retail
TRANSCRIPT
THE BUSINESS SCHOOL
UNIVERSITY OF JAMMU
REPORT ON - “TRENDS IN LUXURY RETAIL”
SUBMITTED BY:
RADHIKA GUPTA
ROLL NO – 32- MBA-14
SEMESTER- 4
5 key trends in luxury retail for 2015
Over the next three to five years, the luxury retail scene will be driven by a number of key
trends aimed at satisfying consumer needs, fuelling spending and luring new clients.
Staying ahead of the game implies plotting a series of points, from customising online
purchases to exploring new markets, from tapping into the booming men’s wear industry to
riding the changing media system.
LuxHub’s inaugural report on global retail trends in luxury. Here are eight key takeouts from
the report:
1. Retail will move in three different directions to service the needs of luxury consumers. The
digital channel will drive research and stocking up on favourite products, while brick-and-
mortar stores will reach out to their clients through customised offerings such as express
counters, “top 10 product” style kiosks and assisted shopping services. Lastly, entertainment
is key as experience, lifestyle and theatre drive the physical retail experience, while content
will create pleasure in digital retail.
2. Given the ongoing softness in Europe and slowdowns in Russia and China, looking into
new geographical areas such as Africa is rapidly becoming an alternative. While fashion
brands including Zegna, MAC and Hugo Boss have recently opened stores in Lagos, Nigeria,
the new luxury hotspot, online retailers are now shipping to Africa, and are starting to focus
marketing efforts on this region.
3. Especially in Europe, luxury brands are increasingly relying on international travel and
tourism to fuel sales, primarily from China, Russia, the Middle East, USA and now Africa.
Tourists purportedly account for 55% of luxury sales in the UK, 60% France and 50% in
Italy.
4. While in the past luxury brands attempted to offer multiple price-points, brand confusion
and erosion of luxury credentials was often the outcome. Now, luxury is being pulled in two
opposite directions, and brands will need to choose sides: accessible or Ultra-Luxe.
5. Media wise, magazines, newspapers and TV will become the new digital storefront
reinventing themselves to allow customers to buy their favourite items, looks or beauty
products straight off the editorial pages.
6. The men’s wear market is extremely bullish, growing at 1.5 times vs. womenswear. While
35-plus male consumers still dominate, the millennial generation drives retail spending
through its modern aesthetic and digital knowledge. To which, many women’s wear brands
are either launching or revamping their men’s wear offering.
7. The openness of digital platforms dictates that to make luxury customers feel special,
brands need to get personal. The rapid rise of Instagram, live streaming, and behind the
scenes footage will leave consumers feeling like they’ve already experienced everything.
Brands are now challenged with creating truly personal, fresh, and meaningful experiences.
8. Luxury brands will increasingly become media channels, creating content that is far richer
than today’s aspirational blogs, videos and magazines. Retailers will offer multiple channels
with high-quality and entertaining shoppable content updated on an hourly basis.
Isabelle Harvie-Watt, Global CEO LuxHub said: “The implications for a marketing
standpoint, among other things, are that luxury brands need to promote one-on-one
communication and experiential events to encourage store visits, focus on mobile technology
and devices for tourists shopping abroad and keep an eye on the influential millennial
generation.
“Moreover, they are challenged by the digital world’s openness so they should focus on
personalised access and content to convey a sense of exclusiveness. Lastly, despite the
growth in men’s wear spending, it is important to know that men still prefer to be targeted in
non-fashion contexts – news, lifestyle and professional environments.”
Tammy Smulders, Global Executive Director and Head of Research & Insights LuxHub
added: “These trends show us the incredible diversity of new opportunities for luxury brands
to extend their relevance to new customers as well as enhancing their relationships with loyal
brand fans.
“From reaching emerging customer groups to creating market to customised content
strategies, our media implications will enable brands to develop new strategic and tactical
initiatives to drive sales.”
Empowered by the supercomputer in their pocket, consumers are in control. With nearly
every 18- to 54-year-old in the UK now using a smartphone, it comes as no surprise that the
value of the mobile commerce market is expected to nearly triple to £17.2 billion in the next
three years. In 2015, consumer expectations will reach new heights when it comes to
shopping across channels and devices. To help retailers meet these demands, we’ve
highlighted seven trends that will define 2015. This article also appeared in Retail Week.
