Miners at Gemfields’ Kagem emerald mine in Zambia

Christopher H. Cordey, strategic foresight adviser and founding Director the Sustainable Luxury Forum, asks what role could luxury companies play in solving endemic environmental, economic and societal issues in emerging countries

Today, we are at a crucial moment of history. A moment in which the human race is faced with a radically new challenge. For the first time, its prodigious dynamism collides with the limits of the biosphere.

The story is one of growth in population and consumption compounded by inadequate governance and policy responses necessary to manage this growth. The result is simply degradation of the environment and societies.

Today, the collective challenge we are facing is “How to take advantage of increased population and consumption? And work collectively to find and drive solutions to manage the negative consequences that the growth generates?"

By 2050, we will need to feed 9 billion people. Of the 2 extra billion, 40 % will be living in Sub-Saharan region and about 50 % in the Muslim world. Many people will be moving up the economic ladder toward a middle class standard of living, consuming more resources per capita.

In Western Europe, we will need to find solutions to welcome 10 times more legal migrants from Central Europe and the South. Energy and resource shortages will continue to spark regional wars, create famine, and continue to affect the political, social, financial and economic spheres. A healthier, but aging population in the western world, will require longer care and impact negatively on existing retirement and social plans.

A knowledge dependent society and free access to knowledge will continue to increase competition from low-wage countries, thus forcing companies to prototype new business models or … risk disappearing. Then, how can we collectively address these issues?

Research shows that luxury brands at large were slow – compared to other industries – to engage toward sustainable excellence & transparency, but some show progresses.

Africa, the New Luxury Eldorado

Tomorrow, it won’t only be about the BRICS, but also about “Africa, the new luxury Eldorado" or as Ms Suzy Menkes alleged while introducing the 2012 IHT luxury event. “This year’s event will explore the potential of Africa as a luxury consumer and producer”.

Aside from the “200 hidden African billionaires (Templeton Emerging Market Group)”, who have most probably already established themselves outside of Africa, the real opportunity is the emergence of the new middle class throughout the continent. But Africa rather than just a continent must be viewed as 54 separate and distinct countries with a wide array of political, economic, geographical, cultural and social features.

“Sub Saharan Africa has a newfound global confidence, fuelled by its burgeoning economic prowess” says Euromonitor. With double-digit growth, oil, gas and resources rich countries such as Kenya (with Nairobi probably bidding to welcome the 2024 Olympic Games), Ghana, Tanzania, and Nigeria are becoming the magnet of foreign investments.

Even a single country like Nigeria – 170 million people (44 % below 14 years old, 70% below the poverty line, 250 different ethnic groups, 500 languages) – “is set to post the second-strongest gain in total champagne volume, trailing France by 2016.

But across Africa, tremendous inequalities, wealth disparities, health, education, infrastructure, safety and corruption issues are to be solved; first and foremost or in parallel?

Thus, how will luxury executives balance tremendous (but somehow risky) business opportunities with poverty alienation, regional famine, illiteracy or endemic health issues in an extremely poor, young but populated continent? Where lies 15% of worldwide population, 50% below 25 years old?

Africa is obviously on the radar of several luxury brands:

– Porsche: The opening of Porsche Centre Lagos is an important development for the brand’s presence on the African continent. We are excited about this new venture and we look forward to developing in the Nigerian market.”

– Burberry: “We “absolutely” will look to expand in the region”

– Ermenegildo Zegna Group “There is a new focus on Africa”

– Prada: “…We want younger generation to experience the world. That doesn’t mean spending time in places like New York, Paris, and Los Angeles. Prada needs young people who know something about Africa."

How Fragile is China ?

On the other side of the planet, how fragile is China? With the existence of one million Chinese $USD millionaires and a rapidly growing aspirational middle-class, the country is set to become the second largest luxury market by 2017.

China is still a poor country based on its average income, with 150 million people (10 % of the population) living with less than $1 per day (United Nations standard of poverty). Even more, for China to become “a modern, harmonious and creative high income society by 2030”, as coined by the World Bank, the country has to deal with growing public concerns on the widening income gap.

The government already implemented new regulations to mitigate the income gap perception in banning luxury outdoor advertising, and cracking down on cars and watches bought (or sometimes “received”) by government officials.

Back in 2011, on the sustainableluxuryforum blog, we were already referring to the “Chinese Luxury Syndrome” as coined by Zhou Ting, executive director of the research centre for luxury goods and service at the University of International Business. “Luxury goods have become indicators for social problems; the source of the problem is not the luxury goods, but the society itself”.

His view is corroborated in the newly published book “The End of the Chinese Dream”, in which Gérard Lemos analyses how China’s community and social problems threaten the ambitious nation’s hopes for a prosperous and cohesive future. And why protests will continue and a divided and self-serving leadership will not make people’s dreams come true.

