Among a wide range of topics and speakers at the 19^th Financial Times Business of Luxury Summit in Monaco – a genial event where 450 high-quality delegates gathered against the backdrop of a city that is looking increasingly like Singapore or Dubai thanks to the amount of new high risers – five key lessons stood out.

1. Understand the far-reaching implications of sustainability wherever you are in the value chain

Not all luxury actors seem to fully understand the urgent transformation imperatives around sustainability yet. Surprisingly, only one speaker (Kering’s Marie-Claire Daveu) and one panel, focusing on the tightening ESG regulatory landscape, were dedicated to sustainability, when, if climate crises intensify, they may derail the very social acceptability of luxury.

Daveu’s main point was that luxury brands will need to decorrelate financial growth from greenhouse gas (GHG) emissions’ growth. Luxury brands’ GHG emissions, particularly in all their indirect “scope 3” activities which account for circa 85% of all their emissions, have “exploded”. Even if the volumes are much smaller compared to say, cement or aviation, this is bad news for the environment.

Kering is the first luxury group to pledge net zero by 2030. The group is accelerating investments in AI to effectively produce only what it sells (the fair production principle); it’s increasing quality so that products last longer; it invests in regenerative agriculture and the circular economy (with the Gucci Circular Hub, for example); explores new business models such as rental and second-hand, and promotes green innovation by working with 250 startups.

Reaching net zero will require reducing volumes, unless green technological innovation leaps forward suddenly. This means luxury goods are going to become much scarcer and costlier for customers, and luxury brands will have to assess how they can avoid being seen as the business of inequality in the process. For brands and investors, accepting lower levels of profits might be necessary. The elephant in the room was that price hikes will not compensate volume cuts, as a recent Deutsche Bank scenario showed.

When sustainability reporting becomes mandatory, all midsized and large companies will have to comply and report on their activities. Therefore, being clear on the externalities that have the most negative impact on their external stakeholders and the higher degree of risk on themselves will be crucial. This will drastically change the game for luxury brands, traditionally very discreet about their internal operations; they need now to multiply measuring efforts and to increase their traceability and transparency.

The new regulations, such as the E.U.’s Corporate Responsibility Reporting Directive will require brands to have a full overview of their impact across their value chain, so it was revealing – and worrying – to see leaders from retailers such as Harrods, Farfetch and McArthur Glen not anticipating that regulations would fully impact them via forthcoming luxury brands’ requirements.

2. Future proof your supplies: it’s the next battleground

Luxury brands have built empires on their marketing and distribution efforts. Their ability to capture the hearts and minds even of the youngest teenagers is testament to their impressive investments in this space.

What is less understood is that access to supplies that define luxury today and those that will define it tomorrow will be crucial. As we need the equivalent of 1.75 planets to sustain our ways of life across the world, we have clearly reached planetary boundaries. The era of abundance is over.

Reflecting tensions between supply and demand, the price of diamonds has increased almost two-fold since 2000. The prices of precious materials such as gold, cashmere, silver and leather have skyrocketed. In this context, future-fit and competitive brands will be those that secure their supplies in a sustainable way. By buying more than 40 suppliers or players in the supply chain in the last decade, CHANEL’s vertical integration strategy upstream illustrates the brand’s realization of this shift.

But private equity leaders Marco de Benedetti of Carlyle and Alessandra Gritti of Tamburini Investment Partners challenged the idea that luxury brands should follow this strategy. Gritti claimed that due to their craftmanship background, luxury brands should trust the industrialists, whether they are material suppliers or silk printers, to engage in the integration process and scale up for sustainability. They both see the emergence of powerful supply platforms at the service of luxury brands. We might well see, therefore, a shift in the balance of power in favor of such actors. Italian suppliers will be uniquely placed to lead the way.

3. Secure a successful generational transition at the helm

Many of the top luxury players are coming close to a generational transition. For instance, Bernard Arnault, founder of LVMH is now 74 years old and Patrizio Bertelli, chairman of Prada is 77. This is a crucial phase for any company as a wrong choice could make or break a brand.

Lorenzo Bertelli (Group Head of Marketing and Corporate Social Responsibility at Prada), Daniela Dufour (from watchmaker Philippe Dufour), Alexandre Mille (commercial director of Richard Mille) and Frédéric Arnault (CEO of Tag-Heuer, a division of LVMH) are all heirs of first-generation founders and already leading some of their family businesses or being groomed to take the helm.

They all came across as candid, open, and down to earth. Bertelli emphasized the sense of responsibility he felt towards the Group’s 14,000 employees and recognized that the growing social divide was a threat for luxury. Arnault commented on the family philosophy, which is to push existing brands to thrive rather than looking for the spotlight themselves. Mille said that it’s true his father Richard is very famous, but only in the small world of watch aficionados.

