How far can vertical integration go in the Luxury industry?

A few days ago, a company named Italic launched with one promise: selling luxury products made in the very same workshops as those of the most prestigious brands, but without any markup. This means Prada-grade goods but at a twentieth of the price. Touted as a real “direct to consumer” company, Italic is based on a paid membership system (with up to 100,000 would-be customers currently on waiting list) and a rigorous selection of manufacturers.

Though this proposal is fairly disruptive, maisons have little to be afraid of because their products’ appeal goes much farther than their sole build quality — it has a lot to do with intangible factors such as history, style and above all, reputation. However, this should remind us of two things. The first one is that even for century-old, revered maisons, perceived Value can never be taken for granted, especially when high prices are officially justified by high craftsmanship.

The second one is that in the Luxury realm, sub-contractors play a substantial but ambivalent role. On the one hand, they are among brands’ strongest assets, since they house increasingly rare know-how and sought-after materials. Contractors are often the real guardians of Luxury, the ones tasked with executing maisons’ artistic vision with meticulous care.

But on the other hand, they are also Luxury’s weakest link, since they cannot be fully controlled. In Italic’s case, contractors that were not bound by any exclusivity clause agreed to produce brandless goods alongside branded ones, hence shining a light on something everyone knows about but seldom address: hefty margins. Moreover, contractors can sometimes cause scandals about poor working conditions for their employees or fail to comply with quality guidelines, thus disrupting their clients’ value chain.

THE RISE OF VERTICAL INTEGRATION

This ambivalence is why vertical integration has been gaining speed in the last few years in the Luxury industry. First, we saw maisons terminating licensing deals to take back control over accessories business such as eyewear. Then, some industry behemoths secured very specific know-hows, either by acquiring small workshops, which was what Chanel did with Paraffection, or by creating their own vocational schools, such as LVMH’s Institut des Métiers d’Excellence. Finally, Luxury groups such as Kering are now taking back e-commerce in house to preserve their 1st party data and ensure the best consumer experience whatever the sale channel.

Vertical integration offers many benefits. The first one is better value retention, since the brands cuts intermediaries, but also better value creation, because housing every step of production allows for more opacity of costs. The second one is that securing talent and supply reduces reliance on other companies and guarantees a long term presence, which is absolutely vital for maisons. Finally, vertical integration’s total control of the value chain allows for a comprehensive, seamless and 100% Luxury customer experience.

But here, integration primarily focuses on the bottom of the consumer funnel — namely the product per se, the sale and the after-sale. But what if tomorrow maisons started integrating the upper funnel, related to product discovery and consideration?

COULD MAISONS INTEGRATE MEDIA BY BUYING OUT PUBLISHERS?

Actually, after securing product manufacturing and the end experience, Luxury brands could go upstream and secure even more their communications and media. This would particularly make sense now that brand safety is more vital than ever because of the explosion of communication channels, the rise of user generated content and the uncertainties linked to digital media.

Vertical Integration of communications is not new to the Luxury industry. Most of the time, creative assets are made in house under the supervision of each maison’s Creative Director. But taking media in house is something else.

There is currently a growing tendency to internalize media strategy and buying. Though it seems wise, with better control and lower costs in the short term, I think those benefits will wane in the mid to long term because internalizing consulting means less objectivity. (disclaimer: I work for media agencies)

However, the real question when it comes to integrating media is: could luxury maisons push the integration of communications even further by buying out publishers, especially in the press?

It might sound crazy but consider this: the press sector is not in good shape, with advertising revenues steadily shrinking by 5–7% per year until 2020, and its largest players are forced to reorganize. For most industries, this would be a non-issue. But for the Luxury industry, it could be deadly in the long run as the relationship between media and Luxury is two-way, very intense and built over decades. More than any other industries, Luxury needs media to survive symbolically — as it remains the most powerful lever of brand building and PR — while media needs Luxury to survive economically. Therefore, acquiring publishers, or at least becoming one of their major shareholders, would be killing two birds with one stone: saving the media they need to exist and integrating it better into their communications efforts, for a truly end-to-end experience.

