LUXURY MENSWEAR; ACHIEVING PROFITABLE GROWTH IN A CHANGING MARKET

SEYMOUR SLOANIDEAS THAT MATTER

“I think there is something about luxury - it's not something people need, but it's what they want. It really pulls at their heart.”Marc Jacobs

“I think there is something about luxury - it's not something people need, but it's what they want. It really pulls at their heart.”Marc Jacobs

The opportunities offered in a rapidly changing market will go to those that act now

The relationship between men and fashion, glob-ally, has evolved. The increased cultural ac-ceptance of style and fashion has been shaped through international travel, relocation, and a wider internationalisation of culture. How men relate to their clothes and the associ-ated customer journey around that, has changed, creating growth opportunities for those prepared to act now.

A Rapidly Changing Market - Research from a leading consultancy forecasts an annual growth rate of 14% in the luxury menswear market. Such growth levels are excellent opportunity in a glob-al economy struggling for overall growth.

Fashion transcends cultures as a fundamental element of self-definition and expression. The shifting economic balance from West to East, and from traditional to modern industries is challeng-ing norms around workplace dress, as well as creating new markets for premier brands.

The growth of the technology and creative in-dustries has relaxed the corporate dress-code, creating opportunities for expressive wardrobes. increasing scope for self-expression.

Shifting global capital flows have increased af-fluence within the emerging markets, stimulating increased deman in curent products and brands, but also creating capacity for new entrants.

With growth in traditional luxury markets slowing, significant change is required to maximise the opportuities available in a changing menswear market. Central to success is the ability to act quickly and establish a strong proposition ahead of the competition.

insight around demand and purchasing behav-iour. Knowing your customer is the essence of luxury service.

Shaping the Market - The rules and norms are changing in this dynamic period of growth and change, with brands still understanding where they fit within the luxury continuum. This presents a challenge to brands around what they repre-sent and who they see their typical customers as. Brands need a robust definition of luxury. It is the expression of the definiton across the products and proposition that will be validated in the mar-ket. It is important to understand what it means to be a pure luxury player.There is a balance to tread between definitions based on price and quality. The risk is that, in the short-term, increase price in justifying luxury sta-tus, with customers refusing to buy at the price.

Brands are attempting to move beyond a crowd-ed luxury market and moving to becoming sta-tus brands, accessible by a small ultra-wealhy elite. brands, accessible to a small segment of extremely wealthy buyers. Including rare and proprietary materials, features and specifications in products is creating a new segment brands catering for bilionaires only.

The Growth Challenge - The luxury menswear market is in its infancy and as such, there is significant scope for growth over the medium to long-term. To maximise the opportunity brands must develop strategies to ensure they remain relevant to their customers as behaviours and tastes change.While approaches will vary by organisation, with no single approach working across the market, the selected approach will be shaped by current organisational capabilities and market strengths coupled with the long-term strategic vision.

Outside of the luxury conglomerates such as, LVMH, Richemont and Kering, most brands are advised to adopt an incremental approach, building on existing strengths until their market understanding is sufficiently robust to broaden their penetration into new product and market sectors.

The capital required to absord the risk in an uncertain market favours larger international brands. However, smaller brands will have the advantage of rapid adaptation to a changing market, seizing new growth opportunities as they arise.

Current market risk factors indicate that strategic decisions should be driven by strong customer

Creative vision will define the brand, while organisational agility will drive profitability

"There's a resurgence of man and our willingness to make ourselves look nice."Christopher Colfer - Dunhill

Success requires a strong retail proposition and the ability to deliver a memorable experience

poor. Combining retail with complementary activi-ties and services will prove a competitive advan-tage.

Combining pure retail with additional services such as grooming or members club is a powerful way to create a retail destination and experience, with the synergies between the two, driving a superior brand, retail and product proposition.

Looking beyond retail allows brands to build service propositions that tie into the wider luxury lifestyle and moving towards seeing service as the platform for effective customer relationship management as well as forming a significant part of the luxury experience.

Building Successful Products - Similar to the retail challenges, the core question around products is, whether customers will be brand or product led in their buying decisions.

Adopting a product-led approach suggests that monobrand stores will prove a limited success. Instead, customers will maintain their preference for multi-brand, multi-product stores, which offer greater choice.

Luxury brands must identify their profitable prod-uct core and assess what additional product lines they may expand into based on their exist-ing capabilities. Intense competition places limits on the scope of natural expansion and as such, brand strength will be essential transcending the challenges of new markets.

