Senior Business Transformation Leader, Shubho Chatterjee asks; How can luxury retail, position itself to be competitive and profitable?
This three part article series discusses broadly the current landscape in Luxury Retail, from the perspective of global economics, the integration need of Retail and Digital footprints, the current and future trends in technology, user experience cantered design for product and process differentiation, and leadership and talent necessary to enable a differentiated business. The series concludes with some key prognostications integrating the above topics for enhanced global competitiveness.
“ Global sales growth is modestly low in luxury and non-luxury Retail ”
Global sales growth is modestly low in luxury and non-luxury Retail, compared to the early 2000’s. It is evident that shoppers are exercising caution and restraint. Volatility in monthly consumer sentiment index, consumer spending indices, and imbalance in global trade all bear testament to this condition.
This is further exacerbated by the geo-political and economic difficulties, such as, the Ukraine crisis, the Brazilian politico-economic situation, the Chinese economic slowdown with extensive real-estate vacancies and corruption crackdown, the stronger dollar, minimal wage increases, and a weaker Europe due to Greece and the ECB Quantitative easing.
However, high-end luxury has been somewhat less impacted, with middle and lower tier retail being impacted the most. As is widely reported, the wealthy have become wealthier and have plenty of cash reserves to spend on luxury goods and services.
“ High-end luxury has been somewhat less impacted than middle and lower tier products ”
However, it is also likely that the economic instability and volatility will continue with significant headwinds to retail sales. Additionally, customers have choices (and preferences) between the experiences they desire, equivalent product categories they are willing to spend for, or not spending at all.
Consumers are willing to pay for a novel experience in exchange for another piece of jewellery or a leather shoe or bag. They also have the option of spending discretionary funds between an iPhone, iPad, Apple Watch, a branded shoe, bespoke clothing, or jewellery.
The retail establishment did not view the electronic consumer good segment as a luxury competitor ten to fifteen years ago. It is now, and thus luxury retail needs to be very innovative in directing customer discretion towards itself while using technology and mobility as enablers.
The Apple Watch
One last point is the ever-increasing price promotions and discounting. During the 2014 Christmas season in USA, 70% discounts were the norm with a variety of promotions (two for the price of one etc.) and campaigns. Not only does this erode the margins, it is race to the bottom and impacts a brand. However, this phenomenon is not observed or expected in the high-end luxury segment.
Given this scenario of slowing global economy, changing customer choices and preferences, and price wars, how can luxury retail, position itself to be competitive and profitable? Following in the article, we discuss a few key competitive drivers and current challenges, identify how these drivers can be leveraged as business differentiators, and present some ideas about integrating these drivers for business growth.
“ How can luxury retail, position itself to be competitive and profitable? ”
Retail and Digital Integration
Retail stores and digital presence are now absolutely complementary to each other; customers can research or buy on-line, view products at the store and buy on-line, or buy at the store. There continues to be an on-going debate of the web replacing the store; however, the storefront is critical and here to stay, especially for Luxury, where the opulence and ambience is both a sensory and visual experience, with or without a purchase.
Let us also not forget that retail stores also serve as Distribution Centres (DC); it is prevalent and cost effective to ship a product from another store to a customer than it is to ship from a DC. Amazon’s average distribution cost, estimated to be about 40% of sales, and Best Buys (in the US) current business growth illustrate the effectiveness of a dual retail-digital model.
While digital sales growth varies, depending on retail segment, between 2%-15% of sales, the growth rate of digital sales is estimated to be about 3 times higher than the industry average. According to market research, digital presence now influences over 40% of all luxury purchases, and while the overall luxury market is expected to grow by about 5% up to 2018, the e-Luxury market is expected to increase by 15% (Luxury Society, December 2014).
“ It is critical to focus on e-Luxury, while also emphasizing on the stores ”
Thus, it is critical to focus on e-Luxury, while also emphasizing on the stores; these stores provide the opulence, sensory and visual experiences, and superior human interaction opportunities – all critical to the Luxury experience. User based design, from store, to products, and after-sales services is also critical – more about that a little later.
Blogging and on-line product reviews enables a low-cost, low-barrier entry for product marketing. This can be beneficial but also detrimental as bloggers are free to write as they wish and are often seeking self-promotion as an “expert”.
Thus it is critical, to track and follow, using technology, all product and service related blogs and feedback, curate them, respond to them appropriately, and provide feedback for design/re-design, manufacturing, and after-sales service.
Curated Shopping Search Platform, Lyst.com
Web presence today is mostly transactional and informational; that is, the consumer visits a website, transacts a purchase with requisite information, and receives the shipped product. All interaction is primarily visual – price information, product images, videos of product use, story-telling.
Some websites, for example Lyst.com, Joyus.com, are providing curated products and ensembles with storytelling vignettes coordinating various clothing outfits, jewellery, and accessories.
Some of the improvements critical for e-Luxury presence and Retail and Digital integration are the following:
• Enhanced customer digital experience in product selection and search, ease of transaction, equal availability of merchandise at the store and web. Inventory mismatch between the store and website is commonplace.
• Rich visual and content experience in the website.
• Personalization – appropriate information delivery, promotion and ensemble selection and recommendation, customized design.
• Tighter integration, in both desktop and mobile environments, between customer preferences and available product information based on customer interaction with blogs, searches, retail sites, and social media discussions.
“ Web presence today is mostly transactional and informational ”
The Augmented Reality (AR) or Virtual Reality (VR) technology is barely used in Luxury Retail (or Retail). AR is available and widely used, for example, sports scores or virtual player positions superimposed on TV during a match, Google maps. VR is also making inroads – Facebook’s acquisition of Oculus, use of VR in military training, 3D CAD to 3D printing, are examples.
These technologies, in conjunction with rich media, can be used to enhance the user experience at a website. For example, one can virtually dress to a particular environment (vacation, party, etc.) with clothing, accessories, and jewellery from one or multiple websites and observe in 3D. How cool would that be, compared to today’s websites, where one can only view images of selected products, on models, and sometimes under selected settings?
Interestingly, L’Oréal is using AR by Augment to show hair salon owners how merchandise display stands for hair care products will look in the salon. A 3D model of the merchandise and stand is simulated within a real store setting for visual review. The technology is available today for VR/AR; what is needed is the commitment of priority and resources to enable mainstream applications.
Part II of the series will further explore technology and user experience cantered design issues and provide salient integration ideas for an enhanced luxury experience and product and process superiority.
To further investigate luxury consumers on Luxury Society, we invite your to explore the related materials as follows: