Could do (much) better is the conclusion of Bank Sarasin’s report on sustainability and the luxury goods industry. “Luxury goods companies are still showing too little awareness of sustainability issues,” states the report, which spotlights factors that seriously threaten brand reputation, such as a lack of premium product quality, dubious sourcing of raw materials (gold, rubies, diamonds, leather, etc.) and a lack of transparency in supply chains. The Basel-based bank scrutinised fifteen luxury goods companies in fashion, watchmaking, jewellery, cosmetics and fragrance.
According to Makiko Ashida, the author of the report, there is vast opportunity to build a sustainable image as luxury brands live from their reputation for exclusivity and quality. However this reputation is being undermined as production volumes are increased in response to rising demand.
Sustainable business practices not only enable companies to avoid reputation risks, but present an opportunity to build a credible and responsible brand image.
Times have changed
Buyers of premium products tend to place more importance on companies’ respect of environmental and social standards. Negative publicity, such as reports on “blood diamonds” or river pollution from textile and leather production, can be harmful to reputation. The internet, social media and consumer protection groups have been instrumental in informing customers. “Sustainable business practices not only enable companies to avoid reputation risks, but present an opportunity to build a credible and responsible brand image,” writes Makiko Ashida. One key factor is traceability of raw materials and products.
The report nonetheless highlights progress made these past few years, including efforts to develop in-house initiatives, although as Ms Ashida points out, companies need to create awareness of these. Despite efforts in certain quarters, industry-wide strategies are still lacking, while growing demand for “ethical” products suggests substantial potential for luxury goods companies in this area.
Transparency in production
Of the fifteen companies covered by the report, six fall short of Sarasin’s sustainability criteria. Swatch Group and Richemont both make the grade but fail to make it into the top three. “The two Swiss companies must improve,” observes Ms Ashida. The highest sustainability rating goes to French group PPR, whose initiatives include twice-yearly environmental and social audits of leather suppliers to its Gucci brand.
Sarasin notes that brands have a major influence on consumers’ purchasing decisions. Recently, however, the gap between the public image of luxury brands and their manufacturing reality has been widening. Certain companies are putting the credibility of their brands at risk in this way, and many luxury brands have followed this path by increasing production volumes while at the same time trying to retain an exclusive image. This increase in production volumes and customers’ perception of exclusivity, as well as environmental and social aspects in the manufacturing stage, have turned the spotlight on the conditions under which luxury goods are produced. The challenge facing luxury brands is to develop sustainable supply chain management systems. Only then can sustainability and desirability meet.