In July of 2015, the people behind Luxury Interactive sat down with Milton Pedraza, CEO of the Luxury Institute and Luxury Interactive speaker, to discuss the trends and opportunities shaping luxury retail in 2015. Mr. Pedraza weighed in on how luxury brands are adapting to the omni-channel paradigm, how they can improve their long-term client relationship building, and how technology can help them bridge these gaps.

With approximately 35% of luxury sales now coming from online, luxury retail truly has become omni-channel. The growth in online sales for luxury products represents a tremendous success for luxury brands, many of which have traditionally been hesitant to proactively invest in their e-commerce platforms.

Luxury Sales in the Omni-Channel Age & the Commoditization of Luxury

Milton Pedraza CEO

The Luxury Institute

Key Trends In Luxury Retail

Q&A:An Inside Look at the Key Opportunities Defining Luxury Retail in 2015 An interview with Milton Pedraza, CEO of the Luxury Institute, on how luxury brands are managing digital and omni-channel strategies, and where the luxury industry is headed

“The tailwinds we had in 2012, 2013, and to some extent 2014 have turned into headwinds. Now, we have a situation in the luxury market where it’s very much a market share fight, which is not good, because it implies the commoditization of the luxury industry.”

- Milton Pedraza

Slowing sales and the

commoditization of luxury

Customer loyalty and relationship

building

Technology enabling

omni-channel commerce

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“Being a high performer in client relationship building is probably the number one challenge and opportunity for luxury retailers, because it is the number one differentiator.”

- Milton Pedraza

Client retention rates range from 10% to 20% for most luxury brands, meaning that even the best-performing brands are not getting repeat purchases from 8 out of every 10 customers. To Pedraza, this is clear evidence that the biggest opportunities lay in building better, longer-lasting relationships with customers.

Unfortunately, Pedraza says that few brands have truly mastered relationship building, especially on the store associate level. Pedraza notes that many brands are struggling to inspire, empower, and compensate store associates to become long-term relationship builders. The rise of the highly educated consumer has intensified this concern, because consumers now walk into stores armed with an arsenal of information from social media,

Client Relationship Building: the Core Challenge

Unfortunately, despite the jump in online sales, overall revenue growth in luxury categories has not been robust over the last year. Beginning in 2014 with economic slowdowns in China and Russia, many of the forces that had propelled luxury sales forward in 2012 and 2013 starting losing momentum. Those changes have made 2015 a slower year for luxury sales, as demonstrated by the earnings reports of many major brands, including Kering, LVMH, and Burberry. These challenges have been

exacerbated by the lack of differentiation between many luxury products and brands. That lack of differentiation has resulted in the increasing commoditization of some sectors of the luxury market, leading brands to compete more on price than product attributes. Brands in those sectors are facing strict competition for market share, which has cut into sales and damaged client retention rates.

brand websites, and third party reviews and editorials. The availability of all this information through digital channels has created a dynamic in which consumers are less likely to be influenced by store associates – in fact, in some cases, consumers may even know more than associates about the product they are evaluating. That dynamic erodes brand loyalty and ultimately results in unimpressive customer retention rates.

Pedraza also points to another factor influencing conversion and retention rates: the lack of seamless, effective digital strategies. He points to low response rates to digital advertisements as an example of the challenges luxury brands encounter when trying to influence consumers over the long term. Furthermore, social media encapsulates some of the conversion problems brands are seeing, because a distinction can be drawn between a brand’s fans (those who like and follow their pages) and buyers (those who are actually making purchases). Pedraza draws attention to the fact that many fans on social media are not actually buyers, and even more rarely are they part of a brand’s top 20% of buyers.

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“The fact is that technology is highly underutilized – it needs to be more connected and more widely applied, and that requires tremendous effort, discipline, and attention to detail. This is a big challenge for luxury brands and has been from many, many years.”

