Our contributors provide an introduction which focuses on getting to grips with trends, as well as detailed overviews for Italy, Spain, UK and the USA. Topics covered include: manufacture and distribution; online retail; IP concerns; product regulation and consumer protection and labour and employment issues.
Getting to grips with trends
Fashion meets our fundamental needs, both physical and emotional: clothes keep us protected from the elements but fashion also allows us to express our identities and personalities. Since the beginning of the twentieth century, the global fashion industry has expanded and grown exponentially to what it is today. The fashion industry is now an enormously important part of the global economy. Sales revenues for luxury fashion alone are estimated to be between US$20 billion and US$25 billion in the United States in 2018, with China following very closely behind. The luxury fashion market has been fuelled by a strong economy, encouraging customers to make more purchases. At the same time, luxury fashion brands in the US have become increasingly global in their sales and procurement practices. US and European retailers are increasingly reaching across the Atlantic to reach new customers. Luxury brands in the US have become increasingly reliant on China for their production needs, exposing them to potential losses if a trade war ensues. Indeed, tariffs on Chinese imports are threatening retailers with lower profit margins and requiring fashion brands dependent on Chinese manufacturing to consider moving their production elsewhere.
E-commerce
The ways in which we consume fashion have changed dramatically, particularly over the past 10 years. There has been a gradual shift away from the traditional brick-and-mortar retail experience to online shopping, whether on a computer, tablet or mobile application, and this now includes buying our clothes, a product that we used to want to touch and try on before buying, based only on online photos and descriptions. As a result, department stores and high street retailers are suffering from competition from online-only retailers, such as Amazon and ASOS. The luxury fashion industry is growing fast. According to Interbrand, the global luxury fashion and accessories sector grew 42 per cent between 2017 and 2018, with Louis Vuitton and Gucci among the fastest growing brands in the world. The luxury fashion market has seen robust M&A activity, whether by fashion conglomerates seeking to curate smaller niche brands, by traditional retailers seeking to acquire technology and online platforms, or national or regional companies seeking to increase their geographic footprints, trends that are expected to continue.
Personlisation
Even while eschewing brick-and-mortar retail for e-commerce, customers are also demanding a greater level of personalisation from fashion brands. Luxury brands have always offered a greater level of personalisation than was offered in the general market, but the general market trend towards personalisation, whether in the customisation of products, tailoring of product experiences or curating of a collection of products, is now particularly pronounced in the luxury market. The challenge for luxury brands in the future will be how to maintain their sophisticated profiling techniques and meet the requirements of privacy regulators around the world, in an age where there is increased scrutiny of the use of personal data. In the US, for example, the California Consumer Privacy Act (CCPA) and associated regulations will take effect in 2020. The CCPA grants new rights to Californian customers with respect to the access to and deletion of their personal information. Adhering to new privacy regulations like this requires that luxury and fashion companies carefully consider how they collect and use customer data, even while strategising as to how to harness the power of such data to drive sales. Similarly, with the threat of data breaches constantly looming, luxury fashion companies must be vigilant as to security threats given the all-importance of customer trust and brand protection in the luxury market.
Market dynamics
There will always be demand for fashion, but companies that succeed in the luxury fashion sector will be those that can meet the precise and complex fast-changing demands of today’s consumer, for whom individuality and identity are acutely important. And success for fashion retailers requires understanding changing market dynamics and the technologies that today’s customers are adopting. The luxury fashion market is skewing more heavily toward younger and more diverse customers. Generations Y and Z accounted for 47 per cent of luxury consumers in the United States in 2018. However, luxury brands, which are at the forefront of emerging technology that is being used to redefine the customer experience, are successfully adapting to the demands of a younger market. Virtual and augmented reality technology allows customers to virtually ‘try-on’ clothes and accessories before buying. Artificial intelligence and machine learning is being used to tailor and personalise the customer experience, based on buying habits and personal information. More recently, artificial intelligence is now being used to design the garments themselves by analysing sales and customer data to create new items that are more likely to appeal to particular customers and market segments. The fashion industry has only just started to consider the legal challenges regarding the use of these technologies, including those around issues such as intellectual property infringement and brand protection.
