Luxury Institute News

December 11, 2014

Where Has All the Luxury Gone?

By: Judith Russell
December 8, 2014
The Robin Report

 

We in the industry have been bandying about the term “luxury” pretty freely of late, but there is growing realization that if a product or brand is easily accessible and relatively inexpensive, it’s not really a “luxury” product. And the minute you add the term “affordable,” it becomes an oxymoron.

As the ever-widening income inequality gap illustrates, the rich are still getting richer. According to Pew Research, the top 1% of households in the US, or those making $400K or more annually, earn 23% of the total income in the country, and control 35% of the net worth. Both figures have been steadily growing for more than a decade.

One ever-present behavior in the spending habits of the superrich of any generation is opting for the special over the mundane. Makers of high-end jewelry and electronics, cars, exotic vacation hotels, and other products and services target this group of discerning consumers for a reason: They value, and are willing to pay a steep premium for, that which is appreciated by and accessible to only an elite few.

Milton Pedraza, CEO of The Luxury Institute, a research firm that tracks and advises the global luxury goods market, says that consumers consistently define luxury as the best of design, quality, craftsmanship, and service. Brands that always deliver against these attributes, including Audemars Piguet, Chanel, and Buccellati, also tend to have a compelling brand heritage story.

Dumbing Down the High End

So where is true luxury retailing today? The high end is on a steady course down market. Nordstrom, Neiman’s and Saks are slowly evolving into off-pricers, expanding their Rack, Last Call and Off Fifth concepts much faster than their full-line businesses. This is eroding their credibility as purveyors to the elite, since one of the strongest pillars of luxury is pricing integrity. But Wall Street can be pretty unforgiving. In order to satisfy investors, these businesses must grow. Opportunity for organic growth is limited, due to intensified competition and more demanding consumers.

Look at the auto market. Mercedes, BMW and Audi are all adding cheaper models to the low ends of their product lines. You can’t turn on the radio without hearing an ad for their affordable lease deals, wooing us to experience a taste of luxury at a discounted price.

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Exacerbating the situation is the fact that many luxury brands, including Louis Vuitton, Prada, Hermès, Burberry and Dolce and Gabbana are now bypassing their retail partners and going direct to consumers, launching their own e-commerce sites and brick-and-mortar stores. The fastest way the Nordstroms and Neiman-Marcuses of the world can grow sales and earnings is to trade down. But they can only do this for so long before becoming known primarily for their discounting, the kiss of death in luxury.

Ubiquity Erodes Exclusivity

Then there are the outlet stores. Many of the veteran brand leaders, such as Coach, Tiffany, Michael Kors, and Ralph Lauren, are finding that they’ve tapped out the full-price specialty market opportunity and are now growing exponentially by expanding their outlet store footprints. Overexpansion breeds ubiquity, ultimately the downfall of premium brands whose hallmark is limited distribution.

Ubiquitous availability in outlet stores also compromises perception of pricing integrity. “Wealthy people are smart,” says The Luxury Institute’s Pedraza. “They’re willing to pay a high price for the best, as long as it’s fair, but they don’t want to get taken advantage of.” Also, many of the leading industry bloggers are of the opinion that much of the merchandise in luxury outlets has never seen a full-price store. It is, they believe, a lower level of design, quality and craftsmanship created specifically for the outlet, and carries faux full-price tags that are then reduced to obfuscate their real value. This breaks another rule of luxury, authenticity.

The New Luxury Customer

In what used to be the high-end luxury sector, a big, gaping void is forming, ripe for the filling by a new breed of luxury brands. Several key factors are contributing to this opportunity.

  • Millennials, who will account for 30% of all retail sales by the year 2020, according to Pew Research, are an increasingly important force in the marketplace. They are already wielding tremendous influence in retail, demanding more elevated, contemporary and technology-driven products and experiences. They are forcing retailers to offer better high-tech, high-touch engagement and greater personalization.
  • Many high-end consumers are beginning to show a distinct preference for experiences over things, having become sated with too much “stuff.” This is driving growth in segments like the ultra-luxury travel industry. These experiential customers are also demanding a meaningful brand connection that elevates the products they buy with an emotional investment. We know that a unique personal experience will make it more likely for that consumer to become a loyal customer.
  • A group of consumers has moved away from playing it safe and shopping with the flock to desiring more individualized offerings. Leading fashion-trend forecaster David Wolfe of Doneger says, “Bye-bye mainstream, hello to thousands of tiny consumer tribes.” And these tribal members are demanding fresh, frequent new products and experiences that can be customized, personalized and unique.

