In Tough Market, Luxury Brands Seek to Bridge the Divide Between Manufacturing and Retail Operations
2025 is shaping up to be a choppy year for Europe’s luxury brands.
According to Bain & Company, 2024 was the first year since 2008 to see a decrease in global sales of personal luxury goods, with the market contracting by 2%.
The trend is a result of several factors: on the macroeconomic side, international tensions have impacted consumer confidence. But luxury brands have also “priced themselves out of the market”, with HSBC estimating that prices rose by 52% since 2019. Some major players like Burberry are attempting to change courses after disappointing performance.
This increase has driven large numbers of consumers, particularly younger ones, to turn away from traditional luxury years: it is estimated that the market shrunk by 50 million consumers over the past two years.
The Demand-Driven Luxury Brand
This outlook brings several consequences: first, future financial margins will likely come from more efficient operations, not price increases; second, winning back lost customers will require a greater number of Stock Keeping Units (SKUs) and more diverse collections that rotate more often, which will put pressure on manufacturing and inventory management. Lastly, this will come at a time when years of growth have already left many brands overstretched, both logistically and operationally.
However, these challenging trends are also accelerating shifts that have been at work for several years. For example, the growth of digital influence has led to shorter-lived trends that peak within 2-4 months and greater demand for “newness,” putting a premium on agility and reactivity in production.
In the past two years, luxury brands have therefore sought to emulate the ability of fast-fashion such as Zara or Shein to react rapidly to market trends and local demand while increasing resilience against disruptions. A common strategy has been verticalization, with brands like Chanel, Prada or Ermenegildo Zegna scrambling to acquire suppliers.
Agile Manufacturing is Trickier Than It Seems
However, building more agile manufacturing capabilities goes far beyond verticalizing supply chains.
Being able to rapidly react to a peak in demand by manufacturing and dispatching the appropriate products requires the ability to automate a series of decisions and ensure that manufacturing capabilities are not hampered by unexpected downtime, maintenance scheduled at the worst possible moment or missing spare parts to fix critical equipment.
And just-in-time manufacturing is not only about keeping the machines running: Manufacturers are increasingly seeking Enterprise Asset Management (EAM) platforms that can interact with their Enterprise Resource Planning(ERP) and workforce management software to manage the full spectrum of industrial operations and drive greater procurement, scheduling, tracking and resource allocation automation.
Bringing Store Maintenance Up to Par
While large brands are moving toward a more uniform technology stack, their needs still vary based on business model and segment.
Hard-luxury brands, including those in the watch and jewelry sectors, tend to emphasize deeper integration within manufacturing. This often involves closely linking asset management with quality management software to maintain the highest production standards.
For fashion brands, especially those with a strong retail presence, the recent focus has been on using EAM software to extend their maintenance maturity to their retail operations as part of an effort to create a unified technology backbone foromnichannel operations. Of course, there are significant differences between performing industrial maintenance at a handful of production hubs and servicing every piece of equipment, from climate control to mechanical stairs and fire extinguishers, across hundreds of geographically scattered stores. However, many of the required capabilities are common, including labor and contractor management, work scheduling or procurement.
In addition, because store maintenance tends to be less mature and more haphazard, improving maintenance and oversight can bring significant results, both financially and in terms of customer experience. At a time when one in three customers feel the luxury retail experience has declined, better maintenance management can eliminate some friction, such as broken equipment, that is antithetical to luxury.
A Challenge of Scale
Large brands also see digitization and the use of standard tools across manufacturing and retail as a way to address an increasing headache: compliance.
The past period has seen significant geographies develop a growing web of compliance requirements - from sustainability mandates like the EU’s Corporate Sustainability Reporting Directive (CSRD) to product traceability rules.
A particularly challenging feature of recent frameworks is that they demand end-to-end visibility across the entire product lifecycle, supply chain and operations. The CSRD, for example, relies on more than 1,000 data points and could see additional industry-specific requirements, for example, for textiles.
The challenge is further amplified by years of rapid expansion, which have brought new regulations, languages and SKUs: Some brands, like Moncler, have added over 100 new locations since the beginning of the pandemic.
As the market shifts gears, the ability to increase oversight and efficiency without compromising flexibility and agility could be the defining challenge to come on top during this slowdown.