Sustainability comes at a premium: creating a race to the top through the luxury goods market

There is every indication that human demand will continue for the positional goods and experiences that display status and wealth: travel to exotic locations, perfumes with exquisite smells, foods that taste delicious, or objects that look beautiful. But meeting this demand creates a consumption challenge.

People are rapidly being lifted out of poverty and subsistence lifestyles in the developing world, which is massively increasing the global middle class of consumers with disposable incomes. This is putting a strain on finite resources, meaning there is a serious risk that increased levels of consumption will cause irreparable damage to our climate, biodiversity and the natural world.

This suggests that having too many nice things could be a very bad thing. But higher levels of wealth doesn’t necessarily mean more overall consumption. Just compare the unlikely couple of Michael Bloomberg and Imelda Marcos.

Bloomberg, one of the world’s wealthiest men, has just two pairs of work shoes that he has worn on alternate days for over a decade, thanks to resoling. Imelda Marcos is reputed to have had over 3,000 pairs of shoes, many of which have now been destroyed by neglect.

One example is a lot more sustainable than the other.

Desire and demand

Global demand for luxury goods grew by 5 percent in the past year, with the sector valued at €223 billion. Growth is particularly strong in Asia, Latin America, Africa and the Middle East.  These regions accounted for just 9 percent of the total world market in 2008, but by 2013 this had grown to 19 percent.

This growth has come with a social impact, tapping into serious concerns around rising inequality. In Beijing the government actually banned the outdoor advertising of luxury goods, as this is seen to promote hedonistic lifestyles.

Against this backdrop then the concept of sustainable luxury can sound like an oxymoron. Luxury goods are often associated with conspicuous consumption, indulgence, excess, and the aggressive marketing machine that renders last season’s fashions instantly obsolete.

But there are several good reasons to believe that some parts of the industry can actually act as a catalyst to help create a more sustainable world.

Value and vulnerability

Luxury goods come at a premium price, because consumers buy into a brand, along with its associations, story, and heritage. Much of the value in the sector is built upon intangible assets such as design, user experience, uniqueness, endorsements, and beingcool. Intangible assets tend to have lower environmental impacts than their tangible counterparts. It also means that luxury brands are especially vulnerable to reputational damage from poor environmental and social performance.

There are a number of areas where brand value can be significantly tainted by association with unsustainable or unethical practices. Examples have included the cruel treatment of animals used for fur or skins, as well as poor labour standards in the supply chain and the use of sweatshops.

A move to mitigate these risks has meant that businesses have adopted particularly robust corporate responsibility strategies. The case for action has doubtless been strengthened by the fact that activists and campaigners have put a keen focus on the sector due to its high profile.

Companies such as Kering, the owners of a stable of luxury brands including Gucci, Stella McCartney and Alexander McQueen, are taking a global leadership position on sustainability, alongside very ambitious goals. Targets include reducing the carbon emissions, water and waste impacts of products by a quarter by 2016, eliminating the use of PVC by 2016 and all hazardous chemicals by 2020, and evaluating the performance of key suppliers against an ethical code of conduct every two years.

There are also a number of cross-industry collaborations to jointly protect reputations and improve performance. For example, concern around the social and ethical issues arising from mining of precious metals and stones – particularly the use of blood diamonds to fund conflicts in Africa – led to the creation of the Responsible Jewellery Council in 2005.

The 14 founding members included not just miners and trade associations with more of a direct role in supply, but luxury brands such as Cartier, Rosy Blue, and Tiffany & Co. Today the organisation has over 440 members and offers a series of international standards and certifications.

Tastemakers and trendsetters

There are websites, television shows, newspaper sections, and glossy magazines dedicated to reporting on the fashion industry. People notice what these businesses do and care about what they have to say.

Luxury brands can have a serious influence on consumer attitudes, desires and behaviours. And an influence over tastes and trends can be put to good use by making sustainability an integral part of the narrative of luxury goods.

Better compensation and treatment can turn the subsistence farmer or low-paid worker into an artisan producer or skilled craftsman. Explaining to consumers how a product is made from quality raw materials with a minimal environmental impact can provide that ineffable ‘sense of smugness’ that adds serious value. Just as importantly, brands that take a leadership position can differentiate themselves and gain competitive advantage.

There is also the opportunity to use the luxury experience to promote more responsible resource consumption. Designer Vivienne Westwood has criticised fast fashion, complaining that everyone is buying too many clothes. Her rallying cry is for people to: “Buy less. Choose well. Make it Last.” Promoting this concept gives luxury brands has the opportunity to usurp market share from lower quality producers.

The concept of emotionally durable design is encouraging the purchase of higher value, higher quality products. This serves to promote a greater emotional attachment to objects, resulting in better ongoing care, repair rather than disposal, and greater longevity.

Fashions and futures

New digital technologies and business model innovations around the sharing economy are changing how people behave and consume. Innovative companies like Girl Meets Dress have enabled consumers to rent high-end fashion for a fraction of the retail cost, as well as providing a monthly subscription model for frequent customers.

The vintage goods market has been revolutionised through peer-to-peer sales, and smarter logistics enabling collection and sorting by charities. This has massively increased access to second-hand upper premium luxury brands, with a market currently worth around €16 billion.

Personalisation and co-creation is another major trend identified as shaping the future of luxury. Smart technologies, 3-D printing, and modern manufacturing are lowering the cost of bespoke creations. Customer experience has been identified as the key to the future of the luxury brand, where companies can consumers can work together to make unique and meaningful products that will last.

Opulence and optimism

When predicting the future of the global economy, you can’t get away from the fact that people like to have nice things. As easy as it would be to solve the world’s problems by having everyone voluntarily agree to limit consumption to a monastic level of frugality, this is practically and politically impossible.

It may be a stretch to imagine that private jets and superyachts have much prospect of being part of a truly green lifestyle (at least not without remarkable progress in low carbon innovation and resource efficiency). But luxury businesses have a big potential role to play in finding a way to sustainably meet the world’s wants. And there are reasons to be positive that the industry will respond to the challenge.