Three accelerating trends
1. Seamless touchpoints
The UK is already a country of multiscreeners with the average Briton using an average of
3.1 connected devices.2 Many consumers now typically consult several of these before
completing a single purchase - for example a shopper might research offers on her phone on-
the-go and complete the transaction on her laptop when she gets home. So retailers that allow
consumers to move seamlessly between devices will come out on top this year. Even more, as
consumer behaviour and mobile technology evolve faster and faster, retailers need to monitor
these changes and remember that a mobile first strategy is becoming a prerequisite for their
digital presence.
2. Retail is now borderless
Many UK businesses have found success overseas thanks to the international love for British
brands. For example, luxury retailer MATCHESFASHION.COM expanded from a handful
of London stores to 190 international markets by following a digital-first strategy. We can
expect to see more retailers take a test-and-learn approach in new markets, looking to capture
the 2.5 billion users who are set to come online in the next five years. But as borders
disappear, foreign companies, like Alibaba, will also start pushing into the UK. So,
understanding the new competitive set both at home and abroad will become more crucial in
2015.
3. Delivery and the new WWW
WWW now stands for "What I want, when I want, where I want it." To succeed, companies
must have a complete view of stock at all times and offer services like click and collect,
specified delivery times and delivery lockers.
House of Fraser provides an example of tailoring fulfilment to the current climate; the retailer
recognised that nominating a home delivery time isn't helpful for a consumer who is at work
all day, so now shoppers can opt for delivery before 9am on orders placed until 8pm the night
before.3
Four emerging trends
4. Personalisation
Retailers must learn to harness signals from consumers and make this information relevant,
useful and "human". When consumers share their location, preferences and device info, a
brand can deliver personalised experiences – on smartphones, tablets, desktops or wearables
– to benefit both the user and the business.
In 2014, Localz won the John Lewis JLab competition with a plan to leverage iBeacons in
stores to deliver ultra-personalised experiences, like notifying the user where to pick up an
order. While this kind of consumer-centric approach will proliferate, it's important to bear in
mind that mobiles are uniquely personal, so retailers must use them to deliver messages in a
tailored, non-intrusive and incredibly relevant way.
5. The new extras – service and experience
Intelligent retailers are seeing the value in extending their services far beyond the basics. For
a fashion retailer this could mean one-to-one advice delivered digitally. Tech retailers might
follow the examples of Zappos, which now offers style advice via Instagram, or Darty, the
electronics firm that connects customers to its helpdesk within 60 seconds and provides help
even on items bought from other retailers. Businesses can take advantage of the chance to
become the go-to solution for customers' needs, by going above and beyond what's offered by
the competition.
6. The store revolution
Retail spaces are being transformed from places of transactions to experiential theatres to
showcase products and engage consumers. Take Burberry – in the last year the brand has
transformed its Regent's Street flagship into an extension of the runway and a concert venue.
As retailers redefine the function of bricks and mortar, digital technology will facilitate
everything from checking stock to locating products to completing online purchases using
mobiles and wearables while in store.
7. Social commerce
In 2014, we saw vloggers like Zoella reach celebrity status. While social sites are still
pushing to make social commerce work, retailers are taking note. ASDA for example is
leveraging the influence of vloggers to engage young parents through the brand's Mum's Eye
View YouTube channel. After all, 59% of people use YouTube as source of product
information, and products featured and endorsed by the stars of social media often become
best sellers. With the popularity of online video and social commerce set to surge in 2015,
companies will seek to find ways to make sure marketing investments in these platforms pay
off.
10 key trends in luxury retail
The luxury retail sector, in the course of the next three to five years, will be driven by 10 key
trends geared to satisfying consumer needs, fueling spending and luring new clients.
The trends will affect existing customer relationships and the targeting of loyal brand
enthusiasts, affecting content strategy and tactics, media planning and buying and sales
efforts aimed at emerging customer groups.
Here are the trends identified by us:
1. Trivergence of retail
Retail will move in three different directions to service the needs of luxury consumers.