If you think about it, the integration phenomenon has been in the making for years. Luxury behemoths have heavily invested in owned media such as content platforms, patronage and branded exhibitions. So it’s about time major Luxury groups invest directly into media groups.

RETHINKING THE CONTRACT BETWEEN THE PRESS, BRANDS, READERS AND CONSUMERS

Of course, such an approach would be highly controversial. Handing over the power of media to companies featured in the very same media could undermine the very basis of journalism. However, the press’ independence is even more at risk when it is cash-strapped and forced to sell out by producing cheap content to capture more eyeballs while seeing its advertising revenues hopelessly dwindle because of the likes of Facebook and Google.

Welcoming Luxury groups as shareholders would mean recognizing the special bond between media and Luxury and providing the media with a stable backing so that it can keep on transforming. But beyond that, it could be the perfect occasion to rethink the contract between journalists, brands, readers and consumers. Actually, Luxury groups could join forces to support the media all together, so that no media depends from a single company. One could push this philosophy of checks and balances even further by creating shared and standalone investment bodies to guarantee their full independence.

Right now, the relationship between media and Luxury is very deep but the former’s independence remains partial because regulation is only informal and money is scarce. Tomorrow, regulation could be much stronger and the relationship even deeper. Time will tell how far — or how high — vertical integration could go in the Luxury industry.

Have we already reached “peak subscription”​?

Some of you already know that I’m really interested — if not obsessed — with the issue of value creation in the new premium content economy.

Recently, several articles caught my attention and got me wondering whether we were witnessing the beginning of a new phase in the current revolution.

Until 2018, the meteoric rise of Spotify’s global membership, Netflix’s soaring pop culture footprint and the NYT’s miracle return to profitability all converged towards one hope: maybe paid subscription was the model of the future, the one thing that could simultaneously save the media, curb intrusive advertising and usher us into a new golden age of TV, music or cinema.

However, a recent report from the equipment firm Sandvine highlighted an interesting phenomenon that was quickly picked up by Motherboard: content piracy seems to be slightly on the rise again. Why? Because the subscription model is so popular that all producers want their slice of the pie and now consumers cannot keep pace with the explosion of exclusive contents and siloed services anymore.

It’s true that things have gotten pretty complex. Each platform now offers multiple plans with various options and sharing possibilities and its has become impossible to access all the best shows/podcasts/music/games/you-name-it at once without spending hundreds of dollars per year. Once disrupted by a few all-you-can-eat players such as Netflix, the content landscape seems to be gradually coming back to being opaque and expensive. And it’s just the beginning: Disney’s acquisition of 21st Century Fox, Comcast’s bid on Sky and the digital giants’ war on talents (think Apple or Amazon’s multi-million exclusivity deals) all point towards more and more walled gardens. Therefore, since consumers’ bank accounts are not as unlimited as Spotify’s catalogue, one should expect a more fickle relationship to paid subscription. According to the consultancy Park Associates, the churn rate for over-the-top video services in America is already over 50%, with the notable exception of Netflix and Amazon Prime. In an ever complex landscape, media players’ main goal will soon be about securing a place among the few un-quittable platforms.

THE RISE OF TWO SUB-MODELS IN THE SUBSCRIPTION REALM

However, don’t go thinking peak subscription means the end of subscription. Expect rather the acceleration of two different sub-models.