Social media
Luxury brands have also been quick to recognise the potential of social media platforms and social influencers to promote their products directly to their target audience, with great success. Brands use celebrities, well-known online and social media fashion bloggers, virtual social influencers (using computer-generated imagery) and micro-influencers, where the market is very niche. Although the use of social influencers has drawn the attention of the regulators, the use of social influencers currently remains a powerful tool for luxury brands to tap into the growing market of younger consumers. What’s more, social media platforms are adopting direct sales channels as an alternative to making purchases directly through a luxury brand’s e-commerce website. Given that luxury goods derive value from exclusivity, the impact of these additional distribution channels on brand perception is yet to be seen.
Ethics and sustainability
Along with the demand for innovative, customised products and experiences, younger consumers are also increasingly looking for products that are ethical and sustainable; brands that speak to their values as a generation who want to halt climate change. And what’s more, the laws of various jurisdictions now require disclosure, whether on a brand’s website or products themselves, as to the steps the company is taking with respect to its supply chain. Luxury brands will need to consider environmental and sustainability issues in manufacture and be transparent about their methods, materials and labour standards throughout the supply chain. Blockchain is one way that brands can do this. It can be used to track shipments of raw materials, allowing verification of companies’ claims regarding product origins or ethical standards. In this way, luxury brands can build trust with their customers.
Brands that adapt to these trends, reaching customers through new channels and allowing young consumers to enjoy fashion and luxury but also make a statement about who they are in the world today will be the winners in the end.
Italy: state of the market
The fashion business is really a big thing in Italy, as it is the homeland of designers who made the history of fashion, worldwide renowned brands, and a venue for hundreds of specialised enterprises, as well as for artisans whose hands are internationally valued. The market comprises big companies, international groups, and small and medium enterprises.
According to a recent report published by Confindustria Moda, the aggregate turnover of the fashion industry in Italy was worth about €22 billion in 2017. Clothing drives the industry, making up 49.6 per cent of the total turnover, followed by footwear at 15.1 per cent. Women’s fashion leads with a turnover of about €13.3 billion in 2018. Not surprisingly, exports (63 per cent of the total turnover in 2018) are constantly increasing.
Discover more topics, including: manufacture and distribution; online retail; IP concerns; product regulation and consumer protection and labour and employment issues in our authors' section covering Italy.
Authored by; Antonio di Pasquale, Christian Di Mauro, Claudio Pasina, Eugenia Gambarara, Fulvia Astolfi, Luigi Mansani, Marco Berliri, Maria Luigia Franceschelli, Massimiliano Masnada, Paola La Gumina, Sabrina Borocci, Vanessa Tritto and Vittorio Moresco
Spain: state of the market
The luxury fashion industry in Spain plays a significant role in the European and global market, but a closer look reveals that this significance must in fact be seen from three different angles: from the brand side; from the manufacturing side; and from the consumer side.
In relation to the brands, Spanish companies are among the world leaders in fast-fashion (with Inditex - of Zara fame - or Mango being the most notable Spanish players) but they are not part of the select group of the world’s luxury brands. There are a number of well-known Spanish luxury brands, such as high-end leather and fashion group Loewe (part of French luxury group LVMH), but their significance in the global retail economy is largely outweighed by that of the low-cost fashion brands that have made Spain a global player.
From the perspective of manufacturing, many Spanish companies supply goods and products to the world’s leading luxury and fashion brands or act as manufacturer for other groups. While textile confection, traditionally important in Spain, has largely moved away to other regions over the last twenty years (northern Africa, Turkey, Asia), the manufacturing of other consumer goods for international fashion and luxury brands (notably: shoes and leatherwear, as well as cosmetics and perfumery) continues to be important for the Spanish industry.