The New Face of Luxury

The next generation of luxury brands, I predict, will focus on meeting the needs of a relatively small, yet potentially profitable group of consumers. The brands will deliver quality of workmanship, authenticity of design and materials, and customized fit and trims. Whether casual or dressy, products will be limited in availability. There will be no sales, no coupons, no department store gatekeepers, and no need to get big fast. These brands will need to reach critical mass of between $500 million and $1 billion to generate sufficient profit and cash flow, while remaining exclusive, premium, and ultra-special. Needless to say, service—or its newest moniker, customer relationship building—will be out of this world.

Does this sound like the couture world of times past? You bet it does. But there will be differences enabled by 21st century technology. Brands will use digital tools, including big data, to develop and maintain an intimate relationship with their consumers and engage them on a personal level.

Curated offerings of products and services will be created especially for customers who opt into the relationship. Brands will use store-scanned measurements of their customers’ bodies to deliver a perfect fit. With geo-fencing and other technological capabilities, companies will know where their customers are and where they’re going—even going so far as to deliver a fresh wardrobe to their client’s hotel while on vacation. Sound futuristic? The technology exists today.

Who will be included in the next generation of the luxury elite? Brands like Elizabeth and James, Tom Ford, Bottega Veneta come to mind. The extent to which they succeed in creating luxury businesses with staying power depends on how well they can deliver on their product, service, and customer engagement features, and how well they can rise above the relentless discounting fray that is decimating brands today.

The luxury brands of tomorrow will be privately-owned and managed by a team possessing design genius, marketing savvy, financial prowess and technological wizardry. They will view their work as the intersection between art and science. They will control every phase of the value proposition from product conception to delivery, with customer focus front-and-center every step of the way. These innovators will not think of their businesses in terms of the products they sell or distribution channels, but rather in terms of serving their affinity tribe, a community of customers that share similar values and a passion for the brand, bordering on obsession.

So, back to Wall Street, these guys may not pay any attention to these businesses because they will be privately held. But there’s little doubt in my mind that they’ll become personally invested in the luxury brands of the future—by becoming some of their best tribal customers.

Source: http://therobinreport.com/where-has-all-the-luxury-gone/?utm_source=The+Robin+Report&utm_campaign=c3d66eab66-Where_Has_All_the_Luxury_Gone_12_10_2014&utm_medium=email&utm_term=0_e90268c709-c3d66eab66-201755673

December 1, 2014

Marketer of the Year: Stuart Weitzman

By: Irene Park
Women’s Wear Daily
December 1, 2014

Click on the link to read the entire article (subscription required): http://www.wwd.com/footwear-news/markets/marketer-of-the-year-stuart-weitzman-8049600?gnewsid=a161467a3da489b5897b97c969ca7fb8

October 31, 2014

Men are buying up these $1,200 sneakers

By: Kathryn Vasel
CNN Money
October 30, 2014

Click the link to read the entire article, which includes quotes from Milton Pedraza, CEO of Luxury Institute: http://www.channel3000.com/money/men-are-buying-up-these-1200-sneakers/29428624

October 30, 2014

October 21, 2014

Luxury Institute Introduces Luxcelerate, an Empirically Proven Method to Drive High Performance in Building Client Relationships

Marketwired
October 21, 2014 80763_LuxcelerateLogo

NEW YORK, NY–(Marketwired – Oct 21, 2014) – Today, the New York-based Luxury Institute announced the launch of Luxcelerate, an enhanced version of its innovative successful 7-Step Customer Culture process. Luxcelerate is designed to accelerate sales performance via a proprietary methodology that focuses on empowering the customer-facing online and offline associates, helping brands to improve both client relationships and sales exponentially.

Presently, top brands are struggling to both expand and retain their client base. Top brands have a conversion rate of 10-15%, a data collection rate of 30-40% (approximately 25% of this data is unusable) and a first time buyer retention rate of 10%.

