Luxury Brands and Ethics: The Expectations and Reality

This is the fourth in a series of articles about the luxury market. One clear point that has emerged from the previous three articles is that luxury customers demand a certain level of social responsibility and ethics from their brands. Watch this space for my next piece.

In the Forbes article titled “Luxury Turns from Conspicuous to Conscientious in 2021: Challenges and Opportunities Ahead,” Pamela Danziger explored the role ethics play in customer loyalty. Regarding expectations, she said: “Once luxury consumers emerge, they will dig deeper into the meaning and purpose of brands that they choose to connect with, looking for brand values that match their own. It means more than just brands taking a stand on the environment, sustainability and socially responsible business practices, along with support of cultural values like gender, race, sexual orientation and income equality.”

That said, luxury brands start from behind in terms of customer expectations regarding social responsibility and ethics. “As good as these ideals sound and as important as they are, there is an inherent disconnect for an industry that, at its roots, is made for the ‘haves’ to suddenly be concerned about the ‘have nots,’” Danziger stated.

The Journal of Cleaner Production went deeper, conducting a 2019 study of luxury customers based on hypotheses that sing the same tune. The study stated that luxury brands are perceived to be less ethical than “sincere” brands and carry a “sophistication liability.” However, it found that “companies invest more in corporate social responsibility (CSR) activities to improve consumers’ perception regarding brand ethicality and attain their support.” But, if consumers suspect this, they dislike this practice and will not reward the brands with their purchases or loyalty.

Are luxury brands being treated unfairly, and what is the truth about their CSR activities? Let’s look at what these companies might say. Kering’s 2021 Human Rights Policy says, “Forced labor, human trafficking, debt bondage and other forms of slavery are strongly prohibited in our supply chain and are considered breaches for which we have zero tolerance. The unlawful practice of forced or compulsory labor constitutes an element that would nullify any business relationship between Kering and its houses and a business partner. In particular, we expect that our business partners do not retain workers’ identity documents, do not withhold wages, prohibit recruitment fees paid by workers themselves and do not impose restrictions on workers’ freedom of movement.”

While this report claims to advise follow-up on the status of these policies, it puts the responsibility on the supplier by repeated use of phrases like “we expect.” Does it carefully investigate and monitor these issues before and during doing business? Or is it too easy to excuse bad behavior by saying “we told you what we expected?” Instead, how about saying “we will thoroughly vet our supply chain and not do business with resource who engages in or probably engages in these practices?”

It seems that luxury brands don’t follow up on their words or prioritize vetting/monitoring their supply chains. The 2021 Apparel and Footwear Report by KnowTheChain establishes two indices of apparel companies’ human rights efforts in the workplace. The first is a “benchmark score” on a scale of zero to 100, which documents known efforts by the company to remedy key issues; the second are “worker-centric” scores which “focus on due diligence processes based on worker participation and on concrete outcomes for workers.”

The results of KnowTheChain’s work are particularly disturbing, but it points out that luxury brands as a group are not at the top of the list; in fact, they may be at the bottom. This index states: “Luxury apparel companies score particularly low, at 31/100. … Also among the bottom five companies in the benchmark is U.S.-based Tapestry (16/100), the owner of Coach and Kate Spade. No luxury company disclosed a process for responding to allegations and only two disclosed outcomes of remedy for workers in their supply chains, including reimbursement of recruitment fees.”

Combining the two indices, the report lists the total scores of the companies it studied. The top of the heap is populated by brands that are not luxury brands by any stretch. The top four are Lululemon at 89, Adidas at 86, PVH at 74 and the Gap at 70. The best showing for a luxury brand is Burberry at 53, followed by Hugo Boss at 49. Going down the list, Kering is 41, Hermès is 24, LVMH is 19 and Prada is at five. Luxury brands average 31 against 43 for footwear and 47 for apparel retail.

Where will luxury customers turn to satisfy their aspirations and prosocial goals? My view is that the winners in the future will turn to a different breed of luxury brands, startups and those whose social goals are part of their DNAs.

A January 2021 report entitled “The 26 Most Sustainable and Ethical Luxury Brands” shared companies that were founded to market artisanal, environmentally friendly luxury products, and that is the core of their business models. Granted, these kinds of brands are infinitesimal compared the LVMHs of the world. So, what good does their presence serve to solve the huge problem that is not being addressed by the giants? As these brands grow, their DNAs will not pivot to where the others are, and the more of these ants that start to prosper, the more the big brands will have to take note.

Nothing will get the attention of the big luxury brands except the realization that their customers are going elsewhere, and what will push that timeline along is if global brands start to make efforts to get the attention of their competitors. The Ecocult report praises Gucci: “The brand is committed to environmental benchmarks and guarantees that it will make 95% of its raw material traceable. Gucci is also committed to the sustainability objectives set out by the parent company Kering, which states several sustainability strategies including reducing its environmental footprint and choosing responsible and well-managed supply sources.”

There is an incredible amount of work to be done before anyone can claim that luxury brands as a group are ethical. But meanwhile, Danziger offered one piece of advice that is a critical marketing point: We started this journey with the realization that consumers have a negative attitude toward ethics in the luxury world. So, if your logo on display in a garment, handbag or shoes screams greed and irresponsibility, why not tone it down?

She said, “True luxury whispers. It doesn’t scream.” That is really good advice. Let’s see who follows it.