991 and 1994 the largest proportion of these came from Japan. LVMH’s net sales by currency figures for 1990 show that its highest sales (26 percent) had been in French francs, followed by 23 percent in Japanese yen, and 21 percent in US dollars. Just a year later in 1991, the Japanese yen took over as the currency with the highest sales (28 percent), and it kept this top position for the next four years. In 1995, the French franc returned to dominate sales with 23.2  percent, while the Japanese yen dropped to a close second with 22.7  percent (LVMH 1990, 1991, 1992, 1993, 1994, 1995). During this period, department stores were consistently the main distribution channel for the luxury market in Japan; although there is little data to measure this, the Yano Research Institute estimated that the share of department stores in the imported luxury bag market was 69.7 percent in 1993 (Yano Keizai Kenkyusho 1994). However, the 1980s also saw the deregulation of the Japanese market, so after establishing their sales channels through department stores in Japan, luxury brands such as LVMH, Chanel, Hermès, and Richemont additionally began to open their own flagship stores in larger cities such as Tokyo and Osaka, using the same marketing strategies that are used all over the world. Chanel launched a Japanese subsidiary wholesale company in 1980, Louis Vuitton Japan was established in 1981, Hermès Japon in 1983, and Richemont Japan in 1989; Louis Vuitton opened its flagship store in Tokyo in 1981 and Chanel did the same in 1994. As a result, the share of department stores in the luxury market gradually decreased, although they still had 55.2  percent of the total luxury market in Japan in 2004, and 45.1 percent in 2017 (Yano Keizai Kenkyusho 2005, 2018). The distinguishing feature of the Japanese luxury market was its affordability, and this market grew as department stores expanded their target customers to include those with moderate incomes. As a result, sales in some categories such as bags and leather goods steadily grew from the late 1980s in Japan, and affordable luxury products such as keychains and purses became the driving force for the development of this market, even while other luxury products such as women’s wear and men’s wear decreased in sales during the economic recession in the 1990s. Department stores played a crucial role in seeing the huge potential of luxury goods and turning this into an affordable and successful market in Japan; this was made possible through their use of customer data and leading marketing strategies that built on their valuable experience of Japanese consumers (Fujioka, Li, and Kaneko 2018).

344    Rika Fujioka and Jouko Pitkänen In 1988, one magazine ran a feature story on Tiffany and advertised an affordable Tiffany ‘open heart’ necklace. Customers could preorder it from the magazine and buy it at Mitsukoshi, which had an exclusive contract with Tiffany in Japan. Although many Japanese people had seen or heard of the classic film Breakfast at Tiffany’s, they were not very familiar with Tiffany products, and this magazine article was a huge publicity boost for the brand and its affordable luxury items; as a direct result, Tiffany succeeded in hugely expanding its target market (Shiine 2014). Mitsukoshi was able to advise Tiffany on Japanese customer preferences and strongly contributed to the expansion of the affordable luxury market in Japan. Other luxury brands followed suit and also produced affordable products to meet the demand of young Japanese customers, allowing them a first step towards accessing their luxury stores. This affordable product strategy was mainly applied to Japan, and later to other Asian markets, but it eventually steadily expanded across the world.

Other Asian Markets Subdividing LVMH’s net sales by geographic region shows some clear geographic trends (see Table 16.1). First, sales in France—​where its main store and offices are located—​ gradually decreased. Second, sales in Japan also decreased while in the rest of Asia they soared. These figures may, of course, include sales from Western tourists visiting Asia, as well as Asian tourists visiting Paris. Still, in the late 1990s, sales in Hong Kong dollars and other Asian currencies began to grow, while those in the Japanese yen decreased (LVMH, 1995, 1996, 1997, 1998, 1999), it is clear that the Asian luxury market, including Japan, grew throughout this period. South Korea and Hong Kong had obvious potential early on in the development of the luxury market in Asia, and Japanese department stores led the way into these markets primarily in order to cater to Japanese tourists. Daimaru was the first to open a branch in Hong Kong in 1960, and Isetan and Matsuzakaya followed in the 1970s. By 1990, there were eleven stores of seven Japanese department companies in Hong Kong. Many tourists enjoyed shopping there, because prices in Hong Kong where was customs-​free place were generally lower than in Japan (Kawabata 2011). In the Korean luxury market, local department stores—​whose design and technology had been brought over from Japan—​were always key players. The Korean retail sector exhibited a higher market concentration of the three big firms, and department stores were the core business of their retail groups (Choi 2014). Department stores such as Lotte and Shinsegae dominated the market, and multiplied by expanding the range of their formats, including duty-​free shops for luxury brands. And this was in addition to being the main outlet for luxury brands; the sales of imported luxury goods at Lotte department stores showed double-​digit annual growth between 2000 and 2012 (Baek and Fujioka 2018). Lotte opened the first duty-​free shop in Korea on the eighth floor of its department store in Seoul in 1980, and went on to open its first duty-​free airport branch in 1999 at Gimpo Airport. At first, it mainly sold tobacco and alcohol, like Western

Department Stores and Luxury Business    345 Table 16.1. Net Sales by Geographic Region in LVMH (%) France Rest of Europe USA Far East

Other Markets

1990

19

25

14

37

5

1995

17

21

16

38

8

France Rest of Europe USA Japan Rest of Asia Other Markets 2000

16

18

26

15

17

8

2005

15

20

27

14

17

7

2010

13

21

23

9

25

9

2015

10

18

26

7

27

12

Source: Annual report (LVMH, 1990, 1995, 2000, 2005, 2010, 2015).

duty-​free airport shops at the time. But when Lotte launched its new branch at Incheon International Airport in 2001, it used its negotiating power to introduce luxury brands such as Hermès, Fendi, and Ferragamo, which it stocked across all its outlets in airports and department stores (Baek and Fujioka 2018). The Korean luxury market initially targeted Japanese tourists but gradually expanded to include Korean consumers, who were prospering with the country’s economic development that came in the wake of the Seoul Olympic games in 1988. Many Koreans tend to have high personal standards of grooming and embrace a desire to be fashionable, so they were highly motivated to buy luxury products—​typically small items such as sunglasses, wallets, and cosmetics—​with specific brand logos that they could show off as status symbols in public (Chadha and Husband 2006; McKinsey 2010). To further boost sales, department stores promoted these luxury goods—​from the more accessible products to the most exclusive high-​end items—​to their customers through their loyalty card programme (Baek and Fujioka 2018). China became one of the largest luxury markets in the world, as a new group of nouveaux riches emerged along with the country’s economic development, which began growing in the 1990s. According to Bain and Company (2017), sales in mainland China grew to a total market size of €20 billion in 2017. Overseas sales by Chinese nationals also increased tremendously, and the global share of personal luxury goods purchased by Chinese nationals reached 32 percent in 2017. Department stores were also the main outlets for luxury brands when they first broke into the Chinese market, and this proved very successful until around 2010. However, Chinese high-​end consumers became more discerning. They wanted to drive their Mercedes Benz to the luxury mall, park in the basement, take the lift up to the first floor, spend a lot of money at Hermès and Chanel, enjoy a nice meal or a coffee, and leave. Chinese department stores no longer offered this level of modernity and convenience, and shopping malls began to overtake them in popularity (Coghlan 2011). Wealthy Chinese consumers often perceive luxury products as symbols of success, wealth, and status (Zhang and Kim 2013). Their incentive to purchase a Louis Vuitton

346    Rika Fujioka and Jouko Pitkänen bag or a Rolex watch may not be due to personal taste but rather to the perception of certain social circles in which it is necessary (Zhan and He 2012). So the fact that department stores were not as exclusive as they once were meant that their new image affected consumer behaviour, and wealthy customers began to shop in the more luxurious shopping malls. Luxury-​brand stores began to benefit significantly from the upscale image of shopping malls, with their improved atmosphere and better service (Chebat, Sirgy, and St-​James 2006). So, by opening up their stores to make them accessible to more people, department stores were unable to hold onto their wealthier customers, and their strategic positioning within the Chinese luxury market began to fall behind these new luxury shopping malls. In Thailand, department stores and shopping malls are also the main outlets for luxury brands. These retailers have been developed to lure international tourists. Japanese consumers, for example, travel to Thailand to buy Louis Vuitton bags, as the huge popularity of these products in Japan led the brand to limit their availability there in order to maintain their exclusivity (Mandhachitara and Lockshin 2004). However, today more than 80 percent of Thai department stores’ customers are domestic. A leading department store, Central Chidlom, run by Central Group, is always the first to launch new products and brands and manages to keep its competitive edge, while shopping malls such as Siam Paragon are seen as newer and trendier places for younger Thai consumers (Suwanmongkol and Tocquer 2007). In China and Thailand, department stores are one of the main outlets for luxury brands, due to their comparable levels of economic development with Japan, Korea, and Hong Kong. Even so, the impact of department stores in China and Thailand was totally different from that in the Japanese market. When the Japanese luxury market expanded in the 1970s, department stores were the only suitable retailers that could sell luxury products. However, when the Chinese and Thai economies had developed sufficiently for luxury brands to penetrate their markets, both department stores and shopping malls were able to sell these brands. Since they were in competition from the start, shopping malls then grew to become even more luxurious places in terms of the atmosphere and shopping experience than traditional department stores.

Conclusion This chapter has demonstrated the relationship between department stores and luxury brands from a historical perspective. By looking at Western and Japanese department stores, it has emphasized that department stores have had a major role in developing the luxury business. As Mhatre, Joo, and Lee (2014) pointed out, the retail business is very sensitive to economic cycles; during an economic boom, consumers will have higher incomes and spend more money on luxury goods than inferior goods, so luxury products have high elasticity of demand. Asia’s economic development led to widespread income growth and an increased demand for luxury products, which allowed the democratization of luxury products. As a direct result, luxury markets have been

Department Stores and Luxury Business    347 expanding in emerging countries such as Japan, South Korea, and China, and the main battleground has now moved from West to East, with a particular focus on China both in terms of domestic sales and sales to Chinese tourists in the West. This transition also corresponded with the transformation of the dominant retail format from department stores to shopping malls. When department stores in the West introduced luxury brands into their stores, this retail format was positioned at the high end of the market in the retail industry. When luxury brands then moved over to the Japanese market, department stores were the dominant retail format and the only ones that could host these brands. When the ‘wheel of retailing’ revolved, many department stores—​especially in Asian countries other than Japan—​became vulnerable to the more advanced shopping malls, due to their more luxurious spaces and their competitiveness in the retail industry; however, Western department stores are still important outlets for tourists, as they provide a variety of luxury products and are ideal shopping destinations to enjoy one-​stop shopping. In conclusion, although department stores were crucial outlets for luxury brands and had a hugely important role in the growth and development of the luxury industry, their future depends on their ability to sustain their competitiveness in the retail industry in their current retail format. More investigation is needed in this area of research. First, it seems necessary to analyse the competition between department stores and shopping malls from the perspective of the luxury industry, which might relate to consumer behaviour and cultural issues; a cross-​analysis of retail formats and consumer perspectives remains unstudied. Second, this chapter has only focused on several markets in the world that have established department stores. Some markets, such as the Middle East, have familiar shopping malls that have flagship stores rather than sophisticated department stores. New luxury markets need to be investigated from the perspective of shopping tourism. Although it is difficult to determine the exact size of shopping tourism, it now has a significant impact on the luxury market (Brochado et al. 2019). Finally, retail development must be further studied to shed light on what might become the next prominent outlet for luxury brands.

Notes 1. 2. 3. 4.

Harrods archive ref. HL/​ADV/​CAT/​FAS/​01/​18. Confirmed by photographs in the Harrods Company Archive. Harrodian Gazette, March 1953, Harrods Company Archive. Harrods Bulletin, 23 July 1991 and 15 January 1997.

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Chapter 17

The Strategi c Va lu e of t he Mono-​B ra nd Store f or Eu ropean Lu x u ry Fashion Bra nd s Christopher M. Moore and Stephen A. Doyle

‘The objective in the boutique (Chanel) is to deepen the relationship that we can have between the customer and the fashion advisor. We try to better anticipate the visit to the boutique; we try to give them (customers), as much as possible information that they want to see in the boutique; that is becoming more and more important. In fact, we realise that customers of today, they want to understand more about the brand, they want to see the “behind the scene” of what we are doing. They want to better understand what we are doing’. —​Bruno Pavlovsky, Fashion President, Chanel. Interview: Monocle Radio, 9 March, 2019

This statement from Chanel Fashion President Bruno Pavlovsky illustrates the important, and ever-​expanding role, that the luxury fashion boutique or (mono-​brand store) plays in the formation and negotiation of the customer–​luxury fashion brand relationship (Gnecchi and Ricotti 2000; Liu et al. 2016). More than just a place of transaction, the mono-​brand store provides a critical space for ‘seeing behind the scenes’ in order for an exchange of values, information, and understanding to happen between luxury brand and consumer. In order to secure this new form of relationship, luxury brands are widening access for consumer scrutiny while increasingly centralising operations

354    Christopher M. Moore and Stephen A. Doyle in order to maximise control over all aspects of their brand positioning across national markets (Aiello et al. 2018; Bai, McColl, and Moore 2018). Recent market studies have identified that rather than undermining or limiting the importance of the mono-​brand store, the advent of the digital age has instead reshaped and extended its purpose within the luxury fashion sector (Martino et al. 2017; Martino et al. 2016). Although it is the case that online channels now account for a significant portion of the total sales achieved by luxury fashion brands (Bain and Company, 2019), the largest contribution is still derived from mono-​brand stores within international markets (Masè and Silchenko 2017; Mir-​Bernal, Guercini, and Sádaba 2018). International market participation is now an established feature of the luxury fashion brand’s business model, and as Alexander and Doherty (2009) identified, the relationship between the internationalising retailer (described as the principal in the international marketing channels literature) and that of the management responsible for the operation of the luxury brand’s business within foreign markets (described as the agent), is the one most critical to the internationalising luxury fashion brands’ success (Brun et al. 2008; Checchinato, Hu, and Vescovi 2013; Jiang and Nagasawa 2012). A number of studies have examined the principal–​agent relationship in international retailing channels as a means of better understanding the mechanisms for effective transnational retailer brand management. However, there has been very little account of the formation or nature of that relationship within either the fashion or the luxury retailing sectors. In order to advance understanding of how internationalising retailers effectively secure the implementation of their corporate intentions within disparate foreign markets, researchers have called for a fuller consideration of how channel principals drive and determine the achievement of their strategic objectives and corporate intentions within their relationships with internal and external international partners. Therefore, the aim of this chapter is to examine (singularly and specifically), from the perspective of the principal actor in international luxury fashion companies, the strategic value of the mono-​brand store, specifically as a means of communicating luxury-​ brand identity and distinction within international markets. Drawing from frameworks provided by institutional theory and agency theory, the chapter will interpret the mono-​ brand store as a device developed to deliver the will and intention of the principal with respect to communicating brand dimensions in the luxury-​fashion-​brand international network. Directly controlled (and usually company-​owned), mono-​brand stores are the operating format favoured by the leading European luxury fashion stores (Kurtulus and Ertekin 2015). It is important to note, however, that the selection and reliance upon the mono-​brand store format as the primary channel of distribution for these firms are a relatively recent occurrence. As has been identified by Doherty and Alexander (2014), from the late 1890s until the mid-​1960s, the international distribution of luxury goods (essentially haute couture, perfumes, and accessories) was driven by sales in the department stores located across the capital cities of the world. As an arbiter of good taste for the affluent customer, the department store served as an effective and efficient

The strategic value of the mono-brand store    355 access mechanism for luxury goods for almost a century. However, from the late 1960s onwards, department stores have faced a steady and significant decline in terms of both their economic and their influencing power within most major markets. In tandem with the demise of the department stores, the scale, complexity, and market power of luxury-​brand companies increased significantly. Arguably, the most significant manifestation of this change in market power was the shift by luxury-​brand companies from a third-​party department store reliance in favour of direct forms of market investment achieved through the opening of mono-​brand stores. From the mid-​1980s in particular, European luxury brands invested heavily in mono-​brand stores and did so at a significant rate until the financial crash of 2008. As Moore and Doyle (2010) identified, direct foreign market investment in the form of mono-​brand stores remains an essential element of the business models of the leading luxury-​brand conglomerates. For example, within the fashion and leather goods division of LVMH, the conglomerate’s seventeen houses operate approximately 2,000 mono-​brand stores across the world. (LVMH Annual Report 2019). Considering the significance of mono-​ brand stores at individual brand level, Gucci (owned by Kering) operated just over 480 mono-​brand stores worldwide in 2019 (Kering Annual Report 2019). Consequently, the mono-​brand store has been the predominant distribution channel for the majority of firms in this sector throughout the second half of the twentieth century. And whereas in the twenty-​first century, the advent of digital selling channels has served to significantly challenge the distribution sales mix for most luxury fashion brands, retail stores still retain their significance and remain strategically valuable for the vast majority of European luxury fashion companies. Mindful of the significant (and ongoing) importance of mono-​brand stores within the context of European luxury-​brand distribution, the chapter seeks to provide a definition of the mono-​brand store in terms of its purpose and function within the international distribution network of European luxury fashion brands. Thereafter, through the utilization of institutional and agency theories, the chapter will seek to locate, understand, and advance the strategic value of the luxury mono-​brand store within the international distribution system from the perspective of the brand owner–​channel principal.

Towards a Definition of the Mono-​ Brand Store (in the Luxury Fashion Sector) The international business studies literature has taken minimal account of the transnational expansion of fashion retailers (Moore and Doyle 2010), far less that of the nondomestic expansion of luxury fashion businesses (Bai et al. 2018). Consequently, consideration and understanding of the role and function of the mono-​brand store in the international luxury fashion distribution system remain partial and incomplete.

356    Christopher M. Moore and Stephen A. Doyle This does not mean, however, that mono-​brand stores have been totally ignored in the literature. Hollander (1970), in his seminal work Multinational Retailing, was among the first scholars to establish a regular use of the term ‘mono-​brand store’ within the academic literature. Hollander identified five ‘types’ of internationalising retailer as follows: dealers in luxury goods, general merchandise retailers, specialised chains, trading companies, and direct selling and automatic vending firms. From this categorisation, he identified that the principal mechanism for distribution used by the ‘dealers in luxury goods’ (unlike that of the other categories of internationalising retailer) was the mono-​brand store. Hollander argued that this was the preferred operating format for premium–​luxury goods sellers because of the high degrees of control that the format offered for the internationalising retailer. Hollander asserted that central control was essential for the enhancement of company perceptions, and it offered firms the opportunity to develop and maintain the exclusivity, uniqueness, and prestige of the luxury brand. In a subsequent work, Hollander and Omura (1989) proposed that the mono-​brand store was the preferred institutional format for internationalising luxury brand owners since it served to protect against operational and reputational risk and assured maximum profit retention within corporate operating systems. Furthermore, it was their proposal that the mono-​brand store was a highly efficient instrument for the direct and full implementation of corporate intent with respect to trading methods, customer service policies, and the creation of a brand identity.

A Device for Exclusivity and Market Positioning After Hollander, the international distribution literature took minimal account of the foreign market expansion of luxury brand owners. Throughout the 1980s and 1990s, the majority of studies focused instead upon the dominant transnational food retailers (such as Walmart and Tesco), alongside the internationalising ‘category-​killers’, such as Ikea, Toys R Us, and Carrefour (Wrigley, Coe, and Currah 2005). An exception to this research neglect was the seminal article written by Laulajainen (1991), which made a forensic examination of the global expansion of Louis Vuitton. Laulajainen proposed that the mono-​brand format had significant strategic value for Louis Vuitton, most notably in terms of promoting and communicating the exclusivity credentials of the luxury fashion brand. Firstly, Laulajainen proposed that the mono-​brand format provided an efficient mechanism for incremental international market development, derived mainly through the creation and development of customer demand at a localised centre. Secondly, and as importantly, he proposed that the format enabled the effective development of a luxury-​brand universe, within which the Louis Vuitton brand could be fully articulated and new product categories could be introduced, tested, and (where successful) further developed (Moore, Fernie, and Burt 2000). Since the early 2000s, a strengthening literature stream, focused upon the luxury sector, has finally emerged (Chevalier and Mazzalovo 2008; Radon 2012). In their

The strategic value of the mono-brand store    357 analysis of the scope of research publications in this period, Liu et al. (2016) provided a comprehensive review of a number of studies that claim that the function of the mono-​ brand store is to establish, promote, and retain the exclusivity credentials of the luxury brand and to communicate luxury positioning through the provision of a superior consumption experience, the delivery of high customer service standards, and the context of a high-​grade store environment (Nierobisch et al. 2017).

The Flagship Store: The Mono-​Brand Store Pinnacle Recent studies have focussed upon the geography of luxury brands’ international market expansion, and a fuller consideration has been given to the form and function of the distribution channels used within these markets (Godey et al. 2016; Moore and Doyle 2016). Significant within this context has been the explicit focus upon the luxury fashion flagship store. This has been driven by the predominance of the flagship format as a highly visible driver for international expansion by luxury fashion brands in terms of their number, cost, scale, and cultural impact (Dolbec and Chebat 2013; Jelinek 2018; Manlow and Nobbs 2013). Attendant to discussions of the financial significance of the luxury fashion flagship has been consideration of their design and architectural features (Manlow and Nobbs 2013) and their premier locations (Arrigo 2015), as well as the role that these play in serving as a conduit for connecting the luxury brand with high art and culture (Jelinek 2018) as well as the contribution of the flagship to the development of brand awareness and loyalty within new foreign territories (Bai, McColl, and Moore 2017). Fionda and Moore (2009) recognise that the luxury fashion flagship store exists as the pinnacle of luxury-​brand distribution, but they argue that these stores must, nonetheless, be recognised and classified as a form of the mono-​brand store format (Godey et al. 2012). And although it may be the case that a luxury fashion flagship may house a variety of subbrands from within the luxury firms’ portfolio, as is the case for the Armani Flagship stores in Milan and New York, which bring together all the Armani brands into one coherent shopping experience, stores such as these still operate within the framework of the overarching, single luxury-​brand identity system (Amatulli and Guido. 2012; Caniato et al. 2011). Consequently, Moore and Doyle (2016) argued that the luxury flagship store is the most advanced and enhanced version of the mono-​brand store. Like the typical mono-​brand store, flagships carry a single brand of (luxury) product and, in the majority of cases, these are owned by that brand principal (often the brand manufacturer) (Carmignani and Zammori 2015). However, they also proposed that there is a significant difference in the flagship version of the mono-​brand store in that these operate, at least in part, to enhance and support the status and standing of the luxury brand rather than selling the luxury brand at a profit (Bonetti, Perry, and Fernie 2017). Likewise, Dolbec and Chebac (2013) maintained that the principal function of the luxury fashion flagship stores operates with the intention of reinforcing the brand rather

358    Christopher M. Moore and Stephen A. Doyle than selling a product at a profit. Recognition of the brand-​supporting and -​enhancing value (as opposed to profit-​led, product-​selling value) of the flagship store has also been identified in numerous other studies, such as Godey et al. (2016) and Bai et al. (2018). The luxury flagship has been described as a brand embassy that represents the meaning, value, and intention of the brand to a variety of relevant audiences within specific territories and target markets (Hu and Checchinato 2015). The ambassadorial function of the flagship was developed by Moore at al. (2010) with a view to expressing the important role that this format plays with respect to informing, supporting, and influencing channel intermediaries (such as department store stock persons), and market influencers (including the fashion press but also social media influencers), as well as end customers (Mola and Russo 2016). Within the context of the direct distribution networks operated by luxury fashion brands, flagship stores are not prolific in number. Lui et al. (2016) noted that this format typically accounts for less than 10 percent of the total number of retail outlets operated by the luxury fashion business. Given their relative scarcity, the Lui study identified that decisions relevant to their location and setting are made judiciously and are driven by the desire to materialise strategic advantage within an important city location. For example, the French luxury fashion house Givenchy opened its first flagship store in London in December 2018. The fashion media has reported that the decision to open the flagship was driven by the brand’s desire to exploit the advantages associated with the fact that Givenchy Creative Director Clare Waight Keller designed the wedding dress for Meghan, Duchess of Sussex in May 2018. Joining the small cluster of Givenchy flagship stores in Paris, Milan, Tokyo, and Seoul, the new London flagship store also connects to Waight Keller’s British heritage. Shannon (2018) reported that Givenchy’s CEO Philippe Fortunato’s decision to open this flagship was because ‘London is one of these international cities where you want to have a strong statement because it’s a fashion capital of the world  . . .  where the trendy, fashion savvy customers are gravitating  . . .  it’s a must-​ have retail destination’. Based upon the evidence from the literature, it appears a reasonable proposition that the luxury flagship store is a distinct and particular form of the mono-​brand store format and one that is distinguished by a clear brand-​building purpose (Chevalier and Mazzalovo 2004). More recent studies, however, have challenged the assertion that all luxury flagships do not contribute to brand profitability (Atwal and Bryson 2014; Borney 2014). As more luxury fashion brands adopt digital selling platforms (with luxury brands, such as Gucci and Prada, reporting that their digital store is now their most important single outlet in terms of sales), Bai et al. (2018) have argued that it is no longer financially prudent (or justifiable) for luxury fashion brands to retain flagship stores that do not make any clear financial contribution (Aiello et al. 2015; Massimiliano 2010). However, given that luxury fashion brands do not share details of the financial performance of individual stores (including that of flagships), it has been argued that it is impossible to make any legitimate claim about the specific financial performance levels of these outlets (Yang 2012). Conversely, Donzé and Wubs (2019) propose at the firm level through their close analysis of luxury-​brand performance that it is possible to observe a

The strategic value of the mono-brand store    359 strong correlation between the development of retail sales (mono-​brand stores) and the increased levels of profitability that can be secured.

The Localised Brand Experience Space Mono-​brand stores have received much less frequent consideration in the literature and the term is used interchangeably with boutiques and stand-​alone stores (Godey et al. 2016), and references to mono-​brand stores have tended to rely upon an implied understanding of their dimensions and scope. With respect to defining the parameters of the mono-​brand concept, Manlow and Nobbs (2013) described mono-​brand stores as single-​brand-​experience spaces designed to signal brand distinctiveness and uniqueness. Examining, in particular, the mono-​brand experiences created and curated by French luxury brands across international markets, their study identified that mono-​ brand luxury stores served to transmit at the local market level, a contrived representation of a French way of living, consciously constructed from both explicit and implied references to Parisian art, culture, and fashion identity (Masè and Cedrola 2017). The connection between constructed luxury retail environments and representations of an idealised Parisian aesthetic was earlier documented in the work of Bourdieu and Delsaut (1975). It was their proposition that French haute couture businesses invested extensively in prestigious real estate, respected antique furniture and art, as well as high-​ quality store dressing in the form of flowers, carpets, and ornamentation, in order to establish a prestigious and heightened brand reputation. Their work notes that haute couture salons served to represent the epitome of high Parisian culture and a representation of an idealised and revered way of living.

Strategic Financial Revenue Streams Assuming a broader consideration of the luxury mono-​brand store format, it is clear that these outlets are highly important both numerically and also in terms of the sales that these can generate (Mosca, Bertoldi, and Giachino 2015). Furthermore, mono-​ brand stores are important in terms of their geographic spread (Bertola and Colombi 2014). For example, Table 17.1 illustrates the importance of mono-​brand stores for the Prada Group in 2019. These stores contributed 82 percent of total sales for the company and direct market presence in seventy-​six countries. Increasingly, the literature also recognises that even though the fundamental role of the luxury fashion mono-​brand store is to sell products profitability, it is also a requirement that these operate as experiential spaces that reflect and augment the identity and distinctive positioning of and for the brands that they represent (Massimiliano 2010). As Godey et al. (2016) reported, the mono-​brand luxury store represents a lived brand experience and offers an augmentation to the brand by making explicit and clear the heritage, values, and representational dimensions of the brand entity (Brun and

360    Christopher M. Moore and Stephen A. Doyle Table 17.1. Prada Group, 2019. Company Profile. Total Direct Operated Stores Flagships: 11

620

Mono-​brand: 609 Percentage of Sales Countries

Retail: Flagship + Mono-​brand Stores 82% Wholesale

18%

Flagship Stores

6

Mono-​brand Stores

70

Castelli 2008). The experiential and communication codes that are embedded in the luxury mono-​brand store are extensive and complex and extend from micro-​locational choices, to the commissioning of specific architects and the store design and visual merchandising schemes that are used (Bonetti 2014). Moore and Doyle (2010) proposed that Prada, with the establishment of their first Epicentre stores in Tokyo, New York, and Los Angeles, sought to extend the reach and purpose of their mono-​brand stores to become places of cultural significance while also serving to elevate and differentiate the Prada brand to be perceived and understood as being more than merely a luxury fashion brand. In line with the trend by luxury brands to engage internationally respected architects to design their flagship stores, Prada engaged Rem Koolhass (an internationally recognised architect known for his Avant Garde approach) to create a new generation of statement Prada stores. To secure the realisation of each of the Epicentre stores, unprecedented levels of capital investments were needed which were, and remain, unprecedented in the luxury market. Moore and Doyle (2010) argued that the debt burden generated by the development of the Epicentre store concept had a significantly detrimental impact upon the financial stability of the Prada Group for at least a decade after the opening. Notwithstanding the negative financial pressures associated with their development, Prada’s Epicentre store concept was and arguably remains the most radical manifestation of a luxury-​brand commitment to utilising the store environment and experience as a device for intellectual, cultural, and artistic expression. Not all of Prada’s stores are intended to have such heightened meaning and function. Nevertheless, it is clear that the company does seek to harness a strategic advantage from its mono-​brand distribution chain. For example, in its company profile (effective from March 2019), Prada provided a succinct overview of the strategic significance of its directly operated mono-​brand stores, as follows: Throughout the years, the Group has expanded its distribution network counting, as of December 31st, 2018, 634 Directly Operated stores in the most prestigious locations of the main international shopping destination, consistently with the image, heritage and exclusivity of each brand. This extended network is an actual asset for the Group,

The strategic value of the mono-brand store    361 as it represents an important showcase for the launch of new collections as well as an essential vehicle to establish a contact with customers. Stores transcend their primary function of selling serving also as an important tool of communication and customer assistance. They consistently narrate the image of each brand and allow a continuous dialogue as well as providing services that protect products’ quality and durability over time. (9)

Summary Definition By assimilating (and summarising) these varied perspectives, the mono-​brand store can be described as a critical trading format that privileges support for product selling to provide strategically important financial revenue streams (Forêt, Philippe, and Gerard Mazzalovo. 2014). Flagship stores are the pinnacle of the mono-​brand hierarchy. Collectively, through the visual and service experiences that these outlets provide, the exclusivity and market positioning of the luxury fashion brand are supported and reinforced. Finally, as is clearly articulated in the excerpts provided by Chanel and Prada, the mono-​brand store is also an important corporate asset that, at a particular and localised level, serves to establish and cement the brand–​customer relationship.

Agency Theory and Institutional Theory: Consequence for the Mono-​Brand Store The conceptual basis for this chapter is placed within the domains of agency theory and institutional theory and the selection of each theory is justified on the basis that the literature recognises that the internationalisation of retailing is essentially the internationalisation of intangible assets, notably in terms of know-​how forms relevant to retail formats, product development, and brand experience creation. Intangible assets, as in the form of knowledge relevant to the diverse operations inherent to the running of a mono-​brand format, are challenging to develop and protect perfectly. With respect to protection in particular, it is important to note that in some jurisdictions, such as the US market, trademark law does extend beyond legal protection of brand livery and logos to afford legal protection of interior design schemes, and the law is particularly concerned with the protection of those schemes that are linked to the representation of a retailer’s trading identity (Gorman 2017; Nurghai 2002). The challenge of achieving protection is even more acute within international retail markets. Alexander and Doherty (2009) proposed that international retail expansion was inextricably linked to the effective transfer of information between principals and agents. Consequently, a significant challenge for the internationalising principal is the

362    Christopher M. Moore and Stephen A. Doyle avoidance of disruptors to the transfer process (such as in the form of complex regulatory, economic, social, and cultural structures) or the actions of self-​interest on the part of agents managing within international markets. As noted by Doherty (2011), agency theory is based upon the concept of the principal–​ agent relationship. Principals represent a person (or persons) who is in control of a set of economic assets derived from a form of ownership. Doherty describes how principals, de facto, delegate day-​to-​day control of the assets to agents who then operate these assets on the principal’s behalf. Drawing from the standard theory of the firm, agency theory represents a separation of ownership from control—​with shareholders representing the principals and managers as the operating agents in the relationship. The main challenge associated with the principal–​agent relationship is that of information transfer, and specifically what Jensen and Meckling (1976) defined as the problem of information asymmetry. Agents, who have day-​to-​day control of the company, have a detailed knowledge of its operations. In contrast, principals usually do not have access to localised information, and even if they did, in many instances it would be highly likely that they would not be able to interpret the information in a meaningful way. Consequently, there is a significant likelihood of goal conflict between both sides and a difference with respect to risk preferences between the two parties. In itself, information asymmetry is not a problem for the principal–​agent relationship. It only becomes such when combined with moral hazard—​such as when the agents operate in their own self-​interests against the objectives of the principals. Fully aware of the potential for both moral hazard and information asymmetry to place the principal at a severe disadvantage, Doherty (2011) proposed that the principal requires an effective mechanism to control agent behaviour. Arguably, the most effective mechanism for doing so is to deploy systems for close agent behaviour monitoring. An alternative is to ensure the alignment of the agent’s interests with those of the principal through the implementation of appropriate incentives. Mindful that these monitoring approaches are likely to be both expensive and complex to achieve, there have been calls for further research in order to understand the mechanisms by which principals manage the challenge of information asymmetry and moral hazard. As a precursor to such studies, institutional theory provides a frame for understanding the corporate devices that shape contemporary international luxury marketing practice. Defined by a seminal article by Meyer and Rowan (1977), institutional theory has served as the basis for a proliferation of articles and studies that seek to provide organisational analyses based upon an institutional perspective. Meyer and Rowan (1977) proposed that institutional theory examines the processes and mechanisms by which structures, rules, ways of working, and corporate routines result in the establishment of authoritative guidelines for social behaviour within organisations, both domestically and internationally. Scott (2008) identified three pillars which form the basis of legitimate authority on the part of the principal within the internationalising relationship: regulative, normative, and cultural cognitive. Defined in broad terms, regulative systems depend upon the availability of a legitimate and superior state, derived mainly from a position of power. Consequently,

The strategic value of the mono-brand store    363 coercion is a key control mechanism. Correspondingly, normative systems relate to those values and norms that impose (achieved mainly through an expression of corporate culture) constraints on organisations that determine behaviour expectations and protocols. The third pillar, the cultural cognitive, is concerned with establishing a standard and norm with respect to the way things are done within an organisation—​the essence of which is a sense of ‘taken for grantedness’ in terms of norms and expectations of behaviour. By combining agency theory (as a prism for understanding the delegation of ownership, control, and risk within international retailing channels), alongside the three pillars of institutional theory, it can be proposed that within the international system of the luxury fashion company, the function and purpose of the mono-​brand store is to serve as a conduit for legitimate authority on behalf of the brand owner (the principal). Ostensibly, the mono-​brand store serves as a device of regulation; it imposes standards, expectations, and requirements with respect to the positioning and delivery of the luxury brand. Similarly, the mono-​brand store may also operate as the means of establishing a normative system, through the methods of centralised control, determining a standardisation of beliefs and behaviour across the international chain in order to shape and control the modes and methods of behaviour of the subordinate actors involved in the system.

Relaying the Principals’ Message in the Mono-​Brand Store The literature has clearly established that the luxury fashion mono-​brand store plays a crucial role in supporting the brand’s narrative; in effect, it serves as a pivotal communication asset. Yet, while this function is readily acknowledged in the literature, there is a lack of detail with respect to how this is achieved between principals and agents within international markets. Veg-​Sala and Roux (2014) assert that the mono-​brand store is central to the meaning system of the luxury brand and they propose the need for attention to be given to how the principal determines the delegation of brand execution to internal and external agents within international markets. Likewise, Bai et al. (2018) suggested that the defining and legitimising dimensions of the luxury brand are expressed and articulated to agents and then to the consumer market through the interconnected dimensions of the luxury mono-​brand store as determined by the internationalising principals. As such, they called for closer attention to be given to the means by which the principal determines the way in which these stores can serve to articulate, validate, and make tangible the luxury-​brand narrative through the application of regulative, normative, and cultural cognitive dimensions.

364    Christopher M. Moore and Stephen A. Doyle

Researching the Principal’s Perspective on the Mono-​Brand Store A series of extended interviews with the owner–​managers (in effect, the principals) presenting eight luxury fashion companies was undertaken in Autumn 2018. The research participants acquired the role of principal from a number of sources, such as being the founder or, after acquisition (sole or major), the shareholder of the company or as a result of inheriting the company. Unquestionably, because of their public profile, personal wealth, and market influence, this is a distinctive group of research participants. The research methodology literature readily recognises the significant challenges associated with the undertaking of primary research with elite and high net worth (HNW) individuals (Bell et al. 2018; Robson 2011). Of particular significance is the difficulty associated with the recruitment of elite, hard-​to-​reach research participants. Consequently, there is a clear consensus in the research methodology literature that clearly affirms the use of ‘chain-​referral sampling’ technique for participant recruitment. Sometimes referred to as ‘snowballing’, the technique involves existing study subjects recruiting future subjects from among their relevant acquaintances. As a requirement of participation, all interviewees were required to be 1. The principal actor in a luxury fashion business; 2. The principal actor who has been in the position for at least two years in the luxury fashion business; and 3. The principal whose luxury fashion business must operate mono-​brand stores in at least two international markets. The first interviewee, the controlling shareholder in a French luxury fashion accessories company, was an established contact of the research lead. Using the chain-​ referral technique, the first interviewee recommended research participation to three other principals, and two of these principals recommended, in turn, one further principal participant, while the third recommended two principals to take part in the study. Semistructured, extended interviews were undertaken with all eight principals within their respective head offices. Table 17.2 provides details of each interview. This chapter reports from the findings of a wider qualitative study of luxury-​fashion-​ brand leadership and is concerned with only those dimensions relevant to the principals’ engagement and intentions with respect to the mono-​brand stores under their direction. The interview questions relevant to this area of the study are detailed below: 1. What is the primary purpose and value of the mono-​brand stores that your company operates, domestically and in international markets? 2. How has that purpose and value changed over time?

The strategic value of the mono-brand store    365 Table 17.2 Research Interview Participant Details Representative Country of Origin

Product Category

Interview Details

A

United Kingdom

Womenswear Leather goods Fashion Accessories

September 28, 2018 London

B

Belgium

Womenswear—​Menswear October 3, 2018 Leather goods Antwerp Fashion Accessories

C

Belgium

Leather goods Fashion Accessories

October 4, 2018 Brussels

D

France

Leather goods Fashion Accessories

October 9, 2018 Paris

E

Italy

Womenswear Menswear Fashion Accessories

October 11, 2018 Milan

F

France

Womenswear Menswear Fashion Accessories

October 17, 2018 Paris

G

France

Leather Goods Fashion Accessories

October 18, 2018

H

United Kingdom

Womenswear Fashion Accessories

October 26, 2018

3. Can you describe how the mono-​brand store supports the positioning of the brand within trading markets? 4. Which would be the main priorities of the mono-​brand store in terms of building and protecting a luxury brand positioning—​domestically and internationally? 5. How do you, as principal, ensure that the will of the ownership—​leadership team is administered by agents within mono-​brand stores across the chain? 6. Described the relationship—​ connection between mono-​ brand stores and online—​digital channels? 7. Are there any addition considerations that you think relevant to this part of our discussion? To protect the business interests of each of the research representatives, a condition of engagement required by all eight principals was complete and full anonymity. This condition was nonnegotiable and was therefore accepted in the interests of securing researcher access. Furthermore, seven of the eight companies refused to allow access to any agent partners, either in the domestic or in the international markets. The reasons for this restriction were again due to reasons of commercial sensitivity and the desire to avoid, in the words of one participant, ‘any potential for internal disagreements to be aired in public’. Given that the study was focussed upon understanding the perspective

366    Christopher M. Moore and Stephen A. Doyle of the principals in the luxury fashion supply chain, it was possible to agree to this request without undermining the validity of the study. Utilising established methods of thematic analysis (as is commonly used within explorative, qualitative research), the next section of the chapter examines the core themes that emerged from the study with respect to securing a clear evaluation of the strategic value of the mono-​brand store, specifically as a means of communicating luxury-​brand identity and distinction within international markets.

Discussion of Research Results The study identified six commonly held dimensions which demonstrate how principals directly utilise mono-​brand stores in order to secure a prescribed positioning for their respective luxury brands within international markets.

Bastions of Luxury Brand Protection A significant consequence of digitalisation within the luxury fashion sector has been the proliferation of counterfeit goods, specifically within the leather goods and leisure apparel sectors, across international luxury markets. For all the principals, the challenge of counterfeit goods, ‘passed-​off ’ under the auspices of their respective brand marques, was a persistent consideration and challenge. Consequently, and to ensure brand protection (especially within those markets where brand counterfeiting is rife), the principals directed their mono-​brand stores to emphasise the legitimacy and ownership integrity of their respective brands. This was achieved through three institutional interventions. Firstly, through the application of clear normative standards, the mono-​brand stores were required to imbue, in the professional culture of each store, a set of behaviour standards that offered a subtle articulation of the philosophy of the brand—​ as demonstrated by the deportment, appearance, and dress of store-​based staff. Secondly, by adopting a highly regulative approach to visual merchandising, in-​store communications, and product display, the principals placed a nonnegotiable compliance burden upon agents in these areas in order to validate brand origin, as expressed by Representative A: ‘We have taken an aggressive stance against counterfeits goods by demonstrating to the market the essence of luxury is imbued in the product but also imbued in how we sell that product. We have a policy requirement for our management in international markets to be absolute in their pursuit of brand fakes. And we really measure their effectiveness in achieving this’.

Thirdly, five of the principals explained that in some territories their company had implemented a brand verification service. Ostensibly positioned as a means of

The strategic value of the mono-brand store    367 authenticating vintage branded products, the participants acknowledged that the majority of requests were to verify recently purchased goods (obtained either from online dealers or foreign markets) as genuine.

A Place for Legitimising the Luxury Brand Flagship stores, in particular, were identified as having a particular role to play in terms of highlighting and celebrating a luxury positioning within a luxury market, but not at any cost. Indeed, each of the principals made it very clear that these stores must, by necessity, contribute to the profitability, as explained by Representative D: ‘Flagship stores are the ultimate expression of our luxury brand universe. These stores are the jewel in our brand crown. But they can never be an indulgence. Flagship stores must not place the company under strain. Instead, these must make a significant financial contribution. The idea of a flagship not having to make money is now a fairy tale. It is apocryphal. This may have been the case in the golden days of luxury. It is not the case now’.

From the perspective of having a strategic purpose, a key function of the mono-​brand store was found to be that of legitimising a luxury positioning. This requirement was found to be especially important for new territories, where either the luxury-​brand concept is underdeveloped or the brand itself is a relatively unknown entity. Consequently, the purpose of the store is to legitimise the luxury dimension of the brand. The need to do so is explained by Representative B: ‘High levels of luxury brand consumption are not the norm in every market. Even in some cities in the USA, we have found that European luxury is not always fully understood. Therefore, our stores are directed to legitimise, explain, confirm and convince about our luxury positioning’.

The research found two ways in which this was achieved. Firstly, through the application of a definitive property policy that clearly defined the choice of territories and then prescribed the selection of micro-​locations, emphasising premier shopping streets and districts within important global centres. As Representative B further explained: ‘Our newly opened store in Hudson Yards, in New York was driven by the Executive Team in Paris. This was a marker, a signal, a means of placing us in good luxury brand company with the other known luxury brands for those prospective customers who do not know us well’.

In combination with the choice of a premier location, the second means was through the choice of a renowned architect to design the stores. Selected on the basis of their having a track record in creating luxury-​store environments, this was felt to

368    Christopher M. Moore and Stephen A. Doyle be a subtle but compelling method of legitimising a claim for luxury, as explained by Representative C: ‘With Rem Koolhaas, Prada established the rule of the super-​star architect in luxury. We take this approach since it sets out a clear system for replicating stores of luxury across the international network. The architect involvement is a further legitimisation of our claim on luxury’.

Articulation of Heritage The literature recognizes that the expression of heritage plays a crucial role in supporting the identity framework for a luxury brand. Previous studies have noted that declarations relevant to the place and date of establishment are pivotal for luxury identity creation, and Moore and Doyle (2016) recognized the value of the central placement of the founding date within the luxury-​brand identity system and argued that brand longevity influenced perceptions of luxury product quality. This study found similar evidence. In all instances, the principals explained that a primary purpose of the mono-​brand store experience was to convince the customer with respect to brand heritage. Planned, executed, and relentlessly policed by the principals, the articulation of heritage was achieved in three distinct ways. Firstly, it was secured by the actual choice of building for the store, and then supplemented by the in-​store environment that they created (specifically in relation to the interior design and decor-​systems adopted as described previously). For Representative D, as principal, it was a crucial responsibility to enact and protect the expression of the heritage credibility of the brand: ‘We have a century old story of luxury to tell our customers. Our stores must not only tell the story of our heritage, they must also convince and verify our claims. The building and the interior serve as an emblem, a sign of the heritage and history of our store’.

Secondly, brand heritage was articulated through the use of in-​store photography—​ most commonly in the form of music, film, or sport icons visiting the brands’ stores and/​or wearing the product. Thirdly, all but one of the principals reported their commitment to operating archives or heritage rooms across their international estate in order to elevate and supplement the heritage claims for their brand, as is explained by Representative E: ‘We have heritage rooms to tell of our history. I was concerned that our story was getting lost. So, I have taken direct control and I want all of our stores to tell of our heritage in order to educate, entertain and reassure a potential customer of the validity of our history’.

The strategic value of the mono-brand store    369

Verification of Quality and Craftsmanship Allied to but felt to be distinct and separate from representations of luxury heritage and product authenticity, this study notes that stores are used to provide compelling representations of quality and craftsmanship to consumers. This dimension has intensified as a priority in recent years, as Representative B explained: ‘When we discussed the challenge of fake products, I  explained that the best way of protecting the brand is to intensify evidence of superiority. Craftsmanship defines luxury and I want our stores to be expressions of our craft excellence’.

Stores were used to express craftmanship in a variety of ways. Firstly, through the careful cascading of training protocols, all selling staff are developed to understand the inherent craft that supports luxury-​brand production. Particular attention was given to the product icons of the brand—​those items recognized to be quintessentially associated with the brand. Secondly, through in-​store events, such as lectures, product demonstrations, and exhibitions, the dimensions of skill, expertise, and the ‘hand-​made’ product standard were frequently articulated. In addition, by hosting events in-​store that showcased other external partners (such as artists, makers, and performers), known and understood for their quality positioning, the resultant association was felt to strengthen and deepen the quality and craftsmanship claims for the brand. Thirdly, there has also been a decisive movement toward what Representative C described ‘as a strategy to devolve the art of craftsmanship, in a very small way, to the store environment’. This was demonstrated by the inclusion of customization services within stores, as in term of embossing products and by setting up repair and refurbishment facilities. Although these facilities were clearly intent upon strengthening their relationship with customers through the provision of additional services, their underlying intention was also to emphasise that craftsmanship and quality sit as core to luxury positioning. Finally, the research findings provided clear indications that mono-​brand stores provided an anchor for the replication and representation of brand heritage. Derived principally from the influence of their foundation stores, the bringing together of architectural details combined with the customs and practices and ways of operating used in these stores by the principals served as a mandatory template for the establishment of new stores by agents in international markets. This approach was driven principally by the desire to secure a clear heritage association for any newly created store. This is reflected in the explanation provided by Representative E: ‘A new store, especially in a new market, needs to have the anchor of the original store or at least some of the early stores in order to communicate history and heritage. We refer to our first store design; the look and feel of it, throughout all of our international stores network in order to persuade a customer who may be new to us that we are a brand with a credible and deep heritage’.

370    Christopher M. Moore and Stephen A. Doyle

Support for the Rarity Principle In the later phase of the twentieth century, many luxury fashion brands engaged in brand diffusion and product-​line extension in order to support income growth and extend market participation levels. More recently, however, there has been a countervailing pressure to recalibrate the product portfolio in favour of a movement toward the higher reaches of luxury, specifically in terms of price, quality, and rarity. As a means of both demonstrating and communicating the shift to a higher-​reach positioning, the principals explained that their stores were used to demonstrate this in two important ways. Firstly, operating agents were expected to present products in ways that elevated and celebrate products. Furthermore, staff were expected to present the ‘folklore’ around iconic products, as is reflected in the observations made by Representative F: ‘Luxury is the art of storytelling and we pass throughout our international chain our brand story. A story that is distinctly us. We tell a story about our icons and enhance the allure of our products and brand by emphasizing our rarity’.

A crucial development for elevating product status, rarity, and allure has been the development of smaller, more intimate mono-​brand stores that specialize, in particular, in high-​value product categories such as fine and rare jewellery and exclusive leather goods collections. Often located in locations proximate to the mainline store, these stores highlight rarity but also expertise, distinctiveness, and quality in specialist product areas. The function of these specialist stores is fully expressed in the observations of Representative E: ‘We are in meta-​luxury times. The 1990s, it was a race to the bottom, now we are on a race to the top. The inevitable outcome is the emergence of the ultra-​specialist store in the portfolio. Limited in number, restricted to the most prestigious locations and the most important product categories—​these stores represent our upgrade strategy in action’.

A variety of other measures, such as the establishment of product waiting lists, the creation of limited-​edition ranges, the opening of pop-​up stores, and time-​limited brand collaborations were adopted to establish and project the principle of brand rarity. The significance of these actions is explained by Representative E: ‘Modern luxury is no longer about the pursuit of the democratic. It is the pursuit of the rare. Consumers search for rarity and for a luxury brand like us, success is dependent upon demonstrations of rarity. Therefore, all of our decisions must now be in the pursuit of creating the rarity gene for consumers to believe in’.

Humanizing the Brand in a Digital Age. Alternative to the Digital Offer Despite what initially seemed to be a determined resistance against digitalisation within the luxury fashion sector, the sector has now embraced online as a feasible, lucrative,

The strategic value of the mono-brand store    371 and central distribution channel (Hansen and Sia 2015; Ostillio and Ghaddar 2017). An important consequence of the migration online has been the significant slowdown in the number of new stores openings alongside an escalation in the rate of luxury fashion brand store closures (Savills 2019). Based upon the findings of this study, for those stores that have been retained, there is a clear expectation and requirement that these stores complement, align, and support their digital distribution channels. This view is clearly expressed by Representative H: ‘Our digital shop is our most important outlet in terms of sales. That means that our physical stores must offer a very different experience for our customers. It must be personalised; human and engaging. It must offer a face for the brand and a welcome in a way that online can never provide. Our physical stores must relay the humanity of who we are as a company These stores are fundamental to the development of our relationship with our customers’.

The idea of the stores as a human alternative was shared by all eight principals. Through a mix of regulation, value creation, and culture setting, the stores sought to represent a brand humanity. This was achieved through a variety of initiatives. The first was to present the stores as places of art and culture—​places that celebrate human creativity and imagination. Secondly, the principals also recognised a less esoteric use for the stores. Explaining that the online purchasing of luxury goods was frequently perceived as a high-​risk activity, an important function for retail stores was to provide advice and reassurance to customers, as explained by Representative D: ‘Online shopping is a lonely experience. So, our stores must be an antidote to the impersonal and the aloneness of stores. Instead, I want mine to reassure, to guide and to help. Stores must put the heart into luxury. They provide the face and the personality of the brand’.

Thirdly, the principals also recognised the opportunity for stores to provide a ‘human service’ to their online channel by offering advice and sales support. Recognising that concerns associated with returns (such as due to sizing errors, etc.), were a significant barrier to purchase), stores were now able to provide an important and viable alternative. Finally, the value of online channels as a powerful means of predicting future sales was also recognised by the research participants. Consequently, there was evidence that the luxury firms were using sales intelligence from online to predict demand in stores and to inform store-​based sales and merchandising strategies. The exchange of intelligence was found to be reciprocal, with the key contribution from store-​based intelligence derived from the opportunity from store-​based colleagues to gain qualitative understanding of consumer behaviour patterns. This is explained by Representative G: ‘The store brings a human understanding to the dry metrics of our digital business. Digital readings only tell one part of the story. Stores help tell the whole story because stores allow us to access an understanding of what it is that customers think and feel’.

372    Christopher M. Moore and Stephen A. Doyle

The Transmission of Principals’ Message in Mono-​Brand Stores In the section ‘Researching the Principal’s Perspective on the Mono-​Brand Store’, the question was posed as to how mono-​brand stores transmit a principal’s prerogative within international supply chains in order to articulate, validate, and make tangible the brand narrative to their intermediatory agents within the luxury-​brand sector. The findings of this study recognise that mono-​brand stores contribute to this mission in a number of interrelated and complex ways. With principals deeply committed to protecting the intellectual and design integrity of their respective brands, normative standards of behaviour were disseminated in order to represent brand philosophy whereas highly regulative and prescriptive approaches to brand communications within mono-​brand stores were recurrent to validate brand origin and authenticity. Mono-​brand stores were also found to service the luxury positioning of the brands. Through a commitment to a variety of strategic investments, principals retained firm control over decisions in relation to the geographic placement of their international store network. Carefully driven in order to ensure conformity and coherence in the communication of brand heritage and identity, more broadly, agents were required to accept and conform to established regulative systems devised in order to control external representations of brand heritage, quality, and product rarity. Within an age of digital pre-​eminence, this study also recognized that principals were committed to securing a humanising counterpoint to digital disintermediation. This was achieved largely through the requirements that agents adopt and maintain the rigorous application of far-​reaching, common cultural and cognition processes.

Conclusions Although the literature has considered mono-​brand stores from a variety of perspectives, it is the case that the particular role and contribution of these stores to the process of internationalising the luxury fashion brand has not been fully appraised. Consequently, their function and their value with respect to the transnational development system inherent to a luxury fashion brand has not been clearly considered. The contribution of this chapter has been to secure insight into the strategic value of the mono-​brand store which has been achieved by isolating, and then connecting, the contributing function of these stores within the international distribution network of luxury fashion brands. By drawing together the disparate literature sources that have considered the mono-​ brand store in this sector, it has been possible to identify these as strategically important devices that secure exclusivity and market positioning for the luxury fashion brand, and which have a particular role to play in providing a localised brand experience.

The strategic value of the mono-brand store    373 Explicitly, this chapter also identified the flagship store not only as the ultimate expression of the luxury fashion brand but also as a mono-​brand store in its own right. Further, it proposes that there is now a clear shared expectation that these stores secure strategic financial revenue streams for luxury fashion brand owners. While it was recognised, at least in broad terms, that the mono-​brand store plays an important role in the communication of a luxury-​brand identity, insufficient evidence in the literature has thus far been provided with respect to the ways and means in which these stores deliver the luxury-​brand intentions of their owners. By privileging the perspective of luxury-​fashion-​brand owners and leaders in this study, the intention was to provide a direct and specific account of the principals’ perspective on the strategic value and purpose of the mono-​brand store as part of the process of luxury-​fashion-​brand building within an international context. In what is a unique study that draws together the perspectives of eight principals, the findings clearly identify six dimensions which illustrate how mono-​brand stores are harnessed to deliver strategic value by these principals in order to facilitate and support the continuous development of the identities of their brands within a digital age. As significantly, by considering mono-​brands stores through the lens of both agency and institutional theories, it has been possible to also locate the methods and means by which principals secure their strategic intentions for their respective luxury brands through the mono-​brand store. The final observation, provided by Representative A, provides a clear conclusion with respect to the strategic value of the mono-​brand stores within the luxury fashion distribution system: ‘Our stores are like diplomatic embassies within international territories. They have a strategic value that cannot be under-​estimated. We determine their tone and our agents in the territories must uphold our values and express our identity in every respect. The stores are bound by our laws and we control them with a mix of regulation, cultural expectation and significant levels of direct monitoring’.

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Chapter 18

Airp ort Luxu ry  Reta i l Debbie Pinder and Joanne Roberts

This chapter investigates the development of luxury retailing in the airport from its origins in 1947 (Pond 2014) through the establishment of specialist duty-​free retailers and up to the present-​day luxury-​brand stores located in major airports across the globe. International airports have become important locations for the retail distribution of personal luxury goods. By luxury we mean goods and services that are expensive, superfluous items produced by luxury-​brand companies. Luxury’s role in the airport has expanded beyond the provision of goods for travellers to become an integral element in the airport travel and commercial context with the capacity to influence the status of international airports. Despite the significant decline in demand for passenger air travel during 2020 due to the COVID-​19 pandemic, demand is set to recover and grow in the long-​term (International Air Transport Association 2020a). Consequently, the role of luxury retail in the airport is set to increase over the coming years. We begin by exploring the rise of the airport and the growth in air travel before travel retail and duty-​free are considered together with the place of luxury in this retailing environment. We then consider the trends in luxury brand airport retailing that have emerged, including the various luxury retail distribution modes currently in operation across the globe. In doing so, we argue that luxury brands make an important contribution to the financial success of international airports as departure, transfer, and arrival destinations. Additionally, an airport presence promotes a luxury brand’s global identity. An overview of the key challenges facing airport luxury retail is provided before brief conclusions are drawn.

The Evolution of the Airport The world’s oldest airport is thought to be College Park Airport in Maryland, in the United States, established in 1909 by Wilbur Wright of the Wright Brothers. The number

380    Debbie Pinder and Joanne Roberts of airfields increased during World War I, and they were put to use with the first experimental passenger flights in the early interwar period. The first airport to operate scheduled international commercial services was London’s Hounslow Heath Aerodrome in 1919, which was replaced with Croydon Airport, London, in 1920. The establishment of other international airports across Europe, Australasia, and North America quickly followed. (Gordon 2004; Graham 2014; Wenneman 1931). After World War II, airports became more sophisticated with buildings that provided comfortable and secure places for the passengers to wait before their flight. Indeed, the world’s first duty-​free shop was established at Shannon Airport in Ireland by Brendan O’Regan in 1947 (Pond 2014) to provide a service for Trans-​Atlantic airline passengers, whose flights stopped to refuel on the outbound and inbound legs of the journey. By the 1960s, this duty-​free shopping model was adopted in other airport locations. The increase of commercially viable passenger travel facilitated by the introduction of the Boeing 707 jet aircraft promoted airport construction to accommodate larger aircraft and greater passenger numbers (Doganis 1992; Edwards 2005). Today, airports are complex organisations, where disparate activities are bought together to facilitate the interchange between air and surface transport, for passengers and freight (Doganis 2002). The basic airport structure consists of runways, taxiways, apron space, gates, passenger and freight terminals, and ground transport interchanges, where passengers and freight are processed before and after being transported by the aircraft (Doganis 1992; Graham 2014). Within these ground transport interchanges are facilities and services including air traffic control; baggage handling; security; and commercial facilities such as shops, restaurants, hotels, conference services, and business parks (Graham 2014). Airports are divided into landside and airside areas (Graham 2014). Landside refers to the areas of the airport that do not require security clearance, and include the part of the terminal building where passengers can purchase tickets, check in, drop off and pick up luggage, and enter the security clearance area. Airside includes all areas accessible to the aircraft, including runways, taxiways, and ramps, and access is subject to tight security controls. The waiting areas, which provide passenger access to aircraft, are typically called concourses or terminals, and this is where the majority of an airport’s commercial facilities are located (Edwards 2005; Gordon 2004). Until the late 1970s, most of the world’s scheduled airlines and airports were regulated and state owned. The national airlines were inefficient, unproductive, and therefore costly to operate resulting in high fares. However, in line with the adoption of neoliberal economic policies in the United States, the US air transport market began the deregulation of fares, routes, and market entry in 1978. This allowed carriers the freedom to compete to serve new and growing markets, to extend their route networks, and to reduce fares (Doganis 2006). The major US airlines shifted dramatically from point-​to-​point linear route networks to hub-​and-​spoke systems, which provided superior network connectivity and market coverage. Other developed economies followed the US deregulation of air transport, including Canada (1984), Europe (1988–​1997), Australia (1990), and New Zealand (1986). As the industry opened up to market competition, the price of

Airport Luxury Retail    381 flights fell (O’Connell and Williams 2011). The growth of low cost ‘no frills’ providers led to further prices reductions. Nowadays, the ownership of airports varies around the world. For example, in the United States many terminals are owned by the airlines, and in France the government often owns ground facilities. Private ownership of airlines is now the norm. Deregulation and privatisation in the airline industry have, then, facilitated a transition from airports as largely government-​owned and -​operated public utilities towards firms, increasingly privately owned, delivering a range of services to privately operated airlines, terminal retailers, and passengers (Gillen 2011). However, through this transition the airport has become vulnerable to global economic fluctuations, including the recessions in the early 1990s and 2000s, and, of course, the economic impact of the terrorist attacks of 9/​ 11, which had a deep impact on the world’s airlines industries (O’Connell and Williams 2011). Nevertheless, innovations in air travel, such as interactive entertainment systems, flat beds in business class, frequent flyer programmes, and ticketless travel, have sought to reduce costs and attract customers (Beiske 2002). Furthermore, to improve efficiency, airline alliances developed in the late 1990s, and a wave of consolidations occurred through mergers between a number of the large airlines including Air Canada and Canadian Airlines, American Airlines and TWA, Japan Airlines and Japan Air System, and KLM and Air France (O’Connell and Williams 2011). Despite efforts to improve efficiency and profitability, the 2008 global financial crisis led to one of the worst years in aviation history with negative growth in global air traffic passenger demand in 2009 (Figure 18.1). Airline mergers and alliances continued to occur in 2009; for instance, British Airways and Iberia announced their joint partnership to create the world’s fifth largest airline (BBC News 2010). Furthermore, by 2009, Asian countries were showing signs of dismantling their aviation regulation as their airlines were being forced to react to a globally competitive environment (O’Connell and Williams 2011). By mid-​2010, passenger and freight markets were back above prerecession levels (International Air Transport Association 2010), and many airlines returned to growth and profitability (O’Connell and Williams 2011). In 2020, the COVID-​19 pandemic presented an even more significant challenge to the sector, with widespread government restrictions on international travel and quarantine requirements. However, the sector was forecast to recover in the following year. Despite the economic and, more recent, health challenges, the air transport sector has grown significantly in the past twenty years. In 1998 there were 1.467 billion global air passengers, which increased to 3.979 billion in 2017, when the number was predicted to reach 8.2 billion in 2037 (International Air Transport Association 2018). The number of passengers passing through the airport building has a direct correlation to the number of people who visit the airside shops to make preflight purchases. The various economic challenges encountered by the global airline sector over the last few decades have had an enormous impact on the development of airports. In pursuit of profitability, airport operators have a choice between two strategies. The first is the traditional airport model where the aim is to meet the basic needs of passengers and the focus is on speeding up passenger handling and throughput (Doganis 1992). This model

382    Debbie Pinder and Joanne Roberts 65

50.4

45

5000 4500 4000

25 14.9

8.9

8

6.9

8

2.4

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7.4

6

5.7

5.3

7.4

8.1

7.4

3500

4.2

3000 2500

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-15

2000 1500

-35

1000

-55

500

-75

0 F

21

E 20

20

19

20

18

20

17

20

16

20

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20

14

20

13

20

12

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Passenger growth, RPK %

20

10

20

09

20

08

20

07

20

06

20

05

20

20

20

04

66.3 -66.3

Scheduled passenger numbers, millions

Figure 18.1.  Annual percentage growth of passenger demand (RPK) and growth in scheduled passengers in millions 2004–​2021. Notes: RPK = Revenue Passenger Kilometre (used as a measure of demand and calculated as the number of revenue passengers multiplied by the total distance travelled); 2020E = expected annual growth for 2020; 2021F = forecast annual growth post COVID-​19. Source: Data from IATA (2015; 2020b)

is usually followed by government-​owned airports. The second strategy is the commercial airport model where the aim is to maximise income from all activities in the airport and target not only the usual customers—​airlines, passengers and cargo shippers—​but also airline employees, visitors, and passengers’ relatives. This model is most commonly implemented in the major international airports today (Doganis 1992; Graham 2014). Airport operators adopting this model are devoting increasing levels of resources to building up the nonaeronautical and commercial areas of their business. A major factor in pushing commercial strategies is competition between airports (Doganis 2002; Gordon 2004; Graham 2014; Hanlon 2007). Table 18.1 shows the top ten busiest airports. According to Graham (2014), the primary considerations for passengers selecting a particular airport include its location and the airline services and routes offered. Secondary considerations are the retail and other commercial facilities offered. Similar considerations apply to passengers choosing an airport for a transfer flight. Some international airports, including Amsterdam Schiphol and Singapore Changi, have developed their commercial facilities and marketing strategies to attract passengers transferring to a connecting flight (Doganis 1992; Gordon 2004; Graham 2014). Indeed, a number of international airports have become shopping destinations in themselves, for example, London Heathrow Airport, Dubai International Airport, and Seoul Incheon Airport (Global Blue 2014). Increasing numbers of people take flights frequently and have therefore become experienced and sophisticated airport shoppers, researching and browsing offers previsit and carefully selecting personal items and gifts at the airport (Graham 2014). Consequently, passenger experience and customer satisfaction have become major concerns for many airports. This has resulted in efforts to serve the needs of different types of customer rather than offering generic products that appeal to all.

Airport Luxury Retail    383 Table 18.1. The World’s Busiest Airports in 2019

Rank

Airport

Location

Passenger Numbers during % Change 2019 (million) from 2018

1

Hartsfield-​Jackson Atlanta International Airport

Georgia, US

110.5

2.9

2

Beijing Capital International Airport China

100

-​1.0

3

Los Angeles International Airport

California, US

88.1

0.6

4

Dubai International Airport

United Arab Emirates

86.4

-​3.1

5

Tokyo’s Haneda Airport

Japan

85.5

-​1.7

6

Chicago’s O’Hare International Airport

Illinois, US

84.6

1.7

7

London’s Heathrow Airport

United Kingdom

80.9

1.0

8

Shanghai Pudong International Airport

China

76.2

2.9

9

Paris Charles de Gaulle Airport

France

76.2

5.4

10

Dallas/​Fort Worth International Airport

Texas, US

75.1

8.6

Source: Compiled from the Airports Council International (2020).

Airport Travel Retail and Duty-​Free Commercial revenue from retail has become one of the major sources of profit for the airport. Retail in the airport is divided into the two categories of travel retail and duty-​ free. According to Allied Market Research (2019), global travel retail and duty-​free in 2017 was valued at $74.9 billion and was projected to reach $153.7 billion by 2025. This reflects a steady 8.6 percent growth since 2002, which equates to double the growth of retail in all other offline channels. Travel retail and duty-​free started as a small-​scale activity meeting the basic needs of travellers. It is now a global industry selling goods to international travellers and making a major financial contribution to the airport sector. Travel retail refers to sales made in travel environments on which taxes and duties remain payable even though the customer may be travelling internationally. For example, in the European Union (EU), where the sale of duty-​free goods to customers travelling within the EU was abolished in 1999, ‘travel retail’ is the term commonly used for intra-​ EU travelling customers. Travel retail occurs in travel environments where customers require proof of travel to access the commercial area, but where goods purchased are subject to taxes and duties (Duty Free World Council 2020).1

384    Debbie Pinder and Joanne Roberts Duty-​free represents the purchase of goods exempt from the payment of certain local or national taxes and excise duties, normally on the condition that they are only sold to travellers who will take them out of the country. Variations in levels of excise duty and import allowance restrictions exist according to local jurisdiction. Duty-​free in the airport is only available when shopping airside. Both in the airport and on the aeroplane, the brands supplying goods are allowed to sell them tax and duty-​free. The goods purchased by the traveller in a duty-​free shop must be exported intact and not consumed in the country of purchase. Goods purchased on the aeroplane are allowed to be consumed on board, or can be imported into their destination country, as long as they remain within the passenger duty-​free allowance.2 In the United Kingdom, for example, goods purchased in the airside area of an airport are exempt from value added tax (VAT), 3 which is currently set at 20 percent on most products; other goods such as alcohol and tobacco are free of excise duty, which can amount to an average of 56 percent of the price of a bottle of wine or 77 percent of the price a bottle of spirits and 1,000 cigarettes incur a duty of £228.29 plus 16.5 percent of the retail price (Her Majesty’s Revenue & Customs 2020; Wine and Spirit Trade Association 2020). Some countries also have inwards duty-​free facilities, where arriving passengers can purchase duty-​free items on arrival in their destination country, immediately before going through customs. However, the EU does not allow arrivals duty-​free stores. Nevertheless, some EU airports sell goods on arrival in the baggage claim area described as ‘tax-​free’, but, in fact, these goods are all tax-​paid sales, but the local sales tax is discounted by the retailer (Her Majesty’s Revenue & Customs 2016). Being able to buy on arrival in the destination country has benefits for the passenger, including the convenience of not having to carry the goods with them on the aircraft, and also avoiding any security measures and restrictions while travelling. Airports depend on two streams of revenue:  aeronautical revenues from airlines and passenger charges; and, commercial revenues from other activities at the airport. According to Airports Council International (2018), an average of 40.4  percent of global airport revenues derive from commercial revenues, with duty-​free and travel retail being the main source of income. For example, Table 18.2 shows London Heathrow Airport’s streams of nonaeronautic commercial revenue for the first half of 2017. Revenue increasing by 11.8 percent year-​on-​year to £313 million. Passenger traffic growth of 3.9 percent (to 37.1 million) contributed to the increase in retail performance, as did the depreciation of Sterling since June 2016 (Davitt 2017). Duty and tax-​free income increased by 12.9 percent while revenue from airside shops rose by 23.5 percent. The redevelopment of Heathrow Terminal 4’s luxury retail offering, completed in 2016, was a key contributing factor to the airport’s retail growth. Airport retail has seen significant expansion in recent years with an annual growth rate of 12 percent, and the global duty-​free retailing sector is forecast to grow at a rate of 8.56 percent during the period 2017–​2021 (Barras-​Hill 2017). This growth in airport retail spend not only reflects the increase in global air passengers but also increasing

Airport Luxury Retail    385 Table 18.2. Heathrow Airport London, Non-​Airport Revenue First Half 2017 (£ Million) Revenue Source

2016 £ million 2017 £ million Change %

Duty and tax-​free

62

70

12.9

Airside specialist shops 51

63

23.5

Bureaux de change

24

24

-​

Catering

22

26

18.2

Other retail income

37

43

16.2

Car parking

55

58

5.5

Other services

29

29

-​

Total retail revenue

280

313

11.8

Source: Adapted from HeathrowSPLtd. (2017: 9).

expenditure on luxury goods driven by the rise of affluent consumers, especially from emerging countries like China (Euromonitor 2012). Retail outlets in the airport include those supplying the necessities of travel from magazines and books, snacks, souvenirs, over-​the-​counter pharmaceuticals, and basic toiletries to those providing nonessentials. Other, mostly nonessential, goods available are divided into seven categories: perfume and cosmetics, confectionery and fine food, wine and spirit, fashion and accessories, electronics, tobacco, and others. Of these, the perfume and cosmetics segment accounted for the largest share of revenue in 2017 (Grand View Research 2018). Apart from the extensive offering of beauty brands available in the duty-​free operator stores, it is not unusual to see stand-​alone perfume and cosmetics stores such as Dior and Jo Malone London. Perfume and cosmetic brands are popular airport purchases because they are ‘affordable’ luxuries, ‘on-​the-​go’ portable products that are ideal for gifts, and often presented in airport exclusive minis or ‘travel-​ sets’. The accessibility of such brands in the airport contributes to the democratisation of luxury. In smaller airports the provision of nonessentials is often confined to a duty-​free store. However, in larger, and especially, major international airports, the availability of space in the departure lounge allows such duty-​free outlets to be complemented by a selection of luxury-​brand stores. The presence of a number of high-​end luxury brands not only produces a higher revenue for the airport but also serves to attract more luxury brands to establish a presence in the airport. Although local duty-​free airport operators do not pay import duties or local taxes, they do pay airport commissions, which can be two to three times higher (Chevalier and Mazzalovo 2012). Airport concession contracts are awarded to the highest bidder and can last three to seven years (Chevalier and Mazzalovo 2012: 252). The bids for a

386    Debbie Pinder and Joanne Roberts concession space are based on the forecast volume of travellers and customer buying preferences, considerations such as new landing/​take-​off slots that may be given for new destinations or new airlines and the maximum concession fee that can be realistically offered to the airport operator. A set commission fee can be as high as 35–​55 percent of annual sales value (Chevalier and Mazzalovo 2012: 252).