Luxcelerate encourages the individual sales associate to learn and execute the best practices in client relationship building. The process is designed to improve sales performance via an exclusive methodology that focuses on relationship building, while improving a brand’s conversion, data collection and retention rates.

Luxcelerate’s proprietary methodology is based on shared relationship values and standards that are designed by a brand’s front-line teams, and is therefore customized to fit the unique DNA and culture of each brand. Custom education programs use empirically proven learning principles to drive retention of critical knowledge. Measurement and reinforcement methodologies are then deployed individually to guarantee consistent daily execution. The outcome is humanistic, effective client relationship building that leads to sharp increases in sales.

Luxury Institute’s CEO Milton Pedraza developed Luxcelerate’s 7-step methodology. Mr. Pedraza established this innovative methodology after being inspired by best practices from education, medicine and aviation. Using this process, a number of top-tier luxury brands have doubled, or tripled, the accurate collection of critical client data, and have significantly increased client conversion and retention rates. Luxury Institute has worked with the top brands of major luxury groups, well-known brands owned by private equity firms, and small boutique brands, to drive sales at rates of 15-30% per annum.

“The Luxury Institute was invaluable in helping Malia Mills define and implement our clienteling process. The first quarter that we implemented our program we increased sales by a significant amount.” — Carol Mills, Co-Founder, Malia Mills

“Since embarking on this project, we have seen double digit increases in data collection, conversion and a significant acceleration in retail momentum.” — Claudia Poccia, President and CEO of Gurwitch, Owner of the Laura Mercier brand

References are available upon request. For more information please email luxinfo@luxuryinstitute.com or fill out a contact form at www.luxuryinstitute.com

Source: http://www.marketwired.com/press-release/luxury-institute-introduces-luxcelerate-empirically-proven-method-drive-high-performance-1959706.htm

February 5, 2014

Wealthy Shoppers Tell Brands How They Want Technology Integrated Into The Shopping Experience

(NEW YORK) February 5, 2014 – The New York-based Luxury Institute asked consumers 21 years of age and older from U.S. households with minimum annual income of $250,000 about their views on incorporating technology in the shopping experience.

Nearly half (47%) of wealthy consumers say that a sales professional providing live chat or video assistance online would help them understand more product details, and 58% appreciate the convenience of instant answers.  Only 15% of shoppers say that they have tried chat or video and refuse to do it again.

Wealthy shoppers do not mind companies collecting personal data and using it for customized marketing, but they do show strong distaste for clandestine data gathering via mobile phones, facial recognition software and GPS tracking; 69% say information collected in this manner is a privacy violation.  Just 24% approve of retailers using facial recognition software to identify them and observe shopping habits.

Using technology in-stores to accelerate checkout is popular, but many affluent shoppers shy away from self-checkout.  Almost three-fourths (73%) say that they appreciate the time savings of checking out via mobile devices instead of standing in line at cash registers.  Although 45% say that self-checkout is more efficient, 44% prefer transactions with help from staff.

Technology has little to do with what wealthy shoppers desire most: free shipping and returns, cited by 92% of respondents.

“Habits of today’s wealthy consumer have increased the desire to browse, reserve and purchase using a mix of channels,” says Luxury Institute CEO Milton Pedraza. “Technology allows brands to leverage customer data and shopping habits, however salespeople still play a vital role into creating unique and engaging experiences.”

January 23, 2014

Three Luxury Myths Killing Your Brand Equity

(NEW YORK) January 23, 2014 –As one the world’s foremost research and consulting companies for top tier luxury brands, Luxury Institute has been privileged to work with the most dynamic brands in the U.S., Europe and Asia.  We often find ourselves engaged in rich dialogue, and healthy debate, with senior executives and top leadership at the world’s greatest luxury firms.

We help iconic brands adapt themselves to compete in the new world where technology, people and product superiority combine to drive success.  Below are three of the biggest myths that we often encounter and our recommendations for how brands can overcome the tendency of destroying their own equity, despite the best of intentions.

Myth #1: You Must Choose One Area of Focus Among Product Leadership, Operational Excellence and Customer Intimacy

Back in 1995, Michael Treacy and Fred Wiersema published “The Discipline of Market Leaders” in which the authors addressed the idea of strategic focus, and discouraged attempts to excel on multiple fronts.  The concepts and principles were adapted by top-tier consultants and spread throughout the management ranks of corporations that engaged them, propagating the myth that you have to choose only one area of differentiation.

