COVID-A9 changed the fashion industry forever. Amid the arrival of the coronavirus, fashion brands suffered their worst period on record. Consumer behavior shifted even faster from physical stores to online as supply chains were disrupted. How does the fashion & luxury industry continue to grow while also becoming more sustainable?
Season after season, fashion reinvents itself. As the world hopes for an end to the pandemic, fashion is back to staging runway shows of new trends, but at what cost to our planet and the people who make our clothes?
Each year, the global fashion industry sells more than 100 billion items of clothing. We are buying more clothes than ever. The average shopper now buys 60% more clothing than they did 15 years ago. French fashion group Kering with a market cap of almost $100 billion operates on the luxury end of the business and is headquartered in the heart of Paris. Kering's global HQ is also home to a chapel and beehives and medicinal herb gardens, all meant to signal that this is not your typical fashion company.
We're meeting François-Henri Pinault, who is the CEO and chairman of Kering. And you might have encountered his brands through the bags you've bought, the fashion shows you've watched. This company is connected to a lot of the most influential cultural brands and forces in the world. François-Henri Pinault is focusing on transforming Kering into a more responsible fashion business.
"Let's face it, our operations have a negative impact on the environment. It is our primary responsibility to reduce our footprint."
Can an industry built on changing our clothes truly change its ways?
Is fashion really cleaning up its act? Everyone is talking the talk. References to sustainability in fashion's annual reports have more than doubled over the last five years. And investment is soaring. Three in five shoppers say they actually care about sustainability. Search histories suggest that they do. But is the global fashion industry doing enough against a ticking clock? The impact that fashion has on our planet is undeniable. Vivienne Westwood was amongst the first people to call for change from inside the industry.
"The idea of consuming crap makes me, yeah, I think that's the big problem. It all becomes just landfill."
Today, all fashion businesses must focus on sustainable design and production to meet expectations from customers, investors, and regulators, it's a long journey. Stella McCartney has been trying to build a more responsible fashion business since its founding in 2001.
"I don't think people understand you can't buy something for two pounds that's been made, manufactured the fabric, who made it, in what conditions, you can't make stuff that cheap and have any good come of it."
Marine Serre's namesake brand was founded on the principle of using end of life materials to create new garments, a circular solution to a growing problem.
"I have to at least make a small change on the mind, on the process, on how we think about business, how we think about people, how we think about fashion, how we think about consuming everything, and I'm just there to question."
But how can these efforts be replicated at scale? Leading the scoreboard across all companies was Kering, but with a score of just 49 out of a possible 100. The average score across all 15 companies, only 36 out of 100. We must do better against that ticking clock.
Kering is one of the largest luxury conglomerates in the world. It was founded in 2013, a name change to signal the formation of a focused global luxury group founded on the principle of yes, caring about people and the planet. At more than $10 billion in annual revenue, Gucci is Kering's profit engine, driving more than half of sales and more than 75% of operating income. There's also a second tier of fast growing billion dollar brands, including Saint Laurent, Bottega Veneta, and Balenciaga. The journey began in Brittany in 1963, when François-Henri Pinault's father founded Établissements Pinault as a timber trading company.
Your father created a company many, many years ago, which you inherited and you have restructured to focus on the luxury industry. Can you explain the kind of transition from this kind of diversified conglomerate to a focused group on the luxury sector and why this was your strategy and why a luxury group that includes brands like Gucci, Saint Laurent, Balenciaga, like all these famous names, why does it make sense to group them together?
"I took over in 2005 and in 2005, the group worth 22 billion of sales with eight different businesses. And the luxury was the smallest, it was around 3 billion at the time. And when I took over, of course, my first job was to rethink and to go through the strategy of the group to see if I was comfortable with that, or should I change things. In seeing that I realized that I've been brought up by my father, that I'm here to do something, not just to manage something existing and to transmit it to someone else to, okay, that's my time. What am I bringing on the table? So I was obsessed by that, what my take on the business. Looking at the different businesses, the one I thought was the more global potentially was the luxury division. So Kering was born and the strategy of the group is based on four pillars since then. It was a portfolio of diversified brands that are complimentary to each other and a development model based on organic growth. Then it was the development of the brand through their own retail operations. The third one was the role of the group. The group is here to bring values to the brand. And the fourth one, since 2006, was the commitment of the group into sustainability."
Being a responsible business has become a really current topic, there's a lot of talk about it, but not necessarily measurable action. How is it different here?
