How Outsourcing Will Impact Luxury Industry in the Future?

Do you remember the time when luxury brands used to represent fascination ? when it was a priviledged experience to buy a piece of the most renowned “maisons” and when you hardly ever met a person with the same bag, shoes or whatever you want because wearing one of these rare pieces used to make you unique ? I am thinking of the time when Audrey Hepburn appeared as Holly Golightly in Black Edwards’ Breakfast at Tiffany’s, wearing her Givenchy black dress on the 5th Avenue, starring at the shopwindow of the famous jeweler and dreaming that some day one of the Tiffany’s articles will be hers. Well, for our generation, the fascination is still present but not unreachable, and this is partly due to one phenomenon that has become more and more common in the luxury brands world : outsourcing.

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Outsourcing is an arrangement in which one company provides services for another company that could also be or usually have been provided in-house.

There are different ways of outsourcing and in the luxury world, two can be distinguished even further : outsourced manufacturing, when different skilled brands start to join forces in order to establish licensed contracts to produce new items under their labels, just like Luxottica with Chanel, Prada… in the glasses domain or L’Oreal and Giorgio Armani, Yves Saint Laurent, for its expertise in cosmetics and fragances. The other type of outsourcing would rather focus on the endless race of saving money while proposing a wide range of products, and this is what we will try to underline today.

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As just mentionned, the decision from a company to outsource, apart from the fact of using specific skills in order to grow its own market, is mainly due to cost reduction. The main issue is about the cost of labour : indeed, this remain the major cost for any manufacturing company and includes the payment of wages and benefits that are owed to any employee. Outsourcing in countries such as China, India or Southern Asia where the labor laws may not be as strict as those from Western Europe or North America is a great advantage for companies. It also lower the costs associated to the implementation of a manufacture stateside, costs utilities, improves efficiency… taken out all of these, companies would focus on what seems to be more important for their success : sales & marketing.

Many luxury brands outsource their manufacturing abroad and justify themselves with different reasons, let me relate some : Louis Vuitton which outsources the monogram canvas and the fabric for “the necessity to serve a fast-growing demand and to maintain quality” ; Yves Saint Laurent, whose raw material is entirely outsourced for “the control of the whole process of product development and of the distribution”