Developing An Effective Retail Proposition - The significant issues in luxury menswear will focus on the evolving customer journey. Current behav-iour seeks to transpose current luxury shopping habits into new propositions without considera-tion of how new models of behaviour and en-gagement could be implemented. However, to maximise spend and retention, then current thinking on the retail proposition has to change.

Another significant question is whether the future will be shaped by mono-brand stores or will buy-ing patterns lead the market towards multi-brand stores.

There is the challenge around what service prop-osition is essential to enhance the luxury experi-ence and differentiate brands. There is significant scope to use digital technology to enhance the customer experience and build stronger custom-er relationships, but digital is an area requiring care and consideration.Developing a seamless link between online and offline luxury experiences requires a rethink on how digital can enhance brand affinity.

Monobrand v Multi-Brand - Some brands have the resources to make monobrand stores a suc-cess. But, it is likely that these stores will provide menswear priced from the high end of the high-street upwards in to draw customers in. Spe-cialist luxury stores will also be viable, but will be smaller in size to maximise revenue per square metre in prime luxury districts.

Multi-brand stores will represent the majority of revenue for most brands. The convenience they provide in terms of time-saving and ease of com-parison benefits those that are cash-rich but time

Profitable International Expansion - There are two key issues to address when developing the optimum expansion footprint. Greater clarity is required around the emerging markets that will be viable in the long run and how those markets are best accessed and ser-viced. Luxury brands need to understand their brand elasticity and how much expansion is possible while maintaining the exclusivity and quality that underpins the luxury market.

Currently, luxury brands are tapping into latent demand built up over years of relative scarcity. However, it is not sustainable the long run as brands expand and demand is satisfied. Instead, new sources of demand will have to be identified and nurtured.

Medium to long-term growth is driven by strong product and proposition fundamentals and rec-reating the existing propositions to best suit new markets. In the long-run, propositions will require greater cultural flexibility as customers become more demanding in their expectations from luxury brands.

International expansion will favour some brands more than others but remains a strong source of growth

How brands cope with incorporating subtle cultural variations will shape long-term success. However, it will create challenges around deliv-ering a consistent customer experience across markets. However it will enhance brand rele-vance for an increasingly global customer base.

A significant risk with expansion is counterfeiting and less directly, imitation. Both issues will di-lute brand credibility as well as long-term value, requiring years of rectification to restore brand equity. Historically, rapid expanson has often been followed by rapid retreat as brands realise the balance between breadth and exclusivity is a fine one to tread.

Broad international expansion is unlikely to work for all brands. Luxury brands rely on exclusivity as much as they rely on heritage. As such, ex-pansion should be undertaken with a clear stra-tegic vision of revenue growth balanced against the risks of overexpansion.

“Louis Vuitton, the world’s biggest luxury brand in terms of sales, is planning to dampen its expansion worldwide and focus on high-end products to preserve its exclusive image."Benoit Arnault - LVMH

Managing Brand Elasticity - Brand elasticity represents the number of products and services that can one brand can credibly provide in any given market. For example, the Apple brand is very powerful in its core domain of mobile com-munications and may also is elastic enough to cover television. However, an attempt to enter the clothing market is unlikely to be credible among customers.

The risk for luxury brands is, in the quest for growth, their brand and product propositon stretches too far to retain credibility as an ex-clusive brand among customers. Immense value is lost through misjudging the strength of the brand. Brands that grow successfully do so incrementally, adopting a focused strategy to penetrate new markets and build credibility before expanding.

Effective and sustainable expansion relies on managing growth using the, creeping core princi-ple. ’

Growth relies on understanding the extent to which brands can remain credible as they expand

It limits the desire to overextend too soon and provides a solid rationale for strategic decision making.

The creeping core allows companies to expand gradually based on expanding their product offering based on products that complement the profitable core. As strength is built into new products the offering can expand again. This way, risky leaps nto new territory are managed successfull, minmising brand risk. In the race for growth brands must not forget what they are and what they represent.

Looking at the Brand Elasticity Matrix below, we can see the riskiest area is the top-right sector. This is where a brand is least credible and as such, the risk of failure is high. The only excep-tion is where a brand is the first to provide the product to that market.

