Luxury Retail: Turning Affluent Austerity into Retail Prosperity

lux_retailI got a call earlier this month from a freelance reporter who follows my beat – research on the affluent consumers and the luxury market. As she walked through the Time Warner Center on Columbus Circle on her way to the subway at midday, she found the halls and high-end boutiques unexpectedly empty. The only store seeming to do any business was Whole Foods. She wanted to know, “What’s up?”

I shared a similar experience visiting the Tysons Galleria, in McLean, Virginia, located in one of the nation’s highest-income counties. Walking through the mall on a weeknight, there was a remarkable lack of customers. The most active shop in the whole place that evening was the Starbucks café. [Read more...]

Apple Addicts Still Mainline Steve Jobs

X Japan Wax Figure UnveilingExcerpted from the New, New Rules of Retail
By Robin Lewis and Michael Dart

On January 9, 2007, on a big stage at the Macworld convention at the Moscone Center in San Francisco, Steve Jobs unveiled the first iPhone. With the already unprecedented cult following of Apple—and for that matter, of Jobs himself—this would be the first of many launches that would further fuel one of the most powerful brand-consumer connections ever.

This unveiling, of course, was merely the warm-up. Steve Jobs’ grandly staged presentation would trigger an intense anticipation among Apple “addicts” that would be satisfied only by the actual sales release of the iPhone itself.

This would happen at 6:00 PM local time on June 29, 2007, as the doors opened at Apple Stores nationwide to welcome hundreds of cult followers anticipating their fix, so to speak. Some media sources at the time were dubbing the iPhone the “Jesus phone.” In fact, in New York City the line started forming twelve hours before Apple’s flagship store opened and ended up winding around two city blocks, or roughly a quarter mile, with more than a thousand avid cultists in it. Some had even camped out overnight. Obviously the Apple addicts had learned that if they wanted the new phone, they had better be present when that door opened, or be forced to wait for weeks.

Apple’s connection with its consumers has gone way beyond the simply emotional. It has succeeded by actually connecting with their minds. In our updated second edition of The New Rules of Retail, released on August 12, 2014, we called this neurological connectivity. [Read more...]

Who Will Buy?

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Uber.com

Millennials Opt In To a Rent-a-World

Who will buy this beautiful morning? What about renting it? What about renting it on Airbnb? What if you could rent this beautiful morning with clean sheets for $150 and be done with it?

It’s a Renter’s Market

Millennials have bypassed their small net worths through membership programs that rent them early access to nearly everything they could need. Never mind buying a second home when you can rent a chateau in France on Airbnb for $200. Why hire a chauffeur when they don’t come with an app that tracks their relative location to yours, like Uber? Even owning the latest album of your favorite band feels a lot less appealing when you can stream it immediately on and offline with a Spotify pro membership, without taking up any space on your hard drive. Music, transportation and hospitality aren’t the only industries being hit, of course; retail rental start-ups, including Rent the Runway and Bag Borrow or Steal are betting that you really don’t need to keep that evening gown or this season’s It designer purse at five times the price of a rental.

Tasting Over Consuming

A 2012 Atlantic feature calling Millennials “the less-owning generation,” cited a federal study in which the share of young people getting their first mort-gages between 2009 and 2011 is half what it was just 10 years ago. What’s more, the new renter’s market makes it more cost effective not to own, with the quality and quantity of rental goods and services surging. Start-ups focusing on work environments like NeueHouse, a workspace club whose membership caters to creative “solopreneurs” and businesses under 10 years old in New York’s Flatiron District, allow Millennials to rent studios, desks, and even just entry to the club. NeueHouse’s facilities and resources are distinctly more hospitality-driven than OfficeMax, and their membership is very selective. Concierges can as easily order a catered lunch for 10 as they can give you a shortlist of video producers for your 60-second product reel. NeueHouse plans to expand to Los Angeles and London this year, hoping to build up to 20 locations by 2020.

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RenttheRunway.com

The digital version of this rentable luxury is SquareSpace’s highly designed, highly mobile, and hardly-any-assembly-required website templates that let small businesses get started online with their own websites and domains for a $16 monthly start. Surface magazine, a forerunner of Millennial fashion and design tastes, rents studio space in NeueHouse and has just moved their website to a SquareSpace template. Two for two, and counting.

Banking on Entitlement

Brands that truly understand the Millennial consumer are banking on the Next Gen’s fabled sense of entitlement, and are positioning themselves as connectors to lifestyle upgrades. Transportation industry disrupter Uber used this sense of entitlement and applied it to the experience of having a private driver with their “Everyone’s Private Driver” tagline, along with a stellar mobile interface and different price point options of taxi to black-car service. But the real coup in connecting to the private-driver experience was a payment-less exchange. Uber’s interface connects your beginning and end destinations and processes online payment without any further exchange with your driver; you just get out and get going.