"Well, it's different because the group is natively born in that and the group is very young. Our commitment to sustainability and social responsibility as a defining component of who we are as a community, as a corporate structure. I told my team, I don't want anyone to talk and to communicate about what we do in sustainability because we doing that because this is who we are, not to sell anymore product or any handbags on top of everything else. Practically speaking, for instance, it starts at the creative level of each of the brands. I have very often discussion with my artistic director about sustainability. What about this raw material? How is it made? It's a question that naturally comes to them at the very early stage of the product development of the creation of the product. It's not something that you put in the middle of your value chain and try to force and the constraint to transform what you, it's natively and naturally done like that."
To build more sustainable models into every part of its operations, Kering has created knowledge centers led by domain experts hired from outside the fashion industry.
Marie-Claire Daveu is Kering's chief sustainability officer and head of international institutional affairs.
I think I wanted to start with the decision to come to Kering. First of all, you're a scientist, right?
Engineer, scientist, then you work in the French government. What was it that drew you to this company in the first place?
"I'll be honest with you, it was not specifically my target but when I met François-Henri, so now nearly 10 years ago, he had a real clear vision about what sustainability means for a company."
Can you tell me a little bit about the journey, you know, the last 10 years, what have been the things where Kering has made the most progress and what are the areas that still keep you up at night?
"So first when we are speaking about sustainability and it's not only in our industry, but across all the industry, it's a long journey. So the first step you have really to measure, to understand where your environmental impacts are. It's something that we did through our EP&L, so Environmental Profit and Loss account and we published it at the level of the group, the first time in 2015. We put in place different kind of programs, very concrete link with our supply chain. So how can I have organic cotton? How can I have sustainable cashmere, sustainable silk, sustainable leather? Thanks to our material innovation lab, we have now nearly 4,000 sustainable fabrics, sustainable textiles and we have this cross-fertilization with the designer and the design team. We define what we call the Kering standards. So it's very technical criteria. So if you take the watches and jewelry brand, you know now 100% of the gold we buy, it's ethical gold, so we can be proud of that."
Gold mining is one of the most destructive industries in the world, harming people and the environment in a highly extractive process. To guarantee fully ethical, responsible, and traceable gold at all of its brands, Kering created an ethical gold framework, focusing on supporting artisanal small-scale producers, working to fair trade certification and standards. 100% of Kering's gold now meets this standard. Though the company acknowledges that there is still much work to do in other areas and to reduce impact at scale, cross industry action is essential.
"When we do something great at the level of the group, we want to open source our best practices, because as you mentioned, we are quite big, we are quite successful in sustainability. But if you want really to change the paradigm, you need to be able to involve all the companies in our sectors. We created in 2019, what we call The Fashion Pact, where we have more than 35% volume of our industry, because we have two things, that at the beginning we are using all raw materials that are coming from ecosystems and nature."
But where do you still have work to do? Because no company is perfect and we know this industry is based on almost endless growth, lots of consumption, public markets that are saying, you know, we expect this kind of quarterly growth. There's still areas where there's work to do. What are those areas?
"Of course, one of the most important challenge for me, it's not a question of areas, it's a question to put at scale. We have many, many very interesting pilot projects. For example, as I mentioned linked with leather, silk, cotton, it's really to be sure that they will concern 100% of our production."
At 27 out of a possible 100, worker's rights is one of the lowest performing categories in the BoF Sustainability Index and Kering was no exception, scoring 32. During the pandemic, big companies like Kering and many others, they can support the employees that work inside the group but it becomes very hard for you to ensure there's also protections for the people in the early part of the supply chain, right? And it's probably one of the biggest issues in our industry because everyone thinks luxury means high quality, which means everything is done with ethics, but that's not always the case.
"So that's why I think it's a responsibility, as you mentioned, of the big groups, big brands to pay attention, not only their own employees, but also the supply chain. Unfortunately, during the pandemic, you have really bad situations everywhere in the world. During this crisis, we had François-Henri Pinault on our back really to pay attention to our supply chain, also to pay attention about the health and safety conditions, because, you know, as there is no difference between our own employees and employees inside the supply chain."
When I talked to sustainability, climate change, biodiversity experts, some of them are really worried. You know, if you look at, you know, they say we have 10 years left, right?
"We know that on climate change and on biodiversity, we have less than 10 years to bend the curve. I know how much it's difficult, I'm very conscious about where we are and where we have to go but I think that the willingness for me, it's key, willingness inside the companies, willingness on the political side. When you have willingness, you can do perhaps not everything, but you can do many things."
