Executive Briefings

Luxury Goods Retail: A Value Chain Worth Knocking Off   

March 2008 financial results and recent consumer sentiment surveys confirm many executives' fears that retail is getting hit by the economic uncertainty consumers are feeling. The reported drops in revenue include some particularly steep percentages across retail segments, from specialty apparel to luxury department stores, further evidence of how broad based this downturn may be in the consumer segments.

The luxury retail segment offers important lessons on how to improve the customer experience, integrate demand-driven methods into product design and execution, and develop industry leading innovative methods to maintain loyalty. We offer the following lessons to help retailers and manufacturers integrate similar best practices into their own operations.

Best practice No. 1--Create a compelling shopping experience with layout and insightful employee interactions

Store layouts in the higher end boutiques, are not large (just 2,000 to 5,000 square feet), yet manage to not be claustrophobic either. These stores use fixturing, indirect lighting, and lack of product density to help create a more amiable atmosphere for shoppers.

As a result, shoppers have room to move easily throughout the store in well-delineated shopping sections, and product layout isn't confused with enormous display diversity or overly dense, mixed or mismatched garments.

As shoppers move toward the back of the store, they see an off-the-runway section of seasonal collections with 360-degree areas to sample and select product. Ample mirror areas (oftentimes floor to ceiling) and runway video screens provide visual cues about the exclusivity of the product.

Consumer and employee interactions are generally superb, our research showed. Luxury stores have a gaudy 2-to-1 employee-to-customer ratio, providing an incredibly personal, unique shopping experience that encourages interaction and ensures deep customer knowledge as well as wonderful opportunities to extend sales.

The level of training is high, as well, with employees frequently showcasing exceptional depth of product knowledge and uncanny decorum (when and how to ask pertinent questions) even when asked outrageous questions.

Best practice No. 2--Relentless focus on speed to market but limited or no replenishment

Whether luxury product is destined for a company-owned store or offered in a higher end department store, design leadership and speed to market continues to distinguish these brands. Making runway fashions ready-to-wear and getting them in the hands of eager shoppers requires a well integrated, coordinated, and thoughtful approach to planning and execution.

Luxury retailers have had significant success managing narrower collections of garments and accessories, producing smaller lots (albeit with much more detailed fabric, trim, and construction requirements), and simplifying operations. They also mitigate risk by removing most replenishment and limiting the product on-shelf lifecycle.

Luxury retailers have also been continuing to closely emulate supply chain juggernaut Zara, which continues to break the conventional speed barrier with tightly controlled and integrated design, manufacturing, and demand-driven product management. Zara's latest innovations involve implementing store-level technology that provides managers more control over ordering product and choosing among distribution options that speed the shipment of in-demand products. The result has been further reduced lead times that put an even greater challenge in front of retailers hoping to compete.

Best practice No. 3--Appropriate technology speeds innovation and customer insight

In-store technology for luxury goods is more focused on simplicity and reducing the focal point during the transaction. Few (none in our sample) engage high-tech support such as PDAs or kiosks, and, in most cases, checkouts were de-emphasized with registers hidden to the point of invisibility.

While these retailers de-emphasize the commercial transaction to an extreme, it added to the comfortable, exclusive nature of the experience. On the flip side, the ubiquity and familiarity of handheld devices means that even luxury goods shoppers would likely be comfortable with an employee using a PDA to access their customer record and tailoring the in-process shopping experience to take into account personal shopping history and known preferences.

Luxury can move to mass retail: Luxury goods retailers' focus on quality of design, speed to market, and comfortable, even simple, shopping environments with thoughtful, well-trained, and neatly dressed employees is a powerful model. It's a good baseline for many aspiring midrange and upper-scale specialty retailers and vertical manufacturers.