First, the return of free, ad-backed content. You read that right — the age of subscription could eventually lead to a partial return of good ol’ advertising backed content. Actually, advertising was never really gone but more and more players are contemplating alternative formulas to lure cash-strapped consumers into their ecosystems. Amazon is reportedly working on a free content app that could benefit from its extraordinary database and its direct connection to e-commerce. Before being acquired by the satellite radio giant SiriusXM, the freemium music service Pandora had bought AdsWizz, an adtech firm specialized in audio advertising. Spotify, which currently has 100 million “free” users, is enjoying substantial growth from video advertising. Finally, advertising-supported video platforms such as Roku are taking off in the US. Against all odds, advertising could remain the prime way to access content, at least not the most premium one.

Second, expect to see more and more bundled offers, providing users with several services at once for a unique fee. For instance, Spotify is already partnering with Hulu and Showtime in a joint $4.99 offer reserved for students and rumours about a Music+Shows+Cloud bundle from Apple are mounting. Some are even foreseeing the rise of “super-bundles”, combining not only media but also real world experiences such as travel or theme parks.

This model represents the best of both worlds. For users, it means lower prices and greater simplicity. For companies, it means super-loyal consumers locked up in all-inclusive ecosystems in which A.I. and recommendation would play a major role.

However, such an approach is incredibly costly as it demands massive amounts of cash to operate various services and subsidize recruitment, at least at launch. This could result in an (even more) oligopolistic market where only a handful of players — Apple, Disney, Amazon, Google… — would dominate everything.

The subscription revolution has only begun but just like a gripping Netflix show, it certainly won’t be as simple and linear as one thinks!

What all the fuss around the Burberry redesign tells us about the state of Luxury

As you’ve certainly seen a few days ago, Burberry has unveiled a new brand identity. This follows the arrival of Riccardo Tisci, its latest Creative Director, in early 2018.

Since then, reactions have been mixed to say the least. While the fashion press carefully stuck to describing the new look, social media, including both consumers and professionals, widely panned it.

Actually, it seems absolutely no one is impressed with the maison’s new logo. And it’s true that, at first glance, it looks pretty bland with its bold sans serif letters and absence of the century-old “Equestrian knight” emblem.

Many have rightly pointed out that Burberry is the latest luxury brand to hop on the minimalistic logo bandwagon, a trend that started six years ago with the already controversial — yet highly successful — Saint Laurent renaming, and recently embodied by Calvin Klein’s and Rimowa’s new identities…

I don’t consider myself enough of an expert in graphic design to judge this work but I’m not going to argue that altogether ditching a globally-recognized font and an emblem that has stood for British refinement for decades is not a risky move. It is a real long shot.

However, I find the rage around this change disproportionate, especially coming from the communications industry. Adweek compared it to the infamous Gap logo reshuffle and some described it as nothing other than brand suicide. Yet another sign of an upcoming marketing apocalypse!

Going beyond the logo

We could look beyond the logo choice and use a little more reason to see the bigger picture. Actually, and whatever its fate, this redesign tells us a lot about the current state of the Luxury industry.

First, it’s not like minimalistic sans serif logos are a new thing in fashion. Take Louis Vuitton, Céline, Tom Ford, Fendi or Chanel. Nothing but in-your-face simplicity.

I know what you’ll answer: most of these maisons also have strong, well-known monograms. True, but they seldom integrate them as standalone emblems in advertising or communications (just go to the Chanel website and look for the double-C — it’s virtually nowhere). They’re more often used as patterns or ex libris. Moreover, what makes one think the beloved Burberry Knight will not come back in other forms?

Of course, all luxury maisons falling for minimalism carries a major risk of uniformity. However, distinctiveness comes in all shapes and the Burberry redesign goes beyond that underwhelming logo.

In fact, those moaning solely at the sole logo are missing two significant points.

Celebrating legacy through collaboration

The first one is the colorful monogram which was revealed alongside it. If Tisci killed the old Burberry identity, he also revived an existing pattern created in 1908 featuring interlocked Ts & Bs (for Thomas Burberry). It’s a bold way to distance oneself from the maison’s well-known but hackneyed tartan pattern without relinquishing its legacy.

