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Why Luxury Came to the Rescue

To support the fight against Covid-19, European fashion companies have been doing everything from producing hand sanitiser to building new hospital wings. What’s driving these wartime-like efforts?
Construction of protective masks | Source: Getty Images
By
  • Lauren Sherman
BoF PROFESSIONAL

This article is part of BoF’s special edition, Can Fashion Clean Up Its Act? Click here to learn more.

PARIS, France — Over the past few months, as the coronavirus' status has leapt from regional epidemic to global pandemic, many of Europe's leading luxury companies, from LVMH and Burberry to Kering and Zegna, announced donations to hospitals. They also began producing personal protective equipment (PPE) — mostly masks and gowns — and hand sanitiser desperately needed by the healthcare systems in Italy, France and the UK, mirroring wartime efforts to help those on the frontlines.

In Italy, home to Europe's first outbreak, fashion players made sweeping gestures almost immediately. Giorgio Armani — the only major designer to cancel his in-person fashion show at Milan Fashion Week, opting for a digital presentation instead — donated €2 million ($2.13 million) to Milanese hospitals and research centres, while converting his factories to make medical overalls. In February, Donatella Versace donated 1 million yuan (about $140,000) to the Chinese Red Cross Foundation, and then her company, owned by Capri, donated another $500,000 to San Raffaele Hospital's ICU and Camera Nazionale Della Moda Italiana's "Italia, we are with you" initiative. Moncler donated €10 million to help build a new hospital in Milan. Tod's donated €5 million to support the families of healthcare workers. Prada's co-CEOs Patrizio Bertelli and Miuccia Prada made more masks and medical suits in their factories, but they also donated the funds to build additional intensive care units in two Milanese hospitals.

Kering bought masks, but also made them at Gucci, Yves Saint Laurent and Balenciaga facilities, while donating money to research. The French conglomerate also paid for 3-D printers that make PPE. And while it did not receive as much attention as the others, Hermès made by far the most generous public donations, pledging €20 million to public hospitals in the Paris region and 5 million yuan (about $700,000) to the China Soong Ching Ling Foundation, while also producing 30 tonnes of hand sanitiser and 31,000 masks in its own factories.

Across industries and geographies, business titans took action, most notably Twitter and Square Chief Executive Jack Dorsey, who put over $1 billion of his own money into fighting the virus and other causes, which are being tracked in a public Google document. (So far, he has dispersed almost $12 million to 40 organisations.) Amazon Chief Executive Jeff Bezos — currently the richest person in the world, with a net worth of over $140 billion, according to Forbes — donated $100 million to US food banks. Bill Gates, the second richest person with a net worth of $104 billion, has donated $100 million through his charitable foundation.

But the response from Europe’s luxury fashion companies was unique, and there are several reasons why the industry’s largest businesses and their owners were so quick to volunteer.

For a start, they could. Over the past decade, the European luxury industry has grown rapidly, with market capitalisations rising and cash reserves overflowing. The market for personal luxury goods reached €281 billion in 2019, according to Bain & Company, up from €167 billion in 2010. The large companies that sit atop the sector have benefited disproportionately from the growth. LVMH, the world's largest luxury group, was valued at over €200 billion at the end of last year, up from around €80 billion just five years ago. Sales and profits increased, too. At Hermès, for example, sales reached nearly €8.9 billion, up from €2.4 billion in 2010, a 270 percent increase overall and a compound annual growth rate of 14 percent. Its net profits last year were €1.5 billion, up from €421 million a decade ago. And according to its most recent earnings report, the company has €4.3 billion in cash and cash equivalents on its balance sheet, allowing it to keep paying all of its more than 15,000 employees without government subsidies. (LVMH, Kering and Chanel — the three other industry powerhouses — have taken similar positions.)

The families that control these companies have become very rich too. In 2011, Bernard Arnault was already a rich man, with family holdings worth around $41 billion. Today, he's the third-richest person in the world, worth around $92 billion. Françoise Bettencourt Meyers and her family, which controls L'Oréal, is currently worth $53 billion. The Pinault family, which controls Kering and includes company founder François Pinault and his son, Kering Chairman and Chief Executive François-Henri Pinault, is worth $33.6 billion. The Wertheimer brothers, Alain and Gérard, who own Chanel, are worth more than $20 billion.

With that sort of wealth comes an obligation to give, if only to avoid becoming a target of growing populism on a continent that, like much of the world, has seen a growing gap between haves and have-nots. (Look no further than the gilets jaunes movement in France, which forced the shuttering of luxury stores in Paris long before the pandemic.)

“We live in a second gilded age,” said Rob Reich, a professor of political science at Stanford University and author of Just Giving: Why Philanthropy is Failing Democracy and How It Can Do Better. “There are the necessary background conditions for billionaires to exist.”

In the case of Covid-19, Europe’s luxury houses also had the unique ability to not just donate money, but produce medical supplies. Making hand sanitiser is relatively easy for any factory that uses alcohol in its products, including those that make fragrances or cosmetics. Sewing surgical gowns and masks is fundamentally not so different to piecing together dresses or scarves.

“These sorts of crisis events have a massive power to pull in everything, touching every single aspect of economy and every single aspect of society,” said Jon Dean, a senior lecturer in politics and sociology at the UK’s Sheffield Hallam University. “A lot of companies that have control over their supply chain and materials have very quickly shown a social conscience that isn’t always apparent in the fashion industry.”

But these activities are also ultimately good for business. For one, PPE and hand sanitiser are necessary to help fight the virus, and the sooner the situation is under control, the sooner the lockdowns will be lifted. PPE is also directly useful in getting factories up and running again. A portion of the masks that Louis Vuitton is making at its factories in France will be used by its own workers while assembling the brand’s bags, which are being sold once again in China and other parts of the world that have reopened.

