A lot has been written about the digitization of the fashion industry. I would like to share with you some of my thoughts about the hard-luxury industry (that creates jewellery, watches, leather goods, home deco and other products).

Let´s be honest: the (hard) luxury industry hasn´t really been at the forefront of digitization so far. Of course not -

– isn´t it part of its DNA to preserve the past?

– aren´t there complex (wholesale) distribution structures to be respected?

and – most important –

– shouldn´t brand value be protected at all price, avoiding any experiments?

That´s right. And that´s probably part of the reason why it took luxury brands (and the luxury conglomerates) quite long to familiarize themselves even with ecommerce – which has been around for quite some time now. But it seems like we have reached the point of no return. It is now that we are witnessing fundamental strategic decisions, such as the launch of an integrated ecommerce site for all of its brands, that has recently been announced by LVMH, for example. Or the rethinking of the digital strategy of Hermès which had been recently revealed in the media. And, I believe, that having seen a number of experiments with luxury-watch brands presenting „limited editions“ on various websites, including Net-à-porter, for example, we are also getting closer to the watch industry´s (re-)positioning with respect its online distribution.

I am convinced that there is no alternative: In a similar way as fashion brands have started to question their traditional ways of presenting and introducing their collections to the global market on Fashion Weeks, all luxury brands will start to rethink their ways of introducing their innovations to their customers. The imperative is clear: get up to much higher speed, shorten cycle times and foster a much more direct communication and distribution to (end) customers. This is also a prerequisite for gaining substantially more customer data and generating better insights. (It is actually going to be interesting to see the implications of that change for traditional fairs such as BASELWORLD, for example.)

The brands will be radically streamlining and/or further verticalizing their distribution as a digitized company only unleashes its full value when all parts of its value-chain and, in particular, its distribution will be digitized – the critical part being wholesalers and dealers with only low levels of digitization. Once again, the potentials are obvious: faster time-to-market, better inventory management, better control of customer experiences, generation of valuable customer insights, higher engagement, etc.

Also no doubt that huge creativity will be unleashed by the numerous marketing agencies in the game, to develop in-store and online customer, „onmi-channel“ experiences that leverage the potential of new digital technologies, including Virtual Reality, Interactive Mirrors, etc., in order to enrich customer experience, maximize conversion rates and tickets, while still being loyal to the important luxury industry´s „soft-selling imperative“. (And eventually, the drive towards digitized customer interactions will also lead some of the luxury brands to discover that they still have a substantial problem with their after-sales processes, which – for a significant number of brands at least – is still far from delivering a luxurious experience.)

From my perspective, however, the fundamental question is a very different one: Are we just going to „electrify“ our (customer) processes or is the re-invention of our products part of the digitization effort? Is it part of our vision or objective that our products become a part of the web-of-things?

ARE WE JUST GOING TO „ELECTRIFY“ OUR BUSINESS PROCESSES?

In other words, for example: should we concentrate ourselves in the future to design and craft the most elegant pieces of luggage or should we thrive that our luggage becomes part of the web-of-things – thereby enriching substantially its value proposition for the customer?

The question of rethinking current processes and – in particular – the business model on the distribution side from a digital perspective is already challenging existing (social) structures. Touching on the products of a luxury brand, however, means challenging its core. And, as a result, also its core competency. Century-long craftsmenship suddenly meets with most innovative high-technologies.

It is quite easy to hire an external agency to work on the internet, social media communication and on integrated supply-chain processes. Adding new competencies to the core, extending or even transforming the core is a very different challenge.

 

IN THE FUTURE WE WILL SEE AN INCREASING IMPORTANCE OF TECHNOLOGICAL COMPETENCIES FOR LUXURY BRANDS

A typical solution to this problem in the first step will be to reach out for partnerships between the luxury- and a high-tech brand; and we have already seen some of those cases.

But most likely this will not solve the problem in the long term. In a similar way as we have witnessed the conversion from hardware-centricity to software in industries such as telecoms or healthcare, for example, we will see an inreasing importance of (high-)technological competencies required for the next generation of luxury brands.

Chances are pretty high that your existing heads of product management, production and/or design will be rather hesitant to embrace this change – and actually, nobody has really been prepared for it. As a result, we shouldn´t be surprised to learn that (middle) management fights against digitization efforts, as a recent studies carried out by the Boston Consulting Group and studies by Boyden pointed out, for example. (cf. recent post by Digital Expert Mike Flache on linkedin)

Most likely the vision of the Web-of-Things lies well beyond the imagination and competencies of the people that are now challenged to specifically cope with or even drive that change. And, not to forget, that same transformation also fundamentally challenges their roles and organizational / social (power) structures. So, are we really suprised by the limited excitement, motivation and creativity of people that are suddenly facing the challenge of having to leave their comfort zones behind?