The second point, and the most important one, is the creative process behind the redesign. The logo and the accompanying pattern were not made only in house. The work was supervised by Peter Saville’s studio.

Peter Saville is one of the most influential designers of the last 40 years, especially thanks to his work for the Factory record label and bands such as Joy Division and New Order. He repeatedly collaborated with fashion labels and regularly works with Raf Simons, with whom he revised the Calvin Klein logo last year (without any fuss, mind you). Asking Peter Saville, a British superstar of minimalistic design, to take on an old British lady such as Burberry was highly symbolic.

A few examples of Peter Saville’s work, courtesy of Design is History

Therefore, the collaboration in itself is really what matters here. The whole process was displayed through shots of emails exchanges between Tisci and Saville published on Instagram. This screenshot aesthetic, in which e-mail or messaging exchanges are reproduced in a candid way, is a byproduct of Internet culture. Using it is also very symbolic: it highlights — though in a staged manner — the back and forth creative process, showing how even one the most iconic luxury brands evolves from the inside.

A conversation between #PeterSaville and #RiccardoTisci

Une publication partagée par Burberry (@burberry) le 2 Août 2018 à 2 :29 PDT

Burberry has already encountered many ups and downs through its 162-year life. When Riccardo Tisci was appointed in March, his mission was made clear: 1) renew the maison’s public and 2) make it even more upscale. The new CD is now striving to shake things up the hard way. For instance, he announced a few weeks ago that the brand would adopt a “drop” selling strategy much like niche streetwear brands. To that extent, the old Burberry logo and the famed tartan pattern were probably deemed too traditional and had to be replaced.

Some will argue that Tisci’s approach is just a pot-pourri of everything that’s been successful in luxury recently ­ — a bit of Gucci, a hint of Supreme, a drop of Saint Laurent… Perhaps they will be right. But the Italian Creative Director is certainly no newcomer and his track record at Givenchy is stellar ­ — he transformed the ageing brand, reaching half a billion euros of sales and tripling the number of employees during his tenure. Moreover, he has always been keen on collaborating with other creators, even competitors: he featured Donatella Versace in Givenchy ads and recently worked with Vivienne Westwood for a limited edition collection at Burberry.

To sum it up: only time will tell if the redesign was a mistake or not. But this bold/foolish choice tells us much more about the state of Luxury as a whole.

On the one hand, we can see maisons have not relinquished their prestigious past at all. They are still torn apart between their legacy and the urge for modernity to conquer new clients. Hence Burberry’s balance between the new TB monogram (modernised heritage) and the logo (a clear tabula rasa).

On the second hand, Luxury is more than ever heavily dependent on collaborations and (that’s the new thing) it is not afraid to show it anymore. For many maisons, the current period marks the end of the black box model, in which the creative process was sacred and maintained hidden in house. Of course, it doesn’t mean luxury brands are shifting to full transparency, but what we saw with the Saville-led Burberry redesign is an acknowledgment, if not a real celebration, of outside influences.

Les contenus face au dilemme du volume et de la valeur

CC Zenra/Flickr

Le streaming de contenus premium se développe à grande vitesse grâce au modèle d’abonnement mensuel. Un système simple mais pas forcément viable. Comment recréer de la valeur sur le long terme ?

En 2018, les modes de production, distribution et consommation de contenus culturels devraient poursuivre leur transformation en profondeur.

Le streaming d’émissions, séries ou films est en pleine explosion. Tandis que Netflix devrait bientôt dépasser les 120 millions d’abonnés, la croissance du secteur aiguise les appétits. L’été 2017 a ainsi été marqué par une incroyable fuite en avant dans l’audiovisuel, Amazon, Apple et Netflix se disputant les meilleurs talents du secteur à coup de centaines de millions de dollars. De même, il y a quelques semaines encore, Disney annonçait le rachat de l’essentiel des actifs de 21st Century Fox, avec pour objectif affiché de construire à l’horizon 2019 une offre propriétaire de streaming capable de rivaliser avec les GAFAs.

