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date: 13 May 2021

Luxury as an Industry

Abstract and Keywords

The nature of luxury as an industrial sector and the boundaries of this industry are unlike most other industries. Luxury is not defined by a specific good, service, or production process but rather by a market position (high-end). It is a transversal industry that can include goods and services from other industries. Hence the problem is to define the border between luxury and nonluxury. Scholars in management and social sciences have demonstrated the existence of several levels between common goods and luxury goods—or several degrees of ‘luxury’, from exclusive luxury to intermediate luxury and accessible luxury. As for economic and social historians, they have discussed the development of a luxury industry through various stages, from the birth of consumption society in 18th-century England to the formation of large conglomerates in the 1980s.

Keywords: luxury industry, industry studies, accessible luxury, exclusive luxury, premium, democratisation of consumption

For more than two decades, the luxury industry has experienced a dramatic growth. According to the consulting company Bain and Co. (2017), the global sales of personal luxury goods went from €85 billion in 1996 to €262 billion in 2017. This represents an average annual growth of 6 percent during the period, while world gross domestic product (GDP) grew on average at 3 percent per annum (World Bank 2019). Consequently, luxury has grown twice as fast as the world economy since the mid-1990s.

Despite this tremendous development and the success story of numerous luxury brands throughout the world, it is a challenge to estimate properly the scope and the boundaries of the luxury industry. Consulting firms often distinguish different sectors by products or services. Personal goods, which include fashion, leather goods, watches, jewellery, and cosmetics, are usually the core of the attention of managers and scholars discussing luxury. For Bain and Co. (2017), other major sectors include luxury cars (€489 billion in 2017), luxury hospitality (€191 billion), wines and spirits (€70 billion), fine food (€49 billion), and art (€40 billion), for a total of €1,160 billion in 2017. In this context, personal luxury goods only represent about one-quarter of the overall luxury industry. However, regardless of this classification, there is no commonly shared definition of what a luxury good or service is and of what the boundaries of the luxury industry are.

The methodology of industry studies developed by Kurosawa (2018) is a useful tool to start discussing the nature of the luxury industry. In his discussion about the dynamics of competitiveness, he stressed the necessity of focusing on the industrial level rather than firm or region, and to identify the specificities of any industry. He emphasized that an industry as an analytical concept and as the arena for competition can be defined by a specific good (like the car industry), service (like the banking industry), or production process (like the chemical industry). However, luxury cannot be defined in this way. It is rather defined by a market position (high-end). It can hence be considered a transversal industry that includes goods and services from other industries. Basically, in nearly any industry we can find luxury goods and nonluxury goods. The main implication of this definition is that there is a need to discuss the uniqueness of luxury goods and services. What makes them different from other goods and services? Another issue is to define the border between luxury and nonluxury—that is, the boundaries of the luxury industry.

Moreover, research in organization science about the emergence of new industries is another important approach through which to consider the historical development of the luxury industry (Peltoniemi 2011). Gustafsson, Jääskeläinen, Maula, and Uotila (2016) have shown that the initial stage of industry emergence is characterized by a disruption in terms of technology, cultural values, regulation, or demand. They argue also that the transition from disruption to the formation of an industry requires the action of entrepreneurs and nonmarket actors who engage in collaborative actions which result in the formation of the boundaries of the new industry. Then, companies can enter a phase of growth on this basis. Such works can contribute to a better understanding of the conditions of the formation and evolution of the current luxury industry because they go beyond the descriptive accounts provided by historians.

In order to discuss these issues, this chapter offers two main perspectives. Section on The Nature of Luxury presents the various contributions in management and social sciences regarding the definition of ‘luxury’ and ‘luxury industry’. It introduces the most important models and concepts, and the implications resulting from them. Section on The Historical Evolution of the Luxury Industry focuses on the transfromation of this industry since the 18th century. It shows how historians have defined ‘luxury’ from various perspectives and sheds light on the evolution of this concept over time.

The Nature of Luxury

There is no clear and shared definition of luxury used by management scholars. Although all of them consider the luxury industry as a specific segment of the market, they have no consensus on the issue of the boundaries of luxury and on the elements that make luxury different from other goods. The discussion of the nature of luxury in management falls into two major areas.

