Think Tank: For the Next Luxury Off-line Store, It’s Back to the Future
The online shopping boom has shaken luxury brands so much that most have spent the last four years investing massively in e-commerce. It seemed that online sales would inexorably overtake those of physical retail. But according to industry insiders and 10 senior executives at Farfetch, Hermès, MB&F, Chalhoub Group, Zimmerli, Compagnie Financière Richemont, LVMH Moët Hennessy Louis Vuitton,[1] that sentiment is shifting — back to physical stores.
In the age of the omnichannel, the emerging consensus is that physical stores are again becoming the centerpiece of customer experience. Indeed, online commerce is expected to plateau at a 25 percent market share by 2025,[2] and despite apocalyptic headlines about store closures, the reality is that openings are outpacing closures of experiential retail and luxury stores.[3]
Yet, with an average Net Promoter Score of 26.4 percent in luxury, executives realize changes are needed.[4] Spending fortunes on building digital-brand awareness and click-and-collect solutions only to fail to engage customers in the store is not only a waste of resources, it can damage the brand.
What the next luxury stores might look like…or not
How can executives reinvent their luxury stores? Some experts argue that showrooms — stockless touch points where consumers see and try products that, if purchased, will be shipped to them or available in store later — will prevail.[5] But in the world of luxury, this would be a risky path to take. Why? Because Millennials are less inclined to deal with businesses that appear to be commoditized and mostly transactional;[6] also, tax-free shopping and gifting are major sources of income in the luxury business, and those customers need their purchases instantly, for instance, to clear customs.
Three things that senior executives do agree on are that:
The next off-line store will be as much about learning, socializing and emotional stimulation as about selling. Online retailer Net-a-porter evolved from curating, inspiring, styling and advising to selling, but the next luxury store will follow the reverse path.[7]
The physical store will be one of the many interlinked retail channels.
In two to three years, smart mirrors, augmented reality, social media connectivity and interactive windows will be pervasive in luxury stores.
But if everyone converges to the same physical store model, how can one differentiate?
Before reinventing your physical store, fix five consumer pain points first
Before even thinking about revolutionizing your physical store, you should focus on addressing the five chronic consumer pain points that have led your consumers to flock online in the first place. Why will solving these pain points help you differentiate? Because this take often entails breaking down silos, empowering employees, and finding innovative ways to attract, train and retain talent. These capabilities and resources are usually the most unevenly distributed.
First contact: Outside the store, queues are frequent. Once inside, the first contact is an intimidating security guard. Staff often are aloof and not connected to the customers. As luxury streetwear becomes increasingly mainstream, it can be hard for staff to differentiate between browsers and potential buyers, or to embody traditional luxury codes with a new generation that is used to different codes. Customers also expect to be greeted and served in culturally appropriate ways.
Staff must be trained on how to adapt to different customers. They could also be matched with specific customers in terms of age, gender or culture. An app allowing customers to engage with the brand and perhaps book appointments with sales staff and allowing the company to collect information and use data analytics to better serve customers can be helpful. Chanel is beginning to use Farfetch’s store operating system to deliver a more personal welcoming experience based on two-way communication. Sales assistants can instantly customize their welcome based on the consumer’s online and off-line engagement with Chanel,[8] and consumers can inform the store in advance which items they wish to try on.
Staff knowledge deficit. With the Internet, consumers are now often better informed about a brand and its products than the in-store sales staff. This is a particularly acute pain point. Store-based careers need to be attractive to top talent, including in terms of salary, empowerment and incentives. Sales staff should have the budget and time to attend events and trainings and read industry-related postings and publications to be the sharp experts and advisers that consumers expect. All employees should know every detail of the craft, components, fabrics, manufacturing and codes of the brand, and they should be trained to inspire and educate others through storytelling.
McDonald-ization. Luxury stores and their windows are becoming so standardized that global consumers cannot help but notice… and they’re getting bored. One luxury entrepreneur calls it the “McDonald-ization of the industry.”[9] It’s not surprising, then, that Millennials are returning to the spirit of the original, the craft and the local.
Avoiding standardization while sustaining their brand identity globally will help luxury businesses make their stores feel authentic. Hermès partners with Swiss design school ECAL to create its customized window displays in Switzerland. It’s a start, but much more can be done.
Not-in-stock. A classic frustration with physical retail is product unavailability. E-commerce has mitigated this issue more successfully, contributing to its popularity. Brands such as Zimmerli, Bally and Cartier offer click-and-collect services, linking within-country stores and online inventories. It’s also much easier to return and exchange online purchases compared to doing so in stores. The next frontier for the omnichannel experience based on the “endless aisle” will be to link international inventories, allow international returns, and use analytics to better predict what customers might want and move inventory accordingly. Correspondingly, big changes in metrics and staff incentives will be required to effectively tear down current silos.
Checkout. In physical stores, checkout can be unnecessarily long, cumbersome and outdated; online, it usually takes just a few clicks. The hospitality sector has already shown that breaking IT silos to integrate with external platforms can help. Las Vegas-based Linq Hotel & Casino uses WeChat for automatic check-in, door opening, controlling lights and air-conditioning in rooms, and automatic payments.[10]
The journey shouldn’t be merely about integrating the latest fancy fads and revolutionizing the purpose of the store. To make those changes more sustainable, the focus must be on linking human, organizational and digital solutions to solve five lingering consumer pain points first.
Dr. Stéphane J.G. Girod is Professor of Strategy at IMD in Lausanne, Switzerland, where he directs the “Reinventing Luxury: Strategic Conversations” program.
Citations:
[1] In interviews with the author.
[2] “Luxury Goods Worldwide Market Study,” Fall-Winter 2017, Bain & Co. Inc.
[3] “The Great Retail Bifurcation,” Deloitte Insights, 2018.
[4] Attest, Luxury Industry Brand Index, Jan. 28, 2018. askattest.com/blog/home/luxury-brand-index-2018-q1
[5] “The Store Is Dead — Long Live the Store,” Bell, David; Gallino, Santiago; Moreno, Antonio. “MIT Sloan Management Review,” Spring 2018: 59-66.
[6] “Millennial Moment: Meet the World’s Most Powerful Consumers”; Financial Times, June 7, 2018.
[7] Nicolas Chemla, author of “Luxifer,” conversation of May 9, 2018.
[8] “Chanel Links With Farfetch on Augmented Retail Initiative,” WWD, Feb. 18, 2018.
[9] Maximilian Büsser, founder of MB&F, conversation of May 8, 2018.
[10] Andrea Ghizzoni, director, Tencent Europe, IMD, Sept. 7, 2017.
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