Airport Concession Models There are generally four different approaches to managing retail concessions within the airport building: the minimum guarantee (MAG) model, the master concessionaire model, the joint venture model (JV), and the airport-​owner retailer. Airport management may employ these models in a flexible manner to allow for the specificities of airports and the nature of negotiations with particular retailers: • The MAG model is common across airport retail because the airport can charge the retailer a rent plus take a percentage of the sales revenue. This model is often criticised for its inflexibility, where the use of closed bids during tenders can encourage high, sometimes unsustainable guarantees from retailers. However, it benefits the airport operator as it guarantees them a fixed income. For example, in 2012, Duty Free Americas secured a seven-​year contract to run San Diego’s duty-​ free concession (Euromonitor 2012). Additionally, during the past twenty years London’s Heathrow Airport has fully outsourced its retail operations to individual specialists, under the MAG model, and employs a team to ensure the best mix of operators is selected. Specialist retailers can control how and when they deliver to their contract as well as optimising sales and revenue. According to airport retail specialists, outsourcing to retail operators delivers higher sales than generalists as they are highly focused on their brand and the store concept and can ensure the best possible customer experience (Gleave 2017). • The master concessionaire model is popular where the airport operator wants to hand over the entire operation of its retail facilities to a commercial expert. For instance, in 2013, travel retail specialist Dufry signed a master concessionaire agreement to operate duty-​free spaces at Mattala Rajapaksa International Airport (MRIA), which opened as Sri Lanka’s second international gateway. The contract involves operating all airside retail space which is carried out by a joint venture between Dufry and Sri Lankan company Perpetual Capital Holdings, offering wines and spirits, tobacco, perfumes, cosmetics, confectionery, and electronic items to travellers (Airports International 2013). • The JV approach is a more hands-​on model for the airport, as the airport operator takes joint operational responsibility of the full food and beverage and retail offering. Frankfurt Airport is an example of this, where Fraport formed a JV with Heinemann, and renamed the operation Frankfurt Airport Retail. Other examples of a JV are Groupe ADP (formerly Aeroports de Paris), which has a

Airport Luxury Retail    387 long-​established JV with its duty-​free and travel retail partner Lagardère Travel Retail (Rozario 2016). • The airport-​owner retailer model involves the airport operator/​owner developing its own in-​house retailing division. Dubai and Doha are good examples of airports which successfully self-​manage their retail and most of their catering operations in house. Abu Dhabi airport also adopted this approach until 2008, when the operator decided that it would be more profitable to implement the individual specialist operator model, or the MAG approach (Gleave 2017). Within these various airport retail business models there are two main categories: duty-​ free companies and airside specialist shops including luxury retail concessions.

Duty-​Free Companies The Shannon airport duty-​free shop, established in 1947, proved to be a successful commercial model that was copied in 1960 by two American entrepreneurs, Charles Feeney and Robert Warren Miller, who founded Duty-​Free Shoppers, known today as the DFS Group, at Hong Kong airport. DFS expanded its operations in Europe and North America and secured concessions in Hawaii, Saint Martin, and the US Virgin Islands in the Caribbean, and along with these locations, Hong Kong and Singapore all became duty-​free shopping destinations. Later, airlines such as Emirates, Delta, and Singapore Airlines started offering duty-​free sales on their flights (deCota 2011; Lin and Chen 2013; Pond 2014). A practice that is now standard on most international flights. Currently, DFS Group is a subsidiary of the luxury conglomerate Moët Hennessy Louis Vuitton (LVMH) and it has more than 400 points of sale around the world across fifteen major airports and eighteen T Gallerias, the first of which were launched in 1972 in downtown Honolulu and Hong Kong to offer exclusive services and a unique shopping experience in the heart of the world’s biggest cities (LVMH 2020). A number of duty-​free companies distribute goods and services in international airports. They work with an airport concession acquired through a highly competitive bidding process. The role of the duty-​free company is to offer goods free of taxes and duties on the proviso the traveller will carry them out of the country. The way goods can be sold in the duty-​free shops, and calculating the duty or refunding the duty component varies according to the local jurisdiction. As Table 18.3 shows the largest, most well-​ known duty-​free group is Dufry Group, followed by Lotte Duty Free, Lagardère Travel Retail, and DFS Group.

Airside Specialist Shops Airside specialist shops refers to a retail shop offering a specialised line of merchandise, such as jewellery and watches, leather goods, personal care products, luggage, gadgets,

388    Debbie Pinder and Joanne Roberts Table 18.3. Top 10 Duty-​Free Companies, 2017 (by Turnover Million Euro) Rank

Company

Headquarters Location

Turnover Million Euro

1

Dufry

Switzerland

7,166

2

Lotte Duty Free

South Korea

4,842

3

Lagardère Travel Retail

France

3,917

4

DFS Group

Hong Kong

3,670

5

The Shilla Duty Free

Singapore

3,412

6

Gebr Heinemann

Germany

3,200

7

King Power International Group

Thailand

2,141

8

China Duty Free Group

China

1,994

9

Ever Rich Duty Free

Taiwan

1,660

10

Dubai Duty Free

Dubai

1,608

Source: Developed from Moodie Davitt Report (2018: 19).

travel accessories, sports apparel, shoes, cosmetics, regional arts and crafts, clothing, toys, and confectionery. Airside specialist shops can operate in the form of a closed front store, a free-​standing unit (FSU), retail merchandise unit (RMU), kiosks, and even sophisticated vending machines. Satellite units in the form of FSUs, RMUs, and kiosks are often branded and include international or local brands. Airside specialist shops require high numbers of passengers to be successful. They are consequently found at the larger airports where they can be sure of attracting sufficient customers for their products (Airport Cooperative Research Program 2011). In the past, passengers were less inclined to visit airside specialist shops due to a limited dwell time once through the security checkpoint. Hence, such shops offered limited merchandise. However, as airport operators have become more efficient and therefore passengers have more time to shop airside, the specialist shops available in major international airports have grown in scale and variety. To maximise the time available for passengers to shop, airport operators are implementing more efficient check-​in and security processes so that passengers can spend less time queuing and more time airside shopping. For instance, streamlining security and implementing mobile check-​ in increases the retail opportunity for passengers. Spend increases by 2.5 percent for every minute a customer is in a retail area and not waiting in a queue (Graham 2018). For example, in 2015 Heathrow Airport invested £280 million in the first six months on programmes to improve the passenger experience and airport resilience, as part of a £700  million capital expenditure plan for that year (Turner 2015). The investment was aimed at delivering faster journeys through the airport for the passenger, with integrated baggage facilities in Terminal 3 and parallel loading security lanes in Terminal 4. Moreover, Heathrow Airport’s investment in Terminal 5 retail redevelopment and in the new business car parking strategy

Airport Luxury Retail    389 impacted positively on revenue (Davitt 2017). Similarly, Helsinki Airport (Finavia) invested in sensor-​based queue management and passenger analytics to reduce queue times to under fifteen minutes, thereby boosting nonaeronautical spend by 12.3 percent (Graham 2018). As airport operators have realised that excellent store planning not only increases revenues but is also closely related to passenger satisfaction with the overall airport experience, architectural concession space planning has become an integral part of the airport design process. In developing concession space and locations, the airport management goals are typically to increase concession revenues, raise average transaction levels, offer a wide variety of merchandise, integrate categories in order to optimise spend, encourage spontaneous purchases, and establish a strong commercial image and identity. The key objective in airport planning is to determine the supportable concession space in each area of the terminal, that is, the amount of concession space financially viable for both the airport operator and the concessionaire. This is determined by estimating concession sales at reasonable levels of productivity using sales per square foot (Airport Cooperative Research Program 2011).

Luxury and the Airport In the past, air travel was a luxury in itself; it was expensive, inaccessible and confined to the rich and famous. Today commercial flights are commonplace for citizens of the economically advanced nations. With the emergence of budget airlines following deregulation of the industry, air travel has become a practical means to travel from point A to point B (Graham 2014; Thomas-​Emberson 2007). Nevertheless, international airports offer enclaves of luxury, for example, through their premium and VIP facilities. These include, meet-​and-​greet chauffeur services to and from the aircraft, dedicated private entrances and lounges, express check-​in and dedicated check-​in counters for first and business class passengers, premium frequent flyers, and membership of the various airlines’ clubs (Beiske 2002; Doganis 1992). VIP airline lounges offer complimentary food and beverages, and they include comfortable seating and provisions such as showers, quiet areas, televisions, computers, and Wi-​Fi Internet access. For instance, the Virgin Clubhouse, a £11 million flagship lounge at Heathrow Airport, opened in March 2006. It is over 2,500 square metres in total, has interiors designed to feel like a private members’ club, and includes the Cowshed Spa, an über-​luxury spa lounge offering luxury treatments and products (Adelto 2012). Airlines may operate multiple lounges within the one airport terminal, distinguishing between first and premium class customers with distinct offerings, for example, more high-​end luxury facilities within the first class suite (Doganis 1992; Graham 2014) or access to paid luxury experiences such as Blue by KLM, a fine dining restaurant available to its premium customers (Chamberlin 2020).

390    Debbie Pinder and Joanne Roberts Although luxury brands have been buying advertising opportunities at airports around the world for years, their airport distribution of perfumes and cosmetics occurred through duty-​free operated stores. With the development of quality retail space since the mid-​1990s, luxury brands sought stand-​alone stores to place a range of their products together with their quality retail staff in front of a captive premium audience (Mellery-​Pratt 2013; Thomas-​Emberson 2007). Luxury brands create retail strategies which target the passenger in the unique airside environment, where the normal everyday pressure and stresses of life give way to a search for pleasures and hedonism (Thomas 1997). It is at this point in their journey through the airport that travellers are most open to luxury consumption (Duncan 1995). Indeed, Pascale and Wendlandt (2013) argue that most luxury retail purchases at airports are based on impulse. According to studies on airport consumer behaviour, after the pressure of getting to the airport on time, most travellers suddenly find themselves in limbo, isolated from everyday references, perhaps even from notions of day or night (Omar and Kent 2001). There appears to be two emotional shifts in airport consumer behaviour, which affects buying behaviour (Lamacraft 1998). The first is an increase in stress levels because consumers are out of their daily routine. The second is an increase in levels of anticipation and excitement, which suggests that when the passenger obtains their boarding pass and has passed through security their stress levels lower but their excitement remains high. This period of high excitement has been referred to as a ‘happy hour’ or ‘golden hour’ (Thomas 1997). Airport retail differs from typical shopping centres or high street environments because the passenger’s time is defined and restricted. Passengers therefore need to be motivated to shop and spend in different ways, and the psychological factors of the travel process need to be taken into account (Omar and Kent 2001). Consequently, walk-​ through duty-​free stores in airport terminals, such as the one at London’s Heathrow Terminal 5 (Figure 18.2), have grown in popularity. At Stockholm Arlanda Airport, the 1,700-​square-​metre walk-​through duty-​free store is located directly after the security area at T5, and was designed to capture around 60 percent of all passengers on their way to the gates (Bamberger et al. 2009: 7). This style of store often includes flight information screens that help customers to feel calm about the time they spend within the store (Bodouva 2009). Luxury fashion and accessories brands are found in duty-​free shops (Figure 18.3) as well as in multibrand and department store outlets in major airports, such as the Harrods store in Heathrow Airport. The advantage of a luxury brand being located in a multibrand store is the exposure to a variety of passengers; however, the diffusion of a brand into a franchise within a store may have the negative impact of diluting the brand’s image (deCota 2011; Doganis 2006). This challenge is not unique to the airport context. However, the premium on space in the airport compared to the high street or shopping mall context will influence the decision of a luxury brand to distribute through a multibrand store or an independent specialist shop. The low presence of luxury-​brand stores in Paris’s airports relative to other international airports reveals that luxury brands in Paris appear to focus on their city locations rather than invest in airport stores.

Airport Luxury Retail    391

Figure 18.2.  Airport walk-​through duty-​free store at London’s Heathrow Terminal 5, UK. Source: Photograph by Debbie Pinder.

International airports are now considered luxury shopping destinations for global travellers. According to Deloitte (2017: 5) almost half of luxury purchases are made by consumers who are travelling, with 31 percent made in a foreign market and 16 percent made at the airport. For consumers from emerging markets, who typically do not have access at home to the same range of products and brands that can be found in more mature markets, 60 percent of their luxury purchases are made while travelling: 40 percent in foreign markets and 20 percent in the airport (Deloitte 2017: 5). Airport retail has proven to be a resilient market, where globe travellers are four times more likely to purchase luxury goods than in nonairport stores (Global Blue 2014). An important appeal of an airport presence for luxury brands is the premium customer profile of international passengers. ‘At an airport you have the best customers. Ten, fifteen, twenty million customers going past your door every year and they are 60 percent ABs’ (Collie, quoted in Mellery-​Pratt 2013). As refer to upper middle-​class individuals and Bs are middle-​class individuals according to socioeconomic classifications developed by the National Readership Survey (“Social grade” n.d). Moreover, growing interest in global travel is increasing the importance of having a luxury-​brand store in the contemporary international airport. Taking into consideration buying behaviour by generation, the purchase of luxury goods while travelling rises

392    Debbie Pinder and Joanne Roberts

Figure 18.3.  World duty-​free shop in London’s Heathrow Terminal 5, UK. Source: Photograph by Debbie Pinder.

with the new young affluent consumer and asset-​rich baby boomers. In a context where luxury is socially accepted and ubiquitous, luxury brands seek to entertain and satisfy the desires of the modern travelling consumer. The importance of an airport retail location for luxury brands is underlined by the fact that the sales density can be significantly higher than the best locations on the high street (Newman and Lloyd-​Jones 1999). As Muriel Zingraff–​Shariff, retail concessions director of London Heathrow in 2013, noted: For some of the luxury brands, I can tell you that their store [in London Heathrow Terminal 5] is second only to their Bond Street or New Bond Street stores in terms of productivity—​and, for some, it’s the most successful in terms of productivity per square metre.  . . .  Before, travel retail was seen as a kind of nice-​to-​do thing, but you didn’t really talk about it and it was a side part of the business. Now, travel retail is integrated into the main strategies of very big brands such as Burberry. (Mellery-​Pratt 2013 (emphasis in the original))

Hence, airport retail is now a part of a luxury brand’s overall strategy providing a platform to launch their brand onto the global market (Mellery-​Pratt 2013). As such, airports offer a means of developing and consolidating a global luxury brand identity. Luxury goods were once available in the airport only in the form of a luxury fashion house perfume, such as Chanel, Christian Dior, or Chloé, bought from the open-​plan

Airport Luxury Retail    393 duty-​free stores, but now luxury stores and boutiques have emerged housing the world’s most successful luxury brands. Luxury goods that were once available only to the elite now reach a wide socially diverse and global audience through airport luxury-​brand stores. In this way, the airport promotes greater equality of access to luxury, including affordable luxury, thereby supporting the democratisation of luxury. Most luxury brands limit their airport collections to high value and ‘best seller’ items, to maximise the return on the space available, and they include seasonal variations to suit a traveller wherever their global destination (Thomas 1997). Airport security restricts the nature of goods that can be offered and the limited storage capacity or the distance of the stockroom from the actual store also influences the range of products on sale. Over the past twenty years, the airport retail methodology has transformed such that an international traveller can now enter an airport precinct and be presented with the same exclusive names found on Bond Street, London, Rue St Honoré, Paris, or Fifth Avenue, New York (Thomas-​Emberson 2007). The stores and boutiques vary in size, depending on the goods on offer and the space available (Van Uffelen 2012). Closed-​front shops, such as Hermès’ store in London’s Heathrow Airport, Terminal 5 (Figure 18.4), tend to be the most valuable and expensive locations in the airport, with

Figure  18.4. An airport closed-​ front stand-​ alone store:  Hermès in London’s Heathrow Terminal 5, UK. Source: Photograph by Debbie Pinder.

394    Debbie Pinder and Joanne Roberts luxury brands’ competition for such locations based on brand value and retail sales. Furthermore, where the airside shopping terminal curves in its architecture, luxury brands tend to be located on the right as this is where more merchandise space lies and where most sales are made. This is because most people are right-​handed, pull their suitcase with their right hand, and simultaneously look to the right (Intervistas 2014). Airports are no longer merely spaces of passenger flow. Today they provide a unique and complex mix of experience and ambience creating a world of competitive hospitality and retail (Thomas-​Emberson 2007). International airport hubs are filled with luxury-​brand stores, which create a sense of place within the airport space through the use of iconic design features, products, logos, and iconography, crafting a luxury visual language that travellers aspire to identify with. The airport luxury store is a haven of luxury culture within a space of the hustle and bustle of the movement of air travellers. The interiors of airport luxury stores provide a unique culture of aesthetic pleasure expressed in the spectacle of their design and identity (Duncan 1995). Certain cultural rituals found within the art museum are replicated in the airport luxury store. Both the luxury-​brand store and the art museum achieve a marked off ‘liminal’ zone, where visitors are moved into a space of timelessness and placelessness where time and place lose their everyday meaning and significance for the traveller (Rowley and Slack 1999). Airport luxury-​brand stores create exclusive settings where the interior architecture and display stand out as a juxtaposition against the contrasting surrounding environment. In order to create a sense of a luxury space, visual merchandising specialists employ specific display strategies towards retail design in the airport luxury-​brand store. Amongst the core retail design elements and techniques are advertising and promotion, architecture, brand ambassadors, store layout, visual merchandising, and window display (Morgan 2016; Pegler 2011). These techniques are designed and implemented according to the limitations of the airport and the types of customers who flow through the terminal building. Additionally, the airport luxury store acts as a window to the world for global customers, thereby promoting the globalisation of the luxury brand’s identity. Indeed, global luxury brands have recognised the commercial significance and public relations value of being located in an international airport. Consequently, major global luxury brands have stores in many international airports, and now consider the airport to be their ‘sixth continent’ in retail terms (“Airport shopping . . . ” 2014).

Challenges Facing Airport Luxury Retail Luxury brands operating in airports are subject to a number of challenges relating to regulation, passenger numbers, the changing nature of customers, the availability of and competition for retail space, environmental concerns, and, particularly since the COVID-​19 pandemic, health and biosecurity issues.

Airport Luxury Retail    395 Despite deregulation in air travel since the late 1970s, the sector remains among the most highly regulated due to the issues of safety and national border security. Terrorist activities targeting air travel in the 2000s have resulted in additional security and immigration processes, reducing passenger time for airside shopping while increasing passenger stress, which can deter air travel or reduce passengers’ inclination to spend at the airport (Graham 2014; Omar and Kent 2001). Moreover, following the 2006 transatlantic terrorist plot, passengers were initially banned from carrying liquids in hand luggage. This restriction was relaxed to 100ml of liquids per container in November 2014 (European Commission 2020). However, variations in the implementation of such security policies between countries creates confusion among passengers, reducing their willingness to purchase duty-​free items containing liquid, particularly when their journey includes connection flights in other jurisdictions. Also, variation in general import limits between countries can influence travellers’ willingness to purchase duty-​free (Civil Aviation Authority 2013). Furthermore, tighter implementation of on-​board baggage restrictions will affect how much shopping passengers can do preflight boarding. Regulation concerning the provision of product information in various languages could also result in a reduction in the choice of goods available in travel retail. Security continues to be a challenge, but in recent years it has become a growing problem on board aircraft due to the disruptive behaviour of inebriated passengers. Although the industry is currently addressing this through a voluntary code of conduct, if self-​regulation fails, the limits on the purchase of duty-​free alcohol, including luxury-​ brand labels, could be tightened. Additionally, there has been much speculation in recent years over the honest reporting of the duty claimed back by retailers on products sold in the airport. To maintain the goodwill of customers duty-​free and travel retail organisations need to ensure transparency in relation to the pricing of goods and to pass tax savings gained through the sale of goods to passengers.4 Airport luxury retailers also need to fully understand the evolving nature of their customers. Growth of airport retail in the coming years is expected from travellers from China seeking luxury goods at lower prices than those available in their home country. According to the China Tourism Academy, Chinese tourists are spending 5  percent more each year on shopping while travelling (Jing 2019). Indeed, the International Air Transport Association (2017) reports that the five fastest-​growing markets in terms of annual additional passengers in 2036 compared to 2016 will be China (921 million new passengers for a total of 1.5 billion); the United States (401 million new passengers for a total of 1.1 billion); India (337 million new passengers for a total of 478 million), Indonesia (235 million new passengers for a total of 355 million), and Turkey (119 million new passengers for a total of 196 million). The Asia Pacific travel retail market will continue to grow due to the increasing middle-​class population fuelling the expansion of the travel and tourism sector in emerging Asian countries. Furthermore, airport luxury retailers need to modify their offering to cater to the desires of Millennials and Generation Z. Hence, airport luxury stores will increasingly need to offer products where online retailers cannot, and travel retail exclusives will

396    Debbie Pinder and Joanne Roberts become more significant than in the past. The ability to preorder goods via the Internet will become increasingly important. Moreover, these travellers are in search of the perfect luxury travel experience in a far-​off destination to document on social media as a means of expressing their luxury self-​identity. Luxury airport retailers also need to accommodate the needs of the baby boomer generation with their carefully saved wealth as well as Generation X, the next generation to retire and travel, bringing with them an interest for adventure and a willingness to spend in the airport. Hence, luxury brands need to develop retail strategies to reach the variety of demographic groups passing through the airport. Alongside the growth of passenger numbers, the demand from luxury brands for retail space is likely to increase, leading to higher levels of competition between luxury brands and duty-​free shops. Also, there is increasing competition from the expansion of arrival shops in destination countries. Passengers who are familiar with these postflight shopping opportunities show a reluctance to purchase in the departure terminal (Civil Aviation Authority 2013). Moreover, competition for airport retail space allows airport authorities and operators to charge hefty fees, which places enormous pressure on luxury brands. Hence, for luxury brands to locate in the airport the potential profit and benefits of a stage for an international presence must outweigh the operating costs (Civil Aviation Authority 2013; Graham 2014). Nevertheless, given the value to the airport of high-​turnover retailers, the demand for luxury retail space is likely to influence the development and design of the international airport across the globe. Moreover, luxury brands are already becoming a major factor contributing to the success of international airports as global shopping destinations. However, growing concerns about the environment may deter air travel and thereby reduce the viability of luxury retail in the airport. Consequently, the continued growth of air travel cannot be taken for granted. Recent research reveals that the contrails created by aeroplanes are contributing more to global warming than all the CO2 that has been caused by the entire 108 years of aeroplane flight (Braconnier 2011). Therefore, increasing concerns about global warming and the carbon footprint of aviation may influence travellers’ choice of transport mode. To ensure the long-​term survival of passenger air transportation, innovations in aviation need to reduce its negative impact on the planet. Moreover, luxury travel retail will follow passengers to alternative modes of transport including rail. Indeed, high-​speed rail is a substitute for many European air routes and the refurbishment of existing or development of new rail terminals now includes sufficient retail space to provide more than merely the necessities of travel. For example, London’s St. Pancras International train station, departure point for the Eurostar rail service, houses a range of retail outlets with a growing number of luxury-​ brand stores, including Chanel and Fortnum & Mason. Finally, in 2020 the COVID-​19 pandemic had a major impact on passenger air transport and therefore on airport luxury retail. Airports and airlines had to adapt to national and international travel restrictions and the collapse of tourist travel demand during lockdown periods. The introduction of passenger quarantine requirements has stimulated the call for rapid testing technologies that allow those testing negative

Airport Luxury Retail    397 to travel freely. In October 2020, a predeparture rapid testing facility was launched at London Heathrow Airport providing COVID-​19 tests to passengers travelling to Hong Kong at a price of £80 (Kollewe and Topham 2020). Until a vaccine is widely available, such developments are likely to be important facilitators of international passenger air transport. Although the demand for air travel is likely to return to pre-​COVID-​19 levels, the airport experiences will no doubt evolve to accommodate the new biosecurity issues that the pandemic has highlighted. The luxury-​brand airport store will have to adapt by, for instance, promoting its health protection measures and creating store interiors that are relaxing but display high levels of hygiene and allow space for social distancing. As health-​related processing of passengers may reduce the time available for shopping, luxury-​brand stores may offer service by appointments, which could also address customers’ anxiety over in-​store social distancing. Furthermore, air passengers may make greater uses of ‘click and collect’ opportunities to prepurchase their luxury goods and merely pick them up in the airport. The use of online shopping in advance of travelling will require luxury brands to raise the quality of their online experience by incorporating technologies such as augmented reality. Clearly, the airport luxury brand stores will need to offer innovative and exceptional experiences, exclusive products, and personalised services to appeal to the changing priorities of their customers.

Conclusion The relationship between luxury and the airport has evolved over time. Although air passenger travel began as a luxury, only available to the rich and famous, it is now commonplace in economically advanced countries. Yet luxury has not disappeared from the airport; rather, it is now an integral part of every air passenger’s experience in major international airports. Airport retail has evolved since the early duty-​free offering at Shannon airport in 1947, such that today it is an essential element in the successful commercial strategy of the international airport. Luxury in the airport provides an opportunity for luxury brands to showcase their goods to a wide and global audience. Guaranteed a good number of upper-​and middle-​class shoppers, the luxury stores provide a window onto a world of luxury for aspiring luxury customers. Hence, luxury-​brand airport stores provide a valuable advertising and promotional resource for the brands, a factor that needs to be considered when assessing their commercial viability. An airport location allows luxury brands to reach a wider audience than their stores in the luxury districts of major global cities. The accessibility of walk-​through stores and the absence of security doormen at closed-​front airport stores ensure that luxury is available to customers from all walks of life. Indeed, the luxury airport store can be seen as a means of democratising luxury. Aspiring luxury customers can purchase affordable perfume sets in duty-​free stores or more expensive items at tax-​free prices in specialist luxury stores. In the future, airlines, airports, and luxury retailers will need to work more closely together to serve the same customers at different points of the journey through the

398    Debbie Pinder and Joanne Roberts airport. This is particularly important given the evolving health and security environment and its impact on the operation of airports. Nevertheless, and despite environmental concerns, the growth of air travel is expected to continue. Hence, the number of airport luxury-​brand stores will grow and they will continue to contribute to the democratisation of luxury and to the globalisation of luxury-​brand identities.

Notes 1. At the time of writing the UK government’s reform of the tax-​free shopping for tourists in the United Kingdom, including airport shopping, was due to come into force on 1 January 2021. If introduced, these reforms will severely damage the competitiveness of the UK’s tourist luxury sales relative to those in other European countries. 2. In some countries, such as the United States, duty-​free goods purchased must be sealed and hand delivered to the passenger at the gate once their ticket has been scanned and they are about to embark on their flight. 3. Within the EU, all countries are required to charge and collect VAT. For instance, in the United Kingdom, it is set at 20 percent; however, products like books or goods such as children’s clothes and child-​related equipment, or food and medicine carry with them no VAT, and some other items carry a 5 percent rate of VAT. 4. When purchasing goods in an airport, passengers must present their boarding pass. If the sale is made by an individual travelling internationally, the retailer is able to benefit from the exemption from duty/​tax.

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Chapter 19

Intellectual Prope rt y Rights and Country-​o f-​ Origin L abel s i n t h e Luxu ry In du st ry Véronique Pouillard

This chapter examines the role of two protective mechanisms for the luxury industries:  intellectual property rights, and country-​of-​origin labels. It outlines the tools that luxury firms can find in intellectual property rights to protect their brands and products from unwanted substitute products (Porter 1990: 35; Lopes and Duguid 2010: 2). Intellectual property rights are a large ensemble of rights that apply to firms and persons individually. They comprise trademark, industrial property, patent and copyright, and can extend to (un)fair competition and trade secrets (Palfrey 2012: 41–​51; Patry 2011: 75–​78). The country-​of-​origin-​labels provide a complementary form of protection that is collective. Both types of right go beyond luxury products. In this chapter, historical examples show how luxury firms can use these protective forms. Intellectual property rights and country-​of-​origin labels serve several functions that can mostly be summarized in four groups. The first one is to serve as incentive to innovation. The second one is to inform the buyer on the nature of the product (Kapferer and Bastien 2009; Lacroix and Bénéteau 2012: 20). The third one is to protect the product against unwanted substitute products and imitations (Porter 1990: 35). And, the fourth is to contribute to the marketing of the product, especially by advertising it as exclusive and authentic (Stewart 2008: 59–​65; Troy 2002: 334–​337). Narratives play a central role in the marketing of luxury goods and services, even as research has shown that these narratives can be partly historical and partly fictional, and therefore should not be a substitute for, or confused with, academic study (Donzé and Wubs 2019: 83–​102). Firms can use intellectual property rights and country-​of-​origin labels as a part of their storytelling. Historical research shows that the French luxury entrepreneurs that to this day retain a key place in the luxury industries have not only

404   Véronique Pouillard used intellectual property rights and country-​of-​origin labels to protect their products but also have often played an active role in shaping such laws and lobbying governments in order to ensure that these laws could be reinforced and enforced. The relation between a strong framework of intellectual property and a thriving luxury sector, however, is not a direct one and should therefore be considered with caution. For example, the rise to prominence of luxury firms in Asia during the last two decades can, though not systematically, result in the development of stronger intellectual property laws in their host countries (Donzé and Fujioka 2017; Mertha 2005).

Portfolios of Intellectual Property Rights and Their Role in the Luxury Industry Intellectual property rights are a composite of various types of law that luxury producers and entrepreneurs can use in order to protect their brand, products, and know-​how. Firms manage and build their intellectual property rights portfolios, that can be defined as composites of intellectual property rights. These portfolios tend to change over time, as they adapt to the legal context, to the firm’s international expansion, and products diversification. The relative importance of the distinct types of law used to protect luxury products varies according to the countries in which the firm is active. The strengths and weaknesses in national intellectual property rights regimes entice entrepreneurs to build their portfolios accordingly, and adapt them to the markets in which they operate (Bomsel 2010; Dreyfuss and Ginsburg 2014; Lefranc 2010). In the United States, a relatively weak protection of fashion design was added to the existing fairly weak trademark law until 1946 (Marcketti 2005; Marcketti and Parsons 2016: 25–​28; Scafidi 2005: 14, 31). Firms selling luxury fashion in the United States tended to rely upon other legal instruments to protect their designs, notably design patents and trade dress, which protects the unity of packaging, logos, and designs of stores. The United States is also one of the countries where service marks used to identify a service rather than a product have gained importance. Standards of uniformity and quality are dominant concepts in this understanding of the legal rules (Gorman 2017: 371–​388; Stewart 2008; Troy 2002). The number of industries covered by copyright protection grew in the United States during the nineteenth and twentieth century, to include popular songs and advertising design, for example. Later on during the twentieth century, design objects and prints for fabrics could also use protection under the U.S. copyright law (Khan 2005). But, despite numerous attempts and lobbying from parts of the fashion and luxury industries, U.S. legislators have failed to include fashion design within the scope of the copyright law. Design patent law was indeed available for the protection of fashion works in the United States, but this law aimed to protect technical innovation. In the fashion industry, technical innovation cannot protect all forms of innovation. Often, new designs

Intellectual Property Rights and Country-of-Origin Labels    405 are aesthetic variations in cut, color, and material over well-​known functional shapes that aimed to cover the body in a rather consistent way, with a body, sleeves, legs, or skirt. There is therefore little use for design patent in the protection of fashion designs. Such a limitation means that the American legislation tends to define fashion by its utility and functionality rather than by its aesthetic innovation (Gotshal 1945: 5–​17; Marcketti 2005; Pouillard 2011: 319–​344; Pouillard and Østbø Kuldova 2017). In French law, however, luxury fashion design can be protected by design patent, industrial protection, and copyright law. The latter especially makes the protection of fashion designs efficient and easier for the entrepreneur. Design patent requires that if a lawsuit takes place, the designer can produce a proof of anteriority of his or her creation. Therefore, design patent law requires that the design is registered with an appropriate registration bureau, for example, the Prud’hommes trade board in France (Stewart 2008). Most often several registration offices coexist and use standard systems of registration, which generally involve the registration documents being placed in sealed containers to be accessed only in the case of a lawsuit. The uses the various types of law to protect a luxury product can also change over time. In the case of the luxury fashion in France, the French small crimes courts in charge of judging cases of counterfeiting used to rely first and foremost upon the industrial design rules (Millet 2017). But increasingly from the late nineteenth century, the lawyers of the Paris haute couture firms that sued counterfeiters used the author’s right law. The French author’s right law is the French law version of copyright. Today both author’s right and copyright are nearly the same, and yet the author’s right contains the premise that the author has a moral right of ownership over the creations of his or her mind. During the interwar period, the French couture firms increasingly won counterfeiting cases using author’s right protection (Allart and Carteron 1914). Art historian Nancy Troy (2002) has analyzed these lawsuits as the product of a quest of authenticity of haute couture that marketed itself as a form of high art. A symbiotic relation then developed between music, dance, painting, illustration, arts and crafts, and haute couture. This resulted in nurturing connections between Fauvist and Cubist painters, the Russian ballets, and luxury firms. Many entrepreneurs, notably Jacques Doucet, Jeanne Lanvin, and Paul Poiret, were during the first couple of decades of the twentieth century fervent art collectors. Quite naturally they sought to identify the creation of haute couture and tie-​ products such as accessories and perfumes to the authenticity of works of art, a process that has remained in favor to this day, as analyzed by Joy and Belk in this volume (Davis 2008: 38–​47; Kurkdjian 2014; Stewart 2008; Troy 2002: 54–​66).

Haute Couture: An Arms Race to Intellectual Property? The haute couture entrepreneurs organized in employer syndicates. Such a model of collective action by association is shared by others, but not by all branches of the luxury industries. Another example is the Swiss watch industry, whose members hold

406   Véronique Pouillard to precise standards of production (Donzé 2011, 2017:  25–​30, 138–​139; Swiss Made 2020). In addition, couturiers allied with other creators in order to set up specialized syndicates solely dedicated to the protection of their intellectual property rights. During World War I, Paul Poiret founded a Committee of defense of French haute couture. The Committee waged virulent press campaigns against the piracy of French haute couture designs which was alleged to have taken place especially in the United States, Germany, and Austria. Poiret and a small of group of couturiers sued intellectual property rights infringers in the courts on both sides of the Atlantic, with limited success. They lobbied the French and American authorities in hope of obtaining a reinforcement of protective rights for their trade. Against the backdrop of the war, and especially of the powerful anti-​German sentiments that Poiret and some of his peers voiced in the media, the action of this Committee of defense appeared clearly nationalistic. Several of Poiret’s contemporaries thought that his protectionist diatribes were excessive and left the Committee in 1916. The action undertaken by the Paris couturiers to protect their intellectual property rights were then left to the collective work of the Syndicate Chambre Syndicale de la Couture Parisienne (established in 1868)  and to private initiatives. During the next decades, several new associations of craftsmen and luxury producers in France engaged with intellectual property rights and lobbied governments for better protection of their products (Kurkdjian 2014: 172; Marcketti and Parsons 2016: 66–​70; Pouillard 2011: 319–​344; Stewart 2008: 128–​131; Troy 2002: 234–​249). The trade of haute couture, and especially a cluster of firms based in Paris, pioneered the use of intellectual property rights in order to protect their designs and the products of their trade, which were first clothes, then from 1911 included perfumes, when couturier Paul Poiret launched Les Parfums de Rosine. Most of the other Paris-​based couturiers soon launched their own higher-​end perfumes (Briot 2015; Stewart 2008: 81). In the 1920s, two new couturiers were especially active in the defense of intellectual property rights in the luxury trade. The first one was Jeanne Lanvin, an early mover in adding perfume to her couture activity, and one of the few haute couture entrepreneurs to offer a menswear line during the interwar period. Jeanne Lanvin was especially active in promoting the registration of haute couture designs and the collective label Unis France, present on the French market from 1916 as a reaction to the import of German products. This label, notes David Higgins in his milestone book on brands and geographical origins, was unsuccessful, and was gradually replaced by the label ‘Made in France’ from the mid-​ century period onwards. This was the first time that a collective haute couture label also included an indication of nationality (Higgins 2018: 46; Picon 2002: 110, 283). Another couturière who proved to play a fundamental role in the protection of haute couture and its tie-​in products was Madeleine Vionnet. Vionnet was a prominent haute couture entrepreneur in interwar Paris. Her designs were among the most prized on the American market, where she tried to set up shop in 1924, but failed to settle permanently. Like Lanvin, Vionnet attempted to create haute couture that was complex enough to deter some of their counterfeiters’ attempts. Vionnet, however, thought that this was not enough. She developed a dual strategy of protecting her intellectual property and of suing any supposed infringers in the Paris courts. In 1919, Vionnet commissioned Italian futurist artist Ernesto Michahelles, who used the pseudonym Thayaht to sign his works,

Intellectual Property Rights and Country-of-Origin Labels    407 to create her logo. That logo represented in stylized form a woman holding in front of her a Greek khiton, a draped garment that was an aesthetic synthesis of Vionnet’s use of flowing fabrics. That shape also formed the initials of Vionnet, MV. Thayat’s logo for Vionnet was used in all her communication, from letterhead paper to packaging. The same logo was adapted in an all-​over print that was used possibly for the first time by a couturière, to print wrapping paper used to wrap purchases made at Vionnet. Vionnet protected her brand and registered her logo. During the 1920s, she printed the fabric labels for the garments she created with a thumbprint, and made of this a press campaign, claiming that this was her author’s signature to the garment. Vionnet registered her designs, using photographs of the front, back, and side of every garment she created. These could be used by Vionnet to prove the anteriority of her work when she sued counterfeiters in the courts. Vionnet used all the tools of intellectual property rights. Occasionally she also registered patents for technical innovations in designs and in fabrics. Vionnet hired lawyers as managing directors of her firms, and recruited other lawyers to represent her in the numerous lawsuits she waged against copyists at the small crimes court of Paris (tribunal correctionnel). In so doing, Vionnet created a place for lawyers as major actors in the management of the fashion industry (Golbin 2009; Kirke 1991: 122–​133; 221–​225; Pouillard 2011: 319–​344, 2016: 76–​89; Stewart 2008: 123). Today, the large luxury firms have their own legal offices in-​house. Luxury groups may also centralize legal services and make them accessible to their branches. Lawyers specialized in such questions help manage their intangible assets and intellectual rights portfolios and strategize legal action when needed, although the maturing of intellectual property has resulted in an increase in negotiated agreements over court procedures. Entire legal careers specialize in the management of the legal counsel of luxury groups (Mikulfka 2017; Schiaparelli 2018). Fashion is highly derivative and, despite her best efforts Vionnet remained one of the most copied of the French couturiers. It is therefore relevant to question the motivations of luxury brands when they deploy important means and energy in order to pursue an impossible goal, that is to eradicate counterfeits, also called piracy by the plaintiffs. Several motivations can be highlighted. One is the status of the entrepreneur as creator, artist, or craftsman, which may encourage the entrepreneur to capture revenue from intellectual property. Another one is the motivation to hamper piracy on the domestic and international markets. And a third motivation is to use the authenticity conferred by intellectual property to market luxury products. All these motivations seem to apply and to be interrelated in the case of Paris couture (Blaszczyk 2007, Okawa 2007, Palmer 2001).

Perfume and Cuisine: a Lack of Legal Protection Haute couture firms developed as luxury brands over time. Economic crisis and increased social costs and taxation pushed the couturiers to seek newer sources of

408   Véronique Pouillard revenue, which they did by launching lines of accessories, designer ready-​to-​wear, cosmetics, and perfumes. Today haute couture brands register more designs for accessories than they register designs for garments, yet it remains important to preserve the prestige of the original haute couture profession. This reflects the gradual shift in the activity of haute couture firms during the twentieth century, from bespoke clothing towards accessories and perfumes produced in series. The internationalization of the haute couture trade happened first and foremost by way of the perfume activity. Couturiers capitalized on the technical innovations realized by the beauty entrepreneurs of the nineteenth century, who were international, with important firms in France, Germany, and Russia. Perfume was the first product that the haute couture brands sold on international markets, seeking to conquer the American markets from the interwar period onwards (Briot 2015; Jones 2010: 110). The history of perfume shows that its entrepreneurs protected parts of their innovations: they took patents for innovation in chemistry, for ingenious mechanisms for dispensing perfumes and cosmetics boxes, or to the design of their bottles. In the French perfume industry, the designing and making of perfume bottles often resulted from an alliance between the glass industry, with brands that include Baccarat and Lalique, and the perfume and couture industrialists (Bergeron 1998:  98–​101). Today, the small town of Grasse in Southern France has remained the world’s perfume capital, and France is still at the forefront of the branded perfume industry. The content of the bottles, that is the cocktail of scents that compose a perfume, cannot be protected under the French copyright law. The rationale is that a scent, as complex as it is, cannot be the object of intellectual property. Considering that copyright does not protect the creation of scents in France, and yet that this country is at the forefront of the industry globally, this tends to show the limits of the power of intellectual property rights for the luxury industrialists. But this can also show us that the relevance of intellectual property varies across types of products, pricing, and markets. Perfumes are amongst the most affordable luxury products. With cosmetics, they are the cheapest products that couture brands offer. Their price point differs drastically from most other branded goods of the same firms, notably leather goods, higher-​end designer ready-​to-​wear, and the most expensive haute couture (Delpal and Jacomet, 2014; Phillips, 2006). Perfumes may represent a share of market in which customers would rather pay to acquire an authentic product, and therefore a share of the dream carried by the brand. Another issue is the complexity of the reproduction of scents, and the necessity to access exactly the right ingredients, many of which, such as roses for example, are still produced in the region of Grasse. The delicate balance needed to provide the right scent may simply be a deterrent strong enough to discourage a competitive production of a substitute perfume at a cost that makes copying profitable. The debate is ongoing on the need for intellectual property rights to protect the creation of original blends of scents. This aligns with the rise of firms, such as Givaudan, and Firmenich, now pioneers in the use of artificial intelligence to create fragrances, which develop perfumes for luxury brands. Such specialized firms are strategic with, and protective of their innovations and intellectual property (Briot 2015; Chandler 1990; Jones 2010; Shams 2014).

Intellectual Property Rights and Country-of-Origin Labels    409 The lack of protection for the creation of perfume can be considered. along with haute cuisine, another luxury industry that has a peculiar relation to intellectual property rights. Fauchart and von Hippel have managed, by approaching the sociology of chefs, to understand how they relate to intellectual property. Rather than seeking to lobby for a complex and cumbersome system of protective rights, the profession has settled for norms-​based intellectual property rights systems. Chefs agree that they would not copy the new recipe of a colleague for a buffer period, which is often two years. Highly skilled professionals also work together to train new talent, and therefore they are keen to exchange know-​how and recipes past their early exploitation. In addition, haute cuisine tends to favor reputation management over other types of protection, which ensures that mutual respect between professionals remains a standard in the profession. Intellectual property rights, in the case of luxury industries such as haute cuisine and luxury perfume, tends to stop at the protection of a combination of molecules and their effects on two senses: taste and smell. Theoreticians of law have argued that some senses are deemed of higher importance, especially vision, and other senses are deemed lower. Furthermore, taste and smell are interconnected to private, subjective sensations, which makes legal protection irrelevant from the vantage point of the legislator (Calleja 2013: 3–​30; Fauchart and von Hippel 2008: 187–​201).

Brand Codes and the Legislation over Trade Dress Luxury brands undergo numerous obstacles when trying to protect trademarks and designs, and especially when operating on international markets. As with other sectors of activity, firms confronting asymmetries in the legal frameworks develop various strategies to overcome them (Jones 2005; Wilkins 1970). As intellectual property rights law is not the same in every country, firms adapt their strategies to the existing legal frameworks. Where and when luxury firms find that the trademark law or the copyright law are too weak, they use other modes of protection. In the United States, we have seen that trademark law was comparatively weak until 1946, and that copyright law cannot be used to protect fashion to this day. One strategy that firms in the U.S. market have used is to find protection in the trade dress law. Trade dress protects the aesthetically unified features of the brand: for example, the similarity of the Starbucks coffee chain interiors, the unicity of the Louis Vuitton logo used all over a garment or a handbag, or the very peculiar shade of blue that jeweler Tiffany uses in all of its marketing and packaging. Jeweler Cartier uses a peculiar shade of red, saddle maker Hermès a shade of orange, Chanel a distinct combination of black and white, Dior a subtle pearl gray. The trade dress law allows protection of the consistent use that a firm makes of such codes to create a visual and even an atmospheric universe for a brand (Bharathi 1996; Lacroix and Bénéteau 2012: 20–​21).

410   Véronique Pouillard Firms’ branding and design departments can supplement such a use of color, for example, by one or a small group of other distinct design or symbolic elements. These elements are called the codes of the brand and the employees in charge of the communication for a brand expound that these codes taken together form the identity of the brand, for which they often use the metaphor of the DNA. These codes contribute to the creation of a symbolic identity for the brand and are also useful in the internal communication of the firm and the education of its sales force. Among the pioneers in such methods of communications was the French couturier Christian Dior. Today, Dior is a flagship brand for LVMH, the biggest luxury group in the world. Initially the brand was founded in 1946 by the French textile entrepreneur Marcel Boussac, who hired the young designer Christian Dior to design and front a style laboratory for his group. Managed by Boussac and Jacques Rouët, Dior innovated in branching out internationally in the United States, Great-​Britain, Central and South America, Asia, and Australia. The firm was a pioneer in broadly licensing the Dior brand, thereby changing the business model of haute couture to what it has become today. For most couturiers, the haute couture shows are now a powerful advertising method for numerous lines of branded goods. As Vionnet had done before him, Dior hired lawyers in charge of managing the intellectual property of the brand and to keep control over its dissemination. Dior was also a pioneer in initiating counterfeiting lawsuits, especially with the engagement of the firm in a high-​profile case against the New York sketcher Frederick Milton. Four Paris couture firms, Dior, Fath, Lanvin, and Patou, managed to secure the dismantling of Milton’s copying activity in the New York Supreme Court (Pouillard 2017: 356–​370). Dior was also a pioneer in the use of recurrent symbols to advertise its brand, that all together form the ‘Codes Dior’. These codes are referenced in large albums of visual material kept in the archives of the firm’s Paris headquarters. Together or separately, these codes can be used as narrative motifs to enhance advertising and storytelling material for the brand’s product. At Dior, these are a precise shade of gray, a black and white houndstooth motif, the cannage motif, the Louis XVI chair, the lily of the valley (both drawn and as a symbol for the scent used in the firm’s branded perfumes, which partly counters the lack of protection over scents). Many of these motifs are related to the personal preferences and even the superstitions of Christian Dior. New designers who have succeeded Christian Dior after his death in 1957 can also use these codes as narrative motifs that create continuity in the brands’ creativity (Jones and Pouillard 2009; Palmer 2009: 91; Skillen 2019).

The Use of Country-​of-​Origin Labels Using the place of production in order to brand products is a commercial practice that has a very long history and can be examined for specific objects: oils, wines, woolen fabrics, ceramics, among others. The literature on the consumers’ revolution points to two key questions. One is the changing circuits of luxury production and trade. During the seventeenth and eighteenth centuries, the markets in the West sourced the most

Intellectual Property Rights and Country-of-Origin Labels    411 desirable luxury goods such as porcelains, printed fabrics, and spices from China and India (Berg 2005: 46–​84). The other key question is the centrality of the nation in the promotion of mercantilist politics by the European states. The most famous example of the use of such national policies is that pursued by Colbert, Louis XIV’s Minister of Finance, which contributed to the prestige of Paris fashion (Coquery 2011; Steele 1988). To this day, governments have kept supporting their regional and national luxury industries by using a series of protectionist mechanisms that include governmental subsidies, tax exemptions, tariff barriers, and intellectual property laws (Irwin 2011). The protection by intellectual property rights highly varies along with time and place. Typically, first movers tend to protect their innovation, while countries that engage in the production of substitute products do not commit to similar intellectual property right law. Then such policies are increasingly adopted by more recent entrants as they shift their strategies from imitation, to home-​grown creativity (Porter 1990: 562–​566). The country-​of-​origin label (COOL) was created first in Great-​Britain in 1887 to protect British innovations against German copies (Rayasam 2013). In the United States, the tariff acts, especially the McKinley Tariff Act of 1890 and the Smoot Hawley Tariff Act of 1930 imposed country-​of-​origin labels for manufactured goods. The U.S. legislation on the country-​of-​origin labels was further extended by the 2002 and 2008 farm bills. In European Union countries, the European integration process reinforced and unified the law on the country-​of-​origin labels during the postwar era (Bonin, Kózminski, Carles Marena, and Segreto 2012; da Silva Lopes 2007). Legislation on country of origins is most often made mandatory over the import of the goods. The importing country charges the exporter with the responsibility of labeling his products adequately prior to accepting them on the import territory. The laws on tariff and customs therefore rule country-​of-​origin labels, including how to label an origin in a clear and accessible manner on goods going through customs (Irwin 2011; Peppler 2013). Most often the country-​of-​origin label can be added to another label. Sometimes this label reinforces a tradition of production. Country-​of-​origin labels can also be one of several expressions of a reinforcement of protectionist policies. Campaigns for national purchase of products are far from being reserved to the protection of luxury. For example, in the aftermath of the Great Depression, numerous Western countries started advertising the purchase of nationally produced goods as a form of citizen’s duty. These campaigns were addressed mostly to all consumers’ strata and were not reserved to luxury; rather, they were also about buying daily necessities (Trentmann 2008: 230–​240, 2012: 6). The debate on terroir developed in nineteenth-​century France in a context of heightened nationalism, as well as of scientific innovation. The new developments of chemistry, as well as a higher need for quality control of goods, and especially foodstuffs, equally contributed to create new standards of production, both for luxury products as well as for more widespread consumer goods. French economist Adolphe Blanqui was a pioneer, in his Cours d’économie industrielle of 1837, of the use of the word terroir. Historians have shown how the promotion of terroir politics, exemplified by the birth of appellations d’origine contrôlée and denominazione di origine controllata, was tightly connected to the rise of the nation-​state in France and in Italy. In this context, wine innovator Jean-​Antoine Chaptal became one of the ideologues of the French

412   Véronique Pouillard terroir (Bergeron 1998: 12–​18). Historian Kolleen Guy has discussed the idea of terroir as a political invention that gathered support in times of rising French nationalism, with a focus on the case of Champagne wines. Historians have tended to situate the emergence of the terroir as a political and social construction rather than essentializing it. The examination of the historical sources show the lobbying and tensions that arose among politicians at local and national level, négociants and producers, when the French government set to the task of tracing the border of wine-​producing regions. Definitions of terroir include geographical and geological elements present in the soil, distinct blends and varieties of grapes, as well as cultural elements that focus especially on the know-​ how of the people working on this terroir. Most of the time, however, other regions may produce similar or near similar products to the ones of the terroir. Its geographical limits, as well as the definition of strict methods and materials of production, as in the case of Champagne, may ensure some rarity to the product. Producers may experience at some point that the borders imposed by the terroir have become too narrow, and they may then capitalize on their brand name to sell related lines, especially to remote markets, such as the brand Domaine Chandon sold in Asia, that Ghislain de Vogüé, the manager of Moët et Chandon created in Australia. Domaine Chandon capitalizes on the brand name and know-​how of a famous wine house without using its denomination of origin (Bergeron 1998: 55; Guy 2007: 118–​157; Stanziani 2012: 162–​167). The courts need to evaluate to what extent competitors that use the name of the appellation may harm the brands that have the legal right to use it. The risks can be banalization, depreciation, or weakening of the name when used for nonsimilar products or services. Over the last three decades, the tendency has been to develop the absolute protection of the denominations of origin. In the case of Champagne, this means that any third party is forbidden to use the champagne label, a decision finalized by the French highest court (Cour de Cassation) after a string of cases that took place in the last decades of the twentieth century. The most famous example of such a litigation may be the case of the perfume created by the haute couture house of Yves Saint Laurent under the name Champagne, that received an interdiction to be further produced under this name in 1993. The same perfume was subsequently rebranded under the name Yvresse, a pun that combines the first name of the couturier, Yves, with the word ivresse, which means drunkenness in French (Bonet 2004; Delfosse 1997).

The Imagined Communities of the Nation, the Region, and the Terroir Researchers in the humanities and social sciences have sought to understand the influence that national stereotypes attributed to place of production can play in a purchasing decision. Fake origins have a very long history, which indicates that sellers tend to think that the name of a prestigious place of production can influence favorably a decision to purchase. French-​and Italian-​sounding brand names for fashion and luxury items

Intellectual Property Rights and Country-of-Origin Labels    413 for example are present around the world (Anderson 1983: 46; Hobsbawm and Ranger 1983: 11). The mystique of the origins that a Made in France, Italy, or Switzerland label may carry can also give good conscience to the purchaser of luxury when the difficult conditions of the production of mass-​manufactured goods are being exposed, even if the supply chains are often more complex than the label suggests, as discussed in by Alessandro Brun and Hakan Karaosman (in this volume). This is a recurrent cultural feature that tends to take center stage when countries invest in communication that promotes domestic products. Historians have shown that this rhetoric has been used both by the left and by the right, with quite variable rationales to support it. The protectionist intent in incentives to buy national products should therefore be considered with caution in terms of political agendas (Trentmann 2012). One important question is also the national stereotypes, which are simplified images that point to features of a constructed national identity, which can also be read in country-​of-​origin labels. Images of national brands change. For example, Italy gained a very positive image for the Made in Italy brand during the postwar period, which was far from being the same during the interwar period. Currently the image of the Made in China brand is ascending fast, as newer suppliers outside China provide cheaper goods, and as the Chinese workforce keeps acquiring new skills. Yet this improvement in image may be tarnished, for example, should breaches in human rights occur (Chang 2009; Coombe 1998; Mertha 2005; Rofel and Yanagisako 2019). Researchers have also approached the reasons why national brands get better or worse reputations, and they have pinpointed the difference between the micro-​and macro-​ elements in the perceptions of regional and national brand identities. For example, although the United States in recent history has undergone periods of Francophobia on the grounds of international politics, it hardly impacts the sales of French personal luxury goods, for which New York is still the most important buying area in the world. This can be attributed to the fact that although the perception of France in the United States shapes the macro-​vision of the country, consumers of luxury goods tend to focus on the micro-​level, or the perception of France as a stereotypical source of high-​end craftsmanship, tradition, fashionability, and refined luxury. Examples converge to indicate an endurance of national stereotypes, even if the values that these stereotypes represent on the political or social level are rather weak, or even contradictory to part of the system of values of the consumers of those brands (Amine 2008: 402–​422; Ettenson, Gaeth, Wagner 1988; Jimenez and San Martin 2010: 34–​45). As production chains complexify, the denomination of the country of origin can evolve. It also becomes more difficult to create accurate rules for the country-​of-​origin labels, as the production of various components of the final product and various steps of its finishing can occur in different countries. Therefore, the steps of production that should prevail in deciding a country-​of-​origin label can be subject to dispute. For example, should the product receive a country-​of-​origin label that denotes the place where the product was finished? Or the place where the highest percentage of the production operations took place? If so, how is a percentage of the production chain defined: in number of hours, in quantity produced, in wages? These questions show at

414   Véronique Pouillard once that labelling adequately according to the country of origins presents challenges. This also shows potential for various interpretations, for contestation, and for labelling fraud. More generally, historians have shown that the luxury sectors and cluster industries could only be started because of the input of international entrepreneurs and innovators; for example, in Switzerland, the border crossings between the French and Swiss workers and innovators played a crucial role in the development of the higher-​end watch industry. Even though Made in Switzerland is a prestigious label, it rests both on local clusters within the national space, and was shaped by cross-​border experts and transfers of knowledge (Donzé 2011, 2017; Kotler and Gertner 2002).

Luxury Product without Terroir Some luxury brands garner prestige without specifically or systematically being related to a territory or a terroir. This is the case of numerous luxury alcohol brands of gins and whiskeys. In the case of whiskey, prestige can be associated with places of production, notably in Scotland, but the achievement of a great product and taste is not directly associated to the place of production as terroir. For example, over the last decades, Japanese whiskeys have reached great prestige, notably thanks to the organization of competitions in quality in which Japanese productions have earned sought-​after awards. Whiskeys from Ireland, Scotland, and Japan are considered to be equally authentic and enjoyed as luxury products. And yet, this is not a generality, as branding can still, even for a similar alcohol, be associated to the place of the production, as in the case of Jack Daniels, whose brand name is conditioned to production in Lynchburg, in Tennessee (Higgins 2018: 3). Decoupling of product quality from any terroir is also the characteristic of the production of gin, a type of alcohol that has gone through various fortunes since the nineteenth century. Powerfully described in the imagery of Hogarth as the mother of destitution, gin was in the nineteenth century considered a product for the poor and the depraved in the British society. It has regained fame and lustre through both big brands, such as Sapphire Bombay gin, and a multitude of smaller brands that emphasize the small-​batch production, craftsmanship techniques, in the production of the various iterations of this alcohol (Pedeliento, Andreini, and Dalli 2015, 2017). One related question is to assess whether relocation of all or part of the chain of production may affect the sales of a luxury brand. For example, the industry of luxury leather goods, and in particular the production of handbags, provides useful concrete examples. Leather goods brand Louis Vuitton, for example, keeps basing an important part of its marketing and communication with the press on opening occasionally its flagship workshops in Asnières, in the banlieue of Paris, in order to show that handbags are produced there according to the highest standards of craftsmanship, even if the brand also uses other places of production, as shown by Sandy Black (in this volume). For some time, as examined by Nebahat Tokatli through the case of Italian brand Prada, firms devised various strategies to managed the so-​called dark side of production,

Intellectual Property Rights and Country-of-Origin Labels    415 whether using clandestine labour on domestic markets or relocating part of the production behind the ‘Made in’ brand (Bonvicini 2004; Tokatli 2014: 1–​9). A spatially decoupled form of relation to the places of production seems to have appeared over the last decade. Indeed most luxury brands have now modified their production strategies and do not seek to hide that they have relocated all, or part of their production overseas. This is the case of Delvaux, the oldest firm continuously producing luxury leather goods, founded in Brussels in 1829. The firm specialized in travel goods and over time developed lines of high-​end handbags. Over the last decade, the firm sought to rejuvenate its image and diversify its clientele. Its image of high luxury, slightly more confidential than the best known high-​end French brands of luxury goods, gained Delvaux a new clientele outside Belgium and the West, especially in the Asian markets. In 2011, First Heritage Brands, the financial arm of Hong Kong-​based Fung Group, invested capital in Delvaux, giving the firm the assets to branch out in Asia. At the same time, Delvaux located excellent know-​how in Vietnam and relocated part of its production, from Belgium there. The question of the importance of production location to brand identity can arise in such cases, and luxury brands develop various strategies, some relocating only part of their lines abroad, or choosing instead to keep sufficient part of the production local, to be able to advertise its home country as country of origin (Judah and Pouillard 2009). Clear tendencies to increasingly globalize production, including in fields of production that rest upon relatively rarefied crafts, have further contributed to dilute the appeal of geographical names of origin. In light of this, the European Union has sought to clarify and regulate the use of the labels of geographical and regional origins. Yet, the analysis of economic historian David Higgins reveals that the use of such labels to inform the consumer remains a ‘complex, dynamic, and multi-​ layered’ enterprise (Higgins, 2018: 248).

The Limits of IPR and COOL Protection The limits of intellectual property protection and country-​of-​origin labels therefore have to be evoked to conclude this chapter. From the consumer’s point of view, are they really effective guarantees of the qualities of a product? For the entrepreneur, can they effectively protect a luxury product against unwanted imitation, which may dilute the identity of the brand? As we have seen from a historical perspective, the tendency goes towards a reinforcement of intellectual property rights (IPR), including in countries that have been latecomers in the field, such as China (Mertha 2005). Similarly country-​ of-​origin labels and their reputation management is not static, and the brand image of a country can improve as production moves towards the higher end. The first question concerns the potential limitation of IPR as a means to protecting the innovation in highly derivative goods, such as luxury fashion and accessories. With this type of goods, a risk is the overuse of IPR, for example, as a tool aiming to harm competitors rather than as an incentive to innovation (Kirke 1991; Troy 2002). Overuse of intellectual property rights, for example in circumstances where an infringement

416   Véronique Pouillard has no direct impact on sales, as in the case of LVMH suing artist Nadia Plesner for integrating a Vuitton representation in an unrelated work, can also harm the brand (“Art Student Nadia Plesner  . . . ” 2008; Marikar 2008). Temporality is an important factor in intellectual property as well. In the case of fashion, this translates as an erosion of the value of protection after a limited amount of time. For this reason, some of the law projects aiming to give copyright protection over fashion in the United States considered making this protection available only for a very limited time span. In addition, the derivative factor in fashion is powerful enough that unauthorized copies with a few modifications will appear quickly, the imitator hoping that the features he or she changed would suffice to escape counterfeiting pursuits. It is therefore unsurprising that luxury fashion has found a refuge in static objects that, in the era of faster fashion, retain the strong aesthetic power of classic shapes. The Chanel black tweed jacket and 2.55 handbag, the Hermès Birkin and Kelly handbags are all powerful examples of static luxury products (Suk Gersen, in Op den Kamp and Hunter 2019: 249–​254). These objects also tend to present a stable or augmented value with time, which allows for a thriving vintage and auction market. It is also possible that some highly crafted objects cannot be reproduced in a cost-​effective manner to make fakes profitable. The second question is the subversion of the country-​of-​origin labels that can be found when examining chains of production, for example, of a watch labelled ‘Swiss’ but for which the majority of components are made elsewhere, and assembled in the country of the label (Donzé 2011). The third question is the utility of country-​of-​origin labels and terroir, in regard to the cases of products that thrive without such a territorial anchoring, notably alcohols such as gin and whiskey, that seem to contradict the essentialist view of the terroir as a unique combination of its soil and of the know-​how of its inhabitants. The recent prizes awarded to the best Japanese whiskeys is a good example of this, and the consumers seem to react very favorably in terms of purchase. A parallel example is the relocation of part of the workshops of heritage luxury firms, for example in the leather goods industry to overseas locations where equally skilled know-​how is available. Intellectual property rights and country-​of-​origin labels contribute to inform the consumer of luxury products of elements in the production and quality. It is likely that a growing interest in the ethical features of production will entice luxury entrepreneurs to deliver increasing quantities of information concerning place of production. As complex as they are, however, these protective systems have their limits in industries where counterfeits are rampant. Despite the challenge of imitation, numerous luxury brands keep using intellectual property rights systems as a tool for protecting their products, and also as a means of promoting their narratives of authenticity.

Acknowledgements This chapter is part of a project that has received funding from the European Research Council (ERC) under the European Union’s Horizon 2020 research and innovation programme (Grant agreement No. 818523).

Intellectual Property Rights and Country-of-Origin Labels    417 I thank Pierre-​Yves Donzé, Vincent Dubé-​Sénécal, Joanne Roberts, the Nordic Branding research team led by Malcolm Langford and Eirinn Larsen at the University of Oslo, and the ERC CoG project Creative IPR team at the University of Oslo, Institute for Archeology, Conservation, and History. Any remaining errors are my own.

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PA RT V

G L OBA L I Z AT ION AND MARKETS

Chapter 20

Lu xu ry i n t h e United Stat e s a nd Western Eu rope Fflur Roberts, Florence Allday, Ayako Homma, and Oksana Malynovska

The global allure of European luxury for the international consumer is rooted in its reputation for high-​calibre craftsmanship and materials, which has been instrumental in developing the continent as the beating heart of the global luxury industry. Yet, it is important to recognize the colonialist and Orientalist roots of much European luxury. Asia, the Middle East, and almost every other region of the world have contributed to European luxury aesthetics and industry. For example, the exploration of the nineteenth-​century European notions of Egyptian luxury by Diego Saglia (2002: 317) offers insight not only into the link between the consumption of exotic goods and commercial expansion arising from imperialism but also into the appropriation of Egyptian-​ style artefacts by European producers (Saglia 2002: 319). Similarly, Naomi Rosenblatt discusses how ‘the association of opium with the Ottoman Empire certainly played a significant role in the popular association of the East with luxury and opulence in American Orientalist aesthetics’ (Rosenblatt 2009: 54). Whereas Maxine Berg examines the hypocritical contradiction of how in the UK, ‘luxuries, formerly negatively associated with foreign imports, gave way to consumer goods conveying national identity’ (Berg, 2005: 19). Thus, though the focus of this chapter is on the Western world, it is with the inherent understanding that the growth and global reach of European and American luxury over the past few decades would not have been possible without the rich tapestry of varied, overlapping, and wildly different local and regional heritages that make up a crucial part of contemporary Western luxury aesthetics, manufacture, and distribution. The subjectivity of luxury has been widely discussed and is a necessary concession to make when taking on a subject as big as the globalisation of the luxury industries of two of the world’s richest regions. Luxury encompasses myriad industries, all with a

424    Flurr Roberts et al. specific emphasis on locally-​sourced, high-​quality materials, regional manufacturing, and family heritage. Switzerland is famed for its fine timepieces, while Germany has a thriving luxury car industry, and luxury fashion, emanating from France, Italy, and the United Kingdom (UK), is the hallmark of European luxury. Meanwhile, luxury cars and premium fashion brands are also hugely popular in the United States. Making use of evidence and analysis from Euromonitor International’s database and reports,1 this chapter will examine how consumers’ priorities have shifted, the evolution of expectations has accelerated, and markets have polarised, while international travel rates, which were higher than ever prior to the COVID-​19 pandemic, are expected to recover and to grow in a post-​COVID-​19 world. The chapter will explore how the globalisation and the democratisation of luxury have seen the cornerstones of luxury, namely, rarity, emotion, and quality, develop over the years. These three elements have always been intrinsic to common understandings and interpretations of luxury, but consumers’ interpretation of them has evolved dramatically thanks to technology, accessibility, and wealth. Moreover, as Carty (2003) notes, the nature of rarity can evolve from actual to virtual as luxury brands deploy various techniques to manipulate the idea of rarity, from techno rarity in terms of new products, to limited editions and rarity based on marketing strategies. Rarity also impinges on a consumer’s emotional connection with luxury and the quality of a luxury product or service. Before progress with an examination of luxury in the United States and Western European markets by considering rarity, emotion, and quality, and reflecting on the changes facing these luxury markets, it is necessary to provide a brief overview of how these markets are positioned in a global economic context.

United States and Western European Luxury in the Global Context Global economic expansion slowed in 2020 with gross domestic product (GDP) contracting by -​4.8 percent in real terms over a year earlier, from 2.8 percent in 2019. The weak growth momentum is expected to continue through to 2030, during which global real GDP growth is forecast to slow to around 3.3 percent per year. In 2020, advanced economies experienced a total contraction of GDP of -​6.2 percent in real terms over a year earlier and their economic activity is expected to slow to an average growth of 1.7 percent annually until 2030. In contrast, the annual real GDP growth in the emerging economies is forecast to average 4.3  percent over 2021 to 2030. China will remain a growth driver with an average annual real GDP growth of 4.6 percent through 2030. Beyond the effects of government-​mandated physical store closures due to the COVID-​19 pandemic, consumers globally are expected to be more cautious in their spending throughout 2021 and beyond. Although governments around the world have enacted stimulus measures to protect employment and encourage consumer spending,

Luxury in the United States and Western Europe    425 in many markets these measures will not be enough to offset low consumer confidence and high levels of uncertainty. This will negatively affect sales of discretionary goods, including luxury goods. By the end of 2019, prior to COVID-​19, sales of global luxury goods exceeded $1.0 trillion with an additional 3.0 percent annual real growth expected by the end of 2020. However, global sales of luxury goods declined by a real 16 percent in 2020 to reach a value of $899 billion (Euromonitor International 2020a). Nevertheless, according to Euromonitor’s forecast, which assumes that the major COVID-​19 wave in Q1–​Q3 2020 is followed by regional second waves at the end of 2020, and that an effective vaccine is expected to be available for widespread distribution from the beginning of 2021, the demand for luxury goods is set to recover to pre-​COVID-​19 levels by 2022 (Figure 20.1). The luxury goods industry was already facing significant challenges pre-​COVID-​19. These challenges were particularly evident in the United States and Western Europe, including, for instance, threats of a US/​China trade war, increased global economic uncertainty, shifts in consumer behaviour and values, and huge advances in digital technology. However, nothing in the modern evolution of the luxury industry compares to the global disruption caused by the COVID-​19 pandemic. The United States is projected to show the largest absolute sales decline in luxury goods of any country globally in 2020. This is due to the country’s scale—​the United States is the second biggest luxury goods market in the world after China—​and its government’s response to the pandemic, which until recently has been largely ineffective in reducing the spread of COVID-​19.

1,400

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–15 2015

2016

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Figure 20.1.  Luxury goods: The evolutions of the global industry in retail value RSP terms. Notes: Based on historical and forecast data. Total luxury goods value sales RSP (retail selling price), US$ (fixed exchange rate) (Constant 2020). Source: Euromonitor International, Luxury Goods 2021. Published November 2020.

426    Flurr Roberts et al.

Japan Germany Italy Hong kong, C.. United Arab E.. Canada Mexico South Korea Australia Switzerland Russia Singapore Spain Taiwan Turkey Netherlands

US UK France

China

Western Europe is set to be impacted by local lockdown measures, wealth declines, COVID-​19 cases, and physical-​store closures, as well as travel bans preventing tourist spending in the leading luxury shopping destinations such as Paris, Milan, and London. Whilst Spain and Germany were the worst hit in 2020, the outlook for leading fashion markets like Italy, France, and the UK also remains bleak, as they all play a key role as producers of personal luxury goods (clothing, footwear, leather goods, watches, and jewellery). Additionally, although Western Europe was the world’s largest source market for travel and tourism, the lack of demand in travel flows since the pandemic will severely affect both sales of luxury goods and luxury hospitality. The UK’s luxury market also has post-​Brexit issues to contend with. Recovery will be led by Asia Pacific, which continues to drive sales and accounted for almost half of all luxury goods spending in 2020 (Figure 20.2). Much of this spending was driven by China’s affluent middle class. However, according to the latest data from Euromonitor International, China’s wealthy and affluent population as a whole was set to contract by nearly a quarter in 2020 over a year earlier and is not expected to rebound to the 2019 level until 2024.

Market Size

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Figure 20.2.  Luxury Goods: Top 10 Markets by Forecast Absolute Growth, 2020–​2025. Source: Euromonitor International, Luxury Goods 2021. Published November 2020. Notes: Based on historical and forecast data. Total luxury goods value sales RSP (retail selling price), US$ (fixed exchange rate) (Constant 2020). CAGR refers to Compounded Annual Growth Rate.

Luxury in the United States and Western Europe    427 Despite the challenges and uncertainties in the global market, the characteristics of luxury remain more stable, although they too are evolving. In the sections that follow the three characteristics of rarity, emotion, and quality and their evolving meanings are considered in relation to the luxury markets in the United States and Western Europe.