Today, superior products, efficient operations and brand intimacy are an inseparable trio for building and maintaining a luxury brand. The reality now is that you have to be great at all three, or you are highly disadvantaged.

A clear example of achieving excellence on all three fronts is Bottega Veneta.  The iconic luxury fashion brand has seen a phenomenal sales growth trajectory over the past ten years. It was on the brink of bankruptcy in the late 1990s, and in 2001 was acquired by the company that is now Kering.  Back then, annual sales were around $50 million and the income statement was mired in losses. Today Bottega Veneta’s sales are topping $1 billion.

Bottega Veneta’s management team is best-in-class. They are blessed with a brilliant, authentic designer matched by a management team that is beyond superb. The brand delivers on all three disciplines seamlessly. At Bottega Veneta, brilliant execution delivers a reported profit margin of 32%. Phenomenal sales and profit growth flows from product leadership, operational excellence and customer intimacy that is the envy of any brand. A profoundly personal, humanistic culture translates into the Bottega Veneta brand running on all three disciplines, instead of getting a lift from only one.

Myth #2: A Luxury Brand Must Be Organized As a Hierarchy In Order to Be Effective

At the center of a luxury brand is usually a brilliant innovator and founder whose creative genius is unquestionable. There is also typically a business partner who makes all of the decisions jointly with the founder.

The origin of luxury in Europe has created an industry organizational model that has some of the strictest hierarchies known in the business world. When we visit with senior management teams in Europe, and even at many U.S. firms, the organization is defined as a military style, top-down hierarchy.

Proponents of this model say that luxury brands, unlike brands in any other industry, have lasted hundreds of years–or at least for several decades–so why fix what is not broken?

There are two major reasons why the myth of the luxury brand as a strictly regimented organization must be shattered. The first is demographic in nature. As millennials in the 21-34 age group enter the work force, our research shows that that these younger people are far more idealistic about having meaningful purpose in their work.  They tend to change jobs more frequently and often leave if they are in a structured environment where opportunities to develop and contribute are limited. Author and researcher Daniel Pink says that three things are required in an organization today to retain employees: a meaningful purpose; some degree of autonomy over how they perform their function, and continuous skills growth.

The second reason why rigid hierarchies are ineffective is the new meaning of strategy. The metaphor for a successful brand is not the machine model, but the organic model. There must be a balance of adapting processes to achieve healthy, sustainable growth while adhering to corporate DNA.

Myth #3: Sales Professionals are Anonymous and Robotic Transactors

Luxury sales teams at most brands already have enormous turnover and this is not likely to decrease in organizations that fail to empower associates. Brands must embrace the ‘freedom with boundaries’ approach or watch their associates walk out the door.

While luxury executives say they are sold on the ideas of customer experience and engagement, they are far less enthusiastic about employee experience and engagement.  Most brands will tout the new principles but will resort to giving orders instead of trusting front-line professionals, especially in tough times.

The paradox is that in order to unleash the power of customer relationship building, driven by a customer culture, brands cannot simply task front-line employees with delivering results, excluding them from the “customer” definition. Employees are really internal customers and they should be measured just as carefully. In addition to empowering employees, brands must use innovative education and daily customer and sales associate metrics to improve skills and reinforce the culture daily.

Luxury sales professionals in the future will be treated as artisanal entrepreneurs who are given their own email addresses and digital devices for professional use. They will be given the freedom to innovate in small and large ways daily in order to personalize and customize for the customer

It may be true that many sales associates in a variety of industries will be replaced by technology solutions. However, in luxury, these jobs will be upgraded to deliver the extraordinary customer experiences and build the long-term relationships that brands once took for granted when they first opened their doors.  Innovation will flow from the bottom-up as much as from the top-down.

Conclusion:

Luxury Institute has worked with more than a dozen luxury brands or conglomerates on Customer Culture projects in the past few years.  The improvements are real and deliver powerful results in customer data collection, conversion and retention. Brands have seen retention of employees increase too. Bridging the gap between management, the front line, and the customer may be hard for some executives to swallow or imagine, but that is the future of luxury.