On the consumption side, Spain is of course a large and growing market, which does not go unnoticed to any important fashion or luxury brand. All the international brands are present in Spain, through their own brick-and-mortar stores, third-party multibrand retail points of sale, or direct-to-consumer online sales. They see how the Spanish customer shows potential to spend more on luxury and fashion, particularly now that a long period of economic downturn has come to an end for a large part of the population. That said, investment bankers, advisers and retail experts all agree that we can still expect a ‘shake-up’ in the Spanish retail sector, as there continues to be excess capacity, particularly in large department stores and fast-fashion franchisee networks. There is an expectation that, even after many restructurings and closures, a further reduction and rationalisation of certain retail networks will be seen in the mid-term. This is particularly true for certain retailers offering low and mid-priced products, and is less relevant for the high-end luxury and fashion sector, which is more stable in Spain overall.
Discover more topics, including: manufacture and distribution; online retail; IP concerns; product regulation and consumer protection and labour and employment issues in our authors' section covering Spain
Authored by; Alex Dolmans, Constanze Schulte, Graciela Martin and Victor Mella
UK: state of the market
Many high-end UK fashion brands have suffered in recent years, partly as a result of the rising costs of prime store locations and competition from online-only retailers, such as ASOS and Boo Hoo. However, according to a report by Walpole, the trade body for the British luxury sector, sales from the UK luxury creative and cultural industries, including designer clothes and footwear, luxury jewellery, luxury eye-wear and high-end beauty, have grown 49 per cent in the four years from 2013 to 2017. British luxury is now worth £48 billion to the British economy, with sales from luxury apparel and footwear accounting for nearly £6 billion in 2017. The report suggests that the British luxury sector will continue to grow rapidly in the medium term; however, this will be heavily dependent on Brexit, addressed further in question 30.
Discover more topics, including: manufacture and distribution; online retail; IP concerns; product regulation and consumer protection and labour and employment issues in our authors' section covering the UK
Authored by; Alex Ford-Cox, Angus Coulter, Catherine Lah, Ed Bowyer, Graham Poole, Helen Boniface, Jo Broadbent, Matthew G. R. Giles, Nicola Evans, Nicola Fulford, Penelope Thornton, Philip Harle, Rachael Hunt, Richard Welfare, Rupert Shiers, Sahira Khwaja, Tania Buckthorp, and Valerie Kenyon
USA: state of the market
The luxury fashion market in the United States, long the largest luxury fashion market in the world, now vies with China for that title, with estimates setting sales revenues for the luxury fashion market in the US somewhere between US$20 billion and US$25 billion last year. In the past several years, a strong economy has driven sales, while tariffs and a strong dollar - which has a negative impact on purchases by foreign tourists - have presented challenges. Major market players include LVMH, PVH Ralph Lauren, Hugo Boss and Giorgio Armani, but relative newcomers like M Gemi, Goop and Everlane as well as smaller brands such as Drunk Elephant continue to disrupt the market. Further disrupting the market are the online-only retailers such as Amazon and ASOS, which provide a vast online platform for selling fashion products while collecting valuable consumer data and adopting evolving technologies, such as artificial intelligence and social media platforms, to spur additional growth. These technologies are themselves redefining the luxury fashion market in the US and abroad, with consumers demanding more personalised customer experience and greater access to their brands online, including social media and mobile shopping. And this trend towards the use of all things digital to consume luxury fashion shows no signs of stopping.
Discover more topics, including: manufacture and distribution; online retail; IP concerns; product regulation and consumer protection and labour and employment issues in our authors' section covering the USA.
Authored by; Andrew J. Lee, Anna Kurian Shaw, Chandri Navarro, Daniel Petrokas, Fabrizio Lolliri, Julia Anne Matheson, Katherine M Bastian, Kelly Tubman Hardy, Meryl Rosen Bernstein, Michael E. DeLarco, Phoebe A. Wilkinson, Steven B. Steinborn, and Timothy P. Tobin
Reproduced with permission from Law Business Research Ltd. Getting the Deal Through: Luxury & Fashion 2020 (published in April 2020; contributing editors: Meryl Bernstein and Sahira Khwaja, Hogan Lovells). For further information please visit https://www.lexology.com/gtdt/workareas/luxury-and-fashion-2020