Rarity The theory of conspicuous consumption by Thorstein Veblen (1899) highlights the human need to distinguish oneself through the acquisition and display of items that act as social indicators. His theory posits that ‘consumers use product-​price as a way of ostentatiously displaying their wealth’ (Dubois and Duquesne 1993: 36). For many, money equals success, and the most logical way to show your peers that success is to buy rare and expensive goods. The luxury industry is driven and defined by its exclusivity; as soon as something becomes easily accessible, it is less desirable. Part of the joy is in the chase, or the (often, for many wealthy people, imaginary) struggle to attain a certain item. The Hermès Birkin bag’s wait list was reportedly years long, only for people to now claim that it never existed. The Tesla waiting lists are widely discussed in Internet forums, and often the delivery of bought cars is delayed by months at a time. Yet, within weeks of the release of the Tesla 3, the next Model Y, for delivery in 2020 at the earliest, was announced. Luxury companies promise scarcity, via waiting lists, high prices, and rumour mills. Consumers are lured in by promises of a one-​off item, limited editions, exclusive designs—​so what happens when luxury brands become ‘too’ accessible? Within luxury fashion, incorporating both apparel, footwear, and accessories, the European fashion dynasty brands—​consisting of LVMH’s brands Louis Vuitton and Dior; Italian darling, Prada; British-​made Burberry; iconic, privately owned French brand Chanel; and Kering’s power brand Gucci—​hold an overarching influence over global fashion, both luxury and mass, and over consumer fashion spending habits in Western Europe and beyond. The clothes, bags, and shoes are eye-​wateringly expensive, yet the twentieth century saw these luxury houses rise quickly. The globalisation of European luxury has seen these luxury brands change shape, and even identity. Elyette Roux goes as far as to claim that ‘luxury went from a culture of houses, to a culture shaped by brands’2 (Roux 2009: 20). European brands like Louis Vuitton, Dior, and Gucci used to be instantly recognisable and coveted for their logos; these visual brands were their identity, symbols that promised the wearer exquisite materials, craftsmanship, and social capital. Roux’s ‘culture of brands’ articulates the shift in the rarity of luxury that is shaping the industry, starting with fashion. For many luxury brands, their logos or trademark patterns are crucial to their branding and production strategies because they are an important means of harnessing their consumers’ propensity for conspicuous consumption. Yet in the early 2000s, the social capital value of Burberry check collapsed as the brand became deeply uncool in Britain. In 2004, a Telegraph article interpreted Burberry’s ‘sharp decline in UK sales’ as a result of

428    Flurr Roberts et al. ‘the popularity of its trademark camel check among so-​called “chavs”, a pejorative term for a low-​income social group obsessed with brand names, cheap jewellery and football’ (Hall 2004). Poor management in the early 2000s compounded this public perception of Burberry; unthinking, indiscriminate licensing saw the famous check appear on dog collars, nappy bags, and even nappies for dogs. The depreciation of Burberry’s visual USP (unique selling proposition) gave consumers little to emotionally—​and financially—​ invest in. Burberry was no longer rare, and therefore, soon to no longer be luxury. As creative director from 2004, Christopher Bailey revitalised the ailing brand through a sustained focus on bringing Burberry’s local London heritage to global stores and individual consumers. Bailey fought to shift consumer focus from the brand’s visual trademark to its identity: Making the consumer a part of Burberry’s British history and identity became the goal. The integration of videos and moving images of London and British landmarks into flagship stores, alongside collections, gave the brand’s history equal weighting to the clothes being sold. The emphasis shifted from simply buying the brand to being the brand. Burberry stores around the world became mini-​cocoons of London life, allowing customers to buy into an experience not just an item. Furthermore, to reestablish brand prestige and desirability, Angela Ahrendts, who was appointed CEO in 2006, limited the number of items carrying the check pattern to 10 percent of total output, while franchised businesses were bought out to stop unregulated licensing (Hass 2010). In 2014, Burberry released a customisable poncho that became a must-​have item; Burberry had gone from being ridiculed in its native country to revered and imitated by consumers and brands worldwide. Revenue picked up globally, and between 2012 and 2017, the company grew at a global compound annual growth rate (CAGR) of 6 percent (Euromonitor International 2018a: 26). Indeed, Burberry’s achievement was reimagining a pejorative slant on its brand as an expression of national identity, by focusing on British idiosyncrasies through the lens of a wealthy international consumer. The fetishisation of luxury brand origins is often crucial to their success, and in the era of globalisation and democratisation of luxury brands it reflects a shift from rarity as a core characteristic of brand marketing. The catastrophic potential of overzealous licensors and poor brand management is not limited to the fashion industry. Luxury timepieces have struggled against the counterfeit industry for decades, as well as foreign brands capitalising on the notion of Swiss craftsmanship and heritage for which Swiss watch companies are renowned. As Donzé (2019) noted, there have been various efforts to protect Swiss industries, particularly since the 1950s. Building on these efforts, the federal parliament adopted the Swissness law, in 2013, which came into effect in January 2017. Under this law, the use of the ‘Swiss made’ label can only be applied to watches that include at least 60 percent of the component value produced in Switzerland (Donzé 2019: 865). Whilst Switzerland has managed to hold onto its reputation as the world leader in luxury watchmaking, just forty years ago the industry was almost wiped out by Japan with mass-​produced models from brands like Seiko and Citizen. It was not until the late 1980s that Switzerland managed to stage a triumphant comeback in luxury watches. The cheap Japanese brands and technological developments played a huge part in the

Luxury in the United States and Western Europe    429 ‘transformation of the luxury industry  . . .  [that] has been characterised by the rationalization of the production, the globalization of brands and the democratization of use’ (Donzé 2014: 6). Although the globalisation of brands hit luxury timepieces hard, the Swatch Group remained resilient thanks to the ‘Globalization and “Swissness” [that] have been at the heart of the Swatch Group strategy since 1990s, an ambivalent attitude balanced on the “Swiss Made” legislation’ (Donzé 2014:136). Indeed, the ‘value of Swiss watches has become essentially emotional by nature’ (Donzé 2014: 136). While the success of the Swiss watch industry is related to craftsmanship and exclusivity, it is as much a triumph of innovative marketing. The US luxury landscape operates differently to the European luxury sphere. European luxury brands such as Louis Vuitton, Hermès, and Chanel emphasise their high quality and long company histories and cultures, while many American luxury brands are centred on accessibility. For example, in the United States, European luxury brands are more often associated with exclusivity and premium pricing. Their store locations are mainly limited to major cities such as New York, Miami, Los Angeles, and Chicago. Instead, American luxury brands offer easier accessibility, as they are sold through both department stores and their own retail stores across not only major cities but also second-​and third-​tier cities. Furthermore, US luxury brands put less emphasis on rarity. For instance, Coach has flourished as an accessible luxury brand that prides itself on offering high-​quality premium goods at a price that is affordable to the general American public. Whilst the brand dates back to the 1940s, this model for selling accessible luxury has accelerated since the mid-​2000s. As the American economy went through the recession following the financial crisis of 2008, US luxury consumers, particularly those in the middle class, had an increased desire for ‘affordable luxuries’ and a willingness to spend a premium on certain items despite a challenging economy and shallow recovery. Coach’s success inspired many other American luxury brands. Its key competitor, Michael Kors, implemented similar strategies by appealing to consumers with high-​quality goods at a much lower prices than those of Louis Vuitton or Chanel. With its rapid success, Michael Kors, which incorporated in 2002, went public in 2011. Both Coach and Michael Kors have managed to generate rapid growth by aggressively expanding both their distribution network and their product offerings. Both brands have expanded into designer clothing as well as jewellery and timepieces, continuing to offer quality goods at accessible prices. However, the dramatic growth of accessible luxury slowed to a halt when the brands penetrated too deeply into the market, compromising the integrity of their ‘luxury’ names for many consumers in the luxury market space. With the rise of digital devices, the accessible brands have received increased exposure from social and popular media, making them seem even more accessible to the public. These brands have lost footing even amongst consumers who only dabble in the luxury space, with accessible brands like Coach increasingly seen as passé, raising the question: ‘why get Coach when everyone has Coach?’ Importantly, although positioned in the luxury sector, American luxury brands such as Coach, Ralph Lauren, Michael Kors, Kate Spade, Tory Burch, and Marc Jacobs do not have the same resonance or price point as Chanel or Prada.

430    Flurr Roberts et al.

Emotion Emotional resonance is an integral part of European luxury, particularly for the fashion dynasty brands. This is particularly strong when considering the role that emotions play as a distinguishing feature of family businesses, in which members are not only connected by the same company but also by the same family (Cailluet, Bernhard, and Labaki 2018: 6). Therefore, in family luxury businesses, emotional dynamics play a key role in the operations and strategies of companies. Many luxury goods companies began as family businesses and some of the world’s most famous and coveted luxury brands, including Hermès, BMW AG, and Swarovski still remain family concerns in the sense that a significant percentage of these companies’ shares are held by family members. However, today many well-​known luxury brands are owned, fully or in part, by major luxury conglomerates founded in the 1980s and 1990s, including LVMH, Richemont, Kering, and Swatch Group. Interestingly, the families of the founders of these conglomerates maintain ownership interests and remain active in the management and strategic decisions of these businesses. For luxury consumers to develop emotional connections they need to be able to see and feel themselves in the product or service being offered. Such connections rely on trust, but experience tells us that reputation is easily undermined, as the DeBeers and Blood Diamond scandals illustrated (O’Rourke 2014).3 However, if well maintained, emotional connections are an opportunity to build unparalleled, long-​term brand loyalty; quality informs and nurtures emotion in luxury. Ethics and aesthetics also play crucial roles, and in today’s hyperconnected world, luxury consumers are increasingly aware of how their purchases embody their personal values. Consumers’ desire to be seen as connoisseurs has led to a resurgence of niche products, and an aim to balance quality with price; indulgence in and of itself is no longer enough. Emotion also plays a crucial role in the path to purchase and greatly influences consumers’ decision-​making, which is stimulated by the designs, the path to purchase, or even the designer’s personality or fame. Fashion maisons, cars, and timepiece brands have honed the skill of imbuing their brand and product with emotion, so that upon purchase, consumers develop an instant emotional connection. This, of course, does not apply to every consumer and every purchase, but the potential of emotion to motivate an investment—​financial and personal—​is key to a luxury brand’s survival. Fast fashion relies on a fear of missing out, whereby consumers never want to miss out on the latest trends. In contrast, luxury fashion—​despite being more accessible than ever—​ increasingly focuses on making customers crave the feeling of community that comes from owning luxury branded items. What triggers an emotional response varies across age demographics and luxury brands need to adapt accordingly. The spectacular rise in the world’s two leading brands in personal luxury goods, namely, Louis Vuitton (LVMH) and Gucci (Kering), is set to be fuelled further by more millennials shopping for designer handbags, luxury shoes, and

Luxury in the United States and Western Europe    431 apparel. Millennials and younger Generation Z—​are due to record stronger growth in the number of mid-​and upper-​earning households over the next five years.4 Conversely, the number of mid-​and high-​earning households in countries such as Japan and France which have a lower share of millennials and Generation Z, are due to grow at a slower rate (Euromonitor International 2020b: 37). Above all, millennials and Generation Z account for around 40 percent of the population in key luxury markets (Euromonitor International 2020b: 37), hence luxury houses increasingly need to appeal to these consumers, who have very different expectations from their parents. However, although Asia Pacific is home to the largest number of millennials, this demographic in North America and Western Europe have far greater incomes. Moreover, while millennials and Generation Z in emerging countries acquire luxury products as status symbols, in the United States and Western Europe the trend towards luxury experience is more dominant (Euromonitor International 2019c: 42). Hence, Western millennials and Generation Z are driving the trend towards experiential luxury in the North America and Western Europe. Studies in the sociology of consumption show that millennials’ desire for experiential consumption results in part from a greater access to information, notably online (Batat 2019). Crucially, luxury goods and experiences are no longer limited to those with huge incomes. In the Western world, for many young people, owning a property is not a realistic dream, and disposable income is instead spent on hyped items or travelling to far-​flung destinations. For many, the ability to travel is no longer a luxury but a right. Similarly, the immediacy of the Internet means consumers are more demanding than ever, expecting immediate gratification of their purchasing desires. For the first time in history, a majority of the global population are connected and there are now over 5 billion mobile phone users (Euromonitor 2020c). Connectivity has given consumers greater convenience, simplicity, and knowledge. Social media plays an essential role here, but what sets the wealthy consumers apart from the rest of the world is the fact that they have the financial resources to actually live out their social media dreams (Roberts and Armitage 2020). This has created a more demanding consumer that looks beyond experience alone. We are entering an age where the path to purchase is as important as the product itself. Generally, luxury industries, from fashion to timepieces, have been purposely slow and even reticent about incorporating technology into their platforms, including e-​ commerce (Internet sales), m-​ commerce (mobile sales), and even s-​ commerce (sales through social media platforms such as WeChat, Facebook, and Instagram) (Euromonitor International 2020c, 2020d). Luxury brands are trying to adapt to shifting consumer interests by personalising the retail experience in the hope of creating a luxury experience. Future consumers will be retained with exclusivity, brand loyalty, and the desire to live the lifestyle promoted by brands. This is noticeable in altered retail strategies, such as the popular street-​wear method of the ‘drop’ distribution model, in which small collections of products are released frequently and in limited quantities. The ‘drop’ has proven its efficacy in capturing the attention of US consumers, as street-​wear brands such as Supreme and sportswear brands such as Nike consistently

432    Flurr Roberts et al. make headlines and attract long queues for limited released ‘dropped’ products and collections. As a result, luxury brands and retailers, including Moncler, Burberry, and Barneys New York, began to release new limited-​edition products through the ‘drop’ distribution model in 2018, in the hope of replicating street-​wear’s success in generating demand through scarcity (Ma 2018; Newbold 2018). The American brand Calvin Klein, a subsidiary of the US clothing company PVH Corp., is positioned at the intersection of premium and luxury. With Raf Simon’s appointment as creative director in 2016, the brand went from being ‘a purveyor of pared-​ down American luxury  . . .  to a mid-​market jeans and underwear brand’ (Adegeest 2018). The ‘my Calvins’ campaign hailed a new era of marketing that would become prominent in luxury, and also demonstrated that American brands deserved a place in the fashion arena as much as the European powerhouses. The success of the ‘I _​_​_​_​in #myCalvins’ campaign was in allowing the consumer to decide their own emotional connection to the underwear: It ranged from the mundane to the niche. Justin Bieber ‘dreams’ in his; Kendall Jenner ‘found strength’ in hers. With its inbuilt hashtag the campaign went viral.5 Lacking the subtlety traditionally revered in Western Europe, where the emotional resonance of brands relied on gentle, vague, intimate statements like the watchmaker’s famous slogan, ‘You never actually own a Patek Phillipe. You merely look after it for the next generation’, the ‘my Calvins’ campaign started a revolution in mass fashion marketing that quickly travelled into luxury. The campaign revealed that to cultivate consumer emotion in an increasingly saturated market you had to let them shape the brand’s identity—​not the other way around. The rise of influencer culture is the epitome of the shifting nature of emotion in luxury shopping.6 The nature of conspicuous consumption has been transformed by social media, and the growing trend is for shoppers to be part of a community, instead of just owning a luxury item. Being part of the group of Dior influencers during the high-​ profile relaunch of the Dior saddle bag (originally designed in 1999 and debuted on the runway in Spring/​Summer 2000 collection) on Instagram in 2018 was not just about being sent the bag but being part of the ‘Dior family’. In such a hyperconnected age, where people spend half their time interacting with screens rather than other people, social capital can now be earned in displaying one’s relationships with luxury brands online. Brands often gift products to influencers; whether the influencers have paid for that bag is now not the focus, as per conspicuous consumption in its initial incarnation. Being able to hashtag #DiorSaddle and #SuppliedByDior holds more social capital than the item itself. Moreover, being worthy of Dior actually gifting an expensive bag, no matter how that status is attained, is now more important and, crucially, cooler, than buying it oneself. The growing influencer movement during the 2010s has largely changed the aesthetic of the top luxury fashion and leather goods brands in the United States and Western Europe. Luxury brands collaborate with professional models and well-​known celebrities from movies and reality television, sports, music, and the arts, borrowing their social media power to promote their brands. For example, in 2015, Estée Lauder collaborated with fashion model and reality television personality Kendall Jenner to increase brand

Luxury in the United States and Western Europe    433 awareness and reach new customers.7 Kendall Jenner, who in 2018 was the world’s highest-​earning model with take-​home earnings of $22.5 million (Robehmed 2018), also promoted other luxury brands such as Balmain, Calvin Klein, and Fendi, and with her influential social media presence was recognised as one of the most wanted celebrity ambassadors of 2015. Social media is a powerful marketing tool in the fashion industry, as consumers are increasingly using smartphones to view fashion blogs, forums, and social media and to follow trends in fashion and styles. It allows luxury brands to reach and foster relationships with both a brand’s core customers and a broader digital audience. However, there is a growing backlash against influencers; originally employed for their inherent ‘authenticity’. By 2019, ‘influencer’ was becoming a pejorative term. The power wielded by celebrity influencers in the luxury industry became apparent at the ill-​fated Fyre Festival in 2015 and illustrated the disconnect between such representatives and the brands they represented. Building on the expansion of luxury travel, experiential retail, music, arts, and communal festivals like Coachella and Burning Man,8 Fyre Festival was founded by Billy McFarland (CEO of Fyre Media Inc) and rapper Ja Rule. The Festival was created with the idea of promoting the company’s Fyre app for booking music. Although promoted as a new Coachella, it turned out to be a fraudulent festival and McFarland was sentenced to six years in prison for fraud in late 2018. This festival gained traction because of the celebrity endorsements that convinced customers to spend thousands of dollars on tickets; Kendall Jenner, Bella Hadid, Emily Ratajowski, and other famous supermodels were all paid hundreds of thousands of dollars to post cryptic images on their social media portraying an idyllic, bohemian scene on a remote Caribbean island. Yet, in court documents, the celebrity ‘influencers’ admitted that they were not wholly informed about the festival or its poor organisation. Although Fyre Festival targeted high-​net-​worth individuals (HNWIs),9 the ramifications of the debacle were felt throughout the luxury industry and on the credibility and authenticity of ‘influencers’, who had enjoyed blind consumer trust from their followers for many years. While social media and its influencers can be valuable marketing tools for luxury brands, it is a medium that is beyond their control. Moreover, social media can amplify positive and negative consumer emotions felt towards luxury brands with significant consequences for sales. In today’s digitally-​connected world, it is impossible for businesses to control the distribution of their own social media posts or those of others who refer to their brand. So, for instance, the Italian luxury house Dolce & Gabbana’s advertising campaign in late 2018 that depicted a Chinese model trying to eat a large cannolo with chopsticks had negative ramifications across the luxury industry. Amid the backlash against the cultural insensitivity of the campaign, which was magnified by the speed and global reach of social media, alleged screenshots of Stefano Gabbana’s tirade against China were posted by the Diet Prada Instagram account. Dolce & Gabbana’s high-​profile catwalk show in November 2018 was cancelled, after most of the models and audience full of influencers walked out. Dolce & Gabbana shops across China were boycotted and the brand was removed from several omnichannel sites in the wake of the incident (Shih 2018). With the Western media interpreting the incident as racist, the ramifications were not confined to the Chinese market (Huang and Janssens 2019).

434    Flurr Roberts et al. Luxury brands’ social media marketing and collaborations with social media influencers and celebrities are challenging to control. Moreover, the return on investment for luxury brands is difficult to ascertain and studies suggest that their costs can outweigh their benefits. Indeed, research has shown that social media can undermine consumers’ value perceptions of luxury fashion brands (Park, Im, and Kim 2020). In January 2021, Kering’s luxury brand Bottega Veneta withdrew from social media (Danziger 2021). This may be the beginning of a trend as consumers’ perceptions of the exclusiveness of luxury brands, and with it their emotional connection to them, has been eroded through luxury brands’ use of social media (Danziger 2021).

Quality The appeal of artisan European quality draws international luxury consumers to the continent from across the globe. Research by Euromonitor International confirms that Chinese consumers are responsible for the biggest proportion of international personal luxury expenditure by retail value of receipts in Western Europe, particularly Italy, France, the UK, and in the United States. Only in Switzerland is their spending power less noticeable, compared to that of wealthy visitors from Russia. For instance, in 2018, more than 20 percent of luxury goods sold in the UK were purchased by Chinese tourists and this figure rises to more than 30 percent for Italy (Euromonitor International 2019c). Nevertheless, European qualities derived from craftsmanship and creativity can be detached from geography such that the appeal of European luxury branded products produced beyond the borders of Western Europe can retain their desirability. German cars, whether regarded as premium or luxury (Kapferer and Bastien 2012), provide a useful example because the strength of their reputation for quality engineering and craftsmanship transcends the actual location of production.10 Trust in this reputation for quality is enough for consumers to have an emotional connection with German luxury cars (Gutsatz 2014: 167). Despite a widespread reluctance among larger brands and conglomerates to adapt to the changing technological landscape, Internet retailing has grown significantly. Such caution is not unfounded; luxury brands that have penetrated too deeply into mass distribution have been hit by waning consumer interest and a cheapening of brand image, implying lesser quality. The rise of online shopping and the lower level of footfall to department stores negatively impacts American brands because retailers mark down unsold products to clear inventory. However, heavy discounts not only hurt sales revenue but also damage consumer perception of a luxury brand’s quality. To address such challenges, American luxury brands, particularly Coach and Michael Kors, worked to rebuild their luxury image by pulling back from wholesale channels, managing inventory more efficiently, and reducing discounts. Furthermore, to stay competitive in a constantly changing luxury goods market, Coach and Michael Kors are developing their strategies based on maintaining quality and evolving into luxury conglomerates. Coach Inc, having acquired Stuart Weitzman

Luxury in the United States and Western Europe    435 in 2015 and Kate Spade in 2017, changed its corporate name to Tapestry Inc. in 2018 as part of corporate reinvention and to build a multibrand company. Similarly, Michael Kors expanded its business in accessories and footwear through its acquisition of Jimmy Choo Plc in 2017 and into haute couture through its acquisition of Versace, one of the last independent privately owned Italian houses, in 2018. Michael Kors’ historically instable reputation, straddling the mid, premium, and luxury worlds, fit badly with Versace’s glamourous and hedonistic brand identity. Yet, this acquisition indicates the company’s strategic intent, which is also reflected in the change of the holding company’s name from Michael Kors Holdings Ltd to Capri Holdings in 2019. The name change implies a European heritage. Both American luxury companies have strengthened in a bid to build luxury powerhouses to rival European leaders such as LVMH and Kering.

The Changing Face of Luxury The United States, with the highest number of high-​net-​worth-​individuals (HNWIs) in the world, 2.67  million in 2020, remains a highly profitable consumer segment for luxury brands. Although HNWIs make up only 1.0 percent of the US population they accounted for 27 percent of total US wealth in 2020. In particular, the number of ultra-​high-​net-​worth-​individuals (UHNWIs)11 in the United States was over three times higher than the combined total of the next five largest UHNWI countries such as Japan, China, Germany, the UK, and Canada. Western Europe also has a strong representation among the HNWIs. However, the luxury market in these regions is being shaped by additional factors and cultural influences on the luxury consumer of tomorrow. For instance, consumers in Sweden, Norway, and Denmark do not cohere to Veblen’s (1899) theory of conspicuous consumption. As populism has been on the rise, luxury has become increasingly about acquiring meaningful experience. The Scandinavian approach to luxury, in terms of a slower pace of life, being more mindful about consumption, appreciating the simpler things in life, and taking time out for oneself and one’s well-​being could not be more en vogue. Indeed, in last five years the Scandinavian concept of hygge (which literarily translates to ‘cosiness’) has swept across the globe, with many luxury brands and hotels buying into this concept (Breunig and Kallestrup 2020). In short, hygge is all about appreciating the simple things in life, such as celebrating food and getting together with friends and families. This way of life stems very much from the long and dark winters that the Scandinavian countries experience, and, it helps us to understanding why, despite their wealth and strong purchasing power, their luxury markets do not compete anywhere close to those of Germany, France, Italy, or the UK.12 Going forward, US and Western European luxury markets face three major new challenges. The first of these arises from their dependence on tourists, which makes them vulnerable to changing patterns of travel. Second, the growing concerns over health and environment issues require US and European luxury businesses to adapt their product offerings and their methods of production. Third, US and European

436    Flurr Roberts et al. luxury business need to be attentive to the evolution of social trend concerning equality, diversity, and inclusivity that can be summarised in the term ‘political correctness’.

Dependence on Tourists In recent years, many Western luxury brands have expanded into lucrative Asia-​Pacific countries like China. Yet, although expansion raises brand awareness in overseas markets, it does not necessarily guarantee consumer loyalty. Hence, the globalisation of European luxury must be approached from an international and domestic perspective. ‘Shopping tourism’ has always been a crucial revenue driver for the modern luxury industry, but in the decade before the COVID-​19 pandemic, increasing levels of affluence amongst wealthy Asian consumers, combined with growing international travel rates and favourable European exchange rates, saw the European luxury industry cater specifically for those coming from further afield to shop on the continent. Anecdotal evidence, spending patterns, and international expenditure data show that for many Chinese HWNIs and international consumers from other regions, so embedded into brand identity is its home country, that shopping for Chanel in Beijing has far less emotional resonance than purchasing the same item in Paris (Donzé and Fujioka 2018). Additionally, the tax advantages of purchasing luxury goods overseas is also an attraction for Chinese consumers. Foreign tourists, especially from the neighbouring countries of Mexico and Canada and Latin American countries, are also key contributors to luxury goods sales in the United States. Cross-​border shopping allows consumers to purchase authentic items at cheaper prices during their travels to the United States. Since 2010, the US has welcomed a growing number of tourists from China. Arrivals from China reached over two million trips in 2014 and grew to 3.4 million trips by 2018. This increase has been fuelled by the expanding Chinese economy giving rise to a growing middle class with increased disposable income, who choose to travel overseas. Also, government initiatives for relaxing visa requirements, and the increasing Chinese immigrant population in the United States, including Chinese students studying in the United States, led to higher spending on luxury goods by Chinese shoppers. Chinese tourists began travelling to popular tourist destinations like New York and Hawaii. West Coast cities such as Los Angeles and Las Vegas also became popular destinations for Chinese tourists due to the proximity to their home country, large Chinese populations, and favourable weather. The dependence on overseas tourists in home markets is a potential source of vulnerability for Western luxury brands. Travel restrictions experienced during the COVID-​19 pandemic underlined just how important international tourists are to Western markets.

Health and Environmental Issues The European and US luxury markets are also influenced by health and environmental concerns (Euromonitor 2020b). Indeed, it has been claimed that ‘Wellness is the new

Luxury in the United States and Western Europe    437 luxury’ with consumers shifting from the purchase of luxury goods to experiences that enhance health and wellbeing (Weinswig 2017). For example, the rise of ‘clean eating’ in the early 2010s marked the beginning of a pronounced shift towards ecofriendly living, ‘self-​care’, and a general penchant for spiritual, holistic wellness. Within the consumer health industries, sales of vitamins and dietary supplements thrived with their value growing by 18  percent in the five years between 2013 and 2018 (Euromonitor International 2019a). Despite the UK and the United States having the highest levels of obesity in their respective continents, sales of performance and sports-​inspired apparel and footwear have flourished, as brands like Lululemon, Nike, Adidas, and Gymshark have taken advantage of the mantra made famous on Instagram:  ‘strong is the new skinny’. Leisure and sports have had a long history of interaction with the fashion industry that dates at least from the nineteenth century (Wilson 2003). The rise of athleisure, which describes outfits and footwear that could be used for sports or relaxing, occurred alongside a wider social movement of casualisation. More recently, athleisure gained even more traction among luxury consumers thanks to the rise of luxury brands engaging with minimalist aesthetics. Furthermore, remote working, powered by portable consumer electronics and the start-​up culture embraced by the Western world, has impacted this luxury market. It is impossible to pinpoint how, when, and why athleisure became the staple of consumer wardrobes worldwide, but a clear shift in consumer demand came with Celine. The LVMH-​owned brand was headed by British designer Phoebe Philo between 2008 and 2018. Philo’s designs became popular among women for their sleek, minimalist theme which promoted stylish comfort without intrusive logos or ostentatious colour-​ways. Philo’s clear investment in the women who wore her designs, nurtured a trusting relationship between the brand and the consumers, and saw Celine’s revenue increase during her six-​year tenure. Even the strongholds of luxury firms have not been able to escape or ignore the rise and influence of street wear and athleisure on the market. In Western Europe, the sports-​inspired apparel market grew by a real CAGR of 3 percent between 2013 and 2018 (Euromonitor International 2018b), demonstrating the seismic shift from the thin models and teetering heels popularised by the likes of Galliano’s Dior and Hedi Slimane’s YSL collections over the past two decades, to a new era, shaped by political correctness, social progression, and health. Indeed, in 2019 the world market for sports-​ inspired apparel grew by 23 percent, while the North American and the Western Europe markets grew by 27 percent and 11 percent, respectively. The enduring success and appeal of sports-​inspired apparel and footwear and the changing aesthetics of traditional firms may not impact the wider luxury goods industry directly, but it is symptomatic of a withdrawal and perhaps, a renunciation of the typical hedonism and indulgence historically associated with luxury. The casualisation of luxury has been encouraged and accelerated by the American market, the consumer demographic of which has always been markedly more relaxed in terms of daily wear. American designer Virgil Abloh was appointed creative director of menswear at Louis Vuitton in 2018; his first collections and personal background encapsulate the influence of globalisation on European luxury. Louis Vuitton Malletier, as it was originally

438    Flurr Roberts et al. known, is a French firm which originally started producing luggage and trunks in the mid-​nineteenth century. Leather has always been its trademark material, embossed with the famous LV monogram logo. Until 1997, Louis Vuitton only produced leather goods; Marc Jacobs’s appointment as artistic director led the house to start producing clothing lines for men and women. Abloh’s first collection in June 2018 saw male models adorned in iridescent synthetic materials, holding 1990s-​inspired plastic bubble bags and holdalls, walk down a catwalk that was lined with fashion editors, politicians, Kardashians, and other influencers. In just over twenty years, Louis Vuitton’s reputation and heritage as an emblem of French craftsmanship has been transformed into a brand which carries athleisure styles, designed by an American of African descent. Ironically, although some influential European luxury brands are moving away from European heritage as a core characteristic of their appeal, US-​based luxury companies like Coach and Michael Kors appear to be embracing notions of heritage in their positioning, as evidenced by the renaming of their holding groups. As such, there appears to be an emerging convergence between European and US luxury brands. The rise of self-​care saw ‘mindfulness’ take on a new meaning and become part of common middle-​class parlance. In the context of luxury goods, mindful consumerism refers to being educated about the ethical and environmental issues related to what and where you buy. A preoccupation pertinent to luxury fashion has been fur. In February 2019, online retailer Farfetch announced it would ban fur from its site, following in the footsteps of Chanel, Burberry, Fendi, Gucci, Versace, Michael Kors, and more, all of which have banned many furs and exotic skins from their designs. While Stella McCartney remains the only high-​profile, high-​grossing fashion brand that is 100 percent animal-​free, the tide is turning as more consumers—​especially the invaluable millennials and Generation Z—​incorporate ethical and environmental ethos into their luxury shopping. Environmental concerns are also influencing the evolution of the luxury market. The planet is facing huge sustainability issues because of polluting manufacturing processes, enormous overconsumption and myriad other human behaviours. A key problem with luxury fashion is the overproduction of goods. The revelation that Burberry destroyed £30 million of unsold stock in 2018 illustrated the challenge for luxury businesses of balancing luxury exclusivity and responsible business practices (BBC 2018).

Political Correctness and Gender Issues It is undeniable that generalised, seismic shifts have taken place, as social awareness and responsibility has welcomed in political correctness, call-​out (and cancel) culture, and, according to many, a new wave of feminism. Within a luxury context, this means that tides are changing; the #MeToo movement that gained momentum in 2018 after the downfall of the film producer Harvey Weinstein saw the widespread boycott of the high fashion brand Marchesa, run by Georgina Chapman, his ex-​wife. The 2018 Golden Globes ceremony was a sea of black outfits, in solidarity with the Time’s Up

Luxury in the United States and Western Europe    439 movement, which combats sexual harassment against women. Never has fashion been so intertwined with sociopolitical climates—​and never have designers been so aware of the influence and impact of their personal brand on consumers. Though luxury’s modern consumer base is more discerning than ever, luxury is being bought by more people than ever before. There has been a marked change in consumption by gender, as millennial men’s consumption habits differ greatly from those of previous generations. Millennial men are particularly interested in their outward appearance and in fashion trends and brands, especially those in the luxury and street-​wear spaces. They spend greater amounts of money on clothing and accessories than previous generations. Casual attire has become more acceptable in an increasing number of social settings in the United States, and this has led men to have greater freedom to decide what to wear for a variety of occasions, including office environments. Casual dress code and the growing health and wellness trend have raised sneakers to the status of key luxury items in the United States. Gucci was among the first luxury brand to enter the sneaker market in the 1980s, but more recently luxury brands have collaborated with sneaker and street-​wear designer labels, such as Adidas with Alexander Wang, and Nike with Comme des Garçons. Online lifestyle publications including Hypebeast and Highsnobiety have dominated the conversation around men’s fashion, with the brands they championed growing in both sales and popularity. Consequently, menswear brands and retailers are developing sponsored content for these sites, and luxury department store Barneys New York partnered with Highsnobiety for in-​ store events and exclusive product launches throughout the year, attracting many of the website’s readers to its stores for the first time (Euromonitor International 2019b). Millennials also brought the gender-​neutral movement to the luxury space. In the United States, stimulated by celebrity announcements, the conversation surrounding gender identification has become part of the national conversation. In 2015, retired Olympic gold medal-​winning athlete and American television personality Bruce Jenner announced he was transitioning to a woman, and American actress Laverne Cox, who is best known for portraying Sophia in the Netflix series Orange is the New Black, spoke about the transgender community in interviews and magazines. American singer Miley Cyrus and Australian model Ruby Rose have also opened up about their gender fluidity. Businesses, including luxury brands, have responded to these developments.13 For instance, Gucci, Givenchy, Prada, and YSL have all introduced ranges of gender-​neutral clothing.

Conclusion Any assessment of luxury consumption in a given market should consider the sociographic as well as the demographic make-​up of consumers and their overall perception of luxury. While there are significant differences between the US and Western

440    Flurr Roberts et al. European luxury markets, deriving largely from their historical development, there are also increasing areas of convergence that are being promoted by globalisation and the democratisation of luxury. With regard to the future, luxury products must continue to offer consumers the promise of exclusivity and rarity, an emotional connection, and, high quality, to validate the purchase price. The biggest tangible effect of globalisation on the US and West European luxury markets is that the nature of the emotional relationship between brand and consumer and the consumer and product has changed. Showing off wealth—​while still commonplace—​is no longer the prime goal of buying luxury goods. The sense of being part of a community and brand family and the rise of experiential retail show that as much as consumers crave the limited edition or one-​off items, they still want to be part of something. The health and wellness trend is shaping the ethics and aesthetics of the future luxury industry, but the emphasis on individuality and self-​care may not last in its current iteration; technology has, paradoxically, isolated us enough. Luxury itself is becoming a paradox; it brings people with shared goals, emotions, and values together, traversing historical, social, and cultural lines.

Notes 1. Where specific reports or briefings are available, references are given, otherwise the data presented in this chapter derive from Euromonitor International’s database. All values expressed in this chapter are in US dollar terms, using a fixed exchange rate (2020), unless otherwise stated. 2020 figures are based on part-​year estimates. All historic and forecast data are expressed in constant terms; inflationary effects are discounted. The analysis closing date is February 2021. 2. Authors’ translation from the French version: ‘Le luxe est passé d’une culture de maisons à une industrie portée par ses marques.’ 3. “Blood diamonds” are diamonds mined in war zones and that serve to finance military conflict including civil wars. The term is used to highlight the negative consequences of the diamond trade in certain areas. 4. Generation Z or Gen Z (also known as the internet Generation, or iGen) is defined as those consumers born between 1995 and 2009 (ages 9 to 23 in 2018). It is the demographic cohort following the Millennials (born 1980–​1994), Generation X (born 1965–​1979) and baby boomers (born 1946–​1964). 5. As of 22 December 2020, there are over 860k ‘mycalvins’ hashtags on Instagram. 6. Influencer refers to social media influencers. These are not only celebrities but bloggers or regular people who become popular through social media, particularly Instagram, by constantly sharing their everyday lives and engaging with their followers. Successful can be more valuable to brands and retailers than celebrities. 7. Kendall Jenner was one of Instagram’s most popular models in 2015. 8. The annual nine-​day Burning Man Festival in the Nevada desert (United States) in late summer attracts wealthy celebrities and tech entrepreneurs, the glamorous, super-​rich, and key opinion influencers (KOIs) who use the event as an opportunity to showcase themselves and the event on social media and are often also tagging luxury brands that they collaborate with on Instagram and other social media platforms. Since its inauguration in

Luxury in the United States and Western Europe    441 1986, this festival has been the subject of much criticism and the gentrification of this festival has given rise to the biggest criticism aimed at the so-​called turnkey camps or ‘plug and play’ camps situated in Black Rock City and Humano the Tribe’s Camp that provide luxury accommodation and above all go completely against the key principles of the festival. In 2018, one such camp in The Moon Village reportedly had accommodation up to the value of $100,000 which included two bedrooms and air-​conditioning. At a starting cost of $450 per ticket, although most tickets sell for over $1,000, the festival is already aimed at the more affluent consumer. However, it has been reported that the CEO of Burning Man, Marion Goodell, has banned such ‘luxury’ camps for any future festivals (Walsh 2019). 9. HNWIs comprise adults with total wealth exceeding $5 million but below $50 million. And the affluent segment is made up of adults with total wealth exceeding $1 million but below $5 million. Wealth refers to accumulated assets, usually consisting of the value of real estate owned, savings, investments, and other important assets such as automobiles. 10. German car manufacturer Audi was the first brand to set up manufacturing plants in China in 1995. Similarly, BMW and Mercedes-​Benz have extensive manufacturing plants in China, the United States, and South Africa. High import taxes encourage the location of car production in China. 11. UHNWIs comprise adults with total wealth exceeding $50 million. 12. Another recent trend that has been picked up across the globe, especially among today’s millennial luxury consumer, comes from the Swedish word lagom, which means ‘just enough’ and is based on the idea of living with less, shopping mindfully, and following sustainable principles in the home and well as in clothing and fashion. 13. Examples include the social networking website Facebook, which began to offer more than forty custom gender options for users to identify their gender; the mass merchandiser, Target, which removed gender-​based signs in the children’s bedding and toy aisles; and, Barneys New York, which featured transgender fashion models in its Spring 2014 campaign.

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442    Flurr Roberts et al. Danziger, Pamela N. 2021. “Bottega Veneta Shutting Down Its Social Media Accounts Might Signal a Trend.” Forbes, 7 January. https://​www.forbes.com/​sites/​pamdanziger/​2021/​01/​07/​ bottega-​veneta-​cancels-​its-​social-​media-​accounts-​it-​may-​signal-​a-​trend/​ Donzé, Pierre-​Yves. 2014. A Business History of the Swatch Group:  The Rebirth of Swiss Watchmaking and the Globalization of the Luxury Industry. London: Palgrave Macmillan. Donzé, Pierre-​Yves. 2019. “National labels and the competitiveness of European industries: the example of the ‘Swiss Made’ law since 1950.” European Review of History: Revue européenne d’histoire Vol. 6, no. 5: 855–​870, DOI: 10.1080/​13507486.2018.1534803 Donzé, Pierre-​Yves, and Rika Fujioka, eds. 2018. Global Luxury: Organizational Change and Emerging Markets since the 1970s. London: Palgrave. Dubois, Bernard, and Patrick Duquesne. 1993. The Market for Luxury Goods: Income versus Culture. European Journal of Marketing 27, no.1: 35–​44. Euromonitor International. 2018a. Burberry Group Plc in Luxury Goods: Company Profile. 30 July. London: Euromonitor International. Euromonitor International. 2018b. World Market for Sportswear. 9 November. London: Euromonitor International. Euromonitor International. 2019a. World Market for Consumer Health Products Report. 16 October. London: Euromonitor International. Euromonitor International. 2019b. World Market for Apparel and Footwear. London: Euromonitor International. Euromonitor International. 2019c. World Market for Luxury Goods. June. London: Euromonitor International. Euromonitor International. 2020a. The New Normal:  The Impact of Coronavirus on Global Wealth. 10 December. London: Euromonitor International. Euromonitor International. 2020b. World Market for Luxury Goods Briefing. 7 January. London: Euromonitor International. Euromonitor International. 2020c. Digital Consumer Report. London:  Euromonitor International. Euromonitor International. 2020d. World Market for Personal Accessories Report. April London: Euromonitor International. Gutsatz, Michel. 2014. “China” Incubator of Luxury’s New Business Models.” In Luxury Brands in Emerging Markets. Edited by Glyn Atwal and Douglas Bryson, 165–​173. Basingstoke, UK: Palgrave Macmillan. Hall, James 2004. “Burberry Brand Tarnished by ‘Chavs’.” The Telegraph, 28 November. https://​ www.telegraph.co.uk/​finance/​2900572/​Burberry-​brand-​tarnished-​by-​chavs.html Hass, Nancy. 2010. “Earning Her Stripes.” The Wall Street Journal, 9 September. https://​web. archive.org/​web/​20100913020955/​http://​magazine.wsj.com/​features/​the-​big-​interview/​ earning-​her-​strips/​2 Huang, Qian, and Alice Janssens. 2019. “Come mangiare un cannolo con le bacchette” [The Contested Field of Luxury Fashion in China, a Case Study of the 2018 Dolce & Gabbana Advertising Incident]. ZoneModa Journal 9, no. 2: 123–​140. Kapferer, Jean-​Noel, and Vincent Bastien. (2012) The Luxury Strategy: Breaking the Rules of Marketing to Build Luxury Brands. 2nd ed. London: Kogan Page. Ma, Fiona. 2018. “Burberry Adopts a Monthly Drop Model, With First Capsule Released on Oct. 17.” WWD, October 15. https://​wwd.com/​fashion-​news/​fashion-​scoops/​ burberry-​adopts-​monthly-​drop-​model-​with-​first-​capsule-​released-​oct-​1202879582/​

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Chapter 21

Lux ury Busine s s i n  Ja pa n Pierre-​Y ves  Donzé

The relation between Japan and luxury is paradoxical. On the one hand, this country is today one of the largest markets for the global luxury business. According to the consulting firm Bain & Co. (2017), Japan had a 9 percent share of global sales of personal luxury goods in 2016. Hence, despite its declining market share since 2000, Japan remains a major market for luxury companies. Moreover, its importance is not new. Japan had been a growing outlet since the 1980s and played a major role in the expansion of Western luxury brands in world markets (Donzé and Fujioka 2015). On the other hand, Japan is also a country with a long tradition of excellence in craftsmanship such as ceramics, glass, jewellry, and textiles, with numerous luxury companies active in the domestic market. However, these firms are largely unable to compete in world markets. The top 100 ranking of the largest global luxury companies published by Deloitte (2018) included only five Japanese firms: the cosmetic companies Shiseido Prestige (no. 17) and Pola Orbis (no. 41), the apparel companies Onwards (no. 29) and Sanyo Shokai (no. 56), as well as the pearl and jewellry company Mikimoto (no. 91). Except the last one, most of these companies also produce premium branded goods rather than real luxury goods. They rely mostly on Japanese and Asian markets, and for this reason their global presence as brands and economic weight can be evaluated as weak. Academic literature on luxury business in Japan expresses well the weakness of the global Japanese luxury business. Indeed, most studies focus on Japan as a luxury market rather than a producer of luxuries. International research in management and social sciences on the Japanese luxury market emphasises its specificities, compared to Western markets, in terms of consumer behaviour, distribution system, and adaptation of goods. Hence this chapter consists of three sections. Section 1 presents the general development of the luxury market in Japan and the various academic approaches that explain its characteristics. Next, Section 2 discusses the importance of the Japanese market for Western luxury companies regarding learning processes in the context of a global expansion. This discussion is based on the case of the brand Louis Vuitton, which is part of the LVMH group. Finally, Section 3 examines Japanese luxury business to analyse the causes of its lack of international growth.

446   Pierre-Yves Donzé

The Development of the Luxury Market in Japan During the last third of the twentieth century, the Japanese luxury market experienced extremely high growth and therefore became one of the world’s largest luxury markets. It was the first non-​Western market to show such development. Consequently, it had a major impact not only on the overall development of European luxury companies but also on the strategy they implemented to reorganise on the global scale and to enter new markets. However, since 2000, the importance of the Japanese luxury market has diminished considerably and it has been succeeded by the Chinese luxury market. The evolution of French export of leather goods between 1960 and 2017 is an excellent indicator of the growth and decline of the Japanese luxury market, as well as of the role of Japan as a market for the French leather goods industry (see Figure 21.1). The general data show an increasing growth between 1960 (€17 million) and 1989 (peak at €761 million), followed by a period of stagnation (€751 million on average in 1990–​1993), and a new period of increasing growth, which led to €1.8 billion in 2000 and €6.5 billion in 2017. Over this half a century, leather goods changed from a small niche market to a huge industry. In this context, the development of the luxury market in Japan can be divided into four distinct phases. First, there was very fast growth during the 1970s, when Japan shifted from a basically nonexistent market to one of the largest outlets for 35.0

6000.0

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Figure 21.1.  French export of leather goods, total value (in current million euro) and share of Japanese market (as a percentage), 1960–​2017. Source: Data from Statistiques du commerce extérieur de la France (1960–​1996) and COMTRADE (since 1997).

Luxury Business in Japan    447 Western luxury companies (less than 2 percent of French leather export in the 1960s; 20.6 percent in 1979). Hence, Japan played an important role in the general growth of French luxury export and changed from the seventh largest market in 1970 to the second largest in 1980. Second, during the years 1980 to 1987, Japan’s importance was stagnating (average of 20 percent of export), but in a context of fast-​growing nominal export, Japan supported this general expansion. It became the largest market in 1990. Third, the decade 1989–​2004 represents the heyday of luxury in Japan—​still the largest market for luxury in 2000—​with a share that peaked at an average of 30.5 percent in 1997–​2002. Finally, the fourth period started in 2005 and is characterised by a strong decline of the share of Japan in the worldwide French export of leather goods that dropped to 4.1 percent in 2017. However, in nominal numbers, the decline is less dramatic: French leather goods exports to Japan peaked at €644 million in 2001, then declined slightly until 2010 (€459 billion), before growing again to €646 million in 2013 thanks to the development of Chinese tourism, and then fast-​decreasing after the implementation of a new antiluxury policy in China (€304 million in 2017). Japan was still the second largest outlet in 2010 but ranked only seventh in 2017. The French export of leather goods is an excellent benchmark for understanding the general evolution of Japan as a luxury market. Financial data of luxury groups confirm this trend. For example, in 1995, sales in Japan represented 23 percent of LVMH’s gross sales. The evolution since the foundation of the conglomerate is not known, but the general data for sales in all Asia (33 percent in 1988 and 38 percent in 1995, including Japan) suggests a growing share of the Japanese market. During the following years, the share of Japan dropped to an average of 15 percent in 1997–​2005, then decreased to 9 percent in 2010 and 7 percent in 2017 (LVMH 1988–​2017). This change results of course also from the change of brand portfolio controlled by LVMH, the umbrella group over Louis Vuitton, but it expresses a similar trend to the French export of leather goods regarding the role of the Japanese market. Most of the scholarly works on luxury business in Japan focus on consumer behaviour and the forms of market entry to shed light on the specificities of this market. The authors of these works consider Japan to be different and they aim at explaining its features. The structure of Japanese society, which was characterised between the 1960s and the 1990s by the presence of the world’s largest middle class with a high income, is often emphasised as an important precondition for luxury consumption (Kapferer 2012). Kapferer and Bastien (2009) and Fujioka, Li, and Kaneko (2018) clarified that disposable income was more important than income itself, stressing that the boom of luxury goods consumption that started in 1978 relied essentially on young women office workers living with their parents. These girls mass-​purchased iconic luxury bags from brands that included Chanel, Louis Vuitton, and Hermès. Other scholars developed the concept of “parasite singles” to describe this social group with specific consumption and living habits (e.g., Chadha and Husband 2006; Yamada 2001). Besides this socioeconomic dimension, cultural factors are usually stressed to explain the importance of luxury consumption in Japan, and sometimes in Asia as a whole (Chadha and Husband 2006; Godey et al., 2013; Knight and Kim 2007; Sari and Kusuma

448   Pierre-Yves Donzé 2014; Wong and Ahuvia 1998). Consumers in this country are different from Western consumers. According to Kapferer and Bastien (2009), they give prestige a higher importance than US or European consumers do. Japanese consumers are less individualistic and more conformist to group behaviour and legitimate social hierarchy (Chadha and Husband 2006). Kapferer (2012) argued that in Japan, unlike in individualistic Western societies, the consumption of similar goods “reinforces a feeling of togetherness” (p. 456); hence, it is an important driver for the mass consumption of accessible luxury goods. He added that “luxury creates both distinction from others and a sense of belonging at the same time” (p. 456). These features were particularly visible during the 1980s and the 1990s. Chadha and Husband (2006) maintain that 30 million Japanese owned an authentic Louis Vuitton product, that is, more than 20 percent of all the population. Hata (2004) mentioned a survey realised in September 2003 that showed that 44 percent of Japanese women age 15–​59 years owned a Louis Vuitton handbag. However, this cultural explanation lacks historical contextualisation. The heyday of luxury consumption in Japan is a phenomenon that is precisely dated. It was not observable before the 1970s and it has declined since the mid-​2000s. A better contextualisation would emphasise that the mass consumption of Western luxury goods occurred in a fast-​changing environment, characterised by the emergence of new urban middle classes and an Americanisation of consumer culture since the 1960s (Francks 2009). A  similar perspective can be observed for Western fashion clothing in Japan (Marx 2015). The fast increase of sales of luxury goods in Japan happened in a country that was the first in East Asia to raise to the standards of the most advanced countries and to challenge Western economies. The consumption of European luxuries was also an unconscious way to express a feeling of belonging to the advanced world (Chadha and Husband 2006). A second major area of research related to the specificities of the Japanese luxury market is the condition of market entry. Investing in Japan, particularly in retail, was not completely liberalised until the 1980s. Moreover, the complex distribution system, with several tiers of wholesalers before reaching retailers, was also an important entry barrier for foreign companies that wanted to access the Japanese market until the 1990s. In the 1960s, very few cosmetic companies opened subsidiaries in Japan, like L’Oréal (1963) and Estée Lauder (1967), followed by few watch makers and jewellers such as Tiffany (1972), Boucheron (1973), and Longines (1974), as well as leather goods and fashion brands like Louis Vuitton (1978), Chanel (1980), and Hermès (1983) (Bytheway 2014). These companies focussed essentially on the import of luxury goods and their sales to local distributors. These cases were, however, exceptions. Usually, two major strategies were adopted by Western luxury firms to access Japan: license agreements for production in Japan and import contracts with a general trading company. The first case was largely adopted by French fashion companies (Fujioka et al., 2018; Kinoshita 2011; Okawa 2008). Following Christian Dior, which, in 1953, signed an agreement with the department store Daimaru for the production under license of clothing, numerous other department stores made similar partnerships with French designers: Takashimaya with Pierre Cardin (1959), Matsuzakaya with Nina Ricci (1961), Mitsukoshi with Guy Laroche (1963), and Isetan with Pierre Cardin (1963). These

Luxury Business in Japan    449 relations started with the production of women clothes and extended gradually to a high variety of accessories. For that, Christian Dior signed a new license with the textile company Kanebo in 1963 (Fujioka 2013). Moreover, department stores were not only partners for the production under license in Japan but also the retailers for these products. Since the interwar years, they were the promoters of Western products, and the place where Japanese customers acquired luxury goods until the 1990s (Fujioka 2006). Department stores were, however, not the only partners of Western luxury companies for the production under license in Japan. Various apparel firms secured contracts, like Sanyo Shokai with Burberry (1969), Kawabe with Yves Saint Laurent (1970), or Itokin with Courrèges (1980) (Kinoshita 2003, 2011). The production under license was not the only way to access the fast-​growing Japanese luxury market. Export was a second strategy, adopted by companies that could not transfer production abroad for legal reasons, like Swiss watch makers (Donzé 2011), or that wanted to keep control on their products, like jewellry makers and some fashion designers (Fujioka et al. 2018). These firms, including the brands Chanel, L’Oréal, Louis Vuitton, and so on, opened sales subsidiaries in Japan before 1990 to supervise imports and marketing, whilst their local partners took charge of distribution. For these brands also, department stores were major retailers. Consequently, whatever the mode of market entry was until 1990, department stores were a determinant partner to access Japanese luxury consumers. Figure 21.2 shows that the gross sales of all department stores in Japan experienced a fast growth between 1960 and the early 1990s, which accelerated after 1970. It peaked at ¥10,000 billion in 1991 before entering a period of stagnation and decline. Although department stores do not sell foreign luxury goods exclusively, the evolution of their gross sales demonstrate their contribution to the fast-​growing luxury market in Japan. Despite the small decline after 1992, which was the consequence of the end of the bubble economy, sales by department stores remained at a high level until the end of the decade, then started decreasing in 1998. Finally, after a deep decrease after the global financial crisis of 2008, sales started to stabilise in 2010, thanks particularly to the development of inbound tourism from China. However, the decline is not only a reflection of the decrease of luxury sales in Japan since 2005 but rather the result of the changing role of department stores. The liberalisation of the Japanese economy during the 1990s enabled Western luxury firms to strengthen their direct presence on the Japanese market; accordingly the new global strategy they implemented at that time was characterised by a stronger control of brands by headquarters and the development of monobrand stores (Donzé 2018). Most of the largest luxury brands opened subsidiaries in Japan after 1990: Coach (1991), Miu Miu (1991), Bulgari (1991), Giorgio Armani (1995), Vivienne Westwood (1996), Tag Heuer (1997), Burberry (2000), Paul Smith (2002), Berlutti (2002), Prada (2003), Cartier (2003), Bottega Veneta (2006), and so on (Bytheway 2014). They started opening their own mono-​brand stores outside of department stores and put an end to licensing contracts. Christian Dior is a case in point (Donzé and Wubs 2019). This brand was well established on the Japanese market, but its identity was vague due to the overdiversification through licensed accessories. After the takeover of the firm by Bernard Arnault (1984) and the foundation of LVMH (1987), a new strategy was

450   Pierre-Yves Donzé 12,000,000

10,000,000

8,000,000

6,000,000

4,000,000

0

1960 1962 1964 1966 1968 1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018

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Figure 21.2.  Gross sales of Japanese department stores, in million yen, 1960–​2018. Source: Data from Nihon hyakatten kyokai tokei nenpo, 1960–​2018.

implemented, characterised particularly by the end of licenses for specific markets and the development of a network of monobrand stores. Consequently, Dior’s contracts with Kanebo from 1963 ended in 1997. The French fashion company opened its own Japanese sales subsidiary, Christian Dior Japan, in 2003 (Bytheway 2014) and it extended its network of boutiques in the country. It owned a total of six in 2000 and nineteen in 2019 (Christian Dior 2000; Okawa 2008). Moore and Birtwistle (2004) have demonstrated a similar trend for Burberry. In 2000, the headquarters of the British fashion company renegotiated its license agreement with Sanyo Shokai to strengthen its control on the design of licensed goods. Finally, the license contract was revoked in 2014. The same year, Burberry founded a subsidiary in Japan and opened a flagship store on Omotesando, one of Tokyo’s luxury fashion streets (Burberry 2015). Since 2000, flagship stores have become the most important market entry strategy for luxury brands that were not directly established in Japan yet, like Fendi. LVMH started its retail network for this brand in Japan by opening a Fendi flagship store in Tokyo in 2003 (Hines and Bruce 2007).

Learning From Japan Japan was the first non-​Western country to establish, during the 1970s–​1980s, a key market for luxury brands. Moreover, this happened during a period of deep

Luxury Business in Japan    451 transformation of the industrial organisation of luxury business, characterised by the foundation and growth of conglomerates (Bonin 2012; Donzé 2018). These companies implemented a strategy based on their expansion in global markets and the democratisation of consumption, in order to increase financial profitability (Donzé and Fujioka 2018). Hence the Japanese market played a determinant role in this process. It acted as a laboratory to test new actions and, where they proved successful, apply them to other markets. In particular, the democratization of luxury consumption started in Japan during the 1970s and 1980s (Fujioka et al. 2018). Although the marketing gurus Kapferer and Bastien (2009) recommend against adapting brands and products to specific markets, numerous firms did it and experienced major success. In particular, the strong demand for luxury goods by Japanese customers led French fashion companies to develop a broad range of small branded accessories to enlarge sales and to develop consumer awareness. This strategy was then transferred to other markets. The democratization of luxury occurred through two major models. First, the production under license enabled local manufacturers in Japan to freely develop new goods for their domestic market. Cooperation between department stores, which know customers, and textile companies, made possible the creation of a broad variety of goods. Christian Dior is a case in point (Okawa 2008). The textile company Kanebo, which had owned a Christian Dior license since 1963, developed a large variety of accessories, from cosmetics to lingerie, handkerchiefs, towels, slippers, peignoirs, and so on. In 1973, all licenses provided Christian Dior SA with an income of 3.5 million FF, which represented 37 percent of the company’s total profits. Haute couture was losing money but contributed to nurture a brand to be able to sell ready-​to-​wear and accessories. The profitability of the license with Kanebo itself is unknown, but it had a share of 29 percent of all sales of licensed goods, so that its contribution to the overall profitability of Christian Dior was obviously very important. Consequently, the number of licenses grew rapidly. The total sales, including Kanebo, went from 8 million FF in 1973 to 22.2 million FF in 1977, and profitability kept high (45.1 percent of all profits in 1977). Later Burberry followed a similar path (Moore and Birtwistle 2004). In 1996, Sanyo Shokai, which holds the license for Japan, introduced a new collection of casual clothes for women (Burberry Blue), followed two years later by Burberry Black for men (Ohkita 2017). The objective was to offer cheaper branded goods to increase sales and profits. High school students became an important consumer base for Burberry in Japan during the 1990s (Kinsella 2002). Burberry Blue and Burberry Black were, however, not used outside Japan. Yet the company was inspired by the Japanese experience to launch another subbrand for entry market in Europe, Thomas Burberry (Power and Atle 2008). These license agreements enabled Western luxury fashion companies to increase profitability and brand awareness; however, their headquarters decided to keep a stronger control on brand management during the 1990s. In 1997, Dior decided to put an end to its license agreement with Kanebo (Donzé and Wubs 2019). As for Burberry, it renegotiated its relationship with Sanyo Shokai in 2000 and ended the contract in 2015. Indeed, the management of global luxury brands requires a strongly unified identity around the world; hence, uncontrolled licensing is detrimental to such brands (Kapferer

452   Pierre-Yves Donzé and Bastien 2009; Roper et al. 2013). License business was thus a major tool for Western luxury brands to develop their brand awareness on a new market and to experience the democratisation of consumption. The takeover of licenses does not mean the end of diversification of accessories and of the enlargement of the consumer base but, rather, direct control of these actions by the headquarters. The loss was, however, important for the Japanese companies that had the license. Kanebo, which had become a large and unprofitable conglomerate, was dismantled in 2004 (Muto and Matsuda 2010). Sanyo Shokai kept its retail networks and launched the new brands Crest Bridge Blue Label and Crest Bridge Black Label (Ohkita 2017). Second, the democratisation of consumption was achieved by a few companies through a controlled diversification process. This strategy was first implemented by Louis Vuitton and became a model for most other luxury fashion companies. Louis Vuitton was a family firm that specialised in trunks and bags, with roots going back to 1854. The limited amount of capital and the will to keep family ownership restricted its development in foreign markets. In the 1970s, Vuitton owned only two boutiques—​one in Paris and one in Nice—​and relied on importers to access foreign markets (Bonvicini 2004). The management of the company changed drastically after Henri Racamier, the fourth generation of owners, was appointed CEO, in 1977. He transformed this small family firm into a multinational enterprise, focussing on the extension of sales network and marketing (Cosnard 2003). However, unlike Dior or Burberry, Vuitton decided not to engage in licensing. Louis Vuitton started its expansion in the Japanese market through export to a general trading company (Mitsui Co.) and distribution by a local wholesaler (Sann Frères) (Hata 2004). This general model was adopted throughout the world. During the second part of the 1970s, sales in Japan experienced a boom, which relied mostly on parallel importers that acquired Louis Vuitton bags outside Japan and sold them with cut prices and without any consideration for brand image. Viewed from Paris, Japan was a promising market but one that required extensive control. To strengthen their presence in this country, Louis Vuitton opened an office in 1978, which was transformed a few years later into a subsidiary, Louis Vuitton Japan. It oversaw import and marketing (prices, advertisements, design of shops, events, etc.), to ensure the consistency of brand image. Department stores Seibu and Takashimaya were local partners for sales. In 1978, Vuitton opened six boutiques in Japan, amongst which four were in department stores. Next, based on this experience, it opened a first store in the United States in 1980. Then, in 1981, it inaugurated a first monobrand store, managed by Louis Vuitton Japan, in Ginza, Tokyo. There was a total of thirty-​eight boutiques in 1997 (amongst about two hundred in the world) and fifty-​five in 2019. These stores became important places for communication and education of customers in brand identity. For example, as early as 1978, Louis Vuitton Japan decided to display a portrait of the founder Louis Vuitton as well as an old trunk, to emphasise the historical roots—​and legitimacy—​of the company to produce travel equipment and bags. After 2000, the stores themselves were designed by local architects, as an expression of the engagement of the company in art and creativity. In August 2002, Louis Vuitton opened a flagship store on Omotesando, Tokyo, designed

Luxury Business in Japan    453 by the Japanese architect Jun Aoki. Bernard Arnault, LVMH’s owner and CEO, declared that this store was “one of the jewels of our store network, it is also a symbol of the exceptional success of Louis Vuitton in the region and evidence of our continued commitment to our Japanese clientele” (LVMH 2002: 3). Louis Vuitton experienced a big success during its first two decades in Japan. Sales went from ¥1.2 billion in 1979 to ¥35.3 billion in 1990 and about ¥135 billion in 2002. These figures represent an important share of the sales of LVMH (which merged Louis Vuitton in 1987): in 2002, sales of Louis Vuitton Japan amounted to about 8.8 percent of LVMH gross sales and 25.7 percent of the fashion and leather goods division.1 This fast expansion resulted from a strategy of adaptation to the Japanese market through the development of new products. These goods were, however, not created and manufactured by licensees but rather by French headquarters in coordination with the Japanese subsidiary. The importance of the Japanese market enabled the managers of Louis Vuitton Japan to suggest the development of specific products, with the idea to erase excuses not to buy any Louis Vuitton goods (Hata 2004). Hence, Louis Vuitton launched several new collections for the Japanese market that were later used elsewhere in the world: Epi, for consumers who do not like the Monogram LV and prefer leather bags (1984); Saumur, for casual-​style bags (1987); Taiga, for men (1994). Moreover, the company engaged in cooperation with Japanese artists, the most famous case being the creation of a colorful monogram realised by designer Takashi Murakami in 2002. Besides, Louis Vuitton developed numerous small accessories (key holder, wallet, etc.) to offer cheaper products for low-​income customers attracted by the brand, which also contributed greatly to the brand awareness in Japan (Fujioka et al. 2018). Consequently, the cases of Burberry, Dior, and Vuitton show that Japan played a major role in the international expansion of these companies and their transformation into multinational enterprises. They experienced opportunities to increase profitability through the launch of accessories and market-​entry goods for lower-​income customers. But, at the same time, they learnt the necessity of implementing a centralised control on these diversification activities to keep consistency and build a global luxury brand.

Japanese Luxury Industries and Brands Finally, we must discuss the case of the domestic luxury industry in Japan. As demonstrated in the introduction to this chapter, today, Japanese companies are almost completely absent from the global luxury market. However, this country has an old and deeply established craftsmanship tradition characterised by the production of high-​ quality goods (e.g., in ceramics, glassmaking, clothing, and food). Two main reasons explain why Japanese luxury companies face difficulties expanding internationally and establishing as global enterprises: cultural specificity and brand management. Consumer goods carry a cultural identity, and this identity has a big impact on their opportunity to expand in foreign markets. Amano and Yamada (2009) argued that a

454   Pierre-Yves Donzé strong locally rooted cultural identity (e.g., in food, ceramics, and kimonos) had protected some traditional industries from global competition after Japan opened up to international trade in the mid-​nineteenth century, whilst less culturally rooted goods (like textile, ships, weapons) had to become competitive. Hence, some luxury goods were developed in a specific cultural environment that makes them difficult to export and sell abroad, beyond the niche market of wealthy consumers interested in Japanese culture. Unlike Western luxury goods, which benefit from adoption by worldwide customers as an expression of a global culture, traditional Japanese luxury goods are considered to be ethnic products. The kimono is a case in point (Cliffe 2017; Slade 2009). In the late nineteenth century, kimonos had already attracted the attention of wealthy Westerners, but, in the context of Japonisme, they were consumed as an expression of a culturally exotic good. Although they influenced some creations of French fashion designers throughout the twentieth century, this influence never stimulated growing demand for kimonos in the West (Jackson 2020). Neither did foreign demand become an alternative for the shrinking domestic consumption. Hashino (2018) analysed the dramatic decline of sales of kimonos since 1990 by the manufacturers of Nishijin district, Japan’s most famous cluster for luxury kimonos. She demonstrated the difficulties of shifting to foreign markets to overcome the decrease of domestic consumption, precisely because the use of this very specific clothing item is limited to a locally rooted culture. Similarly, in luxury fashion, most of the Japanese designers who became famous in Paris during the 1970s and the 1980s had to produce something “Japanese” to be acknowledged by the haute couture system. Kenzo Takada, Issey Miyake, and Hanae Mori were amongst the first Japanese to take part to Paris fashion shows. To gain acceptance in Paris fashion business circles, they emphasised their Japanese identity, through the use of fabrics, colors, and shapes inspired by traditional kimonos. Kenzo, who opened a boutique in Paris in 1970, gained fame by launching a first collection called “Jungle Jap”. However, this ethnic position restricted the presence of Japanese designers to a specific and limited part of the market for luxury fashion (Kawamura 2004). Their couture houses did not become large international businesses. Kenzo was acquired by LVMH in 1993 and large apparel groups in Japan never cooperated with domestic couture houses to expand abroad (Donzé & Fujioka 2021). However, cultural difference is not the only reason for the weak presence of Japanese companies on the global luxury market. The focus on technological innovation and a marketing based on the technical specificities of products makes it difficult to build global luxury brands, as expressed by the examples of Mikimoto and Seiko. Mikimoto is a leading company in the production of pearls, and it has diversified into jewellry (Mikimoto 1994). The roots of the company go back to 1893, when Kokichi Mikimoto invented a process to culture pearls. He focussed on the production of high-​quality pearls and experienced important growth in the Japanese domestic market and the market consisting of wealthy Western consumers. A major change of market occurred in the early 1970s, characterised by a shift to a mass market. In 1970, Mikimoto launched a second line for nonbranded pearls and jewelry and reorganised

Luxury Business in Japan    455 its production system in the 1980s to be able to enlarge its volume of production. During this period, a Mikimoto pearl necklace became a must-​have accessory for wedding ceremonies in Japan. In 1972, the company started tie-​ups with wedding ceremony halls and focussed on this market in the 1980s. Also, it attempted to diversify into accessories with the launch of cosmetics and perfume in 1979, then watches and writing instruments in the 1980s. This mass market supported the fast development of sales, which doubled between 1980 and 1990. At the same time, Mikimoto started its expansion on foreign markets, with the opening of a store on the Fifth Avenue, in New York, in 1975 (Nikkei 1975). During the following years, it opened subsidiaries in France (1986), in the United Kingdom (1989), and in South Korea (1989) and elsewhere in Asia during the 1990s. Stores were located in places that embody the idea of luxury, such as Place Vendôme in Paris—​where Mikimoto is the only non-​Western brand—​and Harrod’s in London. It engaged also in in-​flight sales in 1989 with cooperation by Korean Airlines (Nikkei 1989). In 2004, Mikimoto opened a store in Hong Kong and started its expansion in China. However, although Mikimoto has experienced fast growth as a provider of accessible luxury on the domestic market since the 1970s, it was not able to enjoy such a success in foreign markets. The retail network today expresses the difficulties of expanding beyond Asia. In 2019, Mikimoto had six directly owned stores in Japan and thirty-​six boutiques abroad. The foreign retail network is focussed on Asia: twenty-​nine boutiques are based in this region, essentially Taiwan (nine), mainland China (eight), and Hong Kong (seven).2 Outside Asia, Mikimoto was not able to achieve fast development as a brand of accessible luxury. Its brand identity is vague and it lacks strong storytelling beyond the image of an innovative manufacturer of high-​quality natural pearls. The design of stores around the world, which differs greatly between countries, expresses this lack of consistency and a strong message for consumers. Mikimoto is an unlisted company that discloses nearly no financial information. Accessible data about gross sales show that this firm followed a development path very different from the evolution of the global luxury business, which has experienced fast growth since the mid-​1990s.3 Mikimoto’s yearly sales amounted to about ¥29 billion in the late 1980s and grew to a peak at ¥36.7 billion in fiscal year 1997. This increase was undoubtedly related to the domestic market, under the influence of a financial bubble during these years. Next, sales decreased gradually to a low of ¥20.2 billion in 2011, before coming back to an average of ¥27 billion in 2014–​2018 (Toyo Keizai 1980–​2019). Despite this comeback, Mikimoto never again reached the level of the 1980s. Seiko, the watch company which remains famous for having challenged the domination of Swiss companies with the mass production of high-​precision watches during the 1970s and 1980s (Donzé 2016), shares similarities with Mikimoto in its attempt to engage in the luxury market since the mid-​1970s. The company was founded as a clock and watch store in Ginza, Tokyo, in 1881. It started manufacturing watches in the 1890s, using Swiss imported watches as models. Although Seiko aimed at making high-​quality watches, its target was the mass market, not the luxury segment. Its business model was based, and is still largely based, on the offer of best quality for a cheap

456   Pierre-Yves Donzé price (Donzé and Borel 2019). The move to luxury begun in 1974, with the launch of the subbrand Credor, characterised by using fine materials (gold, diamonds) and special movements assembled by hand. Additionally, in 1980 Seiko took over the Swiss company Jean Lassale SA, and poached a Swiss manager to take charge of its direction, with the ambition of making Jean Lassale Genève a world-​famous brand in luxury watches (Fédération horlogère suisse 1980). Finally, Seiko launched its own jewel watches on the Japanese market with Credor (1982), women’s watches through Jean Lassale (1985), and various models for the French fashion companies Courrèges and Nina Ricci in the mid-​1980s (Kokusai tokei tsushin 1994). However, the weakness of this strategy to diversify to luxury and fashion lay in its quasi-​exclusive orientation towards the domestic market. The issue, for Seiko, was of course competition with Swiss watchmakers in this segment, but only in Japan. This focus was strengthened by the fact Japan had become a major outlet for luxury goods in the 1980s. Hence, the brand Credor, repositioned as jewellry at the end of the 1970s by a team of designers trained in Paris, was not exported until the late 1990s, and its presence in foreign markets is even today extremely restricted. The trend is similar for Courrèges, a French garment company taken over in 1984 by the Japanese textile company Itokin, which sold it back to its founder ten years later (Kinoshita 2003). Following this acquisition, Seiko was entrusted to production under license of Courrèges watches, obviously for the domestic market, where this brand was very popular. Sales of Lassale, used for luxury watches for women, also focussed on the Japanese market. Moreover, in 1988, Seiko relaunched its subbrand Grand Seiko for high-​quality mechanical watches, targeting competition from Omega and Rolex on the domestic market. This subbrand had been launched first in 1960 and was used for various latest improvements of mechanical technology. In 1968, the management decided not to mention “Grand Seiko” on the dial, or the case, any longer, as it aimed to build a strong and unique brand “Seiko” for almost all models and all markets (Kawabata, Hirota, and Suzuki 2017). Hence, since the 1990s, Grand Seiko has experienced mportant success in the domestic market, as this brand embodies the excellence of the tradition of Japanese manufacturing. It became number three, behind Rolex and Omega. However, it lacked a strong identity beyond its technical characteristics to establish itself as a luxury good on the global market. Since 2010, Seiko has developed new lines of products, mostly mechanical watches (e.g., subbrand Presage in 2016), that emphasise the tradition of Japanese manufacturing, hoping to be recognised by non-​Japanese consumers as a legitimate luxury brand. Grand Seiko was launched on foreign markets in 2010 and several monobrand stores were consecutively opened in few major cities, like Paris, New York, and Shanghai. In 2015, for the first time, Grand Seiko appointed a foreign director, Carsten Fischer, who is a former manager of Procter & Gamble, to support the implementation of the new marketing strategy. The core message of this firm is, however, unclear as it keeps several different subbrands under the umbrella “Seiko”, from sport watches to high-​tech goods and to luxury mechanical watches (Donzé and Borel 2019). The evolution of the sales of Seiko’s watch division sheds light on the effects of the changing luxury strategy. The firm reached a peak in 1980, with watch sales amounting

Luxury Business in Japan    457 to ¥327 billion. However, this illustrates the success of Japanese manufacturing in the watch industry, which at the time was not pursuing a luxury strategy. During the following two decades, this division constantly lost importance and bottomed out at ¥102 billion in 2003. Credor, Lassale, and Grand Seiko had no impact on the development of Seiko until the early twenty-​first century. The mid-​2000s were a turning point. Except for the two years following the global financial crisis, Seiko’s watch division grew constantly, to a new peak at ¥165 billion in 2015, falling back to ¥142 billion in 2018 (Toyo Keizai 1980–​2019). This new phase of growth results most likely from the new strategy adopted after 2010. Yet, the impact is limited, if one considers the fast development of Swiss luxury watch companies over the same time period (gross sales of Swatch Group went from 4.1 billion francs in 2000 to 6.1 billion in 2010 and 8.5 billion in 2018; Swatch Group 2000–​2018). Mikimoto and Seiko are active in different sectors of the luxury industry, but they share some similarities that explain the intrinsic weakness of Japanese luxury firms and their inability to establish themselves as competitive firms in the global luxury market. First, both companies developed in their domestic market but faced difficulties going abroad using a marketing strategy that was the mere international expansion of the domestic one. Mikimoto and Seiko are brands that embody the expression of the excellence of Japanese manufacturing. The facts that Mikimoto realised the best artificial pearls and that Seiko made the world’s most accurate watches are common sense for Japanese consumers. These material considerations are the main reason they purchase such goods. However, emphasising the technological achievement of these brands is not a sufficient factor to encounter success in the global market, where brands need to attract consumers with glamorous storytelling. Mikimoto and Seiko look like premium brands, not like luxury. Second, the evolution of gross sales of these companies, although they follow distinctive trends, are very different from the evolution of the global luxury business, which is characterised by continuous growth since the early 1990s. Mikimoto encountered a phase of decline after the burst of the financial bubble and its recent comeback is still at a lower level than the mid-​1990s. Seiko, whose watch sales peaked in 1980 thanks to high quality and low cost, also implemented a first strategy of diversification towards luxury focussing on the domestic market, in the 1980s, before experiencing a long decline. Although it entered a new phase of growth in the mid-​2000s, Seiko’s watch sales in the recent years are still more than half of the value achieved in 1980. This expresses the inability of Japanese luxury companies to become global players in this industry.

Conclusion Japan is still one of the major markets for luxury goods, but its role has drastically changed over the last twenty years. During the last third of the twentieth century, it used to be the fastest growing outlet for Western luxury goods, and the first important market

458   Pierre-Yves Donzé outside the West. It contributed greatly to the transformation of the luxury industry as companies experienced the extension of sales through the development of accessories (democratisation of consumption) and the adaptation to different environments (global expansion). The learning process was, however, unidirectional. Japanese luxury companies focussed also on their domestic market until the 1990s and were unable to reposition their products as global luxuries after 2000. Since 2000, the Japanese luxury market is characterised by its normalisation. On the one hand, it lost its specificities with the advent of luxury conglomerates which implement a global brand management strategy. Moreover, these firms are less inclined to treat Japan as an outlet, as sales are in decline. On the other hand, the slight comeback of luxury consumption since 2010 relies essentially on tourism from neighboring China. In this sense also, Japan shares many similarities with Europe, the USA, and Southeast Asia, where Chinese shoppers became a major engine of luxury consumption.

