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- Herausgeber: John Wiley & Sons
- Kategorie: Fachliteratur
- Sprache: Englisch
- Veröffentlichungsjahr: 2020
Develop a winning customer experience in the digital world Luxury consumers are changing - they come from all over the world, they are young and they are digital natives. How can luxury brands that have built themselves as pure physical players adapt their business model and practices to address their expectations without abandoning their luxury DNA? Luxury Retail and Digital Management, 2nd Edition sets focus on the major retailing challenges and customer evolutions luxury brands are facing today: the digitalisation and the emergence of the millennials and Chinese luxury consumers. These major changes have been affecting the distribution and communication channels of luxury brands; they now have to think simultaneously physical stores and e-commerce, global marketing and digital marketing. * Defines all the tools that are necessary to manage luxury stores including analysis of location and design concept * Explores the selection, training and motivation of the staff * Covers everything executives, managers and retail staff need to know in order to enter, expand, understand and succeed in the world of luxury retail Written by luxury retail experts Michel Chevalier and Michel Gutsatz, who lend their solid academic credentials and professional expertise to the subject, Luxury Retail and Digital Management, 2nd Edition provides deep insight into the main challenges that luxury brands are facing in this digital age.
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Table of Contents
Cover
Foreword
Introduction
What Is the Reason for This Revision?
Change Is Accelerating: The Luxury Customer Is No Longer the Same
Note
Part I: Important Choices in Luxury Distribution
Chapter 1: The Various Models in Luxury Distribution
Direct and Indirect Distribution
Evolution and Perspectives of the Various Types of Sales Outlets
Advantages and Disadvantages of the Various Distribution Channels
Notes
Chapter 2: Do Luxury Products Still Sell in Stores?
The Owner Becomes a Retailer as Well
Different Situations According to the Different Luxury Segments
Watch Manufacturers and Niche Perfumers Are Creating Single-Brand Outlets
The Future of Multi-Brand Stores
The Special Case of Travel Retail
Note
Chapter 3: Concept and Design of a Luxury Boutique
Relaunching a Brand: The Urgency for a New Concept of Boutiques
The Concept of the Boutique: Applying the Brand's Vision
Store Formats: Closed or Open?
Customising Boutiques and Flagships
Visual Merchandising and the Institutional Image of the Brand
Notes
Chapter 4: Online, Offline or O2O?
From Yoox.com to the Merger with NET-A-PORTER.com
A Brief History of the Love/Hate Relationship that Luxury Brands Have with the Internet
Note
Part II: Know and Understand the Client
Chapter 5: Putting the Customer Back in the Centre
Looking at It from the Customers' Side: Why Have They Logged On and How Do They Use the Internet?
The Seven Rules of the Internet and Social Networks
Notes
Chapter 6: Customer Identification and CRM
Managing the Customer Database
Marketing Data
How Can One Recognise a Client?
Using the Customer Database
Notes
Chapter 7: The Challenges of Offline and Online Integration
What Are the Criteria for Offline/Online Integration?
Global Tracking of Customers (Especially Chinese)
Notes
Chapter 8: Logistics Adapted to a Digital Culture
The Traditional System
Number of Stores in Each City
Details Are Important in a Logistics System: An Example
The New Logistics Systems
Stores Without Sales Staff
The Challenges of Logistics
Notes
Part III: Making Client Relationships More Meaningful
Chapter 9: Customer Behaviour in the Store or Online
Store Behaviour Patterns
Expectations and Perceptions in a Store
The Basic Rules of Supermarket Merchandising
Notes
Chapter 10: The Importance of Stores for Building Customer Relationships
Why Sales Staff Need to Know Everything About the Brand
The Problem of Retail: Retaining One's Clients
Managing a Store: A Very Special Job
Building a Customer Relationship: The Challenge of Individualised Service
Notes
Chapter 11: Customer Experience and Building Loyalty
Step 1: Focus on the Customer
Step 2: The Loyalty Effect – Transforming Regular Customers into Brand Ambassadors
Step 3: Offer a Unique Experience – and Anticipate All the Possible Consequences in Terms of Internal Organisation
Step 4: Define the Contract Between the Brand and Its Customers and Adopt Four Tools for Business Optimisation
Step 5: Define Customer Journeys and Identify Important Contact Points
Step 6: Elaborating the Customer Experience in Luxury Brands
Notes
Chapter 12: How the Internet Has Shattered the Traditional Sales Model
Is Selling Online Sufficient in Itself?
Is Selling in Stores (Offline) Sufficient in Itself?
Notes
Part IV: Management Tools for Luxury Stores
Chapter 13: Location of Sales Points
The Classification of Stores in the Mass-Product Market
The Case of Luxury: Different Types of Sales Outlets
How Many Outlets Should There Be in a Given City?
‘A Store Should Be a Place of Worship’ or an ‘Institution’
In Which International Cities Should One Open Stores?
The Case of Mainland China
Why Choose One City Rather than Another?
Trade Areas Analysis
Clusters
Adapt the Location to the Hallmarks of Luxury
The Various Types of Commercial Leases
Note
Chapter 14: Managing Store Personnel: A Toolbox
Tool No. 1: A Typical Sales Organisation
Tool No. 2: Managing the Recruitment of Sales Teams
1
Tool No. 3: Defining the Responsibilities of Store Personnel
Tool No. 4: Job Descriptions
Tool No. 5: Career Advancement
Tool 6: Setting Turnover Targets
Tool No. 7: Defining a Fair Retail Compensation System
Tool No. 8: Grooming Guidelines for Employees
Tool No. 9: Global Business Ethics
Note
Chapter 15: At What Price Should Products Be Sold?
