This season, LVMH is wearing green
The luxury multi-national is sporting sustainability, and their products depend on it.
In an industry built on excess, LVMH is trying to set the standard for sustainable supply chains. While these efforts may be an adoption of a trend, it is prudent for the world’s leading luxury goods conglomerate to make their supply chain more energy efficient.
LVMH’s 70 brands, or houses, span fashion and leather goods, wine and spirits, watches and jewelry, and perfumes and cosmetics [1]. The raw material inputs to many of these products, including water and agricultural products such as cotton, grapes, grains, and flowers, are threatened by increasing global temperatures and water scarcity brought on by climate change. For LVMH to ensure the longevity of their brands, some of which already boast centuries-old heritage, they’ll need to reduce their contribution to climate change.
Since the 1992 creation of an Environment Department, LVMH has made strides toward reducing its carbon emissions. In 2010, a supplier code of conduct was implemented that includes requirements for sustainable practices. In 2013, Louis Vuitton received ISO 14001 environmental certification for the leather good and accessories supply chain after implementing a tracking system for CO2 emissions and modernization of logistics to include technology like geothermal heating and sensors for automatically regulated interior lighting [2].
Recently LVMH has significantly increased its sustainability efforts. LVMH Initiatives for the Environment (LIFE) 2020, established in 2016, demonstrates this commitment with a focus on four pillars: products, supply chain, CO2 and sites [3]. The hallmark of this initiative is an internal carbon fund into which each of the 70 brands contributed 15 euros for every ton of CO2 emissions generated [1]. In 2018 that amount will double to 30 euro per ton [3]. This carbon fund is used to pay for sustainability projects conceived by each house and selected by an internal committee. This initiative’s goal is to reduce CO2 emissions by 25% between 2013 and 2020 and apply the highest supply chain standards in 70% of procurement chains [1]. In 2016 over 6 million euros were invested in the fund [1]. These projects have spanned various aspects of the supply chain.
- Production: Belvedere Vodka has made changes to its distillery in Poland that have contributed to a 40% reduction in greenhouse gas emissions by switching the fuel source from oil to natural gas and implementing heat recovery systems to improve efficiency [4]. By the end of 2017, all French LVMH manufacturing and corporate offices will be powered exclusively by electricity generated from renewable sources [4].
- Packaging: LVMH launched an internally created tool to enable brands to measure the CO2 impact of packaging materials, the first step toward reducing this figure [1]. Bulgari used this tool in 2016 to reduce packaging for its Aqua Amara perfumes by 48 metric tons [1].
- Shipping logistics: Many LVMH brands have implemented practices to decrease the environmental impact of shipping. The Krug Champagne brand, for example, bans the use of air shipping in favor of the lower CO2 emitting sea shipping. Parfums Christian Dior also increased the sea/air shipment ratio by 11% in 2016 [1].
- Retail sites: Given that nearly 70% of LVMH’s carbon footprint is generated in retail store locations, it makes sense that one significant initiative was changing all lighting in these sites to LEDs [5].
While these efforts are commendable, LVMH has opportunity to improve its 70 brands’ supply chain energy efficiency:
- Holistic approach: LVMH prides itself on the autonomy it offers to its houses, however this separation of authority prevents consistent standards across the entire organization. While the company lauds individual brands’ effort to improve energy efficiency, these efforts are clearly piecemeal. The carbon fund offers flexibility for different brands to prioritize business-specific efforts, but a top-down approach may prove more impactful.
- Transparency: Related to this holistic approach, LVMH does not provide detailed reporting on energy usage or efficiency goals [6]. Its competitor, Kering, on the other hand, released its first environmental profit and loss report in 2015 [7]. Providing transparency on energy usage, not just improvements, will help motivate broader change.
- Transportation: As mentioned, specific LVMH brands have made strides in transitioning to less carbon-emitting transportation methods, but there is still room for improvement. Specifically the perfumes and cosmetics and fashion and leather goods could reduce the use of air shipment.