It is a great incentive to innovate for brands that either possess sufficient insight or capital to mitigate the risk of failure. The matrix shows the value in maximising both core products and customers to increase wallet spend and use this profit to explore new opportunities.

Brand credibility is the heart of success in the luxury market. As such, decisions on expansion must be consistent with strategic vision and

Risk Profile (Low-High)

Low High

Actu

al

Pote

ntia

l

Enhance existing products

Existing product in new markets Brand and product reinvention

New products in existing markets

Distance From Brand Core

Cus

tom

ers

Brand Elasticity Matrix

Product 1

Product 2

Product 3

Product 4

Product 5

From a start point of selling exist-ing products to existing customers luxury brands can take one of two strategic steps; sell new products to existing customers or sell existing products to new customers.

The selected approach is driven by the extent to which expansion is market or product-led. Both ap-proaches can achieve growth, but the focus is generally on maximising the opportunity with existing custom-ers before expanding.

However, market leadership will go to those brands that innovate and sell new products in ne markets taking advantage of the available headroom in new markets.

A Digital Future - Successfully managing the opportunity presented by digital platforms will enhance a successful proposition. Unlike mass market retailers, a significant e-Commerce pres-ence is unlikely to add value as luxury is low-vol-ume high-margin business where the personal touch is often a differentiator.

A central tenet of luxury retail is that the custom-ers come to the brand. If a customer is wiling to spend thousands of pounds on an overcoat, it is unlikely that an online experience is capable of delivering a comparable experience to purchas-ing the item in person.

Online retail may present more challenges than the expected reward. Furthermore, it adds com-plexity

to the supply chain and with that increased risk of leakage, particularly through counterfeiting.

Where online channels add value is as platforms for customer engagement and communication across both product and brand. Creating specific portals, exclusive to high-value customers, will provide the added-value experience and servic-es that turn the website into a specific destina-tion.

It is an opportunity to embed the brand within the wider luxury landscape, which will deliver a seam-less journey for customers across their many purchases and interactions.

Using the online channel to support and promote complimentary propositions can translate the brand across a wider span of credibility, moving beyond simple menswear and creating aware-ness and demand in new sectors. In terms of outward communication, less is more. This is a useful guide when dealing with customers that are time precious. Digital will be a force for re-ducing complexity.

Digital platforms allow brands to expand beyond fashion and become a leading online experience

The Challenge of the Luxury App

Recently Givenchy launched its e-Commerce proposition with an iOS App. Based on Net-A-Porter functionality; it aims to drive greater e-commerce traffic for its menswear range. Led by Ricardo Tisci, the design is sleek and minimal. However, the App highlights the chal-lenges facing luxury retailers online.

The App itself does not provide the rich retail experience of other apps, nor is it supported by targeted content to drive additional sales.Customers now have the ability to compare retail experiences across brands and products and as such the stanards expected of luxury brands will be higher. It is difficult to imagine customers paying premi-um prices for products via a standard App.

The challenge for luxury brands is to translate the impressive offline retail experience into a similarly engaging e-Commerce proposition. This requires investment and a deep engage-ment with the customer to understand their expectations and engagement routes.

It is likely that e-Commerce success will be shaped through trial and error and as technology develops, the experience should deepen.

What will remain true is that there needs a reason to engage with the platform and the most effective method is to enhance the social

media and content strategy.

Brief Social Media Facts

Facebook is the number one social marketing tool for brands at 83% (88% target for 2014), followed by Twitter at 53% (target 64% in 2014) (source: AllTwitter)

74% of brand marketers saw an increase in website traffic after investing just 6 hours per week on social media

76% of corporate marketers plan to increase their use of YouTube or other video marketing

24% of the top 10,000 websites in the world use some form of official Facebook integration on their homepage (if standard links to Face-book Pages is included this jumps to 49%)

42% of marketers believe Facebook is critical or important to their business

Facebook users generate 2.5 times more page views than Twitter and almost twice as many as Pinterest (FB 7, Pinterest 4.1, Twitter 2.7)

Conversion rates for Facebook traffic: 2.6%, Pinterest 0.9% and Twitter 1.1%

Average order value (AOV): FB $2.50, Pinter-est $1.60, Twitter 80c (source: AllTwitter)

Social Media is a powerful force that brngs brands and customers closer together

Getting Closer To The Customer - It is generally acepted that social media is:

1. An effective customer communication tool2. Ideal for shaping and communicating brand identity and values3. Able to generate sales leads and conversions

However, what is still unclear is the direct impact of social media investment on bottom line profit-ability. There is no universal agreement on how to calculate such a figure, making investment decisions challenging at best.

