This article appeared first in The State of Fashion 2021, an in-depth report on the global fashion industry, co-published by BoF and McKinsey & Company. To learn more and download a copy of the report, click here.
Like all fashion companies dependent on a mostly physical retail model, Louis Vuitton was hit hard by the crisis. Profits at parent company LVMH plunged by 68 percent in the first half of 2020. But revenues bounced back in Q3 when sales in the fashion and leather goods group at LVMH were up 12 percent year-on-year, led by a strong performance at Vuitton, which succeeded in engaging local customers and driving sales online.
All the while, Vuitton was also working hard to polish off its sustainability credentials, communicating them openly in a dedicated new section of its consumer-facing website launched in September. The visible shift in strategy underscores the growing importance of transparency throughout the luxury supply chain. As he looks ahead to 2021, Chief Executive Michael Burke is more cognizant than ever of the responsibility Louis Vuitton bears to protect people and the planet — and that his customers will increasingly hold him to it.
BoF: What have you learned and taken away thus far from this crisis?
Michael Burke: Who said this, was it Churchill? “Planning is useless, but having a plan is indispensable.” I guess what that means is when the shit hits the fan you need to have a plan, but having a plan before the shit hits the fan is not that useful. It’s really a statement to the importance of resilience and agility. That’s what we really stressed in those six months. That’s how we got through it in better shape than when we entered it. Vuitton is a better company today than six months ago.
BoF: In what ways?
MB: Well, it killed the last remnants of the past, of the [late] 20th century. That was not a good period for luxury. Financially it was — but we had strayed from the real values of luxury. It was about rolling out identical strategies; it was about replicating what you did in Paris; it was about standardising your windows and being very proud of it. It was about all these un-luxury values.
BoF: Some people have called that the “McDonaldisation” of luxury.
MB: I wouldn’t go that far, but the gist is there. It’s replication, optimisation. We stand at the opposite end of that spectrum, even though Vuitton was very active at that time, and it’s understandable. Where was China in 1995? Where was the US? [They were] different countries [to what they are now]. Almost every culture has reinvented themselves, so it’s understandable that at that period of time it was about replicating your visible brand symbols instead of replicating your brand values. That’s what got the industry, I believe, into trouble. 2008 got rid of some of it, but it was a financial recession, it wasn’t a pandemic, it didn’t hit the entire world.
It really positions the various players as participants in writing a new chapter — or being a zombie company. There are a lot of zombie brands out there. They’re just staring in the headlights and not embracing these changes, talking about how great it used to be. You know you’re in trouble when you start talking that way [and believing that] greatness lies always ahead of you, regardless of what you did in the past.
It’s quite clear, and it’s unfortunate that it’s correlated to size. I think you wrote about that, and it’s true, which is dangerous. Our ecosystem is absolutely dependent on suppliers and small, upcoming houses that change and disrupt. If we start losing too many small brands and if we start losing too many suppliers, it’s going to weaken the entire ecosystem.
BoF: As you look ahead to 2021, what’s your current prognosis for recovery for the industry generally?
MB: That goes back to resilience. To be resilient basically starts off with being balanced. If you put too many eggs in the same basket you’re not going to come out of this. Some brands are overly reliant on China, some brands are overly reliant on the US, some brands are overly reliant on travel retail in Europe, some brands are overly reliant on wholesale, some brands are overly reliant on third-party e-retail. They lead to imbalance and fragile business models. As far as I’m concerned, that’s what’s going to determine how we’re going to be doing in 2021, not the overall economy. The overall economy will be whatever it will be, and what we see is that the great majority of it is connected phases. When you lose travel retail in Europe, if you have a balanced portfolio in your distribution you will gain all of it, if not more, in the country where they were coming from.
BoF: Are you speaking of China?
MB: Not only. I mean, you see it in all markets. China is the biggest one, but it’s by far not the only one.
