As the luxury retail sector looks to strike a balance between digital accessibility and the more immersive, high-touch in-store experience, these upscale brands must create an omnichannel strategy that is much more experiential than that of their mass-market counterparts.
Kristin Savilia CEO of JOOR, a wholesale platform for the luxury industry, told PYMNTS CEO Karen Webster that luxury retailers need to offer an “experiential, exciting” retail journey to get consumers to shell out for their pricy products, and it is hard to do that online.
“I think [the physical store is] much more relevant for [luxury retail],” Savilia said. “When you’re buying [a] $20,000 coat, you kind of need to see it. … [Luxury retail] online has not gone as quickly as, [for example,] Hanes, on purpose. [Luxury is] all about experience. You can only do so much on a digital, eCommerce site when it comes to experience.”
As the dust of the pandemic-era boom settles, luxury retail appears to be undergoing a downturn.
“It’s a little rougher than I think normalization,” Savilia said. “There are economic situations among us that are making it a little bit tougher.”
Heading into the fall season, luxury retailers are adopting a more conservative approach to inventory. With JOOR’s privileged position when it comes to predicting the future, with wholesale operating ahead of retail’s schedule, the company is seeing a dip coming for this year’s holiday season.
Savilia noted an 8% decrease in purchasing relative to last year, with major retailers particularly impacted. Luxury department stores’ purchasing is down 12%, while small- to medium-sized businesses (SMBs) are down 6%, and direct-to-store is down 7%.
This dip follows consumers’ increased sensitivity to prices.
“[Luxury retailers have] hit a wall in their ability to raise prices with the consumer,” Savilia explained, noting that wholesale prices have been down 8% year over year, which she attributed to retailers “being cognizant” of consumers’ decreased willingness to pay high prices. As such, merchants are no longer relying as much on making up for softness with higher prices, forcing brands and retailers to reevaluate their pricing strategies.
Even high-income shoppers are being more cautious in their spending. The February/March PYMNTS Intelligence study “New Reality Check: The Paycheck-to-Paycheck Report: Why One-Third of High Earners Live Paycheck to Paycheck” revealed that 56% of consumers who earn more than $100,000 annually have cut down on nonessential spending due to retail product price increases. Plus, 28% of these consumers have traded down on the quality of their purchases for the same reason.
One trend is the rise of independent retailers as key players in the luxury space. Unlike struggling department stores, independents can curate personalized experiences and foster deeper customer relationships.
“We’re going to see the rise of the independent retailer because they can control the experiences,” Savilia said.
This ability to offer bespoke service in a more intimate setting is increasingly appealing to luxury consumers who seek exclusivity and a personal touch.
Direct-to-store models continue to gain traction among luxury brands, yet the strategy requires careful execution. However, brands are also exploring selective wholesale partnerships to maintain a sense of scarcity and exclusivity. The key is balancing the necessity of accessibility for reaching customers with the allure of inaccessibility, ensuring that consumers always desire more.
Today’s luxury consumers, especially Generation Z, are redefining the market with their distinct preferences. Unlike previous generations, they prioritize sustainability over brand labels and are adept at finding stylish alternatives.
“Gen Z in particular has come up with this whole new concept,” Savilia said. “They’re not label conscious. They’re sustainability conscious.”
Young consumers want merchants that align with their values. The May edition of PYMNTS Intelligence’s “Generation Zillennial” special report found that 31% of consumers said it is very or extremely important to them when merchants offer environmentally sustainable brands or products. That share rose to 43% for zillennials, the micro-generation spanning younger millennials and older Generation Z born between 1991 and 1999.
Technology is poised to play a transformative role in luxury retail, enhancing online and in-store experiences. Savilia suggested that innovations in sizing technology and virtual styling could address some of the pain points of online shopping, such as returns due to incorrect sizing. Additionally, using influencers and virtual consultations can bridge the gap between digital convenience and personalized service.
These merchants’ customers want more digital convenience. According to data highlighted in last August’s installment of the PYMNTS Retail Tracker® Series Report, “Everyday Retail Is Taking a Page From Luxury’s Playbook to Win Consumers,” 67% of luxury shoppers said stores should feature higher levels of digital integration.
For luxury brands navigating this complex landscape, Savilia offered this advice: “Don’t get caught up in one distribution model. Be at touch points that matter. Don’t fear wholesale. Just get it with the right partners who will honor your brand.”
A balanced, multi-channel approach allows brands to maximize visibility while maintaining the exclusivity essential to luxury, she said.
Looking ahead, the second half of 2024 and the upcoming holiday season will be pivotal for luxury retailers. As brands balance online and in-store dynamics, the focus will be on delivering exceptional experiences, fostering customer relationships, and adapting to changing market conditions. Despite uncertainties, the luxury sector’s resilience and adaptability position it well for continued success.
“This is an industry that always comes back, and people have to remember that,” Savilia said. “… It’s about focusing on the right things and always using tough times to self-reflect and figure out what your business needs.”
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