Supply chain challenges in the luxury goods market

After the pandemic-related slump in 2020, the luxury goods industry has regained its former strength. The global market for personal luxury goods, which includes luxury fashion, decorative luxury items such as jewellery, watches and writing instruments, and beauty items, has reached a value of EUR 310 billion this year and all signs point to further growth. According to current estimates, the market will grow to 480 billion euros by 2030.

Increasing customer demand and current global uncertainties have made supply chain management a strategic core function that poses major challenges for luxury brands. This is one of the conclusions of the recent study “Personal Luxury: Supply Chain Challenges & How to Prepare for the Future” developed by Arvato supply chain solutions in cooperation with the international strategy consultancy Roland Berger.

“The market for personal luxury goods offers significant growth opportunities,” explains Julia Boers, President of Consumer Products at Arvato Supply Chain Solutions. “We commissioned Roland Berger to conduct a study to learn more about current and future developments and to obtain detailed information about the market in which we already serve customers.”

The strategy consulting experts intensively analyzed the European and American luxury markets. “In addition, important industry experts from different areas were interviewed, who individually address current market developments and their effects on supply chain management,” says Dr. Richard Federowski, Partner Consumer Goods and Retail at Roland Berger.

Four key trends have been identified that will have a massive impact on the personal luxury goods market by 2030. One is the emergence of a younger demographic of buyers who have higher expectations of luxury brands – they not only expect a unique and consistent customer experience through all touchpoints, but are also very sensitive to sustainability issues. There is also a revelation that it is no longer enough to sell standardized products worldwide; local product collections are expected. This will lead to greater product complexity.

In addition to stationary retail, omnichannel commerce – the combination of online and offline channels – has become an important growth engine for luxury brands. Buyers demand seamless interactions between channels and the ability to connect directly with the brand online. With the switch to increased online sales, the expectations for short delivery times and highly flexible shipping options are also increasing.

The fourth emerging factor is new market uncertainties that luxury brands have to deal with. Geopolitical and pandemic crises have already led to instabilities in the business environment, which have had a major impact on sales processes in various regions or put a strain on existing logistics processes.

Turn challenges into opportunities

“These complex and multifaceted developments pose major challenges for luxury brands and retailers,” explains Abbas Tolouee, who worked on the study as a senior consultant at Arvato Supply Chain Solutions. “We have identified four critical points that companies must turn into success factors in order to remain competitive in the long term.”

Luxury brands and retailers are challenged to deliver a luxurious customer experience that embodies the brand’s DNA across an increasing number of distribution channels – from initial customer contact to order placement and after-sales service. You must have control over all customer touchpoints within the supply chain, which is only possible if all IT systems and corresponding interfaces are integrated end-to-end. An online store in particular needs to have real-time product availability, provide order status information, and offer multiple shipping options.

In addition, speed and punctuality are essential for last-mile delivery. The second challenge is inventory management across different regions and channels. To achieve this, luxury brands and retailers need to synchronize all data in real-time and invest in smart inventory optimization technologies and forecasting tools to anticipate demand, plan supply and detect fraud.

To get a handle on rising operating costs, luxury goods manufacturers should increase their operational efficiencies through automation and digitization. Warehouse services solutions should include a cloud-based IT infrastructure with fully integrated and automated supply chain processes that ensure high operational efficiencies. This also minimizes errors and product losses and optimizes inventory control. Transparency about the CO2 footprint is also extremely important, especially for the younger target group. Knowing the origin of the product and measuring its impact on the environment is not enough. Businesses need to monitor sustainability throughout the supply chain and define an enterprise-wide framework to meet their customers’ expectations.

“This is where partnerships with experienced logistics service providers such as Arvato Supply Chain Solutions offer an advantage,” explains Tolouee. “Not only do we support our customers in developing holistic sustainability concepts for transport, packaging and storage optimization, we also offer a range of practical solutions that we have already developed to help our customers overcome these challenges.” These solutions are also part of the study and selected examples are discussed in detail.

CLICK HERE to read the full study: “Personal luxury: supply chain challenges and how to prepare for the future”.

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