How ethical standards are influencing supply chain transparency
They are young shoppers climbing the ladder to wealth in the digital age, and they’re bringing their values with them. They are millennial High Earners, Not Rich Yet — HENRYs — and are an important cog in the power train driving the some of the globe’s top luxury brands to build their own supply chains.
Defined by Deloitte as being in their early 40s with annual earnings of at least $100K annually and investable assets of less than US $1 million, this essential group of high-climbing retail customers wants a deeper dimension to their luxury purchases.
In large part, HENRYs demand that the companies they support share values of transparency, sustainability, social justice, and authenticity, and those companies are aiming to cultivate this new generation of wealthy shoppers by reflecting those values in the way they source materials.
According to Deloitte’s 2019 Global Powers of Luxury Goods report, “Affluent millennial consumers want their preferred luxury brands to be involved and provide a positive contribution to their ecosystem with practical actions and are willing to pay a premium price for those products that come from a conscious brand.”
Chanel, Kering, LVMH, Luxottica, and Puig round out Australia’s top five luxury brands as listed by the Statista 2019 Luxury Goods Report. They are linked also together by their stated ethical commitments to sustainability and supply chain visibility.
In their “Influence of ‘woke’ consumers on fashion” report, analysts at McKinsey asserted that, “Despite the many associated risks, some large brands will be willing to court controversy to express beliefs, particularly luxury players, which will seek to attract younger consumer groups looking to trade up. There are clear benefits from doing so, and the more that companies express an authentic view, the more that those who don’t will be exposed. And while there is a counterargument that expression of controversial views may deter some customers, the calculation, of course, is that the loyalty rewarded by its remaining customers matters more.”
The most compelling reasons for luxury brands to build their own supply chains are the ability to maintain control of raw materials, transparency, and sustainable practices. Granted, the fashion supply chain is notoriously long and complex, and it is an impossibility for any fashion brand to proclaim complete transparency — for now, at least. The biggest names in luxe goods are pressing forward in that direction as a way to not just cultivate the quality essential to their brands’ images, but to nurture that newest and most influential consumer group, the HENRYs.
Big Moves that Matter
In 2018, Chanel banned the use of exotic animal skins and fur in their products, making them the first luxury fashion house to do so. In a statement, a company spokesperson said, “At Chanel, we are continually reviewing our supply chains to ensure they meet our expectations of integrity and traceability. In this context, it is our experience that it is becoming increasingly difficult to source exotic skins which match our ethical standards.” Gucci and Michael Kors quickly followed suit.
As noted in the company’s second-ever public release of financial statements in 2018, “Further supply chain investments to enhance know-how and ensure the highest quality of raw materials included the acquisition of 100% of Colomer Leather Group, one of the most established leather suppliers in Europe.”
Chanel is following the lead of luxe goods innovator Hermès, which a dozen years ago instituted a crocodile breeding program to ensure the quality of the skins used in their goods. “The Hermès Group chooses the best suppliers in its field — those who lead not only in terms of the quality of their products and services but also by way of their social and environmental approaches. To this end, the Hermès Group chooses its suppliers based upon both their ethics and integrity in their business dealings, as well as the social and environmental principles by which they operate,” according to the company’s website.
Hermès, Chanel, and Dior are also partnering with growers to increase control over the raw materials used in their fragrances. That being said, the alliances are based upon multiple factors, including hedges against the effects of climate change that may have a deleterious effect on the incredibly delicate ingredients used to give signature scents their unique olfactory signatures.
LMVH, owner of 70 luxury brands including Christian Dior, Louis Vuitton, FENTY, Givenchy, Sephora, and Tag Heuer, is on a journey to inextricably connect sustainability and beauty. Writing in the Harvard Business Review, Andrew Winston proclaimed, “LVMH is on the right track, talking about sustainability as core to excellence, quality, and brand image — and central to how the company operates. As Sylvie Bénard (Senior Vice President of Environment for LVMH) says, when ‘the marketing director, financial director, logistics director, and so on take the environment into account when making a decision, then life will be beautiful.’”
U.S. retailer Everlane is building blockbuster business through its commitment to exclusivity and “radical transparency,” aimed directly at the HENRYs’ pocketbooks. Not only does the company profile supplier factories on its website, the firm insists, “We believe our customers have a right to know how much their clothes cost to make. We reveal the true costs behind all of our products — from materials to labor to transportation — then offer them to you, minus the traditional retail markup.” While primarily an online retailer, the firm operates a handful of bricks and mortar shops in the States. Estimated revenues hover around US $40 million annually.
Agricultural leader Bayer, through its BASF Agricultural Solutions division, is producing e3® cotton, a “socially equitable, economically reliable, environmentally responsible” fabric that can be traced from seed all the way through to the retailer’s racks. A US $50 million startup, Vidalia Mills, the first cotton mill built in the United States in over a century, will exclusively use 100 per cent E3 cotton in its denim manufacturing, creating a transparent and sustainable supply chain for the in-demand textile.
Speaking to the Business of Fashion, chairman of the elite menswear house Ermenegildo Zegna, Paolo Zegna, underscored the firm’s dedication to its supply chain partners this way: “Customers today want to know where did it come from, who made it, were the animals and the environment treated well? We can now say that we go from sheep to shop; you come to Zegna and you have a guarantee that from the very first step to the very last, everything is under control.”
As HENRYs shrug into their equitably sourced merino wool jumpers, they can do so knowing their values are upheld — a trend that the world’s top luxury brands must embrace if they want to reap the rewards from this aspirational buying crowd.