Pricing Policy Under Normal Conditions
Let Us Look at Margins Again
The Particular Case of Fashion Retailing
Price Reductions and Sales
Note
Chapter 16: Financial Analyses of Sales Points
Financial Analysis of a Sales Point
Applying Key Ratios
Turnover Forecasts
Inventory and Controlling Margins
Analysis of Returns on Investment
Information Systems
Note
Conclusion
Note
Bibliography
About the Authors
Index
End User License Agreement
List of Tables
Chapter 1
Table 1.1 Examples of the Development of New Stores for Some Brands (Estimati...
Table 1.2 The Differences Between Direct and Indirect Distribution Models
Table 1.3 The Relative Advantages and Disadvantages of the Various Distributi...
Table 1.4 Calculation of the Margin According to the Distribution System
Table 1.5 Impact of Fixed and Variable Costs on Profitability
Chapter 2
Table 2.1 Evolution of Turnover of a Fashion Brand
a
According to the Differen...
Table 2.2 Performance of Various Department Store Chains (Turnover in € Billi...
Chapter 3
Table 3.1 Shop Format and Brand–Client Relationship
Chapter 6
Table 6.1 Targeting the Customer Base
Table 6.2 Example of Consumer Groups for a Brand with a Turnover of €700 Mill...
Table 6.3 Concentration of the Main Customers
Chapter 7
Table 7.1 O2O Integration Criteria
Chapter 8
Table 8.1 Different Logistics Models
2
Chapter 9
Table 9.1 Average Time Spent in a Home Decor Store
Table 9.2 Customer Expectations and Perceptions in Stores
Table 9.3 Variations in Sales Volumes According to Position on the Shelves
Chapter 12
Table 12.1 Example of Activities in 2 Weeks of 2019
Chapter 13
Table 13.1 Examples of Megastores (and Their Sales Areas) in 2018
Table 13.2 Shopping and Entertainment
Table 13.3 Percentage of Luxury Brands Present in Different Cities in the Wor...
Table 13.4 The Most ‘Attractive’ Destinations for Opening a Store
Table 13.5 Percentage According to Origin of the Brands Located in Three Majo...
Table 13.6 Number of Tourists Who Visited Different Asian Cities in 2017 (in ...
Table 13.7 Location of the Main Sales Points in China
Table 13.8 Geographical Locations of Commercial Activities (Transparency Inde...
Table 13.9 Position on Various Streets in London in Terms of Brand Image
Table 13.10 Rents in Prime Locations in Europe (2017)
Table 13.11 Rents in Prime Locations in the Americas (2017)
Table 13.12 Rents in Prime Locations in Asia (2017)
Table 13.13 Rent Levels in a Department Store in Ohio Depending on the Floor
Chapter 14
Table 14.1 Responsibilities of the Staff
Table 14.2 Store Manager Competencies
Table 14.3 Example of an Evaluation Grid for a Candidate for the Post of Store...
Table 14.4 Requirements for the Position of Sales Consultant
Table 14.5 Sales Consultant Evaluation Form
Table 14.6 Sales Consultant – Personal Skills
Table 14.7 KPIs for Evaluating Suitable Remunerations
Chapter 15
Table 15.1 Price Levels by Country for Luxury Fashion and Accessories
Table 15.2 Retail Sales Price of Fashion Products According to the Location o...
Table 15.3 Margins by Category of Product in Department Stores
Table 15.4 Impact of the Percentage of Sales at Reduced Prices and of the Lev...
Table 15.5 Margins of Three Brands with Different Sales Percentages at Reduce...
Chapter 16
Table 16.1 Margin Analysis
Table 16.2 Retail Coefficients and Gross Margins
Table 16.3 Examples of Stock Rotation
Table 16.4 Combination of Distribution Systems for Three Different Brands (in...
Table 16.5 Good Performance/Bad Performance
Table 16.6 Analysis of Tiffany Stores in the United States
Table 16.7 Trends in Coach's American Sales Outlets
Table 16.8 Stock Rotation According to the Size of the Sales Point
Table 16.9 Commercial Strategies
List of Illustrations
Chapter 3
Figure 3.1 The Four Poles of a Brand's Vision
Figure 3.2 The Sephora Storefront
Figure 3.3 The Guerlain Storefront
Figure 3.4 Retail Image Management – Bally's Organisational Chart
Figure 3.5 Working Document for Visual Merchandising – Bally
Chapter 4
Figure 4.1 The Creation of Partnerships YNAP and Acquisitions in Jewellers-W...
Figure 4.2 Cultural Comparison of the Internet and Luxury Brands
Figure 4.3 Luxury Brands' Performance in an Omnichannel System (New York, 20...
Figure 4.4 The Yoox-NET-A-PORTER Offer
Figure 4.5 Gucci's Omnichannel Strategy
Chapter 5
Figure 5.1 The Traditional Value Chain
Figure 5.2 The New Value Chain
Figure 5.3 The Various Levers in a Customer Relationship
Figure 5.4 The Four Profiles of Members of a Community
Figure 5.5 The Digital Playground
Figure 5.6 Percentage of Revenue from Customers that One Contacts by E-mail...
Figure 5.7 Client Strategy Matrix
Chapter 7
Figure 7.1 Average of the Number of Contacts Online and Offline Before Purch...
Figure 7.2 Progression of ‘Experiences’, ‘Experiencing Goods’ and ‘Personal ...
Figure 7.3 Mapping of Luxury Distribution Channels
Chapter 11
Figure 11.1 Most Apparel Retailers Find It Difficult to Build Strong Relatio...
