Luxury and Sustainability: The case of LVMH

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      In this longer and original entry for the blog, we find out if the luxury group LVMH has good sustainability practices. 

        Introduction

The Boston Consulting Group (BCG) in cooperation with Altagamma (http://www.bcg.it/) have carried out a study to analyze the general trends that will have a significant impact on the luxury sector at a global level in the next decade. They can be classified into: consistent, trajectory changes, and new trends.

Among the fundamental points that has emerged from this analysis is the importance of social and environmental sustainability, which has grown significantly, from about 8% in 2013 to 13% in 2014, an increase of over 5 percentage points. The growth is driven by Europe and the United States where the sustainability more than doubles in importance. Obviously, the distance with more important values, such as quality, craftsmanship and exclusivity, is still important, but surely this value is growing, and companies will not be able to disregard social and environmental considerations in any part of their value chain.

The impact of textile and fashion products on the environment is huge and these industries are known as the second most polluting industry in the world, next to oil industries. However, the knowledge about the impact of textile manufacturing methods is still not known to the end users or customers. It also important to note that around 1% of the clothing materials produced only recycled completely towards sustainable production. Researchers also mentioned that, previous studies estimated that more than half of fast fashion items produced was disposed of in under a year. As the momentum towards the sustainable fashion increased in recent years, the consumer’s knowledge on product is the key for the technologies to sustain.

Awareness and concern for sustainability consumption habits grows constantly. People have started turning to more environmentally friendly choices, in order to reduce the impact of everyday life on earth. Consumers have come to appreciate sustainability and to look for ethical products as a benchmark for high quality and reliability. Such buying behaviour was defined as ethical purchase behaviour or ethical consumption (Harrison, Newholm and Shaw 2005) and because of this, companies and luxury brands need to embrace new and better sustainable practices.

Can we really talk about Sustainable Luxury?

Luxury and sustainability are two words one may not particularly expect to find in the same sentence at first glance. To many people, “sustainable luxury” is a term that might best be found in the dictionary under the entry for oxymoron. the two concepts seem utterly paradoxical. Luxury is argued to be the polar opposite of sustainability since it is superfluous, conspicuous, and excessive devoid of any utilitarian use (Guercini and Ranfagni 2013). These facts make the term notoriously difficult to define (Doran 2013).

Is sustainability an attainable goal for luxury brands? The term luxury was originally associated with “a lifestyle of excess, indulgence and waste” (Dubois, Czellar, & Laurent, 2005; Hennings, Stam, & Wenting, 2013, p. 27; Kahn, 2009). At the same time, sustainability focuses on moderate or responsible consumption of our resources to ensure that our future generation would be able to meet their needs on the Earth. Therefore, “excess” or “wastes” certainly seems to have negative impact on what sustainability pursues. Luxury is also associated with rarity. Rare animals’ skins or furs symbolize luxury; luxury products, in this case, require consuming rare animals. Because of these meanings of luxury, luxury is often symbolized social inequality and therefore sustainability is antithetical to or incompatible with the concept of luxury (Kapferer, 2010).

However, today’s consumers demand for sustainable supply chain and luxury products consumers are not an exception. It’s true that the luxury industry has been criticized by sustainability advocates for the opaque traceability of most of the gold, diamonds, rubies and other gemstones coming from under-developed countries; for taking advantage of poor labor conditions in developing countries where some luxury brands have their products made; for water use in cotton production; or for resort maintenance of luxury hotels. The reason for this is that luxury brands have always been addressing more desires than necessities, and in this sense, it has looked somehow hypocritical for the industry to engage in sustainability (Friedman 2010).

The idea of “sustainable luxury” is becoming an integral part of leading luxury brands’ brand image in the sense it is associated with the possibility for people to express their deepest values in a justifiable way with social and ecological concerns and some degree of positive social value creation. This is clearly reflected in the WWF report Deeper Luxury (Bendell and Kleanthous 2007) where authentic luxury brands are defined as “those that provide the greatest positive contribution to all affected by their creation and that identify their consumers as having the means and motivation to respect both people and planet”.