Un phénomène similaire est observable dans le streaming musical, qui a connu ces derniers mois un point d’inflexion et redonné des couleurs à l’industrie musicale. Conséquence : les géants du secteur fourbissent leurs armes pour attirer de nouveaux clients. Spotify, qui vient de franchir les 70 millions de membres payants, a conclu un accord-cadre avec Tencent pour conquérir un marché chinois encore limité et s’apprête à entrer en bourse dans les mois à venir. De même, Apple s’est récemment offert quelques pépites dont Shazam pour étoffer Apple Music.

LE MODÈLE DE L’ABONNEMENT MENSUEL EST-IL LA PANACÉE ?

Ce qui est intéressant ici, c’est que l’on voit émerger un modèle unique d’accès aux contenus premium : l’abonnement mensuel pour une petite somme, autour de $9,99 ou 9,99€. Un système potentiellement transposable partout : sport, presse ou cinéma, comme en témoigne le phénomène MoviePass aux Etats-Unis (un abonnement mensuel à $9,99 permettant d’aller au cinéma une fois par jour pendant un an). Ce service existait depuis longtemps mais son prix était auparavant bien plus élevé — le passage sous le seuil psychologique des $10 lui a apporté plus de 1,5 millions de clients en à peine quelques semaines !

Cependant, ce modèle unique pose la question fondamentale de la valeur réelle des contenus. En effet, si le prix unique de $10 est un formidable moyen de recruter et créer rapidement des usages, il se révèle bien souvent peu rentable pour l’entreprise qui le propose. Les contenus coûtent cher et les économies d’échelle ne suffisent que rarement à combler le manque à gagner. C’est ainsi que malgré son succès, Spotify cumule de colossales pertes (600 millions de dollars en 2016).

C’est là tout le dilemme de ces nouveaux géants du contenu : comment concilier l’impératif de volume avec celui de préservation de valeur ? Comment créer des usages de masse à court terme sans détruire son business à moyen-long terme ?

QUATRE PISTES DE (RE)-CRÉATION DE VALEUR

Notre conviction, c’est que les prochains mois feront émerger quatre pistes de création de valeur pouvant se recroiser

1. L’augmentation pure et simple des prix, souvent adossée à des services additionnels exclusifs afin de consolider la valeur perçue. C’est le cas de Netflix ou Amazon, qui ont récemment été contraints d’augmenter leurs tarifs de quelques dollars. A noter que seuls les services disposant d’un public captif peuvent se permettre de telles décisions… ;
2. L’intégration verticale de la chaîne de valeur, de la production à distribution du contenu. Cela permet un meilleur contrôle des coûts et revenus. C’est le modèle de Netflix, qui produit de plus en plus de contenus propriétaires et cela sera celui de Disney un fois ses actifs consolidés avec ceux de Fox dans une offre unique
3. Un modèle à deux entrées : pour compenser le manque à gagner de l’abonnement à bas prix, on le double par la vente d’espaces publicitaires ou de données clients aux annonceurs : c’est la direction dans laquelle devraient s’engager Spotify ou MoviePass ;
4. Dernière piste et non des moindres, celle du produit d’appel : ici, le contenu en soi peut ne pas être rentable car on le considère comme un élément parmi d’autres d’un écosystème de services clos. C’est le modèle d’Apple, Google ou Amazon, qui utilisent le contenu comme un faire-valoir afin de vendre davantage de matériel, de publicité ou de produits.

Si tous les secteurs de contenus ne partagent pas la même logique — il y a d’énormes différences entre les séries, le sport et la musique — , tous seront confrontés en 2018 à ce dilemme de la préservation/création de valeur.

La bonne nouvelle, c’est que les consommateurs sont prêts à payer pour des contenus légaux de qualité. La question demeurant, plus que jamais, « à quel prix ? »