The luxury industry is very much a darling of Wall Street today, and with good reason. As the global population of affluent consumers grows, luxury is in for a good ride indeed. Yet, these myths are preventing many luxury brands from achieving significantly better sales and profit growth and could potentially drive many established companies out of business.

About the Luxury Institute (www.luxuryinstitute.com)
The Luxury Institute is the objective and independent global voice of the high net-worth consumer. The Institute conducts extensive and actionable research with wealthy consumers globally about their behaviors and attitudes on customer experience best practices. In addition, we work closely with top-tier luxury brands to successfully transform their organizational cultures into more profitable customer-centric enterprises. Our Customer Culture consulting process leverages our fact-based research and enables luxury brands to dramatically Outbehave as well as Outperform their competition. The Luxury Institute also operates LuxuryBoard.com, a membership-based online research portal, and the Luxury CRM Association, a membership organization dedicated to building customer-centric luxury enterprises.

 

October 23, 2013

Neiman Marcus Outshines the Competition For Online And In-Store Experiences Among the Wealthy

(NEW YORK) October 23, 2013 – As part of its first installment of the Luxury Multichannel Engagement Index (LMEI) survey, the New York-based Luxury Institute asked consumers from households with minimum annual income of $150,000 to share opinions and rankings of online and in-store experiences at leading luxury retailers. Neiman Marcus earns the highest overall score and stands out for garnering top honors in nine out of ten customer criteria used to evaluate both the Web and brick-and-mortar shopping experience.

Wealthy shoppers say that Neiman Marcus stores rank first for attractive displays of exclusive products, easy navigation, accessibility of customer service, personalized shopping experiences, fair prices, and for carrying ample stock and styles. Customers also laud Neiman’s salespersons for making them feel special while serving as trusted fashion advisors.

The Neiman Marcus online experience draws equally extensive praise with the top overall ranking and the highest scores on the same measures of satisfaction.

“Smart retailers realize the value of leveraging data to deliver superior experiences that build lasting customer relationships, regardless of the channel,” says Luxury Institute CEO Milton Pedraza.

Neiman plans to invest $100 million over the next three to five years on technology that will closely align inventory management, logistics and human resources across multiple retail channels.

“Every aspect of our business is being transformed by technological advancements,” said Jim Gold, president of Neiman Marcus Group, at a retailing summit in Dallas. “The lines have completely blurred between brick-and-mortar and e-commerce. The great challenge is to make the experience seamless.”

About the Luxury Institute (www.luxuryinstitute.com)
The Luxury Institute is the objective and independent global voice of the high net-worth consumer. The Institute conducts extensive and actionable research with wealthy consumers globally about their behaviors and attitudes on customer experience best practices. In addition, we work closely with top-tier luxury brands to successfully transform their organizational cultures into more profitable customer-centric enterprises. Our Customer Culture consulting process leverages our fact-based research and enables luxury brands to dramatically Outbehave as well as Outperform their competition. The Luxury Institute also operates LuxuryBoard.com, a membership-based online research portal, and the Luxury CRM Association, a membership organization dedicated to building customer-centric luxury enterprises.

October 10, 2013

Wealthy Travelers From China, Japan and Europe Rank Quality And Experience At Global Luxury Hotel Brands

(NEW YORK) October 10, 2013 – Wealthy travelers from Europe and Asia revealed their top luxury hotel picks in recent research conducted by the independent and objective New York-based Luxury Institute. Three new Luxury Brand Status Index (LBSI) reports examine the attitudes and preferences of affluent Chinese, Japanese, and European consumers as they relate to leading hotel brands.

On a 1-10 scale, wealthy respondents rated hotels on quality, exclusivity, social status, and self-enhancement. They also shared which brands are worth a luxury price tag, the hotels they would recommend, and their preferred brand for an upcoming stay.

New this year, the Luxury Institute asked consumers who recently visited a luxury hotel if their stay was for work, vacation, or both.

“Luxury hotels serve a dual purpose as destinations for both business and pleasure,” says Luxury Institute CEO Milton Pedraza. “Brands have an opportunity to deliver personalized experiences so guests will return for their next trip, regardless of the occasion.”