Figure 11.2 A Typical ‘Split Commission’ System in Affiliation
Figure 11.3 Methodology for Designing a Customer Experience
Chapter 12
Figure 12.1 Brands Are Reallocating Budgets to Digital and Events
Chapter 14
Figure 14.1 A Three-Level
Retail
Organisation
Figure 14.2 Stores with a Four-Level Organisation
Figure 14.3 Examples of Behavioural Questions
Figure 14.4 Job Specifications and Selected Candidates
Figure 14.5 Evaluation and Recommendations
Figure 14.6 Retail Careers
Figure 14.7 The Four Retail Stages Model of Development
Figure 14.8 The Retail Career Development Framework
Figure 14.9 Retail Career Scenario: Start and Grow Up in the Retail Function
Figure 14.10 Retail Career Scenario: Move from the Retail Function
Figure 14.11 Balancing Employer, Employee and Cost Perspectives
Figure 14.12 Five Components of the Retail Compensation Package
Figure 14.13 Mapping of Some Components: Flexibility × Motivation
Figure 14.14 Four Ways to Reward Performance
Chapter 15
Figure 15.1 Price, Costs and Margins for Various Commercial Sectors
Chapter 16
Figure 16.1 Business Information Considered as Being Very Important
Figure 16.2 Analysis of the Breakeven Point
Figure 16.3 Client Performance Matrix
Figure 16.4 Comparison of Sales Achieved at Different Store Sizes as a Funct...
Guide
Cover
Table of Contents
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Luxury Retail and Digital Management
Developing Customer Experience in a Digital World
SECOND EDITION
Michel Chevalier
Michel Gutsatz
Copyright © 2020 by John Wiley & Sons Singapore Pte. Ltd.
Published by John Wiley & Sons Singapore Pte. Ltd.
1 Fusionopolis Walk, #07-01, Solaris South Tower, Singapore 138628
All rights reserved.
Edition History
John Wiley & Sons Singapore Pte. Ltd. (1e, 2012)
No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, scanning, or otherwise, except as expressly permitted by law, without either the prior written permission of the Publisher, or authorization through payment of the appropriate photocopy fee to the Copyright Clearance Center. Requests for permission should be addressed to the Publisher, John Wiley & Sons Singapore Pte. Ltd., 1 Fusionopolis Walk, #07-01, Solaris South Tower, Singapore 138628, tel: 65–6643–8000, fax: 65–6643–8008, e-mail: [email protected].
Limit of Liability/Disclaimer of Warranty: While the publisher and author have used their best efforts in preparing this book, they make no representations or warranties with respect to the accuracy or completeness of the contents of this book and specifically disclaim any implied warranties of merchantability or fitness for a particular purpose. No warranty may be created or extended by sales representatives or written sales materials. The advice and strategies contained herein may not be suitable for your situation. You should consult with a professional where appropriate. Neither the publisher nor the author shall be liable for any damages arising herefrom.
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Library of Congress Cataloging-in-Publication Data
Names: Chevalier, Michel, author. | Gutsatz, Michel, author.
Title: Luxury retail and digital management : developing customer experience in a digital world / Michel Chevalier, Michel Gutsatz.
Other titles: Luxury retail management
Description: Second edition. | Solaris South Tower, Singapore : Wiley, [2020] | Includes bibliographical references and index.
Identifiers: LCCN 2019048771 (print) | LCCN 2019048772 (ebook) | ISBN 9781119542339 (hardback) | ISBN 9781119542346 (adobe pdf) | ISBN 9781119542353 (epub)
Subjects: LCSH: Luxury goods industry—Management. | Retail trade—Management.
Classification: LCC HD9999.L852 C34 2020 (print) | LCC HD9999.L852 (ebook) | DDC 658.8/7—dc23
LC record available at https://lccn.loc.gov/2019048771
LC ebook record available at https://lccn.loc.gov/2019048772
Cover Design: Wiley
Cover Image: © jcarroll-images/Getty Images
You can have the best strategy in the world, the difference between the excellent and the incompetent is execution, execution, execution.
–Domenico deSole, former CEO Gucci
Foreword
I am convinced Michel Gusatz and Michel Chevalier are very right in writing a second edition of their comprehensive book on the retail management of luxury goods.
I see three major forces converge and reshape this area:
First, as the title of the new book suggests, digital has taken the luxury goods industry by storm – including its retail side. Ten years ago, you could find the vast majority of luxury brands still pushing back on digital (frequently, I heard comments like: ‘the Internet is not for us’, ‘we want our customers to come to our stores to experience the brand and the product’, ‘e-commerce is for CDs and books’, ‘I have better things to do than setting up a website – I need to open more stores in China’). Today, everyone is bending over backwards to convince the market they have set ‘digital’ as their number one priority. The mere notion of luxury retail without m-commerce, e-commerce and a fully integrated digital service in-store (buy online, pick-up in-store; buy online, return in-store; order in-store for home/hotel delivery) is tantamount to the idea we should commute to the office every day on horseback. It is not just yesterday's story; it is utterly and completely obsolete. Either you have a fully developed digital retail strategy and activity, or you are not in a condition to play. Hence, the need to think through what the right digital strategy and the right digital activity should mean for the specifics of your brand and your business.
Second – and linked to the point above – physical retail network development in luxury goods is virtually done, at least for the foreseeable future. We have seen for a number of years that the largest luxury brands haven't added any stores to their total. Actually, most have been in ‘trimming mode’, reducing one or two stores here and there. A case in point is the network consolidation that has been going on in China, hand in hand with a Darwinian fight among luxury shopping malls, which has led to a shake-out and ‘survival of the fittest’. When we look at who has been leading store openings in the past five years, we find two kinds: (a) up-and-coming smaller brands that have been able to ‘strike gold’ (Moncler, Saint Laurent, Celine, Balenciaga); (b) accessible luxury brands that have built their networks worldwide (a case in point, Michael Kors). The point here is that everyone else has been confronted with a relatively static store base and a completely new set of challenges versus the previous expansion era.
In fact, during the expansion phase, most brands were concerned about attaining comparable standards all across the world. Store appearance and in-store service was supposed to be of a similar level, anywhere in the world. So much so, that store blueprints and ‘selling ceremony handbooks’ were created. One could say, most brands used a cookie-cutter approach to store expansion. The advantage, of course, was consistency. The disadvantage – and this is becoming all too obvious today – was a risk of boring customers and failing to drive in-store traffic. Why on earth should I go and visit a store in Milan, New York or L.A., when it is virtually identical – and actually a tad smaller – than the one I have close to me in Shanghai? And why should I go to a store in the first place, when I can buy what I need online, and when I can touch and see the products while I go through the airport in their airside locations?