Notes 1. Calculation based on the data provided by Hata (2004) and LVMH (2002). 2. https://​www.mikimoto.com/​jp/​stores/​direct/​index.htm 3. All data in this chapter are in current yen, considering the very low level of inflation in Japan since 1990.

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Chapter 22

Luxu ry in   C h i na Qing Wang

Luxury brands were originally created for the leisure class (Veblen 1994). Each Western luxury brand has a unique founding myth, cultural heritage, and craftsmanship, exuding an aura of timelessness. Luxury brands offer a hedonistic and exclusive experience, a price far exceeding that of any functional value, a unique know-​how which underpins the craftsmanship, heritage, and culture. They are symbols of success, making the owner feel special with a sense of privilege (Kapferer and Bastien 2012). China has a long history of its own form of luxury, as can be seen in the museums displaying Chinese bronzes, ceramics, silk embroidery, paintings, and other historical artefacts. China had its own leisure class, as characterized by Thorstein Veblen in 1899. The ancient Chinese leisure class consisted of an elite class of scholar-​bureaucrats selected by the emperor to help manage the country. These scholar-​bureaucrats, similar to the aristocrats in the West, were able to obtain tremendous fortunes and power through their educational and cultural accomplishments (Lu 2008). Owing to historical and political reasons, the ancient Chinese leisure class has long been extinct, and gone with it was the demand for luxury goods. Most traditional luxury brands we know today originated in the West, particularly Europe. However, with globalisation and the democratisation of luxury, emerging economies such as China and India have rapidly become major markets for luxury brands. The traditional Western clientele of luxury brands are wealthy and mature, whereas the customer base in emerging economies like China is much younger and more active on social media. Therefore, the first research question that this chapter addresses is:  What is the nature of luxury consumption in China, in terms of market dynamics and consumer characteristics? Luxury brands embody strong cultural narratives that are deeply rooted in Western culture. Specifically, the country of origin and the place and method of production are an integral part of the cultural heritage that underlies the authentic value and desirability of a luxury brand. Researchers of luxury consumption in China have stressed the importance of China not only as a luxury market but as a major source of inspiration for brands in the luxury field (Chevalier and Lu 2010). This leads to the second research

462   Qing Wang question: To what extent are the cultural narratives of luxury brands transferrable to different cultures? This introduction sets out the research questions and structure of the chapter. It then provides an overview of the rapid growth of luxury consumption in China based on data from Bain and Company (Lannes 2019). Section 2 focuses on the first research question. Based on an extensive literature review, it provides an analysis of the nature of luxury consumption in China. The motivation for luxury consumption and the shift from conspicuous consumption to experiential consumption are examined in especial depth. Finally, three stages of luxury consumption in China are identified. Each stage has distinct characteristics in terms of the geographical focus, market dynamics, and the main drivers of growth. Section 3 aims to answer the second research question. It presents primary research on cultural tourism as a mechanism for transporting cultural narratives and the authenticity attributes of luxury brands. In addition, based on secondary information, it provides examples of luxury brands in their latest efforts to communicate brand narratives in the Chinese context. Finally, Section 4 presents a summary of the main findings and a brief discussion of the future prospects for luxury brands in post-​pandemic  China.

The Rapid Growth of Luxury Consumption in China Sales of luxury goods in China have grown exponentially for the past two decades. According to a report by Bain and Company (Lannes 2019), the luxury market in China has continued its double-​digit growth in spite of the financial crisis in 2008 and the economic slowdown in 2015 when the gross domestic product (GDP) growth of the country fell below 7 percent for the first time in more than two decades. Whilst overall global luxury sales doubled from €116 billion in 2000 to €260 billion in 2018, Chinese luxury consumption grew more than eighty times, from €1.16 billion to €87 billion, in the same period. In relative terms, luxury spending by Chinese shoppers grew from a meager 1 percent of global luxury consumption in 2000, to a massive 33 percent of global luxury sales in 2018 (see Table 22.1). The latest figure from before the pandemic shows that this upward trend was accelerating, with a second straight year of 20 percent growth in 2018, largely driven by millennials (those born between 1982 and 2002). Millennials in China are wealthier compared to those in Western countries, based on the percentage of home ownership. Seventy percent of Chinese millennials own their own home, compared to 35 percent in the United States and 31 percent in the United Kingdom (HSBC Group 2017). Chinese luxury consumers are younger, with nearly 50 percent of them under the age of thirty. The average age of the luxury shopper in China is now twenty-​five, which is between fifteen and twenty years younger than the average European or US luxury consumer

Luxury in China    463 Table 22.1. Global Share of Luxury Market by Consumer Nationality Total:

€116bn

€167bn

€245bn

€260bn

Year:

2000

2010

2015

2018

Europe 30%

Europe 27%

China 31%

China 33%

Japan 27%

America 22%

America 23%

America 22%

America 25%

China 19%

Europe 18%

Europe 18%

Other Asian 7%

Japan 17%

Japan 10%

Japan 10%

Rest of world 7% Other Asian 8%

Other Asian 9%

Other Asian 11%

China 1%

Rest of world 9%

Rest of world 6%

Rest of world 7%

Notes: CAGR World (2000–​2010: 4%; 2010–​2015: 8%; 2015–​2018: 2%); CAGR China (2000–​2010: 33%; 2010–​2015: 19%; 2015–​2018: 2%). Source: Data from Bain Luxury Goods Worldwide Market Study (2018b).

(Lannes 2019). The nouveaux riches have become role models for Chinese youth. They demand the best from life, seek products of exquisite taste and quality, and choose products that display character. Moreover, as most of the millennials in China were born in the era of the single-​child policy, their doting parents are more willing to fund their luxury purchases; 57 percent of their luxury and fashion purchases are from parents’ funds (Lannes 2019). In addition, digital platforms are powering consumer engagement and luxury purchases in China. Many of the platforms were invented in China, including WeChat, TikTok, and Little Red Book. Affluent Chinese consumers are nearly twice as likely as their international counterparts to have downloaded an app offered by a luxury brand: 70 percent in China versus an average of 43 percent across Brazil, Hong Kong, Russia, and South Korea. Chinese luxury consumers are avid online shoppers, with 62 percent purchasing online versus an average of 37 percent across Hong Kong, Japan, Russia, and South Korea (Ipsos 2019). Since Western social media and digital platforms, including Google, Facebook, YouTube, Twitter, and Instagram, are not permitted to operate in China, Western luxury brands have had to adopt different platforms to engage with Chinese luxury consumers online. In 2018, more Western luxury brands looked for ways to expand their online presence through collaborations with leading Chinese e-​commerce platforms, whilst others maintained a focus on their in-​house websites. It was also a year of heavy activity in mergers and acquisitions, including the following highlights: (1) JD.com (Chinese) and L Catterton (American) invested $175 million in Secoo (Chinese) (2) Richemont (Swiss) acquired Yoox Net-​a-​Porter (YNAP) (Italian-​British)

464   Qing Wang (3) YNAP entered a strategic partnership with Alibaba Group (Chinese) (4) JD.com’s Toplife merged with Farfetch (British-​Portuguese) The expanding middle class in China also represents a strong engine of growth. Over the past several decades, China’s urban population skyrocketed from 19 percent of the total population in 1980 to 58 percent in 2017. China’s economic development has lifted hundreds of millions of Chinese out of poverty and resulted in a burgeoning middle class (China Power 2019). Middle-​class households typically have enough income to satisfy their primary needs—​food, clothing, and shelter—​with some disposable income left over for savings and the consumption of luxury goods. McKinsey (Kim, Luan, and Zipser 2019) defines the middle class in China as those with an income ranging from 75,000RMB to 280,000RMB ($11,500 to $43,000) per year. Since the early 2000s, China’s middle class has been among the fastest growing in the world, swelling from 29 million in 1999 (2 percent of population) to roughly 531 million in 2013 (39 percent of population) and will represent an estimated 65 percent of all Chinese households by 2027 (Lannes 2019). This expanding middle class continues to produce first-​time buyers of luxury goods, ensuring the continued and sustained growth of the luxury market in China.

The Nature of Luxury Consumption in China This section addresses the first research question, namely: What is the nature of luxury consumption in China, in terms of market dynamics and consumer characteristics? Despite the rapidly growing demand in China for luxury goods, understanding the needs and motivations of the Chinese luxury consumer remains a challenging task for Western luxury brands. Whilst some luxury brands have achieved great success, others have had lacklustre or even disastrous performance. For instance, Farfetch, an online luxury retail platform headquartered in London, posted a fourth-​quarter revenue of $195.5 million in 2019, which was up 54.6 percent from a year earlier. The number of active customers rose 31 percent over that period. This strong performance was closely linked to its China operation. Farfetch expanded its presence in China by using JD.com’s logistics network and consumer data. The tie-​up is designed to help both companies compete with larger rivals in the Chinese market (Suen 2019). However, in sharp contrast to the strong performance of Farfetch, the British fashion website ASOS closed its local operations in China at a cost of £10 million, less than three years after it was launched (Marketing to China 2016). Luxury brands and retailers such as ASOS fail in China partly due to their inability to understand the unique characteristics of the Chinese market and to adapt their strategies accordingly. This section provides a systematic analysis of the nature of Chinese luxury consumption.

Luxury in China    465

The Evolution of the Functions of Luxury Consumption in China Consumer behavior is concerned principally with motivation (McClelland 1985). Motivation can be defined as a pressing need to act (Marslow 1943), which can be differentiated into extrinsic and intrinsic needs (Kasser and Ryan 1996). Next, the functions satisfying extrinsic needs and functions satisfying intrinsic needs are discussed.

Functions Satisfying Extrinsic Needs: Money Value Dominance and Conspicuous Consumption in China Extrinsic needs refer to the need to obtain some reward or social praise. The obsession with luxury goods is partly driven by individuals’ extrinsic needs for financial success, status, social conformity, and self-​acceptance (Eagly and Chaiken 1993; Vigneron and Johnson 2004). Simmel (1997) illustrates how money shapes the mentality of consumers both in their actions and in their psyches. Money has more than just an economic meaning; it has a social meaning that allows consumers to emulate each other in their choice and use of consumer goods (Doyle 1999; Wang and Griskevicius 2014; Ward and Dahl 2014; Veblen 1994). Marketers can portray money’s symbolism and power in the way lifestyles and possessions are displayed by those who possess the money to live such lifestyles. These portrayals can serve as motivators for consumers to buy certain products, and thus money contributes to the development and identification of the self (Doyle 1999). The adoption of a Western upper-​class lifestyle by wealthy Chinese began in Shanghai around the mid-​nineteenth century during a period of Western domination. The city quickly became home to British bankers and French artists, and it was transformed into a city of late-​night jazz clubs and dance halls; the skyline of Shanghai was reshaped with great architecture. The city’s melting pot of cultures gave it a reputation as the ‘Paris of the Orient’, which all ended in 1949 when the Communist party took over. However, since the country’s opening-​up policy and economic reform in 1978, China has transformed from a planned economy to a market economy. The psyche of Chinese consumers is also changing:  The Western ideals of individualism and hedonism flourish, and in the absence of a religion, money and financial success have occupied a centre stage in China. Gries and Rosen (2004) capture this idea by stating that in China, the path to upward mobility is becoming increasingly skewed by the triumph of new money-​driven values and practices, since money can signal prestige and permit extravagances and new identities to develop. The society shows a strong appetite, backed by a huge amount of rapidly accumulated wealth, to relive the extravagant and luxurious lifestyle of 1920s and 1930s Shanghai. The luxury sector has responded by recreating an ambience and aura of luxury of the forgone era. For example, the Peninsula Hotel in Shanghai created a bar called Salon de Ning based on the legend about a mysterious Madame Ning in Shanghai in the 1930s. She is said to have been very well travelled, and her home was filled with a collection of treasures she had collected from all around the world. One of

466   Qing Wang the first Chinese luxury fashion brands, Shanghai Tang, was inspired by the iconic qipao (traditional Chinese dress), a form-​fitting high-​necked dress that became popular in the 1930s. The brand advocates for Chinese heritage and culture, presenting it in an elegant and modern way, and cultivates a distinctly Chinese beauty and aesthetic (Chua and Eccles 2009; Coonan 2014). Through their historical heritage, luxury brands both Western and domestic embody a range of qualities, such as style, sophistication, upper-​class identity, and status. Thus, luxury consumption in the form of conspicuous consumption satisfies extrinsic needs for signaling status, social conformity, and self-​acceptance. The main target customer group in the early stage of Chinese luxury consumption was the nouveaux riches, who aspired to these qualities that luxury brands were capable of providing.

Functions Satisfying Intrinsic Needs: The Young and Social Media Active Generation and Experiential Consumption Intrinsic needs are concerned with relatedness, hedonism, and well-​being. In terms of relatedness, luxury consumption can be seen as a means to instigate a warm, intimate, and/​or relaxed mood, which helps foster closer relationships and bolster social bonds (Baldwin et al. 1996). Hedonism is linked to an individual’s innate desire for pleasure, such as experiencing fun, amusement, fantasy, and sensory stimulation (Arnold and Reynolds 2003; Lageat, Czellar, and Laurent 2003). The central tenet of luxury products lies in their hedonic potential to delight rather than merely satisfy customers (Chitturi, Raghunathan, and Mahajan 2008). Luxury consumption has an intangible and sensational utility, whereby hedonistic values are activated during sensory gratification (Nueno and Quelch 1998; Loureiro and de Araújo 2014). Additionally, luxury consumption serves a well-​being function: An individual, through sensory pleasure and a sense of escape, may restore his or her physical and mental energy and feels refreshed, recharged, and rested (Zhou et al. 2008). The hedonic value of luxury brands gives rise to the theory of experiential consumption first proposed by Holbrook and Hirschman (1982). The theory of experiential consumption regards the consumption experience as a phenomenon directed towards the pursuit of fantasies, feelings, and fun (Holbrook and Hirschman 1982; Wiedmann et al. 2007). To satisfy people’s intrinsic needs, there is a shift in focus from conspicuous consumption of material goods to experiential consumption and less tangible forms of luxury (Nicolao, Irwin, and Goodman 2009). Millennials show distinct differences from other demographic groups. They value experiences more than objects, highlighting those facets of consumer behavior that relate to the multisensory, fantasy, and emotive aspect of the luxury experience. They are the most brand-​sensitive and socially aware generation due to their need for forming self-​and social identity (Kim and Jang 2014; Parment 2014). As traditional societal structures in China began to disintegrate, identity construction through consumption became prevalent for the millennial generation. Thus, luxury consumption in China also serves the functions of satisfying the intrinsic needs of relatedness, hedonism, and well-​being in the form of experiential consumption.

Luxury in China    467

The Stages of Luxury Consumption in China The analysis in this section will show that luxury consumption in China has achieved sustained growth over nearly two decades, stemming from new engines of growth in different periods. The nature of luxury consumption in China evolved from conspicuous consumption to experiential consumption, as discussed in the previous section, but at a much faster pace than in the West. Three distinct stages have emerged from our analysis.

Stage 1: Conspicuous Consumption and Gift Giving (2000–​2010) In the previous section, the history of luxury in China before 1978 was briefly discussed. In this section, the focus is on more recent developments. The years 2000 to 2010 were a crucial period for the luxury market in China. During this decade, the country’s disposable income rose exponentially, and the demand for luxury goods took off. Chinese luxury consumption grew from 1 percent of global luxury sales in 2000 to 19 percent in 2010 (see Table 22.1). This is because since China opened up and adopted a market-​ driven economy in 1978, and the accumulation and display of wealth have become central to the country’s consumption culture. At this early stage, the culture of gift giving in China was a major source of demand for the world’s top luxury brands. Gifts are often offered in return for favours in China, where bribery was widespread. The private consumption of luxury goods was driven by motives of conspicuous consumption, whereby big flashy designer labels were used to offset the awkwardness that accompanies a sudden change of fortune. Big-​logo brands, such as LV, Gucci, and Prada, benefitted the most from the boom. For example, in 2012, the net revenues for Prada grew by 29 percent, compared to 23 percent the previous year. It made a bulk of its sales through retail, the Asian market (excluding Japan), and leather goods. The most popular product categories worldwide included watches, jewellry, wine, and spirits. Consumers were not sophisticated in their tastes and emulated the consumption patterns of those higher in the socioeconomic hierarchy. Signalling wealth and status was the main function of luxury consumption at this stage. Geographically, luxury consumption mainly took place in the first-​tier cities of Beijing, Shanghai, Guangzhou, and Shenzhen.

Stage 2: Experiential Consumption and Cultural Tourism (2010–​2015) Between 2010 and 2015, global revenue in the luxury sector grew at an average of more than 11 percent a year, spurred on by Greater China (Lannes 2019). The contribution of Chinese consumers to the global luxury market reached €73.8 billion ($99.6 billion) and accounted for 31 percent of all luxury sales. However, the demand for gift-​giving was hit hard by the government crackdown on corruption. In 2012, the government imposed a ‘frugal working-​style’ rule on its civil servants, barring them from spending public money on lavish banquets or fancy cars and from accepting expensive gifts (Master

468   Qing Wang 2012). The anticorruption measures inevitably affected the sales of luxury goods. For example, in the first quarter of 2013, the value of Swiss watch exports to China was down 26 percent compared with the first three months of the previous year, reversing a decade-​long pattern of growth. In 2013, sales growth of Prada in Greater China fell to 4 percent. As a result, the growth rate of Chinese spending on luxury goods in 2013 fell to 18 percent—​down from 28 percent in 2012 and 43 percent in 2011. However, while gifting accounted for 37  percent of China’s luxury-​goods market, even before the anticorruption measures were put into place, a large majority of those purchases were for legitimate personal gifting among friends. Therefore, the setback was partly due to the anticorruption measure and partly due to other fundamental reasons. As Chinese consumers became more sophisticated, they began to seek luxury brands that matched their specific needs and desires. Big-​logo brands were seen to serve the need to demonstrate one’s status, and once overexpansion in the early stage damaged the exclusive image of those brands, they became less desirable as consumers became more sophisticated. To hold consumers’ attention, bigger brands would need to reposition and innovate. Cultural narratives and icons became more important for communicating the symbolic and hedonic benefits of luxury brands in order to maintain the desirability of luxury brands. For example, the legendary story of Chanel’s founder, Gabrielle ‘Coco’ Chanel, started to show its magic at this stage (Picardie 2010). The De Beers ‘a diamond is forever’ slogan appealed to the desire for love and lasting relationships (Bergenstock and Maskulka 2001). Hermès’s craftsmanship and limited product availability satisfied the desire for exclusivity and exquisite quality. The brand Tiffany’s is associated with the glamourous lifestyle symbolized by the Hollywood movie Breakfast at Tiffany’s (Jacobs 2018),which was highly desirable for Chinese luxury consumers. Related to and coinciding with this growing appreciation of cultural narratives from the more sophisticated Chinese luxury consumer was the rise of Chinese tourists travelling overseas. Many of the brands with falling sales in China were seeing some Chinese consumption switching abroad. For example, from January to October 2013, Chinese residents made 27 percent of all tax-​free global purchases, and their expenditure rose by almost 24 percent year on year (Kim et al. 2019). The increasing Chinese consumption of luxury brands overseas was motivated by two factors: the price differential due to a high import tax for luxury goods in China during this period, and the authentic brand experience derived from a deeper cultural appreciation when buying in their country of origin (Liu et al. 2016; Liu and Wang 2009). In other words, Chinese luxury consumers became much more sophisticated in a very short period of time. Luxury consumption in China entered a new phase with a shift in focus from conspicuous consumption to hedonic consumption, and to less tangible forms of luxury (Nicolao et al. 2009). Companies needed to adapt quickly to such change by providing VIP services, offering limited-​edition products, or cutting back dramatically on logo products. The major consumer groups for luxury goods were also changing from the nouveaux riche to the growing middle class and the millennial generation. Geographically, although first-​tier cities were still the main luxury market, luxury brands began to expand to the second-​tier cities of Hangzhou, Nanjing, Chengdu,

Luxury in China    469 and Xi’an. Therefore, it was important to have a product offering that was priced and positioned to target these vast and fast-​growing metropolises.

Stage 3: Increased Domestic Consumption and the Role of Chinese Social-​Media Platforms (2015–​present) Since the economic slowdown in 2014, China has adopted a new development model which embodies a focus on structural changes that can achieve still-​strong but lower economic growth (around 7 percent per year) of a much better quality in terms of its social distribution and impact on the natural environment (Green and Stern 2015). In this period, the share of global luxury spending by Chinese consumers has continued to rise. In 2018, it was estimated that 33 percent of global luxury spend was by Chinese consumers, up from 32 percent in 2017. The Chinese are still buying luxury, but where they are buying is changing. In 2018, the import tax on clothing and accessories dropped from 15.9 percent to 7.1 percent, and on cosmetics from 8.4 percent to 2.9 percent. This allowed luxury brands like Louis Vuitton, Burberry, and Hermès to cut prices in China as part of a global price-​harmonization strategy (Reuters 2018). Heavily influenced by the government tax policy, sales of luxury brands in mainland China grew twice as much as spending abroad between 2015 and 2018. Luxury sales in mainland China grew 20 percent to €23 billion in 2018, representing 9 percent of global luxury sales (Bain and Company 2018a). Aside from tax policy, the government also passed a strict new law against daigou, the gray market in which overseas personal shoppers ship luxury goods to local consumers seeking to avoid paying taxes. The crackdown has directed shoppers to the domestic market and cross-​border e-​commerce websites that operate under Chinese law (Hancock and Wang 2018). In 2018, online luxury shopping continued to accelerate more than physical channels, growing 22 percent from the previous year to €27 billion (Bain and Company 2018a). Brands must therefore rethink their physical channels, evolve their role from point of sale to point of touch, and use new technology to enhance customers’ in-​store experiences. Meanwhile, this was also a period in which luxury shopping malls began to establish a major presence in second-​and even third-​tier cities. For example, after the launch of the first high-​end SKP department store in Beijing in 2016, which is ranked number one in Asia in terms of sales and number two globally, the London-​based architectural firm Sybarite created a second SKP store with twenty storeys and 250,000 square metres in the ancient Chinese capital of Xi’an. At almost three times the size of Harrods, the new mall showcases over one thousand global brands alongside a select range of domestic names in designer fashions (Lux Life 2018). Finally, Generation Z, despite being a smaller proportion of the market (2 percent in 2018, but projected to increase to 10 percent in 2025) is already demonstrating highly differentiated preferences from the previous generations. They are more individualistic and are willing to shop in physical stores, but they expect a digitally enhanced experience. They exhibit less brand loyalty but are more influenced by brand ambassadors, or ‘Wang Hong’ (social media influencers), and live streaming has become an important sales channel in China. However, Western luxury brands can display arrogant attitudes

470   Qing Wang about their identity, despite using Chinese models or celebrities well-​known in China. Western brands are unwilling to change for the Chinese market, especially when it comes to content for advertising campaigns. Burberry’s Chinese New Year campaign in 2019 was a case in point. The campaign used much-​loved Chinese celebrities, including Zhou Dongyu and Zhao Wei. But it received much criticism from both Chinese consumers and the media for the misrepresentation of Chinese cultural narratives and aesthetics. ‘Chinese New Year is a time for family reunions, joy and luck. These people look like actors in a horror movie’ (Jing Daily 2019). Burberry was not an isolated case, as several other major luxury brands, including Dolce & Gabbana and Balenciaga, also created ill-​fated campaigns causing major backlash from Chinese consumers (Huang and Janssens 2019). To summarize, this section revealed that the market for luxury consumption in China is highly dynamic and constantly evolving. The value of luxury brands derives from their heritage, craftsmanship, and sensory pleasure. However, the new geographic and demographic composition of the global luxury market presents a particular type of challenge that is unique to this sector—​the challenge of communicating the authentic value and aesthetics of luxury in an increasingly multicultural environment (Jones 2010). The next section presents an exploratory study, based on primary research data, of how cultural narratives are appreciated and translated in the Chinese context.

Translating the Cultural Narratives of Luxury Brands in a New Context: An Exploratory Study This section addresses the second research question:  To what extent are the cultural narratives of luxury brands transferrable to different cultures? A  particular challenge facing Western luxury brands in the Chinese market is how to communicate the brand narratives that can transcend culture and are appreciated by consumers who have limited knowledge of the brand heritage. According to Williams (1958), culture is about the whole way of life of a distinct people or social group, with distinctive signifying systems involving all forms of social, artistic, and intellectual activities. Specifically, culture is about the past and traditions (e.g., history and heritage), creative expression (e.g., visual and performing arts), and people’s ways of living, their customs, and their habits. Green and Brock (2000) developed the concept of narrative transportation—​to be carried away by a story—​as a new route to brand communication and persuasion. Specifically, narrative persuades consumers as they become absorbed in a story. It is therefore useful to identify practices that can help translate the cultural narratives of luxury brands for consumers from increasingly diverse cultures.

Luxury in China    471 In this exploratory study, cultural tourism is selected as the activity that helps transport the cultural narratives of luxury brands (Smith 2009). For a luxury brand, culture is a source of inspiration and imagination and an invaluable resource that makes the brand special and unique. For example, luxury brands have the cultural narratives of status (transported through the experience of high tea at the Ritz), perfection (transported through the appreciation of the fine arts and crafts exhibited in museums and galleries), and freedom from daily routine (transported through tours to the scenic Provence countryside). This study adopts the concept of narrative transportation to explain the link between cultural tourism, a country’s cultural attributes, and the authenticity attributes of luxury brands from that country. The six authenticity attributes for luxury brands are (1)  heritage and pedigree, (2)  stylistic consistency, (3)  quality commitments, (4) relationship to place, (5) method of production, and (6) downplaying commercial considerations (Beverland 2006). These attributes are used to structure the exploratory study.

The Empirical Study Utilizing information from in-​depth interviews and a field experiment conducted in collaboration with the Channel 4 Dispatches programme, this study examines the association of British luxury brands with the country’s cultural attributes, how these attributes are experienced through cultural tourism, and how this unique association influences brand preferences and purchasing intention.

Procedures In-​depth interviews were conducted with consumers in three major cities in China, namely, Beijing, Shanghai, and Guangzhou. Twelve people were interviewed between 17 and 25 November 2014, which fell into Stage 2 of luxury consumption in China, as defined earlier in this chapter. Of the twelve interviewees, seven were between 25 and 32 years of age (i.e., millennials) and five were between 33 and 40 years of age. These are young affluent consumers with a monthly disposable income of 30,000RMB (£3,000) or above. The results show that these consumers purchase luxury goods regularly and have purchased something from at least one British luxury brand in the past twelve months both by travelling overseas and from China.

Results and Analysis The following section presents the results of the empirical study.

Motivation to purchase and quality commitment Using a 5-​point Likert scale, the respondents were asked to ‘rate the extent to which the following situations best describe why you purchased luxury goods’. ‘Reward myself ’ was rated the highest (4.5). When asked about the most important characteristics

472   Qing Wang of luxury brands, the top three were excellent quality (73.1 percent), brand meaning (40.3 percent), and unique design (37.3 percent). Only 17.91 percent of the respondents rated ‘status symbol’ as the most important characteristic. The results provided support for our proposition that luxury brands served intrinsic more than extrinsic needs as the market evolved to the second stage of development.

Country-​of-​origin effect and cultural heritage To further delve into brand meaning, the respondents were asked whether they care about where a luxury brand is from: 73.3 percent answered yes and 26.7 percent answered no. When asked their favourite countries of origin for luxury brands, the top four countries were France (63.3 percent), Italy (51.7 percent), Britain (25.0 percent), and the United States (8.3 percent). They were then asked: ‘How important is the culture heritage of a country—​including arts, music, literature, and a tradition of craftsmanship—​ for your appreciation of luxury brands?’ Eighty-​eight percent rated either extremely important or important; only 12 percent rated not important. It was found that the majority of respondents (88 percent) associated a brand heritage with the desired lifestyle they aspired to. The results confirm that consumers’ evaluation of luxury brands is affected strongly by country of origin and indicates a high level of brand association with the cultural heritage of the country of origin.

Sources of information and stylistic consistency When asked where they get up-​to-​date information about luxury style trends, the top four information sources included advertising and fashion magazines (76 percent, both online and offline), luxury-​goods store (48 percent, both online and offline), cultural tourism (39 percent), and recommendations from friends (33 percent, both face to face and via social media). Therefore, cultural tourism is also an important source of communication for luxury brands. For example, visiting Highclere Castle, the site of the period drama Downton Abbey, helped Chinese consumers understand the lifestyle of the British leisure class, which in turn raised the desirability of British luxury brands such as Burberry and Barbour. Visiting the V&A Museum in London and viewing the exhibition Alexander McQueen: Savage Beauty raised the interest of Chinese consumers for the design style of Alexander McQueen. Based on the above findings, a televised field experiment was carried out in London’s China Town and broadcast on 14 December 2015 by the award-​winning British Channel 4 television programme Dispatches. In the experiment, a 2x2 within-​subject design was adopted: Two product categories (luxury vs. nonluxury) x two packaging designs (with Royal Warrant as cultural attribute vs. without Royal Warrant as cultural attribute). Chocolate was selected for the luxury category and soap was selected for the nonluxury category. The stimuli (i.e., two boxes of chocolate and two boxes of soaps with fictitious brands of ‘Barnett & Barnett’ and ‘Barnett’s of Piccadilly’) were placed on a tray carried by Channel 4 presenter Antony Barnett. Twenty-​five Chinese tourists on London streets were randomly selected. They were asked to choose from each product category, and answer which one they would buy and why. The results are consistent with our survey

Luxury in China    473 findings. For both product categories, 70 percent (thirty-​five of fifty choices) selected the package with the Royal Warrant. When asked why they selected the one with Royal Warrant, their responses were that it is a certificate of authenticity, quality assurance, and a symbol of prestige associated with the royal lifestyle. In addition, the effect of the Royal Warrant on purchase intention was greater for the luxury category (chocolate), as 80 percent of the respondents (twenty of twenty-​five) selected the chocolate with the Royal Warrant compared to 60 percent of respondents (fifteen of twenty-​five) who selected the soap with the Royal Warrant. The results of this exploratory study indicate a close link between cultural tourism (i.e., experiencing a country’s cultural heritage) and the authenticity attributes of luxury brands. In addition, it shows that the effect of a country’s cultural heritage on authentic perception and purchase intention was greater for luxury products than for utilitarian products. Therefore, it provides preliminary evidence to show that love for the culture indeed extends to love for the luxury brands from that country.

Case Examples of Western Luxury Brands Translating Cultural Narratives and Communicating Brand Identity Based on secondary information, the next section provides examples of luxury brands in their latest efforts to communicate brand narratives in the Chinese context.

Louis Vuitton: Co-​branding with the National Museum of China For luxury brands, leveraging their rich history and exquisite craftsmanship is important. In June 2011, Louis Vuitton showcased its brand legacy with Louis-​Vuitton Voyages at the National Museum of China. The exhibition featured four showrooms which celebrated Louis Vuitton’s 157  years of history and presented luggage and bags that demonstrated the brand’s evolution. The practice of using exhibitions to enhance brand knowledge is not new (Pronitcheva 2018). However, the location for the Louis Vuitton exhibition is quite unique. The National Museum of China is regarded by Chinese citizens as one of the best museums, which displays significant art pieces that contributed to cultural changes in China. Louis Vuitton is the first commercial brand the museum agreed to partner with for an exhibition. The symbol and status associated with an acclaimed institution such as the National Museum of China could be transferred to brands. By having an exhibition at the National Museum of China, the brand wishes to show that it is not simply a luxury brand but that its deep cultural heritage and history are praiseworthy; the cultural connotation of a luxury brand is magnified through such a collaboration (Jing Daily 2011).

Chanel: Storytelling through the Culture Chanel Exhibition Leveraging the iconic Mademoiselle Chanel has always been a key branding strategy for Chanel. True ‘storytelling’ goes beyond simply using Coco Chanel’s name or image

474   Qing Wang during advertisements and promotion, especially in China. In 2011, Chanel organized an exhibition titled Culture Chanel in Shanghai and Beijing. The exhibition was ‘specially made for China’ and aimed to further introduce Coco and what inspired her to create classics such as the interlocking C symbol, No. 5 perfume, and the camellia-​flower motif, along with concepts such as ‘invisibility’, ‘hidden luxury’, and more. The effect went beyond simply introducing Coco Chanel. The purpose of the exhibition was to establish an emotional connection with potential customers and transcend the association between Chanel’s signature designs (aesthetic symbols) and the iconic Mademoiselle Chanel story (Areddy 2011).

Burberry: Establishing a Unique Brand Identity through Social Media Channels A key concern in the Chinese luxury market is that brands struggle to go beyond their generic ‘Western luxury’ identity. Burberry successfully differentiated itself by integrating diverse social media channels and Chinese shopping habits into its digital strategy. It has official accounts on five top social media platforms in China, namely, Sina Weibo, Youku, Kaixin, Douban, and Jiepang, which would be the equivalent of Twitter, YouTube, Facebook, SNS/​BBS, and Foursquare, respectively. All sites are cross-​ referenced, enabling greater brand exposure and deeper brand knowledge. Using local instead of Western social media influencers has become a major move for luxury brands as luxury consumption is now more domestic and the target customer has shifted from the nouveaux riches to millennials and the growing middle class, who have greater affiliation to the local social media and stronger patriotic sentiment (Labbrand 2012).

Summary of the Main Findings This chapter has provided an overview and analysis of the rapidly growing and changing demand for luxury brands in China. It focuses specifically on the unique characteristics of market dynamics and consumer motivations. It evaluates the role of various players, including the government, e-​commerce platforms, and social media influencers. It found that there are four engines of growth for luxury consumption in China: (1) the spending power of millennials, (2)  digitalization, (3)  the repatriation of sales from overseas purchases to domestic consumption, and (4)  the expanding middle-​class consumers. Next, the main findings are summarized.

Findings on the First Question What is the nature of luxury consumption in China, in terms of market dynamics and consumer characteristics?

Luxury in China    475 The findings show that Chinese consumers developed an obsession with money, wealth, and luxury during a short period of time. In less than twenty years, luxury consumption in China evolved through three distinct stages. In the first stage (2000–​2010), after twenty years of economic reform since 1978, the nouveaux riches ascended in social hierarchy. Traditional societal structures in China disintegrated and identity construction through consumption became prevalent. The nouveaux riches had a pressing need to signal status, develop a new identity, and seek rewards for financial success. This stage is characterized by money-​driven values and the motive of conspicuous consumption. As a result, brands that had prominent logos were favoured by consumers instead of those with substance and strong brand narratives (Rofel and Yanagisako 2019; Segre Reinach 2012; Wu 2009). In the second stage (2010–​2015), sustained high GDP growth created the emergence of a middle class. Chinese luxury consumers became more sophisticated in a very short period of time. The rise of cultural tourism enabled Chinese consumers to understand the cultural narratives of the brands, and an authentic brand experience became as desirable as the product itself. Luxury consumption shifted from conspicuous consumption to hedonic and experiential consumption (Hung 2020; Zhang and Tse 2018). The third stage was marked by a shift from purchasing overseas to buying in the domestic market, partly due to new tax incentives. This allowed luxury brands to cut prices in China as part of a global price harmonization strategy. But it also posed new challenges. As millennials and Gen Z became the main target market for luxury brands, online luxury shopping continued to accelerate in 2018 compared with physical channels. Luxury brands collaborated with domestic e-​commerce platforms and built their own strong e-​commerce platforms to sustain future growth in this sector (Yang 2019). In every stage of development, the role of the government in influencing the changing demand and market dynamics was evident. In Stage 1, demand was negatively affected by the government’s anticorruption measures. In Stage 2, the high import tax was partly responsible for more than two-​thirds of luxury purchases being carried out overseas. In Stage 3, which is currently ongoing, the reduction of the import tax to stimulate domestic consumption has resulted in the repatriation of sales from overseas purchases to domestic consumption. The influential role of the government is a unique characteristic of luxury consumption in China, and it presents greater uncertainty for luxury brands operating in China.

Findings on the Second Question To what extent is the meaning of luxury transferable to different cultures and how can luxury brands adapt their communication strategies to this market? Luxury brands communicate using cultural narratives. The findings of this study revealed that Chinese luxury consumers value greatly the authenticity attributes of luxury

476   Qing Wang brands. The appreciation of luxury brands increased through cultural tourism, which in turn led to greater purchase intention. Storytelling is an essential communication tool that anchors the brand’s esteem and image. Case examples showed that Western luxury brands communicate their cultural narratives increasingly in cultures different from the brand origin, including in the home territory of the Chinese consumers.

The Future Prospects of Luxury in China This chapter provides a better understanding of the historical context, market dynamics, and characteristics of luxury consumption in China. It acts as a reference point for observing future development. In this final section, the author provides a brief discussion of the future prospects of luxury consumption in China, taking into consideration the ‘new reality’ brought about by the coronavirus pandemic.

The Impact of the Coronavirus Pandemic on the Luxury Sector According to the latest data released by the International Monetary Fund (IMF) on global GDP growth (2020), owing to the devastating impact of the pandemic, most developed and developing countries experienced sharp decline, including the United States (-​5.9 percent), Canada (-​6.2 percent), Germany (-​7 percent), France (-​7.2 percent), UK (-​6.5 percent), Australia (-​6.7 percent), Brazil (-​5.3 percent), and Russia (-​5.5 percent), with the exception of China (1.2 percent) and India (1.9 percent). The luxury sector has been hit particularly hard. According to a recent McKinsey report (Kim et al. 2019), in 2020, the global sales of luxury goods will be halved to €140 billion, compared to €390 billion in 2019. The income of major luxury houses will be down between 20 percent and 60 percent in 2020. In the first quarter of 2020, Hermès sales dropped by 7.7 percent to €1.5 billion, which is better than LVMH (-​9 percent), and Gucci (-​22.4 percent). Mid-​sized luxury brands were hit much harder. The sales of luxury brands in May and June 2020 were at a historical low. For example, orders for the autumn season received by the Italian luxury-​goods manufacturer Fabbrica Sartoriale Italiana fell by 40 percent. The situation is not unique to any particular supplier. For the first quarter of 2020, sales for Salvatore Ferragamo were down by 30.6 percent, and sales for Tod’s were down by 31.7 percent. ‘Accessible luxury’ brands such as Coach and Michael Kors, along with fast-​fashion brands such as Zara and H&M, suffered the most. These accessible luxury brands are likely to use online sales as the main sales channel in the future as their engagement with online shoppers increases (Sylvers and Dalton 2020).

Luxury in China    477

The Latest Performance of Western Luxury Brands in China Europe and the United States were the important markets for luxury brands before the pandemic. However, demand in these markets has fallen since they are still struggling with the height of the pandemic, whereas China, along with a number of Asian countries, has effectively controlled the virus and the economy is growing again. The demand for luxury goods in China has picked up, and the Chinese have become even more critical for the luxury sector. Owing to strict travel bans, fewer Chinese tourists are travelling abroad to buy luxury brands. Luxury brands that have more physical stores in China and/​or have an extensive online presence fared better. Hermès has once again proven to be the most resilient luxury brand in a time of crisis. Less than two months after it reopened its stores in China, in mid-​April, it pulled in $2.7 million in one store just in one day from wealthy Chinese consumers shopping in Guangzhou. Hermès’s record sales in a single store are a positive sign and hint at the ‘revenge spending’ tendency of wealthy Chinese consumers coming out of the lockdown (Aloisi 2020). On the other hand, the high-​end British fashion brand Mulberry plans to cut 25 percent of its worldwide workforce, the vast majority of whom work in the United Kingdom. The overreliance on the domestic UK market and offline stores have stifled the ability if Mulberry to respond to the crisis (Reuters 2020). With the number of Chinese Internet users at 513 million and growing, the need to build a comprehensive digital strategy for luxury brands becomes more evident, especially for a market in which the average consumer is much younger than in other countries. At the same time, third-​party e-​commerce is facing trust issues; there is great potential for luxury brands to build their own strong e-​commerce platforms to sustain future growth in this sector. Thus, luxury brands need to step out of their current comfort zones and plan their digital strategies for the future.

New Opportunities and Threats in the Chinese Market The fundamental drivers of luxury consumption in China have not changed, but consumers are readjusting their priorities and are reevaluating the value of luxury versus necessity in a time of crisis. Chinese millennials are growing up with abundant material wealth, a strong concept of self, and a sense of entitlement. The pandemic was a shock to the system and brought a shadow over their dreams of a bright future. A Boston Consulting Group survey of ‘True Luxury Shoppers’ (2020) showed that more than half of the respondents planned to reduce their spending on luxury goods. However, the pattern is mixed; although planned rational purchases may decrease, the unplanned or emotional purchase (i.e., retail therapy) may increase as the need to escape is greater than ever. Therefore, the crisis also creates new opportunities for redefining the meaning of luxury and offering consumers the emotional benefits of warmth and hope.

478   Qing Wang The pandemic has rallied the patriotic sentiments of millennials, partly due to the global political situation and partly due to the influence of the official media in China. This has a profound impact on Western luxury brands operating in China, in terms of both their communication strategy and their potential competition from domestic brands. For instance, competition with domestic brands has intensified in the cosmetics sector, in which several Western brands have withdrawn from China due to the strong preference of Chinese consumers for domestic brands such as Florasis. Founded in 2017, Florasis has become the second largest cosmetics company in China within three years. The brand claims to develop the best products for the Chinese skin type using Chinese herbs to achieve Eastern beauty. In April 2020, it grew by 3.5 percent, stronger than other luxury and fashion product categories (Lim 2020). To capture the heart of millennials, Western brands need to identify with Chinese culture even more in all elements, from product design to the aesthetics of advertising and brand communication. Instead of merely communicating the cultural narratives of the brand’s Western origin, each label needs to integrate both Western culture and the Chinese culture in the brand narratives. Furthermore, affluent women now account for more than half of the luxury-​goods market in China. More Chinese career women choose to stay single for longer. They are more ambitious and therefore buy more high-​powered products or products with high visibility and status value than their Western counterparts. As a result, gender-​oriented communication is expanding, with brands organizing more and more VIP events exclusively for women. Finally, owing to the pandemic, the demand for sustainable luxury and for active and healthy living is increasing globally, including in China. This is reflected in the rise of secondhand luxury platforms such as Vestiaire Collective, the growth of athleisure brands such as Nike, and the decline of fast-​fashion firms such as Zara. However, owing to the space limit, these issues will not be elaborated upon in this chapter, but they will be the focus of important future research directions.

Acknowledgements This chapter received the support of ERC CoG grant 818523, CREATIVE IPR The history of intellectual property rights in the creative industries.

Luxury in China    479

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Chapter 23

Luxu ry in E me rg i ng Markets Towards Understanding New Prestige Brands in India Glyn Atwal, Douglas Bryson, and J. P. Kuehlwein

Rapid economic growth and the expansion of luxury brands into emerging markets have led to the increasing democratization of the global luxury market. According to economic data, emerging markets account for 59.8 percent of global GDP (gross domestic product) in purchasing power terms (International Monetary Fund 2019a). Although economic growth in emerging markets is slowing down, as underlined by the International Monetary Fund (IMF) which revised its forecast for emerging market economies growth to 4.5 percent for 2019, developed-​world growth appears to be reducing faster (“Diverging growth gap  . . . ” 2019). This will inevitably lead to luxury brands looking to further extend their market presence in emerging markets that have relatively higher growth rates and expanding congregations of luxury consumers. China has been the obvious destination for international luxury markets. However, as the market matures, there will be an increasing need to assess new market opportunities. This phenomenon was observed as early as 2012, “As the luxury sector has become highly dependent on the Chinese consumer, this poses a problem for brand managers and valuations: how much should you pay for companies that are placing most of their eggs in one basket?” (HSBC 2012: 2). A geographic shift in wealth has provided luxury-​brand owners the challenge to identify and leverage growth opportunities in high-​potential markets. It is argued that first-​ mover advantage is a key factor for market success in emerging markets (Bryson and Atwal 2014). Each market is, however, unique which has wide-​ranging implications for luxury-​brand strategies. The focus on India is of particular interest. The increase in India’s consumer classes has given rise to the growth of the luxury market. It is, however, acknowledged that the Indian luxury market is still in its first stages of development in contrast to other emerging markets, notably China (Atwal and Bryson 2017). India’s status is reflected in

484    Glyn Atwal, Douglas Bryson, and J. P. Kuehlwein the underdeveloped luxury retail infrastructure. For example, Louis Vuitton has just three stores in India (Mumbai, New Delhi, and Bangaluru). However, India has a strong historical and cultural appreciation of luxury which is reflected in the market stature of Indian luxury brands, particularly in the jewellery, fashion, and hospitality sectors. Boroian and De Poix (2010) categorise Indian designers according to the following designer categories, which demonstrates the vitality of the Indian fashion market: (1) old guard (Classical Indian and avant-​garde), (2) neo-​revivalists, (3) modern India (street influence and contemporary Indo-​Western), and (4) soft fashion. The Indian luxury goods market as reported by ASSOCHAM was valued at $30 billion in 2018 (Sharma 2018). Significantly, this market is forecast to grow five times its present size in the next three years. Although we share the view that it is prudent to exercise a degree of caution concerning the reliability of market data, there are indicators which suggest that the luxury market in India is entering a new pivotal stage. For example, the rise of the Indian female luxury consumer in urban India has given rise to the creation of new product categories and stimulated an increase in demand for luxury brands (Atwal, Jain, and Bryson 2014). The complexity of prestige consumer behaviour in a changing socioeconomic and cultural environment combined with the relevance of “new prestige” has nevertheless created a new paradigm for luxury-​brand strategies. It is within this context that we apply the principles of prestige brand building as outlined by Schaefer and Kuehlwein (2015). Is there an opportunity for these kinds of modern prestige brands in India? Can international luxury brands learn from applying the principles of modern prestige branding? These are some of the questions we seek to answer as we examine the phenomenon of prestige branding in India.

Emerging Markets and the Growth Paradigm The term “emerging markets” has become ubiquitous to classify a group of developing economies. However, there is a lack of consensus about what exactly defines an emerging market. As observed by Wheatley (2015: 15), “an emerging market now stands for a haphazard collection of countries with varying economic sizes and growth rates”. This is exemplied by different classifications put forward by the IMF and Morgan Stanley Capital International (MSCI). which are based on different criteria (International Monetary Fund 2019b; Morgan Stanley Capital International 2019). For the purpose of this chapter, we use a simple definition of emerging markets as those which have reached an increasing level of GDP and are in the growth phase of the development cycle, but whose economies are particularly vulnerable to internal or external forces (Pearson Education 2019). In the case of India, the economy can be considered a lower-​ middle income economy (World Bank 2019) with the IMF projecting 7 percent economic

Luxury in Emerging Markets    485 growth for 2019–​2020 (International Monetary Fund 2019c). India is set to continue its rise in a global ranking by the size of the economy by 2023 (“Geographical insight  . . . ” 2019). The Indian economy is, however, subject to numerous pressures including, for example, rising inflation, higher interest rates, and a weakening rupee.

New Prestige-​Grounded Wealth Macroeconomic indicators suggest that emerging markets will continue to be at the forefront of international expansion. The rise of an expanding consumer class will therefore be an important factor in determining future growth. India, for instance, is set to create a new class of consumers who will stimulate demand for prestige brands. According to Boston Consulting Group (2017), the Indian consumer categories referred to as “elite” and “affluent” will become the largest combined segment by 2025, accounting for 40 percent of consumption, compared with 27 percent in 2016. The market potential is unique to emerging markets when income expenditure reaches an inflection point that ultimately creates new consumption markets. For example, De Beers (2015) identified an inflection point of $5,000–​$6,000 “where households begin to contribute to a greater share of diamond purchases than their share of the potential consumers of diamonds”. With a growing middle class and rapidly increasing consumer spending, India’s retail market is set to provide new investment opportunities. The 2017 edition of A.T. Kearney’s Global Retail Development Index named India the leading emerging country for retail investment (A. T. Kearney 2017). This Index is based on macroeconomic and retail-​specific variables (i.e., market attractiveness, country risk, market saturation, and time pressure). The underlining dynamics of India’s retail development is reflected within the apparel sector which can be considered of relevance for premium and luxury categories. According to data from McKinsey’s FashionScope, India’s apparel market will be worth $59.3 billion in 2022, making it the sixth largest in the world, comparable to the UK ($65 billion) and Germany ($63.1 billion) (McKinsey & Co. 2018). However, India’s rapid growth in prosperity needs also to be assessed in light of increasing income equality as documented by Crabtree (2018). Credit Suisse (2018) reports an increase in India’s Gini coefficient of wealth from 0.80 in 2011–​2012 to 0.83 in 2017–​2018. An article, “The missing middle class” (2018), reports that India’s top one percent of the wealth pyramid benefitted from nearly a third of incremental income generated by economic growth between 1980 and 2014. This also has potential longer-​ term implications for branding strategies in which luxury brands in emerging countries with rising inequalities need to manage the risk of creating “social turnmoil” (Kapferer and Michaut-​Denizeau 2014).

486    Glyn Atwal, Douglas Bryson, and J. P. Kuehlwein

Prestige Consumer Behaviour The traditional prestige marketing approach in emerging markets is to project, enhance, or maintain a certain social status. The rationale is based on the consumer aspiration to replace traditional social markers and to create new social boundaries through economic signalling activity (Atwal and Bryson 2017). The motive is to be conspicuous in order to access a higher level of the social hierarchy. As a result, consumers in emerging markets are striving to become members of a class of global consumers who willingly finance their ambitions. It is the emergence of an aspirational economy in which symbols of consumption define economic status and social advancement. The import market data for champagne is evidence of this phenomenon. For example, champagne imports to India increased albeit from a low base 307,656 bottles (75cl) in 2014 to 392,053 bottles in 2017 (Comité Champagne 2017). This also reflects a broader trend in which consumers are trading up to purchase higher-​value items which are largely perceived as extravagant. This is of particular relevance in India which represents a consumer market that is driven by an aspirational middle class with modest but rising personal disposal incomes. This consciousness also suggests that this new class of luxury consumers view prestige brands as reflecting their desired status, defined as the “tendency to purchase goods and services for the status or social prestige value that they confer on their owners” (Eastman, Goldsmith, and Flynn 1999: 41). Atwal and Bryson (2017) found that prestige and thereby the desire for status is a relevant and important motivation for Indian luxury-​brand buyers. Significantly, however, the authors also identified the aspiration to recreate social boundaries in which consumers see themselves as being “superior in taste” and are searching for new (i.e., niche) luxury brands to differentiate themselves from less sophisticated luxury consumers. For example, the growing popularity of craft spirits in urban India provides an opportunity for Indian consumers to demonstrate cultural capital considered as “institutionalized, i.e. widely shared, high status cultural signals (attitudes, preferences, formal knowledge, behaviors, goals, and credentials)” (Lamont and Lauear 1988: 156). As the luxury market in emerging markets continues to develop, this implies that a “logo” strategy or a traditional prestige approach will have limited success if luxury brands are to achieve a sustainable advantage. This is consistent with Kapferer (2015: 15), “As soon as a brand becomes preferred by the new rich, the old rich move to another, less visible, less coded brand, one with subtle indications of recognition that signal the owner’s ability to ‘understand’ and be ‘part of it’ ”.

New Prestige The precise definition and resulting boundaries of the domain of luxury receive widespread discussion and debate within the literature. Vickers and Renand (2003) suggest

Luxury in Emerging Markets    487 that luxury and nonluxury goods can be differentiated according to functional, experiential, and interactional symbolic dimensions. In a similar vein, Kapferer and Bastien (2012) make a distinction between luxury, fashion, and premium positioning. This argument is developed by Heine, Atwal, and Ates (2014) who argue that premium, masstige, and luxury brands can be differentiated according to both product/​brand characteristics (price, quality, rarity, extraordinariness, aesthetics, symbolism) and prestige. As Heine (2013) notes, masstige brands successfully differentiate themselves from middle-​range brands by their prestige and from luxury brands by the affordable pricing. However, there is also a general observation that within luxury classification, different levels of prestige are evident which is reflected in attempts to measure the “degree of luxuriousness” that would “allow an estimate to be made of the amount of perceived luxury of a luxury brand” (Vigneron and Johnson 2004: 485). Indeed, De Barnier, Falcy, and Valette-​Florence (2012) distinguish between accessible, intermediate, and inaccessible luxury. Interestingly, Williams, Atwal, and Bryson (2018) argue that craft beer can be considered an accessible luxury within the beer category. This suggests that the positioning of luxury is relative and complex and may even be contradictory. This in turn has given rise to evolving definitions of luxury and emerging categories of luxury. For example, Silverstein and Fiske (2003: 1) define “new luxury” as “products and services that possess higher levels of quality, taste, and aspiration than other goods in the category but are not so expensive as to be out of reach”. This notion which we prefer to refer to as “new prestige” appears to be of particular relevance in emerging markets. As noted by Atwal and Bryson (2017), consumers in India have the option to buy a coffee from a traditional coffee house for Rs30, or spend Rs100 for a solo espresso at a Starbucks outlet. This implies that the perceived value of luxury is relative and needs to be evaluated in respect to local purchasing power. As a result, the luxury landscape in emerging markets can be considered broader compared to mature markets. There is also evidence to suggest that “new prestige” is a result of changing customer preferences. Demographics in India here play an important role. India has the largest millennial population in absolute terms globally. India’s millennial population exceeds 440 million and has a 34 percent share of the country’s population. To put this into perspective, this compares to 14 percent for the UK (RAI/​Deloitte 2018). Lifestyle choices as underlined by a different set of values set this generation apart, “Tattoos have gone beyond their original purpose of rebellion; they have emerged as a style statement—​ sneaking out from all parts of our body [sic]” (Sinha 2015: 109). This also supports the view that young Indians are reassessing the meaning and relevance of prestige. For example, a study found that millennials perceive a product to be premium more on the basis of the experiential offering (Nielsen 2016).

Modern Prestige The complexity of prestige consumer behaviour combined with the relevance of “new prestige” has created a new paradigm for luxury-​brand strategies in emerging markets.

488    Glyn Atwal, Douglas Bryson, and J. P. Kuehlwein As a consequence, we can identify forms of prestige which are not necessarily classic luxury brands alluring through provenance, precious materials, and symbolically high prices. Rather, they create a modern form of prestige by focussing on the meaning beyond the material. Evidence from Western markets suggests that contemporary consumers, particularly millennials, are attracted by brands that feel “special” in promoting a social, environmental, or otherwise desirable agenda; that are perceived as honest and as more identity and personality reinforcing. Some examples are a craft beer that identifies one as a connoisseur or supporter of the local economy, a pullover seen as manufactured in an ecologically responsible manner (Patagonia), or an automobile brand that represents a modern, sustainable, but technologically advanced vision of the world (Tesla). According to Schaefer and Kuehlwein (2015), these can be referred to as “Ueber-​Brands” which are valued beyond their price and esteemed beyond their prominence: “More than offering the usual benefits of their respective categories, they engage with their customers at a different level and beyond considerations of utility and functionality” (Schaefer and Kuehlwein 2016: 23).

Principles of Modern Prestige “Ueber-​Branding” We apply the principles of prestige brand building as outlined by Schaefer and Kuehlwein (2015). This is based on the authors’ seven principles of Ueber-​Branding. The country of reference is India although we will also draw on experiences from other emerging markets, notably China. Examples provided are diverse, including both local and international brands with varying degrees of “luxuriousness” as previously defined.

Mission Incomparable It is argued that the “first principle of modern prestige is all about a brand’s mission, ideally one that is incomparable and idiosyncratic if not iconoclastic” (Schaefer and Kuehlwein 2015:  29). A  sense of purpose is of increasing relevance for luxury brands as consumers are looking to brands in order to express and share an attitude. A 2017 Edelman Earned Brand survey of 14,000 people in fourteen countries found that 57 percent of consumers claim they will boycott a brand solely because of its position on a social or political issue (Edelman 2017). Bryson, Atwal, and Hultén (2013) conceptualise the influences of extreme negative affective response towards luxury brands as manifest in brand hate. Interestingly, these so-​called belief-​driven buyers were dominant among the millennial generational segment, and most active in emerging countries; India reported a 65 percent share of belief-​driven buyers (Edelman 2017). This is in contrast to previous research which found that that luxury consumers tend to consider politics as a minor motive for purchasing, or even a nonissue (Amine 2008; Ettenson, Wagner, and Gaeth 1988).

Luxury in Emerging Markets    489 As a result, consumers are increasingly aligning their own personal values with those of the brands they buy. The relationship between corporate social responsibility (CSR) and luxury branding has been well documented (Franco, Dildar, and McColl 2019). Although most luxury brands are committed to developing a CSR strategy (e.g., Gucci introduced the world’s first “Zero Deforestation” luxury leather handbag collection), there is a scarcity of brands which have chosen to articulate a social or an ecological or other purpose beyond celebrating their product or craft. Here we can draw inspiration from Hidesign, an Indian enterprise which has managed to position itself as an authentic ethical luxury fashion brand. Hidesign (derived from two words “hide” and “design”) was created in Pondicherry in 1978. It has since grown to over eighty exclusive stores in India and a distribution network in twenty-​three countries. Hidesign’s emphasis on traditional handcraftsmanship skills and techniques has helped to shape a distinctive brand identity as underlined by a long-​standing slogan: “Real Leather Crafted the Forgotten Way”. Hidesign products are all individually handcrafted and follow a natural and ecofriendly process. Whilst the overwhelming majority of fashion and luxury brands use chemically treated chrome leathers, Hidesign’s use of ecofriendly leathers, which are considerably more expensive and take longer to produce, means that Hidesign products are genuinely sustainable. Moreover, Hidesign’s ethical philosophy goes beyond the product. Hidesign’s custom-​designed factory in Pondicherry ensured that the factory did not only provide a safe and healthy working environment (e.g., zero asbestos tolerance and red brick workshops) but importantly respected the natural environment. For example, all waste water is filtered and reused, whilst waste material is either reused or sold for reuse (Hidesign 2019). ITC hotels took a similar approach. The hotel company promotes “The Luxury Collection” in Bengaluru, Gurgaon, New Delhi, Mumbai, Chennai, Hyderabad, Agra, Jaipur, and Kolkata with the slogan “Responsible Luxury”. It claims to be “The Greenest Luxury Hotel Chain in the World” (ITC Hotels 2018). This is documented through a series of measures; for example, 55 percent of its total energy demand is met through wind and solar power, water consumption reduced by 50 percent in the past five years, and almost all solid waste is either reused or recycled. The point is not for all luxury brands to fall in line and adopt a sustainable strategy. Rather, the opportunity is for modern companies to deepen their meaning as brands by having a mission that goes beyond celebrating achievement or connoisseurship thorough material manifestations, by living social, cultural, ecological, ideological, or other values which are shared by influential “taste makers” and an increasingly discerning consumer (Schaefer and Kuehlwein 2017).

Longing vs. Belonging Rarity is a key feature which defines a luxury brand. However, the democratisation of luxury has forced luxury brands to manage brand exposure. This has created the challenge for luxury brands to strike a delicate balance between exclusivity and accessibility. For example, the launch of a Louis Vuitton fragrance was described by Michael Burke,

490    Glyn Atwal, Douglas Bryson, and J. P. Kuehlwein chairman and CEO of Louis Vuitton, as being about “inclusive exclusivity” (Ellison 2018: 4). Luxury brands in emerging markets face a similar if more pressing challenge of balancing proximity and distance as luxury enters the mainstream of middle-​class consumerism. A viable approach is to differentiate between the design and strategic targets which involves brands fostering relationships with a small base of trendsetters within their category. “From this they grow gradually, leveraging their original fans, both as continuous proof of their superiority and desirability as well as missionaries to help them target and convert the broader market” (Schaefer and Kuehlwein 2015: 58). An example is the case of Johnnie Walker, which can be generally considered a premium whisky brand with a mass distribution strategy, but the opening of Johnnie Walker House Mumbai Airport recreates bespoke whisky experiences. “Whisky mentoring” enables the opportunity for the Johnnie Walker brand to build a personal and emotional relationship with those who seek greater knowledge. There is also an enhanced level of exclusivity as a limited Blue Label edition, The Johnnie Walker House Art Collection–​ Mumbai Edition, is only available at the Mumbai House location. The Johnnie Walker example demonstrates the ability to “work out a balance between inclusivity and exclusivity by giving customers a sense of belonging while still keeping them longing. These brands connect their fans into a single community, yet on different levels” (Schaefer and Kuehlwein 2016: 24). This is also illustrated by Armani’s multilevel brand strategy evident in India, which allows a wide range of customers to access the brand without losing the aura of the brand. Giorgio Armani’s interior design studio Armani/​Casa has designed exclusive residences such as the interior design at the World Towers in Mumbai for high-​net-​worth individuals (HNWIs) whilst its Armani branded stores are selling entry-​point accessories and fashions skewed to younger and lower-​ income consumers.

From Myth to Meaning Storytelling is a widely used marketing technique which has gained increasing relevance within the luxury marketing literature. Kapferer and Bastien (2012: 152) make a distinction between a European approach to luxury, “nurtured at a symbolic level by History with a capital H, of which the brand is the modern emanation,” and an American approach which emphasises storytelling given the need to invent history of its own. Ralph Lauren is a good example, creating a fantasy of the lifestyle of an American, aristocratic elite. It is nevertheless argued that the two models are converging which suggests the increasing relevance of storytelling for all luxury brands. This is underlined by Hughes, Bendoni, and Pehlivan (2016: 359) who support the argument that the brand’s story “can reveal its unique history or a symbolic event that develops a connection between the community and the brand”. Moreover, Donzé and Wubs (2018) argue that storytelling can be effective to increase differentiation and to enhance emotional value. It is within this context that we introduce the notion of storytelling of Ueber-​Stories, defined as myths which “live high above ‘normal’ stories; they are meta-​narratives, existing beyond

Luxury in Emerging Markets    491 time and space, illuminating our realities from afar with their magical magnetism and radiant power” (Schaefer and Kuehlwein 2015: 123). There are numerous examples of international luxury brands “mythologizing” the brand story ranging from Chanel to Harley Davidson. According to Donzé and Wubs (2018:  82), “Heritage and tradition were at the core of LVMH’s storytelling, which created myths and legends by re-​appropriating true historical elements for its new brands”. We can also put forward the argument that the significance of Ueber-​Stories becomes even more important as “Consumers’ perception of luxury is changing, especially among younger consumers, and the concept of luxury is no longer only about purchasing tangible objects—​it is about experiences, travel and instagrammable moments” (Danziger 2018). The demographics of many emerging markets indicate that younger consumers (i.e., millennials and Generation Z) will be searching to connect with the story of the luxury brand. India, for example, has a median age of 28 years versus 47 years in Germany (World Population Review 2018). We can observe that a number of prestige Indian brands are indeed developing communication campaigns which go beyond product features and benefits. For example, Mia by Tanishq is positioned as a jewellery brand for the young professional Indian woman. Its “Best at Work” communication campaign sets out to inspire by projecting the aspirational narrative of the modern, emancipated, and empowered woman in a contemporary Indian society. It is the story of the brand which sets out to connect with an increasingly self-​confident demographic in a male-​centric work environment. Another example is Royal Enfield, quintessentially an Indian brand but rooted in British biking history (Atwal and Bryson 2018). In a similar vein, the brand is able to establish an emotional relationship and connect with the sentiment of the young and aspiring middle-​class consumer. This has included a series of unconventional communication campaigns which diverged from the usual product feature-​led campaigns of motorcycle manufacturers. For example, the “Leave Home” campaign encouraged young men and women in India to choose their own destiny with provocative headlines: “68% of Indian girls will end up living with the in-​laws. 92% of them will wish they didn’t” and “75% of parents want their sons to live independently. 88% of sons choose to ignore them”. Again, the customer identification with the brand is moved beyond the physical bike and associated with the impressions of youthful adventure and becoming your own man and woman, which at the same time allows for a broadening of the product line to include the launch of an urban lifestyle clothing line which plays tribute to its heritage such as a selection of Flying Flea Legend T-​shirts. “Flying Flea” was a lightweight 125 cc motorcycle designed to be dropped by parachute during World War II.

The Product as Manifestation Outstanding product quality which often reflects craftsmanship has been long considered a defining characteristic of luxury brands. Kapferer and Michaut (2015) found that “exceptional quality” was the most frequent attribute listed when

492    Glyn Atwal, Douglas Bryson, and J. P. Kuehlwein self-​declared French luxury consumers were asked which attributes defined luxury. Indeed, international luxury brands will acknowledge that exceptional level of quality is a defining component of the luxury business model. There is also evidence to suggest that the meaning of luxury in emerging markets is based on “the principles of scarcity, whether this is expressed through quality, such as materials, and on craftsmanship, or individuality such as through Limited Editions” (Atwal and Bryson 2017: 61). This implies that a prestige-​brand strategy must ensure that brands are “experienced as a manifestation to behold, evidence of their own myth, to be revered” (Schaefer and Kuehlwein 2015: 129). International luxury brands may hold the belief that they own a natural advantage, but markets such as India present a very different competitive context. Indian consumers are willing to pay a premium for craftsmanship, with a preference for local creations, notably in the domains of fabrics and jewellery. This desire for meticulous craftsmanship that is perceived to be difficult, if not impossible, to emulate ensures that these brands are “all beyond their competition, in a class of their own, a cut above” (Schaefer and Kuehlwein 2015: 129). For example, many Indian jewellery brands respect the ancient Indian crafts and traditions in their designs. Indian luxury jewellery brand Ganjam established in 1889 design collections inspired from South Indian temple architecture. In a similar vein, many Indian designers incorporate India’s stitching craftsmanship techniques. Ritu Kumar, one of India’s leading designers, uses ancient Indian handicrafts such as zardozi, bandhani, and chikan in many of her designs (Kuldova 2016). It is within this cultural context that many international luxury brands are seeking to reassert their prestige in a conscientious effort to create an image of superiority, “But luxury is not simply a matter of being best in class; it embodies class itself ” (Kapferer 2015: 8–​9). To achieve this level of uniqueness, Swarovski, for example, collaborated with eleven Indian designers to create an exclusive collection titled “Confluence”. Likewise, an iconic limited edition collection was launched as a result of the collaboration between Christian Louboutin and the Indian designer Sabyasachi Mukherjee.

Living the Dream Luxury has been closely associated with the notion of dream value (Dubois and Paternault 1995) and the dimension of dream fulfillment, defined as “symbolic access to excellence and to a privileged life as a result of one’s efforts and choices”, is argued to separate luxury from premium (Kapferer 2015: 8). A prestige-​brand strategy is thus determined on how well luxury brands can create and deliver meticulously crafted brand experiences central to the brand’s story and equity across all touch points. Pine and Gilmore (2016: 3) observe in respect to the experience economy, customers “want their purchases to be authentic experiences, memorable events that engage each individual in an inherently personal way”. This aligns with Atwal and Williams (2009) who argue that the marketing success of luxury brands lies not in features and benefits but in staging meaningful, valued

Luxury in Emerging Markets    493 customer experiences. It can be therefore argued that the significance of delivering a luxury-​brand experience is relevant in all global markets. India is no exception. For example, Royal Enfield has established a community of enthusiasts who perceive themselves as those youthful adventurers the brand celebrates. The brand sets out to engage and interact with its followers via social media but also via numerous riding events such as the annual Himalayan Odyssey. Brand enthusiasts can also participate in a factory tour in Chennai and take advantage of an intensive course to get the very best riding experience. Its brand stores set out to deliver a retail experience. For example, Royal Enfield Garage Café in Goa includes a retail store with a full-​service restaurant, a museum displaying a collection of Royal Enfield motorcycles, including “The Flea” in a drop cage, and an exclusive gear store. It is also a place where bikes can be serviced, and it offers a customization bay, which allows owners to customize their bike. Interestingly, Atwal and Bryson (2017) document examples of luxury-​brand failures in India. Although each case is unique, there is evidence to suggest that international luxury brands entering emerging markets are often targeting short-​term sales at the expense of building a dream world. For example, the lingerie brand La Perla withdrew from the Indian market in 2012 (it reentered in 2016) as the acquisition of luxury lingerie was a relatively new purchase occasion at a time when society followed conservative norms. Had they persisted, the brand might have become associated with attitudes and beliefs that are increasingly desirable today. However, luxury executives need to be aware that the dream value can be easily eroded as a result of perceived irresponsible behaviour. There is evidence to suggest that this phenomenon is pronounced in emerging markets. For instance, the 2015 Cone Communications/​Ebiquity Global CSR Study (Cone Communications 2015) reported that Chinese consumers are more likely to use social media to share negative information (46 percent vs. a 25 percent global average). The recent scandal involving Dolce & Gabbana resulted in calls to boycott the brand on Chinese social media following the posting of videos depicting a Chinese model struggling to eat Italian food, such as spaghetti, with a pair of chopsticks (Huang and Janssens 2019). The videos were criticised as being offensive and reinforcing cultural stereotypes (Prideaux 2019).

Unselling “Do not sell” was identified as one of twenty-​four antilaws of marketing as proposed by Kapferer and Bastien (2012: 77), “Fast-​moving consumer goods (FMCG) brands hunt for consumers. For luxury brands, it is just the reverse: consumers are attracted”. This does not mean that luxury brands need to avoid all forms of mass communication as argued by Michael Burke, chairman and CEO of Louis Vuitton, in reference to the use of film content to support the launch of the Louis Vuitton fragrance, “Film is supposed to create emotion. It’s designed to move you. It wasn’t done to drive sales—​they are a consequence” (Ellison 2018: 4). However, anecdotal evidence suggests that many international luxury brands tend to use mass selling techniques in order to drive and stimulate demand in emerging

494    Glyn Atwal, Douglas Bryson, and J. P. Kuehlwein markets. In India, this is reflected in the widespread use of Bollywood celebrities who are willing to endorse numerous brands—​luxury and nonluxury. There is of course the argument that Bollywood reflects popular culture in India in which consumers express a desire to identify themselves with certain Bollywood characters, “Fans want to emulate their role models, which makes these fans a huge market for brands” (Ahluwalia 2012: 171). Examples of Bollywood brand ambassadors include Hrithik Roshan for Rado and Sonam Kapoor for IWC Schaffhausen. The influence of Bollywood is seen as having mass appeal among a broad section of society which enables the extension of the appeal of luxury brands beyond the metropolitan cities. Yet, the use of celebrities was also identified by Kapferer and Bastien (2012: 77) as an antilaw of marketing that risks overselling the luxury brand: “If celebrities are used to promote the luxury brand, the status of the latter is reduced to that of a mere accessory”. As a result, luxury brands in emerging markets need to consider tactics in order to “unsell” via signalling distance as noted by Added Value China (2015), “Less is more and brands that choose to speak in an understated way suggest confidence in the superiority and sophistication of their products”. This can be achieved, for example, by cultural cultivation in order to convey cultural capital, “Art and culture creates an elitism for all, which can be leveraged by selling more products to more people, without diluting their appeal, because these products are held as art objects, not as commercial products” (Kapferer 2015: 53). International luxury brands have indeed taken an increasingly active approach in emerging markets, notably China. For example, Résonances de Cartier, at Fosun Foundation Shanghai, exhibited more than 400 selected jewellery items. Although such cultural activities are limited in India, which reflects a different stage of market development, brands are seeking to provide an increasingly subtle association with “knowledge” that is not easily or widely accessible to the mainstream consumer. Examples include Vacheron Constantin’s exhibition, A Journey into the time of Maharajas in New Delhi and Mumbai, which included an exhibition of rare photographs of Indian royalty and a display of historic timepieces, and Hermès Horse Exhibition, which was showcased at its Mumbai flagship store. This is consistent with Chailan and Valek (2018: 174), “Art introduces symbolic and aesthetic values destined to neutralize the risks that arise from the industrialization of luxury”.

Never-​Ending Growth Modern prestige involves a very delicate balancing act between opposing forces as perceptively noted by Schaefer and Kuehlwein (2015: 203), “their need for profit and popularity with their need for rarity and mystery, their consumers’ demand for access and their desire for exclusivity, their stakeholders’ interest in growth and the ultimate goal of keeping that growth sustainable”. This predicament appears to be of more relevance in emerging markets as the rapid growth of the emerging middle class is driving demand for luxury brands. Luxury brands have reacted in different ways in order to drive sales without losing the aura of the brand.