I mean, Americans, people see it less because they were less into shopping, but they were no less into spending. They were spending like crazy in restaurants. They were spending like crazy on cruises, helicopters, they would spend $10,000 a day per person in Paris. We would see them in the stores, but not as much as the Chinese. The Chinese are still more on buying tangibles. They will, by next year — and two years’, three years’ time — be much more into intangibles. Americans are much more [into] intangibles; they’re not going to schlepp back bags or trunks to America, they’ll buy them in America.
The growth in America is historical right now. In my 40 years in this industry I’ve never seen that — and this is on major numbers. A major part of that is onshoring, we know that, and another major part of it is [because] you can’t spend it in restaurants and hotels in the US. You can’t travel to Florida, you can’t go to the Bahamas. All these places where they would spend money, they’re having to spend it in Boston, in Chicago, in Dallas, Atlanta, wherever. All our local markets are absolutely exploding in America. So there’s a lot of onshoring in America, a lot of onshoring in Italy, in France, in Germany, in Russia, in Indonesia, in the Philippines, in Vietnam, everywhere. Nobody’s travelling, so whatever brand has developed local customer bases is doing well.
Our ecosystem is absolutely dependent on suppliers and small, upcoming houses that change and disrupt. If we start losing too many small brands and if we start losing too many suppliers, it’s going to weaken the entire ecosystem.
It’s not about travel retail, it’s about what have you done in the last ten years [to localise]? What have you done to engage your local customers? CRM by definition has to be local. It has to be in that language and understanding that culture. I have a CRM centre in Brussels, we have about 300 people there. They speak 28 languages and when somebody in Estonia calls, they think they’re speaking to somebody from Estonia. It’s one of our secrets. Nobody’s doing it anymore, they all went digital.
BoF: You can do all of this, in part, because of the sheer scale of Louis Vuitton.
MB: It’s not about size. It’s a consequence.
BoF: But size gives all sorts of benefits in terms of scale economies.
MB: Potential to give benefits. It has the potential. Size can be your worst enemy. Size engenders hubris, basically. It’s a human reaction. Success engenders hubris, and every successful large company has bouts of hubris. Twenty stores, events that are in-your-face instead of being tailored. All this is hubris. It’s when you believe you walk on water. That’s the big danger of size, and Vuitton is not immune to it.
BoF: Size also comes with responsibility to do right by the people in your supply chain, the employees that work in your stores and in your factories, the planet, the communities we live in. How do you balance the priorities of various stakeholders now that it’s not only about optimising profit?
MB: Yes, it’s a responsibility. The bigger and the more successful you are, the more you should be held to that responsibility, because satisfying all these stakeholders is only possible with a long-term approach. The problem is not compromising. You have to make compromises if you set realistic, short-term goals. If you have long-term goals you will satisfy all your stakeholders, so the responsibility boils down to long-term thinking. If you want to satisfy everybody, you can only do it by having a longer outlook than the market has.
Fifteen years ago we set out goals for our factories and our stores. Back then, those were the two biggies. We set out goals, including use of certain raw materials that at that time [for which] we didn’t have the scientific proof, but we had enough indicators to know that various raw materials were probably toxic. We’ve worked diligently for the last 15 years to get them out of the supply chain.
BoF: You never talked about it, which is one of the things I wanted to ask you about. LVMH generally, and Vuitton in particular, have been very quiet on it until recently. What’s changed?
MB: No, nothing’s changed. We’ve talked about it when we launched them, and then when it comes to executing, we go quiet, because talking about it can be and has been counterproductive. Let me give you an example. Let’s assume that we believed back then that certain substances were toxic for the human body.
BoF: Like leather tanning, for example.
MB: Depends what kind of tanning. The natural vegetable dye tanning is something that humans have been doing for the last 5000 years. It was one of the great advances of mankind, when mankind discovered how to render a waste product, hides, into something that it is imminently sustainable and durable, can last 100, 200 years: leather. It depends how. Are there other, really better substitutes? Is a handbag that disintegrates after 12 months better, or is it better having a handbag that you can sell [again] in 50 years’ [time], which Vuitton bags [can be and are]? What’s better?
