Supply Chain Complexity in the Luxury Industry: Meeting the Challenges to Continued Growth

SUPPLY CHAIN COMPLEXITY IN THE

LUXURY GOODS INDUSTRY:

MEETING THE CHALLENGES TO

CONTINUED GROWTH

By Arrigo Berni

White Paper

15/4/2002

INTRODUCTION

Luxury goods companies are at a turning point

in their development. They have succeeded in

making luxury a broadly accepted lifestyle;

their products are demanded by a growing and

broader segment of the worldwide population;

luxury is penetrating even product categories

where offering intangible, status symbol

benefits would have appeared preposterous a

few years ago1. Consequently, the economic

results of the best performing luxury

companies have been spectacular in the last

decade, with double-digit sales growth2.

The recent softening of the worldwide

economy and the threat of a life-altering

coexistence with terrorism may seem to be the

biggest threats to the future of this industry.

And indeed, demand for luxury goods has

faltered, particularly for those brands that had

not yet achieved a solid positioning in the

market place. Yet, I believe that this is going

to prove just a blip in a long-term trend of

growth. The demography of population and

wealth are overwhelmingly in favor of

continued growth for the luxury industry.

However, there is evidence suggesting that

growth will be more cyclical in the future,

competition more intense and that all players

will face the challenge of exploding complexity.

The competencies that proved to be winning

factors in the last decade will not be enough to

meet these challenges and to guarantee

continued growth.

Meeting the complexity challenge, in particular,

will be more important than ever, as market

conditions become less favorable and less

forgiving. After years of strong growth, most

luxury goods companies have mastered the art

of developing, marketing and promoting their

brand. Now they will need to learn the science

of mastering the ever-growing complexity of

the business systems they have created. The

ability to...