Luxury in Emerging Markets    495 A creative example is that of the Mercedes-​Benz Brand Tour which was an initiative to set up mobile showrooms in smaller cities and towns in India where dealership reach is limited. This solution enabled customers who would otherwise not be exposed to the brand to experience the brand and take the opportunity to test-​drive the car. However, Mercedes-​Benz is also providing an experience that goes beyond a traditional automobile showroom. The Mercedes-​Benz Centre of Excellence in Pune allows visitors to take a guided tour of the production facility, personalize their selected car by using an “iConfigurator”, and test-​drive SUVs through various terrains via an off-​road track located at the site. Customers can also interact with expert drivers in addition to enjoying the fine dining facilities. Interesting, however, is that international luxury brands are exploring opportunities to grow through codes of local cultural meaning. Findings from Y&R’s Generation Asia 2014 pan-​regional study reported that 70 percent of 18-​to 35-​year-​olds fear the ongoing erosion of traditional values (WPP 2014). This has obvious implications for India which implies that the potential longer-​term growth of luxury brands will need to be consistent with varying degrees of localization or integration. For example, Moët Hennessy launched two Indian made sparkling wines, Chandon Brut and Chandon Brut Rosé in 2013. Chandon Délice was subsequently launched in 2017. These wines, which use the wine-​making practice of “méthode traditionnelle”, were created by a team of international and local winemakers and viticulturists working closely with grape growers from the Nashik region. Of note is that the prestige positioning of Chandon India reflects a strong Indian personality. For example, master couturier Manish Malhotra designed limited edition bottles for Chandon Brut, inspired by the Gardens of Versailles yet linking back to Indian traditional garments (i.e., the sherwani and the saree). This is consistent with the argument that it is more appropriate for a prestige brand to grow in scope rather than in scale. It can also be seen as a need to educate local consumers to understand sparkling wine cultures with the objective of developing the sparkling wine category. This also demonstrates that the carefully managed growth trajectory is contrary to mass brands. “They start slowly, very slowly sometimes, taking their time to establish themselves until they break out and through” (Schaefer and Kuehlwein 2015: 206).

Conclusion and Implications Luxury branding has often been understood through the lens of traditionally defined luxury brands. This is a significant shortcoming. The example of India demonstrates that the possibilities of blurred boundaries of luxury brands can result in the redefinition of the competitive landscape. As Miller and Mills (2012) observe, the term “brand luxury” can be associated with either prestige and the masses or extravagance for the elite. This in turn has given rise to an appreciation of prestige which can be considered “democratic exclusivity” (Atwal and Bryson 2017: 36). International luxury brands in emerging markets face the dilemmas of accessing new consumers, capitalizing on new

496    Glyn Atwal, Douglas Bryson, and J. P. Kuehlwein distribution and communication channels, whilst maintaining the overall exclusivity of the brand itself. This has given the need for luxury brands to develop specific strategies and consider appropriate tactics for emerging markets. We share the view that the principles of prestige branding are, at least in part, applicable to all global markets. The phenomenal rise of the streetwear category is testimony to a changing luxury landscape (PwC 2019). However, we stress that modern prestige branding has particular relevance in early-​ stage emerging markets, and emerging markets in general. As the luxury market in emerging markets continues to grow and, in some cases, mature, executives will need to integrate the principles of modern prestige branding. We do not propose a new luxury business model, but the need for luxury brands to exhibit a contemporary understanding of prestige. Executives need to therefore ask if their brand is a luxury brand and an Ueber-​Brand, as supported by Schaefer and Kuehlwein (2015): Like traditional luxury brands, Ueber-​Brands also rank very high in their respective categories in terms of recognition and price; but it is their behaviour and the ways in which they achieve these stellar positions that sets them apart from traditional luxury brands. They slowly yet surely redefine “prestige”, by taking into account a much broader perspective. (23)

And when luxury-​brand executives face honest facts, they will have a stronger foundation on which to decide in an informed manner to build the future of their brand guided by the principles of modern prestige branding or understand why they choose not to do so.

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498    Glyn Atwal, Douglas Bryson, and J. P. Kuehlwein Edelman. 2017. More Than Half of Consumers Now Buy on Their Beliefs. Retrieved from https://​ www.edelman.com/​news-​awards/​consumers-​now-​buy-​on-​beliefs-​2017-​earned-​brand Ellison, Jo. 2018. “On the Scent.” FT Weekend Style 25/​26 (August 4). Ettenson, Richard, Janet Wagner, and Gary Gaeth. 1988. “Evaluating the Effect of Country of Origin and the “Made in the USA” Campaign: A Conjoint Approach.” Journal of Retailing 64, no. 1: 85–​100. Franco, Jacqueline Campos, Hussain Dildar, and Rod McColl. 2019. “Luxury Fashion and Sustainability: Looking Good Together.” Journal of Business Strategy 41, 4: 55–​61. “Geographical Insight Europe shrinks as Asia Rises.” 2019. Financial Times, February 18, 2019, 14. Heine, Klaus. 2013. “The Concept of Luxury Brands.” Retrieved from https://​issuu.com/​ klausheine/​docs/​20111228_​the_​concept_​of_​luxury_​brands_​presentation Heine, Klaus, Glyn Atwal, and Zelal Ates. 2014. “Luxury Wine Marketing.” In Wine Business Management, edited by Steve Charters and Jérôme Gallo, 235–​246. Paris: Pearson France. Hidesign. 2019. “#THE GREENSTORY.” Retrieved from https://​hidesign.com/​aboutus/​ the-​green-​story HSBC. 2012. “Luxury ‘Red Bull’: A Sequel.” Retrieved from https://​www.yumpu.com/​en/​document/​read/​26266664/​luxury-​red-​bull-​french-​chamber-​of-​commerce-​and-​industry-​in-​ Huang, Qian, and Alice Janssens. 2019. “Come mangiare un cannolo con le bacchette.” ZoneModa Journal 9, no. 2: 123–​140. Hughes, Mine Üçok, Wendy K.  Bendoni, and Ekin Pehlivan. 2016. “Storygiving as a Co-​ creation Tool for Luxury Brands in the Age of the Internet: A Love Story by Tiffany and Thousands of Lovers.” Journal of Product & Brand Management 25, no. 4: 357–​364. International Monetary Fund. 2019a. “GDP Based on PPP, Share of World.” Retrieved from https://​www.imf.org/​external/​datamapper/​PPPSH@WEO/​OEMDC/​ADVEC/​ WEOWORLD International Monetary Fund. 2019b. “World Economic Outlook (WEO)” (April 9, 2019). Retrieved from https://​www.imf.org/​external/​pubs/​ft/​weo/​faq.htm#q4b International Monetary Fund. 2019c. “World Economic Outlook” (July 2019). Retrieved from https://​www.imf.org/​en/​Publications/​WEO/​Issues/​2019/​07/​18/​WEOupdateJuly2019 ITC Hotels. 2018. “Hotels First on Earth.” Retrieved from https://​www.itchotels.in/​content/​ d am/​ projects/ ​ h otelswebsite/ ​ itc- ​ h otels/ ​ luxury- ​ c ollection/ ​ R esponsibleLuxury/​ RLHandbook.pdf Kapferer, Jean-​Noël. 2015. Kapferer on Luxury. How Luxury Brands Can Grow Yet Remain Rare. London: Kogan Page. Kapferer, Jean-​Noël, and Vincent Bastien. 2012. The Luxury Strategy—​Breaking the Rules of Marketing to Build Luxury Brands. London: Kogan Page. Kapferer, Jean-​Noël, and Anne Michaut. 2015. “Luxury and Sustainability: A Common Future? The Match Depends on How Consumers Define Luxury.” Luxury Research Journal 1, 1: 3–​17. Kapferer, Jean-​ Noël, and Anne Michaut-​ Denizeau. 2014. “Is Luxury Compatible With Sustainability? Luxury Consumers’ Viewpoint?” Journal of Brand Management, 21: 1–​22. Kuldova, Tereza. 2016. Luxury Indian Fashion. London: Bloomsbury Academic. Lamont, Michele, and Annette Lauear. 1988. “Cultural Capital: Allusions, Gaps, and Glissandos in Recent Theoretical Developments.” Sociological Theory 6: 153–​168. McKinsey & Co. 2018. “The State of Fashion 2019:  A Year of Awakening.” Retrieved from https://​w ww.mckinsey.com/​industries/​retail/​our-​insights/​t he-​state-​of-​fashion-​2019-​ a-​year-​of-​awakening

Luxury in Emerging Markets    499 Miller, Karen W., and Michael K.  Mills. 2012. “Probing Brand Luxury:  A Multiple Lens Approach.” Journal of Brand Management 20: 41–​51. “The missing middle class.” 2018. The Economist, January 13, 2018: 12. MSCI. 2019. “MSCI Announces the Results of the 2019 Annual Market Classification Review.” Retrieved from https://​www.msci.com/​market-​classification Nielsen. 2016. “Moving on Up.” Retrieved from https://​www.nielsen.com/​wp-​content/​uploads/​ sites/​3/​2019/​04/​Nielsen20Global20Premiumization20Report20December202016-​3.pdf Pearson Education. 2019. “Emerging Markets Defined.” Retrieved from http://​www.pearsoned. co.uk/​bookshop/​article.asp?item=361 Pine, Joseph B., and James H.  Gilmore. 2016. “Integrating Experiences Into Your Business Model: Five Approaches.” Strategy & Leadership, 44, no. 1: 3–​10. Prideaux, Sophie. 2019. “From Dolce & Gabbana to Versace: Why So Many Luxury Brands Fail in China” (August 22, 2019). Retrieved from https://​www.thenational.ae/​lifestyle/​fashion/​ from-​dolce-​gabbana-​to-​versace-​why-​so-​many-​luxury-​brands-​fail-​in-​china-​1.901422 PwC. 2019. “Streetwear: The New Exclusivity.” Retrieved from https://​www.strategyand.pwc. com/​gx/​en/​insights/​2019/​streetwear/​streetwear-​the-​new-​exclusivity.pdf RAI/​Deloitte. 2018. “Trend-​Setting Millennials Redefining the Consumer Story.” Retrieved from https://​rls.net.in/​wp-​content/​uploads/​2018/​02/​Trendsetting-​Millenials_​RAI-​ Deloitte.pdf Schaefer, Wolfgang, and J. P.  Kuehlwein. 2015. Rethinking Prestige Branding—​Secrets of the Ueber-​Brands. London: Kogan Page. Schaefer, Wolfgang, and J. P.  Kuehlwein. 2016. “Ueber-​Brands:  How to Make Your Brand Priceless.” Asian Management Insights 3, no. 2: 22–​27. Schaefer, Wolfgang, and J. P. Kuehlwein. 2017. “How Modern Prestige Brands Create Meaning Through Mission—​Part I.” Journal of Brand Strategy 5, no. 4: 395–​409. Sharma, Bulbul. 2018. “India’s Luxury Market Is Currently in a Phase of Rapid & Dynamic Growth” (November 24, 2018). Retrieved from https://​www.sundayguardianlive.com/​lifestyle/​indias-​luxury-​market-​currently-​phase-​rapid-​dynamic-​growth Silverstein, Michael J., and Neil Fiske. 2003. “Luxury for the Masses.” Harvard Business Review 81, no. 4, 48–​57. Sinha, Dheeraj. 2015. India Reloaded. Basingstoke, UK: Palgrave Macmillan. Vickers, Jonathan S., and Franck Renand. 2003. “The Marketing of Luxury Goods:  An Exploratory Study—​Three Conceptual Dimensions.” The Marketing Review 3, no. 4: 459–​478. Vigneron, Franck, and Lester W. Johnson. 2004. “Measuring Perceptions of Brand Luxury.” Journal of Brand Management 11, no. 6: 484–​506. Wheatley, Jonathan. 2015. “Q&A: What Is an Emerging Market?” Financial Times, August 3, 2015, p. 15. Williams, Alistair, Glyn Atwal, and Douglas Bryson. 2018. “Luxury Craftsmanship. The Emergent Luxury Beer Market.” British Food Journal 121, no. 2: 359–​370. World Bank. 2019. “Data for India, Lower Middle Income.” Retrieved from https://​data. worldbank.org/​?locations=IN-​XN World Population Review. “Countries by Median Age 2018.” Retrieved from http://​ worldpopulationreview.com/​countries/​median-​age/​ WPP. 2014. “  ‘Culturalisation’ Key to Engagement—​ Y&R’s Generation Asia 2014.” Retrieved from http://​www.wpp.com/​wpp/​press/​2014/​nov/​12/​culturalisation-​keyto-​ engagement-​yrs-​generation-​asia-​2014

PA RT V I

I S SU E S OF M OR A L I T Y, I N E QUA L I T Y, A N D E N V I RON M E N TA L SU STA I NA B I L I T Y

Chapter 24

E c onomic Ine qua l i t y and Lu x u ry A Critical Luxury Studies Approach Joanne Roberts

As incomes have increased across the globe in the past fifty years, the demand for luxury-​branded goods and services has grown. Yet, simultaneously, there has been an acceleration in the accumulation of economic resources by people at the top of the economic hierarchy. This group has received much research attention and has become variously known as the super-​rich, the 1 percent, or ultra-​high net worth individuals (UHNWIs) (Beaverstock, Hubbard, and Short 2004; Di Muzio 2015; Frank 2008; Freeland 2013; Hay and Beaverstock 2016; Smith Maguire, and Serafini 2019; Wealth-​X 2019). The super-​rich exemplify inequality in the distribution of economic resources, and, as a result, luxury is often associated with them. Moreover, in the contemporary era, luxury is largely defined as a market phenomenon in the form of luxury-​branded goods and services. Access to such marketised forms of luxury requires economic resources. Indeed, an important element of the allure of luxury goods and services is exclusivity, which requires inequality of access underpinned by an uneven distribution of economic resources. Hence, luxury is associated with economic inequality. Yet, luxury defined as a sociocultural entity remains more widely accessible. Adopting a critical luxury studies approach (Armitage and Roberts 2014, 2016), this chapter draws on academic and practitioner research to provide a comprehensive examination of the relationship between economic inequality and luxury, which recognises luxury in both its sociocultural and marketised manifestations. The chapter begins by exploring economic inequality. Consideration is then given to luxury as an idea and sociocultural phenomenon before the dominant contemporary reality of luxury as manifest in the market for luxury-​branded goods and services is delineated. Critical luxury studies is presented before it is used as an approach with which to analyse the connections between economic inequality and luxury. Finally, the key outcomes of the analysis are summarised and brief conclusions drawn concerning

504   Joanne Roberts the value of a critical luxury studies approach for scrutinizing the complex relationship between economic inequality and luxury.

Economic Inequality Economic inequality arises from the unequal distribution of resources often underpinned by other inequalities. The ability of individuals to access economic resources may result from the time, location, and circumstances of their birth, to their family’s fortunes or misfortunes, or, it may arise from innate endowments, including strength, stamina, intelligence, and aptitude. Unequal access to opportunities can prevent certain groups from improving their access to economic resources. To ensure equitable access to opportunities many countries have introduced legislation against discrimination. For example, in the United Kingdom, under the Equality Act 2010, it is illegal to discriminate on the basis of age, disability, gender reassignment, marriage and civil partnership, pregnancy and maternity, race, religion or belief, sex, and sexual orientation (Equality and Human Rights Commission 2020). This legislation seeks to protect individuals from unfair treatment, and it aims to promote a fair and more equal society. However, changing historically embedded cultures that underpin deep-​ seated prejudices is often more challenging than enacting laws. The Black Lives Matter (2013) movement, which was established in the United States in 2013, and rose to global prominence in the summer of 2020 following the death of George Floyd at the hands of the police, seeks to overcome discrimination based on racism rooted in the Atlantic slave trade in existence from the sixteenth to the nineteenth centuries. The rise of such a movement demonstrates that cultures of discrimination, which perpetuate inequality, cannot easily be overcome through legal measures alone. Inequality not only exists between individuals and groups within society but also between countries. The growth of emerging economies from the late twentieth century has reduced economic inequality between the advanced and emerging countries. Yet, there remain groups of countries, including the least developed countries, that lag behind in their development and the economic resources available to their populations. Hence, issues of inequality feature in international policy arenas such as the United Nations with the reduction of inequality being embedded in the UN Sustainable Development Goals (United Nations 2020). Economic inequality has received increasing research attention in recent years (see, for example, Di Muzio 2015; Dorling 2014; Piketty 2014, 2015; Stiglitz 2013). Moreover, the apprehensions raised by such research were underlined in 2017 when Oxfam released a briefing paper that drew together a startling list of facts on the state of economic inequality. The paper highlighted that the richest 1 percent owned more wealth than the rest of the planet and that eight men owned the same amount of wealth as the poorest half of the world’s population, yet the incomes of the poorest 10 percent of people increased

Economic Inequality and Luxury    505 by less than $3 a year between 1988 and 2011, while the incomes of the richest 1 percent increased 182 times as much (Hardoon 2017: 2). Although such information stimulates moral indignation for many, Frankfurt (2015) argues that it is not inequality that is morally objectionable but, rather, poverty. ‘From the point of view of morality, it is not important that everyone should have the same. What is morally important is that each should have enough’ (Frankfurt 2015: 7 (emphasis in original)). Indeed, inequality is inevitable because people have different abilities and motivations. In a market economy, these differences influence the capacity to acquire resources. Furthermore, levels of inequality change through time. As Pinker (2018: 120) argues, ‘as societies escape from universal poverty, they are bound to become more unequal, and the uneven surge may be repeated when society discovers new sources of wealth’. Questioning the existence of poverty, or indeed inequality, is relatively new in the history of humankind. This is because, prior to the Industrial Revolution, poverty was accepted as an inevitable condition for large proportions of global society. Until technical developments and growing international trade stimulated economic growth, wealth was relatively stable. Hence, its distribution was a zero-​sum game in which a growing share for a few resulted in a decline in resources for many. Yet, once steady economic growth began, the total sum of wealth increased such that the greater wealth for some did not necessarily mean a reduction in resources for others. Indeed, the benefits of technological developments and economic growth were shared widely in terms of better paid jobs with healthier work conditions and higher-​quality, more plentiful, and lower-​priced goods (Pinker 2018). Nevertheless, just over a century ago, significant portions of the populations of the economically advanced countries lived in extreme poverty (Ravallion 2016: 15), and only a small elite had the means to indulge in luxurious lifestyles. The late nineteenth century and early years of the twentieth century were known as the Gilded Age in the United States, reflecting the rapid economic growth and accumulation of wealth by industrialists. However, this period was also an era of abject poverty and marked inequality. The conspicuous consumption of luxuries by the wealthy critiqued by Veblen (1899) was in stark contrast to the consumption patterns of those surviving in extreme poverty. Poverty exists for those individuals and families who do not have enough material possessions or income for their personal needs. However, such needs vary according to time and place. So, it is important to differentiate between absolute poverty, which refers to a lack of means to meet basic personal needs such as food, clothing, and shelter, and relative poverty, which refers to the relative distribution of resources across a population. In international fora, absolute poverty is referred to as extreme poverty and is defined by the World Bank (2020) as living on less than $1.90 international dollars per day1. Extreme poverty has declined significantly over the last two hundred years. In 1820, 89.15 percent of the world’s population lived in extreme poverty, a figure that had declined to 9.98 percent by 2015 (Roser and Ortiz-​Ospina 2019a). Industrialisation and the advances in knowledge have improved the livelihoods of people across the world. Nonetheless, two-​thirds of the world’s population still lived on less than $10

506   Joanne Roberts international dollars a day in 2015 (Roser and Ortiz-​Ospina 2019a). Consequently, the issue of poverty remains a source of moral objection and of concern at national and international policy levels. The issues of poverty and inequality can be addressed through government intervention. The advanced countries prospered in the post-​1945 period as governments adopted demand management policies and social programmes to ensure growth and recovery from World War II. In the United Kingdom, for instance, increased social expenditure during this period, including transfers to the poor, was supported by higher taxes on the wealthy. Hence, inequality reached historical low levels by the late 1970s. With improved standards of living increasing numbers of people were able to engage in the consumption of consumer goods often presented as luxuries (Turney 2020). However, the recessions of the 1970s, arising from higher oil prices and competition from the Far East, resulted in a fundamental change to economic policy. By the end of the decade, governments, beginning in the United States and United Kingdom, led by President Ronald Reagan and Prime Minister Margaret Thatcher, respectively, turned away from demand management policies to supply-​side neo-​liberal economic policies, involving a rolling back of the state, reduced public spending, tax reductions, privatisation of state industries, and deregulation of markets (Harvey 2005). Although the policies pursued in the decades following 1945 reduced the level of economic inequality, the adoption of neoliberal policies from the late 1970s reversed this trend. The distribution of economic resources must be understood in the context of the prevailing capitalist economic system. Indeed, capitalism, which privileges private ownership, provides the incentives for innovation and creativity. This can lead to great personal wealth and to economic growth for society. The collapse of twentieth-​century experiments with communism2, based on the idea of common ownership of economic resources, have resulted in the adoption of varieties of capitalism characterised by different levels of market and nonmarket coordination (Hall and Soskice 2001). The contemporary neoliberal market system, which seeks to keep state intervention to a minimum, inevitably leads to a polarisation in the distribution of economic resources. However, as the post-​1945 period in the Western democracies demonstrated, it is possible to bring about a fairer distribution of economic resources through government intervention in the form of higher taxation on wealth and income to fund a welfare state, public health care, and improved education for all (Galbraith 1958; Piketty 2020). Alongside these changes, technological development and liberalisation of international trade and investment stimulated globalisation, facilitating a restructuring of international production to reduce production costs by taking advantage of low-​cost labour in developing countries. Hence, the formerly protected markets and workforces in the advanced countries were subject to global competition, leading to declining living standards for many. From the 1970s, many advanced countries have seen a growth in inequality (Roser and Ortiz-​Ospina 2019b). However, what is striking today is not changes in income distribution across the whole population but, rather, the way income growth at the top of the income distribution has exceeded the general growth of incomes (Roser and Ortiz-​Ospina 2019b). So, it is this rising disparity between the super-​rich, the

Economic Inequality and Luxury    507 1 percent, and the lower and middle classes in the advanced world that has drawn much attention to the issue of inequality in recent years (Di Muzio 2015; Dorling 2014; Piketty 2014, 2015). Although inequality is an inherent outcome of the incentives within the neoliberal market system, the global spread of capitalism increased welfare and prosperity for the greatest number of people in the twentieth century (Piketty 2020; Pinker 2018). The lower and middle classes of the emerging countries have experienced significant improvements in their living standards. Yet, these same groups in the advanced countries have gained less in relative terms, and particularly, when compared to those at the top of the economic hierarchy. As the super-​rich in advanced countries have prospered, the lower and the middle classes in these countries have been increasingly left behind, with many having experienced static or declining incomes in real terms since the global financial crisis in 2008 (Desilver 2018). In addition to income inequality it is important to examine the distribution of wealth. This is because wealth provides a flow of income, and for those at the top of the wealth hierarchy that income is substantial. If, for example, one is privileged to have investable funds of $100 million, a return of 5 percent per annum would provide a gross income of $5 million per year. As well as sustaining luxurious lifestyles, wealth offers lucrative investment opportunities such that it acts as a centrifugal force drawing more resources to it as it travels around the circuits of the increasingly financialised economy. Moreover, the super-​rich can afford to employ tax advisers and investment specialists to minimise their tax liability and to ensure the sustainability and growth of their wealth. According to Credit Suisse (2017: 21), at the top of the wealth hierarchy is 0.7 percent of the world’s adult population, each of whom holds more than $1 million. These high net worth individuals (HNWIs) can be further divided into three wealth bands: ‘those with $1 million to $5 million in investable wealth (millionaires next door); those with $5 million to $30 million (mid-​tier millionaires), and those with $30 million or more (ultra-​HNWIs)’ (Capgemini 2017: 6). In contrast, at the bottom of the wealth hierarchy is 70.1 percent of the world’s adult population, each holding wealth of less than $10,000 (Credit Suisse 2017: 21). As in earlier eras, social hierarchy exists today, yet economic means rather than social status determined by birth influence one’s position in this hierarchy. This is evidenced by the proportion of self-​made UHNWIs having increased over the last decade, such that in 2018 they made up 67.7 percent of all UHNWIs, while those whose wealth is inherited have declined to 8.5 percent of the total, and those whose wealth is a mixture of inherited and self-​made constituted 23.7 percent of UHNWIs (Wealth-​X 2019: 20). Yet, despite the growth of self-​made individuals amongst contemporary UHNWIs, Piketty (2014) warns that the growing concentration of wealth in the hands of a small economic elite could lead to a return to the type of patrimonial capitalism that existed in the late nineteenth and early twentieth centuries. This is because the rate of return on wealth is higher than the rate of economic growth, which will ensure that those with great wealth will become increasingly wealthy. Moreover, this unequal distribution of economic resources will be further accentuated in the next two decades, as there will be a massive

508   Joanne Roberts generational transfer of wealth, with, for example, 500 people gifting over $2.1 trillion to their heirs (Hardoon 2017: 2). The means by which individuals become and stay wealthy is of more concern than inequality. As Pinker (2018:102) notes, when inequality is based on a meritocratic distribution of resources it is more acceptable than when it is not. Inequality arising from unearned and unwarranted privilege is seen as unfair and can give rise to anger. Indeed, based on the findings of laboratory studies and experiments and cross-​cultural research, Starmans, Sheskin, and Bloom (2017) argue that people prefer fair inequality over unfair equality. The flaunting of wealth through the conspicuous consumption of luxuries in the form of, for example, expensive property, cars, clothing, watches, and jewellery, draws attention to economic inequality. Furthermore, it can underline unfairness, especially when it is perceived that resources have not been acquired without favour. The prevalence of the wealthy among the tax evasion scandals, as exemplified in the Panama and Paradise papers debacles (Obermaier and Obermayer 2017; “Paradise papers” 2017), is evidence of widespread corruption and immoral, even criminal, behaviours among those at the top of the wealth hierarchy. Moreover, the rise of oligarchy and family wealth raise the risk of greater social fragmentation and challenges to democratic governance because the super-​rich can use their resources to influence government policies in support of their own interests above those of society (Di Muzio 2015; Wilkin 2015). In the contemporary era, the super-​rich have come to characterise the extremes of economic inequality. They live comfortable and luxurious luxury-​brand-​laden lifestyles characterised by excess. This lifestyle is publicised through the media portrayal of the lives of the super-​rich, particular those with a taste for extravagant displays of consumption like their wealthy offspring who flaunt their possessions and lives of excess on social media. These young people gain further visibility through television programmes like the UK Channel 4 reality show titled Rich Kids of Instagram, which began in 2015. Through such depictions of the super-​rich, luxury becomes linked with excess and economic inequality. The COVID-​19 pandemic revealed the stark consequences of a highly skewed distribution of economic resources as the super-​rich moved into their second homes in the countryside to wait out the lockdown, while the deprived, with their poverty related ailments, living in overcrowded conditions in cities, bore the brunt of the pandemic. As unemployment rises in the economic aftermath of the pandemic, the issue of inequality will increasingly be to the fore. Indeed, inequality has been recognised by a group of eighty-​three members of the super-​rich who, in July 2020, warned that the economic impact of the COVID-​19 crisis will ‘last for decades’ and could ‘push half a billion more people into poverty’. In an open letter, this group, referring to themselves as Millionaires for Humanity, called on governments to help pay for the economic recovery by immediately, substantially, and permanently increasing taxes on them and other members of the wealthy elite (Neate 2020). Increased taxes on the wealthy are preferable to philanthropy because a philanthropist’s selection of a cause is not necessarily based on the highest need, nor

Economic Inequality and Luxury    509 is it democratically determined. Moreover, tax-​deductible donations, for instance, to Ivy League universities, can reduce the tax revenue available to allocate according to the imperatives of a democratically elected government operating in the interests of all of its citizens (Roberts 2019). Taxation more broadly, and especially on the consumption of luxury goods and services, would also contribute to efforts to improve the resources available to those in need. Frank (2000) argues that modest rises in sales taxation to moderate the extravagances of contemporary luxury consumer culture can fund government expenditure and improve the quality of life for everyone. Tax revenue generated in this way not only can be used to improve the welfare of those with the least economic resources and to supply public services like health care and education but also can improve everyone’s access to public sociocultural forms of luxury. Moreover, the long-​term benefits of a healthy and educated workforce can support economic growth and, in so doing, improve living standards for all, ensuring an expansion of demand for marketised forms of luxury.

Luxury and Luxury Brands As an idea, ‘luxury is slippery, subjective, and mutable’ (Faiers 2019: 353). In classical Latin, luxury, as ‘luxus’, implies effeminate sensuality, a passion for splendour and pomp, and ‘luxuria’ indicates excess, extravagance, and moral weakness (Adams 2012: 7–​8). According to the classical view, if left unchecked, the consumption of luxury can lead to the ruin of individuals and the fall of empires (Adams 2012). Until the seventeenth century, access to luxury was controlled by sumptuary laws, which, through regulating the consumption of certain types of goods, including clothing and food, provided clear distinctions between social ranks (Ribeiro 2003). Consumption by the higher echelons of society was deemed acceptable, and even necessary to convey their power and authority, while consumption by the lower classes was regarded, at least by the higher echelons, as morally inappropriate. The view of luxury as morally dubious dominated until the eighteenth century, when its social and economic benefits were elaborated by philosophers and political economists, including Mandeville (1988), Hume (1987). and Smith (1981). As Berry (1994) notes, in this period, the idea of luxury was ‘de-​moralised’ and took on a positive economic connotation in society as a generator of employment, export income, tax revenue, and economic growth. Indeed, according to Sombart (1967) and Berg (2005), the rise of luxury consumption, beginning in the eighteenth century, stimulated the Industrial Revolution in Europe, as entrepreneurs like Josiah Wedgewood and Johann Friedrich Böttger developed competitively produced import substitutes for the luxury goods, including tableware and porcelain, imported from the Far East (Dolan 2004; Holt this volume). This industrialisation process accounted for a growth in economic activity that took many people out of poverty. Although the consumption of luxury continued to be a means of signalling status, with the rise of wealthy industrialists, such

510   Joanne Roberts status was no longer determined solely by one’s position in a social hierarchy but also by one’s access to economic resources. As Berry (1994) argues, luxury is socially constructed in that it depends on cultural, social, and individual contexts and meanings. Therefore, luxury cannot be objectively defined. Luxury can refer to expensive goods and services delivered by an enterprise, owned by a global luxury conglomerate, like the A. Lange & Söhne 1815 Tourbillion pink gold watch costing almost £150,0003 or to ‘life’s little luxuries’ (Mansvelt, Breheny, and Hay 2016), including eating a £15.00 box of Charbonnel et Walker Pink Marc De Champagne truffles (Charbonnel & Walker 2020) while watching a film with family on a Saturday evening. From an individual’s perspective, luxury can also be time spent alone or with family and friends. Moreover, cultural significance can confer luxury status to goods. For example, barkcloth, known as tapa, which may appear unremarkable when viewed through the eyes of a Westerner, is highly valued in Polynesia where it is often used for wedding gifts (Neich and Pendergrast 2005). Similarly, what is regarded as a luxury may change over time. For instance, ownership of a domestic refrigerator in the early 1900s would have been reserved for the wealthy and regarded as a luxury, but, by the end of the century, it was a common feature of homes in the advanced countries. Something that is taken for granted and widely accessible in one period may, at another time, become a luxury. So, for example, in the period of the COVID-​19 pandemic lockdown of 2020, a small private garden became a luxury that was inaccessible to those living in high-​rise apartments. Consequently, luxury is a relative concept. Access to the natural environment, to stunning views or a magnificent sunset, might be regarded as a luxury that is far from morally dubious. Similarly, communal and publicly available resources can be viewed as luxuries when they exceed the necessities of life. Michael Scott (quoted in Ricca and Robins 2012: 33), for instance, notes how in Ancient Greece, as animals were sacrificed at the Acropolis on festival days, their meat, a luxury at the time, was distributed among the population. In this public sociocultural form, luxury was used to unite society. Today, the publicly owned Victoria and Albert (V&A) museum in London, founded in 1852, which is the world’s largest museum of applied and decorative arts and design, hosting a permanent collection of over 2.3 million objects (V&A 2019), can be regarded as a public sociocultural luxury since it does not have an entry fee. Many of the items held and displayed by the V&A are luxuries. As part of the museum’s collection, they belong to the United Kingdom and its citizens, as the 2015 exhibition entitled ‘All of this Belongs to You’ emphasised. Many such publicly owned museums exist across the world, as do imposing and luxurious state-​owned buildings and facilities that are open to the public and used daily. For example, central Moscow underground stations are renowned for their splendour. Public luxury serves to unite people (Cloutier 2015). But equal access to this type of luxury depends on the existence of the political will to ensure its provision. Importantly, given the moral limits of the market (Sandel 2013), when the provision of public luxuries shifts to market-​ based transactions their sociocultural value can be damaged or destroyed. In the transition from the public sphere to the commercial sphere, luxury transforms from a potent unifier to a divisive social force.

Economic Inequality and Luxury    511 Today, the idea of luxury has been largely appropriated by producers, promoters, and distributors of goods and services in the commercial sphere. The term “luxury” is often added to unremarkable products to increase their attractiveness and thereby raise their prices (Roberts 2018; Roberts and Armitage 2016). In this context, luxury is aligned with terms such as “rare,” “refined,” “expensive,” and “high quality.” Echoing the views of the past, luxury is also regarded as unnecessary, superfluous, or an indulgence. Moreover, luxury is predominantly associated with luxury-​branded goods and services, which are defined as products or services that consumers perceive to be high quality, offer authentic value, have a prestigious image built on qualities such as craftsmanship or service quality, be worthy of commanding a premium price, and be capable of inspiring a deep connection or resonance (Ko, Costello, and Taylor 2019: 406). Such perceptions are open to question; for instance, the association with craftsmanship does not necessarily align with the mass-​produced luxury-​branded goods available on the market today (Thomas 2007). However, the craftsmanship and design of certain luxury-​branded goods can give pleasure to society beyond that received by those who purchase them. For example, the design and power of a Ferrari car, although not to everyone’s tastes, can be admired and enjoyed from a visual and auditory perspective by those who see the vehicle travelling through the streets. Similarly, the restoration of a dilapidated luxury residence on a city street may give pleasure to passersby and improve the area for residents. Hence, some luxuries can give pleasure beyond that offered directly to the purchaser. As Hume (1987) argued in the eighteenth century, the consumption of luxury has positive externalities that can result in a more civilised and culturally sophisticated society potentially uniting communities and nations. Undeniably, like other goods and services, luxury also produces negative externalities, including environmental damage and criminal and corrupt practices (Kuldova this volume; Naylor 2011; Roberts 2019). Nevertheless, the market for luxury goods and services has expanded since the 1980s. This is despite the growth in economic inequality during this period. Indeed, D’Arpizio et al. (2020: 9) estimate that the personal luxury-​goods market sustained a compounded annual growth rate of 6 percent between 1996 and 2019. Moreover, they also estimate that the total global luxury market reached a value of €1.3 trillion in 2019 (D’Arpizi et al. 2020: 8). Thus, luxury is a major international business that serves an expanding global market and contributes to welfare though the employment of hundreds of thousands of individuals across the world. For instance, in the United Kingdom, the luxury industry is estimated to have directly and indirectly employed 156,000 people, accounted for £38.5 billion in total exports, and contributed 2.4 percent to gross domestic product (GDP) in 2017 (Walpole 2019). Through its contribution to economic growth, the business of producing luxury goods and services impacts positively on the lives not only of consumers but also of those involved in its production, promotion, and distribution. As the consumption of luxury-​branded goods and services has increased, so too has their visibility. Through their increasingly recognisable logos and design styles, together with their association with decadent lifestyles, luxury brands are equated with growing economic inequality and the super-​rich. Yet, the adoption of mass production

512   Joanne Roberts has resulted in the democratisation of access to luxury (Kapferer and Bastien 2012). A growing number of people can purchase what Allérès (1990) refers to as accessible luxury, that is, ‘affordable’ mass-​produced accessories like handbags, small leather items, perfumes, and cosmetics. Indeed, inaccessible luxuries, such as limited-​edition Patek Philippe watches or Chanel haute couture dresses, support the brand’s luxury image, which can be projected onto a range of affordable items. Affordable luxury ensures that the demand for luxury grows even though inequality, in terms of the rise of the super-​ rich, is increasing. Hence, the relationship between economic inequality and luxury is complex. Before considering this relationship further, it is necessary to briefly delineate the field of critical luxury studies.

Critical Luxury Studies Luxury has been a topic of scholarly interest for thousands of years ranging, from the debates of Ancient Greek philosophers to those of eighteenth-​century political philosophers (Berry 1994). Indeed, luxury has continued to be of interest within the arts, humanities, and social sciences, as evidenced by numerous works in the fields of history, literature, and political economy (see, for instance, Berg 2005; Sekora 1977; Sombart 1967). In an analysis of the business and management academic literature on luxury, Gurzki and Woisetschläger (2017) found the focus to be on luxury-​brand management. Consequently, there is much discussion in this literature about marketing, retailing, and strategy (Chevalier and Gutsatz 2012; Chevalier and Mazzalovo 2012; Hoffmann and Coste-​Manière 2012; Kapferer and Bastien 2012). Moreover, as other chapters in this handbook show, there is growing interest in supply chain management, sustainability, and corporate social responsibility (Brun and Karaosman this volume; Jones this volume; Kuldova this volume). However, as Donzé and Fujioka (2015: 822) note, much of the management research on luxury is produced by journalists or researchers who provide consultancy services for luxury firms. Hence, such literature often lacks depth of critical analysis. Yet, given the rising significance of luxury business, independent academic scrutiny is required in the field of business and management and beyond. To address the limits of extant research on luxury, and particularly the lack of critical engagement exemplified by the domain of luxury-​brand management, the field of critical luxury studies has emerged (Armitage and Roberts 2014, 2016). Critical luxury studies is an approach to analysing luxury in its present-​day manifestations. Much existing research investigates luxury goods and services in isolation from the sociocultural and historical contexts of their production, distribution, and consumption. In contrast, scholars adopting a critical luxury studies perspective situate luxury in relation to other sociocultural practices, such as the politicised structures of capital and labour, democracy, the city, and other sociocultural dimensions (Armitage and Roberts 2016). Critical luxury studies adopts a multidisciplinary philosophical approach that draws on orthodox and radical perspectives within the arts, the humanities and the social sciences

Economic Inequality and Luxury    513 (Armitage and Roberts 2016). Cognizant of historical, economic, and political trends and yet open to interpretations that are attentive to social-​cultural conditions, critical luxury studies is an approach that resonates with scholars of luxury seeking alternative perspectives to that offered by, for instance, luxury-​brand management (Armitage 2020; Choi, Chan, and Chan 2020; Dosekun and Iqani 2019; Faiers 2016; Roberts 2019; Roberts and Armitage 2020). The relationship between economic inequality and luxury is not fully considered by scholars in the field of business and management where the focus is on luxury businesses and luxury brands. It is then necessary to look beyond the disciplines of business and management to explore the question concerning the link between economic inequality and luxury. Critical luxury studies offers a means through which to appreciate the connections between phenomena such as economic inequality and luxury. Rejecting an adherence to one dominant perspective, a critical luxury studies approach questions the often taken for granted assumptions underlying considerations of the relationship between economic inequality and luxury. By allowing for a broad-​based consideration of the pertinent issues, this approach therefore offers a valuable lens through which to explore the links between economic inequality and luxury in the contemporary era. It is, then, to a critical appreciation of the relationship between economic inequality and luxury that attention now turns.

Economic Inequality and Luxury: A Critical Luxury Studies Approach A connection between economic inequality and marketised luxury, namely, luxury-​ branded goods and services, can be drawn in the sense that the allure of such luxury often depends on exclusivity based on an unequal access to economic resources. The extent to which one is able to access luxury-​branded goods and services therefore depends on one’s position in the economic hierarchy. Yet, in unequal societies there is greater propensity for people with few resources to purchase luxury because ensuring that what little they have is spent on status-​enhancing goods is an important means of improving their life chances (Walasek and Brown 2015). Furthermore, reaching or maintaining one’s preferred position within a social hierarchy requires appropriate displays of status and one’s position is, of course, relative to that of others. Much luxury consumption is then instrumental and stimulated by the desire to reinforce difference, simultaneously keeping up with, and attempting to surpass, one’s peers (Frank 2000; Veblen 1899). Nevertheless, through its impact on economic growth since the eighteenth century, luxury has been associated with rising prosperity. The luxury sector continues to contribute to economic growth and, simultaneously, increasing incomes across the globe support the expanding market for luxury-​branded goods and services. Although economic inequality is rising at a global level, emerging countries are experiencing

514   Joanne Roberts improvements in living standards to the extent that they are seeing a growth in their middle classes. This expansion of the middle classes in emerging countries, especially in China, is central to the growth of the global luxury market. D’Arpizio et al. (2020: 4) suggest that by 2025, Chinese consumers will comprise 46 percent of the global market for luxury, an increase from 35 percent in 2019. Since their financialisation, following the liberalisation and deregulation of financial markets in the late 1970s (Bonin this volume; Donzé and Pouillard 2020), luxury companies have delivered consistent and growing returns to their shareholders by extending their customer base beyond wealthy consumers. Accessible luxury can be mass-​produced at low cost but sold with generous markups at high but affordable prices to a global market. The marketing strategies of luxury brands mobilise their image for high-​end inaccessible luxury to stimulate demand for accessible luxury from their expanding customer base in advanced and emerging countries. The success of such a strategy ensures that luxury companies satisfy their shareholders’ expectations while maintaining their reputation as high-​end luxury producers. Nevertheless, luxury companies are aware of the connection drawn between economic inequality and luxury. The allure of exclusivity and a wealthy lifestyle is important to the promotion of luxury goods and services. This is because customers are attracted by the dreams and aspirations that luxury brands inspire (Roberts and Armitage 2020). For continued growth, luxury brands must expand their consumer base to include increasing numbers of people situated at lower levels of the economic hierarchy. Luxury is no longer the preserve of the super-​rich. Indeed, the small number of consumers at the top of the economic hierarchy cannot sustain the market that has burgeoned since the 1980s. Ironically, just as the luxury market began a significant phase of growth, economic inequality began to rise in advanced countries. Luxury businesses therefore tread a careful line between supporting exclusivity with its association with economic inequality, and offering luxury to an economically wide-​ranging customer base. Therefore, it is unsurprising that, as a counterbalance to their promotion of exclusivity, luxury businesses make much of their desire to contribute to wider society through philanthropy and cultural activities. Of course, the promotion of their association with cultural heritage and their role as arbitrators of taste and facilitators of creativity is not without self-​interest. Nevertheless, as the COVID-​19 pandemic took hold in 2020, luxury companies large and small mobilised their resources quickly for the benefit of society. For instance, in March 2020, LVMH (formally known as Moët Hennessy-​ Louis Vuitton) began producing hand sanitiser at three of its perfume and cosmetics factories for distribution to French hospitals fighting the country’s coronavirus outbreak (Abboud 2020). Similarly, in the United Kingdom, Burberry supported the fight against the pandemic through a number of initiatives, including utilising its global supply chain network to fast-​track the delivery of over 100,000 surgical masks to the UK National Health Service and retooling its trench coat factory in Castleford, Yorkshire, to make nonsurgical gowns and masks for patients (Burberry 2020). Despite the growing accessibility of luxury goods and services, an unequal distribution of income and wealth remains a characteristic of the contemporary world.

Economic Inequality and Luxury    515 Indeed, the growth of luxury companies contributes to this inequality by expanding the wealth and prosperity of their shareholders, including the super-​rich. The luxury business is highly lucrative for those individuals involved in establishing and leading successful enterprises. Unsurprisingly, then, the major luxury conglomerates are led by billionaires. In particular, those who lead and manage the three largest luxury diversified conglomerates have reaped great benefit from their efforts. For instance, Bernard Arnault, chairman and chief executive officer (CEO) of LVMH, the world’s largest luxury-​goods company, is the richest person in Europe and the third richest person in the world according to Forbes; together with his family, he has a net worth of $76 billion. The chairman of the second largest luxury conglomerate, Richemont, Johann Rupert, together with his family, has a net worth of $4.6 billion. Francois Pinault, founder and now honorary chairman of Kering, the third largest luxury conglomerate, has a net worth with his family of $27 billion (“World’s billionaire list  . . . ” 2020). Although the luxury business increasingly depends on an ever more economically diverse customer base, it is the excesses of segments of the super-​rich that encourage the moral questioning of luxury as an unnecessary indulgence. This is especially so in the face of rising inequality in the West and the prolonged period of austerity following the global financial crisis of 2008 (Roberts 2019). The economic crisis in the aftermath of the COVID-​19 pandemic will further accentuate such concerns. For instance, it seems distasteful to many people that wealthy individuals are willing to pay £279,000 for a rare 2014 Himalaya Birkin Hermès handbag made from Nilo crocodile skin and adorned with 18-​carat white gold and diamond-​encrusted details (Jordan 2018) when 22 percent of the UK population live in poverty, including 4 million children (JRF Analysis Unit 2017: 10). Consequently, luxury becomes not only morally dubious but a potent emblem of economic inequality. It is therefore no surprise that luxury-​brand stores are often the targets of looters when riots emerge from protests concerning issues related to inequality such as living conditions and taxes in cities across the globe. In 2019, the gilets jaunes, named after their high visibility vests, and protesting about increases in fuel taxes, targeted luxury stores on the Champs-​Élysées, Paris (Willsher 2019). In the same year, the anonymous British artist Chemical X (2019) highlighted the gulf between wealth and poverty by erecting tents emblazoned with the logos of luxury brands, including Louis Vuitton, Chanel, and Fendi, in Los Angeles’s homeless district, Skid Row (Doward 2019). The work, Skid Rodeo Drive—​The Street Where Luxury and Poverty Meet, was situated ten miles away from Rodeo Drive, Beverly Hills’ luxury shopping area. Luxury, then, becomes a focus for those highlighting inequality, poverty, and the plight of the homeless. Luxury is a target for the anger felt by those who experience discrimination and deprivation and a focus for opportunistic looters. Accordingly, luxury brands and their stores occupy a contentious position in contemporary society because they are associated with high incomes, wealth, exclusion, and inequality. Yet, luxury business contributes to economic welfare through the provision of jobs and improvements to the built environment through the development of prestigious public places (Paris 2018), by attracting investment and stimulating innovation and

516   Joanne Roberts job creation (Walpole 2019). Indeed, in some areas of public life, luxury businesses are stepping into the gap left by the retreat of the state under neoliberalism through their support for cultural institutions and events, and programmes to support the underprivileged (Nickell 2015). For instance, the luxury conglomerate LVMH has a corporate philanthropy programme that has supported arts and culture since 1991 (see LVMH n.d.). Following the ravaging of Notre-​Dame Cathedral in Paris by fire in Spring 2019 LVMH donated €100 million to support the restoration process (LVMH 2019a: 105). Moreover, through its subsidiaries, LVMH is actively promoting efforts to combat child poverty. For example, since 2009, its subsidiary Bulgari has donated $90 million to the charity Save the Children, and, since 2016, Louis Vuitton has donated €9 million to help children in need through a partnership with UNICEF (United Nations Children’s Fund) (LVMH 2019b: 67). Importantly, luxury does not determine the unequal distribution of economic resources. Moreover, economic inequality, which has numerous causes, is not necessarily harmful to society. For instance, the high economic rewards accrued by the heart surgeon who, having spent many years honing her skills, regularly saves lives are not generally viewed as unjust. Where wealth arises from hard work and talent, it is admired as an example of what people can achieve through dedicated effort. However, when the extent of economic inequality grows beyond a certain level, especially when those at the resource-​poor end of the spectrum are struggling to survive, while those at the top end appear to indulge in excessive consumption and live sumptuous lifestyles, often with apparent ease and little if any work, the distribution of economic resources is more likely to be viewed as grossly unfair. Hence, it is the degree of inequality and the perceived injustice of such inequality that is important today. The rise of luxury brands to their current economic position is largely a result of the growing prosperity of an ever-​increasing number of people across the globe. Yet, as vast numbers of people emerge from poverty and many join the ranks of the middle classes, those who occupy the top of the economic hierarchy have pulled away from the majority such that their resources are vastly greater than even those of the middle classes. As a consequence, inequality is rising even though greater numbers of people than ever before are experiencing the levels of income that allow them to experience marketised luxury, albeit entry-​level items like luxury-​branded perfume, personal leather goods, and accessories. The growth of the luxury sector is a result of rising prosperity for a considerable portion of the populations of the advanced and emerging countries. As such, it is not in the interests of luxury businesses for the level of economic inequality to be so polarised that only those at the top of the economic hierarchy can afford to buy their goods and services. Indeed, accessible luxuries serve a wide market, including aspirational consumers who purchase luxury goods and services alongside normal goods. The idea that rising economic inequality and increased access to luxury-​branded goods and services can occur simultaneously seems counterintuitive. Indeed, the visible coexistence of abject poverty and extreme wealth, for instance, in cities where homeless people sleep in the doorways of luxury stores, triggers a moral questioning of luxury consumption (Cloutier 2015). Moreover, the juxtaposition of acute poverty and excessive wealth feed

Economic Inequality and Luxury    517 the anxieties arising from needless consumerism among the affluent (Horowitz 2004; Sherman 2017). Furthermore, luxury is not merely represented by decadent displays of excessive consumption of luxury-​branded goods and services. For, as previously noted, luxury can be widely defined and is embodied in various sociocultural forms. At a personal level, all but the most deprived of people have access to small luxuries, like time to appreciate a beautiful sunset or rural landscape, or a quiet moment to indulge in personal reflection and creative flights of fancy. The freedom to engage in such activities was embodied in the idea of communal luxury advanced by the Paris Commune, which was a radical socialist, antireligious, and revolutionary government that ruled Paris from 18 March to 28 May 1871 (Ross 2015). The Paris Commune gave its members the opportunity to extend their world beyond manual labour through the ‘luxury of playing with words and images’ (Ross 2015: 50). Today, as increasing numbers of individuals are taken out of absolute poverty they have the opportunity to experience personal and public forms of sociocultural luxury, including educational and leisure activities and visits to municipal parks, public libraries, and cultural institutions, including museums and galleries. Although luxury can be embedded in publicly owned goods and services, it is important to note that increased marketisation and privatisation since the late1970s has reduced the public sphere with, for instance, access to cultural institutions increasingly commodified. Such developments have been accompanied by reduced support for public services, including high-​quality health care and education, which are necessary to compensate for the very low investment poor families are able to make in their children (Galbraith 1958). Without investment in quality public services, poor children are unlikely to overcome the disadvantages of their birth. Yet, the super-​rich can ensure that their families benefit from the best private health care and education, as the capacity of the poor to maintain and improve their life chances diminishes. As a consequence, economic inequality has increased in the advanced countries since the early 1980. The unchecked tendencies of neoliberal markets promote increased economic inequality with its negative consequences for the ability of all but the wealthy to access luxury in both its sociocultural and marketised forms. For luxury businesses that depend on expanding mass markets, such trends are likely to be detrimental to their long-​term growth, reliant as it is on extending their customer base. Hence, it is in the interests of luxury businesses to endorse government policies that promote a distribution of economic resources that supports an increase in the numbers of consumers who can afford accessible luxury goods and services. Consequently, an ever-​increasing gulf between those at the top of the economic hierarchy and the rest of the population is not in the interests of luxury business or society.

Conclusion Luxury may be defined in terms of sociocultural objects and experiences that have the potential to enrich the lives of all individuals or as market-​based luxury goods

518   Joanne Roberts and services that are consumed by those individuals with the economic resources required to purchase them. Although the former produce sociocultural value, the latter generate economic income and wealth. Despite the growing economic gap between the super-​rich and the rest of the population, it is the rise in economic welfare across large sections of the populations in the advanced and emerging economies since the 1980s that has sustained the expansion of the luxury sector. Yet, luxury brands, which now adorn the shopping districts of cities across the globe, have become ever more potent signifiers of inequality. Hence, as this chapter has revealed, the link between economic inequality and luxury is complex. Some types of luxury, for instance, luxury yachts, private jets and high value real-​estate, can be regarded as indicators of extreme economic inequality, while the growing sales of other types, such as luxury-​branded perfumes, personal leather goods, and accessories, may be viewed as an indication of the rising welfare of a large number of people, particularly the middle classes of the emerging countries. Indeed, given that a greater proportion of the world’s population is better off than at any time in the past (Pinker 2018), luxury has never been more accessible. The critical luxury studies approach adopted in this chapter promotes an appreciation of luxury and its connection to economic inequality that exposes the complexity of the relationship and the need to assess the impact of luxury business in its broader economic, political, and sociocultural context. Although luxury brands are associated with the economic inequality that exists today, this connection is misleading in the sense that the small group of individuals who occupy the top echelons of the economic hierarchy cannot sustain the growing luxury market. The expenditure of this is group does not underpin a large portion of the growth of the luxury-​branded goods and services market in the contemporary world. Hence, focusing on luxury as indicative of economic inequality is a distraction that conceals a lack of political will to address the causes of poverty and deprivation that are embedded in the neoliberal market system. As increasing numbers of people fall into poverty in the wake of the economic slowdown following the 2020 COVID-​19 pandemic, the pressure to address the propensity of the present capitalist economic system to accentuate economic inequality will grow.

Notes 1. International dollars are adjusted for price differences between countries and for inflation. 2. The collapse of the USSR (Union of Soviet Socialist Republics) in 1991 led to the adoption of a capitalist economic system. A capitalist economic system has also been adopted in the People’s Republic of China despite the Communist Party of China retaining its position as the sole governing political party. 3. The watchmaker A. Lange & Söhne was acquired by the Richemont Group in 2000. https://​ www.richemont.com/​en/​home/​about-​us/​history/​. The current price of this A.  Lange & Söhne watch can be found at:  https://​www.alange-​soehne.com/​en/​timepieces/​1815-​ tourbillon/​730032f-​pink-​gold.

Economic Inequality and Luxury    519

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Chapter 25

C onsum e rs , C ou nterfeite rs , a nd Luxu ry  G o od s Giacomo Gistri

Trading in counterfeits—​that is, unauthorised imitations of branded products offered on the black market (Bian et al. 2016)—​has become an extensive global economic concern. Counterfeit goods are perceived to be a substantial threat to various industries, especially those in the luxury sector. The Global Brand Counterfeiting Report (Eurobsit 2018) estimates that losses tied to global online counterfeiting totaled $323 billion in 2017. The report analyses the size, mode, trade routes, and issues underlying counterfeiting of high-​end consumer goods, specifically clothing and textiles, footwear, cosmetics, handbags, and watches. Estimated losses from counterfeiting of high-​end consumer goods online and offline totaled, in 2017, $98 billion. Between 2013 and 2016, the share of trade in counterfeit and pirated goods in global trade grew significantly. Moreover, this growth was reported during a period of a relative slowdown in overall world trade. Consequently, the intensity of counterfeiting and piracy is on the rise, with significant potential risk for intellectual property in the knowledge-​based, open, and globalised economy (Organisation for Economic Co-​operation and Development/​European Union Intellectual Property Office 2019). Even if such amounts represent estimates, and even considering that the way various institutions define losses may vary, the counterfeiting problem is a long-​standing one that is growing in scope and magnitude. The globalisation of trade and communication these days has offered incomparable opportunities for criminals to engage in illicit trade and counterfeiting to increase their economic influence. Businesses invest lots of money, time, and resources protecting their brands and trademarks, but even after all these measures are taken, the demand for fake goods still has been growing immensely in terms of variety, market size, geographical dispersion, and sophistication. To contain

526   Giacomo Gistri the proliferation of counterfeits and the relative negative impact on business and society, a deeper understanding of the demand side is needed. It is commonly agreed that consumers’ demand for counterfeits is one of the major reasons for their existence, and several researchers have called for studies that investigate consumer behaviour in counterfeiting (Jiang and Cova 2012). This chapter’s purpose is to present an updated review of extant literature on counterfeiting, with an emphasis on analysing studies on determinants of consumers’ buying decisions and consumption habits involving counterfeit luxury products. Research on awareness, purchase intentions, demographic characteristics, and/​ or consumers’ attitudes on counterfeit consumption comprises the largest portion of studies on this topic (Eisend and Schuchert-​Guler 2006; Staake, Thiesse, and Fleisch 2009). From the consumer’s perspective, the literature has identified two forms of counterfeiting:  deceptive and nondeceptive. With deceptive counterfeiting, the consumer is unaware that a purchased product is a fake. This chapter focusses on nondeceptive counterfeiting, in which consumers intentionally purchase fake products (Grossman and Shapiro 1998). This form of counterfeiting is more common in luxury-​ brand markets (Nia and Zaichkowsky 2000), in which consumers often can distinguish counterfeits from genuine brands based on differences in price, distribution channels, and inferior product quality (Jiang and Cova 2012). Luxury products are a subcategory of Veblen’s more general category of status goods; that is, they are valued not only for their functional qualities but also because they confer status on their users within the relevant social community (Veblen 1899). In such markets, certain consumers’ visible purchasing behaviour partly determines each consumer’s preference. Demand patterns in luxury markets may be understood via three consumer categories: snobby consumers, who set or “produce” the trend; aspirational consumers, who imitate snobby consumers and, thus, “distribute” the trend amongst other nonelite consumers; and bandwagon consumers, who imitate the trend to be “part of the crowd”. Some researchers have pointed out that companies are concerned with high counterfeiting levels not only because of direct sales revenue losses but also because they believe that counterfeits can weaken original products’ image, thereby harming companies and their brands (Loken and Amaral 2010). Others noted that some consumers consider counterfeits to be experimental or trial versions of genuine products, which they ultimately may intend to purchase (Cheung and Prendergast 2006; Romani, Gistri, and Pace 2012; Wee, Tan, and Cheok 1995), thereby not necessarily harming relationships with original products. Whilst consumers choosing counterfeits over original brands have been a key focus of brand manufacturers and researchers’ efforts, one group of consumers seems to be attracting increasing attention recently: those who own both original and counterfeit versions of a brand. This phenomenon, called “concurrent ownership”, surprisingly has become a marketplace reality (Romani et al. 2012; Stöttinger and Penz 2015). Traditionally, customers who buy counterfeits have been viewed as “low-​income customers” in need of “status recognition” (Han, Nunes, and Drèze 2010), but several

Consumers, Counterfeiters, and Luxury Goods    527 recent studies underline how they actually may be the same customers who buy original goods. Perez, Castaño, and Quintanilla (2010) demonstrate the existence of a new trend that D’Amato and Papadimitriou (2013) term fake chic, in which consumers who can afford luxury goods prefer to buy counterfeit ones because they build and express their identity through the consumption of counterfeits and discover high-​quality counterfeits. They also buy counterfeits because they find the process of purchasing and consuming counterfeit goods to be fun (Jiang and Cova 2012). Moreover, recent research also has shown that in places with great income inequality, less affluent consumers are more inclined to buy “real” expensive and conspicuous goods to ensure that their resources are visible to outsiders, signaling their status-​enhancement power whilst living under great social stress (Ubel 2017). This chapter is organised into five main sections. The first clarifies the concept by distinguishing between piracy and counterfeiting. The second frames the phenomenon of counterfeiting in the luxury domain. The third analyses buying patterns and consumption behaviours involving counterfeit luxury products. The fourth examines the illicit supply chain. The chapter ends with conclusions and implications.

Terms and Definitions The increased global attention given to counterfeiting might be misinterpreted to mean that it is a new phenomenon, but it has been affecting trade for at least two thousand years. The oldest examples of counterfeits are fake coins that were very popular amongst Romans (Baruönü Latif, Kaytaz Yiğit, and Kirezli 2018). Many terms are used interchangeably to describe counterfeits colloquially (imitation, fake, nonoriginal, copycat, etc.). Reviewing definitions is essential to better understanding the phenomenon. The term pirate historically has been associated with the activities of stealing and plundering on the high seas. Perhaps because the concept of sea pirates in modern times largely has been relegated to children’s stories, these characters have been transformed, in the public’s mind, into swashbuckling heroes with far more charm and generosity than actual pirates were likely to have had. This childish view of pirates is not appropriate in describing piracy, which should go by the far less romantic term theft. It wasn’t so long ago that the act of pirating a product (either by theft, the selling of stolen units, or selling counterfeits) automatically was deemed harmful to the owner/​ seller of such stolen goods, and this remains true in most markets and circumstances. After all, it is easy to see how having an unauthorised, competing copy or having stolen inventory available on the market likely will decrease the original owners’ profits (Liebowitz 2005). Many publications group piracy and counterfeiting under other forms of illicit trade, thereby masking their unique characteristics, such as when analysing the phenomena or when developing countermeasures against them. Clear topic confinement is crucial to ensure a systematic discussion.

528   Giacomo Gistri To that end, a counterfeit product is an unauthorised imitation of a branded product (i.e., a product bearing a trademark) that is offered on the black market, whilst a pirated product is an unauthorised exact copy, not just a simple imitation, of an original product that is protected by intellectual property rights (Bian et al. 2016). Piracy usually is limited to technological categories such as music, movies, computer software, and any other copy-​protected digital materials that often are downloaded online without payment, whilst counterfeiting entails a variety of tangible products–​–​such as luxury clothes, jewelry, watches, shoes, car parts, and medications–​–​that are bought mostly on the black market. In earlier periods and in some industries, the concepts of copying and counterfeiting could overlap when referring to the production of some substitute goods. For example, in the fashion industry, this means that a design could be copied almost exactly, with or without a counterfeit label, and that a nearly exact copy also could be sold as a substitute good without a fake tag (Pouillard 2011; Stewart 2008; Troy 2002). From a consumer perspective, the distinction between counterfeiting and piracy is sometimes impossible to comprehend (e.g., when a consumer purchases a pirated movie DVD in a jewel case) (Eisend 2016). In both cases, illicit actors’ consumer behaviours and sales tactics are different, and both forms carry specific implications for brand owners and manufacturers (Staake et al. 2009).

Counterfeiting and Luxury Goods Counterfeiting involves a variety of products, most of which are conspicuously consumed luxury items (such as designer clothes, jewellry, watches, and shoes) that are commonly bought on the black market (Eisend, Hartmann, and Apaolaza 2017). Luxury-​branded products are better able to convey meaning—​and, thus, express and construct identities—​than other branded products because they are used by a few select people and, therefore, communicate specific associations about the consumers who use them (Bearden and Etzel 1882). Previous research has shown that consumers express identity through conspicuous use of luxury brands to display taste, style, wealth, and social status (Amaldoss and Jain 2005) or to communicate membership in desirable groups (Escalas and Bettman 2005). Brands also are valued because they describe who consumers are and reaffirm their principles and beliefs (Kleine, Kleine, and Kernan 1993). Consumers use brands further to signal self-​identity to themselves (Belk 1988). Fashion expression, status-​seeking behaviour, and innovativeness are examples of consumer traits that are linked positively to a desirable identity that consumers can express and construct through luxury-​brand consumption. The brand always is associated with counterfeiting because a counterfeited luxury brand must copy an existing, famous trademarked brand (Jiang and Cova 2012). A successful luxury brand holds the highest attractiveness for counterfeiters. The decision to buy a counterfeit product represents not only a product-​choice decision but, more importantly, a brand decision.

Consumers, Counterfeiters, and Luxury Goods    529 Even though the first studies date back to the late 1970s, counterfeiting still is regarded as a rather young field of research. However, the public perception of counterfeit trade as a threat to companies and consumers has risen dramatically in recent years, as reflected in the large number of related publications in scholarly, practitioner, and mass media journals (Staake et al. 2009). In their systematic literature review, Baruönü Latif et al. (2018) found that the topic of counterfeiting has triggered interest from different disciplines, but the vast majority of the articles are published in marketing journals (about 60 percent), with an emphasis on consumer behaviour research. From a methodological perspective, about two-​thirds of the studies were quantitative and only one-​third qualitative. Researchers seemed more interested in investigating the relationship between consumers and brands through regression and correlation analyses with respect to other techniques.

The Consumer of Counterfeits Counterfeiting’s huge impact on luxury brands, combined with its complexity, calls for deeper research into the phenomenon. The starting point is the consumer: what motivates consumers to buy counterfeit luxury goods? What does consuming counterfeit luxury products mean? Which are the relationships between fake and original luxury products from the consumer perspective?

The Buying Processes With Counterfeit Luxury Goods Research on counterfeit consumers’ awareness, purchase intentions, demographic characteristics, or attitudes comprises the largest portion of counterfeit-​related literature (Staake et al. 2009). • Amongst the various drivers of purchasing fake products that existing literature has identified, price certainly is a key factor (Grossman and Shapiro 1998), as counterfeits provide some of the original products’ benefits at a considerably lower price. The most recent studies have gone beyond analysis of the determining price to investigate other antecedents of purchasing counterfeits (Eisend and Schuchert-​ Guler 2006; Staake et al. 2009; Wee et al. 1995). In particular, previous literature has identified the following groups of factors:  product attributes (price, quality, and image): In addition to low prices (Bloch, Bush, and Campbell 1993; Gentry, Putrevu, and Shultz 2006; Prendergast, Hing Chuen, and Phau 2002), counterfeits’ quality exerts an important influence on consumers’ evaluations of products, as evidenced by Prendergast et  al. (2002). Moreover, the purchase of counterfeits depends on the extent to which they can convey the original’s image (Hoe, Hogg, and Hart 2003).

530   Giacomo Gistri • Consumer attitudes (self-​image, identity, morality, social pressure, risk, involvement with fashion, and materialism):  individuals who perceive themselves as insecure, but not ambitious, and have low social status tend to have a greater propensity towards buying counterfeit luxury products (Bloch et al. 1993; Wee et al. 1995), whilst those with higher levels of morality and integrity are less inclined to buy such products (Eisend 2016). Purchasing luxury fakes also depends on social pressure, to the extent that such behaviours are more or less approved within a given reference group (Penz and Stottinger 2005). Greater involvement in consumer fashion, in turn, reduces the propensity towards purchasing counterfeits, as it amplifies the potential embarrassment of being “discovered”, which would reflect negatively on perceptions of consumers’ class or elegance. Finally, the consumer-​ materialism level is correlated positively with intent to purchase counterfeit luxury products (Furnham and Valgeirsson 2007). • Sociodemographic characteristics (income, education, age, and cultural context): the available literature presents contradictory results on the effects from individual income and education levels in relation to the purchase of counterfeit luxury products (Prendergast et  al. 2002). Also, regarding the influence of consumers’ age and gender, various studies exist (Bian and Veloutsou 2007; Tom et al. 1998). Furthermore, in cultural contexts characterised by low levels of “distance from power”, aversion against uncertainty, and individualism, a tendency towards having greater diffusion in counterfeiting exists (Cheung and Prendergast 2006). Despite this rich repertoire of determinants and related theories discussed in the literature, the basic motivations that drive consumers to buy counterfeit luxury products remain elusive (Wilcox, Kim, and Sen 2009). The introduction of determinants linked to consumers’ perception of luxury’s value could bring greater clarity to the phenomenon. As suggested by Wilcox et al. (2009), in the luxury sector, the market for counterfeit brands is based on the desire that consumers develop for the original brands. A fake is purchased and consumed because it provides some of the features that the original product offers at a lower price (Wiedmann, Hennigs, and Klarmann 2012). Consequently, consumers’ attitudes towards luxury and related conceptualisations could play an important role in the purchasing process. As noted by Wiedmann et al. (2012), given that the counterfeit market relies on consumers’ desire for real luxury brands, it is critical for researchers and marketers to understand the reasons why consumers buy luxury brands, what they believe luxury is, and how their perception of luxury value affects their buying behaviours. Recent studies confirm that a bridge exists between fake and original products; for example, Gabrielli, Grappi, and Baghi (2012) found that a counterfeit version positively can impact the original’s brand equity, as well as increase consumer willingness to pay for the original (Romani et al. 2012). Moreover, Bian and Moutinho (2011) show that the perception of the original brand affects the intention to purchase the fake; that is, the two concepts of original and counterfeit, although distinct, act partly as communicating vessels (Penz and Stöttinger 2012), inducing researchers to better investigate how consumers consider both in terms of purchase and consumption with a joint perspective.

Consumers, Counterfeiters, and Luxury Goods    531

Consumption Practises With Counterfeit Luxury Goods The consumption of market-​ made commodities and desire-​ inducing marketing symbols is central to consumer culture, and yet the perpetuation and reproduction of this system is largely dependent on the exercise of free personal choice in the private sphere of everyday life (Holt 2002b). Most academic literature to date has focussed on determinants of purchases, underestimating the consumption phase. Gistri et al. (2009) help fill this gap by investigating qualitatively how people consume counterfeit luxury products. An inner dimension of consumption exists, linked to personal gratification and individual drivers. A social dimension also exists, referring to the position gained before others by using a (counterfeit) luxury brand. The authors, by adopting the theoretical model proposed by Holt (2002a), developed a comprehensive taxonomy on consumption practises. Holt’s consumption framework is based on two dimensions:  the structure and purpose of action. The former refers to the consumer who can carry out an interpersonal act or exert an action over an object. The latter considers the consumption’s aim, which can be referred to as “autotelic” (i.e., regarding oneself) or instrumental. Based on interactions between these two dimensions, Gistri et al. (2009) identified four consumption practises tied to counterfeit luxury products: consumption as experience; consumption as play; consumption as integration; and consumption as classification. The consumption as experience practise entails the psychological phenomena involved in consumption’s emotional and aesthetic dimensions. In particular, these subjective experiences are enriched by consumers learning of an “interpretative framework” necessary for making sense of products and services (McCraken 1986). Luxury brands’ hedonistic nature provides an inner feeling and sensory gratification unobtainable from others. A counterfeit luxury brand may fail to provide such an experience, given the low quality usually associated with fake goods and the lack of any economic sacrifice in obtaining the product. Consumers of fakes accumulate facts that increase their knowledge of the originals with the aim of picking a “good counterfeit” that will render the personal and private use of the product highly gratifying all the same. The consumption as play practise involves the consumption of objects as a resource with which to facilitate social interactions amongst fellow consumers. These interactions are experienced mainly as an end in themselves rather than a means to an end. In our context, counterfeit luxury products comprise the fundamental consumption objects for playing because they provide the material through which playful interactions are enjoyed. Consumption as integration refers to methods that consumers use to enhance their perception that consumed objects help form their identity. Integrating practises operate in two opposing directions. The first involves consumers incorporating objects into their personal identities to define their extended selves symbolically (Belk 1988). The second entails consumers redefining their self-​concept to align with an institutionally defined identity (Solomon 1983). It is essential to state beforehand that, in the case of counterfeit luxury goods, the objective that consumers pursue obviously is not to assume a

532   Giacomo Gistri “counterfeit user” identity but rather that of a user of original luxury goods. Therefore, a need exists to approach the counterfeit product by considering its intrinsic characteristics during the evaluation process opportunely and through other integration strategies and tactics successively to perceive it as the most “original” possible product externally and, thereby using it symbolically as such–​–​not as a counterfeit. If this process has a successful outcome, the individual genuinely can claim to have stripped the counterfeit of its negative connotations and to have masked it with all the original’s positive characteristics, making it capable of influencing the concept of self in the desired way. Thus, in this situation, consumers use the perceived extended self transferred from luxury brands to enhance their self-​concept and replicate stereotypes of affluence by consuming counterfeit luxury items (Vigneron and Johnson 2007). Nevertheless, we cannot overlook the sense of unease that certain respondents report upon reflecting on the fact that fake objects comprise the formation of their identities. The consumption as classification practise refers to how consumers use consumption objects to classify themselves in relation to others. In particular, classifying practises serve either to build affiliations with or enhance distinctions from others. Possessing knowledge of the counterfeit luxury-​brand product and its associated behavioural rituals enables individuals at times, and not without risks, to cross cultural boundaries, especially social strata. Consumers’ desire to conform to affluent lifestyles and/​or distinguish themselves from nonaffluent lifestyles, in fact, affects their counterfeit consumption when the original item is not affordable. Many of these insights show that studying the consumption phase can help detect new elements regarding counterfeiting. Previous research mainly has focussed on the intention to acquire fakes or, at most, on purchasing patterns. Some reflections that emerge in the study by Gistri et al. (2009) (i.e., the community dimension of consuming fakes and the tendency to build a consistent package of products around fakes) would not have had adequate relevance in studies limited to purchasing decisions alone. Indeed, it is precisely in consumption patterns that products, including counterfeits, express their symbolic value as consumers are embedded in a social context.

Consuming Luxury Counterfeits in Developing vs. Developed Countries Counterfeiting is a global phenomenon, but its magnitude varies across countries. As Eisend et al. (2017) noted, world trade participants and channels (including counterfeiting) have shifted considerably over the past two decades, from developed economies to developing markets. Counterfeit luxury products and brands provide different signals in developed compared with developing countries and, therefore, play a different role in consumer identity-​building and in the influence of psychographic and demographic variables.

Consumers, Counterfeiters, and Luxury Goods    533 This can be explained by originals and counterfeits’ relative prices in relation to consumer incomes in these countries and their different institutional and social contexts (i.e., laws, social norms, and social acceptance regarding counterfeiting). Eisend et al. (2017), in their meta-​analysis, found that consumers’ psychographic characteristics exert a greater influence than demographic characteristics on their responses to counterfeit luxury brands, with the difference being more pronounced in developing countries. Genuine luxury brands are financially inaccessible for many consumers in developing countries because of these consumers’ lower income levels. They cannot use genuine brands to build their identities, so they are more likely to purchase counterfeits of conspicuously consumed luxury items that provide positive signals, serving as status symbols and expressing value (Geiger-​Oneto et al. 2013), or serving as passports to attain a desired global citizenship (Strizhakova, Coulter, and Price 2008). Identities are formed not only through meanings from brands and products but also through social interactions. The social-​group behaviour related to counterfeits differs between developing and developed countries and, therefore, plays a different role in consumer identity-​ building through counterfeit brands. In developing countries, the proportion of consumers who purchase counterfeits is higher (Green and Smith 2002), which leads to different social norms and higher social acceptance of counterfeit purchases. Consumers in developing countries are more likely to hold attitudes that favour the purchase of counterfeits to boost their likelihood of experiencing social acceptance. Furthermore, law enforcement regarding intellectual property rights is greater in developed countries (Prendergast et al. 2002), which means the practise of selling and purchasing counterfeits is less socially accepted, more likely viewed as a transgression of social norms (i.e., providing negative signals), and can elicit embarrassment or shame (Sinha and Mandel 2008).