The luxury industry, also because it is so profitable, has a special obligation to harness its potential to create the most environmentally and socially responsible products. Thus, as a high potential, promising sector, the luxury industry has a bigger responsibility towards society in the creation of environmental and social value. Over the past five years, the global fashion and luxury industry has delivered extremely strong value creation, due to improving consumer confidence, an emerging middle class in developing markets, and a willingness among shoppers to trade up to higher-priced goods.

Luxury companies have a major impact on consumer behavior, as well as a considerable transformative potential in other industries (Bendell and Kleanthous 2007). Their powerful current impact and potential could be harnessed to promote environmentally and socially responsible consumption behavior patterns both to luxury and mass consumers and stimulate the offer of eco-products and environmentally friendly design and conception if those are unique and desirable in the mass market. Thus, as a trendsetter and strong value creator, the fashion and luxury industry, compared to other industries, can create a larger impact on educating consumers to be less wasteful.

  ​LVMH and Sustainability: Analysis and data.

One key-player of the luxury market is the French Group Louis Vuitton Möet-Hennessy (LVMH) who was the first company to establish an environmental department in 1992, have long since prioritized SD as a major operational activity across their organizations’ entire value chain (i.e., sourcing, creating, manufacturing, logistics, distribution, marketing, servicing, waste, recycling).

The group owns a portfolio of over 60 prestigious brands active in 5 sectors: wine and spirits, fashion and leather goods, perfumes and cosmetics, watches and jewelry, and selective retailing. The leading brand within the group is Louis Vuitton, founded in 1854 in Paris specializing in fashion accessories, leather goods, and wristwatches. Protecting the environment, limiting carbon emissions, preserving natural resources, reducing waste, and increasing awareness about the importance of environmental protection are among the company’s sustainability priorities.

Louis Vuitton has assessed its carbon footprint every three years since 2004. In that time, the company has increased its commitment to lowering carbon emissions, and in 2010 identified three priority actions it had taken to achieve specific emissions objectives. First, Louis Vuitton launched an effort to reduce energy consumption in its retail stores. The stores produce around 25 % of the total greenhouse gases emitted by the company, and between 1995 and 2010 Louis Vuitton reduced energy consumption used by lighting in its stores by 50 % (for instance, integrating LEDs, which are not particularly energy-consuming).

Louis Vuitton improved logistic flows to make transport more efficient and reduce carbon emissions associated with the transport of goods to its more than 4000 stores. The company has reduced the volume of goods transported as well as the distance covered by implementing a real-time store sales analysis system that gives managers better insights into what products are selling where. The company has likewise stocked its fleet with vehicles that produce the lowest level of CO2 emissions. Last, Louis Vuitton trains its employees, according to their profession, to the appropriate sorting of waste (from classic procedures, such as reducing the use of paper, to more complex ones such as the reuse of precious materials).

In many places, materials such as textiles and packaging can be recycled. In 2011, more than 3000 Louis Vuitton’s employees took part in education and training seminars focused on ecological issues, including what materials can be preserved and recycled.

Louis Vuitton also believes its suppliers should behave in accordance with the company’s principles. Before establishing a relationship, Louis Vuitton asks suppliers to adopt Louis Vuitton’s practices as they apply to waste reclamation or management.

Louis Vuitton typically chooses its suppliers looking at how environmentally responsible they are, as well as at their geographical position (they should be located close to a Louis Vuitton production site). In 2003, Louis Vuitton had first undergone ISO 14001 certification (an environmental management system) and it is still fully committed to obtaining certifications concerning human rights, labor rights, environmental issues, mining practices, and other important issues relevant to its supply chains.

In July 2013, the company acquired an 80% stake in the Italian business family Loro Piana, to strategically be able to control a century-old, prestigious brand over vicuna wool, a valuable and scarce resource. LVMH was fully aware that continued supply of raw materials for the luxury industry depends on well-managed populations of plant and animal species, both in the wild and elsewhere, such as farming operations. The overarching driver of this acquisition was to minimize resource risks and the desire to create strategic business value for their brand, with some regard to creating social value for all stakeholders involved.

As a global leader, the Group seeks to set an example: Its approach is characterized by very high standards, and a substantial financial effort: the company’s purely environmental expenditure amounted to €35 million in 2017, including operating expenses of €14.5 million and investments of €20.5 million. This policy is based on three fundamental documents: The Environmental Charter signed by Bernard Arnault in 2001 and the two Codes of Conduct drawn up in 2008 and 2009 to optimize the practices of the Group’s suppliers and employees.

In these documents, which were updated in 2017, LVMH confirms five goals: achieving a high level of environmental performance, creating a collective commitment, optimizing the management of environmental risks including the environmental aspect in product design, and becoming involved and taking action outside the Group. LVMH’s action for the environment is part of a framework created by many voluntary, national, and international commitments.

The company also supports the Universal Declaration of Human Rights, the OECD Guiding Principles, the International Labor Organization’s Fundamental Conventions, the Caring for Climate Program that supplements the United Nations Global Compact, the Kimberly Process (the international certification scheme for rough diamonds), and the Convention on International Trade in Endangered Species of Wild Fauna and Flora (CITES).

In 2012, LVMH boosted its environmental initiative by launching LIFE – LVMH Initiatives For The Environment. This program is based on nine challenges that are key to the Group’s environmental performance, from product design, the procurement of raw materials, industrial, the transportation and sale of products. Since 2015, every Maison has incorporated the program into its strategic plan presented annually to the Group’s Executive Committee.

Each Maison selected its most strategic environmental challenges, based on its activities and specific problems. Bvlgari, for example, has selected five such challenges: the securing of access to raw materials; the compliance and traceability of raw materials; the social and environmental responsibility of suppliers; the impact of its business activities on climate change; and the environmental excellence of its processes. For each challenge selected, annual improvement objectives have been set.

The Maisons have then implemented the action plans to achieve them, accompanied by indicators that monitor the results. The main challenges for each business sector include, for example: saving water for Wines and Spirits; the lighting and air-conditioning of stores for Fashion and Leather Goods; the eco-design of packaging for Perfumes and Cosmetics; the managing of waste electrical and electronic equipment for Watches and the preservation of precious stones and metals for Jewelry; and the transportation of products for the Selective Retailing sector.

 LIFE has provided a platform and a backbone for LVMH’s environmental policy, by structuring the initiatives implemented about a united view and a collective commitment, as part of a long-term approach. The program has set priorities to be shared and has reinforced the integration of the environment in the Maisons’ strategy and management processes. Hennessy provided further evidence in 2017 when it launched its new integrated Quality, Safety, and Environment policy: the Maison is thereby making 12 key commitments, which range from implementing an analysis of the occupational, health, and environmental risks, to the involvement of all employees, including an ongoing improvement approach. In fact, by creating a shared language, LIFE has made it easier to raise employees’ awareness and involve them, has encouraged internal cooperation and joint action, and has accelerated the dissemination of best practices.

Thanks to this program, LVMH has been able to give new momentum to its environmental policy and embark on an ongoing improvement approach. Since its introduction, the program has become a source of continuous progress for the company. A true driver of innovation, it also contributes to cost-reduction, to protecting the image of its brands, and to improving its internal and external communications.

Discussion and conclusion

The luxury industry appears to be promising in the creation of social value for overall well-being. In the context of overall satisfaction with life, namely, sense of pleasure and feeling of happiness, luxury brands offer people fulfillment of their individual desires by introducing better consumer choices—rather than making them feel guilty about themselves. Luxury brands have the ability to make sustainable behavior an aspirational mainstream lifestyle choice, which is a much more effective way for creating social value in the form of social change than simply using guilt to make people feel bad about the environment.

Luxury companies are facing a sensitive issue related to the sustainability of their brands in times of crisis and rapid change and LVMH understands this paradigm change. Consumers are increasingly concerned how money should be spent today to contribute to the well-being of today’s people and future generations and that’s why many luxury companies operating in the fashion business have significantly increased their commitment to sustainability in the last decades. They recognize that consumers no longer perceive sustainability as the opposite of beauty and elegance, but instead look for products that are both high quality and good for society.

Most of the information contained in the case study was obtained from the LVMH home page http://www.lvmh.com and the LVMH 2017 Environmental Report https://r.lvmh-static.com/uploads/2014/11/lvmh_environment_2017en.pdf.

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