Retail Tracker® Series Report

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

August 2023

Luxury retail is at the forefront of innovative shopping experiences, and its emphasis on personalization and clienteling is trickling down to other retail spaces. This month’s Tracker explores what general retailers have learned from their high-end counterparts, and why providing an omnichannel customer experience is crucial to driving revenue.

PYMNTS

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


Register for Unlimited Access
Fill in the form below for free unlimited access to all our Trackers and Studies.

Thank you for registering. Please confirm your email to view all our Trackers.

    yesSubscribe to our daily newsletter, PYMNTS Today
    By completing this form, I have read and acknowledged the terms and conditions.


    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

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

    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.

    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.

    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.

    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.

    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.

    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:

    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.

    Kristjan Johannsson - LS Retail

    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

    About

    LS Retail, an Aptos Company, is a world-leading developer and provider of unified commerce software for hospitality, food service and retail businesses. Every day the LS Retail management systems power over 110,000 retail stores, malls, restaurants, hotels and pharmacies in 157 countries. The LS Retail solutions unite within one platform financials (ERP), point of sale, eCommerce, order and inventory management, CRM, advanced analytics and more. This means our customers can run their entire business on location and online, front of house to HQ, with one solution. Learn more at www.lsretail.com.

    Ingo

    PYMNTS Intelligence is a leading global data and analytics platform that uses proprietary data and methods to provide actionable insights on what’s now and what’s next in payments, commerce and the digital economy. Its team of data scientists include leading economists, econometricians, survey experts, financial analysts and marketing scientists with deep experience in the application of data to the issues that define the future of the digital transformation of the global economy. This multi-lingual team has conducted original data collection and analysis in more than three dozen global markets for some of the world’s leading publicly traded and privately held firms.


    We are interested in your feedback on this report. If you have questions or comments, or if you would like to subscribe to this report, please email us at feedback@pymnts.com.

    Disclaimer

    "The Retail Tracker® Series may be updated periodically. While reasonable efforts are made to keep the content accurate and up to date, PYMNTS MAKES NO REPRESENTATIONS OR WARRANTIES OF ANY KIND, EXPRESS OR IMPLIED, REGARDING THE CORRECTNESS, ACCURACY, COMPLETENESS, ADEQUACY, OR RELIABILITY OF OR THE USE OF OR RESULTS THAT MAY BE GENERATED FROM THE USE OF THE INFORMATION OR THAT THE CONTENT WILL SATISFY YOUR REQUIREMENTS OR EXPECTATIONS. THE CONTENT IS PROVIDED “AS IS” AND ON AN “AS AVAILABLE” BASIS. YOU EXPRESSLY AGREE THAT YOUR USE OF THE CONTENT IS AT YOUR SOLE RISK. PYMNTS SHALL HAVE NO LIABILITY FOR ANY INTERRUPTIONS IN THE CONTENT THAT IS PROVIDED AND DISCLAIMS ALL WARRANTIES WITH REGARD TO THE CONTENT, INCLUDING THE IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE, AND NONINFRINGEMENT AND TITLE. SOME JURISDICTIONS DO NOT ALLOW THE EXCLUSION OF CERTAIN WARRANTIES, AND, IN SUCH CASES, THE STATED EX CLUSIONS DO NOT APPLY. PYMNTS RESERVES THE RIGHT AND SHOULD NOT BE LIABLE SHOULD IT EXERCISE ITS RIGHT TO MODIFY, INTERRUPT, OR DISCONTINUE THE AVAILABILITY OF THE CONTENT OR ANY COMPONENT OF IT WITH OR WITHOUT NOTICE.
    PYMNTS SHALL NOT BE LIABLE FOR ANY DAMAGES WHATSOEVER, AND, IN PARTICULAR, SHALL NOT BE LIABLE FOR ANY SPECIAL, INDIRECT, CONSEQUENTIAL, OR INCIDENTAL DAM AGES, OR DAMAGES FOR LOST PROFITS, LOSS OF REVENUE, OR LOSS OF USE, ARISING OUT OF OR RELATED TO THE CONTENT, WHETHER SUCH DAMAGES ARISE IN CONTRACT, NEGLIGENCE, TORT, UNDER STATUTE, IN EQUITY, AT LAW, OR OTHERWISE, EVEN IF PYMNTS HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.
    SOME JURISDICTIONS DO NOT ALLOW FOR THE LIMITATION OR EXCLUSION OF LIABILITY FOR INCIDENTAL OR CONSEQUENTIAL DAMAGES, AND IN SUCH CASES SOME OF THE ABOVE LIMITATIONS DO NOT APPLY. THE ABOVE DISCLAIMERS AND LIMITATIONS ARE PROVIDED BY PYMNTS AND ITS PARENTS, AFFILIATED AND RELATED COMPANIES, CONTRACTORS, AND SPONSORS, AND EACH OF ITS RESPECTIVE DIRECTORS, OFFICERS, MEMBERS, EMPLOYEES, AGENTS, CONTENT COMPONENT PROVIDERS, LICENSORS, AND ADVISERS.
    Components of the content original to and the compilation produced by PYMNTS is the property of PYMNTS and cannot be reproduced without its prior written permission.
    The Retail Tracker® Series is a registered trademark of What’s Next Media & Analytics, LLC (“PYMNTS”)."