Trade wars and Brexit also pose challenges for the luxury sector, hears Hogan Lovell’s webinar
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The Covid-19 pandemic has forced luxury brands to embrace e-commerce faster and rethink how to deliver an exclusive and personalized experience online, according to entertainment and fashion law expert Pamela Weinstock.
Weinstock said at a webinar for the Luxury Law Alliance and Hogan Lovells that brands should pay attention to developments in China, where e-commerce retailers have focused on rewarding consumers through apps, gamification elements, rewards and innovations such as augmented reality, digital Mirror and virtual try-on.
“The shopping experience in Asia has always been focused on interactivity and their technology often has live chat as a very central element before making a purchase decision,” said Weinstock. “This adds very well to the luxury experience as you provide the personalized, bespoke service that luxury seeks.”
The panel, moderated by Sahira Khwaja, head of London branding practice and co-head of the fashion and luxury brands group, agreed that luxury brands are already using technology to transform the way they sell goods online.
For example, LVMH helped develop a system that uses blockchain technology, which helps fight counterfeiting by allowing customers to verify the authenticity of their products, with brands like Prada and Cartier joining the project as well.
Uncertain future
While the pandemic has accelerated the move to online, traditional brick and mortar stores were already facing an uncertain future before the virus shut down many malls and large department stores in recent years.
“Brands are moving to an omni-channel approach, with more activity being moved online,” said Weinstock. “Shops may have a smaller footprint, they may be more of a showroom, more of a brand experience that has ‘retail’. Often there are cafes or partnerships that are not necessarily traditionally associated with luxury channels in clothing retailing. “
The move to online is also changing the way luxury brands need to approach advertising, as many are starting to use influencers to promote their products on social media.
“That was a bit of a challenge as you may be giving up some creative control when influencers create content. So what we’re seeing in this area are more micro-influencers who may have an audience in the arts, whose aesthetics match brand positioning, and there’s more of a sense of authenticity, ”says Weinstock. “There are a lot of interesting developments in China where we see both virtual influencers and KOLs [key opinion leaders]who are starting to have their own product lines or even share in the profits instead of just receiving a flat fee. “
In this new world, there are a number of things luxury brand GCs should be doing to protect their business, Weinstock said. For those who may have started making masks or other protective clothing during the pandemic, brands must have their IP protection. Brands also need to review their emergency policies, such as: B. Examine supply chains and providers for potential disruptions and improve IT security in order to cope with the growth of e-commerce and protect yourself from cyber hackers.
Trade wars
It’s not just the pandemic that is giving GC luxury brands a headache. Persistent trade tensions between the US and China, and to a lesser extent the US and the European Union, as well as the uncertainty surrounding Brexit are weighing on the global luxury sector, said Aline Doussin, head of the UK trade team at Hogan Lovells.
“The trade wars and the intensification of rhetoric and retaliatory tariffs are restricting imports and exports and have had a significant impact on all sellers and buyers as well as e-commerce,” said Doussin. “The US has imposed tariffs on Chinese goods valued at more than $ 360 billion, and China has responded with tariffs on US products valued at over $ 110 billion. Luxury brands are also badly affected, especially on the European side for EU exports to the USA. “
To mitigate the added cost of these trade disputes, ecommerce merchants need to figure out which parties are bearing the financial burden – be it the seller, the buyer, or the ecommerce platform itself, Doussin said.
For Brexit, it is not only the customs duties, but also additional paperwork that traders have to consider when determining the bill payers. One way some brands are responding is to move production locally to eliminate cross-border activity and avoid tariffs, she said.
Brexit is also forcing luxury brands to examine storage issues, for example whether they should open their own warehouses in the EU or use externally owned and operated warehouses.
Tax implications
Changes in the supply chain, and especially new business practices, could potentially have tax implications, said Karen Hughes, co-head of global tax practice at Hogan Lovells.
“Because profits follow value for tax purposes, new business models geared towards data and technology can mean that transfer prices – transfer prices – have to change,” she said.
“The good news is that a lot has been thought about. This is due to some striking similarities – perhaps surprising – between the luxury goods industry and the tech giants.
“Both have extremely valuable intellectual property, high margins, and are highly centralized in e-commerce. Of course there are differences. But the key is to learn the lessons: to recognize the role of centrally held and developed intellectual property in creating value, but also the significant contribution that is made locally. “
The Acceleration of Digitalization and Ecommerce: What Luxury GCs Must Know took place on April 21 in cooperation with Hogan Lovells. For more information on Hogan Lovells’ capabilities for fashion and luxury brands, click here.
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The Anti-Counterfeiting World Law Summit of the Global Legal Post will take place on June 22nd. Click here to read the program for this virtual event. For sponsorship inquiries, email [email protected] and to inquire about delegate passes contact [email protected]