Retail in the luxury sector
If there is one segment that perfectly encapsulates the transformation in which retail is immersed, it is luxury.
Faced with the inevitable increase in e-commerce sales in recent years, a phenomenon that shows no signs of slowing down, 80% of luxury purchases will continue to be made in physical shops, according to McKinsey forecasts.
80% of luxury purchases will continue to be made in physical shops.
Luxury retail: digitalisation shakes up the realm of the physical shop
Why is this happening and what makes the mix between physical shop and luxury so explosive?
First and foremost, customers who want to buy these products always demand a personalised experience and exceptional service. Convenience, assistance, pre- and after-sales service are some of the “demands” that the physical shop can satisfy with greater guarantees than the digital one. In other words: the shopping experience is crucial for this type of consumer.
A fact that, curiously enough, fits in very well with the data of millennials and the new generations. They currently account for more than 30% of all luxury consumption, and this figure is expected to rise to 55% by 2025. Despite being 100% digital, despite their daily impact on social media, it is highly likely that the final purchase or the cherry on top of their purchase will be in a physical shop of each brand.
That is why, more than ever, luxury brands must strive to make their spaces and shop windows different and memorable, to build customer loyalty, to offer unique experiences to the taste of this type of consumer, whether “old school” or “new school”. To do this, betting on the phygital experience and technology is perhaps the best solution, but not the only one. Luxury shops know that the human factor is fundamental to every purchase, so in addition to the space, the salesperson and the product itself have a lot to say.
Retail, metaverse and luxury: taking advantage of the benefits
At CAAD we have already told you that retail has both eyes on the metaverse. What else could it be? Not for nothing, it is estimated that 75% of the world’s socially networked population will use augmented reality, according to Deloitte, and 10% of luxury sales in the coming years will take place in the metaverse.
The twin industries of fashion, art and beauty embrace this new paradigm of virtual commerce possibilities, a source of revenue with minimal investment. In fact, many luxury brands have spoken about their plans in the virtual environment, seeing an opportunity in the “new world” to reach younger people. Ralph Lauren and Balenciaga, for example, have already decided to start a digital conversion. This is therefore an excellent opportunity for the retail sector.
10% of luxury sales in the coming years will take place in the metaverse.
The luxury market in figures
V-shaped recovery and an upward trend. That is what the personal luxury goods sector has experienced in the last two years, especially in 2021. After a significant contraction in 2020, the personal luxury goods market grew by almost 30% (€283 billion) in 2021, increasing by 1% against 2019 levels.
Bain & Company estimates, moreover, point to this personal luxury goods market potentially reaching up to €380bn by 2025, with sustained growth of 6-8% per annum. And while it remains below 2019 levels, changes in asset experiences will inevitably underpin its strength.
The preponderance of the online channel (it has doubled in the last two years), the resumption of local consumption and the China-US pairing, together with the growth of this market among Generations Y – Z, have favoured this boom in luxury brands. These, in turn, are becoming manufacturers of products with a high profile and a commitment to sustainability.
In short, Covid’s emergence from the crisis has meant a renaissance for luxury brands. America remains the world’s largest luxury market (89 billion euros – 31% of the global market), but China now accounts for 60 billion euros (21%), with the Middle East, Dubai and Saudi Arabia leading the growth.
The pandemic, a launch pad for the consumption of premium products
Call it luxury, call it premium. The truth is that since the outbreak of the coronavirus pandemic, sales figures for high-end products, in all their aspects, have skyrocketed. Especially in consumer technology, driven by an increased demand for home devices. In fact, high-end electronics today account for 7% of sales and by 2026 they will account for 16%, as a result of the great interest shown by consumers in new products in the consumer sector. So much so that in 2020, 44% of new launches were premium, according to Nielsen data.
