Luxury brands must adopt holistic approach to reap benefits of sustainability

By

Robin Driver

Published
Mar 25, 2021

Bain & Company has teamed up with Positive Luxury to offer a vision of sustainable luxury for 2030, highlighting five key areas of focus for luxury brands hoping to successfully implement sustainability strategies over the next 10 years.

 
Based on the operations of a hypothetical luxury company dubbed LuxCo, the study advocates for a holistic approach to sustainability in the luxury industry in the wake of the Covid-19 pandemic.
 
The five pillars of the strategy proposed by the report include redefining brand purpose, decoupling growth from volume, making supply chains fully transparent and traceable, maximizing environmental and social commitments, and creating economic value from sustainability.

In terms of redefining brand purpose, Bain emphasizes that the shift to prioritize doing social and environmental good must be a structural change, incorporating management, hiring, performance assessment, pay structures, and training.
 
Citing the ethical expectations of the growing cohort of Gen Z consumers, Bain further points out that this transition requires openness and patience, as many necessary investments will not result in instant payback.
 
On the subject of decoupling growth from volume, Bain believes that luxury companies seeing success in 2030 will be those that have invested in circular business models, such as resale and rental. According to the management consultancy firm, brands should ultimately be focusing on “product life-cycle value,” which is derived from reselling the same product multiple times to different customers.
 
This approach, coupled with investments in technologies that facilitate manufacture-to-order and accelerate vital resale processes such as returns and authentication, could mean that resale accounts for some 20% of sustainable luxury brands’ revenues by 2030.
 
In addition, when successfully implemented, Bain predicts that reselling will increase profit margin on a single product by 40% in 2030, while also raising revenue per product by 65%.
 
When it comes to supply chain transparency and traceability, Bain suggests that luxury brands trace all relationships as far back as raw material producers and that they also factor in all knock-on effects of their activities. Complete information on the supply chain of a given product should be accessible to customers, whether they are shopping online or in stores, where relevant data could be sent via NFC technology to visitors’ devices when they hold them up to the product.
 
Here too, investments in technology are essential, with blockchain, the Internet of things, robotic process automation, and data science all playing their part.
 
When discussing the maximization of environmental and social targets, Bain insists that luxury brands should not only set ambitious targets for issues such as emissions reductions and diversity, but also challenge themselves anew when they achieve these objectives, by establishing even more demanding goals.
 
Companies seeking to be more inclusive should ensure that this is a core value of their organization, which stretches all the way from management and hiring to public-facing marketing strategies.
 
Finally, Bain argues that luxury companies should stop seeing sustainability measures as a cause of extra costs and start understanding that it can be a source of economic value. In particular, the consultancy recommends maximizing incentives that align the company with national initiatives concerning greenhouse gas emission reductions, regenerative agriculture, reforestation, and community projects, a strategy which will mean the brand can qualify for maximum tax relief.
 
Bain also suggests embracing reporting reforms and cutting-edge metrics that help prove how sustainability is generating value for the company. This, along with a shift to annual, rather than quarterly reporting, will allow a “clearer narrative” to emerge and appeal to investors keen to avoid companies with a negative environmental or social image.