Luxury Brands Add Personal Services
Burberry Group PLC’s store employees have taken on some new duties: organizing birthday parties, private dinners and art-gallery visits for high-spending shoppers.
The British luxury label is expanding its army of so-called private client associates who develop personal relationships with elite customers to keep them coming back to its stores and spending more. The associates go beyond product discussions, asking customers about favorite activities and whether Burberry might help reserve them, a Burberry executive said.
After years of pouring money into opening new stores, some of the world’s best-known luxury companies have slowed or even halted physical expansion, shifting their focus to wringing the most out of existing stores in a new, lower-growth environment.
Luxury companies went on a store-opening spree in Asia, especially China, over the past decade, but demand there for expensive bags and other high-end items has flagged after an anticorruption crackdown. In Europe, terror attacks have damped spending by tourists, while U.S. growth has slowed as the strong dollar limits visitor spending.
Sales growth for personal luxury goods such as bags, shoes and watches is estimated to increase at an annual rate of 2% to 3% through 2020, down from an average of 6% a year for the two decades through 2015, according to Bain & Co.
In response, high-end retailers have hit the brakes on store expansion. The luxury industry’s store portfolio grew just 0.4% in the year through July, compared with 5% growth in the year-earlier period, according to data from investment-research firm Bernstein.
“Expansion is behind us and our stores can feel a huge potential for improvement, and we’re doing everything we can to develop this,” said François-Henri Pinault, chief executive of Kering SA, in February. The French company owns such brands as Balenciaga, Bottega Veneta and Gucci.
Customers such as Tokyo-based Naoko Kawachi are now increasingly important to high-end retailers. Burberry flew Ms. Kawachi, a 39-year-old communications executive, in business class to attend its London fashion show in February, putting her up for five days at the luxurious Claridge’s hotel.
Back home in Tokyo, Ms. Kawachi frequents Burberry’s Omotesando store, where she is guaranteed to get a glass of champagne and a chat during a visit, even if she isn’t buying anything. “Sometimes I just stop by to say hi to everyone,” she said. “I feel like they are family.”
Many brands are sharpening their focus on collecting data about customers and allocating more space to popular products. Hugo Boss AGhas shifted to stocking more men’s formalwear, its highest-margin category, as it tries to maximize its sales per square foot.
“Actual in-store performance will be the only guide to retail space allocation,” said Hugo Boss Chief Financial Officer Mark Alexander Langer in March.
Burberry’s store associates view data on past in-store and online purchases by more than 10 million customers with an iPad app. The information on a customer’s size, color and style preferences allows them to offer more tailored advice. Internal figures show that customers who receive personalized services are 20% more likely to shop the brand again and spend 35% more on average.
“We expect half of our growth through to 2019 to come from improving mainline retail productivity, so its significance and potential for our business should not be underestimated,” said Burberry Chief Executive Christopher Bailey on a conference call in November.
While the luxury industry historically has been the arbiter of high fashion, setting trends rather than following customer cues, brands now are listening harder to what shoppers want.
Mr. Bailey said Burberry will be “taking a more scientific approach to merchandising, ensuring assortments are better tailored to the specific needs and preferences of customers in different locations.” Product assortments had been based largely on store size, but now they will take into account elements such as each location’s climate and customer profile.
As companies curtail store expansion, some are jazzing up existing spaces.
Gucci recently opened its newly refurbished 12,558-square-foot store in Beijing. The brand—which closed a net of eight stores globally in the year through July, according to Bernstein—replaced everything from the carpets to the furniture, hoping to attract new customers and stoke excitement among existing ones.
Gucci, earlier this year, set a target to raise its sales density—an industry term for sales per square foot—by up to 50%.
“Today, because it is not possible to open more stores, especially for megabrands, everybody is talking about sales density,” Gucci CEO Marco Bizzarri said in June.
Brands also are pouring more money into training store staff and even revamping their duties.
Kering Managing Director Jean-François Palus said in February that the company has moved to cut “a large part” of the administrative tasks performed by store managers at Gucci and other Kering brands, allowing them to spend more time coaching salespeople and driving revenue growth.