Between the wild U.S. stock market moves in recent weeks, Brazil’s credit downgrade, and signs of a slowdown in China’s economy, it’s easy to see why someone might think that the luxury boom of recent years could come to an end.
But one of the industry’s leading executives, Jean-François Palus, the group managing director of Kering, a French conglomerate that is home to brands including Gucci, Brioni, Yves Saint-Laurent and Alexander McQueen, sees these recent events a “hiccups,” with the future of luxury looking good over the long run.
Kering’s revenue from its luxury brands (it also owns the Puma sports brand) rose 17.8% to 3.76 billion euros ($4.25 billion) in the first half of year, helping double the total company’s profits compared to a year earlier. And Bain & Co’s most recent forecast calls for personal luxury goods spending worldwide to rise as much as 4% across the industry this year.
Even though many of the market disturbances happened after that report and Kering’s earnings, Palus, second-in-command at Kering, says he thinks the inherent strength of the luxury market is here to stay. He also gave U.S. department stores kudos for being so quick to innovate, something he said helps them contend with ups and downs in the market.
“Luxury is nearly immune to the outside environment because it’s about people wanting to please themselves for trillions of reasons that are always here,” says Palus.
Fortune sat down for a Q&A with Paris-based Palus last week when he was visiting New York to get his thoughts on the state of luxury. The questions and answers have been condensed and edited for the sake of clarity and brevity.
Is the recent turbulence in global stock markets a threat to luxury’s growth?
“No, I don’t think so at all. Luxury is about the long-term, it’s about decades, it is not affected by the hiccups of macro-economics such as foreign exchange fluctuations, or even the stock market flucutations. The long lasting structural bases that fuel the growth of this market will continue for a very very long time.” “There is such a huge reservoir of opportunity.”
Why is the U.S. luxury market so resilient?
“The U.S. is always ahead. The U.S. is all about innovation, about new trends, about new tools, new technology. This country is always in motion. This is what is admirable: even in downturns, there’s this energy, this will to fight, to move, to progress. The U.S. will lead the market because it leads everything. If you want to test something (new store formats, tech etc), you do it in the U.S. first. This country always revives itself after something difficult – it’s really impressive.”
Why have U.S. luxury department stores fared so well?
“They have a very loyal, solid, resilient customer base and they nurture that. They have developed CRM (client relationship management) techniques, clienteling techniques. On the internet also they are ahead of competitors.”
Are outlets a risky strategy for luxury retailers?
“It’s a matter of balance. They need outlets but they must not use outlets too much. If by doing that, they capture new customers, this is good. But if by doing so, they have a portion of their customers base that swap to the outlets in a systematic way, this is not good. I trust they are very good in clienteling, CRM and I’m sure they monitor this very closely.”