LVMH recognizes the need to curb the carbon emissions that could threaten the raw materials its businesses rely on, but is the luxury retail industry inherently incompatible with sustainability? Is the best way to reduce the environmental impact of this industry’s supply chain to influence consumer preferences away from products some may consider unnecessary? What would it take to change consumer preferences in these categories to truly influence the actions of players like LVMH? What will come first, the impact to their raw material inputs or a fundamental shift in consumer preferences?
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Resources
[1] LVMH Environmental Report 2016. (2017). R.lvmh-static.com. Retrieved 15 November 2017, from https://r.lvmh-static.com/uploads/2017/04/lvmh_rapport-environment_2016en.pdf
[2] Müller-Stewens, G., Berghaus, B., & Reinecke, S. (2014). The Management of Luxury: A Practitioner’s Handbook. Kogan Page.
[3] “The LVMH Group is proud of its pioneering role and we aim to remain trailblazers” – celebrating 25 years of sustainability in luxury – The Moodie Davitt Report. (2017). The Moodie Davitt Report. Retrieved 14 November 2017, from https://www.moodiedavittreport.com/the-lvmh-group-is-proud-of-its-pioneering-role-and-we-aim-to-remain-trailblazers-celebrating-25-years-of-sustainability-in-luxury/
[4] An Inside View of How LVMH Makes Luxury More Sustainable. (2017). Harvard Business Review. Retrieved 16 November 2017, from https://hbr.org/2017/01/an-inside-view-of-how-lvmh-makes-luxury-more-sustainable
[5] Stores That Sell Luxury Get Stingy About Energy Costs. (2015). wsj.com. Retrieved 16 November 2017, from https://www.wsj.com/articles/stores-that-sell-luxury-get-stingy-about-energy-costs-1429135355)
[6] LVMH keen to be green as sector embraces ethical fashion. (2017). U.S.. Retrieved 16 November 2017, from https://www.reuters.com/article/us-lvmh-environment/lvmh-keen-to-be-green-as-sector-embraces-ethical-fashion-idUSKCN1BV2M6
[7] Givhan, R., & Givhan, R. (2015). Luxury fashion brands are going green. But why are they keeping it a secret?. Washington Post. Retrieved 16 November 2017, from https://www.washingtonpost.com/lifestyle/style/luxury-fashion-brands-are-going-green-but-why-are-they-keeping-it-a-secret/2015/12/08/d3d93678-8c8a-11e5-acff-673ae92ddd2b_story.html?utm_term=.e5264c540bb2
Thank you for this article. My initial reaction is that LVMH is better positioned than many other retailers to invest in sustainability, given that upfront and recurring costs related to these efforts can easily be passed along to customer given an ever increasing WTP. Prices have ballooned by 6-10% annually, outpacing inflation significantly (https://www.cloversac.com/louis-vuitton-price-increase-in-2017/).
Identifying less-carbon-emitting transportation methods could provide an interesting supply chain management challenge. I am more familiar with Louis Vuitton than I am with LVMH’s broader brand portfolio, so simply know that most LV handbags are made in Europe and the US. It would be interesting to learn what percentage of goods are shipped by air; for instance, are all the handbags sold in France made in France? If not, why not?
This was a really interesting article. I don’t know much about LVMH, and am impressed by their internal carbon fund as well as the way they are tackling this challenge within many of their 70 brands individually.
Artemis’ point that LVMH consumers have the WTP to absorb the cost increase is really interesting – it is true that consumers of those products are not very cost sensitive. However, there is obviously a limit to the amount LVMH will be willing to either 1) increase prices or 2) reduce margins in service of sustainability.