The Standard of Living Hang-Up

This appeal to Millennials’ feeling of entitlement works particularly well because of dually negative and positive reinforcement. Negative reinforcement comes from the five years of wolf-crying from the press, damning Millennials to a lower standard of living than their Boomer parents. (Pew released a recent report on Millennials’ lag to rejoin the housing market and declare themselves heads of households.) Positive reinforcement of Millennials’ entitlement comes directly from, whom else, the first Generation Me: their parents, the Boomers. Their mantra is, “If I lived alone in the East Village in 1973, why shouldn’t you?” Never mind that 200% rent markup.

Standards still need to be maintained. Boomers say they need a set of white wine and a set of red wine glasses to entertain in that said apartment, right? Right. Boomers’ high earnings during their early bread-winning years have affected the current generation’s expectations of acquiring the same household goods, clothing, entertainment, and travel. Even with an almost 60% drop in net worth from Boomers in their twenties to Millennials in their twenties, Millennials’ expectations of a reasonable standard of living have changed very little. The real change has been in size reduction, asset reduction and the level of investment in expanding their access professionally, culturally, sartorially, even romantically. The Millennials’ standard of living is a pragmatic mash-up of owning, renting and third-party resources. And they are proud of it.

Tree house

Airbnb.com

Millennials Are Not Having a Possession-less Moment

The nature of the Millennial buyer was changed by the Recession and then morphed into a consumer whose net worth is low, yet whose standard of living is high.

But to misinterpret the Millennial renter phenomenon into thinking that Millennials do not value possessions would be a big mistake. It is not that Millennials value their earthly possessions less, it is that they value access to higher quality possessions and services more. To give it to you from my perspective: would you rather commute to work in a car every day or have a private driver pick you up twice a week? And let’s face it, how many possessions do you really need in a 400-square-foot micro-unit apartment? What Millennials are doing is leapfrogging from the traditional route of buying modestly in the beginning and then trading up as they become more affluent, to going for the gold out of the gate, even if they don’t own it outright.

The Retail Gap

Retail brands have really missed the opportunity of this trend by offering aggregated, high-quality rentable goods and services. Why do retail brands depend so heavily on dispersed outlet locations to unload this season’s collections when they could rent them? Why don’t more stores have a leasing program where you could, for example, change sunglasses every season? The concept of ownership is turning on its head, with Millennials leading the charge.

So who would buy? This preference towards immediate, temporary access is particularly enticing for luxury brands trying to acquire the Millennial. With rentable luxury goods, they can experience luxury and sample a whole range of products and brands, now. The companies that foster a sense of connoisseurship through offering these programs will earn our loyalty and trust. I encourage retailers to look at Rent the Runway, Uber, Airbnb, NeueHouse, Warby Parker, Spotify and SquareSpace as disruptive innovators who could very well reinvent the new rules of retail.

A Hopeful Look at the US Department Store in 2014

Macy's Sign Herald Square ManhattanCreative destruction, change management, business transformation —call it what you will, but something’s underfoot in the department store channel. After decades of ceding market share to specialty formats and channel consolidation, has the worm finally turned?

In addition to economic and consumer malaise, mall traffic, and thus store traffic, is the problem. With the Internet’s 24/7 access, price transparency and free shipping, combined with a fruitless in-store search for a size, color or sales clerk, who needs a brick-and mortar-department store? It used to be a destination to see the latest trends in color and silhouette, interpreted by a bevy of national brands, and curated by retail buyers with a clear fashion sense as well as an understanding of their customer base. Nowadays, social media, Instagram and fashion bloggers are more personable than the average sales clerk. And that source of style and fashion curation is more robust. A trip to the mall has become a chore … and just so boring. [Read more...]

Passion Can’t Be Found In A Spreadsheet

iStock_000021559265SmallThe distance between Vere and Portman streets in central London is 528 yards; an easy walking distance encompassing the two solitudes of retail today: stores that behave as product sheds and those that behave like retail theater. Taking center stage in the dichotomy are three stalwarts of the British department store industry: Debenhams at the start; Selfridges in the middle; and Marks & Spencer at the end. The headlines on these companies say it all:

“Debenhams shares dive…the biggest obstacle to profits comes from a higher level of discounting as the retailer struggles to attract shoppers…”

“Marks & Spencer’s recent figures show the retailer losing market share faster than any of its rivals…”

“Selfridges turnover for the year is ahead 9% while pre-tax profits rose 40%…”

But the headline I find most illuminating of all is this:

“The latest problems at Debenhams will pile pressure on its finance director, Simon Herrick, who was already seen as likely to exit the company…”

If businesses are to prosper they need customers who are engaged and willing to spend, and I can assure you the lack of interest on the part of shoppers for Debenhams isn’t because of Mr. Herrick’s finance competency. While this headline comes from an analyst, it’s indicative of a common corporate failing: too often finance departments are asked to make right in a business what it takes an entire executive team to figure out, namely how to be more meaningful to a buying public who has the freedom to spend their time and money wherever they want.