The Boundary of Luxury

The first is the problem of the boundary of luxury. Considering the differences between luxury and nonluxury goods, some scholars have argued that ‘luxury’ itself was not a homogeneous category and that there were several kinds of luxury, all with their own positioning, strategies, and management. Allérès (1991) spoke of ‘inaccessible luxury’, ‘intermediary luxury’, and ‘accessible luxury’ (see figure 1). Each of these three layers has its own type of goods (models, reproductions of models, and new lines) and customers (wealthy people, intermediary, and middle classes). With each type requiring a specific marketing strategy (e.g., product development, brand management, distribution, and price).

Luxury as an Industry

Figure 1. Varieties of luxuries.

Source: Adapted from Allères (1991: 72).

The problem is that Allérès (1991) was not very clear about the differences between these categories and did not really explain what ‘luxury’ itself is. Barnier, Falcy, and Valette-Florence (2012) showed that, from a consumer perspective, there is a continuum between these categories of luxury, and their boundaries are rather unclear. Moreover, Allérès (1991) did not explain the differences between ‘accessible luxury’ and non-luxury-brand consumer goods. She also showed that the same company and the same brand could have products in different categories of luxury. This idea of vertical segmentation between different levels of luxury became popular among scholars and managers to define the shift of some luxury brands (such as Armani and Gucci) towards mass markets, a ‘vertical extension’ (Keller, 2009). Silverstein and Fiske (2008) named it ‘new luxury’, whereas Truong, McColl, and Kitchen (2009) proposed the concept of the ‘masstige brand’ (from mass prestige). They argued that mass consumption and democratized luxury can cooperate in various ways, such as via the hiring of celebrity designers to create collections for fast fashion (e.g., Karl Lagerfeld for H&M).

The perspective of consumer behaviour enabled some scholars to offer a different classification of the various kinds of luxuries. Vigneron and Johnson (1999) developed a model based on five functions of luxury goods, gathered into two groups: brands that embody prestige (functions: conspicuous consumption, identity expression, and social distinction) and others that express perfection (emotional and utilitarian functions). Vigneron and Jonhson (2004) refined their model and built a brand luxury index (BLI) scale that makes it possible to identify groups of consumers in which brands have a specific image in terms of luxury level. It shows that the same luxury brand can have a different image among various customers. Moreover, the cultural environment has also an impact on the image and the consumption of luxury goods, as demonstrated by scholars working in China (Zhan and Yanqun 2012). Consequently, research on consumer behaviour shows that the definition of luxury results not only from the strategy defined by companies but also by the kind of consumer.

Finally, the best and most intensively developed discussion of luxury from a management perspective is undoubtedly Kapferer and Bastien (2009). Based on various definitions made by former researchers, they used six common features shared in the literature to define a luxury good: a product that gives a qualitative hedonistic experience; sold for a price that exceeds its functional value; whose brand is linked to a heritage; available in a restricted and controlled distribution network; accompanied by personalized services; and representing a social marker. Moreover, although they acknowledge that luxury can take several functions in society and that there are various kinds of luxury consumers, their focus on brand management makes it possible to clearly identify pure luxury brands and to differentiate them from premium goods or fashion goods. In their perspective, the marketing strategy adopted by firms makes it possible to clearly draw a line between luxury and nonluxury goods. They maintain that luxury is defined by antilaws of marketing which strengthen the uniqueness and the excellence of a luxury brand (product development without consideration of clients, no search for production cost reductions, no relocation of production, forget about positioning, dominate the customer, restrict supply, never sell on discount, increase prices, the role of advertising is not to sell, keep celebrities out, etc.). From this perspective, Kapferer and Bastien (2009) do not consider the existence of three layers of luxury like Allérès (1991) but rather of a single segment of real luxury, while other segments should rather be considered as premium brands.

