Everyday Retail Is Taking a Page From Luxury’s Playbook to Win Consumers

The luxury retail market is an economic powerhouse, valued at $272 billion in 2022 and an expected value of $392 billion by 2030. This diverse segment traditionally includes apparel, footwear, jewelry and other high-end personal products, but can also include items as diverse as automobiles, furniture and electronics.

The luxury market’s primary clientele of households earning more than $100,000 per year represents just 16% of the global online population, but its effect on the greater market is comparatively enormous. Luxury brands’ customer-centric approach to conversions — geared toward fostering trust, loyalty and a sense of belonging — has seen many imitators among lower-end retailers. Innovations that begin in the luxury space tend to percolate downward as other retailers seek to copy their success.

eCommerce Innovations Conceived by Luxury Retailers See Widespread Implementation

Personalization and Clienteling Are Paramount for Conversion

Customer Loyalty Is Key to Driving Revenue

How Retailers Can Apply Luxury Lessons to Deliver a Personalized Omnichannel Retail Experience

eCommerce Innovations Conceived by Luxury Retailers See Widespread Implementation

For years, luxury brands have led the way in retail innovation, pioneering personalized shopping, targeted marketing and customer-centric experiences to drive conversions.

New technologies tend to appear first in luxury retail.

Conversions are notably more challenging to attain in luxury than in other sectors, with the luxury industry averaging a 1.69% eCommerce conversion, as opposed to the overall eCommerce average of 3.25%. However, the luxury market often serves as the crucible of innovation in the retail space.

Augmented reality (AR) is one area in which luxury brands are taking the lead. Italian fashion house Maison Valentino recently introduced a new AR tool that allows customers to try on apparel virtually. Now online shoppers can determine how well an item fits their style and shape before they buy. Virtual try-on solutions like this one promise to reduce returns to retailers, a perennial struggle that erodes their profit margins due to processing costs and lost revenue associated with returned merchandise.

Luxury brands

Sell high-value merchandise to a small number of customers. This means they need to pull out all the stops for each conversion – and other retailers are watching closely.

Technologies introduced by luxury brands often spread to other retailers.

The innovations originating in the luxury market often find their way into other realms of retail. As luxury retailers explore new technologies like AR, these features have a better than likely chance of trickling down to benefit all consumers.

To wit, Google is following Maison Valentino’s lead with its own virtual try-on tool, which allows consumers to try on clothes from brands including Anthropologie, Everlane, H&M and LOFT. Google’s system leverages generative artificial intelligence (AI) to superimpose clothing onto real models, allowing consumers to see how items look on a variety of different body types before purchasing.

Personalization and Clienteling Are Paramount for Conversion

Luxury retailers’ lower conversion rates compared to other forms of retail mean they must place a strong emphasis on cultivating repeat customers, who are far less expensive to acquire than new customers. Over the years, luxury brands have learned that the most effective way to accomplish this is by providing a personalized experience that remembers customers from prior visits.

72%

of luxury customers expect customized interactions when frequenting their favorite retailers.

Luxury retailers know that personalization matters.

Luxury retailers know that customers want a tailored shopping experience and that offering one can be the difference between a sale and a pass. Recent research published by the Boston Consulting Group found that 72% of luxury customers expect personalized interactions, and 39% say that these interactions are the most important aspect of the in-store shopping experience.

Many luxury retailers are using AI to this end: analyzing their customers’ buying habits and trends in their purchasing behavior to create a shopping experience that’s suited to their preferences and optimize their product offerings.

Repeat customers are the bread and butter of the luxury retail industry.

A personalized shopping experience is even more important on a customer’s second visit. Therefore, both identifying and targeting customers across multiple sales channels are of paramount importance, according to a recent study. For example, returning customers to a brand website do not want to be greeted by a new-customer welcome pop-up. This clienteling strategy can increase the likelihood of making a second sale by 35%, with online sales accounting for up to 20% of all sales in the luxury sector.

Customer Loyalty Is Key to Driving Revenue

Recognizing the need to attract repeat customers is easy. Doing it is the hard part. For luxury retailers, targeted marketing and loyalty programs are critical tools for gaining repeat customers.

Retailers find that targeted offers encourage customer satisfaction.

Consumers benefit hugely from their tailored engagements with luxury brands, especially when it comes to product discovery. Targeted product offers are a key example of this: Luxury brands employ cookies and other tracking technologies on their sites to analyze a customer’s browsing and purchase data, alongside information from fellow customers who share similar demographics. Customers can then receive targeted recommendations based on what their peers have purchased, resulting in a higher likelihood of a satisfied purchase.

CONVERSION RATES

Loyal customers have a conversion rate of up to 24%, as opposed to new customers at 6%, making repeat visits a high priority for retailers.

Loyalty programs are a critically important revenue driver in retail.

Another example of customer-oriented luxury innovations is loyalty programs, which are used by brands to reward repeat customers. London luxury department store Selfridges, for example, recently launched a new loyalty program, called Selfridges Unlocked, that provides members with early access to new products, events, news and free shipping. These consumer benefits, in turn, boost sales for the stores themselves: Loyal customers have a conversion rate of up to 24%, compared to new customers at 6%. This directly leads to more revenue for retailers, stemming not only from increased sales but also from the savings derived from spending less on acquiring new customers, which can cost as much as seven times more than retaining an existing customer.

How Retailers Can Apply Luxury Lessons to Deliver a Personalized Omnichannel Retail Experience

The very nature of luxury retail makes it uniquely suited for setting new trends in retail technology. While high-end retailers often have comparable or higher profits than their lower-end counterparts, their total volume of goods sold is drastically lower, making each individual sale count for much more. This means luxury retailers invest significant resources to facilitate each conversion, experimenting with different tactics and technologies to develop effective sales strategies.

Lower-end retailers may lack the resources or incentive to spearhead these technologies, but the good news is that they do not have to: Instead, they can study what luxury brands have already pioneered and tailor those strategies to their own business. Personalization and clienteling appear to be the most lucrative strategies thus far and have been serving luxury retailers well for years. Their customers place greater emphasis on the following metrics:

49% of luxury shoppers say that stores should be more than simply a place to buy goods.

67% of luxury shoppers say that stores should feature higher levels of digital integration.

80% of luxury shoppers say that brick-and-mortar retail is part of their shopping journey.

Based on these strong preferences, luxury brands have found the most success with delivering an omnichannel experience, fusing the online and the offline into a cohesive customer-brand relationship. Lower-end retail has been taking notes, developing a comprehensive omnichannel strategy to appeal to the 73% of customers who use multiple channels in their retail journeys to research products, compare prices and look for discounts before making a purchase. Omnichannel experiences meet customers where they are, ensuring a consistent experience wherever they shop — in-store, online or through an app.

Each channel must also provide a personalized experience at every step of the sales journey, which may involve rethinking multiple layers of brand interaction both online and in-store. For example, sales associates working with customers in-store should make product recommendations and have access to a customer’s shopping history to better assist them. If they know that a customer prefers a specific type of item, such as a purse, they could let them know about a new shipment or recommend a similar style.

Brands should also track their customers’ activities to ensure they can recognize when a customer is new or returning. Indeed, such renovations may take considerable time, effort and resources, but given the success luxury retailers have achieved in implementing these strategies, the investment is clearly worth it.

The luxury retail market has seen massive growth over the last couple of years and is still expected to rise. Yet, many luxury retailers continue to face challenges such as staffing shortages, inflation, supply chain disruptions, and evolving customer expectations that make it difficult to stay competitive. Technology will play a key role in helping them address these issues and come out successful on the other end.”

Kristjan Johannsson
General Manager