I personally experienced those reactions when I challenged an existing design team to rethink their products from a digital (web) perspective: This lead to an interesting question – the role and importance of functionality in luxury. The reply that I got in discussions with the development manager was „that the purpose of luxury should be the use of fine materials in combination with highest-quality craftsmenship and unique designs and NOT aiming at a purely functional benefit enabled by digital technologies“. In other words, luxury should be much more perceived as art rather than as something useful. Isn´t that right? Isn´t that the core of the definition of luxury - that it´s something that is not necessarily needed?

Let´s be direct. I believe that these times are gone. In the future, (also) luxury needs to have a clear functional value in order to make sense, in order to be meaningful to the millennial generation. Most likely, that functional value will necessitate a relevant technological component.

As a result, there will be brands thriving to seize that opportunity and there will be brands trying to ignore that new reality. The first ones will develop and design „smart luggage“ that is part of the web-of-things and offers a tangible value add for its owners. And the others will design beautiful and „dumb“, stand-alone luggage. The latter one might still be of „romantic“ emotional importance to its owners. But I believe they will most likely not communicate with the relevant new luxury customers.

Eventually, companies with a premium rather than luxury position might be more receptive and open for understanding that change and capitalizing on the arising opportunities.

The above example is far from theoretical. With its introduction of the „RIMOWA Electronic Tag“ (brand protected by RIMOWA), the German producer of premium luggage seperated the world of luggages into two categories. The RIMOWA luggage that comes equipped with the electronic tags is smart, to the benefit of its owner who will experience far less frustrations with queuing for checking in at airports – something that every business traveller highly appreciates. For me this is one of the best, pioneering examples of how you can add substantial value and enhance customer experience by digitizing your products. (By the way: Congratulation to RIMOWA, its team and its partners, for just having won the SILVER German Digital Award!). And actually the digital solution itself was at the origin of a dedicated own company "Rimowa Electronic Tag GmbH". Exciting new business development.

Probably the reason why there is only a limited number of similar examples in the luxury world is the fact that not only there is still a vacuum of (high-)technological expertise in this industry but also that traditional luxury designers are less used to systematically analyze use scenarios and processes and to mine customer frustrations in order to discover opportunities for product and process innovation. This is an interesting, largely untapped resource of innovation. But it requires to drill much deeper for in-depth understanding than just inventing aesthetically appealing designs.

Any why is this Digital Revolution of products and services so important again? Not only because it will key for offering new value propositions that will attract (and hopefully also retain) the customers in the future, but particularly because we will se a fundamental shift of jobs from the "analogue" to the "digital" world. Similarly to what has already happened in many industries when hardware faded away and invisible software took over. The companies that did not start to invest in the structural development of their workforce on time have probably not survived - or only at the expense of very cost-intensive acquisitions. In other words: if you want to keep the value creation in house, you better start driving the race for digitization yourself, before somebody else will.

 

SO WHAT?

Of course there is no way around leveraging digital technologies for enriching your customer experience in and across all of your channels, in gaining and mining data from customer interactions, in order to enhance service levels and, finally, to minimize cost and drive sales and growth. But this will not be enough for taking a (traditional) luxury brand into the future. We also need to rethink our products (& services). From my perspective, there is no contradiction between century-long craftsmenship and state-of-the-art high-tech. On the opposite, I personally perceive the blending of those two as an unique opportunity to create a positively-surprising and meaningful differentiation for the new luxury customer.

Developing the most beautiful leather pouches for the newest iphone is good. But it won`t be enough to sustain as a relevant luxury brand. If traditional luxury players shy away from integrating digital technology with their products they will end up being the accessories to the new class of (democratized) luxury products, branded Apple or so. Shying away from digitizing luxury watches, shying away from „smart watches“ as an integrated part of the web-of-things can therefore not be the answer. Instead we should inspire ourselves by what Jean-Claude Biver has decided and delivered with his team at TAG HEUER which resulted in a very interesting, dual value proposition for the customer. Serving the traditional collectors is one thing. Serving the future luxury customer another. We need to do both. (Hopefully, BREITLING will now also take the unique opportunity to take the right decisions about its digital portfolio).

(Strategic) partnerships with high-tech brands seem to be a right first step in experimenting and learning more about the other world, raising the level of awareness and competency, and thereby initiating the important trust-building process between the „slow“ and the „fast“ luxury worlds. In the long run, however, relevant luxury brands will have to integrate both competencies into their core – leveraging the new creative tension between the analogue and the digital world for successful innovation.

Sounds like an exciting adventure which will need a lot of communication with the people, in order to make things happen. Therefore, let´s not condemn those who don´t embrace this change but let´s invest the energy in building the right bridges into the future. It is not about "either/or", it is about "both/and".