Brands today are confronted with a new task: how to make their stores unique and interesting enough so that customers continue to be keen to visit them – both in their hometown and when they travel. This will require a completely new approach: standardisation is out. It is time for brands to go back to the drawingboard and answer two questions. For starters: How can I make my stores different from my competitors', other than for the colour of the marble on the floor and their size? How can the new stores ‘speak’ about the DNA of my brand, and plastically embody it? We have seen a few brands stand out on this front – Tiffany opening a cafe in its NYC flagship with a view of Central Park is a best-in-class example of uniquely reconnecting store and brand equity. And then of course, the other question is how to make each store in my chain slightly different and interesting enough to deserve a visit. This, I believe, will demand more ‘localisation’ and less ‘globalisation’. Striking the right balance alone demands a whole new handbook on how to manage luxury goods retail.
Third, luxury brands face today more demanding consumers. Gone are the days of lines in front of luxury flagships, and hordes of new consumers all clamouring to buy the well-known luxury icons. Today, many consumers have seen it all and bought it all. This means innovation has become essential, if brands want to continue to stay relevant to them. Product innovation, first and foremost. But in-store innovation too. As well as innovation in communication and client engagement. We have called this the need to ‘surprise’ consumers. For luxury retail, this means that stores need to change frequently and host a whole new array of activities. Mostly, brands have tackled this need with pop-ups. Far from being a ‘side act’, pop-ups have become a major cost line in the overall retail budget. This opens up a completely new management front: how to best locate pop-ups vs flagships, what to do in them which can be meaningful for the brand, how to create synergies with the rest of the network, whether to locate outside or inside flagships themselves. Here too is a whole new world for managers to tackle.
Luca Solca
Managing Director, Luxury Goods, Sanford C. Bernstein (Schweiz)
Introduction
What Is the Reason for This Revision?
January 2012 saw the publication of the English version of our book Luxury Retail Management that we had written in 2010 and 2011. Seven years later, as close observers and players in the luxury industry,1 we realised that the industry had undergone such upheavals since then that we had to revise our book so that it remained relevant in the context of these evolutions. During this rereading, we also realised that the 2012 edition was premonitory in many respects (especially the chapters referring to the Internet and China) but it did need to be completely revamped if we wanted it to preserve its role as a reference book to be read by every specialist of luxury distribution in its English, French or Chinese versions.
We therefore decided to rewrite most of this book, structuring it around the new luxury business model – omnichannel – where the customer is placed at the core of communication and distribution channels, and of organisations. Is, or should be? As we will see while reading through these pages, this will be the major challenge for luxury brands over the next 5 years: placing the customer at the heart and building the organisation and information systems that will allow it around the customer.
It is therefore necessary to start with the client, and to do so one needs to understand the major changes that have taken place in recent years.
Change Is Accelerating: The Luxury Customer Is No Longer the Same
In their 2017 annual study on luxury, Bain & Co. showed that all the structuring trends for the industry are linked to the rise of the millennials – or Generation Y, that is, those born between 1980 and 2000 (Strauss and Howe 2000). Two figures explain the impact of this generation:
They currently represent 38% of luxury buyers and 30% of the market (in value).
85% of the growth in the luxury market in 2017 was generated by them.
Their tastes, behaviour and expectations are therefore shaping the market and influencing other generations. We have identified three behaviour traits that we believe essential:
The quest for experiences: One no longer consumes a product but lives an experience. Giving a meaning to life is an important goal and customers will look for brands that can bring them these elements of meaning. For example, customers have their own passions and are looking for brands that know how to construct a relationship around those passions.
Involvement: The closer a brand is to these customers, the more likely they are to become its ambassadors. They want to ‘live the story’ of the brand and not consume it, which in turn allows them to share it – on the Internet.
Affirming one's own identity: By choosing a personal style, luxury is a means of self-expression.
Therefore, the bricks-and-mortar and Internet boutique duo could be considered the sole epicentre of the brand, a place where the customer will live the story. All the skill of the brand would involve linking the experiences of the customer's life (their passions, communities, personal style) to the experience of the brand (services, transactions, values, the community around the brand).
For this reason, Bain urges leaders of luxury brands to make the customer their ‘obsession’ and to soak in the spirit of the millennials – in six steps that should be on the agenda of every head of the industry:
Make the history of the brand come to life through inspiring dialogues and experiences.
Build personalised relationships with customers.
Rethink the customer's itinerary by adopting a holistic view of distribution – what we hereafter call the omnichannel.
Understand (and decode) customers' aspirations so that they become relevant to them – which inversely means that any brand that moves further away from customer (and particularly millennial) expectations would become obsolete.
Develop the individualising of the product, services and messages all through the customer's life.
Invest in talents and skills to achieve all these goals (Gutsatz and Auguste 2015) and maintain a product-marketing approach.
In short, luxury brands – which have been developing over the last 20 years, partly through the opening of boutiques (that require considerable investment and result in an increase in turnover) – are faced with the challenge of changing their models and rebuilding on marketing and customer relations. This will lead to increasing yearly operational expenses for public relations and promotions, which will consequently weigh down their operating accounts. Luxury brands are thus at a historic turning point: they have to reinvent themselves. The 2017 figures put forward by Bain are disturbing in this respect: whereas, at the time when the luxury sector was flourishing, whether during the period of democratisation (1994/2007) or that of Chinese bulimia (2010/2014), 85 to 95% of the brands showed positive results. Since 2016, only 65% of them are profitable (and only 35% have succeeded in increasing their profitability!). The current period that one can consider the ‘New Normal’ will engender winners and losers.
This book is therefore our contribution towards understanding these new challenges that luxury brands have to face.