Success and Failure in Retail Neither Begins Nor Ends at the CFO’s Door

Where these stores are located is the area of Oxford and Regent streets in central London, home to one of the world’s premier retail districts. Every year 150 million shoppers put the lie to the notion that ‘stores are dead’ and many pass the windows of Debenhams, Selfridges, and Marks & Spencer. There are clearly plenty of prospective customers, but they show a declining desire to make two of those stores a destination. A simple visit to these fading retail icons and you’ll immediately understand why: bad lighting, inelegant visual merchandising, and disinterested staff in the fading stores, whereas Selfridges is famed for its excitement and dynamism. The two in trouble feature environments where dreams of fashion and style go to die; in the stand-out you’ll find experiences that draw people in record numbers who are willing to pay more, and seem to do so gladly based on the numbers. And remarkably, executives of all three can walk the floors of their competitors in five minutes and experience what makes the difference.

So it makes you wonder: can retail executives even see the experience through the eyes of a shopper? Each of these three companies has the size, financial clout, and reputation to attract the best and brightest talent. I’m sure none of them lack for MBAs and finance people, yet it would seem that common sense and instinct – the soft skills that humanize the business of retail – have been subverted by higher education when their executives can’t seem to see the solution for better performance when it’s staring them in the face.

Quality Retail Experiences Rely on Store Executives to Make Them That Way

Too often, retail leaders describe the measure of their personal success based on their vertical roles in the business: the ability to deliver faster, cheaper and to reduce costs; rarely on the need to add value back into the store environment. Their idea to develop greater customer loyalty is all too frequently based on low price. Why? Many leaders feel that to innovate and engage consumers through the experience of their environments is overshadowed by transactional cultures that view process as the end, not the means. It seems few big companies remember what it was that made them what they are. Their worlds revolve around revenue rather than value; demographic segments instead of people. And what requires good common sense becomes over-analysis of the abstract. The new silver bullet of ‘big data’ is crazy given the way so many business people use it to define their strategic priorities – what’s the point of knowing more about your customer if you’re not able to truly understand or reflect why your business should matter to them?

The opportunity for offline retail has never been greater, but retail’s existential threat is itself. Who’d choose to shop online if they could get the benefit of price as well as experience? This model starts by offering a better way by asking if what you’re presenting to the buying public actually matters. If it does you win; if it doesn’t you discount.

Amazon’s Threat Isn’t From Being Online, It’s By Being Customer Obsessed

Ironically the one business that retailers fears most is Amazon. Yet, in that company’s 2013 letter to shareholders, Jeff Bezos wrote:

“We are internally driven to improve our services, adding benefits and features, before we have to. We lower prices and increase value for customers before we have to. We invent before we have to. These investments are motivated by customer focus rather than by reaction to competition. Proactively delighting customers earns trust, which earns more business from those customers, even in new business arenas. Take a long-term view, and the interests of customers and shareholders align.”

So the company that makes every retailer question whether there’s a future for brick-and-mortar has customer delight at the core of its DNA. The same business that’s been referred to as “socialist” in its ideals by investors focused exclusively on short-term results has proven that long-term success can only come by thinking first about customers. Not surprisingly, you find a similar philosophy at the heart of the one retailer whose performance on Oxford Street outperforms the others.

The Weston family that owns Selfridges is the second largest luxury retailer in the world with holdings that include Brown Thomas in Ireland, de Bijenkorf in the Netherlands, Fortnum & Mason and Primark in the UK, and Holt Renfrew in Canada.

Their retail philosophy, expressed by Alannah Weston, the Selfridge group’s Vice Chair, is that there’s a lot more to the experience of their stores than just shopping. Her vision is to be the destination for exceptional experiences and believes that with such an enormous space the bounds of creativity have to be limitless. In a recent interview she explained that, “In an all-access shopping culture, remaining relevant is essential because you can buy anything at the airport shop, so why come to a department store?”