The digital channel will drive research and stocking up on favorite products, while bricks-
and-mortar stores will reach out to their clients through customized offerings such as express
counters, “top 10 product” style kiosks and assisted shopping services.
Lastly, entertainment is key as experience, lifestyle and theatre drive the physical retail
experience, while content will create pleasure in digital retail.
2. Hunt for new customers
Given the ongoing softness in Europe and slowdowns in Russia and China, looking into new
geographical areas such as Africa is rapidly becoming an alternative.
While fashion brands including Zegna, MAC and Hugo Boss have recently opened stores in
Lagos, Nigeria, the new luxury hotspot, online retailers are now shipping to Africa, and are
starting to focus marketing efforts on this region.
3. Power of travel
Especially in Europe, luxury brands are increasingly relying on international travel and
tourism to fuel sales, primarily from China, Russia, the Middle East, United States and, now,
Africa.
Tourists purportedly account for 55 percent of luxury sales in the United Kingdom, 60
percent in France and 50 percent in Italy.
4. Polarization of luxury
While in the past, luxury brands attempted to offer multiple price-points, brand confusion and
erosion of luxury credentials was often the outcome.
Now, luxury is being pulled in two opposite directions, and brands will need to choose sides:
accessible or ultra-luxe.
5. Editorial’s retail reinvention
Media wise, magazines, newspapers and television will become the new digital storefront,
reinventing themselves to allow customers to buy their favorite items, looks or beauty
products straight off the editorial pages.
6. Menaissance
The menswear market is extremely bullish, growing at 1.5 times versus womenswear.
While 35-plus male consumers still dominate, the millennial generation drives retail spending
through its modern aesthetic and digital knowledge. To which, many women’s wear brands
are either launching or revamping their menswear offering.
7. Personalized storytelling
The openness of digital platforms dictates that brands need to get personal to make luxury
customers feel special.
The rapid rise of Instagram, live streaming and behind-the-scenes footage will leave
consumers feeling like they have already experienced everything.
Brands are now challenged with creating truly personal, fresh, and meaningful experiences.
8. Branded media
Luxury brands will increasingly become media channels, creating content that is far richer
than today’s aspirational blogs, videos and magazines.
Retailers will offer multiple channels with high-quality and entertaining shoppable content
updated on an hourly basis.
9. Millennial refresh
While consumers ages 35-plus still command some 83 percent of luxury spend, the fresh
aesthetic, playful approach and digital propensities of the millennial generation are driving
retail culture.
Furthermore, millennials are approaching their entry-point into the 35-plus luxury heartland.
10. Know I know
Show I know is growing old and the focus will turn away from the outward display of luxury
to an inner satisfaction of how it makes one feel.
The creation of personal experiences is essential as luxury consumers shift the focus to
indulging in personal reward.
WE ARE WITNESSING A TRANSFORMATION IN THE LUXURY MARKET,
CREATING OPPORTUNITIES FOR THOSE PREPARED TO ADAPT
The slowing luxury market in Asia has alarmed many luxury brands that had predicated
future growth on improved prospects in Asia. In fact, a fundamental rethink is required
around what the future looks like for luxury brands.
LUXURY 2020: THE TRENDS THAT WILL SHAPE THE FUTURE LUXURY
MARKET
At the heart of the challenge is the need for luxury brands to identify the products and
services they can provide credibly to their consumers. In a changing market, brands cannot
stretch to selling everything. They face challenges from new entrants, focused on narrow but
well-defined niches, snatching market share from existing brands. It is this clarity of purpose
that has shaped the need for existing brands to reexamine their identities to compete.
Looking ahead to 2020 we see this as the ideal time to build the luxury brand of the future.
This is the time to learn, recruit and implement the capabilities required to compete in a
future market where traditional luxury norms become less relevant.
In conversations with leading luxury executives across 6 key regions we discussed the issues
they faced approaching 2020. In addition, we spoke to leaders in complementary industries to
identify potential blind spots for the luxury market heading into 2020. Below is a summary of
these discussions combined with our own internal analysis to provide a view on what we
think they main issues are for the luxury market.