Case Study: A Striking Example: ‘See Now / Buy Now’
On 4 February 2016, Burberry announced that they were implementing what proved to be a revolution in the world of fashion: a synchronisation of the dates of the fashion shows and the availability of the new collection in their boutiques (Amed and Abnet 2016). From September 2016 onwards, the collections were reduced to two per year, the women's and men's fashion shows were merged and products were made available in boutiques at the same time. In the wake of this change, other brands announced their intention to follow Burberry's example: Tommy Hilfiger, Tom Ford, Rebecca Minkoff, Vêtements, Mulberry, etc.
Fast forward to 24 February 2017 – Ralph Toledano, Chairman of the French Federation of Ready-to-Wear Dressmakers and Fashion Designers announced that they would not make any changes to the existing schedule, followed in quick succession by Gucci and all the Kering brands.
Christopher Bailey, then CEO and Creative Director of Burberry, justified this choice, citing the desire to draw closer to his customers: in his opinion, he did not see why products should not be available immediately or why fashion should continue to make distinctions between fall and winter and spring and summer when fashion is distributed worldwide (and concerns both hemispheres). For him, at the end of the day, all it required was only an optimisation of the processes of supply and production:
When you break it all down, it's just a shift in your supply chain – that's the crunch. (Amed and Abnett 2016)
He could also have evoked the lower costs that such a decision implied, especially at a time when Burberry's results were poor (for the first six months of 2015 sales and profits were stable; revenue on licences declined by 13%).
But, of course, the story lies elsewhere: the big comeback of luxury and a new episode in the conflict between France and Italy on the one side and the English and Americans on the other.
‘Several people, including designers and retailers, are complaining about the shows. Something is not functioning because of social media, people are lost’, said Diane Von Furstenberg, Chairperson of the Council of Fashion Designers of America (CFDA), announcing that they were looking into the possibility of a ‘See Now, Buy Now’ Fashion Week (Lockwood 2015). It was, of course, an American initiative, presented as though it was done under the pressure of social media and consumers. This point is important. One may recall, for example, that during his last fashion show, Tommy Hilfiger delineated a space dedicated to ‘instagrammers’, to allow them to photograph the show under the best conditions possible and to publish their ‘live’ snapshots by Instagram (Le Luxe est Vivant 2016) and that American fashion shows are now open to the public (against an entrance fee). American fashion shows have thus become ‘democratised’ entertainment.
The reaction of luxury brands (showing in Paris and Milan) was immediate. They reasserted they were luxury brands practising real scarcity management. They projected themselves as ‘creation driven’ – thus consigning the American brands to their ‘marketing-driven’ image. By doing so, they categorically differentiated themselves from the American brands (and Burberry), often presented as being accessible luxury. We thus witnessed on that occasion a general repositioning of brands within the luxury industry itself.
But it was not a rigid position confronting an immovable model on the part of the French and the Italians. Prada immediately made available two models of its bags that were presented during its fashion shows in its boutiques. And Karl Lagerfeld admitted that Chanel's organisation was much smarter than previously thought:
Chanel creates six collections a year, but I just created one more – the ‘capsule’ collection – that we present neither to the press nor to anyone else; it only surfaces when our stores receive the presentation leaflet. But I would like to do something else – it may be too early to talk about it – a special Internet collection: 15 models that will be displayed on the Web: You see it, you order a model and you receive it immediately. (Amed 2015)
A vision much more refined than ‘See Now, Buy Now’.
The Definition of Luxury
It is impossible to speak about luxury without attempting to define the concept. Many experts debate what the word means, apparently without having reached a consensus.
The first distinction one has to make is between luxury and fashion. For some, a brand in the textile or accessories sector starts out merely as a ‘fashion’ brand and becomes a ‘luxury’ brand only if it has achieved a certain consistency in its concept and timelessness in its collections. According to that theory, a fashion brand has to be creative and come up with new ideas, new concepts, and new products every season in order to arouse the interest of the consumer. If it creates classic models that sell year in, year out and become bestsellers that endure, its status then evolves from ‘fashion’ to ‘luxury’. But although this distinction between a fashion brand and a luxury brand is a valid one, it is nonetheless misleading because even a fashion brand that has achieved luxury status, such as Chanel or Dior, has to come up with new models each season and present them in new ways in order to retain consumer interest.
Why Is It So Difficult to Find a Definition? The concept of luxury has varied over time. In the Middle Ages, people saw luxury as unnecessary and therefore superfluous. A luxury item was more intricate than an ordinary item used to accomplish the same function. The most striking historical example is that of Christophle, which sold tableware accessible to the petite bourgeoisie at the beginning of the nineteenth century by replacing the noble solid silver with plated silver. Up until the nineteenth century, luxury items were intended only for the ‘gentry’ and were a means to set themselves apart from the crowd.
Today, the term luxury carries a connotation that is far less negative. It is no longer considered superfluous or reserved for a small group of individuals. A new concept has emerged – the brand concept – whereby a luxury item has become an object that carries a known, credible and respected brand name. The introduction of the signature, that is, of the brand, pushes back the concept of exclusion (‘It is not for everyone’) and shifts the focus to the quality of the product.
Another element that may have contributed to this more positive view of the concept of luxury is the emergence of what one may call ‘accessible luxury’ that, in practical terms, means luxury meant for everyone. Hence, the impression that the consumer retains is that luxury products are sophisticated and expensive, of a quality clearly above average, and signed by a brand bearing a name with a strong power of attraction.
The Many Approaches to Luxury Another way to differentiate the definitions of luxury is to look at the criteria that different people may apply to distinguish one luxury product from another.
In terms of
perception
, the consumer decides what is or is not a luxury product. Today, one would not speak of ‘conspicuous waste’ as Thorstein Veblen would have, but of the quality of service in a sophisticated environment.