Luxury, Fashion, and Premium Goods

Hence, Kapferer and Bastien (2009) propose a triangle model that distinguishes luxury from fashion and premium (cf. figure 2). With regard to ‘fashion’, this has been defined as a ‘system of signifiers’ (Barthes 1967) and a ‘manufactured cultural symbol in an institutional system’ (Kawamura 2005), which results from the combined action of producers, consumers, and intermediaries. Beginning in the late 19th century, some authors argued that conspicuous consumption (Veblen 1899) and fashion (Simmel 1904) enabled the higher classes to distinguish themselves from the rest of society. Most religions have criticized social distinction through consumption, particularly as a waste of resources and a surge of vanity (Morand 2012). Fashion is indeed a way to express social and gender identity (Bourdieu 1979; Crane, 2000) so it can be linked to luxury in some cases, such as ‘luxury fashion’ (Fionda and Moore 2009); these concepts are not synonymous, however. Hence, when Vickers and Renand (2003) maintained that luxury products could be defined as ‘symbols of personal and social identity’, they were actually giving them a meaning that resembles that developed by social science scholars with regard to fashion. They considered luxury goods a tool for identification with a social class or personal taste, as is the case for fashion. This perspective does not precisely express the nature of luxury, however, as luxury brands are intimately linked to a market segment.

As for premium products, they embody goods for which a higher price than that of common consumer goods is based on rational factors (quality, performance, durability, etc.). Consumers make a quality/price ratio-based investment when acquiring premium products, but their high price does not mean they are luxury products, although most of companies launching premium products claim they are their luxury line.

Luxury as an Industry

Figure 2. Luxury, fashion, and premium positioning triangle.

Source: Adapted from Kapferer and Bastien (2009: 32). © Jean-Noël Kapferer and Vincent Bastien, 2009. Adapted with permission of the Licensor through PLSclear.

The border between luxury, premium, and fashion is thin, as all these sectors use similar strategies to establish and strengthen a strong position in the market, particularly in regard to distribution and retail. They add value to consumer goods through marketing activities, but, as exposed in figure 2, the relation to customers—and consequently the objective of marketing strategy—differs strongly. Luxury products make people dream, and lead them to spend large amounts of money to acquire relatively rare goods, but fashion relies on the seduction of customers in a short-term perspective as it is based on constant change, and premium goods attract customers because of their intrinsic nature. Due to the proximity between these concepts, there is often confusion in the literature (Berghaus, Reinecke, and Müller-Stevens 2014; Briot and De Lassus 2014; Chevalier and Mazzalovo 2008; Hoffmann and Coste-Manière 2012). Chevalier and Mazzalovo (2008) argued, for example, that because ‘publications [on luxury] have the tendency to be largely conceptual, and not adequate for practical management purposes [. . .] we decided to write that first textbook on the topic’ (xivi). They offered hence their own definition of ‘luxury’ which contributes to the blurring of the boundaries with fashion and premium: ‘luxury product [. . .] must have a strong artistic content, it must be the result of craftsmanship, and it must be international’ (xviii); luxury ‘must be beautiful’ (xix). Besides, this confusion is maintained by the publication of numerous nonacademic books that have a strong social impact, including on academics, especially as they are often published by the same publishers as academic-oriented books, like Kogan Page or Palgrave Macmillan. General books published by business strategists, managers of luxury firms and consultants, based on secondary sources, websites, and personal experience, offer a general overview full of facts, but the perspective is usually more descriptive than analytical. These publications are often textbooks for business schools and consequently mix an academic view and discourse from companies. For example, the preface of Briot and De Lassus (2014) was written by Frédéric Bernardaud, a general manager of the family firm Bernardaud, a French manufacturer of luxury porcelain. Michel Chevalier, the coauthor of several books for luxury management, is a consultant trained at Harvard Business School who worked as a chief executive officer (CEO) of Paco Rabanne Parfums and as an executive vice president of the distributor of luxury goods Bluebell Asia (Chevalier and Lu 2010; Chevalier and Mazzalovo 2008). Erwan Rambourg, the author of a book on Chinese luxury shoppers, was a manager in Cartier and Christian Dior, before becoming a financial analyst specialized in luxury after the publication of his book (Rambourg 2014).

Moreover, these books have a strong tendency to stress the continuity of luxury over time (from Old Egypt to Bernard Arnault), rather than discussing changes and breaks, so that they emphasize and diffuse the idea that luxury is something special, timeless, and glamorous (Okonkwo 2007; Tungate 2009). Hence they give a kind of academic justification to companies’ discourse and do not contribute to a better understanding of the luxury industry. Hoffmann and Hoffmann (2012) wrote a paper on ‘luxury innovation’ and stressed the importance of craft and excellence, claiming for example that ‘the French Ministry of Culture created in 1994 the title of ‘Maître d’Art’ to recognize exceptional professionals in the art craftsmen. For example, the 2006 batch includes artisans from Hermès, Louis Vuitton, Chanel and Baccarat’ (186). There is, however, no analysis of the construction process of such a tradition and its use by luxury companies to build and develop brands for the global market. This perspective was severely criticized by Sicard (2010): ‘Owing to a surprising consensus, no one—neither the media nor the analysts nor the authors writing on a given subject—dares challenge conventional wisdom. Stereotyped language prevails, whose only purpose seems to be mutual reinforcement of each other’s advertising supports’ (21). She is one of the very few analysts to offer an independent perspective and to shed real light on the strategy of luxury companies.