Then, there are the public relations benefits. “The focus of the moves that brands are making during this crisis should be about one outcome – the greater good of society, the greater good of humanity,” said Rebecca Robins, chief learning and culture officer at Interbrand. “These are tangible contributions that are not about the brand, but about the collective benefit of humankind.” And yet with each deed, came an accompanying press release and, in some cases, interviews and social media posts. (But not too much, of course. For this story, LVMH, Kering, Burberry, Zegna, Gucci, Hermès and others declined requests for on-the-record executive comment.)

With each deed, came an accompanying press release and, in some cases, interviews and social media posts.

The careful strategy has worked. For LVMH, its media impact value (MIV) — or the impact of publicity and advertising — from March 9 to April 26 was $11.7 million, up 43 percent from the same period a year earlier, according to analytics firm Launchmetrics. Over $6 million of that MIV was related to its Covid-19 efforts, and the group's media placements were up 112 percent year over year. For Kering, MIV for the period was $7.3 million, up 53 percent, with nearly $1.5 million connected to pandemic activities. (Kering's mentions in the media were up 15 percent year over year.)

Helping the nation in a time of crisis is a power play. Such gestures not only wield influence with the government, but they are also a powerful brand building opportunity. By donating hundreds of millions of dollars to rebuild Notre-Dame de Paris after it caught fire last year, the billionaire Arnault, Pinault and Bettenecourt families were attempting to underscore their commitment to preserving the culture and history of Paris and France at large. These companies trade on their links to the identities of countries like France and Italy. After all, what is a Louis Vuitton bag without its Frenchness?

In all, more than €900 million was raised to restore the church, but some observers asked: Where were they before the headline-grabbing fire? Notre-Dame needed money for decades. They were also initially criticised for the tax break such a donation would offer. (Many critics of corporate giving believe it's simply another way for big companies to avoid paying taxes.) However, the Pinault and Arnault families subsequently announced that they would seek no tax relief for their ‎€100 million and €‎200 million public gifts.

Other charitable contributions have come with more explicit benefits. For instance, LVMH-owned Fendi spent €2 million restoring Rome’s Trevi Fountain in 2015; a year later, the Italian brand hosted a spectacular 90th-anniversary runway show there, with models gliding across a green pool as if they were walking on water. When Louis Vuitton wanted to stage a cruise show in 2016 at Rio De Janeiro's Niterói Contemporary Art Museum, it helped to sponsor a long-standing, under-funded renovation. Tod’s renovated the Colosseum in Rome.

Reich posits that anonymous philanthropy is the only genuine act of altruism. “The vast majority of corporate philanthropy is simply an exercise in brand enhancement,” he said.

The vast majority of corporate philanthropy is simply an exercise in brand enhancement.

Of course, keeping quiet means that it’s difficult to measure how much private giving is taking place. But not all public displays of charity are so reactionary. LVMH established its corporate philanthropy arm in 1990, focused on art and culture, supporting young musicians and artists as well as ensuring art is accessible to broad swaths of the public. (Paris’ Fondation Louis Vuitton, which opened in 2014 and cost close to $900 million, is the ultimate example of this work.) The L’Oréal Foundation supports women in science and cultural progress. And the Kering Foundation hasn’t backed away from difficult subjects — for years, its main cause has been combatting sexual violence against women.

While some customers are aware of these ongoing initiatives, the public response to luxury’s fight against the pandemic has been different — sometimes even impassioned. Consumers have taken notice, largely embracing the charitable deeds of big luxury groups. “Bravo @LVMH!,” @HeidiRielly, a volunteer for grassroots anti-corruption campaign RepresentUs said via Twitter when LVMH announced its plans to make hand sanitiser. “This is what I'm talking about,” added @ChadWalters89. “All these big companies need to start mobilising. Amazon need to help deliver that shit pronto!”

However, luxury’s leaders, many of whom are in an enviable financial position, will likely feel obligated to continue making contributions and announcing new initiatives. Not only as a way of communicating that they care, but also in order to ensure their growing influence in government and society at large remains intact.

"The real contribution by brands is what happens next," Robins said. "At an existential level, the world is calling us to account. It is forcing a reset. What we put our trust in and why, what we value and why, was already under radical evaluation, and brands have become new beacons, of sorts, filling the void left by governments and institutions."

Disclosure: LVMH is part of a group of investors who, together, hold a minority interest in The Business of Fashion. All investors have signed shareholder's documentation guaranteeing BoF's complete editorial independence.

BoF Professional Special Edition: Can Fashion Clean Up Its Act?

As the world grapples with an unprecedented public health and economic crisis, exposing deep-rooted social inequality as a climate emergency looms, the fashion industry must learn to respect both people and the planet. It's time for fashion to build a more responsible business model. Explore the full special edition here.

1. Can Fashion Clean Up Its Act?
2. Will Fashion Ever Be Good for the World? Its Future May Depend on It
3. How to Avoid the Greenwashing Trap
4. Luxury Brands Have a 'Respect Deficit' with Indian Artisans
5. Investing in the Sustainability Sisterhood
6. Why Luxury Came to the Rescue
7. The BoF Podcast | Jochen Zeitz on the Power of Fashion to Drive Sustainable Change
and more.

The BoF Professional Summit: How To Build a Responsible Fashion Business

On June 17 2020, we will gather leading global experts, entrepreneurs and activists in sustainability, ethical supply chains and workers' rights for a half-day programme of interactive conversations, panel discussions and workshops on building a responsible business, led by BoF's expert editors and correspondents. Space is limited. Register now to reserve your spot.

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