In terms of
production
, manufacturers decide whether or not they want their products to be part of the luxury sector. Accordingly, they ensure that the luxury item is the product of the work of a meticulous artisan, that it is sold in a sophisticated environment and that it is promoted in a unique way, placing the focus on the brand and its own values. However, manufacturers and consumers do not necessarily agree: the management of Hugo Boss, for example, doubtlessly does everything it can to associate their brand with high-quality products sold in a relatively sophisticated environment. And taking a different approach, from the point of view of Zara's management, the focus on its exclusive network of outlets situated in the best locations in every city, and the constant flow of new models in each store, their business is akin to that of the luxury industry.
In terms of
social and individual comportment
, sociologists would describe a luxury product as an object that allows its user to stand out from the crowd. Customers would probably speak in hedonistic terms and describe how the possession of that particular luxury item gives them personal satisfaction and genuine pleasure, perhaps reflecting the refinement of the objects they own or plan to acquire.
There is one constant underlying these various definitions: the brand itself and its own values. A product, of course, has its own technical and aesthetic characteristics – but it also carries a brand name. This brand identity should be consistent with what the product represents and should deliver added value so that its coherence is evident.
A Set of Values that Define Luxury Another approach to defining luxury is to identify the various qualities that a luxury item should include.
The notion of
exclusivity
underlies the concept of luxury. A luxury product should be rare and not easy to acquire. It should be accessible, of course, but purchasers should have the impression that they set themselves apart by using it, that they are capable of distinguishing what makes this product so different from others or other brands, and that it reflects remarkable sophistication and taste.
An obvious characteristic of a luxury product is, of course, its
quality
. It has to be more beautiful than another. Its guarantee should be clearly defined and generous. The packaging has to be elegant and the object expensive, in any case more expensive than a similar mass-market product.
Another aspect: a certain form of
hedonism
. The product should be a pleasure to own and use; it should give the owner a very personal feeling of satisfaction.
The
brand image
is undoubtedly the crowning touch. It has to be reputed, but also unique, and different, but with features everyone recognises.
Ultimately, luxury simply boils down to a question of status. A professional in the luxury business should never forget their real job: to make customers feel they have a special status, directly or indirectly, through whatever form it takes.
In short, customers are willing to pay higher prices because, with all its features, the luxury item satisfies all their desires, emotional or symbolic, and offers them a memorable experience. That is what exclusiveness, quality, hedonism and brand image are all about.
The Various Types of Luxury Instead of embarking on a long debate to find one common concept of luxury, it may be more practical to distinguish the different types of luxury.
Authentic luxury
would refer to objects that quite clearly differ from mass-market products in that they are the handiwork of skilled craftsmen. They conceivably last longer, are probably simpler to use and have a brand identity that is gratifying. A true luxury product will be timeless to some extent and the user will find pleasure in operating or using it because of the endless number of refined and carefully crafted details it has. It will definitely not be cheap, and its name will represent a great deal more than just its monetary value. It will not be so much a question of price as an object endowed with aesthetic components that will bring added emotional value to its owner.
Intermediate luxury
(one of the authors of this book has coined the expression ‘
Luxe Populi
’ in his other book, see Gutsatz 2002) refers to products that have the traditional attributes of luxury in terms of creativity, statement and coherence where brand identity is concerned, but are merely an upgraded version of traditional consumer products. They are not the product of individual craftsmanship. They position themselves in the upper-middle range on the price scale and are produced in relatively large quantities in automated factories, but their brand image is carefully cultivated and controlled.
Offbeat luxury
refers to products that are in fact exclusive creations that stand out very clearly from the ordinary. Ferrari is a good example: a Porsche would be an authentic luxury product; a Ferrari adds another dimension, more off-the-wall. Ferraris are produced in very limited numbers (for years Ferrari capped its annual production at 7,000 cars) and seem to assert the right to the freedom and creativity typical of Ferrari. The company does not manufacture automobiles but exclusive collectors' items, some of which will never see an ordinary country road.
As Jean-Louis Dumas, the former Chairman of Hermès, once said: ‘A luxury brand must respect three conditions: produce beautiful objects, select clients who will become individual agents of its own promotion, and decide freely and without any constraint what it wishes to do’ (personal communication). There is probably no better definition of luxury.
Affordable luxury
may not be luxury at all, or perhaps it may just be a special category of intermediate luxury. Zara is an example of this segment: creative products that rotate very quickly, and consumers who find a psychological satisfaction in buying and using these quick-moving products. The prices are very reasonable and the brand image is carefully managed and promoted, with a well-defined long-term vision. As we will see, Zara's business model is very effective. Although, from the manufacturer's viewpoint, it employs many tools derived from the luxury sector, it is perhaps merely a form of intermediate luxury – or even simply a sophisticated and skilful mass-market brand. Zara is perhaps a poor example because most readers would say that the brand has nothing to do with the luxury sector. We do understand this point of view, but in our opinion many tools used in luxury could be used for mass-market brands. Besides, we can no doubt discern a continuum with Zara at one end and Gucci and Chanel at the other.
The Contents of This New Edition
The difference between this edition and the first one, which contained 13 descriptive chapters, is that in this one we wished to emphasise four essential factors that come into play in the management of sales outlets. We could be in fact discussing not only the luxury sector, but also all other market sectors for which stores are often the primary source of income.
It is a fact that, compared to more traditional sectors, the luxury industry has some specificities that are noteworthy: the possibility of being able to identify customers whose contact information is relatively easy to obtain and to track their purchases over several years. The same customer may also purchase products sometimes near their home or place of work, and at other times at the other end of the world while travelling for work or pleasure.