Weston’s advice for success is that you’ve got to have passion, “If you don’t believe it, you won’t do it well.” It’s simple: you’ve got to matter to your stakeholders if you’re to succeed. And while there’s little passion to be found in a spreadsheet, you may just find it in yourself by walking the shop floor, listening to customers, hearing what really matters, and by attempting to build back into your business that one thing which you can take true pride in. If you do a walkabout, invite your colleagues along – retail is a team sport.

Who Are the HENRYs and Why Are They Important to You?

Pam charts Rd2After a lot of retailer nail biting this past December, the Department of Commerce has reported the numbers and, all in all, the sales year didn’t turn out as badly as expected. So while we sigh with relief, nobody reading the news or talking with consumers is delusional enough to think that retail is out of the woods yet. Consumers remain extremely cautious about spending; the average US household’s income is currently $71,274, down more than $4,500 from its high in 2006 of $75,810. The reality of this extended post-recession period is that the American middle class has lost much of its spending power, leaving retailers that have traditionally targeted this customer holding the bag and needing to find new consumer segments for growth.

If the middle-income customer is scarce, the logical place for retailers to look for new customers is one step up the income ladder: the affluent, which are defined as the top 20% of US households based on income which starts at around $100,000. With nearly 125 million American households in total, the affluent segment numbers just under 25 million households. In most any spending category, the affluent top 20% account for about 40% of total consumer spending, according to the Bureau of Labor Statistics Consumer Expenditure Survey. That means the absolute spending power of the affluent household is twice as big as the average middle class spend.

Of course, all affluent households aren’t created equally in spending power either, with the top 2%, or the ultra-affluents, roughly 2.5 million households (incomes starting at about $250,000) with much more discretionary income. But between the ultras and the middle-income consumer segments, there is an often overlooked group that, quoting Rodney Dangerfield, ‘gets no respect’ – the lower-income affluents or HENRYs (High Earners Not Rich Yet). These are the new mass-market affluents with incomes $100,000 to $249,999 and they number about 22.5 million households.

Tale of the Tape –The receipt tape, that is.

Every three months my company,Unity Marketing, surveys 1,200+ affluent consumers who recently purchased any high-end or luxury goods or services in 21 different categories, including home goods such as furniture and major appliances; experiential services such as travel and dining; and personal items such as fashion, jewelry, and beauty. In that survey, data is collected about those recent purchases including how much people spent. [Read more...]

Innovation and Prosperity: A Primer on Private Brand Fragrance Development

shutterstock_115177768Why aren’t more retailers getting into the private brand fragrance game?

In the fashion retail marketplace, developing your own private fragrance brand, especially for specialty apparel chains, is a powerful way to take share from larger multi-brand stores. The single brand strategy resonates so well with consumers today, from Millennials to Baby Boomers, at all levels of the marketplace — from mainstream to luxury. Multi-brand retailers can use private or exclusive brand fragrance to enhance their businesses. These proprietary brands reinforce uniqueness; can be used as promotional tools, gifts-with-purchase, or other innovative marketing techniques.

For retailers who have the will and the vision, the development of private brand fragrance products represent an opportunity for significant financial gains combined with the strategic leverage of merchandising exclusive, compelling products. This is a wonderful opportunity to showcase the creativity, imagination and innovation of your company – - just what is necessary today to differentiate yourself and be successful in the retail space. While nothing is ever guaranteed (and especially not in retail), the development of private brand fragrances can potentially lead to tens of millions of retail profits. [Read more...]

Globalization and Democratization Impact Fashion, Too

Chanel: Runway - Paris Fashion Week Womenswear Fall/Winter 2014-2015Just as globalization and information combined to create what Thomas Friedman aptly coined the ‘flat world,’ these transformational forces are driving the democratization of luxury. Exclusivity has been replaced with near mass availability, anywhere and anytime.  Technology and social media are potent forces in spreading the word and creating awareness that can turn into desire and demand — and ultimately sales and profits. But these new tools also undermine a core tenet of luxury: uniqueness or rareness.  When luxury becomes ubiquitous, it migrates out of an exclusive arena into the everyday, everywhere streets of fashion.  So, while opportunistic luxury brands can reap the benefits of democratization, without nimble brand management, they risk the underbelly of crass commercialism, which is guaranteed to destroy luxury’s allure.

