Executives and key decision makers from hundreds of firms in the luxury market recently gathered at the Time Warner Center on Columbus Circle in New York City to gain insights into issues facing luxury providers across multiple categories at the sixth annual Luxury FirstLook 2018: Exclusivity Redefined conference. Exploring a range of topics including advertising, marketing, retail, media, Internet, social, mobile and geopolitics, the event is organized by Luxury Daily as a forum for luxury business issues, opportunities, and challenges in the year ahead.
Luxury Institute CEO Milton Pedraza addressed the conference on the state of luxury across industries, highlighting important demographic, economic, and technological trends influencing the fundamental nature of how firms do business with customers. Joined by Luxury Daily Editor in Chief Mickey Alam Khan, Pedraza took the benefit of the opportunity to survey the room full of in-the-know attendees about the reality of what they see in their own business, asking them to identify one current belief that is actually a myth and to identify the corresponding reality.
From considering the concept of exclusivity, to the challenges of optimizing investments in online and traditional retail channels, the group provided rare insights into the on-the-ground reality, and in the process busted eight big myths swirling around the luxury sector.
Myth #1: "Luxury is dying, and hard goods are in a state of a downward spiral."
Reality: Contrary to the apocalyptic view that Amazon is coming for everyone and will soon be the death of all retail, the number of potential luxury buyers is on the rise as booming stock and real estate markets are minting new millionaires and billionaires every day. Who is willing to buy, the value of the purchase, and where they're looking to buy, are becoming as important as what they're willing to buy. Brands are adapting to that reality.
Myth #2: "The idea of delivering a customer experience is limited to travel, food, and wine."
Reality: There is an experience associated with every aspect of luxury. The trick is to find it in whatever product or service that you're providing. In many cases, the core product or service itself is not what customers are really buying, rather they seek the entire process of being made to feel special, and to indulge in storytelling, superior quality and enriching human interaction before, during, and after the purchase.
Myth #3: "Digital commerce is the answer to everything."
Reality: Marketers need to use a variety of engagement platforms to deliver a compelling product or service that's truly unique. The user experience and the way to engage customers still requires a physical presence with stores and people, even as digital commerce continues to grab an increasing share of total sales. Reaching a customer and providing an optimal experience at a time and place of their choice will be crucial.
Myth #4: "Millennials only consume experiences, not products."
Reality: What is true is that millennials are happy to buy products, but younger luxury consumers appreciate brands and products that reflect their beliefs, and their beliefs are brought to life through emotions and experiences. Retailers adapting successfully to the tastes of millennials sell plenty of products, but they make the experience central. One example is Porsche, which offers the opportunity to drive cars on a test track, improve skills, and track your performance while joining communities of like-minded peers across the globe. While the consumers pay for the car, they do so because of the associated experiences.
Myth #5: "People don't want to visit the brick-and-mortar store."
Reality: While it is certainly true that consumers appreciate the availability of online shopping, they also want to interact with human beings in a physical store where they can touch, try on, and take home their purchases. For certain product categories like automobiles, apparel, and jewelry, the physical store remains an integral centerpiece for shopping and purchasing.
Myth #6: "The internet will destroy the retail industry, and people are becoming obsolete."
Reality: While many stores have closed, many luxury brands and luxury start-ups are developing more and more free-standing stores, and opening more stores in general. Even companies that started out internet-only, like Bonobos (now a Wal-Mart subsidiary) and Amazon itself are venturing into physical stores. Regardless of channel, the challenge is how to create a compelling, consistent and positive customer experience, and e-commerce is no panacea. Like operating a store, digital selling comes with significant costs and challenges of its own, including technology investments and upgrades, data centers, customer support, logistics, free shipping and high returns.
Myth #7: "There is no ceiling on luxury pricing."
Reality: Affluent shoppers are willing to pay for value, but their wealth does not make them ignorant of pricing. There is a personal price-value equation that consumers will use if they feel that the price of an item in any category is too expensive. That personal price-value equation is different for every consumer and not always the same across categories. Furthermore, many wealthy consumers are in the process of decluttering, and not keen to collect additional possessions unless they provide exceptional value in some way. Only an optimal value proposition will earn their loyalty.
Myth #8: "Millennials are the lifeblood of the luxury business because they are the most numerous generation, and they are active shoppers."
Reality: The millennials won't become true players in luxury for quite some time. Low-paying jobs and staggering levels of student debt will subdue their spending power for years to come for most. Millennials also marry later in life, which correlates with lower levels of wealth accumulation and moderate spending habits. By the time millennials do come into money, the landscape will have changed. The oldest of millennials also realize they have to save money for the future. Older customers are still the bedrock of luxury and luxury brands need to act accordingly. Target individuals, not segments.
"While biased, self-interested headlines and quotes predict gloom and doom to get all the attention, the wisdom of the crowd knows better," says Pedraza. "Luxury and retail are complex adaptive systems that continue to evolve as they have for centuries, and as in any complex system, at any one time there are all kinds of destructive, generative and regenerative events. Separating myth from reality is a required skill to survive and thrive in luxury and retail today. The wisdom of the crowd usually knows best."