Sidney Toledano is much more than the Chairman and CEO of the LVMH Fashion Group. In the contemporary luxury fashion industry, he is one of the most transformational leaders. He gave us a peek into how succession is run at LVMH, where nothing is yet decided: Bernard Arnault’s children have been mentored by talented veterans, Sidney Toledano for Delphine and Jean-Claude Biver for Frédéric. The discipline to listen, learn and reflect emerges as another family value.

Marc Puig, the CEO of the eponymous Spanish group that controls Carolina Herrera, Paco Rabanne, Charlotte Tilbury and Byredo, announced that his successor will be a non-family member for the first time in four generations. He also detailed recent strategic shifts that will help the group to reach 4bn euros in sales this year, two years ahead of schedule, after a 40% growth rate in 2022: a shift towards niche, more exclusive beauty brands, thanks to five game-changing acquisitions in the beauty segment; and the ability to capitalize on the rapidly growing demand for discovery and learning in the perfume category itself (it already represents 30% of the demand in perfumes while 40% comes from gifting and 30% from repeat purchases).

I wondered if, by candidly acknowledging the need for “learning from past mistakes”, Bertelli was alluding to the fact that Prada still manufactures many products in lower cost locations (they are not the only luxury Italian brand manufacturing in Eastern Europe) while prices more than doubled in a decade and quality levels, at least in menswear, dropped.

4. Master agile and resilient leadership

Two key actors delivered powerful messages of adaptable, entrepreneurial and resilient leadership. In my book and publications, I define business agility as the combination of adaptability and entrepreneurship. One of the fundamental drivers of adaptability stems from the flexibility a business enjoys when it has a portfolio of options. Toledano explained that his approach has been just that: it’s about building a mix of geographic locations (Europe is doing well, Africa will be next), customer demographics (all generations), and products. Being flexible is about having a global vision but putting the right people at the right place to deliver this vision in a tailored way at the local level.

Another feature of agility is the ability to reconcile the competing demands of stability and change. At LVMH, once leaders have defined a direction, they stick to it. When times are tough, they continue to invest in tomorrow, albeit slowly. Because they are also consciously hyperaware to early signs of change, when market shifts become clear they scale up and double down on the investments that will deliver the original vision.

The charismatic Diane von Furstenberg illustrated the paradoxes of agile leadership too. A fascinating storyteller, she explained that there will always be lots of unplanned things coming at you. To endure while adapting through ups and downs over time, one must stay true to oneself, one’s values, and one’s style.

Agile leadership is also about team play and distributed leadership. Toledano has strongly relied on artistic directors to define their artistic vision within his business vision. To unlock the power of designers like Galiano or Slimane, one must learn to dance with them; winning their trust is essential. This trust comes over time when the artistic directors see that the CEO can help make their artistic vision a reality, no matter what. To secure this, Toledano’s approach has always been to build strong and diverse teams throughout his organizations.

If time had allowed, I would have asked him why LVMH has not more obviously cherished the legacies of Hubert de Givenchy and Kenzo. After all, the group invested lavishly in creating three Christian Dior museums: Granville, Grasse and La Galerie Dior in Paris. Also, will Givenchy come back to haute couture at some point?

5. Accelerate innovation, at all costs

If one thing redefines all luxury sectors, it’s the accelerating pace of innovation on multiple fronts such as the customer experience and the mastery of the metaverse and AI. We heard about the imminent take-off time for flying cars and taxis and how design thinking can revolutionize the creation of beauty brands.

Established brands have no choice if they want to respond to relentless disruptions. Alice Delahunt, Founder and CEO of SYKY explained that fashion creation is about to democratize massively with the metaverse. SYKY is a marketplace at the forefront of digital fashion, where Web3 designers showcase their work, collectors discover new pieces, and communities. The SYKY Collective is a cohort of 10 talented digital designers that might well revolutionize the industry. We’ve already witnessed this disruption with Tiktok where fans can create AI-enabled content even, sometimes, more creatively than the brands themselves.

Established brands are rising to the challenges on all fronts. For Mulberry and Estée Lauder, it’s all about tapping into the opportunities of big data and AI to personalize the customer relationship even more. Jane Lauder, EVP Enterprise Marketing and Chief Data Officer, plans to use AI to mine Estée Lauder’s 70 years of IP and archives to create new scents and products. Others respond by expanding into new categories, Dolce e Gabbana for instance into the beauty category, or by innovating in the product category: Alaïa by creating iconic categories like the ballerinas or swimming costumes and Piaget via revisiting its icons with the Andy Warhol watch.

I came away from the Summit convinced that for luxury brands to remain relevant and competitive, they will need to focus on these five points. Sustainability imperatives will soon force you to change your business and operating models, so start thinking about how you are going to do that. Securing every part of your supply chain will be a vital part of this. Electing and training the right successor to lead your business into the future is a priceless investment. And to thrive in that future, you must innovate continually, and demonstrate great agility.