The impact of social media will vary for brands, by sector and product sold. Impact will split between high touch-point brands such as Goog-le, Amazon and eBay versus low touch-point brands such as Allianz and BP. Luxury brands will rest between the two, with precise position shaped by brand vision and proposition.

The likely benefit of social media is in allowing luxury brands to communicate wider messages around lifestyle to their customers. This is an op-portunity to extend beyond the products sold into a core component of luxury lifestyle.

Where brands opt to define their brand identity beyond the products and markets they serve digital platforms and social media are an effec-tive tool for communicating the relevant messag-es.

Social media is still in its infancy, but the message is clear, content is king

Success Through Content - Social media and content marketing face a number of challenges. Channel and opportunity expansion combined with increased boardroom focus create an at-mosphere where“doing more is better. The truth of that view is debatable, a more reasoned view is that being great with a smaller range of social platforms is a better route to success.

In social commerce not all platforms are creat-ed equal. Some social networking sites produce higher conversion rates than others. This is true whether you have followed the best practices and advice about focused content and messag-ing. Selecting the platform to use is shaped by the content brands wish to communicate.

Current thinking suggests that visual content will continue to surge in popularity on social media in 2014. Image-based social networking sites like Pinterest, Instagram and Tumblr are experiencing significant growth. But the way people are using these platforms is shifting towards more focused and targeted sharing of visual content.

We are in a period where a social media and content strategy are essential components of brand strategy.

While social networking sites provide a useful platform for brand communication, brands are increasingly using content to differentiate them-selves on platforms such as YouTube. Other vid-eo-sharing platform such as Vine and Instagram create broader appeal across demographics.

Louis Vuitton: A Man, A Voyage, An Iconic Bag: Using Content To Move Be-yond Brands and Products

Louis Vuitton incorporated personality in three of its bags for men through the use of promotional video. The focus was on highlighting the experience of owning the bags and how seamlessly they fit into all lifestyles.

The video, featuring the three bags in three different rooms, embraces the LV travel heritage as well as the individualism of their customers.

The first room, belonging to a filmmaker in Florence, focuses on the Roman messen-ger bag.

Whenever the bag is on screen, a small circle icon pops up, clicking the icon paus-es the movie and an overlay with product information appears.

The second bag, the Keepall Ban-doulière45 is shown in a country setting, sitting outside on a chair in front of a lake-side cabin belonging to a herbalist.

The third video focuses on an oceanog-rapher in Havana. The oceanographer’s Porte-Documents Voyage bag sits on a white bedspread. This reinforces the spirt of adventure associated with Louis Vuitton.

The video is an example of luxury brands using content to create the emotional con-nection with the brand and product while driving sales traffic. Great content triggers a meaningful response and great e-Com-merce provides a patform to fulfil that re-sponse.

While the future is un-certain, the present in clear; rapid, focused action is the foundation of growth

ABOUT SEYMOUR SLOAN

Seymour Sloan understand great ideas drive progress. We help companies do things differently and where we are unable to do so, we step away.

We do not tell clients what they already know, instead we try and understand what they may not know and identify opportunities within the unknown, bringing certainty in challenging times.

We use the brightest intellects and bravest minds to challenge convention and successfully deliver innovative solutions. Our aim is not based on long-term engagements, we believe in short-term engagement and long-term support. This is cost-effective for our

clients and serves as a basis for their continued growth.

© SEYMOUR SLOAN 2014

A World Of Opportunity - This is an exciting period for menswear. Creatively, designers are pushing boundaries and redefining menswear. The next stage for brands is to build commercial operations and strategies that will turn creative innovation into sustained commercial growth.

Brands will look at new models and systems to optimise their brands and products in changing market. Agility and responsiveness will be cen-tral to the successful brands of the future as the shape of the market changing. A key considera-tion will be how brands develop their digital pres-ence in addition to their eCommerce proposition.

Generating awareness and converting that into sales will drive domestic growth as well as inter-national expansion.

Effective action is the first step in maximising this opportunity. In addition, there is a need to em-brace new methods of delivering luxury and it is this ability to innovate that will equip brands of the future to grow in a rapidly changing market.

SEYMOUR SLOANIDEAS THAT MATTER