In the first part, we will be describing the main choices facing luxury brands in terms of distribution:
Which distribution model should it adopt? (
Chapter 1
)
Do we still need stores? (
Chapter 2
)
What store concept should it adopt? (
Chapter 3
)
How can it integrate its offline and online businesses? (
Chapter 4
)
In the second part, the customer will take centre stage. Luxury customers expect seamless service. They wish to be able to change from an online approach to an offline approach at any time and expect the brand to be organised enough to allow them to switch seamlessly from one method to another at any given time. There is no universally accepted term that describes this today: the term most often used in France is omnichannel; in the USA it is called ROPO (‘Research Online, Purchase Offline’), i.e. search for information online (on the Internet), purchase offline (in a store), or the contrary: search for information offline (in a store), purchase online (on the Internet). In China, the term O2O (‘Offline to Online’) is used. In this book, we will use the term O2O – which is interchangeable (Offline to online/Online to offline/Offline to online to offline, etc.). However, O2O, which has to continuously adapt to customers switching from one system to another, requires very astute management, logistics and control systems.
We will therefore examine successively:
How brands can place the customer at the centre of their approach and their organisation (
Chapter 5
).
How brands can identify the customer and the issues around CRM (
Chapter 6
).
How brands can coordinate marketing campaigns in an O2O world (
Chapter 7
).
The war of the platforms (
Chapter 8
).
In the third part, we will delve deeper into the type of service to be provided to customers, how to build loyalty and how to ensure the quality and meticulousness of service.
This will bring us to four essential elements:
Understanding customer behaviour (
Chapter 9
).
Building customer relationships (
Chapter 10
).
How to ensure customer loyalty (
Chapter 11
).
Understanding how the Internet has shattered the traditional sales model (
Chapter 12
).
In the fourth part, we will present the more traditional and more typical elements of sales point management.
Location of sales points (
Chapter 13
).
Management of sales point staff (
Chapter 14
).
The financial analysis of sales points (
Chapter 15
).
Managing sales prices in global markets (
Chapter 16
).
In Chapter 14, we have also compiled all the information that could be useful to a luxury sales point manager or a business or sales point development manager.
In this book we have sought to answer all the questions that luxury brands have today with regard to physical distribution and to offer some ideas for reflection and a projection of what could happen in the next few years.
Note
1
The authors are – independently of one another – involved in the perfume industry.
Part IImportant Choices in Luxury Distribution
Chapter 1The Various Models in Luxury Distribution
Luxury today no longer sells because of rarity but on a feeling of exclusivity, which depends primarily upon the selectivity of its distribution, both physical and digital.
–Jean-Noël Kapferer1
From the outside, observers may believe that all luxury brands are distributed in the same way – through exclusive stores owned by the brand – and that they are able to manage them from their head offices. In fact, the reality is much more complex.
Some luxury products, such as perfumes and watches, are sold for the most part in multi-brand stores that do not belong to them. These stores generally do what they think is most efficient for their multi-brand businesses and they are never easy to motivate or mobilise.
In some countries (e.g. Thailand and Vietnam) a foreign company that imports and distributes products manufactured abroad is not allowed to be a majority owner of its local subsidiary (it is only possible in China since 2018). It has to associate with a majority-holding partner that is a national of the country. So, no luxury group can, even if it initially wanted to, become the owner of all its sales outlets in the world.
Building a global network of outlets demands an enormous amount of time and money. Indeed, for a large luxury brand, having its own store in Ulaanbaatar would be wonderful, but how can it ensure that customers will find the same service there (hospitality, advice, prices and after-sales service, for example) as they receive in Paris or Milan?
Also, although Gucci or Chanel might have the means to invest in opening a store in New York, a small brand that is already struggling to make profits in its Paris store would find it much more difficult to do so.
A discussion on the sales points of luxury brands all over the world therefore involves describing all models, physical or digital, that can or should be used to present the products to customers the world over.
Direct and Indirect Distribution
Luxury brands did not start out with exclusive stores in every city in the world. Their distribution systems grew. They often opened a single store in one city (the city of origin) and then used a network of multi-brand outlets that afforded them initial exposure and international turnover. The business environment has also evolved over the last 150 years; the main store categories have changed and found their raison d'être and their stability.
A Historical Perspective
Retail trade is doubtlessly one of the oldest professions in the world. From the dawn of history, when people realised that they could not obtain everything they required for their own survival by themselves, they had to turn to others who were capable of searching for and gathering together the various commodities they required, and who exchanged these items for a monetary consideration. This act of selecting and gathering various goods that would be subsequently sold to others saw the emergence of the trader and retail trade.
Later, during the Middle Ages, as trade developed, merchants from the same domain often tended to cluster together in the same street. They seemed to believe that it was better to place themselves in proximity to their competitors, assuming that customers would be more likely to enter their shops, and those of their competitors as well when they went around all the shops on the street. Those that set up shop elsewhere, resolutely isolated from their peers, found themselves away from the shopping circuits and missed out on sales opportunities. Being located far away from other shops but close to residential areas was nevertheless an advantage for everyday services such as food – in other words, as convenience stores.
This distinction between proximity purchases and others has always existed and explains the differences in localising strategy. The fact that merchants from the same sector wished to group together and concentrate their pulling power is not very different from what we see today in big cities with the concentration of luxury stores in the same neighbourhood.
The foundational event worth mentioning here is the creation in 1851 of the world's first department store, Le Bon Marché, in Paris. The idea behind it was that, for the first time, ready-to-wear clothes for men and women, shoes, kitchen utensils and suchlike would all be sold together in the same store. As always, when an idea is good, it is quickly emulated and in 1856 the first American department store, Macy's, opened in New York, where it still stands now.
As time went on, the appearance and the system of presentation of the products in department stores were strongly influenced by technical innovation. In 1869, the first elevator was installed in a Parisian store, making it easy for customers to go from one floor to another, and also making it possible to present products on four or five different levels.
Yet another innovation, which dates back to 1892, influenced the cadence in all department stores in the world: the escalator. This allowed customers to go from one floor to another at their own pace, without having to wait for a lift. Escalators have thus defined the space of almost every department store today: a central well in the middle of a hall as large and impressive as possible, sometimes crowned with a dome; the escalators moving through this well, allowing customers to go from one floor to another as and when they wish. The first escalators were installed in Harrods in London in 1895.
