What Is Luxury, What Is a Creative Director, What Is the Market of the Future? It's Time to Ask Again

It all comes down to one question: how do you stay connected to consumers, and to the times, when everything inside and outside the business is changing this fast?

"What's next?"

Vanessa Friedman, fashion director of The New York Times, opened last year's year-end review of the luxury industry with that question. This year the paper's International Luxury Conference returned to Hong Kong for the first time in 15 years, and asked the same thing: what's next?

Bain & Company's 2018 Luxury Goods Worldwide Market Study, the industry's most-watched report, came out on November 15 optimistic but careful. This year the global market for personal luxury goods grew 6% at constant exchange rates, to 260 billion euros. By 2025 growth is expected to slow to 3%-5%, with the market reaching 320 billion to 365 billion euros.

A changing world has more and more people probing the boundaries of what counts as "luxurious." But as a business, luxury has never escaped the balance sheets of a handful of big companies. Set aside the philosophical definitions: the famous names you keep running into out in the world of shopping are the ones that control the language of luxury now.

Results across the big groups and brands are mixed. Gucci, owned by Kering, has grown more than 35% for seven quarters running; LVMH and Hermès both held double-digit growth through the first three quarters of this year. Richemont's sales rose 21% in the first half of its fiscal year (the six months to September 30), but strip out its luxury e-commerce arm YNAP and the pre-owned watch platform Watchfinder and group sales rose only 6% to 8% at actual exchange rates. The British brands Burberry and Mulberry, and the Italian groups Tod's and Salvatore Ferragamo, are still struggling.

What drives the industry's growth hasn't really changed. Bain partner Claudia D'Arpizio sums it up as "the rise of online channels, younger consumers, and the return of domestic demand in the Chinese market." But each of those shifts is going deeper.

Luxury's turn toward streetwear no longer stops at collaborations. In March, Virgil Abloh, the 37-year-old founder of Off-White, became Louis Vuitton's first Black menswear creative director. Burberry's new creative director, Riccardo Tisci, announced he would abandon the traditional sales calendar and release new products in "drops," the way Supreme does.

Luxury is moving further into e-commerce. The British platform Farfetch completed its IPO in September. In October, Richemont said it would set up a joint venture with Alibaba in China, and that its luxury sites Net-a-Porter and Mr Porter would open shops on Tmall.

Deals of every kind are coming faster. In February, Shandong Ruyi Group bought the Swiss brand Bally and Fosun International bought the French label Lanvin. In May, Richemont bought the remaining shares of Net-a-Porter, the world's largest luxury e-commerce site. In June, the Spanish group Puig acquired the independent designer label Dries Van Noten. In August, Ermenegildo Zegna took 85% of Thom Browne. In September, Michael Kors announced it was buying Versace. In October, Shanghai Icicle Fashion Group bought the French womenswear house Carven.

Sustainability is no longer only about image; it is starting to rebuild supply chains. This year London became the first major fashion week in the world to go fur-free, and the city of Los Angeles voted to ban the manufacture and sale of fur within city limits. After Gucci renounced fur last year, Burberry, Michael Kors, Tom Ford, John Galliano, Maison Margiela, Jimmy Choo and Versace made similar announcements. Marie-Claire Daveu, chief sustainability officer at Kering, Gucci's parent, said 90% of the group's environmental impact comes from its supply chain, and that pressure from investors and consumers is the main reason anything is changing.

None of these shifts comes with a clear answer. But the question underneath them is the same one luxury always faces: how to stay connected to consumers, and to the times, when everything inside and outside the business is changing this fast.

Young Buyers Will Soon Be More Than Half the Market, Pushing Luxury Toward Digital, Entertainment and Variety

Every report says the same thing about young people, tirelessly. This year Bain put a number on it: between 2018 and 2025, Gen Z's share of luxury consumers will rise from 2% to 10%. By 2025, Gen Z and millennials together will account for 55% of the global personal luxury market, with growth of as much as 130%.

Last year's Bain report described this young group in detail. This year's description is shorter and blunter: they are individualists; they still like buying in physical stores, but expect a good digital experience once inside; they love logos and feel almost no loyalty to brands — they may love Supreme's Box Logo and Off-White's "zebra crossing" stripes today and drop both when the trend turns.

So brands have had to change what they make, where they talk, and how they deal with customers. The clearest example is the rush to redesign logos.

Between August and September, Burberry and Saint Laurent each unveiled a new one, and the changes were strikingly alike: a plainer, heavier typeface, tighter letter spacing, and the city where the house was founded set beneath the name. The advantages are obvious. It plays down classic elegance in favor of something cooler and younger; it stands out in a social media feed; and it copies easily onto a T-shirt or a bag, where the logo becomes a statement.