Concurrent Ownership Phenomenon At first glance, it seems that the main reason behind counterfeit consumption is the low prices, suggesting that counterfeit consumption should be popular amongst low-​ income consumers. The most common motivation to purchase counterfeits is to enhance self-​concept through brand images without paying for them (Cordell, Wongtada, and Kieschnick 1996). However, many researchers reveal that even high-​ income consumers buy counterfeits, even though they can afford originals, to see whether the brand will augment their identities (Gentry et al. 2006). Ahuvia et  al. (2013), in their taxonomy, identified four kinds of luxury-​brand buyers: genuine-​only buyers, fake-​only buyers, luxury-​brand nonbuyers, and omnivorous buyers. In particular, the latter category comprises consumers who purchase genuine and counterfeit products of the same luxury brand. The presence of omnivorous buyers helps the authors move away from conventional wisdom by denying the noncannibalisation hypothesis (i.e., no cannibalisation exists), as consumers who generally buy fakes are not in a financial position to buy originals. This belief may have had

534   Giacomo Gistri more validity in the past (Nia and Zaichkowsky 2000), but the data roundly contradict it for most of today’s consumers in the developed world. As luxury has become democratised, it has moved quite far down into the middle class (Silverstein and Fiske 2003). Recent reports have highlighted that an increasing percentage of genuine buyers in Europe share the same income bracket as fake buyers (Ledbury Research 2007), reducing income’s impact on intention to buy counterfeits and updating the market scenario. Concurrent owners are consumers who can afford to purchase original luxury products but do not always do so, owning originals and counterfeits simultaneously (Baghi, Gabrielli, and Grappi 2006; Cesareo and Stöttinger 2015). These consumers typically transfer the original brand’s symbolic personality traits to the counterfeit (Castaño and Perez 2014). Prior literature has looked at what factors influence concurrent owners’ desire to buy both originals and counterfeits, highlighting some key trends. Some argue that owners of luxury goods purchase counterfeits: 1. For the fun and excitement of the experience, especially impulsivity (Yoo and Lee 2009) 2. Only whilst traveling, mostly to countries laden with counterfeits, like countries in Southeast Asia (Kapferer and Michaut-​Denizeau 2014) 3. To preserve the original, using the counterfeit in certain situations, like travel, but not others (Gistri et al. 2009; Stöttinger and Penz 2015) 4. Because they felt betrayed by a luxury brand that delocalised production to China or another low-​cost producer nation (Kapferer and Michaut-​Denizeau 2014) 5. To complete a collection with more seasonal, fashion-​forward products that are likely to succumb to fashion cycles more than “classic” pieces (Perez et al. 2010) 6. To be able to detect and appreciate the differences with the original, then activate advocacy and protective behaviours in favour of the latter (Baghi et al. 2006). All these circumstances may explain, with different nuances, why a consumer may own the original and the fake. In particular, the first two situations (fun and travel) refer to a concurrent ownership as an outcome of past behaviour or contingent choices (e.g., buying a fake on a beachside without planning). The third and fourth reasons establish relations between the fake and the original: protecting the original product or reacting to a company’s actions. Finally, the last two circumstances forge a path towards concurrent ownership as an intentional choice by the consumer who wants an original and a fake. Different combinations of utilitarian and social values also are useful as determinants in predicting consumer behaviour towards counterfeiting (Gistri, Pace, and Romani 2013). For example, compared with concurrent owners, consumers of original goods have a more practical and intimate relationship with luxury in general, enhancing its intrinsic quality. In their conceptualisation, luxury’s value lies in its compatibility with its own characteristics and in its ability to reflect their identity independently from others’ judgements or from other hedonistic considerations. In the taxonomy developed by Han et al. (2010), consumers who are rich enough to afford luxury-​brand originals can be divided into patricians and parvenus, depending on their different needs to demonstrate their social status openly. The patricians

Consumers, Counterfeiters, and Luxury Goods    535 comprise a segment of consumers who are economically affluent enough to afford the original luxury goods but have little desire to display their status. These consumers do not assign importance to social prestige and luxury brands’ signaling power because they are not interested in distinguishing themselves from the masses but instead want to convey an image to fellow patricians (Bourdieu 1979). This explains why patricians prefer luxury products with nonprominent brands, in which the brand is not clearly visible or is even hidden. However, the parvenus feel a strong desire for social prestige derived from luxury brands because they have a great need to display their status. Gistri et al. (2013) found that holders of only original brands assign little value to the social prestige derived from luxury, reflecting a self-​image similar to that of the patricians, whilst the concurrent owners appear more like parvenus. Although these two categories of consumers do not overlap perfectly with those of Han et al. (2010), such evidence can be viewed as a possible enrichment of patricians and parvenus’ profiles through adding the conceptualisation of luxury’s value to understand the need to display status. Stöttinger and Penz (2015) are amongst the first scholars to define concurrent owners. The authors suggest that three types of concurrent owners exist along three different dimensions of engagement with luxury: object-​centred, self-​centred, and social engagement. For instance, the “Cautious Cherry Picker” is characterised by attention to social appearance, and the right combination of fake and original helps these consumers achieve an aspect. For these consumers, a “combination of various versions of brands (originals and counterfeits) is regarded as possible because what counts is the overall picture. People can choose whatever they want. It is even considered an art to mix counterfeits and originals in a way that looks good” (Stöttinger and Penz 2015: 381). These researchers’ work represents a path for further empirical research aimed at exploring the motivations behind concurrent ownership, its consequences, and company actions’ effects in fighting counterfeiting.

The Illicit Supply Chain for Fake Luxury Goods Given the clandestine nature of counterfeit production, shipping, and consumption, developing a solid understanding of the counterfeit market and its underlying supply chains comprises a major challenge. However, a deeper knowledge in this field is of great importance for understanding the way illicit markets operate. The globalisation of trade and communication has offered huge opportunities for criminals to engage in illicit trade and counterfeiting. Despite the huge amount of resources that business organisations allot to protect their brands, the counterfeit market is booming rapidly all the same. Illegitimate trade is particularly important in the fashion and luxury industries, which rely on long and complex supply chains in which several actors are involved and control is limited (D’Amato and Papadimitriou 2013).

536   Giacomo Gistri More specifically, illegitimate trade collectively describes deceptive and nondeceptive counterfeiting (Grossman and Shapiro 1998); gray-​market trade (i.e., products are legitimately bought in one territory and diverted for sale to another territory without the consent of the right holder in the receiving territory); unauthorised or overrun production (i.e., unauthorised production and exploitation of goods by otherwise legitimate suppliers); smuggling, theft, supply-​chain infiltrations (i.e., when an unauthorised actor succeeds in inserting stolen or counterfeit products into a legitimate supply chain); and other types of activities (e.g., retail copycatting, in which a genuine brand store’s retail experience is imitated unbeknownst to customers) that bring goods to the market in violation of intellectual property or commercial laws and agreements (Staake et al. 2009). An illegitimate actor is one that performs one or more illegitimate trade activities. Once an illegitimate actor handles a good, it becomes and remains illegitimate, even if it successfully (re)enters the legitimate supply chain (D’Amato and Papadimitriou 2013). For example, overrun goods are illegitimate, even if they are identical to those legitimately distributed by the brand and distributed by an otherwise legitimate retailer. To fight against overruns, Burberry, the upmarket British fashion label, recently has been overexposed to media and fiercely criticised because its annual report revealed that it destroyed tens of millions of dollars in unsold goods to prevent thefts or cheap sales. The company justified the practise as an effort to maintain its “brand value”. However, Burberry is not the only company dealing with a surplus of luxury stock. Richemont, which owns the Cartier and Montblanc brands, had to buy back €480 million worth of watches over the past two years. Some parts of these watches were recycled, but much would be thrown away (Hope Allwood 2018). However, if such practises seem widespread in the world of luxury goods, many customers, particularly younger shoppers, have become more ethically and environmentally conscious, inducing companies to develop more sustainable strategies to protect their brands: “Modern luxury means being socially and environmentally responsible”, Burberry CEO Marco Gobbetti said after announcing that the company had stopped destroying unsold products (Paton 2018). In the case of pure counterfeiting, wholesalers often are linked to a criminal organisation (Green and Smith 2002), whilst the retailers usually are street vendors, or else the sale takes place in street markets (Simone 2006). The “retailer level” and “point of sale” perspectives are crucial for a customer who wishes to assess the legitimacy of the point of sale, especially when the customer cannot assess a product’s authenticity (Mavlanova and Benbunan-​Fich 2011). D’Amato and Papadimitriou (2013) suggested that the presence of significant volumes of counterfeits in the market and the lack of control along the supply chain contribute to the development of illegitimate trade that can harm the original brand. As an industry in which the product-​quality difference between original products and counterfeits is decreasing constantly, luxury companies need to differentiate themselves on the basis of the processes that created their products; that is, they should be able to sell and guarantee not only the product but also the whole supply chain through which the product passes. Recent innovations in 3D technologies and the emergence of e-​commerce platforms have helped nurture counterfeiting’s global growth. According to the analysis, losses

Consumers, Counterfeiters, and Luxury Goods    537 incurred by luxury brands because of online counterfeit sales accounted for $30.3 billion (Eurobsit 2018). The problem of increased counterfeiting through e-​commerce is a reminder of the Internet’s dark underbelly. New technology has provided an anonymity level that hinders determining precisely how vast the counterfeit market has become. In addition, global Internet penetration and mobile-​device proliferation have facilitated such illicit activity dramatically, especially through social media platforms. Many photo-​ sharing sites and apps through which counterfeiters are selling fake products are not well equipped to police this trend effectively. The new wave of cyber vendors is tech-​ savvy, and in addition to Facebook and Instagram, they use various mobile apps–​–​ such as WhatsApp, Telegram, and WeChat–​–a​ s a more personalised way to sell their counterfeits.

The Trade Routes of Counterfeit Goods Regarding the economics of fakes’ origins in world trade, extant studies show that fakes’ trade routes are very complex (Organisation for Economic Co-​operation and Development/​European Union Intellectual Property Office 2019). Parties that engage in the trade of counterfeit and pirated products tend to ship illicit products via complex routes comprising many intermediary points, facilitating falsification of documents to camouflage original points of departure, the creation of distribution centres for counterfeit and pirated goods, and the repackaging or relabelling of goods. In addition, whilst local enforcement authorities, in most cases, target imports of counterfeit goods, many goods in transit often are not within their scope and, thus, are less likely to be intercepted. All the major countries that are sources of counterfeits are developing economies. China has become the top producer of counterfeit goods. Several other Asian economies–​–​including India, Malaysia, Pakistan, Thailand, Turkey, and Vietnam–​–​are important producers in many sectors, although their impact is much less significant than that of China. Turkey appears to be an important producer in some sectors (such as leather goods, foodstuffs, and cosmetics), shipping its products by land to the EU. Europe is one of the largest markets for fake luxury goods, accounting for more than 50 percent of global seizures in the clothing and textile sectors (Eurobsit 2018). The Organisation for Economic Co-​operation and Development/​European Union Intellectual Property Office (OECD/​EUIPO) (2019) also has identified several important transit points for counterfeit trade such as Hong Kong, Singapore, and the United Arab Emirates. Fake goods arrive in large quantities in containers and are transferred to smaller holders, then shipped by post or courier services. The counterfeiters bypass customs authorities via various transportation modes, depending on shipment size. The most commonly used mode is regular mail, comprising more than 50 percent of total illicit trade in the clothing and textiles sector. Tracking down small mail pieces and individual parcels is impossible, with packages under 2kg being untraceable. This is why counterfeiters use few items whilst delivering fake goods. In addition, some important

538   Giacomo Gistri regional transit points exist. For example, several Middle Eastern economies (e.g., Saudi Arabia, the United Arab Emirates, and Yemen) are important transit points for shipping fake goods to Africa. Four transit points–​–A ​ lbania, Egypt, Morocco, and Ukraine–​–​are of particular significance for redistributing fakes destined for the EU. Finally, Panama is an important transit point for fakes on their way to the United States. Considering the reason why such economies emerge as important hubs for trade in counterfeits, OECD/​ EUIPO (2019) identifies five main drivers: Governance: High levels of corruption and poor intellectual property protection greatly influence the degree of exports of fake goods from an economy. Free trade zones: They offer a relatively safe environment for counterfeiters, with good infrastructure and limited oversight. The existence, number, and size of free trade zones within a country correlate with increases in the value of counterfeit and pirated products that the country exports. Production facilities: Low labor costs and poor labor market regulations are important drivers of trade in counterfeit and pirated goods. Improving working conditions by raising the minimum wage or increasing paid leave would decrease the share of counterfeit and pirated products exported, especially in economies with weak governance. Logistics capacities and facilities: The ability to trace and track consignments is a key factor in reducing the share of counterfeit and pirated products in exports. However, other factors increase such trade, including low shipping charges; fast, simple, and predictable customs formalities; and good-​quality trade and transport-​ related infrastructure (e.g., ports, railroads, roads, and information technology). These factors also tend to be much more important drivers in economies that are highly corrupt. Trade-​facilitation policies: They refer to the fact that enhancing transparency is likely to reduce the likelihood that an economy will export fakes. This includes the availability of detailed information on trade flows; an economy’s degree of involvement in the trade community; transparent and regular reviews of fees and charges imposed on imports and exports; and sound, internal cooperation between border agencies and other government units.

Whilst all the factors identified matter, neither of them alone can explain the intensity of counterfeit exports from a given economy. It is always a combination of numerous factors that allows important nodes in counterfeit trade to emerge. Moreover, many of these factors actually can be extremely beneficial for trade in general; it is the misuse of these facilities that can result in higher trafficking in fake goods.

Actions Against Counterfeiting Counterfeiting is one of the biggest threats that brands face, jeopardising profits, corporate reputations, and, potentially, customer safety and loyalty. However, creating effective anticounterfeiting strategies can be challenging, given the crime’s global nature, as well as local nuances that come into play in different jurisdictions.

Consumers, Counterfeiters, and Luxury Goods    539 Berman (2008) proposed four steps that companies can take to target counterfeiting: 1. Develop an early-​warning system to detect signs of counterfeiting. The first step is to ensure that the targeted firm is aware of counterfeiting as early as possible. Firms need to pay particular attention to products that are considered “high risk” for counterfeiting. An important component of an early-​warning system could be the provision of a simple means through which final consumers and resellers can report suspected counterfeits. 2. Budget resources to monitor, deter, and remove counterfeits. The costs of monitoring, deterring, and removing counterfeit merchandise from the marketplace are high. Some Fortune 500 companies reportedly have been known to spend several million dollars to combat counterfeiting. Luxury-​goods companies often hire private investigators to track down counterfeiters, then pass on the information to law enforcement officials (Palmer 2006). Private investigation firms typically establish fake companies to purchase counterfeit goods, whilst others have staffs of internal investigators dedicated to purchasing counterfeits and using this evidence in legal proceedings. An intellectual property owner needs legal protections and registrations in place to build a case against a counterfeiter. Intellectual property can be protected via trademarks, copyrights, design patents, utility patents, and trade secrets. With the exception of the European Union, each country requires its own trademark registration. A budget to deter counterfeiting must anticipate necessary actions on both the demand and supply sides. Demand-​side budget actions focus on reducing demand by making counterfeit merchandise easier to identify, and on educational initiatives that make consumers more aware of the risks associated with counterfeit purchases. Supply-​ side budget items aim to reduce the supply of merchandise by controlling outsourced suppliers more effectively, monitoring websites to search for counterfeits, taking legal actions, reducing gray-​market activities, and using track-​and-​trace technologies. 3. Develop demand-​ side strategies to deter counterfeiting. A  firm can deter counterfeiting through consumer education programmes that make both resellers and final consumers aware that they are purchasing counterfeits, as well as publicising the financial risks and social costs associated with counterfeiting. Consumers also need to be educated not only on how to recognise counterfeits but also on how to report them quickly. Such programmes can be funded through single manufacturers, trade associations, and governmental agencies. For example, the Federation of the Swiss Watch Industry currently is working closely with customs officials to train officers on how to spot counterfeit watches. It also has a specialist team that can analyse suspected counterfeits in detail to determine whether or not they are fakes. Swiss border officials are able to detect and confiscate counterfeits intended for personal use, in addition to existing powers to seize items smuggled into the country for resale. As Cesareo and Stöttinger (2015) noted, the relationship between the brand and consumers affects anticounterfeiting strategies’ efficacy. Specifically, these relationships differ in the extent to which they engage consumers as partners against crime. For example, brand lovers are devoted to their favourite brands, so they can be of great help in co-​ creating anticounterfeiting campaigns. They can communicate their views through core messages on suitable communication channels to maximise campaigns’ efficacy. Brand lovers are also ideal partners for spreading campaigns on social media; for example,

540   Giacomo Gistri they could change their profile pictures to anticounterfeiting campaigns’ core messages to show their support. By passing on their experience and supporting the fight against fakes, brand lovers again could earn rewards that provide them with high-​end benefits, such as special invitations to online fashion shows or exclusive product presentations (Cesareo and Stöttinger 2015). 4. Develop supply-​side strategies to deter counterfeiting. Whilst demand-​side strategies attempt to deter consumers from purchasing counterfeit goods, supply-​ side strategies seek to limit the supply of counterfeits by better controlling outsourced suppliers, monitoring websites to search for counterfeits, taking legal action to reduce fake products, reducing gray-​market activity, and using track-​and-​trace authentication technologies. Strategies to reduce the quantity of third-​shift goods that outsourcers produce include: • carefully selecting outsourced service providers based on honest past relationships with other firms; • monitoring outsourcers through surprise inspections; • ensuring that outsourcers return all confidential technical, production, sales, and marketing information when the outsourcing relationship ends; and • using multiple outsourcers to manufacture goods so that no single firm has the resources to copy a manufacturer’s goods. A firm also may wish to complete production itself using a secret process or proprietary machinery. Companies also must monitor the web to search for counterfeits. Several software programmes can be used to monitor websites that illegally use a firm’s name or identity. They typically try keyword searches using suspicious keyword combinations, such as “100% authentic” or “deep discount”, and pricing indicators to monitor auctions, chat rooms, and websites. Whilst software products can help identify sellers of fake goods, the genuine manufacturer/​owner still needs legal action to close down the counterfeiter’s operation and seize its products. Law enforcement agencies now have the right to seize and destroy any tools used to make counterfeits, and counterfeiters can be forced to pay damages and fines. Recent lawsuits against counterfeiters have been extended to those who knowingly sell counterfeit merchandise, as well as those who aid counterfeiters, such as property owners. For example, in the USA, Louis Vuitton reached an agreement in federal court that requires property owners to take legal action against counterfeit sellers who are based in their buildings (Bleyer 2006). Since counterfeits often enter the supply chain from unauthorised resellers, a major way to decrease their supply is to reduce the level of goods entering through gray markets. Berman (2008) identified two methods to reduce counterfeiting associated with gray-​market activity. In one method, distributors withhold payment until they have verified that products are legitimate. In the second, more dramatic measure, the buyer refuses to purchase products from wholesalers who participate in any gray-​ market activity. Recently, innovation technology has contributed to developing systems that help with track-​ and-​ trace product authenticity. For example, RFID (radio frequency

Consumers, Counterfeiters, and Luxury Goods    541 identification) technology has the potential to be used worldwide as a counterfeiting deterrent. Whilst RFID tags look like ordinary labels, they actually are computer chips with antennae wrapped around them. As a product passes through the supply chain, each supplier or vendor writes an additional product code on that chip. Sensors at the distribution centre use radio waves to activate the tags, which are read electronically and stamped with a record of where they have been. Since legitimate products are manufactured at select locations and sold through authorised distributors, concern should be raised when an incomplete or incorrect set of locations is listed on a tag. In the last few years, blockchain technology seems to be the most appropriate mechanism to apply to the luxury market, as it can address many drawbacks that the luxury-​ goods market currently faces, such as a lack of a transparent, standardised, fair-​pricing index and standard ways to determine products’ authenticity (Rossow 2018). Blockchain can provide a system that both merchants and consumers can utilise to help validate and authenticate luxury goods. For example, the luxury-​brand conglomerate LVMH, owner of the Louis Vuitton label, is launching a blockchain system to authenticate high-​priced goods (Allison 2019). The project, called AURA, will make it possible for consumers to access a product’s history, as well as proof of authenticity for their luxury goods, from raw materials to the point of sale, including secondhand markets. Each product’s unique data are stored in a shared register that customers can consult through the brand’s official app to obtain a certificate with details on the product’s origin. AURA also will offer ethical and environmental information, product-​care instructions, and warranty services. The cryptographic provenance platform is expected to go live with Louis Vuitton and Christian Dior.1 It then will be extended to other LVMH luxury brands, and eventually those of its competitors.

Conclusions From a theoretical perspective, this literature review indicates that a substantial number of future research possibilities exist either on the methodological side or in thematic analysis in terms of novel and interesting independent-​variable selections. Most demand-​ side counterfeiting studies have taken quantitative research approaches. In terms of generalizability of results, it is evident that quantitative research is quite assertive. However, to explore the unknown side of counterfeiting demand, quantitative studies are insufficient for gathering unexplored variables to clarify the cognitive processes that lead to consumers seeking counterfeits. Therefore, qualitative perspectives need to be employed to provide further insights to researchers. Moreover, pretty much half of demand-​side studies on counterfeiting did not adhere to a specific theory for their research (Baruönü Latif et al. 2018). To develop a deeper understanding of the phenomenon, a wider range of theories needs to be adopted. In terms of themes, previous research on counterfeiting mainly has focussed on purchasing patterns, with recent studies suggesting the importance of investigating the

542   Giacomo Gistri consumption phase to detect new insights about these illicit practises. Future research is needed to develop consumption research further, with a particular emphasis on consumers’ ability to distinguish fakes from originals. In the longer term, as information from surveys, especially across countries, becomes more standardised and comprehensive, econometric models could be developed to estimate important market parameters. Most prominently, the demand characteristics and substitution parameters between legitimate and counterfeit goods are important to gain an accurate picture of damages imposed on rights holders and associated effects on employment and research-​and-​development spending (Fink, Maskus, and Qian 2016). Models of this sort would be particularly useful for assessing additional policy efforts’ potential impacts on counteracting illicit trade and production. In light of these reflections, the battle against counterfeiting need not to be a collection of single actions managed by individual brands but rather a planned strategy shared by several different stakeholders, luxury-​brand owners, institutions, and policymakers.

Note 1. Another LVMH brand.

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Chapter 26

Lux ury and C orru p t i on Tereza Østbø Kuldova

“Fraud, Luxury, and Pride must live /​Whilst we the Benefits receive.” —​Bernard Mandeville, Fable of the Bees (1714)

Luxury (business) and corruption are intertwined in multiple ways. And yet, these have often been ignored by researchers exclusively focused on either one or the other. Luxury has only recently become a serious research subject with the establishment of critical luxury studies (Armitage and Roberts 2015, 2016), whereas the academic discourse on corruption and global governance has been dominated by political science and economics which have fixed the set of unquestionable assumptions about what corruption is, as we shall see and question in this chapter. As such, there is no sustained account of the multiple relations between luxury (business) and corruption. In this sense, this is an exploratory chapter. It aims to show how we could think these two together in today’s world, and how much luxury and corruption, when brought together, reflect not only different moral cultures but also different political and economic views. We find luxury and corruption coming into close contact at multiple levels. Proceeds from corruption are increasingly laundered through luxury goods, real estate, and art and are prominent in the ‘integration’ part of money laundering (Chaikin and Sharman 2009; Markus 2017). Corruption itself has been shown time and again to be driven by desire for luxury goods and luxury consumption (Hall, Kuldova, and Horsley 2020; Hall, Winlow, and Ancrum 2012). Images of obscene luxuries are used in corruption exposés to mobilise popular moral passions and have been fueling populist valency campaigning and anticorruption movements across the globe (Curini 2018; Gupta 1995; Heywood and Krastev 2006; Katzarova 2019; Kuldova 2019b; Mancini 2018; Mazzoleni 2008, 2003). Anticorruption measures have been shown to directly impact luxury markets, resulting in temporary declines of luxury goods sales (Osburg 2018; Tajaddini and Gholipour 2018; Yuen 2014).

548   Tereza Østbø Kuldova The luxury industry is also a realm of opacity—​the high price tag is paid for the goods as much as for confidentiality, discretion, and protection of the privacy and identity of wealthy clients. Privacy itself has become a luxury commodity (McNeil and Riello 2016). This resistance toward transparency within the high-​end luxury sector, beyond the goods themselves, makes the luxury industry a perfect tool for money laundering of proceeds from corruption and organised crime. Despite the growth of the global luxury market, worth nearly $1 trillion—​also due to proceeds from corruption which fuel the consumption of luxury (Gokceus and Suzuki 2014), and the rather obvious links between money laundering, tax evasion, and the luxury market, the luxury sector has largely evaded demands for transparency and eschewed self-​regulation and ethical compliance; this has been changing only recently. Simultaneously, governments across the globe as well as the European Union (EU) are slowly beginning to recognize the luxury sector’s role—​voluntary and intentional or not—​in the integration of proceeds from corruption, fraud, and organised crime. A case in point is the maximum security Le Freeport in Luxembourg, a free port where the super-​rich store anything from luxury vintage cars, art, and fine wine to other high-​value assets and luxury items without paying import tax, capital gains tax, user tax, or VAT, while being offered a high level of secrecy—​a new breed of tax haven. The European Parliament has expressed concerns about such free zones, recognising the inherent money-​laundering risks, including the laundering of proceeds from corruption and organised crime. Le Freeport has been built on the promise of opacity, confidentiality, and privacy for ultra-​rich clients. However, in January 2020, the fifth Anti-​Money Laundering (AML) Directive came into force, subjecting free port operators and art market actors to customer due diligence requirements, while also making them into AML gatekeepers obliged to report suspicious transactions to the financial intelligence units. We are yet to see how this will impact the traditional forms of discretion and secrecy involved in the art and luxury sectors (Korver 2018). And how it will influence the future contours of global ethics and the meanings of compliance, transparency, and audit—​areas of secrecy and opacity may be eliminated (or new opaque venues will emerge). At the same time, luxury businesses are beginning to invest in CSR (corporate social responsibility) and compliance, often in face of different corporate scandals. The global luxury market has been the fastest growing of the economic sectors for the last two decades despite the financial crisis (Donzé 2014); according to the latest report by Deloitte, the top 100 luxury companies amounted to $247 billion in aggregate luxury goods sales for the financial year 2017 (Deloitte 2019). However, despite this rise of the luxury business, the global nature of the luxury business poses an increasing amount of challenges and risks to companies within the luxury sector. As the world’s largest publicly traded property and casualty insurer, Chubb argues in its report on the European luxury sector, a ‘heightened regulatory and compliance environment has emerged in the wake of the recent financial crisis and is now an important driver of increased D&O risk [Director’s and Officer’s liability risk]  . . .  the top two D&O concerns for luxury goods companies are bribery and corruption, and reporting errors’ (Chubb 2014: 15). The increased pressures on compliance, ethical conduct, and implementation of anticorruption and AML measures and other

Luxury and Corruption    549 forms of transparent corporate governance come not only in the wake of the financial crisis but also as a result of numerous charges of corporate corruption, ethical misconduct, noncompliance, and exploitation of labour force, as well as environment—​or else, what the industry labels ‘hostile public environment’ (Chubb 2014). Businesses within the luxury sector have to increasingly invest in strategies that, on one hand, mitigate the risks posed by the global markets while increasingly embracing ethical codes of conduct, CSR, and different forms of self-​regulation, including transparency (Jackson 2010)—​despite their inherently secretive, confidential, and opaque nature. Recent corruption scandals, such as the one involving the former Prime Minister of Malaysia, Najib Razak, have made luxury businesses increasingly aware of the need to address the ways in which they may be implicated in corruption and fraud. Razak diverted more than $4.5 billion away from the public and used the luxury sector as a point of integration for these illicit funds—​in June 2018, his properties in London, Manhattan, California, and Malaysia were raided and luxury goods worth millions of dollars were found, including for instance over 400 watches worth almost $20 million, in addition to jewelry ($220 million), designer handbags, and other vast amounts of luxury goods. Luxury brands are now slowly recognising the way in which they are implicated in corruption scandals and the consequences this may have and even though they have been notorious latecomers in embracing ethical standards, it is precisely at this juncture in time that we are witnessing a change as even the luxury sector is embracing voluntary regulatory arrangements and enhancing its ethical codes of conduct and CSR programs, all forms of the aforementioned ‘soft law’, self-​governance, and postpolitical corporate governance (Garsten and Jacobsson 2012). In this sense, the luxury sector offers a unique view into the making of global ethics (Garsten and Jacobsson 2011) in response to corruption scandals, public outrage, and increased regulatory pressures. However, luxury and corruption are also directly linked to populism. Valence campaigning that exploits moral sentiments and images of luxurious excess, has contributed to the rise of populism, as well as to the rise of postpolitical solutions framed in terms of global ethics. Let me offer a recent example. On April 21, 2019, Volodymyr Zelensky, a comedian and star of the political satire show Servant of the People (Слуга народу), was, by a landslide, elected President of Ukraine. The core of the show’s fictional plot, the brainchild of Zelensky’s production company Kvartal 95, became a surreal reality. Not unlike the show’s main character, a schoolteacher turned surprise winner of presidential elections following a viral video of his rant about governmental corruption in Ukraine, Zelensky became a comedian-​cum-​lawyer turned president. Zelensky’s real political party bears the same name and logo as the fictional one, and much like the satirical character, his campaign was fueled by populist anticorruption and antielite messages appealing to citizens disillusioned with the ruling political establishment. Zelensky’s anticorruption campaign is in no sense unique—​moral and valence (nonpolicy) campaigning (Curini 2018)1 are symptomatic of the current depoliticised environment where issues of morality, trust, decency, and honesty take precedence over issues of policy as ideological differences between political parties become increasingly negligible (Bourdieu 2002; Brown 2006; Hay 2007; Kagarlitsky 1999, 2000). The rise of

550   Tereza Østbø Kuldova prime-​time corruption scandals and of corruption as a pseudo-​political, moral, and heavily mediated issue fueling (faux) antiestablishment populism since the mid-​1990s is not accidental (Barr 2009; Kuldova 2019b; Mazzoleni 2008, 2003). As we shall see, it is fundamentally connected to the global instituting of neoliberalism (Grossman 2003; Kajsiu 2014). Zelensky’s recent election merely revealed the power of the anticorruption discourse to mobilise the affects of the electorate, and to direct its passions against corrupt governmental officials—​the kleptocracy stuffing its pockets and living the lives of luxury at the expense of ordinary people. But also, and possibly more destructively, it revealed its power to direct rage against the state itself as a political entity (Citton 2010b; Kajsiu 2014; Katzarova 2019; Lordon 2014), and push through further neoliberal reforms under the guise of oppositional politics. Like many ‘ordinary people’ across the globe, the majority of Ukrainians have been frustrated with the persistent governmental corruption, cronyism, kleptocracy, and oligarchic cliques ruling the country, accumulating wealth, and channeling illicit proceeds of their corrupt dealings into luxury real estate and goods (De Sanctis 2013; Financial Transparency Coalition 2017; Sullivan 2015). According to Transparency International’s influential Corruption Perception Index 2018, Ukraine still ranks 120/​180.2 Here we must remark that Transparency International, based in Berlin with a hundred offices across the globe, has through its annual indexes and reports produced an illusion of objectivity and cold hard facts about corruption in today’s world and has thus, since its inception in 1993, profoundly influenced the way we perceive corruption today (Katzarova 2019). We shall unpack here not only the relationship between luxury and luxury business and corruption but also this rhetoric of corruption, which is by no means neutral. Moral outrage when corruption, politics, and luxury intermingle is nothing new. Already the Romans believed that ‘luxury perverts the good and political order’ (Berry 1994:  85), and passed sumptuary and anticorruption laws directed primarily at luxurious bribes and haute dining and public banquets prior to elections (Dalby 2000). Today, many anticorruption campaigners view political corruption in a similar vein as an obstacle to development and growth. Their proposed solution is: ‘good governance,’ accountability, and transparency (Marquette 2003; Sampson 2005; Shore 2003)—​the same solution that corporations are embracing in what has become known as voluntary self-​compliance (Parker and Lehmann Nielsen 2011). All of us can agree that corruption is undesirable, even morally reprehensible, harmful, and in its worst manifestations outright criminal. After all, who could be (openly) for corruption? And yet, we must pause and ask—​if corruption is an obstacle to progress and if ‘good governance’ is the answer, what do we really mean by ‘good governance’? What if corruption is not the cause of our trouble, the way it is often made out to be, and instead it is a symptom of a failing economic system and a distraction from the real issues that enable corruption to flourish in the first place? Hence, what if fighting corruption based on the wrong premises only leads to more corruption—​as empirical studies suggest (Kajsiu 2014)? What if the way we define corruption today blurs our vision and prevents us from seeing the bigger picture? And what if the spectacular images of luxury accompanying corruption scandals exploit our affects, emotions, and legitimate feelings of injustice only to direct them at

Luxury and Corruption    551 the wrong enemy? Luxury, in this case, visually embodies both inequality and injustice, thus serving as a potent moral trigger. This contribution is more of an invitation to think luxury and corruption together, opening new fields of inquiry and offering multiple points of entry into possible debates. It looks at some of the most salient ways in which luxury and corruption have been thought together across history, but in particular during the last three decades when neoliberalism became hegemonic across the globe. It shows how images of luxury, hand in hand with accusations of political, state, and governmental corruption, helped legitimise the implementation of neoliberal policies—​but also impacted the global luxury business.

Luxury, Populism, and the Ambivalence of Weakness and Strength Images of corrupt leaders living in obscene luxury are particularly effective in mobilising popular passions when skillfully edited: be it as satirical TV shows (turned into political campaigns), such as in the case of Zelensky, or viral anticorruption infotainment videos such as those produced by Alexei Navalny, the Russian oppositional anticorruption blogger (Cottiero et al. 2015; Østbø 2020). Populism mobilizes passions of the masses, and anticorruption messaging has become one of its most effective tools—​it casts itself as ‘grassroot’, ‘oppositional’ and not surprisingly, inherently moral and virtuous. As Steven Sampson rightly observes, anticorruption is a moral force, reflecting the indignation among ordinary people and among articulate elites that things are not right. Anti-​corruption entails not only making governments or aid programmes more effective, but also making people more honest, raising people’s consciousness to a new level. Anti-​corruption is thus a moral, even religious force. This is why some activists within Transparency International, the leading anti-​corruption organization, see themselves as ‘integrity warriors’  . . .  It is now so extensive that it includes groups normally at odds with each other: grassroots activists pursuing social justice, enlightened corporations who believe that ethics is good business, neoliberal governments who see corruption as a brake on trade, and international aid organizations who want their donor funds to be more effective. The fight against corruption is thus more than just the ‘tactics’ of governments or corporations who want to look good: it is a moral crusade (Sampson 2005: 105).

If we return to our initial example of Zelensky’s election, this must be read against the backdrop of the Euromaidan protests and that which followed. And most importantly, against the character of the former Ukrainian president Viktor Yanukovych (2010-​2014), the paradigmatic embodiment of the corrupt villain. Ousted following the Ukrainian

552   Tereza Østbø Kuldova revolution of 2014, Yanukovych has since been exiled in Russia, only to be remembered as the iconic figure of political corruption—​as someone abusing the public office solely for self-​enrichment (this being the currently hegemonic definition of corruption in international policy discourse). Along with his allies, he was accused of ‘siphoning at least $37 billions of government money into offshore bank accounts’ (Schuster 2019). A rumor had it that even his toilet was made of gold, and so during the Euromaidan, ‘the protesters mounted a chained, life-​size manikin of Yanukovych dressed in a prisoner robe and sitting on a golden toilet’ (Kozak 2017: 15). After they chased Yanukovych away from the country, and looted his Mezhyhirya estate near Kiev for a while, they decided to open the property to the public,3 turn it into a ‘museum of corruption,’ now run by the state, and let the tourists ‘marvel at his greed, taking selfies next to the faux Greek ruins Yanukovych had built to serve as lawn furniture’ (Schuster 2019). His faux Greek ruins may even appear symbolic in this context, after all, as Christopher Berry notes, from its inception in Greek thought, ‘luxury’ was a political concept. In classical, as well as in Christian and early modern thought, ‘luxuries’ were subject to moral criticism  .  .  .  they were condemned because they fostered effeminacy and thus undermined virtues and corrupted both the individual and his patria (Berry 1994: 20).

During his time in the office and after, Yanukovych acquired a reputation of a weak man and a coward—​of someone not only corrupt in the sense of embezzling public funds and enjoying all sorts of bribes and proceeds from his schemes, but of someone equally corrupted by luxury. When he recorded one of his videos from his exile in Russia directed at the Ukrainian audience, the Ukrainian media commented: ‘Yanukovich the coward suddenly decided that he is a man . . .  Besides, Yanukovich recorded another video, where he declared his intention to talk to Poroshenko “as a man”.’4 Yanukovych here brings back to life the age-​old critique of luxury—​stretching from the Greeks to the famous debates in the eighteenth century—​which associated luxury with effeminacy in men, moral and general weakness, and a range of sins and vices, from avarice, gluttony, greed, debauchery, lust to vanity (Berg and Eger 2003; Adams 2012). Utilising figures such as Yanukovych and other similar villains, the anticorruption campaigns revive the moral discourse surrounding luxury as not only a likely result of corruption, but as a morally corrupting force undermining both the individual body and the body politic, resulting in both individual and collective weakness, decay, and failure (Berry 1994). While this view of luxury has been popular with luxury’s critics across the ages, this is not the only way to perceive luxury. Luxury is equally disdained and desired. Luxury can either appear as vulgar or as sublime, as low or as high, as profane or as sacred, as pure or as dirty: a matter of perspectival illusion. This perspectival illusion is then often culturally, historically, and socially contingent, and even within the same society several ‘conflicting moral cultures’ may easily co-​exist, one viewing luxury as reprehensible, while another as sublime (Østbø 2020). Moreover, upon a closer look, we realize that most often it is not luxury per se that arouses our passions but rather luxury in the wrong

Luxury and Corruption    553 hands. The same luxurious object we desire when we see it in the hands of those we consider the legitimate elite suddenly appears as dirty and vulgar in the hands of a criminal, a corrupt politician, or even the working class (Kuldova 2020). This was also true of the Italian sumptuary laws of the late Middle Ages (1200-​1500). As Catherine Killerby argued, ‘no government in this period regarded luxury as evil in itself. It was the context of its use, by whom and to what purpose, that determined the approval or censure of luxury’ (Killerby 1994: 119). Similarly, John Shovlin nicely showed that the term luxury was widely used in the seventeenth and early eighteenth centuries to denounce the usurpation by the lowborn of clothing or other commodities appropriate only to their betters—​the king, his officers, and the nobility. Clothing and other consumer goods, it was held, ought to map the social hierarchy. Pomp, magnificence, and spectacular appearances were legitimate for the wellborn but illicit for those of low origins (Shovlin 2000: 577).

As much as luxury can be associated with weakness and vice, it is, however, also an authoritative sign of status and power, historically associated with the sovereign: the one capable of both making the law and breaking the law (Shovlin 2000). Or else, as Georges Bataille would argue, the one capable of transgression, squandering of that which would otherwise be useful and of life beyond utility and servitude; this sovereign attitude, that manifests itself in luxury and in what appears as senseless wasting, holds today a particular appeal to many (Bataille 1993; Kuldova 2019a). Luxury in ‘proper hands,’ thus, to the contrary, arouses admiration, desire, and a quest to vicariously participate in and identify with the power of the individual(s) who displays or possesses this luxury (Anker 2012). In other words, it appears as a sublimated luxury. Sublimation here should not be imagined as a process by which, for instance, sex drives are converted into poetry, but rather as a process by which the same object or practice becomes transformed, or else something which cannot always be unproblematically perceived as pleasurable  –​ something obscene, awful, tasteless  –​is transformed into an agent of heightened pleasure precisely because of its problematic qualities (Pfaller 2009).

The line is fine, and the latter can always flip into the former, and reverse. There are criminals who are shunned, and then there are those who are admired and emulated, as people wish to participate in their ‘power mystique’ and appropriate some of it in order to feel stronger themselves (Kuldova 2017). There are politicians, such as many in India, who are voted in not despite being criminal, but precisely because they are criminal (Vaishnav 2017). Their corruption and their lavish lifestyles are read as a sign that they can deliver, act, and do not shy away from breaking the rules to achieve their objectives (Michelutti 2010). Gangsters living luxurious lifestyles have at the same time as corruption is shunned become the neoliberal heroes (Kuldova 2014). This also reveals

554   Tereza Østbø Kuldova the degree to which the social order as well as the moral order are in utter flux—​a chaos of signs and symbols, hopes and illusions, all mediated by the market capitalising on our insecurities and desires for power, status and recognition. Whose luxury consumption is sublime and whose profane depends increasingly on the judgement of the individual, intensified in the age of ‘moral outrage’ (McGranahan 2017). Spectacular images of luxury real estate and luxury goods of the ruling political elites feature most prominently in popular scoops by the opposition and anticorruption campaigners. And they may be effective—​such as in the case of Yanukovych, when a vast majority agreed that there was nothing sublime about his luxury. But we may want to indulge another example, that of the Russian ‘opposition leader’ Alexei Navalny, who was in 2012 listed by the Time magazine as one of the world’s 100 most influential people, and his Anti-​Corruption Foundation. Navalny is known for his viral YouTube videos, a sort of infotainment that features his organisation’s investigations into corruption among the Russian political elite. Most famously, Navalny accused Dimitry Medvedev in 2017 of embezzlement, investigating all properties and residences linked to his family, in one of these viral YouTube videos,5 which has been viewed almost 30 million times. In the same year, he also published a drone footage of Vladimir Putin’s lavish ‘secret dacha,’ Villa Sellgren, at the Russian-​Finnish border.6 In the same year, a report written jointly by Boris Nemtsov, who was assassinated in 2015, and Leonid Martynyuk, ironically titled The Life of a Galley Slave, was released, listing all the excessive luxuries enjoyed by Putin from taxpayers money, showing that ‘at his disposal are 20 palaces and villas, a fleet of 58 aircraft, a flotilla of yachts worth some 3bn roubles (£59.2m), a watch collection worth 22m roubles and several top class Mercedes’ (Elder 2012). The report even included a note on a toilet covered in gold worth $75, 000 on one of his aircrafts that he enjoys. And yet, Putin enjoying luxury on taxpayers account has barely scratched his image. To the contrary, most recently, his 2019 calendar, Around the World with Vladimir Putin, featuring him during his adventurous travels in the usual virile light (Sperling 2015) is reported by Forbes to have increased the demand for luxury travels to Siberia on the ultra-​luxurious private Golden Eagle Trans-​Siberian Express train, with starting prices at around $12, 000 for a 10 day trip (Dobson 2018), as the wealthy are set to emulate his lifestyle. Returning to the previous point about the inherent ambiguity of luxury (and corruption), we may—​in simplified terms—​argue the following: Where Yanukovych appears as an ordinary profane corrupt crook, Putin—​to many of his followers—​appears as a sublime crook. In Putin’s case, his indulgences in luxury, corruption, dealings with oligarchs, and even running the state as a mafia business, are not perceived by many of his admirers unfavorably. Instead, they perceive them as expressions of sovereignty, strength, and control—​the image Putin has been effectively cultivating since he came to power (Sperling 2015). All of these qualities are then skillfully linked to the idea of the strength of the nation (Riabov and Riabova 2014), and to Putin’s notion of ‘democratic sovereignty’ in international relations and his nationalisation of the economy (even if it takes place through intense ties with select oligarchs and businesses) that manifests itself for instance in restrictions on foreign investment in industries designated as ‘critical

Luxury and Corruption    555 for national security’ (Lamberova and Sonin 2018). Putin appears to many as a sovereign hero, a subjugator, and enforcer—​the very same appeal he shares with iconic gangsters and criminals that both break the law and make their own laws they enforce (Kuldova 2019a). Sovereignty became Putin’s ideological cornerstone, sovereignty is seen as an opportunity for Russia to decide its own fate, to render it less dependent on international financial organizations, to make it a subject rather than an object in world politics, to lay claim to a measure of self-​sufficiency these are precisely the things credited to Putin’s rule (Riabov and Riabova 2014: 27–​8).

This ability of luxury to display sovereignty is precisely what makes it so desirable, especially to those at the bottom of society meant to serve and obey in the current world of ‘total work’ (Pieper 1998). Hence, in Putin’s case, any scoop revealing his hidden luxury is likely to further feed into his power mystique of a sovereign rather than undermining it. In this respect, he is not unlike Donald Trump, famed for his luxurious excesses, numerous charges of corruption,7 and an endless stream of moral and legal and other transgressions—​despite of which, or rather precisely of which, he still maintains high levels of support (Littler 2019). Or, as Trump himself put it in his astonishment: ‘I could stand in the middle of Fifth Avenue and shoot somebody, and I wouldn’t lose any voters, OK? It’s, like, incredible.’8 These examples reveal the Janus face of luxury, corruption, and populism: while populist leaders of anticorruption oppositional movements typically use luxury as an instrument to mobilize the moral outrage and the popular sense of injustice in face of corrupt leaders, the indulgence and corrupt practices of leaders such as Putin or Trump in luxury paradoxically strengthens their power mystique in the eyes of their supporters. While some of this can be explained by the ambivalent nature of luxury as such discussed earlier, and the process of sublimation in relation to cultural pleasure, luxury and corruption—​as not only a question of morality, but also a crime—​ need to be simultaneously placed within the context of capitalism, consumer culture and their inherently criminogenic effects.

Luxury, Corruption, and Crime Contemporary consumer capitalism, the progressive ‘democratisation’ of luxury (Lipovetsky 2002) and the relentless sociosymbolic competition built into the system push us to desire and struggle to acquire luxury goods as the ultimate markers of ‘commodified sovereignty’ (Kuldova 2020). Capitalism, after all, as Werner Sombart argued, is the ‘illicit child of luxury’ (Sombart 1967: 27). Our ability earn respect and recognition is increasingly dependent on our ability to consume and display status goods (Hall, Winlow, and Ancrum 2012; Hall 2012). These forces of capitalism that push individuals towards sociosymbolic competition and towards relentless consumption

556   Tereza Østbø Kuldova of status symbols have been shown by criminologists to be profoundly criminogenic in themselves (Hall, Winlow, and Ancrum 2012). The desire for commodities and luxury fuels much of today’s crime—​both petty and grand—​and luxury consumption is often the ultimate goal of grand corruption. But it is also worth reminding ourselves that ‘at the core of luxury lie painful expropriations’ (Kuldova 2016: 4)—​from the colonial conquests, exploitation of human and natural resources to modern day slavery. Many, if not all, of our luxuries are born out of pain, destruction, and oppression in the name of greed and power. It is often paradoxically this harm inherent to luxury and resulting from the inherent criminogenic forces of capitalism endows it with its almost miraculous power and splendor. Any ‘ethical’ luxury in this sense is an oxymoron (Kuldova 2018). Luxury is not possible or thinkable without it being the very embodiment of harm and exploitation, without embodying the ‘power over labour power’ (Kuldova 2016), and being an index of one’s power to impact the world around and leave a permanent mark on others, and the environment. Luxury is precisely in this sense an index of sovereignty. It is also based on a perverse disavowal of harm—​from environmental to human exploitation—​that goes into its making; we know well of the damage being done, and yet we keep on consuming, exploiting and even committing crimes to satisfy the desire (Layton 2010). Flashing luxury goods and lifestyles is not only a means to display one’s status through conspicuous consumption (Veblen 1970) fueled by consumer capitalism’s relentless sociosymbolic competition, cultivation of envy, and the culture of narcissism and possessive individualism (Hall, Winlow, and Ancrum 2012; Hall 2012; Sombart 1967; Bauman 2008; Lasch 1991; Smith and Raymen 2016), but also an index of corruptibility, a form of signaling (Gambetta 2009). Luxury real estate, art, luxury goods and substances are used to launder and stash away money from tax authorities (Sullivan 2015; De Sanctis 2013; Markus 2017; Sharman and Chaikin 2009; Chaikin and Sharman 2009). In the meantime, a whole global industry has emerged catering to these needs, or as Markus puts it, The deluge of corrupt proceeds from Russia, China, and many other developing countries has created an entire money laundering industry in the West, involving bankers, lawyers, accountants, and other professionals who instruct their Russian clients on the specifics of shell companies, artificial bankruptcies, reputation enhancing investments, and financial secrecy (Markus 2017: 30).

A case in point:  Vancouver in Canada which has attracted through its Immigrant Investor Program and other similar cash-​for-​citizenship policies since the early 80s an unprecedented level of ultra-​rich from Hong Kong and China, parking their wealth acquired elsewhere—​through both legitimate and illegitimate means and corruption—​ into the local luxury real estate market and other luxury goods. This has effectively made the cost of living and property prices skyrocket, turning Vancouver into one of the world’s least affordable cities (Ley 2017; Stiem 2016). In 2014, it was reported that nearly ‘18,000 corrupt politicians have thought to have removed close to an estimated $123bn in the form of IFFs’ (illicit financial flows) from China to other foreign countries’

Luxury and Corruption    557 and that ‘during the period 2000–​2011, an estimated $3.79tn were removed from China in the form of illicit financial flows, most of these funds were the result of tax evasion schemes by wealthy members of society’ (Naheem 2017: 16). In a globalised world, the effects of Chinese corruption are easily felt at another side of the globe. The global luxury business—​in face of far stricter, even if insufficient, controls on the finance industry—​ has become the go-​to place for the super-​rich to stash their wealth away from tax authorities (Naylor 2011). The same goes for the wealth of organised crime groups, terrorist organisations, and white-​collar corporate criminals that thrive in environments with high levels of corruption (Sullivan 2015; Chaikin and Sharman 2009; Tombs and Whyte 2007; Friedrichs 2010; Moghaddam 2010; Levitt and Ross 2007). Or as the report by The Global Initiative Against Transnational Organized Crime, titled Sandcastles puts it, focusing on the luxury real estate in Dubai, Illicit actors, whether narcotics traffickers, nuclear proliferators, conflict financiers, kleptocrats, large-​ scale money launderers, or terrorists, all share a common need: they must move the proceeds of their criminal endeavors from the illicit marketplace into the licit financial system in order to use them effectively. Luxury real estate has become a significant pathway for this conversion, facilitated by imperfect information regarding ownership and the details behind these substantial financial transactions. This vulnerability affects major real estate markets around the world, including, but not limited to, London, Toronto, Hong Kong, New York, Singapore, Doha, Sydney, and Paris.9

This fundamentally global nature of the financial flows of proceeds from corruption, among others into luxury markets, provides legitimacy to transnational organisations dedicated to combatting corruption. With the global luxury market being of the few seeing actual significant growth, and with worth nearly $1trillion, and given the rather obvious links between money laundering, tax evasion and the luxury market, it is fairly startling that the industry is not only one of the least regulated but also became a target of Transparency International for the first time in 2017. The report titled Tainted Treasures: Money Laundering Risks in Luxury Markets, for the first time acknowledged that luxury goods are ‘being used to launder the proceeds of corruption, including in the art world and the marketplaces for super-​yachts, precious stones and jewels, high-​ end apparel and accessories, and real estate’ (Financial Transparency Coalition 2017: 3). Further noting that Across the world, from Ukraine to Tunisia, to Brazil large-​scale cases of corruption persistently involve the acquisition of luxury property, vehicles and goods. Luxury goods can serve as badges of wealth, becoming a highly desirable consumption target, and they can also be used as bribes. For individuals engaged in corruption schemes, the luxury sector is significantly attractive as a vehicle to launder illicit funds. Luxury goods, super yachts and stately homes located at upmarket addresses can also bestow credibility on the corrupt, providing a sheen of legitimacy to people who benefit from stolen wealth (Financial Transparency Coalition. 2017: 5).

558   Tereza Østbø Kuldova The omission of the luxury business from any earlier reports by Transparency International is particularly startling given precisely the aforementioned fact that most anticorruption campaigns rely on images of luxurious excess to convey their message. No less, very famously, in November 2012, the Chinese president Xi Jingping launched the biggest anticorruption campaign since Mao, targeting ‘tigers and flies’—​high-​level top bureaucrats as well as lower-​ranking officials (Quah 2015; Yuen 2014). Luxury, extravagance, excess, and over-​indulgence of the officials have been the most prominent targets of the campaign, with direct impact on the luxury business—​sales of luxury real estate, cars, watches, alcohol and other luxury goods dropped (Quah 2015; Atwal and Brynson 2017; Sinha 2014). As Quah writes, China’s annual growth rate for luxury spending decreased from 7 percent in 2012 to 2 percent in 2013. The sales of jewelry, watches and other luxury items in Hong Kong have declined by 40 percent in April 2014, and by 28 percent in June 2014. The crackdown on official extravagance has also resulted in the decline in the hosting of official dinners at five-​star hotels in China . . .  The liquor company Remy Cointreau blames the anti-​graft campaign for the 32 percent drop in the sales of its high-​end brand, Remy Martin in China, during January to March 2014 (Quah 2015: 59).

Luxury real estate and goods also make for convenient bribes since they are less likely to result in legal action than direct monetary payments (Bac 2019; Tajaddini and Gholipour 2018). But consumption and display of luxury is also strategically used by ‘corrupt individuals’ to ‘signal their “services” to other corrupt agents by exhibiting a lavish lifestyle that is beyond their official source of income and spreading rumours about their corruptibility’ (Tajaddini and Gholipour 2018: 635). Corruption further fuels the consumption of luxury and is thus beneficial—​in terms of growth—​for the luxury market actors (Gokceus and Suzuki 2014). It is thus not in the interest of the luxury business—​ no less well-​known for its emphasis on secrecy and confidentiality in service to wealthy individuals—​to impose any limitations on itself. The rhetoric of ethical luxury in this respect again falls short. Governments must act and regulate the luxury industry more effectively; in many countries it is not even required to record the beneficial ownership details of customers in the high-​value sector. As the Transparency International report also argues, it is important to push for customer due diligence and record-​keeping by businesses; enhanced due diligence for politically exposed persons (PEPs); reporting of suspicious transactions to relevant authorities; and effective oversight by competent regulatory authorities’ (Financial Transparency Coalition 2017: 8).

But the luxury industry, and the crimes it often effectively covers up, also serves as a powerful visual reminder of the increasing inequality (Piketty 2014), and of a world where a handful of the richest people control the same amount of wealth as the poorest

Luxury and Corruption    559 50% (Oxfam 2017)—​which does not mean that we are necessarily speaking of direct correlation. When we step back, and focus on the larger picture, the question becomes: can measures such as ‘better reporting’ actually combat that which appears more as a systemic problem? Can governments under the current system really effectively regulate the luxury industry?

Anticorruption Crusaders, Luxury, and Neoliberalism As we have seen, both luxury and corruption have throughout history aroused moral passions and philosophical debates, and they have been effectively linked through crime. But again, the key question we must ask is: In which direction do these populist myths push us? (Citton 2010a, 2010b). Unsurprisingly, images of obscene and absurd luxury devoured by the corrupt elites trigger disgust, rage, and anger, as well as a sense of powerlessness vis-​à-​vis ‘the system’ among those who suffer the destructive consequences of neoliberalism (Kuldova 2019a). But it is precisely neoliberal policies that are often touted by anticorruption campaigners as the very solution to corruption (Brown and Cloke 2004; Kajsiu 2014; Katzarova 2019). The additional paradox is that many of these self-​styled anticorruption populists—​such as Volodymyr Zelensky, his Russian counterpart Alexei Navalny, or his Indian counterparts Anna Hazare and Arvind Kejriwal with his Aam Aadmi Party (Common Man’s Party) funded by, among others, the Ford Foundation (Roy 2011), all pushing for further neoliberalisation as a means to increase the penetrations of foreign capital—​are publicly celebrated as the heroes of the opposition. The hegemonic anticorruption discourse embraced by the World Bank (Marquette 2003), International Monetary Fund (IMF), and organisations such as Transparency International frames corruption solely in terms of abuse of public office for private gain, a ‘straightforwardly defined phenomenon, consisting in payments illegally made to a public agent with the goal of obtaining a benefit or avoiding a cost’ (Buchan and Hill 2014: 2). This fundamentally neoliberal view of corruption sees ‘opportunities to engage in corrupt activities’ as arising solely ‘from market distortions introduced by state intervention’ (Brown and Cloke 2004: 286). In other words, in this view, the state is the problem—​or more specifically, it becomes a problem if it attempts to control the economy (or else, to act as a sovereign vis-​à-​vis the market forces). This view, stemming from the American neoliberal tradition, views corruption solely as political corruption, and more importantly ‘as the more limited offense of bribery, and as an individual failing, rather than a systemic problem’ (Katzarova 2019: 231). The current concern with corruption must be seen as closely linked to the reversal of the state-​market balance of power in favor of the latter (Mitchell and Fazi 2017; Strange 1996; Zagrebelsky 2017). Gary Becker, Nobel Laureate (1992) in economics, put it most bluntly when he stated in the Business Week that ‘if we abolish the state, we abolish corruption’ (Tanzi 2000: 112).

560   Tereza Østbø Kuldova Corruption as such is indeed not a new phenomenon; there has possibly never been a complex society in the world’s history that has not known the phenomenon and where moral passions have not been aroused by it, to which its long intellectual history testifies (Buchan and Hill 2014). Niccolò Machiavelli insisted that corruption is inevitable, and is ‘the one great observable fact in human affairs’ (Buchan and Hill 2014: 10). Corruption has always been condemned or at least looked down upon, and variously linked to moral failure, gluttony, and vanity and the morally and spiritually corrupting effects of luxury and excess. The current populist movements that serve the public images of spectacular wealth and luxury enjoyed by corrupt politicians feed off this long intellectual history of corruption as a moral failure, bordering on the criminal. As Buchan and Hill nicely show: Corruption is a concept with an ambiguous quality, whose wide contours of meaning could readily be expanded or contracted: it did not always apply to the particularity of the abuse of public office, but often connoted more nebulous fears of moral decay, spiritual degeneration or physical death. Throughout Western history, corruption appeared in political tracts and treatises as a label or epithet used to denounce, to criticise, to demonise or to castigate. The term ‘corruption’ has been used in a bewildering variety of contexts, from narrowly defined condemnations of specific misdemeanours, such as bribery or simony (the buying of church offices and spiritual services), through to epic charges of collective moral decay or apocalyptic fears of political degeneration and collapse. (Buchan and Hill 2014: 5)

What matters is how a society defines what falls within the realm of corruption, and towards what aims it directs the affects that are inevitably aroused by what is largely perceived as immoral or directly criminal conduct. Today’s hegemonic view limits corruption to the realm of politics and the state. But it has not always been this way. In the 1970s, corruption was widely seen as a corporate abuse of power and undue influence on politics, such as, for instance, under Salvador Allende in Chile, who argued for the necessity of international rules to regulate corporate conduct (Katzarova 2019). This anticorruption discourse focused on the negative impacts of multinational corporations on politics, democracy, and development; it was the multinational corporations that were seen as bringing corruption into these countries and that needed to be controlled by the government. This discourse was particularly influential in what were deemed the Third World countries, attempting to counteract the influx and impact of global capital and of international unions challenging the power of global corporations. The neoliberal counterrevolution fundamentally turned this view of corruption on its head, as Elitza Katzarova (2019) convincingly shows. As she writes: Corruption was transformed from corporate abuse of power in the 1970s to government abuse of power in the 1990s. The trope of the corrupt corporation came to be supplanted by the tropes of the corrupt politician, corrupt public official and corrupt country. In the process, the blame for corruption was shifted from

Luxury and Corruption    561 developed countries (and their corporations) to the developing countries (and their governments). Today, we automatically assume that the locus of corruption is government.  . . .  With the transformation of corruption from a corporate into a government problem, the content of anti-​corruption shifted from more state in the economy to less state in the economy. With the locus of corruption in government, it made sense that government abuse of power should be checked with limiting the opportunities for corrupt behavior by politicians and public officials. Government was not the solution, government was the problem, as Reagan eloquently put it in his inaugural address in January 1981. (Katzarova 2019: 215)

The result of this attack on the state, the government, and political elites has been a great crisis of legitimacy of politics as such that has created a fertile ground for the rise of populism which we are witnessing today—​leading both to depoliticisation and dedemocratisation (Giroux 2004). Such was the case, for instance, in Albania, a process well documented by Blendi Kajsiu, where anticorruption campaigns pushed by international actors that portrayed ‘corruption as the main cause of almost every Albanian failure from 1998 onwards’ (Kajsiu 2014: 5) served to institute and legitimise a neoliberal order, while paradoxically leading both to more corruption and to delegitimisation of political actors and widespread disillusionment with politics. As Kajsiu shows, the discourse of corruption constantly shifted criticism away from the failures of neoliberal policies that had been implemented in Albania by blaming such failures on corruption  . . .  by defining corruption primarily as abuse of public office for private gain, the corruption discourse articulated corruption as an inherent feature of the public sector, while the private sector was implicitly articulated as inherently free of corruption  . . .  anti-​corruption meant reducing state involvement in the economy, expanding the market, and privatizing the public sector  . . .  the corruption discourse reproduced a deep asymmetry between a corrupt Albania on the one hand and a clean international community on the other.  . . .   In order to fight corruption Albania had to further liberalize, to further open up its markets and attract foreign investment, to continue privatization, removing the state from economic activity  . . .  against the threat of corruption both local and international actors could articulate a neoliberal order that was free from internal contradictions and fully compatible with more democratization. (Kajsiu 2014: 6).

Following the end of the Cold War, communism as the enemy which so far provided the legitimacy to democratic states has been replaced by corruption. Corruption has initially been seen primarily as located in the Third World and the states that were imagined as having not reached proper modernity (and that were often resisting foreign capital), only to become an issue also in the so-​called developed states (Heywood 2009; Heywood and Krastev 2006). This produced a moralistic genre of its own kind that, as Martin and Shohat observed,

562   Tereza Østbø Kuldova pits the corrupt leaders and nations—​axes of evil—​against those who fight them, be they presidents of the free world or the democratic nations. Within this discourse, corruption is always imagined as ‘outside’, simultaneously eliding any links between so-​called good and evil. (Martin and Shohat 2003: 2)

In tandem with other similar nongovernmental institutions determined to fight corruption across the globe, as well as international organisations such as the World Bank, the International Monetary Fund (IMF), the Organisation for Economic Co-​ operation and Development (OECD), and no less the European Union (EU) and national governments, it has facilitated since the mid-​1990s the spread of the rhetoric of transparency, compliance, integrity and accountability, and so-​called good governance, which more often than not translates into a minimal state that stays out of the way of international capital. Or as Cris Shore puts it: For years, the attitude of Western governments to the problem of corruption and shoddy business ethics has been framed within Eurocentric assumptions that corruption is essentially a Third World disorder; a pathology endemic to ‘backward’ developing countries with weak civil societies and bloated public sectors. According to this view, the only effective solution was to introduce painful, deflationary, neoliberal reforms, and the fiscal and moral disciplines of the market. Under the twin banners of ‘anti-​corruption’ and ‘good governance’, the U.S. government, the IMF, and the World Bank have systematically bullied their weaker trading partners into accepting the rules and norms of modern corporate capitalism. (Shore 2003: 151)

Following Wolfgang Streeck, we could instead argue that corruption is one of the most prominent systemic disorders of contemporary capitalism (Streeck 2016), rather than a mere problem of the state and individual corrupt officials as it is made out to be—​ in other words, turning the definition back on its feet. And thus, the solution cannot lie in more neoliberalism. The anticorruption discourse has effectively distracted us from perceiving the real systemic problems by mobilising our passions against corrupt politicians living in luxury, at the same time pushing a neoliberal agenda that is bound to only intensify worldwide inequality, social conflict, crime, and the exploitation of both humans across the globe and natural resources. If one looks closely at the proposed politics of the so called ‘oppositional leaders’, this becomes clear. Or as Perry Anderson summed it up, ‘Navalny’s recipe for liberation—​ten brave businessmen and the government will fall—​speaks for itself ’ (Anderson 2015: 16). The focus on state corruption has made us ignorant and accepting of corporate corruption, corporate crimes, and associated harms. This has been so also because these have been kept conceptually separate. As McLennan pointed out: until recently ‘corruption’ has not been a widely used term to describe shady corporate behaviour—​rather, the reference has been to concepts such as ‘white collar crime’ or ‘influence’. This is not an insignificant oversight. (MacLennan 2005: 163)

Luxury and Corruption    563 Even though corporate scandals, such as possibly the most famous of Enron, have been popping up again and again in the media (MacLennan 2005; Shore 2003), they do not arouse the same passions. Here we may remind ourselves of our initial point about the ambivalence of corruption and luxury. It appears that many gain perverse pleasure from seeing corporates breaking the rules and enjoying the fruits of corrupt deals and exploitation. In other words, the corporate criminal is sublime, the politician on the other hand a profane crook. These attitudes differ in time, place, culture, and social and economic position; to some the rogue Wall Street banker is sublime, to others it is Putin. The principle remains the same.

Coda: Luxury and Corporate Corruption Corporate abuse of power and corporate corruption are not an aberration, they are the norm (Glasbeek 2018). We are not only dealing with ‘corporate crime’ (Buell 2016) and ‘white-​collar crime’ (Friedrichs 2010; Levi 2009; Sutherland 1983; Tombs and Whyte 2007) but with the fact that contemporary neoliberal capitalism, or as Woodiwiss puts it, ‘gangster capitalism’, is fundamentally criminogenic ( Hall 2012; Hall and Winlow 2013; Woodiwiss 2005) and further fuels corrupt behavior (Kagarlitsky 2000). As a result, we could turn the currently hegemonic view back on its feet and say that ‘neoliberalism—​ understood as the disproportionate influence of corporations and business thinking on politics—​can be seen as a form of political corruption’ (Katzarova 2019: 223). The modern-​day robber barons, the ‘multinational concerns are equally adept at showing “no scruple about resorting to intimidation or violence” in their pursuit of business, profit and power’ (Rawlinson 2002: 295). Their practices are no different; they are not pure, free, and—​if left unregulated—​just, to the contrary. The ideology of neoliberal ‘good governance’ has created only more fertile ground for corporate corruption to thrive (Aiyer 2003). America’s opioid crisis fueled by the greed of pharmaceutical companies and the recent 2019 revelations of corporate corruption of Insys Therapeutics are merely one example among many of the ‘business as usual’ (McGreal 2019). Only this time, political leaders, such as the mayor in West Virginia, who labelled them ‘drug dealers in Armani suits’ (McGreal 2018) and called for criminal prosecution of corporations that ‘have spent years paying civil settlements as “the cost of doing business” while continuing to rake in huge profits by illegally pushing the mass prescribing of the drugs or failing to obey laws intended to prevent their misuse’ (McGreal 2019). John Kapoor, the 75-​year-​ old billionaire founder of Insys was found guilty of bribing doctors with hundreds of thousands of dollars, as well as luxury experiences, visits to strip clubs and bars to make them prescribe Subsys, a synthetic opioid, to those who did not need it. ‘In one instance, the company paid nearly $260,000 to two New York doctors who wrote more than $6m worth of Subsys prescriptions in 2014’ (McGreal 2019). The motivation of all parts involved being greed and the pursuit of luxury—​literally, over dead and suffering bodies. These are some of the ways we can think luxury and corruption, there may be others. But as these examples show, it is high time we think them—​critically—​together.

564   Tereza Østbø Kuldova

Acknowledgements This work was partially funded by The Research Council of Norway under project no. 313004—​ Luxury, Corruption and Global Ethics:  Towards a Critical Cultural Theory of the Moral Economy of Fraud (LUXCORE).

Notes 1. Zelensky not only focused in his campaign on anticorruption but also explicitly framed it within the discourse of values and morality: ‘What I present is not just my program. These are my values. This is what I believe in and why I am ready to serve’ (Те, що я презентую,—​ це не просто моя програма. Це мої цінності. Це те, у що я вірю і чому готовий служити), accessed April 27, 2019, https://​program.ze2019.com/​ 2. Accessed April 27, 2019, https://​www.transparency.org/​cpi2018. 3. Accessed April 27, 2019, https://​youtu.be/​TfbH2JK7WvM. 4. ‘Трус Янукович внезапно решил, что он—​мужчина [  .  .  .  ]. Кроме того, Янукович записал еще одно видео, где сообщил о своих намерениях “по-​мужски” поговорить с Порошенко.’ Accessed May 2, 2019. https://​znaj.ua/​ru/​politics/​trus-​yanukovych-​ vnezapno-​reshyl-​chto-​on-​-​-​muzhchyna-​vydeo?fbclid=IwAR2dvv_​YFoPaiPZUBRANX6r oYQ1cDVjufmXjPPkytZFrn0v5DqgmfMOUsgY 5. Accessed April 27, 2019. https://​www.youtube.com/​watch?v=qrwlk7_​GF9g. 6. Accessed April 27, 2019, https://​www.youtube.com/​watch?time_​continue=32&v=MrIsXKdjZdo. 7. Accessed May 16, 2019. https://​www.globalwitness.org/​en/​campaigns/​corruption-​and-​money-​ laundering/​trump-​deals/​. 8. Accessed May 16, 2019. https://​www.theguardian.com/​us-​news/​2016/​jan/​24/​donald-​trump-​ says-​he-​could-​shoot-​somebody-​and-​still-​not-​lose-​voters. 9. Accessed May 10, 2019. https://​static1.squarespace.com/​static/​58831f2459cc684854aa3718/​t/​ 5b1fd4bf575d1ff600587770/​1528812745821/​Sandcastles.pdf.

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Chapter 27

Lu xu ry Tou ri sm a nd Environm e nta l i sm Geoffrey Jones

This chapter looks historically at the relationship between luxury tourism and environmentalism. Tourism has grown exponentially since the nineteenth century, and more especially since the development of mass air travel: international tourist arrivals were less than 100 million in 1960, reached 400 million in 1990, and were 1.3 billion in 2017 (World Bank 2019). Domestic travel is far higher still. Domestic tourist trips in China in 2018 were 5.54 billion (Xinhua 2019). The impact of tourism is enormous, but because the industry is so fragmented and diverse, it is challenging to reach overall generalisations concerning whether this huge industry is overall productive or unproductive for society. It is certainly a major employer: tourism is estimated to account for one-​tenth of all jobs worldwide. It is a major generator of income, although the distribution of that income is skewed, as so many of the industry’s jobs are low-​paying, especially for the numerous female workers. The social and cultural impact of tourism is often seen as problematic. The industry is prone to distort traditional employment patterns and can degrade local cultures (Lansing and De Vries 2007). Sometimes tourism has promoted crime, including prostitution, sometimes on a large scale in regions such as Southeast Asia and Latin America (Bishop and Robinson 1998; Wilson 2008). Amongst the least contested issues regarding the impact of tourism concerns its contribution to environmental degradation. A 2018 study estimated that, including tourist food, hotel, shopping, and travel, tourism accounted for 8 percent of total global greenhouse emissions (CarbonBrief 2018). Air travel makes additional negative contributions to climate change. The nitrous oxide, sulfur oxides, soot, and water vapor emitted into the stratosphere make it a huge contributor to climate change. It has also been a considerable influence on the extinction of species, deforestation, beach erosion, collapse of water quality, and decimation of reef systems worldwide (Epler Wood 2017: 150; Lenzen et al. 2018). Governments play a significant role in this story. The Ministries of Tourism, which oversee the industry in many countries, are heavily focussed on promoting the growth of the industry, whilst rarely concerned with environmental sustainability.

572   Geoffrey Jones International governance is also weak. The Kyoto Protocol in 1997 did not, for example, include either air or maritime travel in its accords about carbon emissions (Epler Wood 2017: 302). It is not easy to disentangle the impact of the luxury sector from the tourist industry as a whole. There is not even a generally accepted definition of what constitutes luxury tourism, which makes even estimating its size, let alone its impact, challenging. A 2017 industry survey estimated that luxury travel constitutes 7 percent of international travel, or around 54 million trips in that year, and contributes 20 percent of travel spending. Three-​quarters of these estimated luxury trips were made for leisure purposes (CBI 2017). This would suggest that around 3 percent of international tourist traffic today is luxury. In earlier times, however, practically all tourism was luxury, simply because only the affluent had the discretionary income and time for tourism. The conditions of such historical travel and accommodation, however, would likely not be considered “luxurious” by the standards of the twenty-​first century. Within the context of these caveats, this chapter examines the historical evolution of the luxury sector’s relationship with the natural environment over time. The focus is quite heavily on Europe and the United States. This can be seen as quite a traditional approach to the luxury industry, which belies the history and importance of luxury products elsewhere in the world (Grew and Hofmeester 2016). In the case of luxury nature tourism, however, the approach is more justified. The origins of the category largely go back to the eighteenth and, especially, the nineteenth centuries, because previously travel was difficult and time-​consuming. It changed in this era with new transport innovations such as railroads and steamships, followed much later by motor vehicles and airplanes. These new modes of transport were initially heavily focussed in the West, and it was in the West that discretionary incomes soared as modern industrialisation made some people very wealthy, eroding the natural environment in the process. This chapter proceeds chronologically. Section 1 looks at the growth of nature tourism, focussing especially on Switzerland and the United States. Section 2 examines hunting and fishing tourism, focussing especially on British imperial possessions in Africa. Section 3 examines nature and adventure tourism in the postcolonial middle decades of the twentieth century. Section 4 considers the rapid growth of ecotourism and sustainable tourism over recent decades. A final section concludes.