POLITICAL INSTABILITY, SLOW ECONOMIC GROWTH AND INCREASED
COMPETITION CREATE A CHALLENGING LUXURY MARKET, REQUIRING
NEW APPROACHES
A CHANGING MARKET
We are witnessing a significant correction in the luxury market, one that has confounded
many executives. It has meant that growth plans developed in the boom years must be hastily
rewritten. Falling sales, falling margins, increased competition and sluggish global growth
create the conditions for the retrenchment. With global growth forecasts appearing lukewarm
at best, executives must confront new realities when developing market strategies.
Where Asia, particularly China, was the engine for luxury growth through the global
recession, it now becomes the biggest source of concern.
LVMH, global leader in the sector, saw sales drop by 3% in Asia, excluding Japan, in the
third-quarter of 2014. While Japan provides promise as a source of growth, it is still limited
by a weak Yen. The protests in Hong Kong highlight the instability that is affecting wider
confidence in Asia. However, what has dealt the biggest blow to sales is the Chinese
government crackdown on corruption.
With increasing numbers of state officials receiving custodial sentences for corruption the
corporate ‘gifting’ culture that fuelled the luxury boom has receded, further deflating the
luxury market. As a result, China’s richest spent 15% less overall in 2013 than they did in
2012, according to the Hurun Report, and 25% less on gifts overall.
The common view from market analysts is that China will contract as a market and now is
the time for luxury brands to reconsider their expansion plans in China.
Of equal concern is the lack of large stable markets that can be exploited. Between Russia,
Brazil, Indonesia and Nigeria each is beset by varying degrees of economic and political
instability and as such, luxury brands are looking at a retreat to traditional markets among the
developed economy. While this is a limit on potential growth, it provides greater revenue
stability.
Luxury brands, in the search for lower risk but faster growth, may look at countries such as
Turkey and Mexico that provide attractive opportunities in rapidly advancing economies. As
an example, luxury spending in Turkey has grown by over 30% in the last four years.
As the market contracts and luxury brands retrench, two significant paths will emerge.
Established brands will engage in stiffer competition with each other. In such situations it is
likely that both prices and margins could fall. In addition, we are likely to see the creation of
challenger brands in the markets, and segments, existing players retreat from. In these
markets the successes of the future will develop. With favourable access to manufacturing
facilities, business experience and large domestic markets, the progress of challenger luxury
brands will be an interesting area to observe as we head towards 2020.
There are naturally exceptions to this. Some industries such as Luxury hotels, motoring and
jewellery are affected by global macroeconomic trends, but seem better capable of
weathering some of the microeconomic factors shaping the luxury market. The lack of natural
substitutes and difficulty in counterfeiting are enormous pluses. Often the lead time in
product development and completion means they are less immune to the boom and bust
cycles that might affect fashion and drinks brands to an extent.
Luxury brands have to consider what lower margins mean for their business models. In high-
level terms it will be the tension between big and small corporate structures. Margin
protection shapes the next three years of competition as growth slows.
Looking at the conglomerates, their model is built on being able to synergise costs, use their
buying power and the ability to cross-subsidise the less successful brands. However, these
models are predicated on sustaining high margins with the stronger brands supporting the
weaker brands.
At lower margins, even a reduction of 5% limits the scope of cross-subsidy, and at this point
the conglomerate model may have to be revisited. It may be the case that the under-
performing brands are better served as standalone entities or as part of other organisations.
We expect such questions and issues to become pressing concerns, particularly as the appetite
for M&A among the luxury conglomerates is still strong. We expect there to be changes in
brand composition and alignment.
If we are looking at a future of smaller conglomerates then we could see groups such as
Inditex take the divested brands and using their supply chain and infrastructure, use the
acquired brands to reposition themselves further up the value chain. By 2020 we expect the
upper levels of mass market brands either acquiring or competing with the lower level luxury
brands as differentiation between the two reduces.
All of the above are driven by customer behaviour that has not changed this fast or
significantly in a generation. Understanding these currents of change will allow brands big
and small to realign their business to the new reality. Failure to do so could prove fatal to
some brands.
ADAPTING TO RAPIDLY CHANGING CUSTOMERS WILL SHAPE FUTURE
SUCCESS
THE CHANGING LUXURY CONSUMER
The future will herald customers for whom, all aspects of luxury are transparent and as such,
will increase their expectations of luxury brands. The future will be about customers
demanding more impact and quality for their money. This will be shaped by a number of
important trends that are not only creating better informed customers but also, more
demanding customers. Below we discuss these trends along with the impact they will have on
the luxury market.