Luxury moves to China
Luxury brands are moving away from Europe to open shops in China. That is the main conclusion of a recent study published by Savills, a British real estate consultancy. According to the study, Chinese luxury consumers are shopping more than ever in their own country rather than going on holiday abroad. Thus, 55% of luxury shop openings in 2021 were in the Chinese market, and 21% of spending on luxury goods was in China in 2021. In Shanghai alone, 16 major luxury retail projects were launched last year.
At the same time, the Middle East is also experiencing an upturn in openings, conditioned by recent changes in government policy, allowing international brands to enter directly and seek to regain full control of their shops, beyond franchisees. Thus, Cairo, Saudi Arabia and Bahrain are the spearheads for luxury retailers at present.
This is at the expense of the European market, which has fallen from 35% to 19% in terms of luxury shop openings. At the same time, there is also a concentration among luxury operators who are expanding their networks. In 2021, 41% of openings were made by the three heavyweights of the sector, LVMH, Kering and Richemont.
55% of luxury shop openings in 2021 were in the Chinese market, and 21% of spending on luxury goods was in China in 2021.
Trends in luxury retail
After passing the real test for the retail sector that has been the coronavirus, with forced shop closures, home quarantines, etc., consumers have also evolved and their expectations have changed. And of course, so has the average luxury customer. It is therefore interesting to know the trends in the luxury market in the short and medium term:
– The user comes first: The priority is once again to put the user at the centre of all decisions, so the packaging and selection of products for sale will be in line with the demands of this niche.
– Omnichannel & contacless: Omnichannel strategies, digitisation at physical points of sale, contactless payments, scannable labels…
– Sustainability: Yes, luxury is also betting on this key factor in the purchasing decision. In fact, the fact that consumers prefer to buy something more expensive and durable and repair it rather than throw it away and buy it indicates where this trend, known as “alargascience”, is heading.
– Mixing: Major brand innovations will continue to be launched in mixed events, streaming to the world and with physical shows. The virtual assistant is here to stay.
– More openings: Retail and physical retail has a lot to say now that we will be able to travel freely again, without parapets. This will translate into more demand for retail land, as many luxury brands are considering opening more and new physical outlets to meet the demands of consumers halfway around the world.
– Social networks as an aspirational catalogue: The new luxury communication will continue to be clearly linked to social networks, a new living and aspirational catalogue where you can get to know any product or brand first-hand and even interact with it.
– Storytelling: The identification of the brand with a history and tradition is something that weighs heavily on luxury brands, usually with many years of history behind them and always betting on the artisan, the family and the traditional.
Case studies and examples of the most up-to-date physical luxury retailing
In the image of its flagship store on Avenue Montaigne in Paris, Christian Dior Couture has opened a pop-up store by constructing a building out of nothing in Seoul.
Surrounded by gardens, its design is inspired by a greenhouse, with shiny steel and glass taking centre stage.
© Copyright. Gucci
This is where the brilliant black bamboo sculpture by the extraordinary Japanese artist Chikuunsai Tanabe IV presides over Gucci’s flagship store in Ginza (Tokyo).
It symbolises the connection between the brand’s past and future with sinuously shaped branches emerging from the shop’s floor and connecting it to the ceiling.
© Copyright. Dior / Photography: Kyungsub Shin
Moët & Chandon Canal House is a pop-up champagne bar that has hosted events in the city of Amsterdam. It is housed in an early 18th century building, which is part of a group of landmark buildings called ‘The Collection’.
Inside, we find a luxurious space with black and white marble details, gold chrome finishes, chandeliers (gold of course) and an extraordinary detail in the bar area: hanging bubbles from the ceiling in white and gold inspired by Moët & Chandon glasses.
© Copyright. Moët Hennesy
A luxury for the palate at the pastry shop ‘Lisette’ in Ankara (Turkey), an extraordinary experience for an elegant breakfast. The brass and stained glass façade is surprisingly reminiscent of a luxury jewellery shop. But inside you will find true luxury with floors, walls and furniture in handmade terrazzo with a variety of marble inspired by the unique ingredients of the brand’s chocolates.
© Copyright. Lisette / Photography: Ibrahim Ozbunar