Chanel’s Super Market

In Chanel’s fall 2014 fashion show at the Grand Palais (March 4, 2014) in Paris, Karl Lagerfeld playfully took the idea of luxury’s democratization to the extreme. Instead of transporting the viewer (those in attendance as well as the world of voyeurs watching from afar, thanks to YouTube and chanel.com) to the rarified world of haute couture, a lifestyle few women are able to participate in, Karl brought us to a world we know all too well, the big-box grocery section. He outfitted the interior of the Grand Palais into a tongue-in-cheek Chanel Super Market, replete with Chanel-branded corn flakes and dishwashing detergent. Models adorned with Chanel’s iconic pearls and tweeds wore that most democratic of footwear, sneakers. Everything in the Chanel Super Market was marked up a totally undemocratic price; in fact the signage conveyed +20%, +30%, +50%. Was Karl snickering at our mass consumption of luxury icons and the fact that Chanel has nearly doubled handbag prices in the past five years? Ha Ha — not! [Read more...]

The Great Retail Demassification

deadmall2The Death and Diminishment of Malls and Other Big Footprints

We are on the edge of the Great Retail Demassification. Prior to the “great disruptor” (that would be the Internet), and before the marketplace became ridiculously over-stored and over-stuffed, consumers were well served by massive regional malls (currently numbering about 1200), in which retailers located their stores and to which consumers travelled enthusiastically. To steal a line from the movie, “Field of Dreams,” retail growth strategy during the pre-digital era could truly be based on nothing more than “build it and they will come.” And they did. Fast forward: consumers have every retail store in the world resting comfortably in their pockets, just a key-tap away, wherever they are and whenever they choose to shop for exactly what they want. Why, then, would anyone spend the time and money to travel to, and shop through the malls; or for that matter, any large, impersonal, traditional retailer? [Read more...]

The British are Coming, The British are Coming

RR_MarigayMarigay McKee’s Revolution?

First of all, along with many industry luminaries, I extend a warm welcome to Marigay McKee to this side of the pond, and especially to New York City: the most intensely competitive city in the most ferociously competitive country on the planet; massively over-stored; stuffed and web-sited; and with the most complex distribution and marketing infrastructure in the world. And I’m sorry to start off with such a negative tidbit, but as people get to know me they understand I tend to remind them of the darker side of things. Usually my observations are followed by: “so good luck!.” And in Ms. McKee’s case, it’s augmented by: “particularly since she is coming from the role of chief merchant of one privately-owned store to president of 41 publicly-owned stores, with a lot of underperforming doors.” [Read more...]

A Changing of the Guard: An Interview with Tim Greenhalgh, New Chairman of Fitch

Robert-Hocking_final-imageThe last 20 years have been a time of incredible upheaval in the retail order. So with the recent announcement of a new chairman at retail design agency Fitch, I was curious to hear the perspective of an agency that’s spent four decades designing retail experiences for many of the world’s leading brands.

Tim Greenhalgh’s title is Chairman and Chief Creative Officer. Having someone with a creative background at the top of the organisation says a lot and, as Tim sees it, his role is fundamentally about fueling the culture of creativity within the business. One thing is clear: despite the uncertainty facing consumers and retailers, he’s still incredibly bullish on where the world’s going.

In Tim’s words:

“Figuring out retail isn’t easy; where do you pin the tail on the donkey? There are lots of consultancies but our job is to bring creativity to the business problem of our clients and some of the most interesting brands we meet have creative leadership in the C-suite. [Read more...]

Suitsupply Has Its Customers’ Needs Covered, Today and Tomorrow

suit-supplyBrand-loyalty bonds made today among young HENRYs will keep the male fashion customer coming back as their careers lead them into Ultra-Affluence

Sometimes, but all too rarely, you happen upon a new retailing concept that grabs you. It is the perfect combination of the right product at the right price for the right customer — delivered with the right shopping experience. That is how international men’s retailer Suitsupply got my attention. With six US stores and seven more slated to open soon to make 46 stores worldwide, Suitsupply sells high-quality, well-designed men’s suits at affordable, even reasonable prices, with off-the-rack suits starting under $500 and made-to-measure up to $2,000.

Besides the great clothes, Suitsupply provides exceptional service, which includes highly-trained sales associates that take the guesswork out of the equation by fitting a customer into the suit that works best for him; and on-site tailors who do basic alterations while you wait — all for the thrill of immediate gratification.

But it’s not just the clothes and shopping experience that sets Suitsupply apart. Suitsupply’s marketing strategy makes it an important retailer; everyone needs to take notice, and not just those in the fashion business. Suitsupply is a retailing concept that is designed to grow and evolve with its core customer base. Suitsupply knows its customer – young, ambitious professional men – and his needs today, but is positioned to meet those needs in the future, as he advances in his profession and his ability to trade up. It’s the affordable front door to a bespoke haberdashery experience that today’s young and less affluent HENRY (high-earners-not-rich-yet) customers will ultimately grow into. [Read more...]