THE TRAVELLING CONSUMER – We are now in a globally integrated luxury market.
Travel is a core element of luxury customers and this has fundamentally changed the buying
experience for many consumers. The traditional model for luxury retailers had been to adopt
variable pricing strategies, seeking to exploit the varying sensitivities to price in different
markets.
International travel is challenging that model. In particular, Chinese travellers are embracing
travel and buying the majority of their goods internationally. They avoid the high domestic
prices and taxes, and often gain access to products well ahead of their release in China.
Chinese consumers now purchase more luxury goods abroad, often visiting New York and
Paris to buy handbags and pens. Today, more than 60% of Chinese luxury goods are bought
outside of the country. It is a similar picture in Brazil and Russia, with countries now actively
wooing the wealthy elites to shop in their countries, which is particularly true in the luxury
real estate market.
This creates two problems for luxury brands. There is the natural impact on margins as
customers’ shopping patterns move from high-cost to low-cost markets. Secondly, customers
demand the European level of service and engagement in their home markets, which is
driving cost upwards. Brands are now having to rebalance their pricing models, in addition to
reshaping their location footprint to optimise return on capital.
By 2020 it is likely that luxury brands will operate with much leaner international footprints.
We will see a retreat for many brands, driven by the desire to save cost. Instead, brands
across all product classes will seek to offer more to their customers at higher price points, in a
smaller number of locations. This assists in maintaining margins but in also, offering the
international consumer a consistent high-level of experience.
THE DIGITAL CONSUMER – It is impossible to overstate how much digital technology
has changed the world, and luxury is no exception. In high-level terms, digital technology has
given consumers greater access as well as greater information around both luxury goods and
the wider luxury lifestyle.
This greatly aids penetration for luxury brands and also, creates awareness and desire among
customers. Current estimates put the volume of luxury sales influenced by digital at anywhere
between 30-45%. As such, digital is an area nobody can ignore. By 2020 we see the share of
luxury e-commerce reaching 10% of all sales, driven by a greater desire for speed and
convenience.
However, digital poses a challenge that the luxury industry is getting to terms with; around
what the luxury digital experience looks like. Creating a differentiated offering on platforms
that are about universal access is difficult.
The luxury e-commerce experience is proving somewhat of a conundrum. In the next five
years, brands will get a stronger sense of how customers wish to engage with them on digital
platforms.
We see digital serving two main functions. Firstly, brands will use digital platforms to
communicate messages around the luxury lifestyle, with this form of indirect marketing
serving to stimulate aspiration and demand. Secondly, digital will be a sales and service
channel for those customers unable to visit a store, particularly in the case of an emergency
purchase. Unlike other market sectors that are driven by reducing unit cost, the e-commerce
imperative is not as great for luxury brands. However, success in digital is a pillar for overall
success.
THE SOCIAL CONSUMER - A growing area of the digital landscape shaping luxury
awareness is social media. With hashtags such as, #OOTD (Outfit Of The Day) we are in an
era where we are sharing our luxury experiences. Platforms such as Facebook, Twitter and
Instagram are overcome with images of dinner at Corrigans, nights out at The Box, shopping
on Fifth Avenue, hotel Stays at the Connaught and the latest purchase of an Aston Martin.
Aggregated, these images have increased global brand awareness and at the same time
stimulate desire to acquire these products and services.
Successful brands are already targeting key social media influencers to drive their brand
messages. In the coming years, and as analytics improve, brands will be able to identify the
key targets and also measure both direct and indirect consumer impact. What we will see with
digital is a decoupling of the purchase decision from the purchase process and luxury brands
must excel at both phases.
Brands must be aware that customers have high expectations of their luxury experiences,
rewarding those that understand and deliver them while ignoring those that do not. The
journey to 2020 will be a return to the core values of luxury; exclusivity and individualism.
There will also be a move towards localisation; bringing cultural diversity to the luxury
market.
THE FLIGHT TO EXCLUSIVITY - Market growth over the last seven years has
broadened brand access, allowing new customers to access previously unobtainable brands.
