In an excerpt from a speech to The Retail Marketing Society, Greg Furman, the Founder and Chairman of The Luxury Marketing Council reports on the evolving state of the luxury retail market.
The best customer is still where this market is. What we’ve seen from a Council’s standpoint across all industry groups is the exodus of what the media called the aspirational or symbolic luxury buyer, folks with household incomes of $250 to $500k that audience has vanished.
I’m a trout fisherman. and if you put the fly down on the river in the wrong way they spook. That’s what happened to the aspirational luxury buyer. They’re gone and nobody knows when they’re coming back.
I thought, I have three sisters and they have always been practical, strong and intelligent women. One of the trends we’ve seen a long time coming that has radically enhanced the old wisdom, “she must be obeyed,” where women accounted for somewhere from 70% to 80% of the purchase decision making. I think this is now approaching 90%. I recently heard someone call it the “gimlet’s eyed” shopper and I thought what a great phrase because it explains how women look at the luxury experience, the luxury marketplace, the feeling of engagement in which brands court them, and the value equation. She must feel more courted by luxury brands than ever before.
Not Frugality, but a Quest for value
This sense of the new frugality, I see it as a quest for value, a quest for the unique, the ability to tell the story about a great product or experience. I think hiding products in brown bags is ridiculous. Last year Cap-Gemini said there were 3.2 million people in the US with investable assets of a $1 million or more. That community will never be browbeaten by luxury shame. They will be extremely influenced by the fluctuations of the market. When I was at Bergdorf Goodman, you could literally set your watch by an uptick or downtick in the market. Conscience would set in for half a day, this is a much longer correction, but it will track the market.
Stanley Marcus, who was a mentor, used to talk about the impact of the hand. His definition of luxury was the “best that the mind of man can imagine and the best that the hand of man create.” What is bespoke, what is special, what is couture, will always remain of value. Even in a rough market, people that have money.
Time to “Court” the Consumer
Robert Frank’s book talks about lower Richistan, with and liquid portfolios of $10 million. Middle Richistan, of $30 million and Upper Richistan of $100 million and up. Those people are still there and have discretionary ability. But they need to be given a reason to shop. They need to be engaged, to be courted, almost in a traditional, medieval, courtier sense. Marketing initiatives need to be directed to court them. That’s a key part of the strategy for luxury brands.
All the academic literature says they’re totally price insensitive, they have the depth of pocket. They refer more if asked and when rewarded for referral. Very few companies still reward best customers in some symbolic way for coming into the store. They’re willing to partner with you. However, few luxury brands still have customer councils where they will take the top 15 people off site.
I don’t care whether you are a boutique jeweler. Neiman Marcus has a council that meets once or twice a year, at a nice lunch around a comfortable table, where they ask what can we do to accelerate our service, to heighten the value of service, etc. Retailers that do get an earful. They’re starting to employ that tactic more and use it to engage and to get referrals. Customer councils are examples of best customers’ willingness to partner.
Forget the conventionalism wisdom that you can’t get people because they’re too busy. It’s not true. They will come if asked. They want you to succeed because they love you and the brand. They’ll forgive you any mistake if you fix it correctly. They can deliver better word of mouth by a country mile before they are not price sensitive. If you look at the metrics of investment and cost of acquisition per customer, it’s cheaper to keep them, and the longer you have them, the more profitable.
So this best customer, especially in these times, is the heart of the proposition as far as I’m concerned. The Luxury Council’s premise, early on when I left Bergdorf Goodman, the question was to find ways to get more money from people with the most money. And greater referral of customers like them and how to surprise and delight them and add value, and lastly, understand what are the feistiest, street-wise marketers doing to win greater share of wallet of this best customer. In 1994 I thought. I’m going to put these people in the same room and we’re going to find out what the smartest marketers are doing to win greater share of this best customer.
Today luxury marketers have to market beyond just traditional image advertising and get into integrated segmented approaches to the marketing mix that heretofore was done only in the best cases. That’s where the market’s moving.
Collaboration and Partnerships
When I started the Council, collaborations and partnerships between luxury brands was rare. But now most brands get that and the opportunity for brands to get this idea of collaborations and partnership with kindred spirits is key. Acting together they can cuts costs, share databases, understand best practices, and find a whole new segment of customers. We’re all marketing to 55, 60% of the same people. It’s that other 45 to 50% that we want. For me that’s the holy grail of the Council. Take a simple example – Steuben and Seabourne Cruises. They took their lists of top customers, put them in a third party database and came out with a 150 customers each, neither of which group fit their definition of the best customer. They invited them to a cocktail reception at the new Steuben store where Seabourne auctioned a cruise on the Orinoco and Steuben auctioned off $70,000 in product, the proceeds of which went charities. The result, 150 new people in their database and permission to market to them.
Second, smart merchants were investing in heightening the level of strategic customer service for engaging employees at all levels of the company. This is still happening in this marketplace so the people on the line, who in the old command and controlled environment where the information comes down, are realizing that best of people on the retail side can be genuine strategic partners to top management telegraphing trends and customer behavior from the store to the top floor.
And leading retailers went through a re-orchestration and investment in heightening the level of creativity, the need for new ideas from people on the floor, the need to be more creative, to look at trends, to micromanage inventory department by department, and by SKU so that the people on the floor responsible for selling ABC or D could see the monthly performance and deal with it. Now they could have an intelligent conversation around the data that hitherto was never privy to this community.
Another aspect of the investment in strategic customer service has been one-to-one E-marketing. Initially we though the web was a mass vehicle but now we recognize that the most intelligent users of the web are the class community with the most money who are the most e-savvy and technologically attuned.
The other conventional wisdom was, you can’t sell expensive stuff online because you can’t show the color way, the fabric, sizing. What’s happened, thanks to Neimen Marcus and Brendon Hoffman who are now over at Lord and Taylor, who took that e-business from the remaindering business to a $600 million plus business in six years without cannibalizing the stores. Even now if you look at most of the luxury websites. Do they really sell stuff? If not, and the money is moving in that direction, they are missing the bet.
In the old days the conventional vision was ‘Ah, merchants, they don’t know about research, they go with their gut’. Well it’s come full cycle. Now they’re going with their gut again. But they are assembling the guts, and their people, and doing deep qualitative research. I think what we are going to see is a radically revamp in the way the big European brands think about the US and how they approach marketing, which is going to benefit the best customers who will get a heightened level of service, and a heightened level of product. Marketers are going to be smarter, which will be great for the fleet of foot, for the early adaptors who will be ahead of the curve.