Fariman Felisa, Managing Partner, Paris, France
Luxury Firms Show Resilience and an Ability to Make Transformative Change
Initially challenged by a massive COVID-induced downturn, the luxury goods sector has rebounded extremely strongly. We spoke with several industry executives about the main business and workforce management decisions which were fundamental to the recovery.
In 2019, global luxury goods market revenues were healthily growing year-on-year, and had reached a total revenue figure of US$306 billion, up 16% from just four years prior. Then COVID hit, with lockdowns, lack of international travel and manufacturing processes fundamentally disrupted, and industry revenues dropped by US$40 billion.
Despite this, and with COVID uncertainty still plaguing the market, 2021 revenues surged back to all-time highs (US$310 billion). The world’s biggest luxury brand LVMH broke all-time records for the year with US$72.51 billion in turnover, which is US$11.33 billion more than the firm achieved in 2019, and posted a net profit that jumped to US$13.6 billion against US$8.84 billion in 2019.
The recovery-and-boom is even more noticeable in other luxury organizations. Hermès announced more than US$10 billion in sales, and a net profit of US$2.77 billion, which is a billion dollars higher than before the pandemic. The Swiss group Richemont, owner of Cartier, also announced in mid-January that its third quarter sales have risen by 38% compared to the same quarter of 2019.
We spoke with a number of senior industry leaders as to what the principal learnings from the past 24 months has provided.
Falling off the cliff
When the pandemic first hit, a whole host of unexpected and fundamental challenges greeted the industry. Some luxury brands were losing US$100 million per month. Staff were unable to work. Customers couldn’t shop in physical retail environments. With the health crisis of such a large magnitude, the ‘exclusivity’ associated with the luxury market was not seen as a priority in people’s lives and lifestyles.
“Time became both shortened and intensified during this period,” said one luxury goods CEO. “The firm I was leading at the time held two to three briefs per day. Our immediate focus was on two main fronts: the safety of our staff, and the business imperatives associated with cost reduction without jeopardizing long-term supplier relationships.”
Staff Safety and Engagement
The workforce demographics of the luxury goods industry are predominantly young (eg. 80% of Dior’s staff are under 40 years old) and female (eg. 83% of Estee Lauder’s employees are women). Many of the executives we spoke with are extremely proud of the vibrant and creative talent base they have within their organizations.
The importance of an immediate focus on supporting the health and wellbeing of staff as the crisis deepened was also therefore emphasized.
Quick thinking and progressive policies around flexible and remote working arrangements were essential. But so was staff engagement and communication of these developments, as well as instilling in staff what one company’s Vice President of Global Talent referred to as “a heightened sense of purpose.”
She added: “to this end, we revitalized our employee brand statement by focusing on the essence and authenticity of who we are – as a company, as a brand, as a lifestyle – in order to drive a sense of belonging and trust.”
Another senior HR executive at a multi-national luxury brand, who is also a member of her company’s leadership team, added: “In the midst of COVID, we balanced care with adaptability. Our approach was for HR to functionally provide a beacon of hope to our people, with care and sophistication, in a time of great uncertainty.”
At the same time, COVID forced luxury goods companies to completely reimagine how they engaged, inspired and attracted clients. All the brands that we spoke to strongly emphasized time and again the huge amount of focus that was placed on a direct-to-consumer approach through digital means. This had already been underway prior to the pandemic of course, yet operational focus and investment in talent who would drive this massively increased.
“We achieved in one year what it would have normally taken three years to achieve,” explained one executive leader. “Key to the success of our digitalization plan was to start early, structure the right function at the right level, and then fill it with agile and willing talent. The importance of team dynamics and energy is of paramount importance – and it does not happen just by clicking your fingers.”
He added that the success of the digital function at the organization, which he referred to as a “center of excellence”, was underpinned by consistent behaviors and daily rituals towards a common vision: the provision of an omnichannel lifestyle experience which is digitally seamless.
All of the organizations we spoke with said that their share of revenue that was generated from digital sales had grown substantially, and was still growing. Often digital sales accounted for between 5% and 9% of their revenue in 2018, but by 2021, this had grown to 30%.
Talent Management Priorities
Two years into the pandemic, the executives we spoke with said that their current hiring focus by function includes the acquisition of highly skilled tech people (particularly digital architects and engineers), supply chain experts, creative brand execs and digital marketers.
Executive skill-sets that are most in demand from a hiring perspective include visionary leaders who can deliver through transformation, and have the ability to influence and permeate through multiple levels of an organization. One Senior Talent Acquisition leader emphasized, “right now, the ability to engage is much better asset than the ability to drive.”
Workforce Trends and Expectations
Most of the executives we spoke to said that their employees around the world, particularly in China and the US, have increasingly asked for what can be called an ‘employee value proposition’, which provides for a much more meaningful employer/employee relationship and a work/life balance.
“Our predominantly young workforce is looking for a mission that makes sense for them, and a job in a company that has good environmental, social and governance values and standards, particularly with regards to diversity and inclusion,” said one talent management executive.
This sentiment, with a particular employee focus on flexibility, means way more than just remote work. Flexibility seems to be a new values system, which extends to new ways of collaborating and being managed. Requests to report to two or three different people for inspiration and more dynamic learning opportunities, or to be based in several different cities across the week, or to work in two different departments to get increased exposure to more aspects of the business, are today not uncommon.
One HR leader added that, “the young people coming into our company today are also more immediate in their timeframes and thinking. They are looking for a professional path which is personalized to their specific talents and needs.”
‘Post-Pandemic’ Workforce Management Advice
This demand for varying types of workplace flexibility is seen as an unequivocally positive development by one Senior VP of Talent. She says this represents an opportunity to engage and build meaningful bonds with the firm’s ‘internal clients’ (staff) in new and dynamic ways.
“In keeping with who we are, we want to continue to create a haute couture of careers, in a sense – bringing energy, exceptional quality, a willingness to customize, and an ability to listen to our talent.”
Leadership Management Takeaways
In speaking with the executives who have successfully led and pivoted throughout this health and economic crisis, the key behavioral takeaways include:
- Have your aims in mind
- Put important before urgent
- Prioritize digital
- Know what you don’t know
- Put your people at the center of your strategy
- Constantly challenge yourself
- Be self-aware and empower your teams
- Be curious and have a willingness to learn
- Data is critical – including employee surveys
- Never micro-manage.