The Emergence of Nature Tourism Tourism began as a luxury enjoyed by elites. European aristocrats long visited popular mineral springs and spas at places like Bath in Britain and Wiesbaden along the Rhine (Fuhs 1992; Neale 1981). During the eighteenth century there was also a growth of interest in Western elite society in grand natural scenery, which led to the growth of hotels, guidebooks, and tours in areas like the Swiss Alps and Niagara Falls. European aristocrats, eventually joined by the commercial elites of Europe and the early United

Luxury Tourism and Environmentalism    573 States, developed well-​established patterns of cultural tourism. This was epitomised by the so-​called Grand Tour on the European Continent, and particularly in Italy and France, which reached its height in the eighteenth century and continued into the nineteenth (Black 1992). Literary and artistic proto-​Romanticism helped ensure that a desire for the enjoyment of beautiful or striking landscape features was incorporated into the “Grand Tour” (Gerbaldo 2009: 132–​133). There was an early awareness of potential ecological damage from tourism. In 1799 the British poet William Wordsworth made critical use of the word “tourist” in his poem “The Brothers”. Wordsworth was concerned that overvisitation by tourists to areas of natural beauty such as the Lake District of northern England would transform the landscape and destroy the genuineness of experiencing the place and its natural features (Buzard 1993: 19–​20, 27). By the 1840s, Wordsworth was warning in the press against the development of tourist infrastructure, especially a new railroad from Kendal to Windermere in the Lake District, by offering a comparison of his own experiences as a young tourist in Switzerland: a major road-​building project under Napoleon thirty years prior had entirely transformed a picturesque and authentic region by overwhelming “Nature” with “Art” and facilitating too much tourism (Buzard 1993: 28). The tension between rejoicing in natural beauty and concerns about its overdevelopment was to become an enduring theme. In Europe, Switzerland in particular emerged as a focus of nineteenth-​century luxury tourism that involved natural areas, beginning with the ancestor of adventure travel, which was mountaineering. Influenced by the eighteenth-​century enthusiasm for picturesque landscapes as well as by a sense of adventure and a desire for conquest, mountain climbing began to gain appeal for a small number of affluent individuals who combined its thrills with scientific pursuits. Between the late eighteenth century, when the first ascents of Mont Blanc were made, and the 1860s, when the Matterhorn was first scaled, “Alpine Clubs” spread across Western Europe. Small groups of European climbers attempted the famous peaks and glaciers of the Alps, bringing local guides with them. In 1821, the local government of Chamonix in the Kingdom of Savoy (now in France) set up the Compagnie des guides de Chamonix in response to increasing tension between local guides and climbers. It was specifically designed to facilitate climbers staying longer in the area, keeping more money in the region and employing more local people (Hansen 2013: 156–​157). Whilst climbers were few in number, the Swiss mountains also attracted a larger group of luxury tourists, either inspired by the stories of the climbers or simply wishing to view the scenery (Bernard 1978). There was already a luxury hotel industry in a number of major Swiss cities. The number began to expand as more tourists came to the Alps, especially once railroads (with tunnels) began to approach the Alpine towns in the 1860s (Ring 2000). A number of innovative entrepreneurs helped shape the emergent market. A  pioneer of Alpine luxury hotels was Johannes Badrutt. Although his father had already built a small hotel, Badrutt was able to secure more success by embracing the likely increase in the market for Alpine tourism as the railroad network grew. He understood

574   Geoffrey Jones the growing consumer interest in healthy air, to be enjoyed alongside the latest modern conveniences. Badrutt capitalised on existing interest in the sulfur hot springs of St. Moritz by buying a local small hotel in the late 1850s and expanding it into the much grander Hotel Engadiner Kulm. In 1879, this would become the first hotel in Switzerland to install electric lights, and the hotel offered three hundred beds by the end of the century (Knoll 1991: 337). Overall, Switzerland doubled its number of hotel beds in the 1880s alone, and boasted of internationally known resorts like the Victoria at Interlaken and the Kurhäuser of Davos and St. Moritz which captured British and other customers through modern conveniences like water closets, electric lights, and telephones (Knoll 1991). Many of these early luxury tourists to the Swiss Alps sought more in nature than scenery: the mineral springs and the mountain air increasingly drew luxury tourists for health reasons. During the second half of the nineteenth century, doctors began to recommend mountain air for patients suffering from consumption (tuberculosis) and other respiratory diseases. Davos and other villages became populated by visitors seeking the combination of rest, air, scenery, and socialisation with fellow elites that became characteristic of the Kurhäuser, “cure-​houses” or sanatoria. The “open” sanatoria, which emerged in the 1860s, allowed patients to select their daily activities and even their medical advisers and regimes, allowing them a full range of socialising and winter games and activities. Meanwhile “closed” sanatoria, which developed in Switzerland in the 1880s, were much stricter. They had scheduled periods of rest, walks, and meals (Barton 2008). The years before World War I saw a great expansion in sanatorium visits in Switzerland. The construction of specially designed buildings served the purposes of both the cure and tourism, with massive verandas and a terraced design which allowed visitors to benefit from “heliotherapy”, a form of sunbathing in the open air that was believed to be an effective therapy (Lüthi 2005). During the 1900s, luxury medical tourism began to be supplemented by winter sports. Whilst skating and tobogganing had been practised for several decades, around 1900 skiing became popular in Switzerland. Having been practised in a modern form of cross-​country skiing in Norway during the nineteenth century, downhill skiing was pioneered by various hotel guests in Davos, St. Moritz, and other Swiss towns in the 1890s. Clubs began to be formed after the turn of the century (Barton 2008: 30–​32, 57–​ 61). A British expatriate, Henry Lunn, began selling packaged winter sports tours in Switzerland by marketing to affluent graduates of British boarding schools in the late 1890s (Ring 2000: 146–​147, 161). By the outbreak of World War I there were as many Germans and Swiss also practising the sport as Britons. An attempt to add skiing to the Olympics in 1905, and then formally with the Chamonix Winter Olympics in 1924, served to consolidate the resort owners’ attempts to increase their market (Hudson 2003: 89–​90). Innovations like the introduction of ski lifts in Davos around 1910 and funicular railroads widened the appeal of the sport for less-​strenuous devotees (Barton 2008: 118). By the 1880s, Switzerland was already attracting a million visitors per year. In 1913, Swiss hotels totalled over 200,000 beds, a level the country did not reach again until the early 1960s (Humair 2011: 52–​53).

Luxury Tourism and Environmentalism    575 The ecological impact of this first wave of luxury tourism in Switzerland was unlikely to have been as bad as Wordsworth described. There was a loss of authenticity, and cutting of timber, but as the basis of the whole industry was natural beauty, ski slopes, and health, there was every incentive to carefully manage processes to preserve more than destroy. Indeed the Alps developed a special place in the Swiss identity, symbolising the virtues of the country (Tissot 2011). There was quite careful integration of the new tourism industry with more traditional agrarian activities. In Grindelwald, located in the Bernese Oberland and an early centre of Alpine tourism, farmers earned 40 percent of their income from tourism as early as 1900 (Misserli 1987: 14). The emergence of luxury tourism in Switzerland had its parallels in the United States. The first half of the nineteenth century saw a growing emphasis on the value of nature and natural scenery in the attempt to create a distinctive American literary, artistic, and philosophical culture. The works of James Fenimore Cooper and Washington Irving, the paintings of Thomas Cole and other Hudson River School artists, and the transcendentalists Ralph Waldo Emerson and Henry David Thoreau all sought to persuade educated Americans of the value of communing with nature and wilderness (Gassan 2008). As in Europe, the first “tourist” destinations in the United States outside major cities centred on mineral springs for health and, particularly in the South, the avoidance of summer heat and humidity, such as at Virginia Springs after the 1760s. The cradle of American nature tourism, New York State, also saw its first tourism businesses centre on mineral springs at Saratoga (Gassan 2008: 9–​14). Thanks to popularisation of the mountain scenery of New York’s Catskills and Adirondacks and of New Hampshire’s White Mountains by artists like Cole and writers like the best-​selling Fenimore Cooper, American nature tourism expanded beyond mineral springs and spas in the 1820s. By the 1850s, the White Mountains had nine hotels with about two thousand beds, and the region was easily reachable by rail. One of the hotels was named Alpine, and writers and guidebooks referred to the region as the Switzerland of America (Brown 1995). These early ventures in luxury tourism created some ecological damage: there was clear-​ cutting of forests at Saratoga Springs (Brown 1995: 27). As in Europe, these businesses catered to tourists looking to see natural scenery, so they were incentivised to avoid excessive extractive practises. Indeed, such nature tourism became an active force for conservation. Railroad companies served as important lobbyists behind the creation of the national park system in the United States, including the first national park in Yellowstone in 1872. These companies wanted people to use their trains to see the natural scenery, so they were highly motivated to support conservation. They built hotels and other facilities to make the national parks accessible. In the southwest of the country, the Atchison, Topeka & Santa Fe Railroad sought to replace the local mining industry around the Grand Canyon with tourism. It cooperated with the British expatriate entrepreneur Fred Harvey to develop a chain of restaurants and lodgings in the territory of the canyon. The Harvey Company, which provided upscale food and accommodation to attract a new cohort of luxury tourists, was able to provide tourists from more developed regions with a high and consistent standard of fare and

576   Geoffrey Jones accommodations, and it drove out the more rustic older establishments (Weigle and Babcock 1996). By the 1920s, however, this link between business and conservation had much diminished. The arrival of the automobile facilitated the growth of mass tourism, over which the railroad system had little control (Jones 2017: 153–​154; Rothman 1998). Nature tourism was also one component of the wave of elite tourism which accompanied Western imperialism in this period. Thomas Cook, the British pioneer tour operator who was influential in opening the Swiss Alps tourism (Jones 2017: 152), began providing tours of Egypt for elite clients soon after the British extended control over the country. For a time the Cook agency was said to be the largest employer in Egypt (Hazbun 2007). The Italian colonial government in Libya promoted Italian tourism to the country, and financed the construction of two luxury hotels in Tripoli and other hotels in desert oases (Baranowski et al. 2015: 114). One study has described tourism as playing an important role in the “erection of the infrastructure of empire, the racial and class hierarchy upon which imperialism was based, and the forging of metropolitan and colonial identities” (Baranowski and Furlough 2001: 21). Later, affluent American tourists turned Cuba, which had come under the influence of the United States after the Spanish-​American war in 1898, into a large tourist hub during the 1920s, where Americans could drink the alcohol absent in the United States due to Prohibition (Schwartz 1997). This first wave of luxury nature tourism, then, had a curious relationship with the natural environment and environmentalism. The monetisation of nature, which was at the heart of luxury tourism, had ecological downsides, but the numbers of tourists involved were not enormous, whilst railroad and other companies seeking to expand their customer base became forces for conservation. More generally, the conservation movements that merged and grew strongly during the nineteenth century were largely the preserves of elites. Almost certainly the growth of interest in the natural beauty and health benefits of the Alps and parts of the United States amongst the wealthy and influential probably fed into the concern of the social elite to protect the natural environment from the ravages of modern industry (Jones 2017: 7–​8).

Luxury Hunting and Fishing During the nineteenth century, the hunting and killing of animals, especially large game animals and birds, evolved as a significant component of luxury tourism. The British were particularly eager practitioners, and did not just limit their hunting to colonial territories but created a form of hunting tourism in Scandinavia and other areas during the nineteenth century. Owing to the expense and overdevelopment of hunting in Scotland, many British sportsmen travelled to Norway beginning in the 1830s for salmon fishing and to shoot moose, reindeer, and red deer amongst other species; the popularity of Norwegian tours led to the growth of a full tourist infrastructure with hunting lodges, local and British guides, and expensive licenses and restrictive regulations established

Luxury Tourism and Environmentalism    577 by the Norwegian government by the 1870s. The influx of wealthy foreign tourists caused some contentiousness in the country, but it was also sometimes seen as a benefit by those with incipient conservation attitudes. The Norwegian inspector of fisheries, for instance, suggested in 1888 that the substantial increase in the price of fishing licenses and river leases was in fact desirable as it put the sport out of the range of local Norwegians and thereby helped to conserve the fisheries whilst bringing foreign exchange into the country. Others in Scandinavia believed that the British had overhunted in Norway and even the Swedish Touring Club was internally conflicted about whether to promote the country as a hunting destination in Britain after observing the Norwegian experience in the 1880s (Sillanpää 2008: 59–​72). In a number of other countries, hunting also became the major source of luxury tourism in the early twentieth century. In New Zealand, the nineteenth-​century introduction of a particularly desired herd of Scottish highland red deer yielded a “golden age” of hunting tourism through the 1920s, drawing not just New Zealanders but others from across the world; the deer population rapidly expanded nonetheless, to over 300,000 animals by 1919. As these deer became destructive of the native ecosystems, they were subsequently regarded as pests and were allowed to be hunted at will with no regulation after 1930 (Figgins 2008). It was in the British colonies of East and South Africa where big game hunting became luxury tourism. There was a precolonial tradition of early safaris involving Arab and Indian merchants supported by the Sultan of Zanzibar (Cameron 1990). The arrival of the British in the nineteenth century led to a new tradition, sport hunting that built on the infrastructure of East and South African guides and porters carrying the necessities for camping in the savannahs. The first professional hunting safaris took place in Rhodesia and South Africa, as well as the British territory in Somaliland, but reached its heyday in East Africa, especially Kenya, after 1900 (Bull 1988). In part, this was the result of the introduction of greater legal order and security by the British colonial authorities, and in part the result of the building of the Uganda Railway from Mombasa on the coast into the interior towards Lake Victoria, providing greatly improved access to the game lands at £1 per passenger and incidentally creating the future capital at Nairobi (Cameron 1990: 30, 40–​41). Whatever the causes, ritualised hunting in East Africa emerged as a classic luxury product from the first decade of the twentieth century. “Royal, aristocratic, and wealthy elites from Europe and North America”, one study has observed, “express class and status, whiteness, masculinity, worldliness, and authority by turning elephants, lions, rhinoceroses, or buffaloes into various forms of trophies” (Gissibl 2016: 263). The best-​ known of the late nineteenth-​and early twentieth-​ century hunters, Frederick Selous, like most of his contemporaries, hunted primarily for himself, but he gradually took on elements of a commercial enterprise before the end of his life during World War I. The affluent Selous travelled to South Africa in 1871 and spent the subsequent decades hunting throughout the southern and eastern quarters of the continent. He first served as a paid safari guide in 1887 for British lion hunters, and also worked for colonial administrator Cecil Rhodes in guiding British settlers into Mashonaland (in

578   Geoffrey Jones Zimbabwe). A successful writer, Selous not only paid for his own expeditions through his royalties but interested his readers in undertaking safaris of their own, including the future American President Theodore Roosevelt in 1897. Roosevelt eventually hired Selous to plan and guide a massive $75,000, 500-​porter post-​presidency safari of 1909 (Bull 1988). Like Roosevelt himself subsequently, Selous began to adopt conservation attitudes as he confronted the carnage caused by the growth of big-​game hunting. He initiated a scientific approach to the study of African wildlife, and himself made the change from pioneering hunter to paid safari guide. In particular, he helped develop the safari from its roots in South Africa to what became its key geography, Kenya and Tanzania. The organisation of the Roosevelt safari started a rapid growth in the number of upscale American safari clients, which emerged as key to the financial success of the safari business (Bull 1988). Victorian hunters not only came around to being the first advocates of conservation in East Africa but also introduced another key element of subsequent African ecotourism: the photographic safari. Edward North Buxton, who was an Alpine climber earlier in his life, had already developed a reputation as a skilled and respected hunter in Kenya when he decided in 1890 to emphasise photography instead of shooting, disturbed by the way in which hunters had decimated elephant populations. He went on to become a vocal supporter of wildlife conservation in the first decade of the twentieth century. A German counterpart was Carl Georg Schillings, who hunted in German East Africa (Tanzania) in the 1890s, and who likewise became upset at the large-​scale killing of animals. He made use of optical manufacturing expertise in Germany to develop his own camera, and used it on what has been described as “the first of the grand, truly professional, photographic safaris” in 1903. Schillings employed 170 porters to move his delicate equipment around the country on that expedition. He was, however, capable of using metal traps and pack animals as bait for lion or leopard (Bull 1988: 136–​142). Schillings took part in the first conference on the protection of wild animals, held in London in 1900, and he was a regular correspondent with his counterparts in British East Africa thereafter on laws to improve animal protection (Becker 2008: 121–​122). A number of firms emerged which provided professional safari support for tourists in East Africa before World War I. The premier firm, Newland, Tarlton & Co., was founded in 1905 as an auction house and estate agency by three Australians who had come to Kenya via South Africa. This Nairobi firm organised its first safari at the request of a naturalist who was unsure whom to ask for assistance, and the venture went so well that it developed a substantial business (Host 2007). The firm outfitted customers and provided white (usually British) hunters who could shoot, guide, and manage large staffs of African porters. The firm was the principal organiser for Roosevelt’s tour in 1909. Newland, Tarlton faced stiff competition, but then served as excellent advertising copy once it won the contract. The service was extremely expensive and was noted for its level of luxury. By 1913, the annual number of clients had risen to three hundred (Cameron 1990: 57). Newland, Tarlton & Co. closed down in 1923, despite having guided one of the very first photographic safaris two years previously. However, one of the partners, Leslie

Luxury Tourism and Environmentalism    579 Tarlton, helped found a successor firm, Safariland, which became the leading brand in the luxury safari business until the 1950s. It took advantage of new modes of transportation, including cruise lines, to deliver more affluent tourists, especially Americans, and trucks and automobiles which replaced many of the porters who had traditionally carried safari gear. Safariland also promoted growing levels of luxury. The phrase “champagne safaris” came into vogue, as well as practises like shooting from automobiles rather than on foot (Cameron 1990: 84–​85). Although affluent businesspeople remained the primary client, the luxury image was enhanced during the interwar decades as going on safari became a fad amongst film stars and other elites, such as Britain’s Prince of Wales, the writer Ernest Hemingway, and George Eastman, founder of Eastman Kodak (Cameron 1990: 86). Eastman was instrumental in increasing the emphasis on photography instead of hunting, especially through his support of photographers and documentary film-​makers Martin and Osa Johnson (Cameron 1990: 89–​91). After a dramatic decline during World War II, the postwar decades were favourable for the safari business except for tourist concerns over the violence of the Mau Mau movement in Kenya. British colonial governments saw tourism as a major opportunity for earning foreign exchange, even creating the East African Tourist Travel Association in the middle of World War II in 1942. New national parks were created, including Nairobi National Park (1946), Tsavo (1948), and Mount Kenya (1949), in which hunting was prohibited; parks were open to photographic safaris and later to camping (Akama 2008). The colonial governments began building roads to the parks. After independence, the new governments in the region continued to promote tourism, most of it high end, into the region (Smart 2018). High-​end tourism, most of it at this time still focussed on wildlife rather than beaches, was a significant provider of revenues and foreign exchange (Bachman 1987: 150–​153). There were, however, consequences for the land, and its people. The creation of parks dispossessed indigenous peoples who had used the park terrain. Ultimately parks, and the tourists who visited them, remained a white project and had a lingering air of colonialism about them even after independence. This dispossession would ramify into future controversies over the revenue accruing to local African communities from nature tourism (Sheail 2010).

Nature and Adventure Luxury Tourism 1960s–​1980s Beginning in the 1960s a new luxury tourist sector developed which was focussed on affluent consumers who were interested in ecologically sensitive tourism. This coincided with two broad trends. First, there was a rapid growth of international tourism, reflecting the spread of jet air travel, particularly the launch of the Boeing 747 jumbo jet in 1969, as well as rising discretionary incomes. There was a surge of mass tourism during

580   Geoffrey Jones the 1960s. Second, there was a sudden re-​emergence of environmentalist concerns, stimulated by a number of well-​publicised pollution incidents, and a new generation of writers, notably Rachael Carson, who in 1962 published her book Silent Spring, warning of the dangers to public health of chemical pesticides. By the end of the decade new environmental nongovernmental organisations (NGOs) were being created, such as the Friends of the Earth, which was founded in San Francisco in 1969. In 1970 the first Earth Day was held in the United States in which twenty million Americans marched in support of measures to secure a healthier environment (Jones 2017: 86–​88). Although environmentalism was far from a mainstream movement, it was an opportune time to develop a more sophisticated form of ecological tourism. The pioneer and symbol of this new tourism was Lindblad Travel, a company launched in 1958 by Lars-​Eric Lindblad in New York. The Swedish-​born Lindblad, who had emigrated to the United States and worked for a tour company in the 1950s, was concerned about the growing number of American tourists going to visit historical and cultural sites in Europe, causing mounting physical damage, yet learning little from the experience. Lindblad wanted to expand the educational component in tourism, and also to encourage affluent Western tourists to visit the world outside Europe. These ideas formed the basis of the business he started in 1958 (Jones 2017: 157; Lindblad 1983: 26–​34). Lindblad sought out organisations like museums, universities, and others for group tours that would include people with a desire to learn whilst travelling. Lindblad personally researched new destinations, and planned large group tours abroad for the US Junior Chamber of Commerce in 1959 and 1960 in South America, and especially a world tour for the Garden Clubs of America in 1960. The latter, which involved sixty travelers, set the pattern for Lindblad’s subsequent tours by procuring a highly credentialed lecturer to make the tour educational as well as comfortable for the guests, who paid $3,800 per person ($31,000 in 2019), and included prominent businessmen and socialites (Lindblad 1983: 36–​37). This successful garden tour prompted Lindblad to focus increasingly on ecological rather than historical attractions. During the mid-​ 1960s the company also built a profitable photographic safari business in East Africa. The company opened up a number of the principal destinations for luxury nature tourism during the subsequent half century. In 1966, Lindblad undertook his first Antarctica cruise using a chartered ship from the Argentine navy. Lindblad envisioned the tours as not just an opportunity to see the most pristine and unvisited natural destination in the world but also as a contribution to the education of his clients and even to scientific study, in this case of plankton and krill in the Antarctic ocean (Lindblad 1983: 93). The first tour was widely reported in the American press and created a large demand, as Lindblad’s subsequent trips were immediately booked up. Aware of mounting concerns in the United States during the 1960s about pollution and waste, Lindblad conveyed a strong conservation message in his tours, and executed on his concerns by imposing restrictions on potential tourist damage to the Antarctic environment. He limited tour groups to small numbers of tourists who were provided with extensive ecology-​education onboard his ships. Guests were only allowed to walk on the continent of Antarctica in restricted areas. “The only thing I wanted to see left there were our

Luxury Tourism and Environmentalism    581 footprints”, he noted (Lindblad 1983: 96). Lindblad articulated his strong conviction that tourism development, if done with a view to the future sustainability of the business, was fully compatible with conservation (Lindblad 1983: 287–​289). In 1967, Lindblad offered the first trip to Chile’s Easter Island. The difficulty of reaching the island required expert pilots and navigators, whilst the total lack of accommodation required construction of a tent city for visitors. In the same year Lindblad also had his first tour of the Galapagos Islands, previously only visited by small parties of scientists. Lindblad used the model that had worked to good effect in the Antarctic, chartering a vessel large enough to bring forty-​six passengers to the islands and accommodating them onboard, whilst they listened to lectures by experts on the islands’ wildlife and ecology—​an explicit contrast with the dancing and drinking historically associated with tourist cruises. The first expedition, with small boat tours landing passengers on the islands themselves for managed hikes and wildlife viewing, included lectures by experts from National Audubon Society, the World Wildlife Fund, and the Charles Darwin Research Foundation (Lindblad 1983: 131). By the 1970s, Lindblad’s clientele extended beyond affluent Americans and included a wide range of tour locations, from the Amazon in Brazil to the Seychelles in the Indian Ocean. His concern about combining luxury tourism with conservation resulted in his advice being sought by governments considering opening their countries to tourists but anxious not to cause an ecological and social disaster. In 1974, he was consulted by the government of Bhutan about opening the country to tourism. He worked with the government in setting a high price for the entry visa, which was used to protect cultural monuments and promote sustainability (Jones 2017: 128). At the end of 1970s, Lindblad’s attention turned to the challenge of gaining access to China, Tibet, and eventually Vietnam. These Communist countries had been entirely beyond the agenda of Western tourists, but Lindblad sent his first groups to China in 1978 and 1979, and a group visited Tibet for the first time in 1980 (Lindblad 1983: 274). By 1989, Lindblad was making up 40 percent of its business in China. However, a US government fine for doing business in Vietnam and a fall in tourism in China following the Tiananmen Square incident led to the firm’s bankruptcy. Nevertheless, Lindblad’s son Sven-​Olaf went on to found his own luxury ecotourist business, renamed Lindblad Expeditions, which continued the traditions established by his father’s company and has continued to flourish until the present (Jones 2017: 159). Although the Lindblad business was particularly pioneering in luxury nature-​related tourism in this era, there were other significant actors. In Latin America, the locally owned Metropolitan Touring, founded in 1950, began bringing American tourists to Ecuador in 1950. Entrepreneurs Eduardo Proaño and Hernán Correa were behind the firm (Pinchevsky 2005). The agency concentrated in its early years on bringing American tourists to see Quito, Cuenca, and other cities in Ecuador for their colonial and other historical sights, as well as visiting the exact latitude of the equator and fishing off the coast. Much of their work involved lobbying the government to create the necessary infrastructure for inbound luxury international tourism, including airports at Quito and Guayaquil, and the creation of a large modern luxury hotel, the Hotel Quito (Robles

582   Geoffrey Jones n.d.). Proaño and Correa sought to grow their firm by introducing nature tourism into his offerings, lining up adventure tours in the Andes and expeditions into the continental rainforests during the 1960s coupled, especially, with bird-​watching. In 1967, the firm secured an exclusive contract to operate Ecuadorian tours for the major American luxury air charter agency INTRAV as part of its South American tour package. They also operated Galapagos tours, initially with Lindblad, and in 1969 undertook their first solo tour on a newly built Greek yacht. Like Lindblad Travel, the passengers on Metropolitan Touring’s yacht and on the Galapagos trails it helped to build were instructed by bilingual naturalist guides. The company subsequently established a programme of training courses for naturalist guides as its operations expanded (Robles n.d.). Beyond Latin America, one of the most successful luxury start-​ups was Abercrombie & Kent founded by Geoffrey Kent and his parents in Kenya in 1962. Subsequently, the firm expanded elsewhere in Africa, and beyond. From the beginning Kent focussed on luxury safaris. “I made a decision early on that our safaris would be about appreciating the wildlife and the scenery in the most luxurious way possible”, he observed in 2012, “and came up with the slogan ‘shoot with a camera, not a gun’ and we stuck with that” (Kent 2012). By 2000, the firm had three thousand employees and $350 million in revenue and had grown to be the world’s largest luxury adventure company (Frei et al. 2002). From the beginning, one of the firm’s key strategies was vertical integration in order to control every aspect of tourist travel. This allowed the firm to assure the client that travel to destinations like East Africa was safe, comfortable, and not ecologically damaging (Barnett and Durham 2003). Kent advocated for the creation of new reserves to protect endangered species, notably in Uganda in the late 1980s in the case of mountain gorillas at Bwindi Impenetrable Forest. The firm also began raising funds for conservation at Masai Mara reserve in 1982, and later expanded this into Abercrombie & Kent Philanthropy aimed at both social and environmental projects in the areas where the company operated (Abercrombie & Kent USA 2016). Between the 1960s and the 1980s, then, firms such as Lindblad and Abercrombie & Kent built luxury businesses based around advanced ecological education. They used their reputations and expertise to advise governments and to help fund environmental projects. The numbers of tourists involved were not great, which from an ecological perspective was an additional benefit, as their environmental impact could be—​and was—​ strictly regulated.

The Boom in Ecotourism and Sustainable Tourism From the 1990s During the 1990s, the nature tourism of the previous century evolved into ecotourism and sustainable tourism. This was in part a relabelling of what firms such as

Luxury Tourism and Environmentalism    583 Lindblad and Abercrombie & Kent had been doing for decades. In part, it signalled a genuine shift from experiencing wildernesses and wild animals to broader issues, including minimising environmental impacts, seeking to conserve protected areas, and supporting local populations, perhaps providing an alternative to ecologically damaging practises such as felling forests. This trend reflected the emergence of the concept of sustainability in that decade with the report of the Bruntland Commission in 1987 which defined sustainable development as combining economic growth, environmental protection, and social equality (Jones 2017: 174). Academic journals, societies, and certification schemes proliferated. The term sustainable tourism appeared in the title of a journal article in 1990, and an academic journal on the topic appeared three years later (McCool 2016). The United Nations Earth Summit in Rio de Janeiro in 1992 was the public launch pad for the concept of sustainable tourism (Epler Wood 2017: 75). The term ecotourism began to be used around the same time. In 1990, The International Ecotourism Society was formed as a nonprofit, which formalised a definition of the category as “responsible travel to natural areas that conserves the environment and improves the well-​being of local people”. It provided a definition of the term ecolodge in 1994, and provided workshops and other events to promote sustainable tourism (Epler Wood 2017). By 2002, the concept of ecotourism had become so respectable that the United Nations proclaimed the International Year of Ecotourism (Jones 2017: 212). The United Nations hosted the first World Ecotourism Summit in Québec City, Canada, in that year. There were new certification schemes. A Green Globe programme was launched in 1992, managed by the World Travel and Tourism Council, the World Tourism Organization, and the Earth Council, representing environmental NGOs. By 2008 there were as many as eighty separate green tourism certification schemes, most of which covered just one region or country (Jones 2017: 258). During this period, the Central American state of Costa Rica had replaced countries such as Kenya as the epicentre of ecotourism, including its luxury category. The country had primarily a beach tourism industry between the 1950s and 1980, but thereafter it flourished as an ecotourist destination. It had vast biodiversity, a national park system, political stability and safety (quite unlike its neighbors), and an openness to foreign ownership of property. This combination attracted a number of expatriate entrepreneurs with ecological interests. Alongside their local counterparts, they created a network of accommodation and travel companies which generated a virtuous circle of growth, building Costa Rica’s reputation as a natural paradise (Jones 2018: 194–​221). The expatriate entrepreneurial pioneers typically had strong ecological beliefs before arriving in Costa Rica. The first travel tour agency and tour operator in the country, for example, was Costa Rica Expeditions, founded in 1978 by Michael Kaye. Kaye was a native New Yorker, who had got into white water rafting in California in the early 1960s. Kaye began building a small business centred on the same activity in Costa Rica. The business focussed on small groups of North Americans, attracted by an unfamiliar but highly promising destination, who Kaye provided with a premium service. By the 1980s he had diversified into providing nature walks, and in 1986 he bought his first hotel. By 1994 his company had 180 employees, the great majority of them Costa Ricans.

584   Geoffrey Jones Subsequently he took advantage of the new opportunities for direct marketing by becoming a partner in one of Costa Rica’s first Internet service providers in 1994 (Jones 2018: 205–​207). Other entrepreneurs established what became known as ecolodges. Many of the early ones were very basic, and best described as exotic rather than luxurious. An early venture was Rara Avis Lodge created by the American biologist Amos Bien. In 1986 he opened a business at a location only twenty-​four miles from the capital city of San José, although at the time of purchase, it took fifteen hours to reach the lodge from the city. The property included three attractive waterfalls and the remains of a former prison, El Plastico, that served as the initial lodging. The first guests to stay at the lodge were students who used the facility for field study in July 1986, and paid $5 a night to do so. Bien pursued a core principle of ecotourism by integrating residents in the local community in the development of the reserve. El Plastico remained in service for scientists and students, but Bien expanded the size and quality of his guest quarters in subsequent years. The first guest quarters built under Bien’s leadership, the Waterfall Lodge, opened in 1989 and accommodated thirty-​two guests. Other accommodations built subsequently included Las Cabinas, specifically designed for bird watchers, and a treetop cabin accessible only by rope. Accommodations were and remain tailored for the target market of middle-​class professionals and were, by early ecolodge standards, luxurious, as they included a bathtub with warm running water and a private balcony. Neither electricity nor climate control has ever been provided in the rooms in order to minimise the carbon footprint (Jones 2018: 212). During the 1990s, other entrepreneurial ventures explicitly targeted the luxury sector. In 1993, for example, Jim Damalas established the Hotel Si Como No. A political science graduate and Sierra Club member who first saw Costa Rica in the early 1970s, Damalas described himself as “a tree-​hugger in high school and college” before pursuing for two decades a career in film and television production in the United States (Damalas 2014). He had maintained a small farm whilst working, before he decided to develop a hotel. With a strong interest in landscape design, Damalas hired architects to design villas overlooking the Pacific coast, removing no trees in the process; instead, the buildings were constructed around the landscape. There were corridors for the movement of monkeys and other animals (Jones 2018:  219). Damalas subsequently established a wildlife reserve, whilst the location of his lodge nearby the Manuel Antonio National Park provided revenue for the Costa Rican park service. Like the pioneers of nature tourism in the nineteenth century, Damalas understood that protecting the environment was good business. The owners of boutique hotels, he observed, “know our customers are here for nature, more than anything else. So it pays to save the landscape” (Damalas 2014). Although Costa Rica was an epicentre of eco-​ tourism, by the 2000s luxury ecofriendly resorts were quite widely dispersed. East Africa, Botswana, Belize, Fiji, and Australia were some of the more popular locations. Luxury hotel chains such as Banyan Tree and Six Senses adopted many of the architectural principles developed by the original ecolodges. They were able to charge high prices because their customers sought

Luxury Tourism and Environmentalism    585 luxury and wanted sensitivity to the environment (Epler Wood 2017: 119). Arguably, this was in part to assuage their guilt. These businesses were frequently part of much larger groups than such entrepreneurial pioneers as Damalas. An example was Wilderness Safaris, a company founded in 1983 and listed in Botswana, which had revenues of $90  million in 2016. It offered luxurious (and highly sustainable) camp facilities for some of the highest prices in the industry. It was also a vigorous supporter of conservation endeavours (Austin et al. 2018). Wilderness Safaris was also one-​third owned by the much larger, US-​based Travel Corporation, owned by the Tollman family, which had multiple encounters with the law. The company patriarch Stanley Tollman was required to pay the US government $105 million in back taxes and fraud penalties in 2008, whilst four years previously his son Brett had been sentenced to thirty-​three months in prison and a fine of $3.5 million for tax fraud (Espinoza 2008). Meanwhile by the early twenty-​first century conventional luxury hotel chains were all pursuing certified sustainability status. Four Seasons developed an extensive sustainability programme. By 2019, its website claimed the chain had planted ten million trees around the world (Four Seasons Hotels and Resorts 2018). Mandarin Oriental published lengthy sustainability reports outlining all its sustainability initiatives (Mandarin Oriental 2017). These initiatives were in part a response to consumer pressure. Prithvi Raj Singh Oberoi, the head of the Indian luxury hotel brand Oberoi, noted, “Now our guests are asking us, ‘How do you get your water? What do you do with your waste water? Are you using solar energy or other forms of energy?’ And that’s another challenge that we have had to meet” (Oberoi 2015: 13). The huge diffusion of sustainability and ecoconcerns in luxury tourism over the last two decades has been remarkable, and many individual projects and initiatives evidently reduced environmental impact. However, it would be an exaggeration to claim that the luxury sector can be exempted from the negative environmental impact of tourism as a whole reported at the start of this chapter. The tourist industry was highly vulnerable to greenwashing, a term coined during the 1980s by the American environmental activist Jerry Mander staying in a hotel in Samoa, after reading a card placed in a room that explained that not having his towels washed could preserve the world’s resources (Jones 2017: 375). A study of the growth of ecotourism concluded that “much of what is marketed as ecotourism amounts to only ecotourism lite, which offers tidbits of nature or minor environmental reforms such as not changing sheets daily” (Honey 2008: 443). Certification schemes were voluntary and conflicting, and employed primarily as marketing tools (Jones 2017: 259–​260). They were responsible for blatant absurdities which discredited the whole concept of sustainable tourism. The extremely luxurious Al Maha desert resort in Dubai, for example, won awards for water conservation and waste management, which took no account that it was located, as one study noted, “within an ocean of unsustainable practices” (Epler Wood 2017: 2). Technological shifts made it harder, rather than easier, to pursue radically sustainable strategies. With the advent of the Web during the 1990s, for example, new booking travel options opened up, and ecotourism businesses faced the challenge that online comparison shopping sites focussed primarily on price and other facilities rather

586   Geoffrey Jones than environmental impact. “We found that because we’re a Five Green Leaf hotel”, Jim Damalas noted of his Costa Rica business, “because we’re into sustainability, because we support all these causes, because we have almost 11,000 trees now, and a watershed to protect all these things that we do, don’t mean anything compared to free Wi-​Fi. When Trip Advisor surveyed I don’t know how many thousands of their members, the most important element in choosing the property is free WiFi” (Damalas 2014: 30). The subsequent development of other technologies, especially Airbnb, further intensified competitive pressures on firms which engaged in costly sustainability programmes. Finally, there was the issue of scale. Even if luxury tourism remained small in numbers compared to mass tourism, it still expanded greatly in size. As incomes rose in China in India, and income inequality with it, from the 1980s, citizens of those countries began to join their Western counterparts as luxury tourists, with a portion attracted to ecotourism. Whole new resorts were sometimes created for these tourists, such as the Song Saa eco-​resort island in Cambodia developed by the Hong Kong-​based couple Rory Hunter and Melita Koulmandas Hunter in 2005 (Lo 2019; Song Saa 2019). Existing nature tourism locations became increasingly crowded. Although visiting the Galapagos Islands remained an expensive activity, more and more people engaged in it. There was a noted decline in the environmental education offered to tourists as less academically qualified guides were employed in response to the growing numbers (Honey 2008: 156–​157). Between 2007 and 2017, the number of annual visitors increased approximately 40 percent from 173,419 to 241,800, most of whom flew into the island and stayed at hotels instead of using educational cruises. The upshot was a huge increase in the environmental impact on a highly fragile ecosystem (Popescu 2019). The Galapagos was not an isolated example. Multiple luxury island resorts in the Maldives badly damaged coral reefs, especially during their construction. (Cowburn et al. 2018) Meanwhile, luxury tourists, just like their mass counterparts, made considerable contributions to carbon emissions through international air travel, and to congestion and pollution in the airports and roads they used. In 2017, the Travel Foundation, a nonprofit concerned with sustainability, reported that luxury travelers consumed four times more water per day than the average European on a daily basis, and more than other types of travelers (Robertson 2017).

Conclusion The growth of mass tourism has brought a huge amount of happiness into many people’s lives, whilst providing (by now) one-​tenth of global employment. Yet as Wordsworth argued in the early nineteenth century, the consumption of nature carried considerable threats to nature. These risks grew exponentially as the industry scaled. By the twenty-​ first century, tourism was a major contributor to carbon emissions. The industry should be seen, although rarely is, as one of the most polluting on the planet.

Luxury Tourism and Environmentalism    587 The environmental impact of luxury tourism was more nuanced than the industry as whole. During the first stage of the growth of luxury tourism in the nineteenth century, the numbers of people involved were quite small, which reduced impact, but more importantly, the companies in this sector understood that it was in their self-​interest to conserve the natural environment. In some cases they became advocates for conservation, including the creation of national parks in the United States. Subsequently, whilst luxury hunting and fishing decimated wildlife populations in Africa and elsewhere, the sector produced some visionaries who created the concept of photographic safaris, and sought to educate their customers rather than kill animals. Environmental education was also a major theme of the luxury natural tourism firms of Lindblad and Abercrombie & Kent. The high-​quality education provided for their elite clients by these firms, combined with their concern about limiting environmental impact, mark them as positive forces for environmental sustainability, at a time when few businesses in any industry displayed interest in the topic. The most recent decades have been paradoxical. The luxury sector has engaged extensively with the new concepts of sustainability, often in response to consumer demand. Luxury tourists want to feel good about their high spending, which includes not seeing themselves as blatant destroyers of the natural environment. There has been a proliferation of entrepreneurial ecotourism ventures around the world, whilst conventional luxury hotel chains have pursued sustainability programmes and certification. Yet the scaling of even the luxury sector has vastly expanded the environment footprint, whilst the industry’s embrace of the confusing language of sustainability has contributed to making the term increasingly meaningless.

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Chapter 28

Digital Lu x u ry Towards a Sustainable Future? Sandy Black

The seismic disruption to late-​twentieth-​century ‘business as usual’ created by the digital revolution continues apace; the so-​called fourth industrial revolution is now well underway in developed countries (also known as ‘Industry 4.0’). At the same time, many developing countries have leapfrogged much of the earlier information technology infrastructure and moved straight to ‘mobile first’ technologies, providing unprecedented global connectivity. The digital shift is continuing to transform the way we live, work, and do business, away from analogue and physical structures and systems to digital and virtual ones, and the positive and negative implications are still unfolding. Industry 4.0 encompasses digital manufacturing technologies using artificial intelligence, autonomous systems, and robotics in industry and Internet-​enabled, connected, and mobile devices in daily life. The digital shift has also enabled gamification of experiences, increasingly including marketing and retailing, through social media and more recently via virtual and augmented reality systems. The luxury business sector embraces a multitude of tangible product areas, including cars, yachts, fashion, accessories, leather goods, jewellery, watches, perfume, and cosmetics as well as wines and spirits. It also increasingly encompasses the service sector such as travel, hotels, and spas. To exemplify the luxury sector, the focus of this chapter is on the luxury fashion and accessories segment and the impact of digital technologies on product marketing, consumer behaviour, and the experience of luxury. The concept of digital luxury is as yet undefined and can therefore be broadly interpreted; it might range from engagement through social media marketing through to both physical and emerging virtual experiences using augmented or mixed reality, widely posited to be the future of retail. What is more, purchases of virtual clothing and cosmetics are already taking place, but how could this be interpreted for the luxury sector? As digital technology has become ubiquitous, it is clear that every aspect of life and commerce is now digital or has a digital aspect, often enabled by mobile technology. According to data from digital analysts GSMA and the US Census Bureau (The

592   Sandy Black Independent 2014) in 2014, for the first time, there were more mobile phones than people on the planet (7.22 billion mobile devices, population 7.19 to 7.2 billion), although these were, and still are, by no means evenly distributed. Luxury products were traditionally available through selective distribution from physical retail outlets including flagship stores, to maintain service, exclusivity and rarity for the luxury consumer. The digital shift has led to different forms of luxury retailing online across three main routes: individual luxury brand websites, which initially functioned purely as online showrooms to promote in-​store shopping; specialist online-​only stores promoting a curated selection of luxury brands such as Mytheresa and Rêve en Vert; and major e-​commerce multibrand luxury retail platforms such as the groundbreaking Net-​a-​Porter (founded in 2000), and Farfetch (founded in 2008) (Heine and Berghaus 2014; Kapferer 2015b; Okonkwo 2010). The exponential increase of online consumer purchasing via platforms such as that of giant retailer Amazon (now also competing in the clothing and luxury sectors) has had a major disruptive impact on all levels and sectors of retail, enforcing the reexamination of previous business models, with major implications for luxury businesses. The emergence of online-​only players in the fashion arena, pioneered by entrepreneur Natalie Massenet’s luxury fashion platform Net-​a-​Porter, designer fashion off-​season marketplace YooX, and mainstream fashion platform ASOS (all founded in 2000), have had a significant impact on the fashion sector. Since then, multibrand fashion e-​commerce continued to expand: For example, Zalando was founded in 2008, and in 2015 Net-​a-​ Porter merged with YooX. The luxury sector needed to find ways to enter this growing online marketplace. To enable its luxury brands to compete online, conglomerate Kering partnered with YooX between 2012 and 2018, at which point Richemont acquired the YooX Net-​a-​Porter group and Kering took its e-​commerce sales in-​house1. High-​ profile store closures in both the middle-​and high-​end fashion and retail markets (such as House of Fraser and Debenhams2 department stores across the UK and Henri Bendel and Barneys in the United States3) bear witness to changing economic conditions and the major digital shift to online retail channels4. Overlaid on these developments, the 2020 coronavirus crisis has greatly accelerated the underlying trends to online and omnichannel retail for all sectors and particularly luxury, set to represent 30 percent of luxury sales by 2025 (Bain 2020c; Business of Fashion and McKinsey 2020b). The global collapse of normal commerce, travel, and working patterns had a major impact on retail sales, especially in fashion and personal luxury goods (which had previously continued to increase in market share), forcing retail operations to prioritise moving to online services and e-​commerce fulfilment. Further retail casualties ensued, including the closure of legacy department store branches of Neiman Marcus5, Macy’s6, and Lord & Taylor7 in the United States. The fashion industry at its core deals in physical products, but the continuing growth in production and consumption is widely recognised as unsustainable. The global clothing and footwear industry was worth $1.9 trillion in 2019, and then predicted to continue growing at approximately 5  percent per annum (Global Fashion Agenda et  al. 2019). The extent to which the severe and prolonged disruption caused by the

Digital Luxury: Towards a Sustainable Future?    593 coronavirus pandemic will permanently change the fashion industry and the entire luxury sector is yet to be revealed. In this rapidly changing context, this chapter first considers key aspects of the digital shift in the luxury sector including the dissemination of luxury fashion via the Internet and social media and the impact on luxury fashion business. Second, the advent of digital marketing, personalized products, and experiential technologies are discussed and illustrated with examples of current businesses innovating within digital luxury, particularly in the context of sustainability. These examples point to the potential for key contributions and leadership in sustainability from the luxury sector, which was slow to explicitly acknowledge and act upon these increasingly urgent issues (Bendell and Kleanthous 2007; Kapferer and Michaut 2014, 2015). Finally, the chapter raises key questions for the sector that remain to be addressed.

Digital Evolution and the Digital Shift Despite global financial and political volatility even before the coronavirus pandemic, the fashion sector had continued to show growth overall (estimated at 3.5–​4.5  percent for 2019), with the strongest performance in the premium and luxury segments, according to The State of Fashion 2019 report (The Business of Fashion and McKinsey 2018). Financial services organisation Deloitte tracks the annual performance of the top 100 luxury goods companies operating globally in the fashion-​related areas of clothing and footwear, bags and accessories, jewellery and watches, plus cosmetics and fragrances. Their 2019 report states these companies generated aggregated revenues of $247 billion in the financial year 2017/​2018, an increase of $30 billion on the previous year (Deloitte 2019), an increase that continued to $281 billion for 2019 (Deloitte 2020). However, The State of Fashion 2020 Coronavirus Update (The Business of Fashion and McKinsey 2020a) predicted the coronavirus crisis to cause a massive contraction in the personal luxury goods industry of 35–​39 percent for 2020. By November 2020, industry analysts Bain noted an actual contraction of 23 percent in personal luxury goods, and a similar drop in sales in the overall luxury industry, the first fall since 2009 (Bain 2020b). Both organisations predict a slow return to growth over the following years, based on underlying resilience of the luxury sector (as seen after the 2008 financial crisis) and a strong market recovery in China, and identify the COVID-​19 crisis as a major catalyst for the sector’s digital shift. The fashion industry, always known for seeking out new ideas, was surprisingly late in some areas of digital development, especially production and retailing, compared to other sectors. The fashion and clothing sector is still one of the last major craft-​based industries, reliant for garment construction on skillful people around the globe operating manual sewing machinery. Fashion manufacturing and production are far from

594   Sandy Black being universally automated, a fact often exploited by marketing in the luxury fashion sector as synonymous with ‘craftsmanship’, promoting the notion of goods made completely by hand rather than with the assistance of machinery. For example, Louis Vuitton ran a marketing campaign in 2010 under the title ‘Savoir Faire’ showing craftsmen and -​women making goods by hand, which was criticised and partially banned by the Advertising Standards Authority for misleading consumers by romanticising its mainstream practices (Roberts 2018). Sociologist Agnès Rocamora analyses the case of Louis Vuitton’s website promotional material to identify how its consumer message is constructed, often by omission: ‘not only do Vuitton draw a veil over the processes of production such as automatisation, they also put a veil over the geography of production of goods’ (Rocamora 2016: 208). Initially, the luxury goods sector was highly cautious regarding the new digital business landscape and the rise of e-​commerce and took some time to adapt its strategies and develop online presence (Exane BNP Paribas 2014; Heine and Berghaus 2014; Okonkwo 2009). At first, it appeared that the intrinsic values traditionally promoted in respect to luxury fashion products—​such as exclusivity, quality materials, heritage, and craftsmanship together with a sophisticated physical retail environment and personal service—​were incompatible with the digital on-​screen sales environment, which could be viewed as more ‘down-​market’. Luxury brands in general have since embraced the online environment as a key communication tool, with highly curated visual content, and continued to expand their digital presence by use of social media channels for consumer engagement and marketing, despite the inevitable relinquishing of control that user-​generated content platforms represent. Amongst thirty luxury fashion brands compared in the 2014 Exane BNP Paribas report, Burberry was shown to be the global leader in digital luxury for its e-​commerce reach; Louis Vuitton and Gucci were making rapid progress particularly in customer experience. Companies made senior appointments specifically to digital strategy (including Louis Vuitton in 2015), in order to implement activities to develop online presence and stimulate sales, including through collaboration with online sales platforms such as YooX. Luxury brands continued to develop their digital strategies and the 2016 Exane BNP Paribas report showed Burberry maintaining its clear lead, with Louis Vuitton, Ralph Lauren and Gucci also front runners in customer experience and satisfaction with the brands’ e-​commerce and digital channels, both online and via social media. Now, as Industry 4.0 starts to take hold and become more mainstream, development of new technologies comprising virtual, augmented, and mixed reality, perhaps the 3D digital experience is the next frontier for luxury. The first fashion forays into digital experiences were seen with the expansion of promotional activities from print and fashion magazines into the online environment. Through the rise of social media, communication channels increased and moved from text (as on Twitter, founded 2006)  to static images (Facebook founded 2004–​2006, Pinterest and Instagram both founded 2010)  and then embraced the use of moving image in film, made highly accessible by digital technology and platforms such as YouTube (founded 2005) and Instagram Stories (2016). Especially significant was the

Digital Luxury: Towards a Sustainable Future?    595 arrival in 2000 of the SHOWstudio website, set up by fashion photographer Nick Knight with designer/​artist Peter Saville to showcase still and moving imagery in high-​level designer fashions. This innovative website helped to establish a new twenty-​first-​century interpretation of the ‘fashion film’ genre for the digital age—​part commercial advertising and part artistic expression. Theorist John Armitage notes this merging of art and commerce in visual and cultural representations as fashion’s ‘cultural deployment of the resources of art and photography, cinema, television, and social media’ (Armitage 2020: 21). Luxury brands, often eager to embrace opportunities for affiliation to arts and culture (and with their ample marketing budgets), soon took advantage of the digital fashion film genre. Film writer Marketa Uhlirova (2013) asserted ‘together with email, websites, e-​commerce, social media, blogging, live streaming and other dynamic forms of digital communication and exchange, the fashion film has already reshaped the industry in more than one way, and this transition is still very much ongoing’ (Uhlirova 2013: 118). According to Nathalie Khan (2012: 248) ‘The digital image has no natural end, but instead offers permanent presence.  . . .  It is fashion’s relationship with time that is altered through digital media’. This relates to Armitage’s concept of the ‘presence of the now’ in an expanding world of luxury enjoyment, where ‘we increasingly live in a luxury brand-​dominated culture of visual representations produced by contemporary fashion designers and contemporary artists, from Chanel haute couture  . . .  to BMW cars’ (Armitage 2020:  23). Moreover, Armitage characterises contemporary ‘visual consumers’ as participants who are ‘cultured people who perceive, notice, or see, for example, a contemporary Dolce & Gabbana luxury-​branded visual representation not as an indifferent viewer or spectator but as a likely or genuine consumer’ (2020: 21). The moving image is now clearly a powerful force in fashion marketing. Over recent years, many brands such as Bottega Veneta, Louis Vuitton, Chanel, and Prada have regularly produced short fashion films to promote their products and collections, some made by well-​known cinema directors, and disseminated via YouTube8. This resonates with Roberts and Armitage’s concept of ‘the third realm’ of luxury, that combines real places with imaginary spaces, offering luxury businesses ‘the opportunity to leverage customers’ imaginations to extend the demand for luxury goods and services that are invested with real-​imaginary qualities to near limitless proportions” (Roberts and Armitage 2019: 1). A further disruptive shift in the presentation of fashion came with the advent of live streaming of fashion catwalk shows online, instantly reaching a global audience, and democratising access to high fashion for all; previously, of course, the exclusive fashion system meant that catwalk shows of new designs were unveiled only to a privileged group of fashion buyers, media, and insiders, and reporting was print-​based, in newspapers, and in fashion magazines only after the fact. Burberry was the first luxury brand to adopt this new technology for fashion through the digital live streaming of its February 2010 show, to connect directly to invited customers worldwide—​also enabling anyone (including competitors) to view online. Importantly, they also experimented with selling a capsule collection direct from the catwalk to consumers, rather than exclusively to wholesale buyers. Both Burberry in the UK and Tommy Hilfiger in the

596   Sandy Black United States were pioneers in this ‘see now buy now’ concept, disrupting the usual biannual autumn/​winter or spring/​summer seasonal fashion calendar—​which as a wholesale operation is always presented six months ahead of the intended season and therefore out of synch with the actual calendar. However, such experiments have yet to become the norm, although demand for change to the traditional fashion calendar is growing. In May 2020, a group of luxury fashion brands and stores including Dries van Noten, Gabriela Hearst, Connolly, Missoni, Selfridges, and Lane Crawford proposed a new, more ‘in season’ fashion calendar to transform the fashion cycle and, importantly, reduce markdowns and waste.9 The significant disruptive changes in retailing due to the speeding up and proliferation of fashion cycles through fast fashion helped to trigger the democratisation of luxury through consumer demand for lower-​priced and more accessible products. These have come to define a ‘new luxury’ and a phenomenon known as mass prestige or ‘masstige’ in which luxury brands may target a broader market for volume sales of entry-​level products or offer prestige and quality at prices commanding a premium over conventional products but well below classic luxury price points. Typical masstige brands might be Coach or Victoria’s Secret, whereas luxury crystals house Swarovski has offered entry-​level products at very low prices. In the mass market, high-​end designer collaborations, for example, Karl Lagerfeld with H&M or Louis Vuitton with street-​wear brand Supreme, have created successful limited edition collections at prices similar to the mainstream brand’s market offer (Kapferer and Bastien 2009; Kapferer and Bastien 2012; Silverstein & Fiske 2003; Truong, McColl, and Kitchen, 2009). Younger customers (Millennials and Generation Z) are also attracted by classic premium products, such as Stan Smith trainers by Adidas or Levi’s 501 jeans which can be considered masstige, a demographic that responds well to engagement marketing through social media (Loureiro, Maximiano, and Panchapakesan 2018). The luxury industry now has to consciously differentiate itself from the blurring of categories such as fashion, premium, and prestige goods (Kapferer 2015a:  7). As Featherstone (2016:  120) notes, there are pitfalls for the luxury brand houses: ‘catering for the democratization of luxury through more affordable brands, may well undermine their hard won reputation for high craftsmanship, artistic creativity and exclusiveness’. Attention has consequently turned to an expanded field of luxury, encompassing luxury physical experiences in addition to physical products, such as exclusively priced boutique hotels and spas, exotic travel, and adventure. It is possible to speculate that embracing digital technologies for new virtual and mixed reality experiences may enter the realm of digital luxury to vicariously offer similar encounters that may be beyond the financial reach of certain consumers.

The Business of Luxury Fashion The luxury fashion industry continues to be dominated by key French names such as Chanel, Vuitton, Dior, Saint Laurent, and Cartier, plus Italian houses including Gucci,

Digital Luxury: Towards a Sustainable Future?    597 Bottega Veneta, and Prada. Four major conglomerates—​LVMH, Kering, Richemont, and Puig—​now own thirty-​two personal luxury brands, representing around 22 percent of this market (Deloitte 2020). Accessories and brand extensions including jewellery, bags, footwear, perfume, and watches have been key to the expansion and globalisation of luxury markets. The luxury industry, whilst on the one hand promoting aspirational goods of rarity and exclusivity, on the other aims for profitable business through increasing sales (Kapferer 2012). To reconcile these apparently contradictory objectives, business growth has been achieved through physical retail expansion from a largely European base into new geographical markets, notably in Asia. Luxury fashion businesses have focused on developing their market in countries with rapidly growing aspirational middle-​class consumers—​countries such as China, Brazil, Russia, South Korea, India, and United Arab Emirates. Many consumers in these countries are high users of online purchasing tools and social media, and they expect to build a relationship with brands online. The Chinese e-​commerce platform Alibaba, and its Tmall Luxury Pavilion, has become an important gateway to the luxury market in China, achieved through Alibaba’s partnership with Richemont since 2018 (Reuters 2018).

Marketing and Social Media Strategies Questions about the redefinition and democratisation of luxury fashion have been debated with increasing frequency, and the concept of ‘new luxury’ has emerged (Featherstone 2014), as discussed above. As sites such as Facebook, Twitter, and Instagram grew in importance in the twenty-​first century, research has developed into the potential impact of online sales and marketing strategies for the use of social media marketing in the luxury space. According to Kontu and Vecchi (2014: 237), ‘the emergence of social media has not only transformed the media environment and businesses but also altered the relationship between organizations and the consumer’. Although many major luxury brands were slow to recognise the relevance and importance of social media in engaging with existing and potential consumers (Heine and Berghaus 2014), much literature has emerged on how to understand the relationship of the social media user to the brand and implement social media marketing strategies to engender emotional engagement (Gautam & Sharma 2017; Loureiro, Maximiano, and Panchapakesan 2018). Frameworks and strategies to capitalize on these new opportunities have been proposed by Kim and Ko (2010, 2012), Chu, Kamal, and Kim (2013), and Dhaoui (2014). Special issues of business journals began to appear, for example, the Journal of Business Research on fashion marketing and consumption of luxury brands in 2012; the Journal of Fashion Marketing and Management on luxury in 2013 and 2014; and the Journal of Global Fashion Marketing on social media marketing in 2014. As a digital pioneer, Burberry was the subject of a detailed case study by Phan, Thomas, and Heine (2011), and the company is included in an analysis by Kontu and Vecchi (2014) of Facebook traffic in three luxury and premium brands. Kontu (2015)

598   Sandy Black offers three further case studies of premium brands that had recently implemented social media strategies giving insights into the uncertainties in the industry as social media continuously evolves. In the emergent era of ubiquitous artificial intelligence and ‘the Internet of Things’ (where all types of electronic devices and electrical appliances are connected to a smart grid via digital hubs, and controllable remotely), we can speculate on the digital future of luxury and its congruence with the traditional attributes of luxury goods. The notions of quality, craftsmanship, and the handmade (also traits of potential future heirlooms) are still major marketing factors. Therefore, how can this be applied to the concept of digital luxury?

Luxury Vintage and Resale Markets Recent years have shown increasing consumer interest in and steady growth of the luxury ‘vintage’ and preowned fashion and accessories market, initially validated through celebrity endorsement—​for example, vintage Valentino couture worn at the Oscars award ceremony by Julia Roberts in 2001. In order to meet the new demand for unique and affordable quality luxury preowned goods, online consumer resale or consignment platforms such as Vestiaire Collective and Watchfinder in Europe and The RealReal in the United States were established in 2009, 2003, and 2011, respectively. This sector continues to grow as more premium and luxury brands take part in re-​commerce (including taking back gently used items and reselling them), either in brands’ own stores (e.g., Eileen Fisher) or via resale platforms. The contemporary concept of resale has been successful in abolishing the stigma of ‘second-​hand’ or ‘thrift’ purchases and replacing these notions with the environmental benefits of prolonging the active lifespan of quality luxury fashion and accessories, preventing goods from entering landfill, and—​ ideally—​replacing the purchase of new products. Such new digital marketplaces provide luxury goods at a more affordable price but are prone to concerns about authenticity and counterfeiting, despite the platforms having their own processes for authentication. In parallel developments, there has also been a strong growth in different collaborative consumption models from peer-​to-​peer sharing and selling (Poshmark, ThredUp, DePop) to luxury rental via online platforms such as Rent the Runway. According to a report by ThredUp, the resale market is predicted to overtake the growth of new fashion retail. (ThredUp and GlobalData 2020. Indeed, as a result of the widespread coronavirus pandemic lockdowns, resale activity accelerated dramatically as more people sought to monetise their wardrobes from home via digital platforms.

Luxury and Sustainability Kapferer and Michaut (2014, 2015) researched consumer perceptions asking to what extent luxury is compatible with sustainability. Their findings show that luxury consumption is hedonistic and customers (researched in Asia and France) do not think of sustainability agendas as incompatible but rely on the reputation of the brand to take care of such issues.

Digital Luxury: Towards a Sustainable Future?    599 Kapferer (2015a: 36) in On Luxury sums up the attitudes of affluent consumers: ‘Buying luxury is a parenthesis of pleasure: one does not want to obscure this moment with rational or negative considerations about the fate of the planet, suffering animals, children working in factories, or excessive waste. To protect their pleasure they opt for willful ignorance.’ Many positive attributes of luxury goods are broadly aligned with general sustainability values—​high-​quality materials and manufacture plus enduring aesthetic qualities and imparting longevity and heritage value—​but the luxury goods industry plays a significant part in fashion’s now endemic system of overproduction and overconsumption. Armitage and Roberts (2016: 2) note that ‘luxury comes not only at a price but also at an environmental cost, as when animals are driven almost to extinction merely for luxury accessories such as handbags and shoes’. Pioneering small businesses and key mass market players have championed sustainability initiatives (Black 2008, 2012; Fletcher 2008, Fletcher and Grose 2012), but the luxury fashion sector overall has only relatively recently taken concerted action towards mitigation of impacts, partly due to fears of reputational damage in this sensitive area (Black 2012; Jay 2012). For example, the Kering Group, owners of brands including Gucci, Balenciaga, Alexander McQueen, and formerly Stella McCartney (now affiliated with LVMH), has gained recognition as a sector leader on sustainability, particularly for publication in 2015 of its environmental profit and loss accounting process. At the 2019 Copenhagen Fashion Summit, Kering’s CEO François-​Henri Pinault announced targets to reduce their carbon emissions and environmental impact by 40  percent by 2025. Pinault then led the development of the Fashion Pact, announced at the 2019 G7 summit in France, with thirty-​two global fashion companies, its membership now doubled10. Stella McCartney is the luxury fashion label most explicitly known for its ethical and sustainable stance, particularly regarding materials, such as rejecting fur and leather. By taking a minority stake in Stella McCartney in 2019, LVMH continued to enhance its sustainability credentials through acquisition. Ten years earlier, LVMH bought a 49 percent stake in ethical fashion brand Edun, founded by Ali Hewson, wife of rock star Bono. This boosted LVMH’s ethical fashion stance, with Bono and Hewson featuring in a high-​profile Louis Vuitton advertising campaign ‘Core Values’ in 2010 (Black 2012: 34). Due to the conflation of environmental issues and the coronavirus pandemic, consumer priorities are changing fast, and new, more responsible ways to experience and enjoy luxury must be found. Digitalization can play a major new role in the experience of luxury to build pathways to a more sustainable future. In the following section, examples are presented of areas where digital aspects of fashion combine with luxury to offer new concepts of digital luxury and new relationships with clothes.

Personalisation and Bespoke Services Based on current trends, we can foresee a future of virtual try-​on of garments before online or physical purchase, and an increase in personalisation and customisation services for clothing. Of course, bespoke services such as individual made-​to-​measure and

600   Sandy Black fitting of suits exemplified by London’s Savile Row tailoring have long been a hallmark of luxury and personal service. The slow handmade process of personal measurement, construction, and fitting has become iconic. Although previously commonplace, local dressmakers and tailors have become rare in the UK; however, tailoring skills and made-​ to-​order services are still widespread in many countries, particularly in Asia. Customer satisfaction from such a unique product is paramount, and the emotional engagement with the bespoke service engenders a strong and long-​lasting relationship with the product. This bond would inevitably be lost in a transition to an online screen-​based environment for all or part of such a service, and becomes a challenge for the luxury sector. The question remains as to how digital technology might facilitate this transition into a more experiential realm. In the broader luxury sector, products such as car interiors are individually specified to customer preferences. Personal luxury brands such as Louis Vuitton and Goyard have for some time offered a simple but effective first-​level personalisation service where a purchase can be stamped or hand painted with initials, thereby increasing engagement with the product and declaring ownership. In order to satisfy an increasingly discerning and design-​aware consumer looking for individuation in their choices of fashionable products, the concept of customisation in clothing has developed strongly in the last two decades, with demand for more personalised products forecast to continue rising. For example, since 2016 Gucci has offered a personalisation service, Gucci DIY, across a range of products including bags and elaborately embroidered jackets; Hermès now offers Hermès Sur-​Mesure, a complete bespoke service to create any desired object (Chatikavanij 2019). In response to technological advances, a new business model is emerging where production of clothing is ‘on demand’ rather than speculative, and tailored to individual preferences and measurements. The advent of online systems for purchase of personalised products has seen most success in the premium-​branded sportswear market, where customisable NikeiD and Miadidas trainers were first promoted in 1999 and 2000, respectively, and personalisation continues to be available in a proportion of the brands’ product offering (Black et al. 2010). More recently, in 2016, Unmade’s customised knitwear, made individually on demand, started to realise the long-​heralded concept of ‘mass customisation’11 posited in the 1990s by Joseph Pine (1993) as a ‘new frontier’ for business. A combination of technological and commercial factors has meant that the promise of widespread mass customisation has not yet come to fruition beyond simple personalisation with names or initials. There is still great potential for more customer engagement through a process of online co-​creation. This was foregrounded some time ago as Piller and Müller (2004) stressed the importance of customers’ wants—​stating they are not buying individuality but purchasing a product that fits exactly to their needs and desires. This echoes Pine’s view that customers ‘don’t want choice. They want exactly what they want’ (1993: 14). Interactive digital platforms can make these changes possible by satisfying customer needs in innovative ways enabled by technology, creatively applied. Current research promises to develop systems that can fulfil these needs seamlessly, as discussed in the cases in the next sections.

Digital Luxury: Towards a Sustainable Future?    601

Unmade An innovative and pioneering customisation service for the digital design and production of knitwear was developed in 2013 by the London-​based company Unmade, utilising standard industrial manufacturing systems for potential mass customisation (Black 2019). In a rapidly developing technological landscape, Unmade has demonstrated the validity of an on-​demand model, at the same time evolving its own business model from fulfilling direct-​to-​consumer made to order production to a business-​to-​business service company. Unmade is now a fashion software-​as-​a-​service company, driving innovation through customisation and delivering an end-​to-​end digital solution for on-​demand production at scale. Their innovative software developments link digital production technologies such as industrial knitting and digital printing with design templates for production achieving large volume efficiencies in small batches as well as the capability for individually customised products. Unmade now works with major fashion, lifestyle, and sportswear brands such as Opening Ceremony and Rapha and manufacturers such as Johnstons of Elgin to foster a new level of customer experience through customisation. The business started with a desire to reimagine both the design and manufacturing processes within the fashion industry using digital solutions, so brands only make what is actually sold, resulting in minimal waste. Unmade aims to move the industry to pure on-​demand on a mass scale, from a model of design-​make-​sell to design-​sell-​make. The founders believe consumer-​driven production can drive sustainability and create more meaningful products that will be kept and worn for longer. According to co-​founder Ben Alun-​Jones, clients reported Unmade customised sweaters as their favourite garments12.

Digital Fashion Experiences—​New Relationships with Clothes Smart Experiential Clothing by Cute Circuit Turning to a different aspect of digital technology applied to clothing using electronic functionality, wearable technology has been the subject of ongoing research for decades, but from the perspective of engineering and technology ‘push’ that increases functionality but lacks design and material aesthetic. In contrast to the early days in the1980s when computer hardware was simply distributed around the body, a new design-​led collaborative approach to integrating technology has now emerged. The goal is to make embedded technology fashionable and increase hedonistic delight through the ability of smart clothing to change its appearance as desired. Novel, fashionable, and functional products are beginning to come to commercial readiness. The pioneering company Cute Circuit (fashion designer Francesca Rosella and interaction designer Ryan Gentz) have over fifteen years developed their own patented

602   Sandy Black circuitry, controllers, and software systems for digital integration into expressive and responsive fashion and clothing. These have revolved around two key areas: (a) the use of LED arrays that can be programmed with changing images and words, or light up in response to movement; and (b) the transmission of signals through vibrations in response to sensory stimulation from touch and sound (Black 2010). Sustainability is embedded, as Cute Circuit design all their products for disassembly so items can be returned, and electronic components removed and reused by the company, avoiding the creation of new waste streams in the pursuit of pleasure13. Through digital and wireless integration, the company creates luxury couture pieces with changing, programmable LED displays controlled from a smartphone by the wearer (Figure 28.1); bespoke outfits designed for performers and celebrities; tee shirts that create light displays through movement and dance, and museum exhibits14. An interactive gold-​plated mirrored handbag that can be programmed with messages via CuteCircuit’s Q app (Figure 28.2) attracted much attention, leading to a collaboration with Chanel to produce nine interactive handbag designs for Chanel’s Spring/​Summer 2017 collection. Cute Circuit created their award-​winning ‘Hug Shirt’ in 2005 and recently developed their ‘Sound Shirt’ system enabling deaf people and others to experience music through vibrations on the body15. This foregrounds the potential of technology to enable emotional connection to both experiences and to others remotely, particularly pertinent in times of crisis such as the pandemic. Such interactive functionality points towards future digital luxury clothing and accessories that can change their aesthetics on demand, providing experiences and the

Figure 28.1  CuteCircuit The Eiza Dress, Pink and Black Haute Couture. Photo courtesy of CuteCircuit.

Digital Luxury: Towards a Sustainable Future?    603 novelty and pleasure luxury consumers desire (Kapferer, Kernstock, Brexendorf and Powell, eds. 2017) but with fewer purchases.