This has been a significant success for brands across the luxury spectrum that were able to tap
into years of latent demand. However, we are approaching a slowing of this initial surge in
luxury demand.
Customers will look beyond traditional brands and products for their luxury consumption and
this change will be driven by a number of factors. Customer research identified three issues
focused on the following areas:
Overexposure – Brands need to manage the balance of satisfying demand without spreading
the brand too thinly. Ownership of certain brands no longer brings the impact of old due to
broader exposure. There is, and will be, an appetite for something different in the luxury
experience. We are seeing a retreat by some brands now as they realised that they have likely
overstretched themselves. There is also an indirect effect from counterfeiting. Fake products
do negatively impact legitimate brand values, with some brands are being hit harder than
others as they have outsourced manufacturing to the Far East. We will see a retreat from
many brands as they focus on fewer, but higher value items.
Harmonisation of the Customer Experience – As much of the luxury value-chain has been
outsourced to common providers; the luxury purchasing experience has coalesced around
similar themes across most brands. This convergence has resulted in an experience that one
customer called ‘generic, almost lazy.’ There is an appetite for more diverse customer
experiences along with a more individual customer experience.
The winners of the future will create novel experiences, but will also ensure that their
offering evolves and remains current and relevant, adapting to changing customer tastes.
The Lack of Local Identity - Customers in emerging markets, particularly early adopters,
who have consumed luxury goods for an extended period, now seek products that better
represent their culture and heritage. Some customers have identified the feeling that they are
buying into a culture that is not theirs.
This is an opportunity for new brands, in emerging economies, to add to the luxury
landscape. It is the largest area for potential growth that is yet, unexploited. With these trends
set to intensify, the future focus will be a greater customer desire for exclusivity. High-value
luxury customers will continue to use big ticket purchases to define their status and to shape
identities. As such, luxury brands will need to make the customer feel special again.
Luxury brands must embrace this and redesign propositions and customer experiences across:
products, pricing and distribution. The ability to deliver a unique proposition will enable
brands to charge premium prices while delivering tangible exclusivity.
INCREASED INDIVIDUALISM - The last seven years have seen customer-centricity
correctly become the dominant principle when designing a business model. The logical
extension of that will be moving towards customer empowerment, freeing the customer to
shape their outcome. Chiefly, this will involve an emphasis on product customisation and in
some cases, full customer design. It also extends to multi-channel distribution and servicing
allowing full channel flexibility.
Currently, many brands allow customisation across a number of core features, but it is likely
that the super-wealthy will seek to engage the design staff at the concept stage. In such cases,
the customers would lack any sensitivity to price making such an approach viable. The flow
could also work in reverse with designers pitching designs to the top-tier customers on an
exclusive basis.
For high-value customers, creation in conjunction with leading brands will represent the
ultimate in luxury. In a market where purchasing decisions are increasingly similar, this will
be a powerful differentiator. It will rebalance the relationship back towards the brand as the
customer aspires to be sufficiently valuable to gain preferential access.
LUXURY WITH MANY FACES - Two key trends that will increase as we head towards
2020 are; the increase in designers from emerging markets in leading roles within luxury
brands and the emergence of luxury brands in emerging markets. The initial stage will arrive
when a critical mass of designers from emerging markets working in the leading brands.
Diversity will manifest itself in a wider range of product ideas and marketing approaches.
With the experience from leading brands available, these designers will branch out to build
brands in their native markets. Using the organisational knowledge married with local
cultural awareness, this generation of designers will develop challenger brands that will
redefine specific market segments.
An excellent example is Osklen, a Brazilian brand that is now looking for investment to
expand its range of luxury sportswear abroad. It presents a different proposition to European
brands, but as Brazil develops and Brazilians travel, it represents an opportune moment to
expand.
THE CHANGING LUXURY CONSUMER – The world is changing beneath our feet.
Modern day successes are often technologists, often very young, and are creating a new
definition of luxury. One only has to look at Mark Zuckerberg to see how the corporate
wardrobe is changing. Slowly, the bespoke suits, briefcases and watches are ignored in favour
of casual items with a distinct absence of brand names.