Affluent respondents ranked the following number of luxury hotel brands in the regions below:

Europe (U.K., Germany, France and Italy)

  • Brands rated: 31
  • Consumers surveyed: 1,516
  • Median annual HHI: £79,000 (U.K.), €69,000 (Germany), €63,000 (France), and €71,000 (Italy)
  • Median age: 47 (U.K.), 43 (Germany), 46 (France), and 42 (Italy)

China

  • Brands rated: 31
  • Consumers surveyed: 717
  • Median annual HHI: 2.5 million CNY
  • Median age: 32

Japan

  • Brands rated: 23
  • Consumers surveyed: 602
  • Median annual HHI: 20 million JPY
  • Median age: 51

To learn about the specific brands rated in each region, please contact Luxury Institute directly.

About Luxury Institute (www.LuxuryInstitute.com)
The Luxury Institute is the objective and independent global voice of the high net-worth consumer. The Institute conducts extensive and actionable research with wealthy consumers about their behaviors and attitudes on customer experience best practices. In addition, we work closely with top-tier luxury brands to successfully transform their organizational cultures into more profitable customer-centric enterprises. Our Luxury CRM Culture consulting process leverages our fact-based research and enables luxury brands to dramatically Outbehave as well as Outperform their competition. The Luxury Institute also operates LuxuryBoard.com, a membership-based online research portal, and the Luxury CRM Association, a membership organization dedicated to building customer-centric luxury enterprises.

September 26, 2013

Strategy emerges from customer culture: Luxury Institute CEO

By Joe McCarthy
Luxury Daily
September 25, 2013

NEW YORK – The CEO of The Luxury Institute at the Luxury Interactive 2013 conference said that luxury brands should focus on building a culture of relationship building and sales will follow.

The executive said that many conventional paradigms of behavior should be flipped to create an environment steeped in meaningful purpose. In his “7 Paradoxes of Luxury Marketing” talk he verified the profitability of such strategy suggestions with hard evidence.

“If you want to create a great customer culture, you have to think in terms of paradox,” said Milton Pedraza, CEO of The Luxury Institute, New York.

“Some people say culture trumps strategy, but I don’t believe that’s true,” he said. “Strategy emerges from culture.”

Internal paradigms
Mr. Pedraza discussed several remedies for poor strategies that have become entrenched in business culture.

The first paradox dealt with shifting a brand’s focus from commodities to meaningful purpose. This objective reaches beyond revising product development to facilitating a better society.

Mr. Pedraza at the Luxury Interactive 2013 conference

Next, companies should switch the tone of their command style from hierarchical and militant to empowering and creative.

Mr. Pedraza said that employees are more responsive and more likely to create innovative ideas when given liberty to act without constraints. An example of this would be giving in-store employees technology to pursue friendly relationships with customers post-purchase.

Third, Mr. Pedraza said that decision-making should incorporate employees from all levels of operation as well as consumers. When decisions are cloistered among high-level executives, simple or uncanny solutions can be overlooked.

Looking out
Educating employees should not resemble a classroom. Rather, Mr. Pedraza insisted that employees will quickly adopt brand values when trained in a gradual, interactive and personal manner.

A skill-based hiring process should be tempered with value-based merits. A candidate selected after an assessment of values will likely assimilate into brand culture with more ease.

Mr. Pedraza urged brands to incentivize the right behavior. Employees will likely be more proactive if they know their behavior is recognized.

Finally, a meaningful brand culture should be reinforced daily to ensure its fortitude. Lexus and The Ritz-Carlton were two luxury brands that Mr. Pedraza acknowledged as pioneers of meaningful brand culture.

For instance, Toyota Corp.’s Lexus is promoting the 2014 IS vehicle with a collaboratively created, stop-motion Instagram film that draws on the perspectives of 212 fans to show the vehicle in a range of angles and tones.

Under the orchestration of a directorial team during Instagram’s #WorldwideInstameet, car enthusiasts and Instagram users from a variety of background blended their personalities in a film that colorfully animates the IS. By leveraging Instagram in this unifying fashion, Lexus will likely grab the attention of a younger demographic and potentially trigger more collaborative, stop-motion films (see story).

Ultimately, if employees are infused with a sense of purpose, they will likely be more effective sales agents.

“Employees that believe companies have strong sense of purpose versus companies without purpose perform much better,” Mr. Pedraza said.

http://www.luxurydaily.com/strategy-emerges-from-customer-culture-exec/

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