Luxury: The Art of Being the World’s Best

Distilling the Success of Tastemakers Like LVMH, HermÈs, Gucci, and Porsche

by Harrison Yu

Luxury is just expensive and nice things, right? Luxury is just a way to tell people how good your taste is, right? Luxury is just a repeating logo pattern of an “L” and a “V,” right? 

These are all incorrect.

Luxury is a cultivated art that is the pursuit of perfection. Luxury is the epitome of “the best.” This of course does not happen overnight; luxury is composed of building blocks that form a very clear structure. The foundation of luxury is built from crafting the best product or service. Mastery of their niche then allows luxury houses to innovate in their product category. Finally, the culmination of a high quality and exciting product drives people’s emotional desire. Luxury, then, can be defined as the intersection of human craftsmanship and creative artistry, which we will explore in the core ideas of: Provenance, Innovation, and Desire.

Provenance

The backbone of luxury is the expertise and authority of the craftmanship of the product, or simply: the Provenance. Provenance cannot be arbitrarily declared. Provenance is as Malcom Gladwell had said, “The 10,000 Hour Rule.” Rigorous and obsessive practice creates knowledge and thus results in the finest good or the most outstanding. This expertise leads to the backbone of Provenance: quality. 

There is something to be said about the perfection of human skill. Yes, machines can create near perfect products today; but it is the romanticism, appreciation of human ingenuity, and emphasis of traditional craft that embodies savoir faire. Provenance is authentic and without shortcut.   

Today, we see many “luxury” startups create products that are Made in Italy or Made with Italian Leather, then claim to have eliminated the markup, therefore claiming to offer the same quality at lower prices than the incumbent luxury brands. These startups falsely try to leverage the idea of “provenance” and mislead the consumer into thinking their products are of quality (of course this only applies to some firms and certainly not all). 

This is a case of misleading metonymy. Consumers have this perception because the traditional luxury players happen to originate from a specific country, which creates a misrepresentation that the country itself directly means quality. In reality, the necessary talent and originating technique to create high quality products happen to concentrate in these European countries. What luxury brands have done is identify the top specialists and then invest resources to continue cultivating the craft and art.

An Example: Hermès & Louis Vuitton

One of the world’s preeminent ultra-luxury house is Hermès. One of the world’s most valuable luxury-house is Louis Vuitton. Besides coincidentally being French, what do these two have in common? Quality in materials and quality in craftsmanship are their focus. Traditions of knowledge and craft are at the core of their production. An example of this commitment is that these two brands are completely vertically integrated. The tanneries, the materials, the labor, the sales channels—everything—is all in-house. This full control allows for these houses to invest in nurturing and preserving the existing provenance, creating the best products. And this continued pursuit of perfection can ultimately establish a brand as being "the best.”

Innovation

However, being the best is not limited to just supreme quality, rather it is the foundation of the next pillar of luxury: Innovation. Achieving the pinnacle of quality is merely the cost of entry to being an authentic luxury brand. The ability to constantly innovate truly defines the character of a luxury brand. Innovation can mean different things. But distilled to its essence, proper innovation respects heritage while remaining relevant to the ever-changing zeitgeist. The one rule of innovation in luxury is that the product must remain timeless and not succumb to faddish trends.

A Controversial Position: Apple

In this very rigid definition of innovation then, I argue that it is almost impossible for a technology firm to be considered a luxury brand. Yes, I say even a firm like Apple is not a luxury brand. Yes, it has beautiful stores and charges a lot for their products. But, external competitive factors in R&D and necessary functional parameters can make products obsolete and a brand gasping for breath within one product lifecycle (typically a year). Technology is a need-driven industry where products are disposable objects trapped in a functional arms race. Yes, products can be slightly more beautiful or feel slightly sturdier, but in the end, the ability to execute a task is what defines “the best” technological product.

For example, we take the classic iPhone. From 2007 – 2010, Apple was the dominant player in the smartphone industry and had the ability to command astronomic prices due to advanced features, minimalistic design, and easy-to-use user interface. However, a South Korean supplier to Apple decided to move into Apple’s territory and brought to market a remarkably similar product: the Samsung Galaxy line of smartphones. The second battlefront became the battle between iOS and Android. The combination of these two battles had decimated Apple’s once monopolistic market share. 

Fast forward to 2020, we see the ubiquitous rounded-cornered rectangular design, multi-lens camera, rapid speed processor, and eye-watering $1,000+ price tag. Does this make Samsung a luxury brand? Absolutely not. Does this mean Apple is no longer a luxury brand? It was never one to begin with. It must be reiterated: a high price point does not equal luxury.

My ardent stance on this topic is merely a function of the technology industry. Technology is a temporal business where being “the best” can be but a brief two-month duration. Competitive functionality defines a technology firm. A firm can create the most useful product and make it simple to use, but someone else will inevitably copy it and improve upon it. 

Innovation in luxury is meant to secure the timelessness of the brand. Innovation in technology is to improve daily tasks and to create the newest feature ahead of the competition. In technology, you have brands that are very good pioneers, brands that can design things well, and brands that have a cult following. But never brands that can be luxury.  

An Example: Gucci

So what does innovation look like in an actual luxury brand? Let us look at Gucci, more specifically its mastery of the iconic men’s loafer. Their core loafer is the 1953 Classic style that —as the name implies— was created in 1953. Unquestioningly, the handcrafted craftsmanship and material selection are some of the best in the industry. 

Innovation at the time focused solely on craftsmanship. Blake Stitching gave a flexible wear and streamlined look. The metal horse-bit embellishment evoked equestrianism. The supple leather lining and exterior made it simultaneously dressy, yet casual. People from Frank Sinatra to John F. Kennedy were wearing these shoes. 