When you have extremists that take hold of the conversation, there is not a conversation, it ends up with a mandate to ban. Banning is very rarely productive — [only] very, very rarely [on] emotional and individual moral grounds. In the great majority of cases, it’s much better to have a discussion with the entire supply chain, or else they will disappear. Do you really want an entire supply chain disappearing? That’s going to devastate. You have to do this or that so small companies can also adhere to it. If Vuitton comes out and makes this big statement, Vuitton can commit to almost anything, but what we would do to all the other small companies, very few will be able to live with a ban that comes in 12 months, 100 percent ban. It’s going to kill thousands of small companies. Is that what we want?
BoF: So, the alternative to banning is…?
MB: Industry-wide cooperation with reasonable timeframes to come to reasonable reductions on various products that we should not be using any more, that allows our supply chains and small brands to continue to survive in this ecosystem — or else we would just be down to five brands, [which would] destroy the luxury industry. Hundreds of thousands of jobs, and for what? Something that is probably going to be worse than where we are today because it will not be thought through, because it will be done for moral reasons. Somebody’s moral is somebody else’s life.
BoF: These are not easy trade-offs to make.
MB: When we have serious issues to solve, they need to be solved — it’s just like with Brussels. Brussels has been very, very productive in pushing through the various legislations on the sustainability side. Most of them have been in small meetings under the radar. They ultimately come out and get published, and that’s talking about publishing. It’s the discussion side, the moment when people are in discussions. When that gets politicised we enter gridlock, and then we go to bans. The industry has been very diligent in eliminating many, many toxic products from our supply chain, but it’s something that requires an independent press that is not politicised to talk about it in a calm, reasonable way, or else it gets politicised and then you don’t progress.
If you want to satisfy everybody, you can only do it by having a longer outlook than the market has.
BoF: You talk about industry cooperation, which I think is critical in order to find a standard. The perception is that LVMH doesn’t collaborate with the rest of the industry.
MB: That’s wrong. We have excellent relationships with Chanel, we have excellent relationships with Hermès, we have excellent relationships with Cartier, we have excellent relationships with most of our competitors. For example, we’re talking about blockchain with all of them. Most of them absolutely want to participate, principally for sustainability and provenance reasons. The major first benefit of a blockchain is a verifiable provenance. [In terms of leather goods, for example], where did this cow grow up? What was this cow fed? Where was it slaughtered? If we don’t have that, we don’t have the metrics we were talking about 10 minutes ago. We need metrics. If you want metrics, you need to have an infallible blockchain.
Don’t forget, we’re the supplier to many of our competitors. When it comes to cashmere or crocodile hides or vegetable-dyed cowhides, guess who’s the biggest supplier in the world? It’s not an option, we have to. It’s just that we don’t believe in making forward-looking statements that are not verifiable. It’s that simple.
BoF: Innovation has been always part of the DNA of Vuitton, but from a manufacturing standpoint, how are you thinking about some of these things, for example, making polyurethane coating more sustainable?
MB: Every human activity uses raw materials and has a carbon footprint, so it’s a question of choosing which one you go with and then how do you operate, how do you create the ecosystem around it? When you produce consumer goods they have to have certain quality standards, and the industry has spent decades, centuries, perfecting durable products. One of the problems with a lot of the greenwashing is that they create throwaway fashion. We have to have durable products, but we also have to have products that are recyclable, but first and foremost, the products should last. It should be designed to last and it should be made to last. Then we get into the issue of recycling when hopefully the longest possible usage cycle is over and we never talk about that.
BoF: What about managing unsold inventory?
MB: It’s been a practice in all industries. What do you think is happening in the auto industry as we speak? When you trash your car that has a much larger impact than when you have to get rid of a sweater.
BoF: That being said, for end-of-life product or product that isn’t sold, companies are now required to find different ways of liquidating that product. In the new situation where product can’t be destroyed, how do you manage that process now?
MB: Minimising the unsold [inventory] is not a new imperative, especially for the luxury industry. The luxury industry is not an industry that’s based on overconsumption; it’s based on producing and designing products that last for a generation, if not more. There’s the upstream issue that we have to resolve and there’s the downstream. Your question is focusing on the downstream and it’s an essential question, and we have to resolve it, but if we don’t resolve first the upstream problem which is the production side, we will never solve the downstream problem. If the funnel just keeps on getting filled up with too much product, we’ll never come up with enough bans to prevent the destruction from happening.