The fight for young attention has also sharpened the digital fight. Bain found that in 2018 luxury sales through physical retail and wholesale grew only 4% and 1%; online sales grew 22%, to 27 billion euros. The United States has the deepest penetration, taking 44% of global online luxury spending, but Asia is growing fastest. By category, shoes and jewelry grew fastest at 7%, followed by bags and beauty; watches were flat. By 2025, online will account for 25% of luxury spending, up from 10% today.

More than half of Instagram's one billion users are under 35, which makes it the ideal place for luxury to tell visual stories and build a following. Chanel was one of the last houses to open online shopping, yet even Chanel now keeps an Instagram team in Paris posting three or four times a day; it gained 960,000 followers last year, making it the most-followed luxury brand on the platform.

Celebrity and royal weddings became another main arena in this year's attention war — good for talk, good for sales. In May, Prince Harry married the American actress Meghan Markle at St George's Chapel, Windsor Castle, in a Givenchy gown designed by Clare Waight Keller. The luxury e-commerce site Net-a-Porter reported that Givenchy's sales in the three days after the wedding were three times what they had been in the three days before. According to eBay's 2018 shopping report, sales of wedding-related goods on eBay rose 47% during the wedding period and searches rose 146%.

In early September, the Italian fashion blogger Chiara Ferragni, who has 14.6 million followers, married in Sicily wearing two pieces made for her by Dior's creative director, Maria Grazia Chiuri — a wedding gown and a dress. Dior's official account posted three times to match, showing the designs and one shot of Maria Grazia Chiuri fitting the blogger herself; the posts drew 1.52 million likes.

Young shoppers' appetite for variety and for sustainable buying has also brought growth to corners of fashion nobody expected. Bain found that in 2018 modest fashion made up 40% of the luxury womenswear ready-to-wear market, counting both Muslim dress and other kinds of modest clothing. Inclusive dressing took another 20% of women's ready-to-wear, with more attention going to what plus-size women want to wear.

Resale grew remarkably this year too. In Europe, secondhand luxury accounted for half of all luxury transactions. In the United States, the consignment site The RealReal announced a $115 million Series G round in July; an annual report from the resale site ThredUp found that 71% of consumers plan to spend more on secondhand goods, and projected global secondhand apparel sales above $41 billion by 2022. In China, the secondhand luxury sites Plum and Zhi'er each raised tens of millions of dollars this year.

As Assets Are Pruned and Combined, Luxury's Boundaries Keep Blurring

Kering, which owns Gucci, YSL and Balenciaga, spent this year simplifying itself: it sold Stella McCartney back to the designer, spun off its Puma shares, opened buyback talks with Christopher Kane, and closed Tomas Maier, whose annual sales were under $10 million.

Shedding mediocre assets outside the core obviously helps Kering report better numbers, and lets it pour more into the brands it cares about, in the hope of building another "super brand" like Gucci.

But more brands spent this year buying up their supply chains than selling off assets. Chanel acquired one craft workshop after another: the embroidery house Lesage, the cashmere mill Barrie, the tulle and lace maker Sophie Hallette. Kering bought the French tannery France Croco to lock in its supply of crocodile skin. Zegna bought Thom Browne in August, and chief executive Ermenegildo Zegna said afterward that the point was mainly to connect Zegna's own wool mills to Thom Browne's fast-growing retail network in China.

"They're getting hold of the resources they need to keep their edge," Mario Ortelli, an analyst at the London firm Ortelli & Company, told The New York Times. "What do you do if your supplier works with 10 luxury brands at once and you aren't their most important customer? Every time you ask to increase an order, they may just say, 'Sorry, friend, you'll have to wait.'"

These deals also back up the craft and quality that luxury brands like to talk about, and they hold costs down and margins up. "The more control you have over the supply chain, the more profit you make at each step, and it adds up to a big business," explained Franck Delpal, a professor at the Paris fashion school IFM.

Luxury houses are not the only ones who understand this. Chinese conglomerates and American accessible-luxury brands were the most active buyers in fashion this year, filling out their portfolios and pulling supply-chain resources together. Shandong Ruyi, which bought Bally, and Michael Kors, which bought Versace, arrived at the same slogan without consulting each other: build a brand-new luxury group.

In its seven macro trends for luxury through 2025, Bain compressed all of this into two phrases — "nimble is the new black" and "the intersection of specialization and diversity."

"Millennials favor services that are personal and convenient. The way brands tell their stories is no longer based only on an aspirational lifestyle; it is rooted just as much in authenticity and social responsibility," PMX Agency explained in a report published in September.

For Michael Kors and Coach, which want to be "modern luxury groups," the moment could not be better: the old accessible-luxury story no longer holds, and growth now has to rest on a spread of brands and product lines. But the story has a new twist, because changing consumers, new technology and capital are all blurring the edges of luxury further.

