From tradition to digitalization: modern innovation secrets of luxury brands

Industry Innovation Implication/Smart Bud Overseas Team Kate White Written

Zou Xinxin Translation of Smart Bud Innovation Research Center

Continuous success is not inevitable, even for the most enviable luxury brands in the world. The world's top luxury brands are using the following 4 innovations to ensure that they are leading in changing consumer preferences.

Luxury brands such as Louis Vuitton, Gucci, Prada, and Chanel are selling a desirable lifestyle. Their products aim to convey wealth, status and taste. It is easy for us to think that these companies are wrapped tightly by tradition, but the fact is that they break the rules after formulating rules.

After the new crown epidemic, the luxury market has gone through uncertainty. The annual sales of the luxury industry in 2020 were about $ 250 billion, a decrease of 12.2%year -on -year. Although the new crown virus has led to a decrease in market demand for luxury goods, the luxury industry is still booming. In 2021, the valuation of the luxury industry would be $ 52 billion. By 2026, its valuation is expected to reach $ 75 billion, with a compound annual growth rate of 7.81%.

In order to maintain high valuation and return to the previous level after the new crown epidemic, luxury brands are paying close attention to consumer trends and betting on the innovation strategy.

In this article, we have discussed four popular innovation strategies, and luxury brands have improved market share and profitability.

Strategy 1: Biological Manufacturing

According to Nicole Rawling, CEO of the Institute of Materials Innovation of Dutch Research Institutions, the development of fashion is 5 years later than the food and beverage industry. Now, plant burgers have become a popular choice in the minds of consumers. What about plant -based leather?

Of course not. But we expect such materials to occupy a certain position in the market sooner or later.

Figure 1_2012-2022 Luxury company related companies "Sustainability" refer to quantity (data source: Smart Bud Discovery)

As described above, in 2020, the term "sustainability" related to luxury company's related news is exponentially increased.

With the continuous intensification of climate crisis, more and more luxury brands have bundled their products with "sustainable". The concepts such as morality, cycle, and conscious fashion have become trend in high -end fashion magazines, catwalks and news. In order to meet this demand, luxury goods companies have begun to acquire or develop ecological friendly and animal -free materials, and use biological materials (natural materials degradable natural materials) in fashion, which also directly drives the cooperation between luxury brands and biotechnology companies Essence

Figure 2_2012-2022 Biomass Textile Company Investment Index (Data Source: Smart Bar Discovery)

As mentioned above, investment in biomaterial textile companies has grown in index level in 2022. Although we have seen less transactions now, their prices are much higher.

For example, California startup MYCOWORKS raised $ 125 million in January 2022 to produce their mushroom -based leather on a large scale. Luxury brands have noticed this material, including Hermes. Hermes is using this material to design its first luggage. In 2021, Hermes announced its re -release of its 1997 travel bag, which was originally made with calf leather and canvas lining. The re -distributed products are a mixture of natural and biotechnology developed by mycelium systems cultivated by Mycoworks laboratory. This three -year project is a representative case of confidentiality and continuous behind -the -scenes innovation of luxury brands.

Other luxury groups are also working hard to add animal leather in new design. The Ker Yun Group developed and owned a series of famous fashion companies, including Gucci, Saint Laurent, Balenciaga, etc. The group is usually considered to be the most sustainable luxury luxury goods. group. One of the contributions of Kaiyun Group to sustainable development is "Demetra", which is an animal -free and developed material similar to leather after two years of research and development in the Gucci factory.

Adhering to the spirit of open innovation, Kaiyun Group also provides Demetra as a new material to the fashion industry. In order to achieve this goal, the group has also established a material innovation laboratory, which is a diverse, certified sustainable fabric library. Designers from different brands have received public invitations that they can bring and test materials. The ultimate purpose of the laboratory is to find alternative materials that have less impact on the environment. So far, the laboratory has more than 2,800 fabrics.

In addition to leather, the brand is also developing other biomagon fabrics. Taking Chanel as an example, this luxury giant recently invested in Evolved By Nature, a green chemistry company known for its natural sustainable silk. This silk comes from cocoons and can be used for fabrics, cosmetics and medical products. It is more sustainable than the traditional textiles that depend on toxic chemicals. (Do you know that more than 80,000 kinds of harmful chemicals are used in the production of textiles?) Chanel also invested in Finnish startup Sulapac, which is developing a biodegradable plastic substitute for alternatives for perfume packaging. Strategy 2: Open Innovation

The open innovation strategy of cooperating with startups is the latest "popular color" of luxury brands today. This strategy can enable brands to expand product innovation and work with head companies in the digital field.

Figure 3_LVMH's investment and income mergers and acquisitions since the year of 2002 (data source: smart bud Discovery)

For example, luxury giant LVMH (brand relationship as shown in the figure above) has developed an innovation award open to companies that have been established in the past five years. The challenges are related. The award -winning entrepreneurial enterprise will receive the support and suggestions of LVMH Group investment experts and cooperate with their brand. Since the plan was launched, more than 285 startups have cooperated with LVMH.

Kaiyun Group also adopted open innovation. The group became the founding partner of the "Fashion for Good Accelerator" under the Silicon Valley incubation giant Plug and Play, and cooperated with the "Fashion for Good" and the C & Foundation to support and accelerate the sustainable innovation of the luxury and fashion industry. Other luxury companies including Chanel also joined the project. This accelerator is to identify and support innovation startups to achieve scale.

Strategy 3: Digital rule

You can't afford them, they may be more expensive than similar products in the real world -what are they?

you guessed right! It is a luxury NFT NFT (NON-FUNGIBLE token, digital collections, refers to intangible homogeneous tokens, is the only cryptocurrency token for digital assets, which can be bought and sold. To attribute to the popularity and the rise of Web3, many brands are exploring the limit of its digital strategy and developing luxury NFT. The purpose of these NFTs is dual. First of all, it is a unique collection and artwork, and the second is also a tool for verifying authenticity.