So we need to first concentrate on minimising how much we produce, which means we have to produce as closely as possible to the actual demand. Ideally — and this is where the luxury industry has typically played a role and maybe it should be reinforced, [though] we’ve certainly reinforced it tremendously in the last ten years, that is we try — we apply a tremendous amount of energy to produce only what we’re convinced we can sell. So that is absolutely a non-top-line revenue-driven strategy and I am convinced that if we want to solve the problem of unsold [inventory], we first have to create a bigger incentive to make sure that it’s not a revenue-driven model that we use in the luxury industry. Historically, the luxury industry was not revenue-driven, it was margin-driven, if you want to use technical terms. It’s driven by desire; it’s not driven by the top line.
Unfortunately, a lot of brands are very top-line-driven. What does that mean? They overproduce and over-distribute. They rely too heavily on the wholesale channels. They rely way too heavily on the outlet channels. These are all things that we do not do. Vuitton is best in class when it comes to reducing the amount of overproduction.
BoF: But how do you do that?
MB: The first thing you do is to try to have the highest percentage possible of your sales done bespoke. In other words, you only produce it once it’s already sold. Half of our jewellery business is on a bespoke basis, 60 per cent of our trunk business is based on trunks that are custom order. These trunks come with a custom lock, with an individualised lock. They come typically with family crests, initials on it. They are produced to order. The majority of our exotic skins or crocodile, alligator bags are made to order. So the higher the percentage of made-to-order business, the less overproduction you’re going to get involved with.
I’ll give you an example. The average product run of Louis Vuitton went into the tens of thousands six years ago. Now the average run is in the thousands or the hundreds. Back to what I was talking about, at the end of the 20th century, getting away from that model and going back to the original luxury model.
The second thing, even when it’s not bespoke, [is] trying to make one too few instead of one too many. I have over 50 SKUs at any given time [that] are out of stock. Having out-of-stocks is the by-product of minimising the risk of overproduction. You know this has been the Louis Vuitton model for the last hundred years since its inception. We’ve never tried to be an in-stock at all of our products at all times. We don’t think that is the goal of the luxury industry.
The clients, they want immediacy, they want that transparency, they want authenticity and they want to be in the context.
So I would hope that the Brussels directive and France also, would put pressure on a lot of companies to not overproduce, first and foremost. Once you’ve done that, you’ve really tried to maximise your bespoke business [with] a business model that’s not based on major product runs and being in stock at all times — which means optimising your top-line revenues — you have [a] model that is based on tighter inventories.
Once you do those two things, then we have a manageable problem, which is the unsold [inventory]. It becomes eminently manageable; it becomes a very small percentage of your business. Louis Vuitton, it has the lowest percentage of unsold products of anybody in this business. We will have absolutely no problem complying with the Brussels directives and the directives from Paris. We actually embrace them.
BoF: The second set of questions I want to ask is about the people side of the business. What does it mean to be a responsible employer right now?
MB: Well, from an employment perspective, it’s being mindful of the type of jobs we’re creating. We create jobs but they have to be jobs that people actually want to occupy. So that goes to the work environment, that goes to the diversity of the job. The little industrial revolution at Louis Vuitton has been that today, a craftsman will typically only work a couple of days or a couple of weeks on a different product. They will change to make other products in the course of a week or a month, which makes for a much more interesting job, much less repetitive. It reduces a lot of the stresses on joints and whatever problems you have when you’re actually making products. This is all made by hand. So there will be consequences of people working with hands and leathers and brass and nails and wood, [but] we need to make sure that environment is the best possible environment.
I don’t know the last time you went to a Vuitton [atelier], but every centimetre is thought in those terms, down to the rubber mats they stand on, to the noise pollution. The noise levels have been divided by a factor of three in the last 10 years. The air quality, all of the actual physical work environment has to be appropriate for this day and age. The jobs have to be interesting.
