Welcome back to The Deep Dive, a new series from Luxury Society that takes an in-depth look at the big issues and topics affecting the luxury market, and how the industry has responded to them. Through a series of interviews, exclusive data, and market analysis, we hope to provide a comprehensive view of each topic explored, adding to the wider discussions with our own expertise and that of others in the industry.
The second part of our report is a series of interviews with leading experts in different segments of the luxury industry such as Travel and Hospitality, Automotive, Media and Advertising and Health and Wellness, each taking a deep dive into the current state of the luxury industry today and where each category is headed. We aim to give our readers a deeper understanding and insight into the trends happening in the market through their eyes.
Our sixth and last interview in part two of The Deep Dive features Mario Ortelli, Luxury Society Columnist and Managing Partner at Ortelli&Co, a strategic and M&A advisory boutique for luxury goods, high-end retail and premium branded consumer goods sectors, who discusses the long-term prospects for luxury, why there has never been a more competitive time for luxury brands, and the opportunities for further investment within the sector.
There was once a time when Mario Ortelli could recall comments about whether a brand like Louis Vuitton could exceed revenues of $2 billion. That figure rose to $5 billion, and then $10 billion. And today, the value of what is arguably the world’s largest luxury brand is above $15 billion.
Back then, it was almost impossible to believe that a luxury brand could reach such scale and not risk over-exposing itself, said Ortelli. But today, Louis Vuitton is point and proof of how a compelling brand story can be built-up, its products segmented to appeal to a number of different audiences and yet still remains true to its customers as it did 167 years ago when it was founded.
So, when doubts are cast over the long-term fundamentals of the luxury market, Ortelli points to LVMH, the world’s leading luxury products group, which in October posted a 46 percent rise in revenue of €44.2 billion in the first nine months of 2021 and which noted the performance of its Louis Vuitton brand as performing “remarkably well” and maintains his positive stance: that the growth prospects of luxury remain a compelling investment in the long-term.
“I'm positive on the long term fundamentals of the luxury sector,” said Ortelli, who has worked as a luxury advisor for more than 23 years. “Clearly there may be certain moments, like we have seen in 2020 with the pandemic that was an enormous negative discontinuity. But luxury was able to quickly rebound after the biggest crisis in recent history back to levels seen in 2019.”
“It basically shows that there is very strong underlying demand,” he added. “And also, from a cultural point of view, luxury keeps its connotation of a positive value to the consumer.”
Indeed, it seems that pandemic or not, luxury consumers have barely taken a pause to stop buying, despite the initial impact seen in the first half of 2020, and the result is what Ortelli describes as the most competitive environment for luxury there has ever been.
“Consumers are becoming more and more sophisticated and more discerning,” he said. “And so, for the luxury companies that means that the competition is getting more and more intense.
“To be relevant as a luxury brand, you have to have a global footprint,” added Ortelli. “Meaning it requires a kind of scale and investment that many luxury brands have never thought of before. On one hand, it’s easier than ever to communicate with consumer in this digital era with social media and digital advertising, and that can help brands stand out for a certain while,” he noted. “But on the other hand, you need to also have a compelling value proposition to appeal to customers and without investment and scale, it can be hard to stand out through all the digital noise out there.”
It goes without saying that remaining relevant with consumers has become key in today’s luxury market, particularly as the adoption of online channels continues to accelerate. Online channels grew by 27 percent from 2020 to 2021 and is estimated to reach €62 billion in market value this year, nearly doubling in the past two years, according to the latest update on the luxury market by Bain&Co. and Altagamma published in November.
Brands must consider how to address the multiple trends that are reshaping the market and demand for luxury goods, including embracing digital and devising creative and compelling content for consumers, said Ortelli.
They must also keep up with the trends that are steadily gaining traction with younger consumers like how to implement sustainable practices into their business, adapt their product offerings to suit the more casual styles preferred by Millennials and Gen-Z, and explore the world of the metaverse. The brands who do not successfully engage with their customers in a dialogue around these topics, risk losing out to their competitors.
“What we have seen so far is the divide forming between high and low performers,” said Ortelli. “This gap will continue to increase as each customer goes to their top of mind brands in each specific product category and the other brands will simply lose relevance over time.”
Looking forward, Ortelli sees more opportunity for investment within the luxury market, particularly as the pandemic has forced companies to dramatically rethink their businesses and plan for the future.
“These eye-opening events have pushed companies to be more efficient, agile and faster to adapt,” said Ortelli. “It has been a very good lesson for brands to change things up and the result has been that they are now stronger for it. Do I think that this is a sector that is able to attract investors? Yes.”
“Let’s put it this way,” he added. “Brands that are able to remain top of mind for the luxury consumers just increase their value massively over time. A few years ago, there were rumours that a potential buyer might pull out of the possibility of acquiring Moncler at $2 billion as it considered expensive. But then they came back to look at it and they were not able to acquire it at $10-12 billion and nowadays, Moncler is an almost $20 billion market capitalisation company.”
“It goes back to my original point about luxury’s long-term prospects,” he continued. “If you build up a compelling brand story, if you're able to hyper-segment your offer and so be at the ‘top of mind’ and relevant for different consumer clusters that look to your brand for a specific purpose, and you’re able to do this without diluting the other parts of your brand, the sky is the limit.”
In the next part of our special report, we’ll be delving deeper into the data behind our findings, looking at the trends and insights that emerge from the numbers, which includes a community survey to hear the thoughts from you, our readers in the luxury community, to help us answer the question of whether luxury's rebound will last in the long-term or not.
Stay tuned for the next installment here on Luxury Society.