brunswick luxury report 2013
DESCRIPTION
A Brunswick survey of more than 200 U.S.-based investment professionals which shows that investors rank the luxury sector as more exposed to overall reputational risk from overseas manufacturing than six other sectors. The majority of investors place as much emphasis on reputational risk as they place on cost when making luxury sector investment decisions.TRANSCRIPT
LUXU
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13
Manufacturing in Focus
INTRODUCTION
The way in which investors are assessing the risks and benefits of manufacturing overseas is changing, with cost no longer eclipsing all other factors that influence decision-making. This new reality is especially true for the luxury sector, where consumer expectations are particularly high and the erosion of the perceived quality of a product or brand can have a material impact on the business.
Our survey of more than 200 U.S.-based investment professionals shows that investors rank the luxury sector as more exposed to overall reputational risk from overseas manufacturing than six other sectors. Moreover, a majority of investors place as much emphasis on reputational risk as they place on cost when making luxury sector investment decisions. These results suggest that luxury companies should take a holistic look at their manufacturing operations to determine the right geographic balance for their brand. Convincing investors that a thoughtful strategy is in place requires identifying where product advantages can be realized from manufacturing at home, and where the cost-benefit of producing overseas may outweigh the reputational risk. Regardless of the precise market mix, it is important to articulate the benefits of products made in home markets while proactively minimizing reputational risk in complex political and social ecosystems in other corners of the globe.
Susan GilchristGroup Chief Executive, Brunswick Group LLC
As investors place equal emphasis on reputational risk and
cost, companies should take a holistic view of their
manufacturing strategies to determine where significant brand
or product advantages can be realized from manufacturing at home,
and where the cost-benefit of producing overseas may outweigh the
reputational risk. A thoughtful strategy that considers
the right balance for your brand will be viewed by
investors as an asset rather than a liability.
RESEaRCh IMpLICaTIONS
Investors want to know that companies are deriving brand and business benefits when manufacturing at home and taking proactive steps to manage reputational risk overseas. aT hOME
• Defineexcellence.Tout the benefits of highly skilled craftsmen that deliver superior quality products.• Displayyourheritage.associations with strong heritage can deliver brand benefits and marketing
opportunities that increase customer loyalty and perceived value.• Protectyourassets.an established and familiar legal system allows for close control over
intellectual property.
OvERSEaS
• Beyourownwatchdog. Devote more resources and have an active presence in areas where risk is higher to ensure that quality and safety are tightly controlled.
• Buildrelationshipswithacrosssectionofstakeholders.Regularly engage with local NGOs, government and labor groups to understand the complexities of the market, better anticipate issues and solidify relationships before an issue arises.
• Engagewisely.assess the landscape of stakeholders to understand the centers of influence and identify contentious players.
• Collaboratewithpeers.Working together facilitates a more productive dialogue with local stakeholders and gives you a stronger collective voice.
Supply chain risk is a top consideration for investors
and a majority place equal weight on
reputational risk and potential cost savings
associated with overseas manufacturing when
considering luxury sector investments.
Factors Driving Investment Behavior
Over the last 12 months, have you made an investment decision about a company based on any of the following factors?
potential costsavingsfor luxury goods companies as they move manufacturing operations overseas
potential reputationalharmfor luxury goods companies as they move manufacturing operations overseas
Which ONE do you consider MORE when making investment decisions?
Commodity prices
Eurozone Crisis
Supply Chain Risk
China Not Delivering on Growth
Sector Fragmentation
Climage Change
Factors Driving Investment Behavior
Investors believe luxury is among the top sectors
exposed to significant risk on the issues of quality control
and protection of intellectual property rights, and is
considered most exposed of all sectors on overall
reputational risk when manufacturing overseas.
Risk Exposure for the Luxury Sector
Which ONE of the following sectors is exposed to the most ______ through overseas manufacturing?
Technology Consumer Goods
Luxury Consumer Goods
healthcare products
Consumer Durable Goods
heavy Industrial Goods
Non-Luxury Consumer Goods
healthcare products
Luxury Consumer Goods
Technology Consumer Goods
Consumer Durable Goods
Non-Luxury Consumer Goods
heavy Industrial Goods
Luxury Consumer Goods
healthcare products
Consumer Durable Goods
Technology Consumer Goods
Non-Luxury Consumer Goods
heavy Industrial Goods
QUALITYCONTROLRISK INTELLECTUALPROPERTYRISK REPUTATIONALRISK
Eighty percent of investment professionals see
the reputational risk from overseas
manufacturing beginning to outweigh
potential cost benefits, but moving manufacturing
to home markets is not a silver-bullet solution for
the luxury sector.
On-Shore vs. Off-Shore Manufacturing
Do you agree or disagree with the following?
The reputational risk associated with off-shore manufacturing is beginning to offset the cost savings for luxury goods manufacturers...
What is the biggest risk that luxury goods companies face when manufacturing in U.S. and European home markets?
aGREE
DISaGREE
“[Luxury companies] have got to protect their
name…that is the key to their competitive
success. I think they just don’t recognize the breadth
of some of the threats that they can face.”
— University Academic on Luxury Sector Risk
ABOUTBRUNSWICK
Brunswick Group is an international corporate communications partnership that helps businesses and other organizations address critical communications challenges. We started in London in 1987 and have grown organically into a private partnership of 21 cities around the world. Today we have around 90 partners – senior professionals from a range of industry backgrounds – and a total staff of more than 600. We offer our clients a range of specialist capabilities – by issue, transaction, sector or audience – designed to deliver the desired outcome. Brunswick operates as a one-firm firm, offering a seamless service across international boundaries.
www.brunswickgroup.com
Read The Brunswick Review, a journal devoted to communications and corporate relations, at www.brunswickgroup.com/review
ABOUTBRUNSWICKINSIGHT
Brunswick Insight is the Group’s opinion research practice, specializing in assessing global business issues and corporate reputation. Operating globally, we use a range of qualitative and quantitative research techniques in order to help companies and organizations inform and measure their communications and policy strategies.
ABOUTTHESURVEY
Brunswick Insight fielded this survey among 205 U.S.-based professional investors on both the buy-side and sell-side at investment banks, hedge funds, and private equity firms. The data was collected online between January 3rd and 7th, 2013. The survey has an overall margin of error of ± 6.8% at the 95% confidence interval.
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For more information, contact:
Susan Gilchrist, Group Chief [email protected]
+1 212 333 3810
Katie Foley Ioanilli, Director, New [email protected]
+1 212 333 3810
Sparky Zivin, Director, Brunswick Insight, Washington, [email protected]
+1 202 393 7337