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Authoredby:AchimBergLeonieBrantbergLedaZaharievaApparel,Fashion&LuxuryGroupMarch2016TheBritishluxurymarket:Growingsalesfrom£5millionto£500millionTheGreatBritishLuxuryParadox2Ourapproach4Shiningalightongrowthengines5Fivewaystoleapoverthosehurdles6Timingmatters:thethreephasesofluxurygrowth13Therolesotherstakeholderscanplay18Conclusion:thepathforward19Acknowledgements20TableofcontentsLuxuryXXLSeparatingmythfromfact2TheBritishluxurymarketImagineasectoroftheBritisheconomythatisseldomdiscussed,andyetemploysmorepeoplethanthefilm,TVandmusicindustriescombined,thataccountsfor8%oftotalexports,thatcontributesmoreintaxesthanhorseracingandthePremierLeague1–andisgrowingfasterthan10%everyyear.That’stheLuxuryGoodssector.Byanyreasonablemetric,ithas,overthelastfiveyears,performedbeyondexpectations.Newstarshaveemerged,includingVictoriaBeckham,OrlebarBrown,andEmiliaWickstead.Existingbrandscontinuetomakeimpressivesalesdomesticallyandabroad–eventhroughaperiodofslowGDPgrowth.InmanywaysBritainisanatural,structuralhubforluxury,thankstoitsestablishedcustomerbase,itspoolofcreativetalent,andtheheritageofmanyBritishbrands.Inparticular,Londonisafashioncapital,hometooneofthefourmajorfashionweeksandwithadiversifieduniversitysystemacrossarts,fashionanddesign.ThefinancialflowsinandoutofLondonmakeitalsooneoftheglobalcapitalsoffinance,withmanywealthyconsumersandvisitors.Butthesectoralsoembodiesasignificantparadox.LuxurypurveyorsinFrance,ItalyandGermanymanagetopunchthroughvariousrevenuethresholdswhereUKfirmstendtoplateau.Weanalysedthefinancialperformanceofmorethan200Britishluxurybrandstogetagranularunderstandingofthelandscape,andperformedasimilarexerciseforFrench,ItalianandGermanbrands.Ourfindingswerestriking:acrossallcompanysizes,theBritishluxuryindustrylagsbehindinnumberofbrands.Infact,whenwecomparethenumberofbrandswhohavemanagedtomakeitoverthe£100millionrevenuemark–Francehas55,Italyhas47,Germany30,butBritainhasonly16.Sowhyaren’tmoreBritishcompaniesbecomingglobalpowerhouses?WhileBritainappearstobeastructuralhubforluxury,whydoothernationshavemoresuccess?IsitthelackofalargeBritishluxuryconglomerate–thelikesofLVMH,KeringandRichemont–tofund,nurtureandgrowyoungbrands?Perhapsothercountrieshaveadeepertraditionoffamily-ownedluxurybusinesses,suchasHermèsandVersace?Coulditbethatthemanufacturingheritagethatexistsin,forexample,theItalianleatherandsilktradeshasbeenlostinBritain?Isitalackofambition?DoBritain’sfutureentrepreneurssellouttooearly?Isitsomethinginvestors,industrybodiesorotherstakeholderscanchange?Andmostimportantly,whatcanBritishluxurybrandsofallsizesdotomoveuptheleaguetables?Weidentifiedthreephasesofgrowthforluxurygoodscompanies,anddifferenthurdlesineachphase.PhaseOnecompanies,withsalesunder£20million,aretypicallyscrappyentrepreneurialstart-upsledbycharismaticfounders.PhaseTwocompanies(upto£100million)needtobuildtheircoreandnurturetheiriconicbrandswhileprofessionalisingtheiroperations.PhaseThreecompanies(over£100million)arescalingupfortheglobalrunway.Wefoundfivesecretsofsuccessforbrands.First,startbygettingthingsrightintheUK.Anythingshortofstellarhomeperformancecannotbeaplatformforforeignexpansion–andwhenforeignexpansioncomes,theUSandMiddleEastareoftenthefirstportsofcall.TheGreatBritishLuxury Paradox1FrontierEconomics,HMRC3TheBritishluxurymarketSecond,nurtureaniconicproduct:formanysuccessfulcompanies,amajorityofsalescomefromasingleproductthatencapsulatesthebrand.Third,takeadvantageoftheUK’sleadingpositionine-commerce.Fourth,findmanagerialandbusinesstalenttocomplementthecreativetalentthatisattheheartofmostluxurycompanies.Andfifth,useoutsideinvestmentattherighttimetoclearobstacles.Brandsneedtotakewisedecisions.Butateveryleveloftheladderofsuccessotherstakeholders–investorsandindustryassociations–canalsoimprovethechancesofsuccessforluxuryplayers.“Whenwecomparethenumberofbrandswhohavemanagedtomakeitoverthe£100millionrevenuemark–Francehas55,Italyhas47,Germany30,butBritainhasonly16.Sowhyaren’tmoreBritishcompaniesbecomingglobalpowerhouses?”Overall,theoutlookforBritishluxurybrandsisbright,andtheopportunitytogrowadditionalbusinessesintoglobalpowerhousesistootemptingtoresist.Everyluxurybusinessshouldapproachitstrategicallyandwithspiritandenergy.TheoverallopportunitytogrowmoreGreatBritishluxurycompaniesishuge,andifallstakeholdersplaytheirpartitliesclearlywithinreach.BritishluxurycompaniesstruggletoachievescaleandthelandscapehereismuchmorefragmentedincomparisonwithFrance,ItalyandGermany1Includesfashion,accessories,beauty,homeandfoodandbeveragecompanies;partlyestimatedPhase3:Expandandsell£100-500mPhase4:Deepenconsumerengagement£500m+Phase1:Establishyourbrand£0.5-20mPhase2:Buildthecore£20-100mBritishExamplesNumberofcompanies1Source:Walpole,Meisterkreis,Altagamma,McKinsey124~200-25035-453817~300-40080-90228~200-250403215~50035-50Exhibit14TheBritishluxurymarketThisreportisfocusedonthefashion,beauty,F&B,andhomeluxurysectorwith£11billionofturnover;wesurveyedcompaniesrepresenting~40%ofthevalueofthissectorBritishluxuryindustryturnoverbysub-sector,2013Ourresearchco