Perhaps even more than some other industries, the world of luxury retail has had to evolve with the changing times. While a generation of folks with expendable income presents an incredible opportunity, many luxury brands are finding it difficult to tap into this new, youthful consumer base. David Selinger, CEO and Co-Founder of RichRelevance and Matthew Woolsey, Executive Vice President, Barneys New York discussed the changing landscape of luxury retail at the recent National Retail Federation:
The US consumer market for luxury is the world’s largest, and it is a melting pot of brands at consumers’ fingertips, consumers whose high disposable incomes increase their purchasing power. With scales tipping in their favor, brands need to effectively communicate and engage if they are in for the long run. Constant feedback and social listening in the digital age is imperative. The most engaged consumers online are the same customers who spend the most in the store and having continuity for the consumer across platforms will help in retaining them. It’s about continuous business performance through every part of the customer journey.
The Most Wanted Generation
Ten years ago, brands used to be able to segment customers in 2 to 3 categories, but now a singular definition of a luxury customer is being shattered. The new luxury consumers are younger, better-informed, ethnically diverse, tech savvy, more educated, have household incomes more than the national average, and lead complex multi-tasking lives. At 80 million strong, Millennials are about 25% of the total U.S. population, outsizing Gen X as well as Baby Boomers.
A new cohort called HENRY’s (High Earners Not Rich Yet) should be on the constant vigil of luxury brands. They have the ability to cut through the marketing clutter and find true connections. Building brand credibility is crucial to influencing this category.
An interesting and meaningful development around these new young consumers is that they’re not obsessed with ownership. Millennials are renting plush apartments at exorbitant amounts rather than owning one, using Rent the Runway for a perfect evening dress, or Uber for a drive around the city.
The world shouldn’t wonder about whether Millennials will ever engage, but rather anticipate how and where they’ll choose to do so. Millennials are 82% more likely to use their phone than speak with a sales associate, which means that brands must change their inspiration, story, and discovery process before they enter the store. Brands needs to understand how to catch their attention and what added value they can bring to the table.
That F word – Functional
Millennials are often looking for more than just something that’s shiny and new, so luxury brands need to adjust accordingly. It’s certainly easier to justify a purchase that has utility, rather than one that’s merely amusing. In luxury parlance, this is functional luxury and this will redefine what luxury means. However, there is that need to express your own lifestyle while whipping out the credit card, and new American luxury brands are addressing this through customization.
Thriving in the Digital Storm
No brand in any industry can afford to ignore the new realities of our digitized world, especially luxury retailers. Technology is both increasing customer touch-points and providing unique experiences through personalization, enhanced through data.
The luxury goods market is using big data technologies to combat Amazon in a different way. Barneys uses big data tools to gain a better perspective of who their customer is, rather than using them in a product-centric manner like Amazon.
Mobile remains incredibly important as well. Selinger shared his observation on how a mobile site was launched to put out new merchandise right after the Burberry Prorsum Show, which represents how quick the continuity of the consumer journey needs to be. He added that 2015 is the first year that we can really use data to glean the most segmented and direct luxury consumer and establish a one-to-one relationship with a customer.
Predictive analytics can be used to identify patterns and profiles of the most profitable customers, perform smart segmentations and execute automated marketing campaigns to not just drive sales, but increase inspiration through enabling discovery through personalized editorial, product, and search. Brands need to get smarter at creating unparalleled experiences for customers more quickly if they want the industry to go from tepid to blazing hot.