Another outside expert hired by Mr. Pinault is veteran technology executive Grégory Boutté. As Kering's chief client and digital officer, he leads the groups partnerships with materials innovation, biotechnology, and resale companies. One of the biggest challenges for Kering is creating and scaling these kinds of innovations at every step of the luxury value chain. It's his job to help make that happen.
Can you tell me a little bit about the values of Kering as an organization and how that influences the way the company works? How does this company operate from a values basis?
"So I think I think about it in two ways. There's the values inside Kering and inside the houses are actually really strong around inclusion, around respect of people. And I think a lot of this is coming from the Pinault family, right? And François-Henri is sort of the role model in this on a day-to-day basis. Then there's the second piece, which is sort of how we work. François-Henri can make decisions incredibly quickly. You remember, we made a investment in Vestiaire Collective recently, right? It is meaningful investment for the company. And you know, it's like an hour meeting with François-Henri, you share the rationale of this investment and if he's convinced, it's a go and we do it. In terms of ways of working, I'm really struck by this sort of entrepreneurial spirit within a large organization."
Vestiaire Collective is a French fashion resale platform now valued at $1.7 billion. Boutté represents Kering on its board of directors.
There's a lot of brands in our industry that feel somewhat reticent about resale as an opportunity, clearly Kering and Mr. Pinault and you feel differently, why?
"I think the luxury industry is very well positioned to be really strong in secondhand, right? Because our houses build amazing products that last a long time with amazing material and so they're prone to have like a second, a third life. And also when we look at the market and look at how our customers are behaving, we feel like it makes a lot of sense. I think Kering and Mr. Pinault has this very modern vision of luxury where we're like, well, our customers do this, they want this and so we should embrace it and make sure that as we embrace it, we deliver the ultimate experience in terms of secondhand."
There's a bit of attention, right? Because you know, resale, yes, that's great, it extends the life of the product. But on the other hand, you know, Kering as a public company, it needs to grow, it needs to sell more products. And in order to sell more products, you have an impact. So how do you think about that?
"The main thing here is I don't think there's one single magic recipe that's gonna solve the entire problem, but the way I think about that particular fundamental question you're talking about is like trying to do everything we can at every stage of our value chain, if you will, to reduce the impact we're having on the environment. So one big area we're investing in is like materials. Then we have partnerships with biotech startups that are thinking about new types of leathers, new types of silk that have less impact on the environment. The second big part that we're investing in is better managing our business, better forecasting what products are gonna sell, what products are not gonna sell and make sure that we produce accordingly to avoid excess inventory and also replenish our stores in a way that's the most efficient as possible. So we have a big initiative actually in my team where we have data scientists looking at our business and trying to use machine learning to develop, you know, powerful algorithms to better predict slow movers, fast movers, and produce accordingly."
But herein lies the conundrum. How can a company at the scale of Kering with annual revenues north of $15 billion and growing at double digit percentages each year, reduce its impact.
As your company continues to grow and it's grown rapidly as we've discussed, how do we balance that with reducing our impact? Because, you know, as I was discussing with Marie-Claire, we don't have much time left before this climate crisis hits us.
"This is probably the most important question to ask, the global equation, I think. Why luxury brands, as I said, have this responsibility to find solutions for rest of the industry, because this is the only segment of this industry, where the development model is not only based on volume. The growth has to be built on volume and value. It's natural for luxury brands to work like that but mass brands will try to build products with more quality and accept to sell less at higher value. And when customer will understand also that's the right way to do things. And that's, for me, the cornerstone of sustainability in the private sector is that it's to accept, not to change your development model between value and volume."
What is your one wish for how our industry operates going forward?
"Working together is absolutely key and sharing of what everything we do in that field of sustainability is absolutely key to succeed and to try to avoid the catastrophe. When president Macron asked me to build this coalition in the fashion industry called The Fashion Pact, I said, "Yes," because that's for me, the only way of being able to push things. It has nothing to do with competition with business. It's a collective effort, it's a planet issue, it's not a local issue, it's not a corporate issue, it's a global issue, or we do it together or no one will succeed."
Creating a more sustainable fashion industry will require a wholesale shift in creative, business, and operating models.
It will also require strong regulators and ethical investors who are able to measure progress using clear standardized metrics and companies across the industry must work together and share expertise, but ultimately it will require making, selling, and buying fewer clothes. And that requires both companies and customers to get on board, because there's not that much time left against that ticking clock.