To justify significant sustainability investments, I think LVMH should leverage its position as an influencer to make consumers want sustainable luxury goods, and use their sustainability investments as a marketing tool and potential competitive advantage. A powerhouse of brands like LVMH is in a unique position to influence consumer preferences, and make sustainability top-of-mind for luxury customers. The good news is consumers are already interested in brands investing in sustainability: a 2016 report on the luxury industry and sustainability indicated that millenials are “twice as likely to buy from brands with strong management of environmental and social issues” [1]. I could imagine marketing tactics like sustainability labels on special-edition sustainable products, or even opening a retail store in a net zero-energy building. As an example, Walgreens opened a net zero-energy location in 2013 in Evanston, IL [2]. The buzz and brand goodwill from efforts like this, paired with brands as influential as those in LVMH’s portfolio, could generate enough sales to offset at least some of the required investment, while making a significant positive impact on the climate.
[1] http://blog.positiveluxury.com/2016/01/20/2016-predictions-luxury-world-sustainability-innovation/
[2] http://news.walgreens.com/press-releases/general-news/walgreens-debuts-nations-first-net-zero-energy-retail-store-in-evanston-ill.htm
It is really interesting to learn how luxury brands like LVMH are increasingly investing in sustainability. While I do feel that LVMH has made significant progress in addressing sustainability in production through replacing traditional energy sources to renewable energy, I believe there is a lot more opportunity left on the packaging side. For example for packaged products such as cosmetics and jewelry which tend to come in boxes or wrapped in protective film, I would be curious to know the percentage of these raw materials that is recyclable. Are they investigating biodegradable options?
LVMH could look to Apple for inspiration on how to use recyclable packaging at scale and how to reduce packaging size. By reducing packaging size, LVMH could reduce the amount of trucks needed and effectively lower carbon emissions. The first iPhone was packaged in a recyclable box, and the shipping trays were made out of potato starch paper trays rather than the popularly used Styrofoam [1]. I believe LVMH could imitate this for their perfumes as a starting point, and then expand to other products.
[1] Ramirez, S. (2010). Sustainable packaging. World Trade, WT 100, 23(3), 41-42. Retrieved from http://search.proquest.com.ezp-prod1.hul.harvard.edu/docview/228231946?accountid=11311
Thanks for an insightful article – I wasn’t aware that LVMH has been putting in the effort to do their part in driving sustainability since 1992. I particularly think they are harnessing the power of being such a large fashion powerhouse through their internal carbon fund. I agree that a top-down approach where they set broad metrics (maybe in terms of ratios, to enable each group to adapt their efforts to the market they are in) as well as a way to share best practices would be more impactful than disjointed efforts. One thing that stood out to me while reading this article was that while luxury brands and “fast fashion” are broadly operating from the same industry of mass fashion — albeit serving different customer groups — the two seem to approach it from a very different way. For example, LVMH’s approach is to drive efficiencies from the start of production to the point of sale, while brands such as H&M focus on the post-sale (e.g. their campaign to recycle clothes) [1]. My initial thoughts are that this is due to a mix of WTP, production cycle and time to sale. For example, a Louis Vuitton purse can command a higher price as well as a longer time horizon to design and produce, as well as the fact that the customer willing to wait for new stock to come in in order to get their preferred product. Fast fashion is exactly the opposite, and also raises the question on how they can creatively approach ways to drive environmental efforts at the start of their production cycle.
[1] https://about.hm.com/en/sustainability/get-involved/recycle-your-clothes.html
Thanks JD for sharing this article. I am impressed by the metrics LVMH tracks as well as the transparency into the performance of their brands against these measures. Regarding your first question, I do not think that the best way to reduce the environmental impact of this industry’s supply chain is to dissuade their customers from buying unnecessary products. Arguably, many of the luxury products that LVMH manufactures are considered unnecessary. In my opinion, LVMH should focus on expanding their offering of products to include more environmentally responsible items, giving consumers the choice to purchase “green” options. In many ways, sustainable goods offer additional product value for consumers and is something that the luxury goods industry could use as an advantage to further differentiate their already exclusive products.
This is an interesting article on LVMH’s green strategies and promoting an organization culture of preserving the environment. The interesting aspect was that the strategies are targeting multiple fronts of the supply chain from the production, packaging, shipping and onto retail. A very strong push can be made by aligning the brand leadership’s incentives with climate change.