Consequently, this literature review of works discussing the nature of luxury and the boundaries of luxury industry in management science expresses a lack of consensus between scholars. Even the approach of Kapferer and Bastien (2009), which defines the limits between luxury and nonluxury on the basis of marketing strategy, is not unambiguous as numerous luxury brands developed a brand extension strategy towards premium (Stankeviciute and Hoffmann 2010). Moreover, research in business, economic, and social history demonstrates that the position of ‘luxury’ as an industry changed considerably over time.

The Historical Evolution of the Luxury Industry

The lack of a precise definition of ‘luxury’, particularly regarding the boundaries between luxury goods and general consumer goods, has important implications regarding the historical evolution of the luxury industry. The high growth experienced by this industry since the 1990s has led numerous social, cultural, and economic historians to carry out historical surveys, mostly based on specific industries and countries—some of them commissioned by the owners of luxury brands. Luxury goods have, of course, always existed, considered goods destined for a social elite, and some scholars, both in history and in management, have traced the evolutionary path of the consumption of luxury goods from antiquity to the present time (Allérès 1992; Castarède 2011; Marseille 1999). Such works undeniably strengthen the idea of a continuum through centuries, hence supporting current marketing strategies that are built on those used in the past. However, a proper understanding of the development of luxury as an industry and a business over time requires a focus on ruptures as much as on continuities. Some important changes regarding markets and consumption, business models and the organization of firms, and technological innovations impacted deeply on the way luxury goods have been manufactured, distributed, consumed, and considered. The theories on industry emergence as exposed by Gustafsson et al. (2016) can help conceptualize the conditions in which the modern luxury industry emerged during the mid-18th century onwards. It is essentially a disruption in terms of demand and a change of cultural values, focused on urban upper middle classes that created the conditions for the formation of a new industry based on the foundation of new firms and the action of new entrepreneurs.

Before Industrialisation (1750–1850)

Although the social elite has always consumed distinctive goods, a major change occurred during the 18th century regarding consumption in Northern Europe, particularly in the UK and in the Netherlands. Economic growth, international trade, and the ‘industrious revolution’— the growth of a market economy based on household production and consumption rather than being the outcome of an ‘industrial revolution’ based on new production technology (De Vries 1994)—led to the development of middle classes, and, consequently, to an enlargement of consumption. Studies in economic and social history largely considered luxury goods to be consumer goods that are not necessities. Berg (2007) also discussed ‘new consumer products’ (7) and ‘populuxe’ (25), while Verley (2006) and Coquery (2009) introduced the idea of ‘half-luxury’ (demi-luxe in French). Berg (2007) gave the following explanation about the nature of these new products: ‘Luxuries, formerly negatively associated with foreign imports and with elite ostentatious display, gave way to consumer goods identified with middling-class domestic interiors and dress. Distinctive British consumer goods connected the middling classes to an economy extolling the virtues of quality, delight, fashion and taste, comfort and convenience, and variety and imitation’ (21). The coexistence of various levels of ‘luxury’ was the outcome of the emerging consumption society, in which consumption had become an expression of social distinction based both on imitation and distinction (Bourdieu 1979; Simmel 1904).

