Luxury stores need to put the brakes on their expansion plans and get used to the new reality. That’s the conclusion of a new report from Boston Consulting Group (BCG).
Now, the natural response to that might be “tell me something I don’t know”. But it’s interesting. The fact is, department stores, big chains and others have been looking at their store strategies and taking tough decisions about closures for a while. But luxury, even in the face of the recent downturn, seems to have had a sort of buffer zone… until now.
BCG now says they’ll need to rein-in plans to open in some cities and even close some of their oh-so-expensively-created existing stores.
It says there are too many stores in Asia (Seoul, Singapore, Taipei, Hong Kong, Shanghai, Beijing, and even Chinese Tier 2 cities, including Tianjin and Chengdu). But there are too few in US cities like Dallas, Boston and Washington DC.
The big six tourist cities, New York, Tokyo, London, Paris, Seoul and Hong Kong, look like being reasonably OK with enough visitor traffic to support multiple stores,
So why is this change happening? Well luxury is facing the same headwinds as the rest of us. The product may be elevated, the shoppers may have more discretionary income, But when it comes to underlying trends, Prada’s no different from a branch of Macy’s or Next.
That means luxury consumers are prioritising experiences over ‘stuff’; they’re moving online fast so stores are becoming less profitable; and China’s period of explosive growth is so over.
We’re already seeing some reaction to this with initiatives like Italy’s Altagamma linking with upscale fashion labels to offer luxury ‘experience visits’ (visiting a Bottega Veneta workshop or a Pucci design studio, for instance). But there’s not been enough so far.
Is Experience really likely to take Product’s luxury crown? Luxury rose at an average 9% annually from 1996 to 2001 and carried on growing fast in quite a few years this century, even with the economic downturn of almost a decade ago. But BCG is predicting growth of just 2% to 4% between 2015 and 2022.
In 2014/15. Luxury experiences grew 4.2% to €522bn. But personal luxury spending rose only 1.6% to €323bn. And that was a trend seen among both Millennials and older consumers.
That means the closures so far for brands like Prada and Ralph lauren might just be the tip of the iceberg. And BCG is saying luxury brands need to think differently about their stores too. Treating causal browsers like they matter might be a good start. But the chip on my shoulder apart, BCG says a store can no longer be just an emporium offering yet more stuff. It has to tell the brand’s story, talk about its heritage and make the customer feel a part of all that. Tall order maybe, but it has to be done.
Some are already doing it. The report cites Lane Crawford’s athletic experience The Fit Room, The Burberry Booth channelling consumer-generated content and Memory Mirrors, interactive screens and other digital touchpoints at Neiman Marcus.
It’s a shame there aren’t more good examples.