So how has Gucci innovated to maintain the relevance of their classic shoe even today? They always kept the original core product constant to demonstrate the loafer’s unique DNA. But then they expanded styles. A more elegant toe box and heel on the Jordaan style. A flip back heel to create a faux-mule shoe on the Brixton. A complete slipper in the Princeton line.  

Then they rewrote the rulebook and further blended the line between formality and casualness with changes in materials: colored leathers, woven wool knitting, heat stamped leather, jacquard cloth weave, kangaroo fur, embroidered animal appliques. Though some of their creations look wild, the core DNA is still that of a “Gucci Loafer.” This maintains a backbone of elegance and social acceptance that can allow these to be paired with a suit, or simply jeans and a T-Shirt. 

Consumers went and still go crazy for Gucci’s loafers. Gucci’s constant reinvention of the humble loafer has made them the undisputed footwear leader in the boardroom and on the street. No other brand can replicate the style, multi-functionality, and romance of the Gucci loafer. It has become the most desirable icon; timeless at its core, yet innovative in its evolution.   

Desire 

Being the best not only exemplifies the competitiveness of luxury, but also underpins the final pillar of luxury: Desire. Bernard Arnault, Chairman and CEO of LVMH, put it best, “luxury is how to create desire.” Why is being the best so important to creating desire? And why is desire so important to sustaining luxury? As discussed, being “the best” means that a product or service guarantees quality. This trust in quality allows luxury brands to develop sustained creativity. Creativity means that you are a master of the fundamentals and can translate that into command over unique interpretations and creations. This balanced expression of beauty and craft is what drives desire for a luxury brand’s product or service.

What desire really does is create a vacuum for a brand. Its products become an irreplaceable player in its space that no one else can replicate. The true goal is to create an aura of desire so overwhelming that supply is always constrained, not artificially, but rather out of sheer necessity because a product or service requires that much craftsmanship and attention to truly be the best. Thus, pricing and rarity are a consequence. They are not artificial levers to pull in the realm of luxury. People erroneously equate these attributes as the definition of luxury, but instead should see it as a byproduct of producing the most desirable product on the market. Strong profits are resultant of desirable products and brands, in which the firm has the duty to reinvest that money into the business to continue the development of desire. 

In the following infographic, we have a visualization of the size and profitability of familiar luxury, technology, consumer firms. LVMH, Kering (Gucci’s parent company) and Hermès are of drastically different sizes from each other, but highlight how luxury firms’ high margins and high operating incomes are indicative of desirable products that have less reliance on quantity. Yes, Amazon’s revenue is the largest of the firms shown here at $280.5 Billion, but its efficiency is quite poor with a 5% operating margin. LVMH produces nearly as much profitability as Amazon, but is roughly 20% the size of Amazon. Both Nike and Proctor & Gamble’s high incomes, but low margins demonstrate a heavy reliance on volume signifying their products as commodity goods. Kering is 30-50% the size of these two firms, but produces equal or greater profitability.

An Example: Porsche

One of the greatest masters of desirability is Porsche.  They arguably employ some of the most superior engineers in the automotive business, are adept at leveraging their rich history, and produce some of the best products on the market. 

They are one of the few players in the industry that cannot keep up with customer demand and rarely ever discount their product. Could they increase production? Absolutely. But, the product would have to be simplified to adapt to “mass-production.” Instead, the philosophy of producing one less than market demand ensures the highest quality product, while also protecting Porsche from market saturation. So desirable are their cars that unlike brands such as Mercedes-Benz, Land Rover, or Maserati who increase prices by 2-3% when launching a new version of a product, Porsche jumps that price increase to sometimes over 10%. 

Why is this? They have mastered what it means to build a fundamentally good car: handling, speed, perceived quality, and practicality. 

When Porsche debuted their first SUV in 2002, the world gasped and bemoaned the demise of the brand. In fact, Porsche re-invented what it meant to wrap luxury and performance in an SUV. This has become the industry aspiration. This innovation allowed them to increase the starting price of the Porsche Cayenne by almost 60% in less than 15 years. Demand had truly outpaced supply. 

Their mastery of the basics of engineering and workmanship allowed them transform their craft into the creative pursuit of perfection, establishing Porsche as one of the preeminent brands in its industry. In fact, Porsche represents just 3% of the Volkswagen Group’s (their parent company) total annual volume, but generates over 30% of the Volkswagen Group’s operating profit. Their boldness and confidence established them as a creator and a vanguard of the automotive industry.

Conclusion

A creator is truly the final expression of luxury. Luxury is tradition. Luxury is innovation. Luxury is desire. The journey of luxury is creating the technically best product, building a dream from it, and then becoming the only player to offer it. Food, alcohol, fashion, experiences, and objects can all enter in the luxury segment. In luxury, you do not create things based on what you think customers will like, rather you create things that a customer will fall in love with. All the advertising built around luxury helps run a business, but it is not what creates luxury. Tastemakers who appreciate what it means to be the best; brands that are competitive to be the best; the pride of preserving the definition of the best. Luxury is simply the best.  

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Want to discuss this more? Feel free to shoot me an email: harrison.j.yu@gmail.com

Harrison is an innovative product marketer & brand leader at Maserati. He spent his recent career relaunching the Maserati & Alfa Romeo brands by creating exciting products, telling a compelling brand story, and folding in a customer-focused lens. He also is the co-founder of the kitchen knife startup, Alexandrine & Cass. He graduated from the University of Chicago with a degree in Political Science and a concentration in business from the Booth School.