Collapsing the Value Chain
What we don't often acknowledge in discussions about product/market fit and consumer impact is the divergence of interests across the various stakeholders. Everyone along the capital stack, the management, and the brand is competing for a slice of the value chain.
Most of the ownership in the luxury segment is institutional or private equity capital that has a fiduciary responsibility to deliver an accretive exit in 5, 7, or 10 years. How does that reconcile with a brand's 100 year "patient timeline" of building psychological equity, goodwill, and market share premium?
For a long time, labor markets haven’t had much leverage. Wages and employee experience haven’t been scrutinized. And consumers have been segmented into generic and meaningless demographics like age, income, ethnicity, gender, etc.
The result has been a very nice selection of physical plant assets in the superficial sense (grand European influenced architecture, blinged out FF&E, high thread count linens, French culinary tradition) served up to us in three flavors which are essentially the same – Ritz-Carlton, Four Seasons, Fairmont (kind of like ABC, CBS, NBC before cable and streaming). But no real “heartbeat, purpose, and soul” as Colin N. writes.
Many workers tolerated, and even thrived in, this old system. There was just enough slack in the value chain for all the stakeholders to get their piece. Until better employment alternatives emerged through technological disruption and worldwide sharing of information became possible through accessible networking.
Now what?
What if someone could collapse this value chain, an entrant who:
1) understands today’s global consumer and their psychological needs and can develop a compelling brand around those needs
2) has the management discipline to design a talent driven organization to execute on that brand
3) is willing to control the real estate over the long term with their own capital
...might just have the winning combination to create the next differentiated, relevant, and financially sustainable brand.
Most players focus on one of these areas. Some excel in two out of three of them. But I haven’t seen one yet who excels in all three.
This would require a tradeoff on the asset light model that enables brands to have so much growth with such little capital investment. It would require a tradeoff on the third party management business that generates so much in management fees with such little capital investment. Or it would require real estate owners to acquire capability in building brands and management organizations.
Who’s willing to try?
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As a family business, we have been straddling generational and ideological divides. Our challenge now is to better understand the broader impact of our choices, and rethink how we do our work. This will be a lifelong journey in examining our past choices and undoing what has been problematically at odds with the way we want to coexist with the world around us.