Mitsukoshi Nihonbashi, the first Japanese department store, was opened in Tokyo in 1915.
The year 1919 is also another very important date: the first air conditioning system was installed at Abraham & Strauss in New York. Since then, department stores no longer need windows. Air conditioning does away with the need for windows for ventilation and, in some cases, for doors that open onto the street: stores could be integrated into a gallery or mall. Boutiques therefore do not need windows anymore, except, of course, as showcases for presenting products. The appearance of department store buildings remained more or less unchanged after that, much like we know them today.
In 1922, the first shopping centre, the Country Club Plaza, was opened in Kansas City and the appearance of these centres has remained virtually unchanged for the past 95 years, with very little innovation, except for the first duty-free store that opened in 1957 in Shannon Airport, Ireland.
On another plane, we should mention the appearance of the first electronic cash register in 1970 and the first optical reading device in 1975. Before these dates, it would have been difficult to imagine that every product sold in the world would one day have its own code easily decipherable by a machine.
Today's department stores, shopping malls, shopping arcades and duty-free outlets are in fact the end products of 150 years of innovation and development in distribution.
The Various Types of Sales Outlets
Wholesale and Retail Sales There are in fact two methods to present products to the consumer: having one's own store, to fully control customer relations (retail), or selling to stores that will present the products to their customers themselves (wholesale). This distinction applies, of course, to brick-and-mortar stores. The same difference also exists in the digital domain. Celine, for example, sells its shoes through their own website (retail) but also sells them on the ‘Net-a-Porter’ website (wholesale). In both cases, the selling price to the consumer is the same (same retail price) but in the second case (through Net-a-Porter) Celine has to pay a retail margin to the platform.
At first glance one might think that the wholesale option (through independent multi-brand outlets or online sites other than that of the brand) is simpler, because the brand would have practically nothing to do and it would not have to tie up its capital in store ownerships and stocks. But, of course, it would have to share its margin with the respective stores.
On the contrary, one might think that it is easier to sell exclusively through directly operated stores and save the entire margin. But is the brand reputed enough to attract customers and persuade them to enter their own stores? Also, is the purchase important enough to a customer to motivate him to go and buy the product directly? An example may make the issue clear: would Hermès sell more bottles of its cologne, Eau d'Orange Verte, if it sold this product in all the perfumeries in Paris or by reserving it exclusively for its own boutiques in Paris?
Directly Operated Stores Directly operated or independent stores seem to have priority among many brand managers.
Of course, when a brand acquires a strong power of attraction, and it disposes of sufficient financial means, it could be tempted by this system, which enables it to determine consumer reaction to a new collection or a new product early in the game. But developing a large network of directly operated stores somewhat changes the manner of functioning of a brand that creates exceptional products: it would have to become a manager of these sales points, and the priorities of the brand, its organisation and the use of its financial resources may be affected. Selling, as we will see later, is a real profession. Most luxury brands – structured around creation – did not have ‘retail’ skills and acquired them over time.
Partner Stores To a customer, partner stores (or TPOS – Third-Party-Operated Stores) are outwardly similar to a directly operated store: they use the same concept, the same decor and the same layout as a directly operated store and the client would not be able to tell them apart. They display the brand's products in exactly the same way as the original store in Paris or Milan, but they are managed, financed and developed by an intermediary.
The intermediary is sometimes a ‘franchisee’ who is interested in a particular brand that is not found in his chosen territory (Toulouse, for example, for a French brand, or why not in Astana in Kazakhstan?). The franchisee undertakes to open a store, fully respect the concept of the brand, buy a minimum quantity of the brand's products from each collection, and pay the brand a percentage of its turnover in the form of royalties (in general, 2–5%). In exchange it will be granted territorial exclusivity for the duration of the contract.
This system is widely used by national fashion brands with a ‘premium’ price category. They use several franchisees in the same country, each having exclusivity over a city or part of a city.
For luxury brands, the intermediary is more often an exclusive distributor in a particular country (for example, China, Japan or Russia). It will be granted territorial exclusivity and will choose, with the brand, the cities where it will be installed in priority. The exclusive distributor invests directly in the building of a network of exclusive boutiques and will be granted a long-term contract (sometimes more than 20 or 25 years). In such cases, the distributor would have to ensure the advertising and digital media presence of the brand and its public relations in the country.
Lastly, there exists a specific type of exclusive distribution, where the luxury brand operates in a country where foreigners do not have the permission to hold majority stakes in a subsidiary. The brand's management therefore decides on an exclusive distributor who will become the majority shareholder of the local distribution subsidiary. This majority shareholder also has to respect the guidelines of the brand in the design and decor of sales outlets, and will ensure the logistics of the brand in a particular territory. As mentioned above, in certain countries such as Kuwait, Qatar, Thailand, Vietnam and many others, a foreign shareholder cannot hold majority shares in a distribution subsidiary.
Department Stores Traditionally, department stores were created to obtain supplies of various kinds of products, purchase them, and have the specialised staff to present them to customers at suitable counters. Department stores have therefore to accomplish a range of tasks:
Finding and selecting products.
Purchasing, receiving and storing of the products.
Paying for the products, sometimes before they are received.
Display on a counter.
Presenting the product to customers.
Selling and other activities by sales staff.
Collecting the proceeds.
These, therefore, are a combination of financial, logistics, merchandising and commercial services.
Today the major luxury brands are sold in shops-in-shops. Here the department store provides the space (almost like a real estate agent), the luxury brand decorates it at its own expense, hires and trains the sales staff, provides them with a uniform and remunerates them. It selects the products that will be most suitable for that particular sales point and, in many cases, retains property rights until the day of the sale. The department store merely collects the sale proceeds, retains the retail margin and transfers the wholesale amount to its ‘supplier’. Its function simply consists of:
