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