Consequently, economic historians working on the emergence of a consumption society in Europe during the 18th century give a new definition to the concept of ‘luxury’ (Berg 2007). Although it used to be associated with wealth, status, and the power of the aristocracy, and criticized for this reason by Christian thought (see Berry, this volume), the meaning of luxury shifted to the consumption of products that were more than merely necessary (Berg and Eger 2003). Rather than emphasizing the rarity of goods, which characterized most of the products imported from Asia to Europe since the Middle Age (such as spices, silk, and porcelain) (Frankopan 2015), Berg argues that craftsmanship and quality became distinctive features of luxury in the 18th century (Berg 2007). Hence luxury is not considered a product consumed as a signal of social distinction but as a good that goes beyond the basic needs and which is purchased by the new urban middle classes that enjoy a growing disposable income. Carnevali (2003, 2007, 2011) showed, for example, that the production of cheap jewellery for the masses developed in this context. Moreover, this phenomenon was not limited to London and the United Kingdom. It can be observed in very similar forms in the United States (Anderson 2012), continental Europe (Sougy 2013), and Japan (Francks 2009). Some scholars emphasized that this new consumption of luxury sometimes had to be approached from the perspective of cultural history and gender studies. For example, Simonton, Kaartinen, and Montenach (2015) demonstrated that 18th-century authors linked the growth of the consumption of luxury goods in European cities to women, seduced by the acquisition of unnecessary products. The frivolous female consumer became a major character of literature until the late 19th century, like Gustave Flaubert’s Madame Bovary.

While Berg (2007) and others emphasized trade with Asia as a major channel for the supply of luxury goods during the 18th century, some scholars focused on the emergence and growth of a craft industry in Europe that responded to the new needs of the middle classes. In this context, Bergeron (1998) showed that the growing demand for luxury goods at the beginning of the 19th century led to the creation of numerous companies that remain today among the best-known luxury brands, such as Hermès and Louis Vuitton. Woronoff (1994: 220, 332) argued that the development of the manufacturing industry in Paris and its suburbs during the 19th century relied on numerous small enterprises specialized in the production of high-quality nonstandardized goods called luxury. For example, the Parisian watch and clock industry experienced a golden age during this period (Dequidt 2014). From this perspective, it is a change in demand and market conditions that led to the formation of luxury firms.

Hence a luxury industry focused on the fulfilment of needs for urban middle classes emerged between the mid-18th century and the mid-19th century. A remaining challenge is to discuss the problem of the border between luxury goods for wealthy people, new consumer goods considered ‘half-luxury’, and basic consumer goods. Only a few historians have tackled this issue. One of the most important contributions is the ‘trickle-down theory’ developed by McKendrick (1982). He argued that the social elite represented a model for middle classes in terms of taste and consumption, and that the will to imitate upper classes was a driving engine of consumption and economic growth. However, the way artisans and entrepreneurs understood this process and implemented specific strategies in their companies is still an underresearched topic.

Domestic markets were, however, not the only outlet of the emerging luxury industry during the period 1750–1850. Verley (2006) has demonstrated that the growth of luxury production in the early 19th century in France, and to some extent in the UK, relied on foreign markets, particularly the United States. Although international trade during the 17th and 18th centuries was characterized by the import of luxury goods from Asia to Europe, the development of luxury production in Western Europe led to a change of trade structure with the export of luxury goods to America. Between 1790 and 1817, the champagne company Moët produced more than 1.2 million bottles and sold only 23.5 percent of them on the French market (Musset 2011: 124). Moreover, for some specific goods like automatons and watches, China also became an important market at the end of the 18th century. Several watchmakers from Switzerland established in London in order to benefit from the trade facilities to East Asia (Girardier 2013).

The Industrialisation and the First Democratisation of Luxury (1850–1945)

The extension of demand resulting from the growing urban middle classes and the opening of foreign markets, as well as new production technology stemming from the industrial revolution, led to a major change in the luxury industry between the mid-19th century and World War II. Numerous industrial enterprises specialized in luxury production were founded and grew fast during this period. For example, the production of the French perfume industry went from 2 million francs in 1810 to 80 million francs in 1900 (Briot 2014: 83). It benefited from the development of the chemical industry, which enabled the production of new artificial fragrances. For instance, Firmenich and Givaudan, respectively, founded in Geneva in 1895 and in Zurich in 1897, were originally close to the chemical industry (Briot 2015). During the interwar years, several haute couture houses in Paris, including Chanel and Madeleine Vionnet, employed more than 500 workers (Grumbach 2014). In this context of general growth, some authors have spoken of a ‘democratization of luxury’ (e.g., Albert 2015; Daumas and Ferrière le Vayer 2007), as the outcome of a process of imitation of the upper social classes as described by Bourdieu (1979). For example, Carnevali (2007) considered cheap, mass-produced jewellery as ‘luxury for the masses’. One can, however, argue that such products should be looked at as ‘fashion products’ rather than proper ‘luxury’ (as distinguished in section on The Natrure of Luxury).

The issue of the boundaries of luxury is indeed a major problem of this period and it was intensively discussed by the actors in several industries. For example, in the Parisian fashion industry, although the manufacturers of haute couture and the makers of clothing had been gathered in a same trade association since 1868, the former decided in 1911 to build a distinct organisation in order to regulate separately the business of haute couture (Pouillard 2016). Yet, despite this strong will to distinguish haute couture from confection (ready-to-wear production) for the mass markets, many French couturiers launched perfumes during the interwar in order to increase sales and improve the profitability of their firms (Grumbach 2014). Similarly, in the champagne industry, there had been intense debates since the 1880s between the traders of champagne (like Moët & Chandon, the largest company) and the independent winegrowers that supplied them with grape. While the former supported a large and flexible definition of the Champagne region, the latter were attached to a more restrictive approach in order to limit competitors. The legal definition of supply areas and production methods for champagne was gradually realized between 1905 and 1936. It contributed to the stabilization of the boundaries of this industry. The enlargement of production and the democratization of consumption was, however, still possible through the improvement of grape productivity within the region (Guy 2003). Yet, in some sectors like watchmaking and jewellery, there was no institutional separation between the producers of luxury goods and those of common goods.

Economic and social historians have presented two main approaches regarding the industrialization of luxury goods. Some authors have maintained that the introduction of methods of mass production enabled a high growth of production, without having any negative impact on the quality of goods or brand image. Hence, from this perspective, they argued that modern production technology, such as mechanization, supported the growth of the luxury industry. This was, for example, demonstrated by Tesson (2013) with the case study of the champagne maker Moët & Chandon. However, some other authors present a much more pessimistic view of these changes. Ferrière le Vayer (2007) lamented the industrialization of production in the traditional French luxury goods industry, stressing the ‘dichotomy between production and creation’ (161). According to this approach, modern production methods threatened a major characteristic of luxury goods (i.e., handcraft manufacture). Standardized products made by machine cannot be considered real luxury goods.

The Early Globalisation of Markets (1945–1980)

Although the manufacturers of European luxury goods had been exporting since the early 19th century, their internationalization relied essentially on Western Europe, the United States, and Latin America until World War II. They did not expand beyond the West, except for specific niche markets, because the first democratization observed after industrialization was concentrated on Western markets. One of the most important changes after 1945 is the expansion of the mass consumption of European luxury goods beyond the West. The globalization of markets started with Japan during the 1970s (see chapter by Donzé, this volume) and continued with China and other emerging countries after 2000 (see chapters by Wang and by Atwal, Bryson, and Kuehlwein, this volume). The scope of the European luxury industry expanded to the whole world during this phase (Donzé & Pouillard 2019).

However, despite the worldwide extension of markets, the organization of luxury companies did not fundamentally change. Most of them were still family owned and managed small and medium-size enterprises (SMEs). Parisian haute couture, French champagne, Italian fashion, and Swiss watch companies were essentially independent and unlisted SMEs. There were few exceptions, Christian Dior SA being the most famous (Jones and Pouillard 2017; Palmer 2009). This company was founded in 1946 by Boussac group, the largest French textile company. It dispatched a manager to run the business, while Dior himself was in charge of creation and relations with customers. It became world famous with the launch of New Look (1947) and expanded abroad through the opening of subsidiaries in New York (1948), London (1952), and Caracas (1953), as well as the adoption of several license agreements around the world (see chapter by Okawa, this volume). It became a large company that employed more than 900 persons in 1952 and engaged actively in public relations, making Dior a famous brand. This successful expansion was made possible by the capital and management expertise provided by Boussac. A similar perspective can be observed in Italian fashion, where the Gruppo Finanziario Tessile (GFT), one of the largest textile firms in the country, founded in 1930, engaged in various business relations with high-fashion designers. For example, GFT set up a joint venture with Biki in 1957 and later produced clothes for Valentino and Giorgio Armani (Merlo and Perugini 2020).