I believe, inherently, the fashion and retail industry is not at odds with climate change. If the regulations tighten and the world joins hands to tackle the climate change issues, environmental initiatives will accelerate in the right direction. However, if that does not happen, the private sector should take actions themselves to make the world a better place to live. This will not just make them look more socially responsible, but may act as an excellent PR and advertising campaign as the average human becomes more aware of these pressing issues. Going green will definitely help strengthen the brand image in the long term.
In response to your question “LVMH recognizes the need to curb the carbon emissions that could threaten the raw materials its businesses rely on, but is the luxury retail industry inherently incompatible with sustainability?” I would have to answer no. In fact, given the nature of their business – high margin, exclusive, innovative and futuristic – LVMH is one of the few companies capable of leading innovation in this space without disrupting their core business.
As we saw with the Tesla Roadster, people are willing to pay for innovation exclusivity and the type of people willing to pay for these things are LVMH’s target audience. The profit’s from these high margin innovations can then be re-invested in more affordable products, making sustainable fashion simultaneously more luxurious and accessible [1]. LVMH need to go beyond managing their supply chain and review their product innovation process to see if they can make sustainability fashionable and sexy.
1. Urban, Tim (2015). “How Tesla will change the world”, Wait But Why. [Retrieve here: https://waitbutwhy.com/2015/06/how-tesla-will-change-your-life.html%5D
Thank you for talking about sustainability and fashion – its a topic thats been top of mind for me recently, and I’m glad that other consumers are thinking about encouraging companies to bring more transparency.
I want to address in particular one question you posed – a philosophical one: Is the luxury retail industry inherently incompatible with sustainability? While I agree that the consumption of anything is by nature wasteful, we should be addressing sustainability in consumer goods as the minimum viable amount required to still produce a product. My argument would be that the mere nature of luxury products being high involvement purchases that consumers keep for a long-time, is actually positively contributing to the growing concern.
In the era of fast-fashion players such as Zara and H&M, consumers are using wasting considerably higher amounts leading to unsustainable practices. Not only are the clothes meant to be worn only a few times (with some reports mentioning the clothing has a forced obsolescence after a single wash), but the entire consumption throughout the supply chain is also multiplied by each article of clothing.
Given LVMH’s size, I think their stance on sustainability is more important from a pure visibility standpoint – paving the way for other retailers to start thinking about incorporating this into their supply chain with ethical standards. However I don’t believe even with their number of product lines, that their business is one that could benefit the most from these changes in the industry.
Regarding your first two questions (“…but is the luxury retail industry inherently incompatible with sustainability? Is the best way to reduce the environmental impact of this industry’s supply chain to influence consumer preferences away from products some may consider unnecessary?), I think the answer is that luxury retail is indeed inherently incompatible with sustainability. As much as brands like LVMH make their goods more “green,” they won’t ever become carbon neutral and the impact on landfill as our population continues to grow won’t be stopped by green practices.
The fact of the matter is that in order to be profitable, luxury brands need consumers to use their products for a limited period of time, either the product needs to lose its ability to perform (it tears/wears out), or it becomes too uncool to use. High-end brands are incentivized to lure their customers to new products each season and we see that play out especially in the fast-changing nature of women’s luxury fashion. In the end, we need to make using less, and having less in our closet the new cool. The most green and profitable approach would be to convince women and men to invest heavily in extremely expensive, durable goods, that should last for decades, not just a few fashion seasons.
Thanks for putting together such an interesting article. While going through different posts, I tend to find myself more interested in topics related to sustainability and fashion. You raised several very good questions in the end of the article. I think both shifts in customer preferences and innovations in upstream supply chain are crucial in driving fundamental changes towards a more “green” fashion industry. Customers for luxury goods are less price-sensitive with higher financial affordability in general, which allows luxury companies to be able to pass-through additional raw material costs attributed to environmental protection without eating up too much margins. However, how to educate customers’ preferences is still challenging in certain circumstances. The solution is not easy but definitely worth exploring.