How the 2008 Financial Crisis Lead to a Revolution in Luxury Retail
(And what happens next)
Katie Wadsworth March, 2013
Author: Katherine Wadsworth
A Brief History
2007 2008 2009 2013 2010
Height of Consumer
Credit Culture
Subprime Mortgage
Crisis Unemployment
Peaks at 10%
Shifts in Consumer Behavior
Credit Card Debt Down
16.5% since 2009 peak
Consumer Spending is Stagnant
2012 2011 Savings Rate
Jumps to Over 8%
Retail Sales Are Picking
Up
Americans are living the dream
with a “Buy Now, Pay Later”
mentality
The economic downturn has yielded enduring change in the attitudes of
American consumers.
1954
Rampant spending habits of consumers in
2008 are replaced with a renewed sense of
frugality
Impact on Consumer Behavior
How have changes in consumer spending impacted luxury retailers?
The US National Savings Rate hovered around 2% in 2006 and 2007.
Risk averse consumers and banks’ tightened regulations on
lending caused credit card spending to flat line.
Relationships (it’s all about the math)
The relationship between merchants of luxury goods and consumers has changed dramatically in the face of the recent economic crisis.
+ = How will retailers maintain sales Given they sell non-
essential goods To consumers who are
increasingly cost conscious?
It’s time for a new strategy…
P[A|(B+C)]=D
5 Core Value Shifts of the American Consumer Due to fundamental shifts in consumer behavior since the global economic crisis of 2008, merchants in the luxury retail industry have been forced to embrace technology and adopt new strategies to better serve today’s more discerning customer.
Paying for Experiences
The Definition of Success
The Sharing Economy
The DIY Movement
The Circle of Trust
The Custom Fit
Necessity is the Mother of Invention
With each core value shift has come a flurry of innovative operating models leveraged by luxury retailers to tap into the psyche of the new American consumer.
Consumer Value Shift Explanation Merchant Response Example Operating Models
The Definition of Success
Having Stuff < Having Liquidity
Flash Sales of Luxury Goods
Hautelook, Rue La La, Gilt
The Sharing Economy Aligning shopping habits with ethical values and
practicality Rent, Don’t Sell
Rent the Runway, Bag Borrow Steal, Zipcar
The DIY Movement Extracting value through self sufficiency C2C Business
P.S I Made This, ISpyDIY, Pinterest, Food Trucks
The Circle of Trust Connecting with the digital community Share the Wealth Poshmark, Farfetch, Lyst
The Custom Fit Seeking Authenticity Mass Customization Alton Lane, Bow & Drape
Together these value shifts have compelled retailers to embrace technology in order to satisfy the emerging “experience economy.”
The Progression of Economic Value
Extract Commodities
Produce Goods
Deliver Services
Create Experiences
Pricing
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The Future of High Fashion
Merchants have more ways than ever to reach their target market segments. Moreover, they are equipped with tremendous amounts of data about the consumer. The question is, what will they do with it? Predictions • Retailers will face shifts in executive strategy as they evolve from relying on
solely on the experience and intuition of tenured management to data-driven decision making models
• Consumers will see continued diversification of new product and service offerings o Defragmentation of online shopping o Increased availability of custom-made products o Introduction of user-designed goods and services o Enhanced shopping “experiences” in brick & mortar & online establishments
o The death of exclusivity in the fashion world