Luxury Brands: Collaborations back in vogue

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GAM Investments’ Swetha Ramachandran looks at the role of collaborations in the luxury sector and how tie-ups are increasingly appealing to the critical Generation Z consumer segment.

29 September 2021

Brand collaborations are nothing new for the luxury industry. After all, the Hermès / Apple watch collaboration dates back to 2015 while the well-received Louis Vuitton / Supreme drop hit stores in 2017. The hype around the announced collaboration between Kering-owned luxury houses Balenciaga and Gucci as part of Gucci’s Aria collection, set to hit stores for autumn / winter 2021, has once again focused attention on the role brand collaborations are increasingly playing in the luxury industry. We note an accelerating pace of such collaborations in recent years, just as the influence of Generation Z consumers (those born between the late 1990s and early 2010s) is rising; with it set to account for over 20% of the global personal luxury goods market by 2025, gaining a share of the Generation Z spend is emerging as a critical growth driver for the luxury sector.

Younger consumers in general, and Generation Z consumers in particular, are seen to have a higher propensity for buying from ‘collaboration’ collections than older consumers. Boston Consulting Group (BCG) notes that Chinese Generation Z consumers have the highest appetite globally among this generation for cross-brand collaborations in their quest for newness from the brands they gravitate towards.

Collaborations have also transcended traditional brand boundaries in certain instances to surprise consumers: the auction house Sotheby’s, for instance, has collaborated with LVMH-owned Spanish label Loewe to produce new, unique products that can be sold on Sotheby’s emerging ‘Buy Now’ marketplace. Premium smart audio brand Sonos has partnered with both The North Face and football club Liverpool – an unusual selection of partners on the face of it. With The North Face, Sonos has launched a new radio station ‘Never Stop Exploring’ to combine both brands’ strengths in the world of sound and exploration and to give listeners the opportunity to experience the outdoors no matter where they are tuning in from through a range of exclusive content that will take listeners across the world – from the Himalayas to California’s High Sierra, and from Ethiopia to Japan’s Shomyo Falls.

Some collaborations create a sense of exclusivity and scarcity among their audiences, thus creating buzz and brand heat from the mismatch between supply and demand. The Dior / Nike collaboration on the Air Jordan 1 limited edition sneaker was one such instance – only 13,000 pairs of the sneakers were produced and priced at USD 2,000 for the low-top version and USD 2,200 for the high-top version. Five million people registered on the website to be entered into the draw that would allow them a chance to purchase a pair.

Transboundary collaboration

 
Source: BCG / Tencent Digital Luxury Report 2020. For illustrative purposes only.

Brands are also collaborating with influencers – Fenty Beauty by Rihanna (at LVMH’s Sephora) or Ivy Park by Beyonce (at adidas) are examples of successful collaborations with mega-influencers turned brand creators. Italian leather goods specialist Tod’s made waves by appointing European influencer Chiara Ferragni to its board of directors recently. Having leveraged her audience of 23 million Instagram followers to build a namesake apparel line, Ferragni brings expertise on selling fashion on social media in addition to celebrity clout and potentially interesting product collaborations down the line.

In China, collaborations offer luxury brands the opportunity not to just offer newness to younger consumers but also to ‘localise’ their offering and increase its relevance to an audience increasingly looking for ‘luxury with Chinese characteristics’. By leveraging the best of European craftsmanship and heritage allied to Chinese cultural cues, brands can develop compelling narratives that resonate with their target audiences – as highlighted by BCG and Tencent in their joint analysis of Chinese luxury consumers. Adam Schokora, founder of Chinese marketing agency Neocha, notes: “Younger Chinese consumers know it’s the century of China and they want to see their favourite brands co-creating with local Chinese talents.” As an example, promising designer Angel Chen’s capsule collection for Canada Goose in the spring of 2021 mixing western and Asian aesthetics was a hit with Chinese consumers.

Important legal information
The information in this document is given for information purposes only and does not qualify as investment advice. Opinions and assessments contained in this document may change and reflect the point of view of GAM in the current economic environment. No liability shall be accepted for the accuracy and completeness of the information. Past performance is not a reliable indicator of future results or current or future trends. The mentioned financial instruments are provided for illustrative purposes only and shall not be considered as a direct offering, investment recommendation or investment advice. The securities listed were selected from the universe of securities covered by the portfolio managers to assist the reader in better understanding the themes presented and are not necessarily held by any portfolio or represent any recommendations by the portfolio managers. There is no guarantee that forecasts will be realised.

Swetha Ramachandran

Investment Manager

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