Weak Signals

As we experience a period of global power and political shifts and growing inequalities and instabilities, these are weak signals to consider. Western public opinion (the 99 % or ‘The Rest’ as coined by The Economist) is awakening against the growing divide in wealth.

How not to be concerned to monitor that South African miners have to riot (and die) to get a mere salary increase from their current $500. What about kidnapping threats in “promising but fragile southern countries”?

Radical transparency, or the concept of removing all barriers to free and easy public access to corporate, political and personal information, is on the rise. It forces companies – and luxury goods companies – to ‘react’ and/or ‘adapt’ when inappropriate activities are spotted.

They are numerous examples where renowned high-end fashion and luxury brands have been caught engaging unethically. Browse the ethical consumer web site to rate famous fashion brands on various factors such as animal testing, environment, human rights, political activities or product sustainability. The results are extremely damaging for a number of well-know high-end fashion brands.

Take the Good Guide app, a consumer tracking and rating system for beauty, fashion and apparel product. The app draws on 200 databases to help anyone find safe, healthy, and sustainable products and this for more than 50’000 products and companies.

Today

The days of awareness raising are long gone. Farsighted and progressive luxury companies are already taking advantage of ethical sourcing, traceability, product labelling, ethical certification or RFID tracking; thus addressing the greater needs of transparency of stakeholders. But what are the impacts?

For the last three years, we have monitored a growing number of progressive luxury companies engaging their organisation toward Sustainable Excellence; either starting strategic philanthropy programs or engaging their organisation in compliance exercises.

The good news is that despite all economic, financial and social turmoil, the luxury industry is in excellent shape and has shown overwhelming resilience over the years. Hermes grew 22 % in the first quarter of 2012, all regions showing double-digit growth, LVMH grew 16 % in 2011 and Richemont sales grew 24 % by Dec 31, 2011. Thus, should board members accelerate the pace of investment in corporate sustainability?

65% in Defence Mode

We guestimate that 65% of luxury companies are still in the defensive phase – denying practices, outcomes or responsibilities; 30% in the compliance phase – adopting policy based compliance approach as a “cost of doing business” and about 5% in the managerial phase – embedding societal issues in their management process.

Some within the industry object that “it is not an easy task for luxury executives” (normally evaluated on sales, profit or EBIT criteria) “to deal with ethical, human rights, governance, prostitution, biodiversity, environmental damages or corruption issues; while on the same time empowering their team to design, create and market ”high added value goods and services”.

But how to compare their “power to influence change” with the power of Basilio Vargas, a 14 years old silver miner working in extreme conditions in the Bolivian silver mine of Potosi … just to make a living to sustain his mother and siblings?

What’s Next?

Three years ago, corporate sustainability was a nice to have option for luxury companies. Since then, it has become (at minima) a reputational imperative to avoid being – directly or indirectly – associated with air/soil/water pollution, genocides, unethical sourcing, civil wars, child labour and prostitution at mining zone or at tourist destination. But it goes further than just mere reputation.

The highly ignitable blend of wealth divide, instabilities, inequalities, reputational and human risks mixed to the irresistible industry resilience and business opportunities in “promising but fragile countries”, should trigger forward looking luxury executive to reassess their mid term strategy in emerging countries, beef up their corporate sustainability engagement and resources allocation to, ultimately create lasting socio-economic positive impacts foremost in these countries.

In parallel, impacts and emerging countries might be the key drivers.

As in other sectors, luxury brands won’t be able to operate in emerging countries without ensuring that they enable communities in which they do business to benefit, thrive and prosper as well. Even more, luxury brands, because of their aspirational values, have a much greater role to enable societal and behavioural change.

Industry best practices, comfortable margin, industry certification, NGO or academic support, experienced CSR specialists, dedicated training for senior or future luxury executive and specialized forum are widely available; thus facilitating the required organizational and behavioural transition to materialize.

With tomorrow’s global economic, demographic, environmental, financial and social challenges, business is about sustainable innovation, about creating sustainable competitive advantage, but also positive socio-economic impacts creation for the 99 %.

In a recent paper on “Elegant Disruption”, the author pointed out the inspiring role, but also responsibility, that luxury executives have: “If luxury executives want to continue influencing what young people dream about, then they had better take that responsibility far more seriously than the way they do now”.

Another academic wondered “As the Ying and the Yang of our behaviours, power and responsibility are how we balance our relations with ourselves with the interests of others, which is at the core of what we mean by “our values”.

To further investigate related articles on Luxury Society, we invite your to explore the below materials:

– Luxury Brand CSR: No Longer Just an Option?
– Luxury Brands & The Promise of Africa: Suzy Menkes
– The Complexities of Ethically Sourced Precious Stones