The sustainability of luxury enterprises was a key issue, even for those who benefited from the support of large textile firms. They adopted various strategies to improve their profitability and support their global expansion. For haute couture, licensing became a widespread practice, Dior, but also Pierre Balmain and Pierre Cardin, making intensive use of such contracts to enter new markets and attract new customers from middle classes with affordable accessories (Okawa 2007). The development of ready-to-wear and mono-brand stores was another way for couturiers to expand their sales. In 1968, Yves Saint Laurent was one of the first to open a stand-alone ready-to-wear boutique, Saint Laurent Rive Gauche, in Paris. In 1975, there were thirty such stores throughout the United States, which sold that year some 48,000 pieces of clothes (Grumbach 2014). Finally, for some products like watches, the development of automated production technology enabled the manufacture of high volumes of precision goods. Rolex succeeded in making mass-produced quality watches a symbol of individual success for middle-class urban males during the 1960s (Donzé 2011).

The consequence of the various strategies adopted to extend product lines to accessible luxury in order to keep enterprises profitable and to expand on the global market is that the boundaries of the luxury industry became vaguer and more ambiguous. In particular, the fast increase of license agreements resulted in the transformation of luxury fashion items like those of Dior or Cartier into merely branded goods, with the risk of losing the exclusive, excellent, and rare image attached to luxury.

The Formation of Luxury Big Business (Since the 1980s)

The luxury industry since the 1980s is characterized by a deep reorganization (or a ‘deconstruction process’ according to Okonkwo 2007) and the globalization of brands and markets, as well as new democratization of consumption (Donzé and Fujioka 2015). Although luxury companies were until then essentially small and medium-size family firms, which lacked capital to extend production and sales on world markets, a few entrepreneurs, like Henri Racamier (CEO of Louis Vuitton, 1977–1987, and co-founder of LVMH, 1987), Bernard Arnault (CEO of Christian Dior since 1984 and of LVMH since 1989), and Anton Rupert (founder of Compagnie financière Richemont, 1988), adopted a new business model characterized by the financialization of the luxury industry through listing in stock exchanges (see chapter by Bonin, in this volume). The capital provided by investors was used to take over numerous luxury family firms and transform them into cash-making global businesses. These conglomerates benefit from economies of scale for finance, logistic, and distribution (wholesale and retail). Their management is based both on a strong centralization of brand management in headquarters and on a fast expansion of the sales network around the world. Moreover, the development of accessories makes it possible to target new customers through a process of brand democratization (Donzé 2018).

These conglomerates transformed the luxury industry and became the new benchmark of this sector. Table 1 shows the clear domination of these diversified groups over the global luxury industry in 2017. Moreover, independent luxury companies followed their model and implemented a similar strategy based on financialization through an initial public offering (IPO). Among these twenty firms, only two were not listed in 2017 (Chanel and Rolex). In 1980, only three companies were already traded in stock exchanges (L’Oréal, PHV, and Shiseido). Some of these companies needed cash to expand on their domestic markets (fashion in the United States for PHV and cosmetics in Japan for Shiseido) and on the global market for L’Oréal. Then, during the 1980s, five new companies entered stock exchanges, among which three general luxury companies which dominate the industry today: LVMH (1987), Richemont (1988), and Groupe Pinault (1988, today: Kering). The remaining three companies were specialized firms (Swatch Group and Tiffany). Next, five more companies were listed in the 1990s and five others after 2000. All are specialized luxury firms. This data on IPOs of luxury firms shows that although companies and brands can have roots going back to the early 19th century, the turning point of their recent history dates back to the 1980s–1990s.

Table 1. World’s Top 20 Largest Luxury Companies, 2017

Name of company


FY2017 Luxury goods sales (US$m)

FY2017 Total revenus (US$m)

FY2017 Net profit margin (all company)

Core business



LVMH Moët Hennessy-Louis Vuitton








The Estée Lauder Companies Inc.








Compagnie Financière Richemont SA








Kering SA








Luxottica Group Sp
















L’Oréal Luxe








The Swatch Group Ltd.








Chow Tai Fook Jewellery Group Limited

Hong Kong







PVH Corp.








Hermès International SCA





Leather goods



Ralph Lauren Co.








Tapestry, Inc. (formerly Coach, Inc.)








Rolex SA








Lao Feng Xiang Co., Ltd
















Michael Kors Holdings








Tiffany & Co








Burberry Group plc
















Source: Adapted from Deloitte (2019: 21).

