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09/21/2021

Luxury Retail Evolution Requires Seamless Blending of Digital And Physical

Currently, the luxury sector is undergoing a transformation. There’s the move from physical brick-and-mortar stores to digital platforms. Bain reported that the proportion of sales online nearly doubled from 12% to 23% from 2019 to 2020. This represents five years of growth.

Digital is expected to become the main channel for luxury purchases by 2025. Therefore, it is not surprising that physical stores are shifting from transactional to experiential.

There are also other movements in the luxury sector. Customers are increasingly demanding personalized shopping experiences, and they are expecting outstanding customer service across all touchpoints. We are now in an era of greater expectations set by the likes of by Amazon, Netflix, Tencent, Alibaba and other global online players. Now high-spending shoppers increasingly want choice, convenience, and competitive pricing, along with club lounge style assistance.

And, while this is happening, there are two seismic challenges going on in parallel, both of which have a huge influence on the luxury sector. Firstly, brands are struggling to define what customer experience really means to them or their customers in the digital age. Secondly, this comes at a time when customer expectations are rising.

Let’s explore the challenges – and opportunities – further.

Physical Stores Struggle -- in Silos
A combination of Covid-19, high rents and business taxes have put intense pressure on physical stores. High fixed costs have hit physical luxury hard. In 2020 the overall luxury market, encompassing both luxury goods and experiences, shrank by 20% to 22%, according to research by Bain, taking us back to 2015 levels. In 2021, although the market is expected to recover 50% of the profit loss of 2020, it still remains below 2019 levels.

While legacy stores have continued to operate, the speedy evolution and rise of online luxury has led these two focal points of the business to work in silos, not as integrated systems. However, the offline and online luxury customer journey should not be mutually exclusive. Internal education and a culture change is needed within organizations, and, in some cases, the pandemic has accelerated a mind shift in the right direction.

Technology Presents Obstacles
Legacy systems also exist, as does the manual management and input of product data and content. There are also many dated processes such as buying teams not coordinating online and offline systems.

Buying and merchandising platforms are often managed separately with many siloed databases. Third-party logistics companies will use one system, while separate enterprise resource planning (ERP) platforms and electronic point-of-sale (EPOS) systems sit alongside, yet separate, to clunky eCommerce solutions. This creates a serious issue when it comes to knowing the overall stock position of the company at any one time. This can lead to mass discrepancies when physical stock counts are undertaken across the business, with limited or no loss prevention strategy in place.

Historically, these kinds of issues are reflected at the boardroom level as well. There has been a lack of IT and digital understanding among the C-suite, and this is reflected in limited investment in technology platforms. However, this is now changing and at speed.

Stock Control can be Difficult
As mentioned, stock control can also be a significant challenge; often inventory is sitting in different locations in warehouses. Other times merchandizing teams move stock from warehouse to store, then from store to store, and then from store back to the warehouse — all in a day’s work. Each movement adds to a significant carbon footprint, more staff time, and lower margins.

Getting stock levels correct is a key area that brands need to focus on as part of their digital transformation. Yet many have failed to get this right. More than 50% of experiences of out-of-stock products on a brand’s website or online advertisement result in the same product being found in one of the brand’s physical stores, outlets, or concession partners. This results in a lost sale.

Brands need to focus on their supply chains and account for stock. Customers now want to check stock availability on their mobile phones and locate stores where that product resides, but many retailers are failing to have a single view of their inventory across their business.

Gleaning Customer Insights is Essential for Success
Right now, in the digitally-led retail environment, almost anything can be tracked. The direction of businesses in the luxury sector should be determined by real data that has been recorded, identified, analyzed, and translated into key actions. These actions are based on longer-term and robust strategies that have been developed with the customer at center stage. Key strategies should also be underpinned by changing consumer behaviors. The data doesn’t lie.

Luxury brands and retailers need to adapt to the differing demands and behaviors of their customers. In this process, tracking the right key performance indicators is therefore vital, as is understanding relevant customer touchpoints.

The Future of Luxury Retail
The growth of eCommerce and the required seamless blend between online and offline channels is here to stay. It offers a lot of potential. Yet many brands are only starting to master their digital presence and digital shopping capabilities. Brands are only beginning to understand how online channels compliment the physical store experience as well. And knowing how to put the customers’ needs at the heart of all of this is vital.

The craving for personalized, physical retail in city centers is not going away any time soon. Locations like Fifth Avenue will become a destination again over time, however, expect a reinvented space

with more social, entertainment and leisure facilities mixed in with the usual shopping experiences.

The future is one of shoppertainment, including indoor golf, ski slopes and climbing walls, restaurants

and physical stores alongside each other with more interactive retail experiences. Maximizing this opportunity, future-looking brands will utilize their prized outlets as showrooms to showcase product ranges with compelling content and create events for a more social lifestyle.

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