Instead, luxury purchases are on bigger-ticket items such as travel, cars and in many cases
property. We are seeing a generation chastened by the excesses of the previous decade. An
interesting change is the increasing significance of sustainability when considering
purchasing decisions. Even luxury brands will have to demonstrate both environmental and
social responsibility. As we move towards 2020 there will be a greater requirement for luxury
brands to be exemplary citizens.
Another rising trend is the desire for authenticity. Ten years ago, you could find a takeaway
van in most British cities selling a range of food that was unlikely to be healthy for you.
However, the rise of street food vendors has seen a change in that. They now provide a
diversity of and through this, can often charge premium prices for their products.
Driven by the increasing need for authenticity – the feeling of closeness between creator and
consumer – street food vendors are able to charge a premium for their products. This desire
for authenticity is seeing the rise of local brands, musicians, hotels, in fact, anything where
the consumer feels intimacy with the brand.
As this trend rises through the mainstream, luxury brands must be ready with products and
services that have that authenticity. It is also a natural return to the essence of luxury - the
idea of the artisan hand crafting products with passion.
THE LUXURY START-UP - Another potential development is further subdivision of the
luxury brand into micro niches, serviced by the challenger brands lacking the capital or desire
to compete with the luxury conglomerates. By attacking specific niches, they reduce the
barriers to entry and can better tailor their proposition to their target audience.
We are witnessing a boom in such brands. From Adrien Sauvage’s eponymous label, Aaron
Dash with MrDash, Dymant in Paris to Lux-Fix, brands are exploiting niches that only small
and nimble operators can exploit.
We believe there are, and will be, opportunities for luxury start-ups. It has never been easier
to start these brands. They can opt for a very lean manufacturing process, outsourcing all but
the core elements to scale much more quickly than a traditional company that manufactures
everything. They don’t need a big marketing team to reach the customer in today’s market.
For example, Leonard & Church is a start-up direct to consumer watch manufacturer. They
aim to deliver the same high-quality handmade watch quality offered by established brands at
far smaller markups.
They may not carry the same weight as decades-old brands - they don’t have to in order to be
a profitable and sustainable business in today’s start-up-friendly culture.
On a larger scale, the lustre of well-established brands is fading away - and it is especially
true for brands that sell high-end products. The factors highlighted in this paper create a
climate where new entrants, offering the same quality but with a better overall customer
experience, can succeed
“Some people say culture trumps strategy, but I don’t believe that’s true, strategy emerges
from culture.” Milton Pedraza - The Luxury Institute
FUTURE SUCCESS WILL ARISE FROM INTERNAL CHANGE. FUTURE
LEADERS ARE ACTING NOW
SUCCESS FROM WITHIN
The driving force of success will be from the internal changes that luxury brands make to
remain relevant, responsive and adaptable. The ultimate aim is to remain closer to the
customer and to deliver on their expectations.
CHANGE STARTS AT THE TOP – Strategy will move away from linear 1, 3 or 5 year
plans to an iterative approach, where the overarching vision and strategic goals are agreed,
but revisited quarterly or biannually. Executives must review their goals regularly,
accounting for the changing competitive landscape as well as evolving consumer habits.
More importantly, goals must be reviewed in light of the behaviour of competitors and new
entrants.
Strategy is now a chess game between competitors, with brands responding to every market
move in real-time. Heading towards 2020 luxury brands will remodel their business
architecture to deliver agility and responsiveness to meet customer needs. Those responsible
for strategy formation and execution will require the capability, aptitude and tools to monitor
market movements as close to real time as possible. In addition, they will need decision
making processes that emphasise speed of response in order to react to opportunities as they
arise.
CHANGING BUSINESS STRUCTURES – The future of the luxury market will still be
driven by the creative inspiration that has underpinned the market from its earliest
beginnings. The big change now is in the execution of the vision. Organisational structures
will need to evolve and with it, we expect to see an increased importance of the commercial
roles. There will be a move away from the traditional Head of Creative and Head of
Commercial towards a wider span of decision makers. Initially, we see the CEO, particularly
in the larger organisations, being supported by the following core roles:
• Head of Strategy • Head of Customer • Head of Operations and • Head of Creative
As organisations develop, more roles will become necessary, particularly as geographic reach
extends. In the initial phase of development, these are the roles that will allow luxury brands
across the spectrum to be closer to the customer and also, closer to the markets while
simultaneously driving the internal development agenda.