Retailers that are truly demand-driven will set themselves apart from the competition by choosing particular points of service at which to excel. By selectively adopting the practices used by luxury goods retailers, midtier merchants can win longer-term customer relationships; reduce employee turnover, and lower cost to serve while standing out from the commoditized, indistinguishable marketplace most shoppers experience.
http://www.amrresearch.com

March 2008 financial results and recent consumer sentiment surveys confirm many executives' fears that retail is getting hit by the economic uncertainty consumers are feeling. The reported drops in revenue include some particularly steep percentages across retail segments, from specialty apparel to luxury department stores, further evidence of how broad based this downturn may be in the consumer segments.

The luxury retail segment offers important lessons on how to improve the customer experience, integrate demand-driven methods into product design and execution, and develop industry leading innovative methods to maintain loyalty. We offer the following lessons to help retailers and manufacturers integrate similar best practices into their own operations.

Best practice No. 1--Create a compelling shopping experience with layout and insightful employee interactions

Store layouts in the higher end boutiques, are not large (just 2,000 to 5,000 square feet), yet manage to not be claustrophobic either. These stores use fixturing, indirect lighting, and lack of product density to help create a more amiable atmosphere for shoppers.

As a result, shoppers have room to move easily throughout the store in well-delineated shopping sections, and product layout isn't confused with enormous display diversity or overly dense, mixed or mismatched garments.

As shoppers move toward the back of the store, they see an off-the-runway section of seasonal collections with 360-degree areas to sample and select product. Ample mirror areas (oftentimes floor to ceiling) and runway video screens provide visual cues about the exclusivity of the product.

Consumer and employee interactions are generally superb, our research showed. Luxury stores have a gaudy 2-to-1 employee-to-customer ratio, providing an incredibly personal, unique shopping experience that encourages interaction and ensures deep customer knowledge as well as wonderful opportunities to extend sales.

The level of training is high, as well, with employees frequently showcasing exceptional depth of product knowledge and uncanny decorum (when and how to ask pertinent questions) even when asked outrageous questions.

Best practice No. 2--Relentless focus on speed to market but limited or no replenishment

Whether luxury product is destined for a company-owned store or offered in a higher end department store, design leadership and speed to market continues to distinguish these brands. Making runway fashions ready-to-wear and getting them in the hands of eager shoppers requires a well integrated, coordinated, and thoughtful approach to planning and execution.

Luxury retailers have had significant success managing narrower collections of garments and accessories, producing smaller lots (albeit with much more detailed fabric, trim, and construction requirements), and simplifying operations. They also mitigate risk by removing most replenishment and limiting the product on-shelf lifecycle.

Luxury retailers have also been continuing to closely emulate supply chain juggernaut Zara, which continues to break the conventional speed barrier with tightly controlled and integrated design, manufacturing, and demand-driven product management. Zara's latest innovations involve implementing store-level technology that provides managers more control over ordering product and choosing among distribution options that speed the shipment of in-demand products. The result has been further reduced lead times that put an even greater challenge in front of retailers hoping to compete.

Best practice No. 3--Appropriate technology speeds innovation and customer insight

In-store technology for luxury goods is more focused on simplicity and reducing the focal point during the transaction. Few (none in our sample) engage high-tech support such as PDAs or kiosks, and, in most cases, checkouts were de-emphasized with registers hidden to the point of invisibility.

While these retailers de-emphasize the commercial transaction to an extreme, it added to the comfortable, exclusive nature of the experience. On the flip side, the ubiquity and familiarity of handheld devices means that even luxury goods shoppers would likely be comfortable with an employee using a PDA to access their customer record and tailoring the in-process shopping experience to take into account personal shopping history and known preferences.

Luxury can move to mass retail: Luxury goods retailers' focus on quality of design, speed to market, and comfortable, even simple, shopping environments with thoughtful, well-trained, and neatly dressed employees is a powerful model. It's a good baseline for many aspiring midrange and upper-scale specialty retailers and vertical manufacturers.

Retailers that are truly demand-driven will set themselves apart from the competition by choosing particular points of service at which to excel. By selectively adopting the practices used by luxury goods retailers, midtier merchants can win longer-term customer relationships; reduce employee turnover, and lower cost to serve while standing out from the commoditized, indistinguishable marketplace most shoppers experience.
http://www.amrresearch.com