A Creative Director Now Has to Tell Stories More Than Design Clothes

In late October, Gucci chief executive Marco Bizzarri appeared at the WWD CEO Summit as pleased with himself as ever. The first slide of his deck was a single bold number: 49. He asked the audience to guess what it stood for — and yes, that was Gucci's sales growth in its most recent quarter: 49%.

"Finding Alessandro Michele was the best decision of my career, but it was pure luck. I just asked HR who understood Gucci's whole design process best, and they pointed me to him. I went to see him at home, and he came to the door in a bathrobe and a pair of loafers — yes, the same Gucci loafers that are the best sellers right now." Marco Bizzarri's eyes glittered behind his trademark black frames.

Nobody knows whether this "dream team" really came down to luck, but it is a good story. In public, in interviews, on social media, Marco Bizzarri and Alessandro Michele are both good at telling it. It has carried Gucci through seven straight quarters of more than 35% growth, and it hasn't worn out yet.

Every luxury brand wants a story like that, and the creative director sits at its center. This year Burberry, Celine, Louis Vuitton menswear and Dior menswear each took on a new one — four names that need no introduction: former Givenchy creative director Riccardo Tisci, former YSL creative director Hedi Slimane, Off-White founder Virgil Abloh, and former Louis Vuitton menswear creative director Kim Jones. All four staged their first show this year.

Contradictory but unsurprising: the build-up around each show got more attention than the clothes did. In the days before his debut, Riccardo Tisci dropped a new teaser on social media every few days. Burberry would do a collaboration with Vivienne Westwood. Burberry would stop using fur and stop burning unsold stock. Burberry would copy Supreme's drop model. Burberry would launch "see now, buy now" on the day of the show.

Virgil Abloh's Louis Vuitton debut was already historic — the house's first Black creative director. He piled on details to make it larger still: a 200-meter rainbow runway, 1,500 students invited to watch in rainbow-colored T-shirts, and guests whose combined social media following passed 200 million. The headlines all carried the same line: "Virgil cried, and he and Kanye West wept in each other's arms."

Hedi Slimane produced two rounds of outrage before his show even started. First he wiped Celine's Instagram account clean of everything from the Phoebe Philo years, then he removed the accent — the little stroke that gave the logo its French air. He had done much the same at YSL, and it had caused much the same fuss. In the new collection he put women in miniskirts and men in slim suits, in the same black and white with a little gold and silver. The mature, independent, elegant woman of the Phoebe years turned back into a hungover girl leaving a bar. After the show, Vanessa Friedman asked what this was if not repetition of himself, and why bother with the name Celine at all rather than simply calling it "Hedi Slimane."

But he had done this at YSL too, and the numbers were good: during his time as Saint Laurent's creative director, from 2012 to 2016, sales grew 150%.

As for Kim Jones, people talked less about the new collection than about the 10-meter BFF doll he built with Kaws in the middle of the runway.

These are all stories, and far more than four brands are telling them. Chanel spent $1.46 billion on marketing, shows and events last year, 15% more than the year before. In the three months to September 29, Ralph Lauren's marketing costs rose 30% because of the 50th-anniversary show and similar events, pushing overall operating costs up 3%.

Shimon, the designer behind the American independent label Ovadia & Sons, whom we met during Shanghai Fashion Week, said he has to produce six collections a year. How does a designer keep having good ideas on a cycle that short? "A lot of people get this wrong. They think a designer has to keep coming up with new ideas. He doesn't. The brand experience matters more than anything. If customers like a hoodie, you can change the color, the fabric, the print. You don't have to innovate every time — the customer experience is what matters most."

That is close to the argument behind "The Artist Is Present," the Gucci art show held in Shanghai in October on the theme of copying. Its curator, Maurizio Cattelan, said: "It doesn't matter where your inspiration comes from. What matters is where you take it."

More and more brands are announcing new logos, new creative directors, new social media accounts, sneakers and slogan hoodies and other streetwear touches, new signature bags and new collaborations — as if they had resolved to look completely different in order to catch the younger generation.

The groups have learned how to make their financial statements look better, too: sell the brands that aren't performing, open new online sales and marketing channels. And they have learned how to feed a young appetite that shifts fast and keeps growing: two seasons a year became four, or even six; a show's worth is now measured in social media impressions and chatter.

It is hard to say whether any of this adds up to an industry in good health.

One contrast is telling. To answer rumors that it was about to be sold, Chanel published financial results for the first time in its 108 years, reporting 2017 sales of 6.2 billion euros — a match for the industry's best performers, Gucci and Louis Vuitton. The question of who would replace the octogenarian Karl Lagerfeld as creative director was flatly refused.

Miu Miu and Louis Vuitton were among the few brands at the spring/summer 2019 shows that took on little streetwear. Interviewed afterward, Miuccia Prada said what she wanted to design was simple — the things people are actually talking about: elegance, glamour, cut. It doesn't have to be sportswear.

Nicolas Ghesquière, Louis Vuitton's womenswear creative director, put it more plainly: "The essence of fashion is to treat the future as the present. You always have to let people today see the future worth waiting for, the one that will arrive when the time is right."

A China That Runs on Its Own Logic, Apart From the Global Market

In mid-October, Gucci held its second global-scale art exhibition in China, "The Artist Is Present," at the Yuz Museum in Shanghai. In mid-November, Louis Vuitton brought its retrospective Volez, Voguez, Voyagez to the Shanghai Exhibition Center; on the 21st of the same month, Dolce & Gabbana was to stage a show called "The Great Show" at the Shanghai World Expo Exhibition and Convention Center. On December 8, Coach was to hold the first big show in China in its history, also in Shanghai.

China matters to luxury more than any other market, and spending is moving back home from abroad. Bain's report shows that between 2015 and 2018, luxury spending inside mainland China grew twice as fast as Chinese spending overseas. This year, luxury sales in the mainland grew 20% at constant exchange rates, to 23 billion euros, and the growth came from real demand rather than price rises. Chinese consumers now account for 33% of the global luxury market, a share expected to reach 45% by 2025.

According to McKinsey, China had more millionaires than any other country for the first time this year. By 2021 it will have the most wealthy households in the world.

Even so, luxury brands still look thoroughly confused about how to read this market. At the BoF forum during Shanghai Fashion Week, Gucci's Marco Bizzarri stressed "flexibility" five times in 20 minutes. He and Ermenegildo Zegna, chief executive of the Zegna Group, who spoke after him, both said a version of the same thing: "It isn't us telling the local team what to do, it's them telling us what we should do... Things used to move from West to East; now they move more from East to West, especially from China to the West. That is a fundamental change."

Chinese luxury buyers are younger than the global average. The World Luxury Association puts the average age of a Chinese luxury consumer at 25, down from 35. A survey published in early November by the consultancy OC&C Strategy Consultants found that in China more than half of Gen Z consumers (born after 1995) spent over 50,000 yuan last year, against 32% of millennials (born between 1980 and 1995) and 34% of Gen X (born between 1960 and 1980).

That partly explains why luxury marketing in China leans so hard on celebrities. Kris Wu picked up three international brand ambassadorships this year, for Bulgari, Louis Vuitton and Chivas Regal. Weng Yiqian, Bulgari's communications director for Greater China, told the BoF forum that Kris Wu's value is that he "can reach the new generation of consumers born in the 1990s." Luxury's renewed interest in menswear this year has also made male celebrities more sought after.

The other thing that sets China apart is its e-commerce landscape. Bain found that globally the three biggest channels for online luxury spending are platform marketplaces (39%), retailers' own sites (30%) and brands' own sites (31%). In China, online is almost entirely held by WeChat mini programs and by platform marketplaces such as Tmall's Luxury Pavilion, JD.com's Toplife and Secoo.

And although luxury e-commerce is growing fast here, brands' worries about counterfeits have kept penetration very low, at 9%. In the United States it has already reached 16%.

But international brands have finally grasped how much localization matters — in what they do, not just what they say.

Farfetch took a long detour to get there. The British company entered China three years ago and opened offices in Shanghai and Hong Kong. To raise its profile it joined Shanghai Fashion Week and the Singles' Day sales war. In 2015 its global online transaction volume reached $500 million, of which China was 12%. It has never published the figure since.

Only after taking a $397 million investment from JD.com last June did chief executive José Neves seem to settle on the fastest way to scale in China: work with a local tech company and lean on its logistics, its payments system and its social media (WeChat). At The New York Times's annual forum in Hong Kong, José Neves told Vanessa Friedman and the audience with complete confidence: "WeChat is as important in the Chinese market as Instagram is internationally. Half of the two million apps in Apple's App Store have a presence as mini programs."

For Singles' Day, Farfetch took part for the first time, with discounts and a WeChat game. Secoo sold a Rolex worth 2.7 million yuan online, and a Hermès Birkin worth 480,000 yuan. Burberry put a limited-edition logo scarf on its Tmall flagship store for 4,800 yuan, and it sold out on the first day of presales. Ralph Lauren, Burberry, Furla, Moschino and Tiffany all turned up at Tmall's trend gala.

In late October, Richemont signed a strategic partnership with Alibaba. Chairman Johann Rupert put it bluntly afterward to the Financial Times: "I don't believe any luxury company can crack the secret of online sales in China on its own."

Cover images: Louis Vuitton 2019 SS, Gucci 2019 SS