INNOVATION – We are heading into a world in 2020 where marketing will be, ‘on
demand.’ Customers will have access to a brand at the very point they need it. This, added to
the wider technological and social revolutions, will create new opportunities for those quick
enough to identify, understand and deliver on them.
To succeed at this, the main areas of Strategy, Customer, Creative and Operations have to
work together to turn ideas into reality faster than the competition. They must be the leaders
of the innovation agenda, pushing their brands into products and experiences that leave the
mass market behind. Innovation is a vital area of leadership for luxury brands, particularly as
they seek to sustain or improve profit margins.
Marketing is a clear example of where innovation is required. Internal research suggests that
over 80% of marketing executives feel their analytics capabilities are insufficient to deliver
the marketing experience they would like. Most executives in the luxury market identified
four main areas they would like to direct their innovation:
• Product Quality • Customer Value • Customer Impact and • Customer Loyalty
With 70% of customers making some element of their buying decision online, often the battle
can be lost before anyone is aware. As such, innovation is about reducing the blind spots in
the marketing journey. To achieve a strong innovative base, the leadership team must
collaborate to identify challenges and solutions as well as providing the drive to deliver them.
The luxury market is catching up, but is still behind sectors such as the tech sector that have
wired innovation into their daily business routines.
MASTERING TECHNOLOGY – Technology is an area where luxury brands are playing
catch up with the rest of the consumer goods market. Understating your customers and
understanding technology are two parts of the same whole. We are seeing new product and
distribution categories, from wearable technology to ‘showrooming,’ where customers visit a
store to decide on a product then seek out the best price and delivery options online.
These all require back-end technology to support them and luxury brands must now face the
challenge of investing in market leading technology solutions. To achieve this, the Head of
Operations must have strong technological experience and be a champion of digital solutions
to drive performance. The new skills that underpin this such as, social media, analytics, 3-D
prototyping with 3-D printers and customer relationship management (CRM) are scarce in the
wider economy, placing them at a premium. However, luxury brands cannot ignore these new
challenges as they can have a disruptive effect on the overall market. Instead, a concerted
effort is required in acquiring both the enthusiasm for technology and the skills to make it
happen.
MORE PEOPLE, NEW SKILLS – The ability to recruit and retain the right people lies at
heart of sustainable success. In a changing market, we are seeing new skills enter, skills
essential in getting the luxury industry up to speed with other high margin organisations such
as Apple. Heading towards 2020, the luxury market will see an influx of skills from outside
the luxury sector arriving to accelerate development.
In particular, we expect an increase in MBAs and those with experience of change
programme delivery. These specialist skills will augment other core skills such as digital
marketing, analytics and broader technology skills. This could give rise to commercially
driven luxury brands, where business people, with complementary skills partner with a
designer to deliver lean and agile luxury brands with the disciplines of a listed company. We
will see an accelerated start-up process, taking advantage of the areas where creative-led
brands often struggle in order to grow rapidly.
We expect to see greater diversity in the composition of luxury brands, reflecting the reality
that consumers will be looking for some cultural connection with foreign luxury brands.
Luxury brands must maximise the diversity of ideas, skills, backgrounds and influences
without sacrificing quality. Diversity will allow brands access to influences and trends they
may otherwise miss. It is these ideas that shape the innovative visions that define the luxury
market. The businesses that can support a large degree of individualism in its products will
prove the winner in the high-end luxury segment.
The business model should accommodate a division the can deliver on the customisation
issues outlined above. Ideally it will be supply driven with luxury brands offering the service
to the highest spending customers. This creates an incentive to increase spending. It will also
fulfil the customers’ desires to feel special as well as define themselves as an individual.
CONCLUSION
We are facing a new model of growth as the existing luxury market matures. The splintering
of the market is driven by the cultural diversity of the high-net worth market. Their needs are
different and their approaches to fulfilling those differ too.
The organisations that will thrive in these changing times are those best placed to understand
the new needs, as well as subtly changing existing needs, and adapting effectively to those.
The two elements successful organisations must possess are, true diversity and organisational
agility to react to a changing market.