The other thing is empowerment. When the crisis really accelerated, the only way to work [was] to fully empower people. The things that we’ve done in the last three or four months are good examples. The [Louis Vuitton menswear] show in Shanghai was cast locally and produced locally. The local teams were fully empowered to not just do a repeat show, but an original show. That show would have never happened before. We got away from this neo-colonial approach where everything happens in New York, London, Paris or Milan and gets trickled down through the various [markets] and they replicate; that’s gone, that’s finished.
I also turned every one of our 10,000 sales employees into store managers. We went into the crisis with 450 stores, we came out of the crisis with 10,000 stores, because every single salesperson, when they were stuck at home, we empowered them through software that we wrote in 10 days to not just interact with the clients, but also to actually close the sale. Each client advisor became a self-standing store with access to all the inventories throughout the zone, they could sell any product to anybody. So sales associates became store managers, a store managed by one person. This is how we were doing 30 or 40 percent of our business with all stores closed.
BoF: I saw the work that you’ve been doing around gender equality, but what are you doing specifically on the side of racial diversity and representation?
MB: I find that when you have a supposedly immovable problem one way of solving it is attacking it from both ends, which means hiring some very, very visible senior people and putting them in positions of power, not just representative positions, but actually power positions. In other words, they themselves will be able to hire; they themselves have substantial budgets. They themselves will be able to influence the messages that come out of the company, and you know I’m talking about Virgil. That’s on one end of the spectrum and the other end of the spectrum is when we hire our junior executives, we need to make sure that we have the right balance.
BoF: Let’s talk about the management teams though. At the very senior levels of companies like Vuitton, you are still just relatively homogenous as a group, especially when compared to the customer base that you’re engaging with.
MB: Not if you look in the stores, look at the store managers, it’s very diverse and it represents the client base. If you go in the studios, it’s extremely diverse. White, heterosexual, middle-aged men are the minority. So it’s happening. Does it still have a way to go? Yes. Can we accelerate? Yes, but it’s happening.
BoF: And, in this environment, how does Louis Vuitton think about engaging in politics? Thinking back to the opening of the Vuitton factory in Texas with Donald Trump and the reaction — not just from your consumers and followers on social media, but even Nicolas Ghesquière.
MB: [Nicolas] has the right to have his own opinions, that’s an absolute right at Louis Vuitton. I’m not going to muzzle him, but I can tell you that there were many people in America that disagreed with his comments, just like there were many people that agreed. At Louis Vuitton, you have the right to have your own opinions and actually to express them. How much better can I do than that? I think that is a very democratic approach.
BoF: How does all of this work so that you get it communicated to the ultimate stakeholder, your customers?
MB: Louis Vuitton, seven or eight years ago, was, I would say, more introverted, in its bubble — very successful but a bubble. In the meantime, I think, Louis Vuitton has become a much more diverse environment, embracing diversity wholeheartedly. Vuitton is much more plugged-in with what’s happening outside its own ecosystem, which nourishes the creativity that we see and which creates not just great PR and images, but also great relationships with clients that are truly high-end.
This has to do with opening up Vuitton to the world. Success breeds insularity and that’s one of the things that you have to be very mindful of when you’re in my job is to ensure that insularity does not become stifling. Insularity is good when it has to do with your provenance, where you come from, your uniqueness, but you have to battle to make sure that you stay plugged-in with what’s happening around you all over the world.
That’s why we embraced the digital world. Six, seven years ago, we were attempting to use the digital world to maintain one-directional communication from the brand to the client. Now, these social platforms have been absolutely embraced by Vuitton, but they’re not run out of Paris. You can’t; it’s culturally impossible to do, logistically impossible to do. The clients, they want immediacy, they want that transparency, they want authenticity and they want to be in the context. They want to hear the message through their loudspeakers. So we went from being a fairly insulated, insular, successful company to a much more diversity-embracing company that is extremely successful in the digital world, which means being totally contextualised, totally empowered locally and extremely agile and quick, and not fixated on controlling every last piece of information, because that’s just not possible.
Disclosure: LVMH is part of a group of investors who, together, hold a minority interest in The Business of Fashion. This interview has been edited and condensed.