- Milton Pedraza

As alluded to above, luxury brands can be doing more to unify their digital strategies with their overarching retail strategies. According to Pedraza, digital campaigns among luxury brands are not yet a seamless part of the shopping experience. Rather, eCommerce is often separate from social media marketing, which is separate from store marketing. Luxury retailers are reacting too slowly to the omni-channel paradigm, with few of them excelling at following customers across channels and capturing data from each and every touch point, be it digital or in-store. It is important for brands to reverse this trend so that associates can use consumers’ digital purchasing patterns to capitalize in-store, and vice-versa.

Pedraza highlighted the fact that even those luxury brands that have intelligence systems that combine in-store and digital information into a holistic customer view are not always using that information effectively. In other words, omni-channel greatness means collecting client data, analyzing it, and then taking appropriate action based on those insights. As Pedraza puts it:

Brands need better utilization of these systems alongside trained associates in order to optimize client experiences. It takes both. Brands need to make clients feel special during the shopping experience. Then they need the ability to follow up with relevant and valuable information to create a long-term relationship. Putting all of those elements together is very difficult. It means optimizing high-tech and high-touch into one very special one-to-one experience.

Customer segmentation is another area where Pedraza says brands can improve their use of technology. Brands can use new technologies to segment customers in very clever and specific ways and deliver custom offers based on those segments, but ultimately, brands must recognize that each individual client must be treated as a segment of one. Segments are based on point-in-time descriptors that can be helpful for some marketing activities, but they do not reveal the nuances of each customer.

Once the processes and technologies are in place that enable associates to become more proactive, effective problem-solvers and relationship builders, the results can be transformative. When it comes to pairing the right technologies with proper training for store associates, Pedraza says that the key is consistency:

Your top sales people are utilizing technology to build lasting relationships, but 99% of your in-store and online sales people are not, and that is the problem. The problem is not that these brands do not have pockets of excellence, but rather that they do not seem to be able to scale excellence across the entire organization and globally. That inability to scale great performance in relationship building across the entire system is a big issue, but the good news is that brands can influence this. They need to realize that average sales associates can become excellent too. By pushing the middle of the bell curve forward, they can have the greatest impact on sales.

Technology

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Now in its 10th year, Luxury Interactive is the premier luxury branding & digital marketing summit. Every year, 300 luxury executives from some of the world’s top luxury brands come together to network and examine the newest trends, challenges, and opportunities in the digital luxury space. Omnichannel expansion, e-commerce optimization, and optimized content creation and execution are just a few of the core themes Luxury Interactive focuses on. From champagne roundtables to in-depth sessions, attendees learn from luxury executives spanning a variety of industries.

Want to hear more from the innovators shaping the digital luxury space? See what they will be discussing at Luxury Interactive 2015!

About Luxury Interactive

About Milton Pedraza & The Luxury Institute Over the past 12 years, Milton Pedraza has established the Luxury Institute as the most trusted global luxury research provider, and the proven high performance luxury client relationships consulting firm. Known globally as the foremost resource for affluent and wealthy consumer insights and client experience best practices, the Luxury Institute has served over 1000 global luxury goods and services brands across dozens of luxury goods and services categories.

Milton advises and coaches luxury CEOs and serves on the Boards of top-tier luxury and premium brands, as well as luxury startups. He is sought after worldwide

for his practical, innovative and humanistic insights and recommendations on luxury and is the most quoted global luxury industry expert in leading media and publications.

Milton is also an authority on CRM Technology, Analytics and Big Data. Prior to founding the Luxury Institute, his successful career at Fortune 100 companies included executive roles at Altria, PepsiCo, Colgate, Citigroup and Wyndham Worldwide.

“I find Luxury Interactive incredibly beneficial because it involves seasoned speakers, but more importantly, luxury brand leaders having authentic conversations about what is working well, what’s not working, and where the future of digital is headed.” - Mary Bennett, Vice President, Digital & Commercial Partnerships, Viceroy Hotel Group

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