Figure 4_2012-2022 Luxury-related NFT patent applications (data source: smart bud Discovery)

In the chart above, the NFT patent related to luxury goods is probably described. We can see that the number of applications in 2021 has jumped sharply, and most of the patented CPC code is G06Q and G06F. This means that these applications are mainly related to the data processing system. To deepen, we found that many patents are about the "iconic platform". These platforms connect the real world's items with digital tokens, or integrate the real world's items into video games (such as in the Yuan universe and cooperation with/or video games with the brand/item of the real world).

Gucci has used its tactics to "get gold". In 2021, Gucci sold a four -minute movie in the form of NFT, priced at $ 25,000. What is even more impressive is that the famous "Gucci Garden" in the world's famous Dionysus in the world's most online game Roblox is sold at the price of 350,000 rubles (equivalent to $ 4,115). The price of the package in IRL (IRL is a Yuan universe, which means "real life") is more than $ 715.

Prada adopted another way to NFT. Compared to the launch of a separate series, Prada chose to cooperate with Adidas. These two brands have crowdfunded pictures from 3,000 fans and compiled them into a composite NFT. This unique tokens are currently sold on SuperRare (a virtual currency currency trading platform supported by blockchain technology). Most of the income will be assigned to charity that focus on climate -considering that the fashion industry is responsible for 10%of global greenhouse gas emissions, this is a wise strategy. All the remaining funds will be assigned to fans who help to create NFT pictures.

For luxury brands, the blockchain provides dual advantages. In addition to becoming possible new growth points, it may also help reduce fraud. If the blockchain allows companies and consumers to track the sources and history of their luxury goods, it will make it difficult for "fakes".

Figure 5_Me luxury brand mentioned quantity in the fake market report (data source: smart bud Discovery)

As shown above, the fake market has affected many luxury brands, of which Kaiyun Group, LVMH and Ralph Lauren are most commonly mentioned in market reports. In 2021, the counterfeit market reached US $ 2.09 trillion, and it is expected to reach US $ 3.64 trillion by 2025. According to the "2018 Global Brand False Report" estimation, the losses suffered from online fraud in 2017 reached $ 323 billion. According to the statistics of brand protection agencies, in the first six months of 2020, these brands of online fake sales increased by 56%. Fortunately, NFT may reduce or even eliminate counterfeit products. For example, in April 2021, Louis Vuitton, Prada and Cartier launched a blockchain technology called Aura Blockchain Alliance. This technology allows consumers to obtain the history and authenticity of luxury products, from procurement to sales to the second -hand market. Consumers can track production, distribution, maintenance/repairs and resale by the unique digital ID related to each product.

Many exciting luxury NFT use cases are about to appear, and the brands have just started to test water and explore potential opportunities. In other words, these new technologies are promising and may bring changes to the fashion industry. In fact, Morgan Stanley analysts mentioned in November 2021 that by 2030, Yuan Cosmic Games and NFTS may account for 10%of the luxury brands to deal with the market, with a valuation of up to $ 50 billion.

What do you think? Will you buy luxury NFT?

Strategy 4: sustainability and circular business logic

Those who saves the upper hand, and second -hand luxury goods are rising. New crown virus is popular, coupled with the increase in the environment of young consumers. The prelude to the fashion of "second -hand" and "archives".

The Realreal, a luxury resale platform, released a report that confirmed that people's interest in retro fashion is getting greater and greater. In each website category, including watches, handbags, garments, etc., the seller's income in second -hand products (more than 10 years) is more income than before. This is exciting for luxury resale, but it may not be so exciting for luxury brands.

This trend surpasses sustainable development and indicates that the business model will fundamentally change. Enterprises must consider this when predicting demand to avoid excess production, and at the same time, they must make certain adjustments in its strategy to enter the market to avoid damage to their reputation.

Figure 6_2017-2022 The number of relevant news reports of the four representative top luxury trading vendors (data source: smart bud Discovery)

As shown in Figure 6, in 2021, the relevant reports of top luxury trading vendors increased significantly. Some luxury brands are trying to cope with this change by investing in transmitters and e -commerce. For example, Kaiyun Group invested in the VESTAIRE COLLECTIVE, the Vestaire Collective, and Ca Cing and the luxury selling company The Realreal established a partnership. Other luxury companies do not have enough confidence in the second -hand market and circular business model, but fully focus on existing linear business models. However, the cooperative relationship of the resale increased the customer's participation and helped the brand to develop a new audience. They believe that more luxury brands will jump into the resale market is only a matter of time.

In addition, startups that provide leased luxury goods are appearing, the purpose of which is to increase the availability of luxury goods. Ronway, headquartered in New York, is one of the most popular rental companies. It provides a platform for users to rent luxury bags and clothes every month. Through the "Luxury-As-AS-Service" model, they can rent luxury goods with a small proportion of the price. If this business model is attractive enough, luxury brands are likely to increase acquisitions and investment in this field. Luxury companies may even introduce their own leasing products.

Luxury shoppers in the millennial and Z era are shaping the future of this industry. It is estimated that by 2025, 50%of the world's luxury consumption will come from young consumers. Statistics show that the consumption preferences of the Z era and the millennial generation are even more away from tradition, more awareness of sustainable development, and compared with consumers of older generations, they know more about digital technology. Using new technologies experiments and innovation is a good way to resonate with these consumers.

In the end, brands and groups such as Prada and Gucci are attracting more audiences to this industry through digital assets, Web3 and more sustainable means, and continue to maintain their market share and unique attraction.

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