Note: Foundation and IPO years added by the author.

The new management implemented by these companies since the 1980s is characterized by the takeover of brand management by headquarters. Conglomerates like LVMH or Swatch Group started cancelling licensing agreements during the 1990s, in order to achieve a strong and centralized control over brand identity. There is a will to bring brands like Dior or Omega back to luxury (Donzé and Wubs 2019). The effect of such a strategy is to make clearer brand positioning in luxury, either exclusive or accessible, and to draw a strict line with fashion and premium brands. Hence the first works by management scholars on the different kinds of luxury and the boundaries of the luxury industry precisely go back to these years, because they address a need for such knowledge among the managers of luxury brands.

However, the new marketing strategy adopted after 1990 is often far from the purist approach proposed by Kapferer and Bastien (2009). The pressure from financial markets to increase profits—nearly all luxury companies being listed in the early 21st century—led to the extension of the democratization of luxury consumption through the development of accessories. However, unlike during the previous period, the conception and management of accessories are decided and controlled by headquarters rather than autonomously by numerous licensees, so that the consistency of brand identity is not damaged. Moreover, the merger and the gathering of multiple former independent luxury companies into large conglomerates supports the growth of accessories, as they can benefit from the technical expertise of other brands in the same conglomerate, an action described as the ‘parenting advantage’ of luxury groups by Moore and Birtwistle (2005). For example, two years after the takeover of Swiss watch companies Tag Heuer and Zénith in 1999, LVMH opened in La Chaux-de-Fonds, Switzerland, a facility to assemble watches for its subsidiaries, Christian Dior, Fred, and Louis Vuitton. In 2002, Louis Vuitton launched its first collection of watches, equipped with movements manufactured by Zénith. A similar process can be observed for the production of perfumes. Synergies between subsidiaries made it possible for the fashion brand Kenzo to launch its own perfume in 2000. Then, in 2010, the group founded LVMH Fragrance Brands, a company expressly dedicated to making perfumes for its fashion brands (Donzé and Wubs 2018).

Consequently, luxury fashion companies today maintain an ambiguous position regarding the luxury identity of their brands. While the core of the brand and main products—handbags for Louis Vuitton, haute couture for Christian Dior, or jewellery for Bulgari—present usually a consistent positioning as a luxury good, the extension of product lines to accessories exposes the often thin boundary between luxury and fashion and premium goods.


The literature review of works on luxury in management, social sciences, and history has shown that the clear definition of the boundaries of the luxury industry is problematic from both the perspectives of business practice (brand management and marketing strategy) and academic analysis (discussion of luxury as a business). The ambiguity of the boundaries of the luxury industry goes back to the emergence of this industry, in mid-18th-century England. The development of a new urban middle class benefiting from increasing disposable income led to a disruption in terms of market demand and cultural values. The consumption of products which were not necessities are considered by Berg (2007) as the first luxury goods of the modern era—products defined by their high quality rather than their rarity.

Entrepreneurs took the opportunities offered by this new market condition to engage in the manufacture of luxury goods and created numerous firms between 1750 and 1850. However, since the second part of the 19th century, the development of industrial technology, the growth of income of upper and middle classes, and the expansion on foreign markets gave way to an enlargement of production and a first phase of democratization of luxury consumption. The boundary between traditional luxury (high-quality goods made by artisans), half luxury (high-quality goods made by machine), and common consumer goods became vague during this period. Parisian couturiers reacted in separating from confection companies and founded their own trade association in 1911. This was, however, an exception; most of the actors in other sectors did not create clear distinctions between luxury and nonluxury manufacturers. Moreover, the limit became even more imprecise after World War II, when Parisian couturiers adopted new strategies to increase their sales towards middle classes, through the launch of ready-to-wear and accessories.

Finally, the deep transformation of the luxury industry in the 1980s and 1990s was the opportunity to reconsider the boundaries of this sector. The construction and management of globalized luxury brands, in order to increase profit, made it necessary to identify precisely what the core of these brands’ identity was, and how to add value to products through narratives and practices that strengthen their position as luxury items. In this context, scholars in management science answered the high demand by luxury firms and conglomerates for knowledge regarding luxury-brand management. Consequently, most of the works in social sciences about the boundaries of the luxury industry are an outcome of the birth of luxury big business.


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