Virtual Clothing In the digital age, online presence and the curation of an individual identity have become highly significant activities particularly through channels such as Facebook and Instagram. A new culture of fashion has developed in this online space, particularly on Instagram, in which people regularly upload images of themselves, and often prefer not to be seen in the same outfit more than once. Instagrammers with a significantly high number of followers have become known as ‘influencers’ and many have been able to monetise their following via substantial relationships with brands. In a further recent development, the phenomenon of entirely virtual influencers has been demonstrated to be just as effective as real influencers in the online space, although these are clearly underpinned by real-​life businesspeople. For example, the virtual character Lil Miquela has 1.5 million followers and black model Shudu is one of three ethnically diverse characters created for Balmain by British artist Cameron-​James Wilson; there is now a model agency for virtual influencers.16 Digital avatars and characters have been crucial to the development and success of the video and computer gaming industry, as well as the film industry, leading much of the research in the field of cloth simulation and 3D computer-​generated imagery over the last thirty years, which has now reached a high level of maturity. Gaming culture has grown rapidly, and some games now have massive audiences worldwide (e.g., the Sims game is said to have 250 million users worldwide). The practice of players creating digital ‘skins’ for their avatars—​which are a paid-​for digital commodity in the virtual world—​has become commonplace as a key element in players creating their own individual identity within the game, where anything is possible. Building on this fantasy element of gaming, some luxury brands have experimented in connecting with the genre for marketing purposes. Researcher in 3D technology Thomas Makryniotis (2018) outlines some of the encounters between fashion brands and gaming in his study of costume and fashion in games, for example, when Louis Vuitton utilised the Final Fantasy character Lightning as the face of their S/​S 2016 campaign17. As Makryniotis points out, the question remains open to what extent this integration between luxury brands and gaming will develop further, ‘to see Louis Vuitton or Prada items in the next Final Fantasy game?’ (2018: 113) enabling access to a digital luxury brand world for a different and younger audience. Digital technology is key to new forms of marketing, as the digital and the physical begin to draw closer together. Two major components of the fourth industrial revolution, virtual reality (VR), which is an immersive experience into another world, and augmented reality (AR), in which digital elements (filters) are overlaid onto the real-​ world experience, are forecast to grow significantly. There is, however, no certainty as to how soon this will be achieved, until perhaps the technology required (currently bulky headsets) becomes nonintrusive and seamlessly fits into everyday lifestyles. Currently,

604   Sandy Black

Figure 28.2  CuteCircuit Mirror Handbag. Photo by Theodoros Chliapas. Courtesy of CuteCircuit

Instagram Stories uses an accessible form of AR for a fun interactive experience using just the camera on mobile phones, where its facial filters (such as puppy-​dog ears) can be overlaid onto self-​portraits (selfies). In late 2018, a small number of celebrities and cosmetics brands were invited by Instagram to collaborate and Gucci Beauty was quick to participate, creating filters featuring ornate baroque-​style wigs to showcase Gucci products such as earrings and lipstick (Chacon 2018). Other luxury brands followed suit18. These interactive branded experiences are accessed by first following the brand, and when the image is shared, it also spreads the brand message in an effective and engaging manner. The extent to which this market penetration translates into product purchases is as yet unclear, although there are many studies investigating the effect of social media reviews, electronic word of mouth, and influencers on consumer purchase intentions (e.g., Arora and Sani 2019; Dennison and Montecchi 2017; Erkan and Evans 2016; Pentina et al. 2018). This bridging between the two aspects of physical spaces and digital places—​termed the ‘phygital’—​has been posited in marketing since 2013 (Batat 2019:134). Initially,

Digital Luxury: Towards a Sustainable Future?    605 digitalisation aimed to transpose physical functions into digital entities, but now, as discussed above, the digital is increasingly revealing itself in the real world (Batat 2019). Successful examples have manifested as in-​store retail experiences, in particular in visualisation of cosmetic products using ‘magic mirror’ technologies that allow the customer to virtually ‘try on’ products before purchase (Javornik et al. 2016). Sephora was a leader in this field, with others including Estée Lauder and Lâncome installing similar technology (Dekimpe, Geyskens, and Gielens 2020). The expansion of such phygital experiences to other personal products and clothing is still emerging but has the potential to create a true paradigm shift in retail experience as indicated by the examples below, In terms of purely digital consumption of luxury, there are early indications that virtual clothing may have a tangible future. Given the regular purchase and use of digital skins and facial filters in games and social media, the potential for monetising this in fashion has already been demonstrated. In May 2019, a digital couture garment created by Dutch start-​up The Fabricant, a self-​styled ‘digital fashion house’, was auctioned for $9,500 on the blockchain cryptocurrency platform as a digital collectible (Mowatt 2019). In Summer 2019, the creative agency Virtue developed a capsule digital-​only clothing range for Scandinavian casual wear brand Carlings. The innovative concept was designed to promote the launch of Carlings e-​commerce site, which as a later entrant to the online market place was designed to attract a new audience demographic and create a ‘marketing moment’. For a limited time, Carlings provided a new service: for digital purchases priced between 10 and 30 Euros, customers could upload a photo, were ‘dressed’ virtually by a 3D designer, and then shared their new image on Instagram, wearing, for example, a metallic ‘puffa’ jacket. Carlings made explicit in their terms of sale that no physical item would be received and no refunds were possible. The company has not to date followed up on this initiative, which remains an individual marketing event, perhaps due to its relatively high cost to service—​according to new digital fashion brand Tribute, each virtual clothing image takes three to five hours to manipulate and complete (Allaire 2020). Change of Paradigm is a digital research and development company working with 3D garment simulation, aiming to develop immersive and entertaining digital experiences for luxury fashion e-​commerce by integrating proprietary fabric simulation with technologies from film and gaming. They initially experimented with a direct-​to-​ consumer designer fashion business model where garment designs were simulated and visualized online in 3D motion, and the partner fashion businesses would make only what has been ordered (Black 2019). This preorder model is still an aspiration for a small part of the business but now Change of Paradigm has reoriented itself as a business-​ to-​business company. They are collaborating with partners to provide 3D garment content and create applications for virtual, augmented, mixed, and holographic reality, developing interactive experiences for (near) future fashion retail and e-​commerce. This anticipates that the consumer will be able to interact and customise the size and fit of garments and participate in a virtual try-​on experience before purchase, utilising Change of Paradigm’s powerful CGI 3D simulation technology. Their technology is also being applied in collaboration with games manufacturers for digital avatars’ clothing

606   Sandy Black content creation for social media use and in the museum sector to recreate historical fashion garments. In CEO Henri Mura’s view, 3D digital simulation is a crucial enabler of new business models including pre-​order and mass customisation19. Visually, the technology is very convincing, but the question arises whether the experience will provide sufficient engagement and emotional satisfaction to attract luxury consumers.

Concluding Thoughts From the perspective of marketing, it is clear that the power of social media and especially Instagram is now being harnessed by many luxury fashion brands, which were cautious in experimenting with entering this space. They are now targeting a new younger and global demographic beyond the ‘baby boomer’ generation (Millennials and Generation Z) as consumers of ‘new luxury’. Since the advent of photography, the fashion image developed into a powerful medium for communication and marketing, mainly through the printed media, and was carefully controlled by luxury brands which would monitor every context in which the brand’s image appeared. The editors of important fashion magazines became highly powerful and functioned as gatekeepers for the public consumption of fashion. The former dominance of the still fashion image is challenged by the increased use of moving image (Rees-​Roberts 2019). However, imagery and self-​visualisation through the digital realm is now in the hands of users through social media platforms and games, predominantly using mobile phones. The fluidity and ubiquity of the digital image shared on social media have resulted in a complete loss of control of the context in which a luxury brand’s images are seen and consumed. The brand has become more amorphous, having to relinquish control over digital content, in order to engage and invite the new consumers into its brand world. The rise of the moving image in advertising, now ubiquitous through the proliferation of digital screens in public spaces, capitalises on the human brain’s tremendous receptivity to 3D simulation and motion as a persuasive frontier for marketing and consumption. Connecting the 3D worlds and CGI in films and gaming with fashion is being explored by a small number of pioneer fashion brands. The power of the 3D and immersive experience enabled through digital technology is anticipated by current research and leaders in the sector, but has yet to be realised, as the fashion and luxury industries are in a period of rapid development and major transition, accelerated by the consequences of the COVID-​19 pandemic.

Sustainable Digital Luxury? One of the consequences of the shift from physical to digital could be a net sustainability benefit where fewer, but more personalised or adaptable, physical products are produced that provide emotional and tangible benefits to the consumer, prolonging

Digital Luxury: Towards a Sustainable Future?    607 engagement. Research is needed to validate this concept, but initial anecdotal evidence is encouraging (see the section “Unmade”). Rather than simply persuading consumers to buy more, causing more goods to be produced and resources consumed, it is worth speculating how digital technology might facilitate sustainability through a number of avenues: 1. Will consumers find emotional satisfaction in the virtual consumption of fashion in the context of social interactions, as demonstrated by the Carlings retail experiment and the Iridescence dress by The Fabricant, and the use of digital clothing for avatars in games? Could the gamification of fashion produce an equivalent experience of luxury or premium fashion through intangible means—​even though devoid of some sensory aspects such as touch and embodiment? 2. Can the real potential of personalisation—​to provide what the customer really wants—​be fully realised in a digital system that allows co-​creation and visualises fit before any purchase? The potential has already been demonstrated first in luxury bespoke and personal services and second in more mainstream markets via online customisation by selection of modular variations, which are then made to order. Will made-​on-​demand and one-​off production enable reduction in purchases overall through greater satisfaction and retention? 3. Can interactive and smart clothing enabled by digital technology provide new luxury experiences which will stand the test of time and create new personal pleasures each time they are worn? Can novelty and longevity be reconciled through such means? It remains to be seen whether the experience of luxury and fashion in the digital realm can emotionally satisfy hedonistic desires and needs to the same level as physically experiencing products. It is yet unclear whether digital 3D immersive technology can match the physical, aesthetic, and cultural luxury experience of product and place that enables the consumer to, as Kapferer puts it, ‘engage in unique, rare, emotional and meaningful experiences anywhere in the world’ (Kapferer 2015a:14). Research is required to investigate if reduced physical consumption and increased digital consumption of luxury experiences can provide similar rewards. Loureiro et al.’s study on social media engagement found that ‘On the contrary to the altruistic pursuits such as environmental activism and corporate social responsibility, which improve the brand perceptions, luxury brand consumers’ personal Subjective Well Being is associated with the favourable and unique experiences provided by luxury brands, which are private phenomena’ (2018:  319). This highlights the complexity of predicting customer behaviours and embedding sustainability issues, and that pleasure is a key motivator that is revealed through use of luxury goods and experiences. Perhaps a new combination of both virtual and physical aspects (phygital experiences) will provide the same fulfilment when technology is completely integrated. The question of consumption of resources to provide such digital services needs to be further researched. The environmental impact of creating physical products that travel

608   Sandy Black around the world is quantified through classic life cycle analysis tools, and on face value, replacing some of these processes by digital technology would appear more sustainable. However, when all externalities (such as hardware and energy resources) are taken into account, this may not be so clear cut. The increasing trajectory of online luxury e-​commerce is predicted to reach 30 percent of all luxury sales by 2025 (Bain 2020b). However, the fulfilment stage of online retailing is reliant on packaging and transportation of individual items, without economies of scale (especially the ‘last mile’), and is acknowledged to produce a high level of returns as shoppers purchase multiple items for choice—​as much as 30  percent returned compared with 6–​8  percent of in-​store purchases, with up to 20 percent of returns becoming waste—​according to research by Canadian consultancy GreenStory (MacGilp 2020). Luxury is by definition based on desire rather than need or functionality. Major questions are still to be addressed in society that have implications far beyond any luxury brand marketing strategy. The continuous growth in consumption and consequent depletion of natural resources has become unsustainable as some planetary boundaries have already been breached (Steffen et al. 2015)20. However, as the global climate crisis has moved to the top of the worldwide political agenda, there is an urgent imperative for action—​beyond mitigation—​to be accelerated across all industrial sectors, not least the luxury fashion industry, which has a significant environmental and social impact (United Nations 2018). The scale of the challenges are enormous and although solutions are being sought, this requires more fundamental and radical change at all levels of society including policy, industry, and consumer behaviour. There is much to be done to reconcile prosperity and human flourishing with planetary boundaries, as set out in the United Nations Sustainable Development Goals. All scientific evidence points to the fact that limits need to be established with regard to consumerism, and the concept of post-​growth economics is now being widely debated (Jackson 2017; Raworth 2017). As early as 2007, the luxury industry was criticized for its lack of transparency in the Deeper Luxury report (Bendell and Kleanthous 2007). Although the luxury personal goods sector represents a fraction of the overall fashion-​related industries, through its commitment to investment in value, high quality, and long-​lasting products, and its healthy margins, the luxury sector has the capacity to action change and has begun to show leadership, as discussed above. Sustainability practices emerging amongst some luxury companies (e.g., Kering, Louis Vuitton, Prada, and Tiffany) were foregrounded for the first time in Deloitte’s 2019 report. Despite some notable initiatives to address the concept of sustainability and a post-​growth economy, the question is open as to whether the luxury fashion sector is doing enough, given its potential for influence with a wide consumer demographic. The onslaught of the COVID-​19 pandemic during 2020 and the forced closure of physical retail stores engendered a major acceleration to e-​commerce and online communications for all ‘nonessential’ retail operations, resulting in a massive drop in sales of fashion and luxury goods. Several luxury companies demonstrated social good by donating to charities and hospitals; LVMH pivoted its perfume production capacity to

Digital Luxury: Towards a Sustainable Future?    609 produce hand sanitizer gel (Bain 2020a). An important consequence of the pandemic is that the luxury sector’s early reluctance to embrace digitalisation and online channels has finally been overcome, and the true potential and role of digital luxury are beginning to be revealed. Through digital means, the new luxury consumer and upcoming Generation Z can be fully engaged with integrated products, experiences, and sustainability communications. The physical could be partly dematerialised to create equivalent digital and phygital experiences for pleasure, experience, and enjoyment—​a truly new form of digital luxury.

Notes 1. See Business of Fashion, 26 November 2018. https://​www.businessoffashion.com/ ​ articles/​ luxury/​ kering-​ to-​ e nd-​ yoox-​ p artnership-​ t ake-​ c ontrol-​ of-​ e -​ c ommerce-​ by -​2020#:~:text=LONDON, United Kingdom. 2. See Business Live, “Debenhams Closing Down:  All 124 UK Stores Set to Close as Department Store Chain Goes into Liquidation.” 1 December 2020. https://​www.business-​ live.co.uk/​retail-​consumer/​debenhams-​closing-​down-​124-​uk-​19377192 3. New York Post, 13 February 2020, https://​nypost.com/​2020/​02/​13/​barneys-​new-​york-​to-​ close-​all-​stores-​for-​good-​feb-​23/​; Business Insider, “More Than 9,300 Stores Are Closing in 2019 as the Retail Apocalypse Drags On—​Here’s the Full List. 23 December 2019, https://​ www.businessinsider.com/​stores-​closing-​in-​2019-​list-​2019-​3?r=US&IR=T 4. https://​eu.usatoday.com/​story/​money/​2020/​12/​30/​store-​closures-​2021-​macys-​jcpenney -​among-​vulnerable-​retailers/​3974684001 5. https://​ w ww.businessinsider.com/ ​ nemain- ​ marcus-​ and-​ l ast-​ c all-​ closing-​ stores-​ l ist -​addresses-​2020-​7?r=US&IR=T 6. https://​eu.usatoday.com/​story/​money/​2020/​02/​06/​macys-​store-​closures-​2020-​map/​ 4681959002/​ 7. https:// ​ e dition.cnn.com/​ 2 020/​ 0 8/​ 2 7/​ b usiness/ ​ l ord- ​ a nd- ​ t aylor- ​ s tore- ​ c losures -​bankruptcy/​index.html 8. See, for example, Prada’s ‘A Therapy’ (2012), directed by Roman Polanski https://​www. youtube.com/​watch?v=-​gl-​kaGumng; ‘Inside Chanel’ series available at https://​inside. chanel.com or on YouTube, e.g., Chapter  1 (of 30)  ‘No. 5’ https://​www.youtube.com/​ watch?v=61Qbd3PnQ0o; Louis Vuitton’s ‘Dear Louis’ (2018) https://​www.youtube.com/​ watch?v=txx9KWmucSM; Bottega Veneta (2016) https://​www.youtube.com/​watch?app= desktop&v=tzZLsYqfLQY. 9. See www.rewiringfashion.org 10. See full information at https://​www.kering.com/​en/​news/​the-​fashion-​pact-​first-​steps​towards-​industry-​transformation 11. Mass customisation is a system of production fulfilment that aims to offer customised products (often from a limited range) as a premium service, but crucially, at a price similar to a brand’s mass produced products (Kaplan and Haenlein 2006; Piller and Tseng 2010). 12. Ben Alun-​Jones, personal communication, 15 May 2019, who states their business clients have seen a drop in customer returns. Although research is needed for confirmation, this may indicate a more positive and long-​lasting customer relationship can be achieved with personalised products.

610   Sandy Black 13. Francesca Rosella, personal communication, 13 September 2019. 14. Celebrities include Katy Perry and Nicole Scherzinger; museum exhibits include the Galaxy Dress featuring the world’s largest LED display, on permanent display in the Museum of Science and Industry Chicago. 15. Author interview with Francesca Rosella and Ryan Gentz, 24 October 2019. 16. www.thediigitals.com 17. Seehttp://​vignette3.wikia.nocookie.net/​finalfantasy/​images/​9/​9d/​Lightning_​Louis_​Vuitton_ ​Fashion.jpg/​revision/​latest?cb=20151231002639 18. Seehttps://​www.gadgetmatch.com/​filters-​instagram-​stories-​adidas-​originals-​gucci-​beauty-​kylie​jenner-​off-​white/​ 2/​10/​18; ‘Luxury Fashion Houses from Dior to Prada are jumping on the Instagram bandwagon by creating their own augmented reality filters,’ Tatler Asia 22 May 2020, https://​sg.asiatatler.com/​style/​luxury-​fashion-​house-​instagram-​story-​ar-​filters 19. Henri Mura, personal communication, 5 April 2019. 20. See also https://​www.stockholmresilience.org/​research/​planetary-​boundaries/​planetary -​boundaries/​about-​the-​research/​the-​nine-​planetary-​boundaries

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Index

Note: Tables and figures are indicated by t and f following the page number A. Lange & Söhne, 510 Aam Aadmi Party (Common Man’s Party), 559 Abercrombie & Kent, 582 Abloh, Virgil, 319–​320, 437, 438 academic approaches to luxury critical luxury studies, 7–​8 global issues, 8–​15 historical review, 5–​7 luxury brand management, 3–​5 overview of, 3–​8 accessible luxury, 60–​61, 69, 158, 290, 299, 429, 448, 455, 476, 487, 512, 514, 517 AccorHotels, 280 Added Value China, 494 Addison, Joseph, 27 Adorno, Theodor, 41–​57 adventure luxury tourism, 579–​582 adversity and luxury, 119 advertising in the luxury business, 6–​7 aesthetics and luxury brands, 430 affordable luxury, 188, 290, 343–​344, 393, 408, 512 agency theory, 361–​363 Ahrendts, Angela, 428 AI (artificial intelligence), 142, 164 Airbnb, 586 airport luxury retail accessibility of, 389–​394, 391f, 392f, 393f airside specialty shops, 387–​389 challenges of, 394–​397 concession models in, 386–​387 duty-​free shopping, 380, 383–​387, 388t evolution of airport, 379–​382, 382f, 383t introduction to, 379 summary of, 397–​398 Airports Council International, 384

airside specialty shops, 387–​389 Alexander McQueen, 155, 309 Allende, Salvador, 560 Allied Market Research, 383 Alpine Clubs, 573 Alun-​Jones, Ben, 601 Amazon, 592 American Consumer Price Index, 98 American luxury brands, 429 American Orientalist aesthetics, 423 American Purchasing and Inventory Control Society (APICS), 129–​130 AMF (Autorité des marchés financiers), 91 Amsterdam Schiphol, 382 anatomy of luxury SCM, 134–​142, 136t, 137t, 140f Ann Demeulemeester, 279 Annual Global Licensing Industry Survey, 174 anti-​aging therapies, 142 Anti-​Corruption Foundation, 554 Anti-​Money Laundering (AML) Directive, 548–​549 anticorruption crusaders, 559–​563 anticorruption measures in China, 468 antilaws of marketing, 62 antiluxury policy in China, 447 Apple, 219 apprenticeship, 161–​162 appropriation and artistic partnerships, 317–​320 AR/​VR experiences, 142 Armani, 2, 178 Armani, Giorgio, 143, 338 Armitage, John, 595 Arnault, Bernard, 9, 70, 83, 87, 91, 143, 186–​187, 281, 453, 515

616   Index ARROW, 15 Art et Décoration, 312 Artemis, 278 artification process, 321–​322 artisanship, 152 artistic partnerships appropriation and, 317–​320 artification process, 321–​322 avant-​garde movements, 311 brand-​within-​brand partnership, 313 future of, 323–​325 introduction to, 7, 309–​310 Louis Vuitton case study, 309, 310, 311, 313–​317 luxury brand museums, 320–​323 photographers and, 312–​313, 314 story of, 310–​311 street fashion, 318–​320 understanding luxury through, 322–​323 in youthquake era, 312–​313 Asia Pacific travel retail market, 395 Asian department stores, 340–​346 ASOS platform, 464, 592 asset management, 97–​99 ASSOCHAM, 484 Association for Supply Management (ASCM), 129 A.T. Kearney’s Global Retail Development Index, 485 Atlantic slave trade, 504 Au Bonheur des Dames, 335 au courant modernity, 311, 322 Aubert, Georges, 89 augmented reality (AR), 603 Augustus the Strong, 109–​117 aura, defined, 176 Australian brand extension strategies, 250–​251 authentication of heritage brands, 283–​284 authentication tech, 142 automobile and mass tourism, 576 Autorité des Marchés Financiers, 2 avant-​garde movements, 234, 283, 311, 337, 484 Avedon, Richard, 312, 313 axiomatic status, 204   Baccarat, 64, 93 ‘back to the roots,’ 206

Badrutt, Johannes, 573–​574 Bailey, Christopher, 428 Bailey, David, 312 Bain & Co., 1, 59, 127, 345, 445, 462 Balenciaga, 314, 470 Bank of America Merrill Lynch, 96 Banyan Tree and Six Senses, 584–​585 Barbon, Nicholas, 27 basic consumer goods, 67 Bastien, Vincent, 5 Bataille, Georges, 118 Batat, Wided, 42, 49–​55 Baudrillart, Henri, 21 Baumol’s cost disease, 155 Becker, Gary, 559 Bentley, 164, 223, 304–​305 Bergeron, Louis, 10 Berkeley, Bishop, 28 Bernardaud, Frédéric, 64 Berry, Christopher J., 22, 552 Bertrand Devavry, 135 bespoke services and digital luxury, 599–​601 best practices in SCM, 145–​146 Bezos, Jeff, 9 Blanqui, Adolphe, 411 blockchain system, 142, 144–​145, 541 Blood Diamond scandals, 430, 440n3 Blooming Nakanishi, 186 Bloomingdale’s, 337 Bollywood celebrities, 494 Boston Consulting Group, 477, 485 Bottega Veneta, 434 Böttger, Johann Friedrich, 109–​114, 509 Boucheron, Frédéric, 89 Boucicaut, Aristide, 336 boundary of luxury, 60–​62, 61f Boussac Group, 179, 186 brand awareness, 279–​281 brand codes, 409–​410 brand copying, 273, 277–​278 brand extensions analysis and variables, 259–​260 approach and methods, 258–​259 in Australia, 250–​251 conceptual framework, 254–​258 defined, 175–​176 exposure of, 252–​253, 259, 266–​267

Index   617 fit of, 255–​256, 262–​263 impact of, 258–​260 introduction to, 249–​250 level of exposure, 256–​257, 263 marketing management decisions, 264–​265 model of, 257–​258, 258f nature of, 253–​254 number of, 254–​255, 267 occurrence of, 251 perceived fit and, 251–​252, 266, 267–​268 regression output, 261t results and findings, 260–​263 summary of, 263–​266, 264f brand heritage. See heritage brands Brand Luxury Index (BLI), 61, 258–​259, 266, 268 brand management, 62 brand narrative, 363 brand recognition in intellectual property (IP) rights, 414–​415 brand revitalisation, 273, 276–​277 brand-​within-​brand partnership, 313 branding, defined, 219–​220 Brathwaite, Kwame, 320 Breakfast at Tiffany’s (film), 323 bridge line, 180 Bronze Age, 21 Brown, John, 28, 32 Bugatti, 134, 139 Bulgari, 94, 138, 178 Burberry, 187, 278, 340, 427–​428, 449, 451, 470, 536, 594, 595–​596 Burberry, Thomas, 451 Burke, Michael, 317–​318, 489–​490, 493 Burning Man, 433, 440n8 business ecosystem, 201–​202, 202f Business of Fashion (BoF), 197 Buxton, Edward North, 578 buy-​and-​build strategy, 95   Caffrey’s Irish Ale, 278 Caisse Nationale de Crédit Agricole, 93 Caisses d’épargne (savings banks) group, 91 Calvin Klein, 15, 184, 432. See also Klein, Calvin Caovilla, Rene, 134–​135 capitalism demoralisation and, 33–​34

financial capitalism, 95 generous capitalism, 207 global spread of, 507 need to escape, 47–​48 origins of, 10 wealth by rent, 203 Capri Holdings, 15 Carlings, 605, 607 Carson, Rachael, 580 Cartier, 64, 70, 96, 229, 409 casual attire, 439 Causal Texture Theory (CTT), 202 C.D. Models (London) Ltd, 336 Céline, 342 ceramic luxury goods, 5, 11, 110, 153, 445, 461 Cerruti, 99 Chambre Syndicale de la Couture Parisienne, 177 Chamonix Winter Olympics (1924), 574 champagne label, 412 Chandon, Fred, 87 Chandon India, 495 Chanel, 2, 13, 64, 81–​82, 90, 135, 155–​156, 180, 336, 353, 409, 595, 602 Chanel, Gabrielle ‘Coco,’ 90, 323, 468 Chanel International BV, 90 Change of Paradigm, 605 Chapelle, Ann, 279–​280 Chapman, Dinos, 315 Chapman, Georgina, 438 Chapman, Jake, 315 Chaptal, Jean-​Antoine, 411–​412 Charles Darwin Research Foundation, 581 Chemical X, 515 Chevalier, Michel, 5, 64 China affluent middle class in, 426, 464 anticorruption measures in, 468 antiluxury policy in, 447 cross-​border shopping, 436 dependency on, 9, 195 European luxury brands and, 205 human rights breaches, 413 IFFs from, 556–​557 influencers on social media, 433 luxury industry growth, 1, 345–​346 luxury purchases by, 209–​210, 334 social media role in, 469–​470

618   Index China Tourism Academy, 395 Chinese Fosun, 89 Chinese Internet users, 477 Chinese luxury market communication strategies and, 475–​476 conspicuous consumption, 467 COVID-​19 pandemic impact, 476–​478 development of, 446 empirical study on, 471–​473 evolution of, 465–​466 experiential consumption, 467–​469 introduction to, 461–​462 nature of, 474–​475 nature of consumption, 464–​470 new opportunities and threats, 477–​478 rapid growth of, 462–​464, 463t stages of luxury, 467–​470 summary of, 474–​476 Western luxury brands, 473–​477 Christian Dior, 64, 69–​70, 72, 178, 179, 182–​184, 183f, 184f, 186–​187, 336, 410, 432, 448–​449, 451 Christian Dior Japan, 450 Circulo Fortunio, 206 Citigroup, 96 Citizen, 428 Cless-​Brothier, Camille, 311 clothing licensing, 175 Coach, 188, 429, 434–​435, 476 Coachella, 433 Cocteau, Jean, 310–​311, 322 code breakers, 206 cognitive dissonance, 301 cognitive system of consumers, 299–​302, 300f coherent actions in strategy, 196 Colbert, Jean-​Baptiste, 205 Cold War, 561 Cole, Thomas, 575 College Park Airport in Maryland, 379–​380 Comité Colbert, 206 commerce of gentility, 118 commercial legitimacy, 309 commoditization, 95 communism, 506, 561 Communist party, 465 Compagnie Benjamin de Rothschild Conseil, 98 competitive advantage, 6, 196–​197

compound annual growth rate (CAGR), 428 concession models in airport luxury retail, 386–​387 Cone Communications/​Ebiquity Global CSR Study, 493 connoisseurship, 234, 489 conspicuous consumption, 45–​62, 152, 154, 224–​225, 230–​231, 253, 427, 432, 435, 462, 465–​468, 475, 505, 508, 556 consumer psychology, 224–​225, 225f consumers/​consumerism. See also perceptions and evaluations of consumers basic consumer goods, 67 cognitive system of, 299–​302, 300f conspicuous consumption, 45–​62, 152, 154, 224–​225, 230–​231, 253, 427, 432, 435, 462, 465–​468, 475, 505, 508, 556 counterfeit brands and, 530, 531–​532 counterfeits/​counterfeiting and, 531–​532 directed communication, 220 experience of luxury, 49–​55 experiential consumption, 467–​469 extrinsic consumer behavior, 465–​466 fashion-​forward consumers, 309 intrinsic consumer behavior, 465, 466 licensing and mass production, 180–​181 nature of consumption, 464–​470 prestige consumer behavior, 486 revolutions by, 5 total customer perceived value, 302 consumption, defined, 176 Cook, Thomas, 576 Cooper, James Fenimore, 575 Copenhagen Fashion Summit, 599 copyright infringement, 318 corporate and social responsibility (CSR), 13–​ 14, 489, 548–​549 corporate corruption, 563 Corporate Knights Global, 207 Correa, Hernán, 581–​582 corruption and luxury anticorruption crusaders, 559–​563 corporate corruption, 563 crime and, 555–​559 introduction to, 547–​551 populism and, 551–​555

Index   619 Corruption Perception Index (2018), 550 Cost of Living Extremely Well Index (CLEWI), 98 counterfeiting, defined, 528 counterfeits/​counterfeiting actions against, 538–​541 buying processes with, 529–​530 concurrent ownership phenomenon, 533–​535 consumer processes with, 531–​532 in developing vs. developed countries, 532–​533 illicit supply chain for, 144–​145, 535–​537 introduction to, 525–​527 luxury goods and, 229, 528–​529 summary of, 541–​542 terms and definitions, 527–​528 trade routes of goods, 537–​538 country-​of-​origin-​labels (COOL), 403–​404, 410–​412, 416, 472 Courrèges, 449, 456 Courrèges, André, 180, 277–​278 COVID-​19 pandemic Chinese luxury market and, 476–​478 client behavior and, 195 deglobalisation and, 9 e-​commerce and, 608 economic crisis in after, 1, 3, 515 economic inequality and, 508 passenger air travel impact, 379, 381, 394, 396–​397, 424 physical store closures due to, 424–​426 sanitary and economic impact of, 202, 514 shift to digital luxury, 593–​596 supply chain management and, 143 sustainability and, 14 tourist industry and, 436 Crabtree, 485 craft defined, 153–​155 luxury goods and, 161–​162 production, 157–​161, 160f craftsmanship, 152, 511 creating in institutional work, 205 creativity, defined, 155–​156, 157–​161, 160f creativity and luxury goods, 4, 162 credibility of brands, 275–​276

Crédit Agricole du Nord-​Est, 93 Crédit Lyonnais, 81 Crédit Suisse, 98, 485, 507 crime and corruption, 555–​559 critical luxury studies, 34, 503, 512–​517 critical success factors (CSFs), 128, 132–​133 critical theory of luxury customer experience of luxury, 49–​55 introduction to, 7–​8, 41–​42 overview of, 42–​44 singular instant of luxury, 45–​49 summary of, 55–​57 Crockett & Jones, 161 cross-​border amalgamation, 95 cross-​border shopping, 436 cross-​category institutional work, 205 Croydon Airport, London, 380 crypto payments, 142 cuisine and intellectual property (IP) rights, 407–​409 cultural factors, 447–​448 cultural heritage, 237, 276, 280–​281, 461, 472–​474, 514 cultural identity, 453–​454 cultural narratives in Chinese luxury market, 470–​474 cultural radicalisation, 311 cultural tourism, 462, 467–​469, 471–​476, 573 culture before product, 199 cultures of discrimination, 504 customer relationship management (CRM) systems, 140 customers. See consumers/​consumerism customisation services, 601 Cute Circuit, 601–​603, 602f, 604f   Daimaru, 339, 340–​341, 344 Dalí, Salvador, 158, 278, 309 Damalas, Jim, 586 Dapper Dan, 318–​319 De Beers, 145 De Chambrun family, 93 DeBeers, 430 Deeper Luxury report, 608 Defoe, Daniel, 27 deglobalisation, 9 Deloitte Touche Tohmatsu, 83, 98–​99

620   Index Deluxe: How luxury lost its luster (Thomas), 128 Delvaux, 99, 310 demand-​side strategies to deter counterfeiting, 539 democratic exclusivity, 495 democratisation of luxury, 10–​11, 67–​68, 152, 287, 320, 340, 424, 428, 451, 555 demoralisation of luxury, 5, 25–​33 Deng Xiaoping, 209 department stores Asian department stores, 340–​346 development after World War II, 337–​339 haute couture, 335–​337 introduction to, 333–​335 specialty boutiques within, 338–​339 summary of, 346–​347 as tourist attractions, 339–​340 Western department stores, 335–​340 deregulation of financial markets, 514 Derrida, Jacques, 44 deterring counterfeiting, 539–​540 diagnosis in strategy, 196 Dialectic of Enlightenment (Horkheimer), 43 Diego Della Valle, 278 Diet Prada Instagram account, 433 diffusion line, 180 digital age, 370–​371 digital luxury bespoke services and, 599–​601 business of, 596–​599 customisation services, 601 evolution and shift to, 593–​596 fashion experiences with, 601–​606 introduction to, 591–​593 personalisation and, 599–​601 smart experiential clothing, 601–​603, 602f social media marketing, 597–​598 summary of, 606–​609 sustainability and, 598–​599, 606–​609 vintage and resale markets, 598 virtual clothing, 603–​606 digital stores, 358 Dimitri Gomez, 161, 165 Dior, Christian, 2, 183. See also Christian Dior direct distribution networks, 358 direct operation, 184–​188

Discours sur les Sciences et les Arts (Rousseau), 30 discrimination culture, 504 Dispatches programme, 471 disrupting in institutional work, 205 D&O risk, 548 Dolce & Gabbana, 9, 180, 433, 470, 493, 595 Dom Pérignon, 275 Domaine Chandon, 412 dominant brands, 1–​2 Donna Karan (DKNY), 184, 338 Dr. Franco Loro Piana Reserva in Peru, 138 ‘drop’ distribution model, 431–​432 DS brand, 283–​284 Dubai International Airport, 382 DuBois & Fils, 277 Duff-​Gordon, Lucile, 310, 320 Dufy, Raoul, 310–​311 Dumas, Alex, 91 duty-​free shopping, 380, 383–​387, 388t   e-​commerce, 537, 597 ‘eagle in the aquarium,’ 206 early modern period demoralisation of luxury, 25–​33 effeminacy and martial virtue, 32–​33 Hume, David, 29–​32 introduction to, 21–​23 moralisation of luxury, 23–​25 summary of, 33–​34 early-​warning system to detect counterfeiting, 539 Earth Day, 580 Eastman, George, 579 Eataly, 182 eco-​tourism boom, 579, 582–​586 economic determinism, 43, 46, 51 economic development, 5–​6, 156, 303, 345–​346, 464 economic inequality critical luxury studies, 503, 512–​517 income inequality, 10–​11 introduction to, 503–​504 luxury/​luxury brands and, 509–​512 overview, 504–​509 summary of, 517–​518 The Economist, 80

Index   621 Edelman Earned Brand survey, 488 EEG (electroencephalography), 301 effeminacy and martial virtue, 32–​33 Egyptian luxury, 423 electric cars, 163 Emaar Properties PJSC, 178 emancipation promise through luxury, 53 Emerson, Ralph Waldo, 575 emotional resonance in European luxury, 430–​434 entrepreneurial disturbance, 110 entrepreneurship genius and, 111–​114 introduction to, 107–​109 protoentrepreneur, 110 summary of, 121–​122 ‘thing-​power’ of luxury things, 115, 118–​121 environmental issues in European luxury, 436–​438 environmental luxury tourism. See luxury tourism and environmentalism Environmental Profit and Loss (EP&L), 207–​208 envy and value, 221 épater le bourgeois legitimacy, 309 Epicentre stores, 360 Equality Act (2010) (UK), 504 Estée Lauder, 135, 180, 432–​433, 605 ethics and luxury brands, 430 Euromonitor International, 424, 434, 440n1 European Cultural and Creative Industries Alliance, 159 European Cultural and Creative Industries Association (ECCIA), 205–​206 European Journal of Information Systems (EJIS), 224 European luxury industry, 2, 14–​15, 205. See also global impact of European luxury; mono-​brand store in European luxury fashion European Union (EU), 383, 411, 548, 562 Everledger, 145 Eversley, D.C., 22 Exane BNP Paribas report (2014), 594 exchange-​traded funds (ETFs), 98 exclusivity of luxury brands, 152, 356–​357 experiential consumption, 467–​469

explicit-​affective processes, 300 explicit-​cognitive processes, 300 Exposition Internationale des Arts Décoratifs et Industriels Modernes, 311 externalisation of production activities, 129 extrinsic consumer behavior, 465–​466 eye-​tracking measures, 301   Fabbrica Sartoriale Italiana, 476 The Fable of Bees (Mandeville), 28 The Fabricant, 603, 607 Facebook, 198, 537, 597 facets of luxury, 128f, 288–​290 fake-​only buyers, 533–​534 family firms. See luxury family firms Farfetch, 438, 592 fashion expression, 528 fashion-​forward consumers, 309 fashion vs. luxury, 62–​65, 63f Fashion Week of Dakar, Senegal, 9 Fauchon, 186 feminism, 438–​439 Fénelon, Bishop, 28 Fenty, Robyn Rihanna, 324–​325 Fenty Maison, 320, 324–​325 fetishisation of luxury brands, 428 financial capitalism, 95 financial shortages, 88–​89 financialisation of luxury companies, 514 financiarization, 79 fine foods, 24, 59, 385 First Heritage Brands, 415 fishing tourism, 576–​579 flagship stores, 357–​359 Floyd, George, 504 flying cars, 142 Flying Flea Legend T-​shirts, 491 Fondazione Altagamma, 206 Forbes, 515 Forbonnais, François, 31 foreign direct investment (FDI), 173, 175, 177 foreign exchanges, 80, 577, 579 Fortunato, Philippe, 358 Fossil Inc., 180 Foucault, Michel, 44 foundational premises (FP) of cocreation, 197–​199, 198t

622   Index Fragonard, Jean-​Honoré, 318 France Croco, 138 Frankfurt Institute for Social Research, 41, 43–​44 free-​standing unit (FSU), 388 French haute couture, 81 French luxury export, 446–​447, 446f Freymond, Éric, 91 Fung, Victor, 99 Fung, William, 99 Fung Group, 415 Furla, 188 Furstenberg, Diane von, 255–​256   Galapagos Islands, 586 Galeries Lafayette, 179, 334, 336, 339 game changers, 206 gangsters as neoliberal heroes, 553–​554 Garden Clubs of America, 580 Gates, Bill, 9 Gaultier, Jean Paul, 273 gender issues, 438–​439 Generation X, 396 Generation Z, 310, 395, 430–​431, 438, 440n4, 469, 475, 609 generous capitalism, 207 Genève, Jean Lassale, 456 Genovesi, Antonio, 29 Geoffrey Beene, 15 geopolitical, economic, social, technological, legal, and environmental (PESTLE) forces, 201 Ghesquière, Nicolas, 314 Gieves & Hawkes, 15 gift-​giving demand, 467–​468 Gilded Age in the United States, 505 gilets jaunes, 10 Gini coefficient of wealth, 485 Giorgio Armani, 69 Givenchy, 279, 323, 358 global financial crisis (2008), 381 global impact of European luxury changing face of, 435–​439 emotional resonance in, 430–​434 gender issues, 438–​439 health and environmental issues, 436–​438 introduction to, 423–​424

political correctness issues, 438–​439 quality appeal, 434–​435 rarity principle, 424, 427–​429 summary of, 439–​440 tourist dependence and, 436 on United States, 424–​427, 425f, 426f Global Initiative Against Transnational Organized Crime, 557 global issues to luxury industry democratisation of, 10–​11 dependency on China, 9 guaranteeing authenticity, 11–​12 income inequality, 10–​11 overview of, 8–​15 sustainable economy, 13–​14 tensions of production, 12–​13 globalisation dependency on China, 9, 195 introduction to, 5, 6, 8 market expansion, 68–​70, 127, 424, 428 of trade and communication, 535 GLUX-​Amundi ETF S&P Global Luxury, 98 Gobbetti, Marco, 536 Goblet, Laurent, 160 good and politic order, 28 governance driver in counterfeiting, 538 Grand Master Chime, 158 Grand Tour, 573 Great Depression, 8, 411 greenhouse gas emissions (GHG), 207 GreenStory, 608 Grimonprez, 179 gross domestic product (GDP), 424, 475, 476, 484 Groupe Pinault, 70 Gruppo Finanziario Tessile (GFT), 69 The Guardian, 135 Gucci, 138, 338, 430–​431, 439, 594, 600 guiding policy to strategy, 196 Guilds, 154 Guy, Kolleen, 412 Guy Laroche, 448   Habermas, Jürgen, 41–​44 Haider Ackermann, 279 half-​luxury (demi-​luxe), 66, 67 Hanae Mori, 454

Index   623 happiness and luxury, 55 Harrods, 334, 336, 338, 339 Harry, Debbie, 314 Harvard Business School, 64 Harvey, Fred, 575 haute couture, 177–​180, 335–​337, 359, 405–​407, 454 Hazlitt, William, 116 health issues in European luxury, 436–​438 Heathrow Airport London, 382, 384, 385t, 388–​ 389, 391f, 392f, 393f HEC Paris, 5 Heckscher, Eli, 22 Heidegger, Martin, 44 Hemingway, Ernest, 579 Heng Long International Ltd, 138 Hennessy, Gilles, 87 Hennessy, Kilian, 87 Hepburn, Audrey, 323 heritage brands authentication, 283–​284 brand awareness, 279–​281 brand copying, 277–​278 brand heritage, 274–​276 brand revitalisation, 276–​277 consumer perception, 304 defined, 274 introduction to, 273–​274 mono-​brand store in European luxury fashion, 368 retrobranding, 278–​279 shaping heritage, 281–​283, 282t summary of, 284–​285 Heritage Crafts Association, 157 heritage shaping, 281–​283, 282t Hermès, 2, 13, 64, 66, 83, 86t, 90–​92, 159–​160, 338, 342, 393–​394, 393f, 409, 427, 468, 477, 515 Hermès, Émile, 91 Hermès Foundation, 162 Hermès Japon, 343 Herzog and de Meuron, 151 Hickey, Gloria, 154 Hidesign, 489 high-​net-​worth-​individuals (HNWIs), 290, 303, 364, 433, 435–​436, 441n9, 490, 507 Himalaya Birkin Hermès handbag, 515 Hirst, Damien, 158, 309

H&M, 185, 476 Hobbes, Thomas, 30 Hong Kong luxury market, 344 horizontal integration, 135 Horkheimer, Max, 41–​44 hostile public environment, 549 Hotel Engadiner Kulm, 574 Hotel Quito, 581–​582 House of Worth, 336 “household” (oikos), 24 Hublot, 157 Hudson River School artists, 575 Hudson’s, 338 Hughes, Stuart, 159 Hugo Boss, 145, 275 Hume, David, 29–​32, 115–​118 Hunter, Melita Koulmandas, 586 Hunter, Rory, 586 hunting tourism, 576–​579   identity-​building through counterfeit brands, 533 IFFs (illicit financial flows), 556–​557 illicit supply chain for counterfeit luxury goods, 144–​145, 535–​537 im Goldhaus, 110, 111 immaterial capital, 79, 100 implicit information processing, 301 inaccessible luxury, 60, 290, 487, 514 income inequality, 10–​11. See also economic inequality Indian luxury market dream fulfilment/​value, 492–​493 growth paradigm of emerging markets, 484–​485 introduction to, 483–​484 longing vs. belonging, 489–​490 modern prestige, 487–​488 never-​ending growth, 494–​495 new prestige, 486–​487 prestige consumer behavior, 486 prestige-​grounded wealth, 485 product as manifestation, 491–​492 storytelling in, 490–​491 summary of, 495–​496 Ueber-​Brands, 488–​496 unselling, 493–​494

624   Index industrial manufacturing, 153, 601 Industrial Revolution, 65, 67, 203, 505, 509, 591, 603 industrialisation, 6, 65–​68, 157, 189, 505, 509, 572 influencers on social media, 433, 440n6 information and communications technology (ICT), 129 inheritance gifting, 508 initial public offering (IPO), 70 innovation defined, 156–​157 luxury goods and, 163–​164 production and, 157–​161, 160f systemic luxury strategy and, 206 Instagram, 537, 594 institutional theory, 195, 361–​363 institutional work and systemic luxury strategy, 204–​209, 208f intellectual property (IP) rights, 152, 157, 174f brand codes and trade dress, 409–​410 brand recognition and, 414–​415 country-​of-​origin-​labels, 403–​404, 410–​412, 416 haute couture, 405–​407 importance of, 152, 157 introduction to, 403–​404 limits of, 415–​416 for perfume and cuisine, 407–​409 portfolios of, 404–​405 terroir debate, 411, 412–​414 types of, 174, 174f intermediary luxury, 60, 290 intermediate governance, 173–​174 International Chamber of Commerce, 144–​145 International Herald Tribune’s Luxury Business Conference (2007), 143 International Monetary Fund (IMF), 483, 484–​485, 559, 562 international partnerships, 173–​174 Internet of Things, 598 intraecosystem, 203 intrinsic consumer behavior, 465, 466 inventory management, 130, 146 investment banking, 80, 95–​97 ‘irrational’ leisure, 45 Irving, Washington, 575

Isetan, 344, 448 Issey Miyake, 454 Italian Commedia dell’Arte, 113–​114 Italian family businesses, 92–​93 ITC hotels, 489 Itokin, 449 IZOD, 15   Jacobs, Marc, 314, 315–​316, 438 Janus face of luxury, 555 Japanese luxury business brands in, 453–​457 development of, 446–​450, 446f, 450f introduction to, 445 lessons from, 450–​453 licensing and mass production, 181–​188, 185f, 186f Louis Vuitton-​Moët Hennessy in, 343, 447, 449–​450, 452–​453 summary of, 457–​458 Japanese luxury market, 340–​344 Jean Patou, 273 jewelry industry, 2 Jimmy Choo, 15, 96, 135, 435 Johnnie Walker, 490 Johnson, Martin, 579 Johnson, Osa, 579 Johnstons of Elgin, 601 joint venture model (JV), 386–​387 Josée and René de Chambrun Foundation, 93 Journal of Business Research (JBR), 224   Kajsiu, Blendi, 561 Kändler, Joseph, 113–​114, 119 Kanebo, 182, 188, 449, 451–​452 Kanoui, Joseph, 96 Kapferer, Jean-​Noël, 94 Kate Spade, 435 Katzarova, Elitza, 560–​561 Kawabe, 449 Kelly, Grace, 338 Kent, Geoffrey, 582 Kenyan tourism, 578–​579 Kenzo Takada, 72, 454 Kering, 2, 138, 207, 278, 592, 599 key performance indicator (KPI), 146 Khan, Nathalie, 595

Index   625 kimono cultural identity, 454 King Power Mahanakhon Building in Bangkok, 280 kiosks, 388 Klein, Anne, 337–​338 Klein, Calvin, 337–​338. See also Calvin Klein Knight, Nick, 595 Kontu, 597–​598 Koolhaas, Rem, 151, 360 Koons, Jeff, 158, 316–​317 Kosugi Sangyo, 182 Kurhäuser of Davos and St. Moritz, 574 Kusama, Yayoi, 151, 158, 315 Kyoto Protocol (1997), 572 Kyrk, Hazel, 22   lab-​grown luxury materials, 142 Lagerfeld, Karl, 90, 151, 156, 273 lagom trend, 441n12 Lalique, 158 Lanvin, 186 Lanvin, Bernard, 88 Lanvin, Jean, 81, 88 Lanvin, Marie-​Blanche, 88 lapis philosophorum, 110 large global groups, 134 Larry’s List, 321 Lauren, Ralph, 337 Laureus Sport for Good Foundation, 14 Le Freeport in Luxembourg, 548 leather goods, 438, 446f, 447 “Leave Home” campaign, 491 LED displays on clothing, 601–​603, 602f legitimising a luxury positioning, 367–​368 leisure industry, 437 Lex Orchia, 25 liberalisation of financial markets, 514 licensing and mass production customer expansion, 180–​181 development of, 177–​181 direct operation and, 184–​188 as dying business model, 188–​189 expanding abroad, 177–​178 heydey of, 182–​184, 183f, 184f introduction to, 173–​177, 174f, 175t Japanese historical example, 181–​188, 185f, 186f product development, 178–​180

Licensing International, 174 limited partnership society (société en commandite par actions), 91 limited responsibility company (société à responsabilité limitée), 82 Lindblad, Lars-​Eric, 580–​581 Lindblad Travel, 580, 582 Listri, Massimo, 314 little black dress, 323 Little Red Book, 463 living the dream, 492–​493 Locke, John, 30 L’Odyssée de Cartier, 229 logistics facilities in counterfeiting, 538 logo patterns of brands, 427–​428 London’s Hounslow Heath Aerodrome, 380 London’s Savile Row, 600 longevity of brands, 275–​276 Lord and Taylor, 336 L’Oréal, 89, 135, 274 Louis Féraud, 182 Louis Vuitton Japan, 343 Louis Vuitton (LV) artification process, 321–​322 artistic partnering by, 309, 310, 311, 313–​317 blockchain system, 541 brand identity, 274 collaborations, 151, 158 customer experience, 50 e-​commerce of, 594 fragrance description, 489–​490, 493 intellectual property (IP) rights and, 414 legal action against counterfeit sellers, 540–​541 licensing products, 188 made-​to-​order goods, 165, 167 outsourcing, 135 value-​creating system, 200 Louis Vuitton Malletier, 437–​438 Louis Vuitton-​Moët Hennessy (LVMH) acquisitions by, 89, 99, 138, 195, 273, 281, 599 collaborations, 324–​325 COVID-​19 pandemic and, 514 culture before product, 199 fashion and leather goods division, 355 financial case study, 85–​88, 88t, 91–​92 formation of, 313–​314

626   Index Louis Vuitton-​Moët Hennessy (LVMH) (cont.) introduction to, 2, 5, 8–​9, 14 in Japanese market, 343, 447, 449–​450, 452–​453 net sales by region, 345f philosophy of, 167, 516 rise of, 72, 85–​88, 88t, 430–​431 vertical integration, 138 virtual clothing, 603 low-​labour-​cost countries (LLCC), 129 Lukács, Georg, 43, 46 Lunn, Henry, 574 Luxottica of Italy, 180 LUXU-​Amundi ETF S&P Global Luxury, 98 luxurious lifestyles, 290–​291, 291f luxury. See also academic approaches to luxury; corruption and luxury; digital luxury; systemic luxury strategy accessible luxury, 60–​61, 69, 158, 290, 299, 429, 448, 455, 476, 487, 512, 514, 517 affordable luxury, 188, 290, 343–​344, 393, 408, 512 defined, 133, 220–​221, 288–​291, 509 democratisation of, 10–​11, 67–​68, 152, 287, 320, 340, 424, 428, 451, 555 demoralisation of, 5, 25–​33 economic inequality, 509–​512 economic inequality and, 509–​512 facets of, 128f, 288–​290 inaccessible luxury, 60, 290, 487, 514 intermediary luxury, 60, 290 Janus face of, 555 materiality in luxury offerings, 199 moralisation of, 7, 23–​25 nature of, 60–​65 new luxury, 42, 49–​56, 61, 160, 346–​347, 487, 496, 579, 596–​597, 606–​609 philosophy of, 46, 51, 54 sublimated luxury, 553 unhappiness and, 55 wellness luxury, 436–​438 luxury art, 59 luxury brand. See also brand extensions; Chinese luxury market; department stores; heritage brands; Indian luxury market; Japanese luxury business; mono-​brand store in European luxury fashion

academic approaches to management, 3–​5 aesthetics and, 430 American luxury brands, 429 artistic partnerships, 320–​323 economic inequality, 509–​512 ethics and, 430 exclusivity of, 152, 356–​357 fetishisation of, 428 mono-​brand stores, 366–​367 “mythologizing” the brand story, 490–​491 rejuvenation of, 229 Western luxury brands, 5, 473–​477 luxury brand museums, 320–​323 luxury branding branding, defined, 219–​220 business partner perspective on, 236 characteristics of luxury, 226 consumer perspective on, 232, 234–​235 consumer psychology, 224–​225, 225f contemporary research on, 224–​234, 231f core tasks of, 226–​230 corporate perspective on, 235–​236 defined, 211n2, 222–​224 employee perspective on, 235 experience design, 227–​228 extension of, 228 luxury, defined, 220–​221 management of, 3–​5 managerial perspective on, 232–​233, 236–​237 protection of, 228–​230 rejuvenation of, 229 retrobranding, 273, 278–​279 seminal work on branding, 231–​232 seminal work on luxury, 230–​231 shaping, 227 social economics, 225–​226 specialized contribution, 233–​234 target markets, 226–​227 luxury cars, 59, 163 luxury family firms asset management, 97–​99 capital stakes and failures, 93–​95 capital stakes and stability, 89–​93 comparative studies, 83–​88, 84t, 85t, 86t, 88t finance and banking, 81–​89 financial shortages and over-​indebtment, 88–​89

Index   627 introduction to, 79–​81 investment banking, 95–​97 Italian family businesses, 92–​93 resilience of, 90 self-​financing, 81–​82 summary of, 99–​100 luxury goods, defined, 293 luxury goods on block chain, 142, 144–​145, 541 luxury hospitality, 59 luxury industry. See also airport luxury retail boundary of luxury, 60–​62, 61f democratisation of luxury, 67–​68 early globalisation of markets, 68–​70 fashion and premium goods vs., 62–​65, 63f formation as big business, 70–​72 historical foundation, 65–​72, 71t before industrialisation, 65–​67 introduction to, 59–​60 market-​based luxury goods, 290, 517–​518 nature of luxury, 60–​65 summary of, 72–​73 trade in luxury products, 1–​2 luxury perception/​evaluation scale, 292, 293f luxury tourism and environmentalism adventure tourism, 579–​582 eco-​tourism boom, 579, 582–​586 fishing tourism, 576–​579 hunting tourism, 576–​579 introduction to, 571–​572 nature tourism, 572–​576 summary of, 586–​587 luxury watch industry, 428–​429, 510 Lyotard, Jean-​François, 44   m-​commerce, 431 MacCunn, John, 21 Machiavelli, Niccolò, 560 macro-​level space in systemic strategy, 201–​204, 203f Macron, Emmanuel, 208 ‘Made in’ brand, 413–​415 main trends in SCM, 145–​146 maintaining in institutional work, 205 Maison Lucile, 310 Maison Vendôme, 321–​322 ‘Maître d’Art’, 64 Makryniotis, Thomas, 603

Man Ray, 278 Mandarin Oriental, 585 Mander, Jerry, 585 Marchesa, 438 Marcuse, Herbert, 41–​44 marketing of luxury goods advertising, 4, 6–​7 antilaws of marketing, 62 brand extensions and, 264–​265 economic inequality, 517–​518 exclusivity marketing position, 356–​357 perceptions of consumers, 290, 299 on social media, 431, 433–​434 target markets, 178, 226–​227, 333, 336, 344, 358, 475, 584 Marriott, 178 Marx, Karl, 33–​34 Marxist social theory, 41–​43, 47 mass-​produced goods, 152 mass selling techniques, 493–​494 mass tourism, 576 Masurel Group, 179 materiality in luxury offerings, 199 Matisse, Henri, 311 Matsuzakaya, 341, 344, 448 McCardell, Claire, 322 McCartney, Stella, 205 McFarland, Billy, 433 McKinley Tariff Act (1890), 411 McKinsey report, 197, 476 Medici del Vascello, Osvaldo, 314 Medici family, 80 Medvedev, Dmitry, 554 Meissen pottery Böttger, Frederick, 109–​111 introduction to, 107–​109 Kändler, Joseph, 113–​114 porcelain ceramic, 110–​112 Meisterkreiss, 206 Mellerio, 275–​276 Melon, Jean-​François, 29 mental maps and systemic strategy, 209–​210 mercantile life, 25 Mercedes-​Benz, 495 mergers and acquisitions (M&A), 95, 96, 99 meso-​level space in systemic strategy, 201–​204, 202f

628   Index MeToo movement, 438 Metropolitan Museum of Art, 284 Mia by Tanishq, 491 Miadidas, 600 Michael Kors, 188, 429, 434, 435, 438, 476 Michahelles, Ernesto, 406–​407 Michel Dyens & Co., 95–​96 Midland Bank International, 89 Mikimoto, 445, 454–​455, 457 Millennials, 395, 430–​431, 438–​439, 462, 475 mindfulness industry, 438 minimum guarantee (MAG) model, 386 Mirman, Simone, 178 Mitsubishi Corporation, 182 Mitsui & Co., 182, 187 Mitsukoshi, 339, 340–​343, 448 Model T Ford, 163 modern prestige, 487–​488 Moët & Chandon, 68, 82–​83, 84t Moët Hennessy, 314, 495 Mondrian, Piet, 312 monitoring counterfeiting, 539 mono-​brand store in European luxury fashion agency theory, 361–​363 as bastions of luxury brand protection, 366–​367 brand narrative and, 363 defined, 355–​361 digital age and, 370–​371 exclusivity marketing position, 356–​357 flagship stores, 357–​359 heritage branding and, 368 institutional theory, 361–​363 introduction to, 353–​355 legitimising a luxury positioning, 367–​368 as localised brand experiences, 359 quality and craftsmanship with, 369 rarity principle and, 370 research methodology literature, 364–​372, 365t as strategic revenue stream, 359–​361 summary definition, 361–​366 summary of, 372–​373 moralisation of counterfeiting, 530 moralisation of luxury, 7, 23–​25 Morgan Stanley Capital International (MSCI), 484

Morris, William, 154 Moynat, 275, 281–​283, 282t multinational luxury conglomerates, 2 Multinational Retailing (Hollander), 356 Murakami, Takashi, 316, 317, 320 Muras, Henri, 606 Mytheresa, 13 “mythologizing” the brand story, 490–​491   Nakabayashi, Osamu, 182 National Audubon Society, 581 National Readership Survey, 391 natural life, 24 nature of luxury, 60–​65 nature tourism, 572–​576 Navalny, Alexei, 551, 554, 559, 562 Nazi Party, 274 neoclassical approach to strategy, 196–​197 neoliberalism, 550, 560, 562 Net-​a-​Porter, 592 never-​ending growth, 494–​495 new consumer products, 66 new luxury, 42, 49–​56, 61, 160, 346–​347, 487, 496, 579, 596–​597, 606–​609 The New Luxury Experience (Batat), 42, 49–​55 new prestige, 486–​487 new process technologies, 129 The New York Times, 320 Newland, Tarlton & Co., 578 NExTT framework, 142 Nietzsche, Friedrich, 44 NikeiD, 600 Nina Ricci, 186, 448 nongovernmental institutions, 562 nongovernmental organisations (NGOs), 580 nonluxury goods, 59–​60, 62, 487 nonmarket goods, 290 nonpersonal-​oriented perceptions, 253 Nordstrom, 337–​338 Normann, Richard, 210   Oberoi, Prithvi Raj Singh, 585 Of Refinement in the Arts (Hume), 29, 115 offshoring production activities, 129 Old England, 182 Olga, 15 oligopolistic market, 186

Index   629 Omega, 72, 456 On Luxury (Kapferer), 599 online lifestyle publications, 439 online luxury sales, 203 Onwards, 445 “open” sanatoria, 574 Opening Ceremony, 601 Orcofi, 89 O’Regan, Brendan, 380 Organisation for Economic Co-​operation and Development/​European Union Intellectual Property Office (OECD/​ EUIPO), 537–​538 Organisation for Economic Co-​operation and Development (OECD), 562 Orient Express, 279, 280 Orient Express hotels, 280 original equipment manufacturing (OEM), 178, 180, 182, 188 Ortelli, Mario, 137 outsourced activities, 135 over-​indebtment, 88–​89 overseas expansion, 177–​178   Paco Rabanne Parfums, 5, 64 Paraffection, 8 Parfums Bourjois, 90 Parfums Chanel, 82 Paris Commercial Court, 89 Paris Commune, 517 Paris Stock Exchange, 2, 87, 98 Parisian luxury industry, 66–​68 Patek Philippe, 158, 222 Patou, Jean, 273 Paul Stuart, 182 Pavlovsky, Bruno, 353 ‘pay more, get more’ pattern, 291 Penrose, Edith, 108 perceived brand luxury, 258–​259 perceived conspicuousness, 253 perceived hedonism, 254 perceived quality, 253, 298 perceived self-​extension, 254 perceived uniqueness, 253–​254 perceptions and evaluations of consumers attempts to capture, 291–​298, 293f, 294t, 295t, 296f, 296t, 297f

defining luxury construct, 288–​291 existing approaches to capture, 298–​305 existing value associations, 302–​305 facets of luxury, 128f, 288–​290 human information processing, 299–​302, 300f introduction to, 287–​288 luxurious lifestyles, 290–​291, 291f relevant reference points for, 298–​299 summary of, 305–​306 perfume and intellectual property (IP) rights, 407–​409 Pernod-​Ricard Group, 99 personal-​oriented perceptions, 253 personalisation and digital luxury, 599–​601 personalised hotel rooms, 142 perspectival illusion, 552 Phillips-​Van Heusen (PVH Corp.), 15 Philo, Phoebe, 437 philosophy of luxury, 46, 51, 54 photographers and artistic partnerships, 312–​313, 314 Physiocrats, 31 Piana, Loro, 138 Pierre Balmain, 69 Pierre Cardin, 69, 180, 182, 189, 341, 448 Pinault, François-​Henri, 143, 207–​208, 515, 599 Pinault Printemps Redoute (PPR Group), 8, 14 Pine, Joseph, 600 piracy, defined, 527–​528 pirate, defined, 527 Place Vendôme in Paris, 455 Plaza Agreement (1985), 185, 342 Poiret, Paul, 178, 279, 406 Pola Orbis, 445 Politecnico di Milano, 137, 139 political correctness issues, 438–​439 political corruption, 559 Political Discourses (Hume), 29 POLO Ralph Lauren, 186 populism and corruption, 551–​555 populuxe, 66 porcelain ceramic, 110–​112 Porsche, 302 positivism, 43, 51 poverty, 29, 504–​506, 516–​517 Prada, 92, 468

630   Index Prada, Miuccia, 284 Prada Group, 360, 360t premium goods vs. luxury, 62–​65, 63f prestige consumer behavior, 486 prestige-​grounded wealth, 485 prestige positioning, 495 PriceWaterhouseCooper (PwC), 207 Primavera Capital, 99 Prince, Richard, 315, 317, 318 principal-​agent relationship, 362 Printemps, 334 privacy as luxury commodity, 548 private banking, 97 private final consumption expenditure (PFCE), 343 Privatum Commodum, 26 Proaño, Eduardo, 581–​582 production facilities in counterfeiting, 538 protoentrepreneur, 110 Proudhon, Pierre-​Joseph, 34 Prud’hommes trade board, 405 PSA Group, 283 Puech-​Hermès, Nicolas, 91 Puma, 207 punk couture, 315 Putin, Vladimir, 554–​555 Pye, David, 155   Qatar Luxury Group, 99 Qatari Mayhoola fund, 99 quality appeal of European luxury, 434–​435 quality/​price ratio-​based investment, 63   Racamier, Henry, 70, 87, 200 racism, 504 Ralph Lauren, 256, 594 Ramirez, Rafael, 210 Rapha, 601 rarity principle, 370, 424, 427–​429 raw materials suppliers, 135 Razak, Najib, 549 Reagan, Ronald, 506 The RealReal, 13 Regional Caisse of the Crédit Agricole group, 93 rejuvenation of luxury branding, 229 relational banking, 100

removing counterfeiting, 539 Renoir, 310 research and development (R&D), 151, 157, 159, 163 Résonances de Cartier, 494 resources in service provision, 198 retail merchandise unit (RMU), 388 retrobranding, 273, 278–​279 RFID (radio frequency identification) technology, 142, 540–​541 Rhodes, Cecil, 577–​578 Rich Kids of Instagram (TV show), 508 Richard Mille, 158 Richemont group, 2, 70, 83, 96 Richemont Japan, 343 Rihanna, 310, 320 Rocamora, Agnès, 594 Rogers, Ian, 199, 200 Rolex, 69, 221, 456 Rolls Royce, 164, 221, 229, 304–​305 Romania, manufacturing and production, 135 A Room of One’s Own (Woolf), 117–​118 Roosevelt, Theodore, 578 Rousseau, Jean-​Jacques, 30 Royal Enfield, 491, 493 Rupert, Anton, 70 Ruskin, John, 154   s-​commerce, 431 Safariland, 579 Saint Laurent Rive Gauche, 69 Salvatore Ferragamo, 476 Sampson, Steven, 551 Sanford C. Bernstein, 137 Sanofi Group, 5 Sanyo Shokai, 187, 341, 445, 449, 450, 451 Saratoga Springs, 575 Sarkozy, Nicolas, 10 Saville, Peter, 595 savoir-​faire, 283–​284 Scandinavian approach to luxury, 435, 441n12 Schiaparelli, Elsa, 179, 278–​279, 284, 309 Schillings, Carl Georg, 578 Schueller, Eugène, 274 Schumpeter, Joseph, 107–​109, 156 Sears, Roebuck, and Co., 320 Seibu Department Store, 182

Index   631 Seiko, 428, 454, 455–​457 Sekora, John, 22 self-​care industry, 438 Selfridges, 334 selling luxury goods, 4 Selous, Frederick, 577–​578 Seoul Incheon Airport, 382 Servant of the People (TV show), 549 service-​dominant (S-​D) logic, 195, 196, 197–​ 199, 198t sexual harassment against women, 439 SGAM Fund-​Equities Luxury and Lifestyle, 98 Shang Xia, 276 Shannon Airport in Ireland, 380, 387 shaping heritage, 281–​283, 282t Shinsegae International, 279 Shiseido, 180 Shiseido Prestige, 445 Shore, Cris, 562 Shovlin, John, 553 SHOWstudio website, 595 Sidgwick, Henry, 21 Simons, Raf, 432 Singapore Changi, 382 singular instant of luxury, 45–​49 Skid Row, 515 SKP department store, 469 sleeping beauties, 273, 276–​281, 283–​285 small and medium-​size enterprises (SMEs), 69 small luxury boutiques, 134 smart experiential clothing, 601–​603, 602f Smith, Adam, 28, 29, 33 Smoot Hawley Tariff Act (1930), 411 SNCF (Société nationale des chemins de fer français), 280 social acceptance of counterfeit purchases, 533 social change, 6, 287 social classes, 62, 67, 180 social economics, 225–​226 social-​group behaviour, 534 social media, 228, 431, 433–​434, 463, 466, 469–​470, 597–​598 social-​symbolic work, 204 social turnmoil, 485 société anonyme, 82 société civile, 91 sociodemographic characteristics, 530

Sombart, Werner, 10, 107 Song Saa eco-​resort island, 586 Sonia Rykiel, 99 sophisticated vending machines, 388 ‘Sound Shirt’ system, 602 South Korean luxury market, 344–​345 spatial considerations of luxury, 7–​8 specialty boutiques within department stores, 338–​339 sports industry, 437 Spouse, Stephen, 314–​315, 317 The State of Fashion 2019 report, 593 The State of Fashion 2020 Coronavirus Update, 593 status-​seeking behaviour, 528 Stella McCartney, 599 Steuart, Scot James, 31 stock keeping units (SKUs), 146 Stoic philosophy, 23–​24 Stone Age, 21 storytelling in Indian luxury market, 490–​491 Streeck, Wolfgang, 562 street fashion, 318–​320, 439 Stuart Weitzman, 434–​435 studio craft, 154–​155 sublimated luxury, 553 Sugimoto, Hiroshi, 162, 165 Sultan of Zanzibar, 577 super-​rich, 503, 508 supplément d’âme, 195 Supply Chain Council (SCC), 130 supply chain management (SCM) anatomy of luxury SCM, 134–​142, 136t, 137t, 140f counterfeits and block chain, 144–​145 critical success factors, 132–​133 introduction to, 127–​131, 128f main trends and best practices, 145–​146 scientific research on luxury SCM, 131–​132 sources of complexity, 142–​144 summary of, 146–​147 supply chain operations reference (SCOR), 129 supply chain (SC), 129–​131 supply-​side strategies to deter counterfeiting, 540 surrealist movement, 278 sustainability and digital luxury, 598–​599, 606–​609

632   Index sustainable economy, 13–​14 Swanson, Gloria, 338 Swatch Group, 72, 429 Swedish Touring Club, 577 Swiss Alps tourism, 576 Swiss luxury watchmaking, 428–​429, 449 Syndicate Chambre Syndicale de la Couture Parisienne, 406 systemic luxury strategy enacting, 210–​211 innovation and, 206 institutional work, 204–​209, 208f introduction to, 4, 195–​196 mental maps and, 209–​210 meso-​, micro-​, and macro-​level space, 201–​204, 202f, 203f, 208 neoclassical approach to, 196–​197 service-​dominant (S-​D) logic, 196, 197–​199, 198t summary of, 211 value cocreation, 196, 197–​201, 198t, 200f, 204 value-​creating systems, 199–​201, 200f   Tag Heuer, 72 Tainted Treasures: Money Laundering Risks in Luxury Markets report, 557 Taittinger group, 93 Takashimaya, 182, 339, 340–​341, 448 Tapestry Inc., 435 Tarde, Gabriel, 189 target markets, 178, 226–​227, 333, 336, 344, 358, 475, 584 Tarlton, Leslie, 578–​579 tax evasion scandals, 508 Telegram, 537 Telegraph, 427–​428 televised field experiment, 474–​475 tensions of production, 12–​13 terroir debate, 411, 412–​414 Tesla, 163, 165, 427 Thai luxury market, 346 Thatcher, Margaret, 506 theft, defined, 527 The Theory of the Leisure Class (Veblen), 21–​22, 41–​42, 45, 47–​48, 127–​128, 230–​231 ‘thing-​power’ of luxury things, 115, 118–​121

Thomas, Dana, 128 Thomas, Patrick, 91 Thoreau, Henry David, 34, 575 3D computer-​generated imagery, 603, 605, 606, 607 3D printing, 155, 159 Tiffany & Co., 2, 9, 87, 309, 310, 343–​344 TikTok, 463 timelessness of luxury goods, 296 Time’s Up movement, 438–​439 Tollman, Stanley, 585 Tommy Hilfiger, 15 total customer perceived value (TCPV), 302 tourist dependence, 436 Tracr, 145 trade dress law, 409–​410 trade-​facilitation policies in counterfeiting, 538 trade in luxury products, 1–​2 trade routes of counterfeit goods, 537–​538 trademark patterns of brands, 427–​428 traditional craft practices craft, defined, 153–​155 creativity, defined, 155–​156 discussion on, 164–​168, 165f, 166t innovation, defined, 156–​157 interactions between craft, creativity and innovation, 157–​161, 160f introduction to, 4, 151–​153 luxury goods and, 161–​164 summary of, 168 tranquility of mind, 30 Transparency International, 558, 559 travel retail. See airport luxury retail Tribute, 605 True&Co., 15 Trump, Donald, 555 trust of brands, 275–​276 Tschirnhaus, E. W. von, 110–​112 turbulence, deep uncertainty, novelty, and ambiguity (TUNA), 202, 209   Ueber-​Brands, 488–​496 Uhlirova, Marketa, 595 ultra-​high-​net-​worth-​individuals (UHNWIs), 435, 441n11, 503, 507 UN Sustainable Development Goals, 504 uncertainty types, 212n4

Index   633 Ungaro, Emanuel, 338 unhappiness and luxury, 55 UNICEF (United Nations Children’s Fund), 516 United Nations Sustainable Development Goals, 608 United States American luxury brands, 429 Gilded Age in the, 505 impact of European luxury, 424–​427, 425f, 426f luxury industry in, 2 Unmade, 601 ‘unnecessary’ leisure, 45 unselling in Indian luxury market, 493–​494 U.S. copyright law, 404 US International Licensing Industry Merchandisers’ Association (LIMA), 174–​175, 175t Utz (Chatwin), 114–​122   Vacheron Constantin, 494 Valentino, 69 value added tax (VAT), 384, 548 value associations, 302–​305 value chain view, 197 value cocreation, 196, 197–​201, 198t, 200f, 204 value-​creating systems, 199–​201, 200f Van Heusen, 15 Veblen, Thorstein, 41–​42, 45–​48, 50–​52, 132, 230–​231, 427, 435 ‘Veblen’s Attack on Culture’ (Adorno), 41–​42 Vendôme Global Partners, 96 Versace, 94, 301 Versace, Allegra, 94 Versace, Donatella, 94 Versace, Gianni, 94 Versace, Santo, 94 vertical integration, 135, 138, 141 Vestiaire Collective, 13, 478, 598 Victoria and Albert (V&A) museum, 510 Victoria at Interlaken, 574 Villagrassa, Bernardo Danvila y, 29 vintage and resale markets, 598 Vionnet, Madeleine, 322, 323, 406–​407 viral anticorruption infotainment videos, 551

virtual clothing, 603–​606 virtual reality (VR), 603 virtual try-​on of garments, 599–​600 virtuous life, 24 Vivienne Westwood, 186 Vogue, 312 Vogüé, Robert-​Jean de, 87 Volkswagen New Beetle, 283 voluntary poverty, 23 VW Group, 164   wait lists, 427 Walden (Thoreau), 34 Walpole British Luxury, 206 War and Capitalism (Sombart), 107 Warhol, Andy, 312 Warner’s, 15 Watchfinder, 598 wealth taxes, 508–​509 WeChat, 463, 537 Wedgewood, 186 Wedgewood, Josiah, 509 Weinstein, Harvey, 438 wellness luxury, 436–​438 Wertheimer, Alain, 90 Wertheimer, Gérard, 90 Wertheimer, Paul, 90 Wertheimer, Pierre, 90 Western department stores, 335–​340 Western luxury brands, 5, 473–​477 WhatsApp, 537 Wilderness Safaris, 585 Wilson, Cameron-​James, 603 wines and spirits, 59, 68 Woolf, Virginia, 117–​118 Wordsworth, William, 573, 575 World War I, 379–​380, 406, 578 World War II, 8, 68, 177–​178, 337–​339, 380 World Wildlife Fund, 581 Worth, Charles Frederick, 336 Wright, Wilbur, 379–​380   Xi Jinping, 209, 558   Yano News, 186 Yano Research Institute, 343

634   Index Yanukovych, Viktor, 551–​554 Yiqing Yin, 279 YooX, 592, 594 youthquake era, 312–​313 YouTube, 594 Yves Saint Laurent, 69, 155, 312, 342, 449

Zanini, Marco, 278 Zara, 476 Zeitz, Jochen, 207 Zelensky, Volodymyr, 549–​550, 551, 564n1 Zénith, 72 Zingraff-​Shariff, Muriel, 392