Gucci. Chanel. Louis Vuitton. What is this year’s hottest luxury trend? Exotic furs? Soft neutrals? Head-to-toe cashmere? No. This year, according to the major luxury retail houses, the only thing that is in fashion is energy conservation. LVMH, the French luxury conglomerate that owns icons such as Louis Vuitton, Moet Hennessy, Guerlain and Bulgari, is pioneering the message that environmental sustainability is now a necessity for long-term survival and profitability in luxury retail.
Climate Change and Luxury Retail: Defining the Problem
The fundamental value proposition of luxury retail is to deliver beautiful, creative products crafted from rare, high-quality materials. However, this dependence on high-quality raw materials exposes the industry to the detrimental effects of climate change because luxury good raw materials come from natural and agricultural systems that are limited geographically and can be particularly vulnerable to climate variations. Existing climate change forecasts threaten to jeopardize raw materials sourcing in terms of quality and availability, and luxury goods depend on these materials more than any other industry.
Cashmere, leather, vicuña, silk and cotton are examples of materials that are already experiencing compromises due to climate change. Some have become more likely to be insect infested, others have adopted coarser fibers, and increased heat and drought have decreased the yield and geographical harvesting ranges of all . At the business level, this will lead to more price spikes for the consumer and decreased profitability for luxury retailers.
Moreover, studies have shown that most luxury raw materials, as a testament to their rarity, tend to be sourced from small-scale farmers in rural and coastal communities, which have been and will be most impacted by climate change. They are particularly susceptible to climate extremes, such as droughts, heatwaves, temperature variability and hurricanes caused by warming waters and long-term shifts .
Therefore, in order to ensure long-term survival and profitability, luxury brands must strategically plan for long-term sourcing and introduce sustainability practices into their growth strategies to mitigate the inevitable effects of climate change on the fundamental value proposition of their businesses.
LVMH and Sustainability
On average, the supply chain accounts for 50% of a typical retail corporation’s carbon emissions . Therefore, LVMH has focused its sustainability program on managing supply chain disruptions. The company is building resiliency to climate change by (1) looking to avoid unmanageable climate change (reducing emissions across its value chain), and (2) managing unavoidable climate change (investing in green infrastructure, building climate-proof facilities, focusing on climate resilient production of raw materials, etc.) [4, 5] These efforts have manifested in three primary sustainability initiatives, highlighted below, and have really sprung the company forward in terms of environmental efficiency (Figure 2).
Most recently, LVMH implemented a comprehensive sustainability initiative, called the LIFE program (Figure 1), to synthesize the sustainability efforts of all of its businesses. LIFE aims to address five primary concerns :
- Save energy resources and combat climate change
- Protect and save water resources
- Protect ecosystems and natural resources
- Waste recovery
- Minimize impact of production and transformation of raw materials
2) Carbon Reduction Program
LVMH has also supplemented the LIFE program by introducing an internal carbon price, which requires its businesses to invest €15 in financing innovative projects every time they emit one metric ton of greenhouse gas in order to reduce emissions .
By 2020, LVMH is committed to reducing energy consumption by 20% and increasing consumption of renewable energy by 50%, reflecting a 60% decrease in greenhouse gas emissions .
3) Sustainability at Retail Stores
LVMH retail stores are responsible for 80% of the company’s total greenhouse gas emissions . LVMH is committed to reducing these levels by:
- Developing eco-lighting through LED technology, which has already been installed in over 60% of Thomas Pink stores and 175 Sephora boutiques ; and
- Improving energy management with real-time consumption-monitoring technology such as “smart thermostats.” 
Is there more to do?
While LVMH has led the supply chain sustainability phenomenon for luxury retail, its peers have innovated in other ways that the company could aim to adopt:
1) Introduce eco-friendly fashion: Compared to its peers, LVMH has yet to enter the green movement of fashion, which features high-end ultra-luxe pieces fashioned from sustainable materials by environmentally-friendly designers that don’t comprise on desirability .
Source: “Manolo Blahnik, M. Patmos Make Eco-Friendly Shoes From Waste Tilapia Skins, Cork,” http://www.ecouterre.com/manolo-blahnik-m-patmos-make-eco-friendly-shoes-from-waste-tilapia-skins-cork/, accessed November 2016.
2) Waste reduction: While LVMH has focused on waste recovery, the only business segment that has experienced notable improvement in this area has been wines & spirits (Figure 4). As demonstrated by its competitor, Kering Group, other segments such as leather goods could benefit immensely from improved waste reduction and provide tremendous long-term cost savings for the company .
3) Increase transparency: Tools such as the “Energy P&L” implemented by Kering Group encourage public awareness of climate change and push other luxury retailers to adopt similar policies .
Luxury brands have a unique power to influence by setting trends and promoting aspirational change for social good. LVMH should continue to do what it has always done best – inspire people to desire – in support of a climate-smart world.
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- Crowley, H; Driscoll Goulay, C; Niemtzow, E.; Norton, T.; Prattico, E; and Woods, B. 2015. “Climate Change: Implications and Strategies for the Luxury Fashion Sector.” BSR Working Paper in collaboration with Kering. BSR, San Francisco.
- Hewston, R.; Allan, J.; Dobson, O. and Nichols, W. 2015. “Assessing climate change risks in commodity supply chains”. Verisk Maplecroft.
- T. Kearney. 2011. “Supply Chain Report 2011: Migrating to a low carbon economy through leadership and collaboration”. Carbon Disclosure Project. www.cdp.net/CDPResults/CDP-2011-Supply-Chain-Report.pdf, accessed November 2016.
- Crowley, H; Driscoll Goulay, C; Niemtzow, E.; Norton, T.; Prattico, E; and Woods, B. 2015. “Climate Change: Implications and Strategies for the Luxury Fashion Sector.”
- Positive Luxury; 2016. “2016 Predictions for the Luxury Industry: Sustainability and Innovation.”
- LVMH 2015 Environmental Report. https://r.lvmh-static.com/uploads/2016/04/rapport-environnement-2015-va.pdf, accessed November 2016.
- McMillan, Aya. “7 Sustainable Luxury Brands Making Eco-friendly Fashion.” http://www.ellecanada.com/fashion/trends/article/7-sustainable-luxury-brands-making-eco-friendly-fashion, accessed November 2016.
- Cardamenis, Forrest. “Climate Change Could Jeopardize Access to High-Quality Materials.” https://www.luxurydaily.com/climate-change-could-jeopardize-access-to-high-quality-materials-report/, accessed November 2016.
- Kering, 2014. Environmental P&L. http://www.kering.com/sites/default/files/document/kering_group_2014_environmentalpl.pdf, accessed November 2016.