Luxury retail under threat

burberryLuxury has come to a crossroads. What once was exclusive and in high demand is now regularly discounted. And brands aren’t too happy about it. Burberry recently ousted its CEO and appointed Marco Gobbetti because sales are projected to be their weakest since 2009. Handbag maker, Coach, announced a week ago that it is cutting 25 per cent of the outlets that carry its products.

According to Michael Kors’ CEO, John Idol, “Discounting is creating confusion in the consumer’s mind relative to the value of the Michael Kors brand when it’s being seen so often on sale in so many different places”.

Ralph Lauren is trying to limit department stores that carry its brand, and is also closing its own stores and working to reverse its large sales decreases. Luxury watch sales in China have tumbled 30 per cent, which is causing a glut of product that brands now have to buy back. What’s going on with luxury retail?

For the past 20 years, luxury brands were running head over heels to bring aspirational brands to the masses. Look no further than all the Mercedes Benz models. But bringing massive amounts of product means there had better be massive demand – and there simply isn’t. What once was unattainable, now is everywhere.

And then there are the millennials. Millennials are renting, not buying. She can rent the bag, the shoes, the dress, the jewels and never have to visit a store and make an actual purchase. If she really wants to own a luxury product, she can go to an outlet store, a consignment store, buy it online from a discount house, or even just buy it from a friend.

Quite simply, buying new luxury isn’t fashionable.

On top of that, China’s burgeoning wealthy class are not buying luxury at the rate they used to due to the government crackdown on gifting. Europe isn’t buying either due to terrorism fears and Brexit. Look to both to have soft demand for the foreseeable future. And in the US, with the unsettling nature of the presidential race, while consumer sentiment is up, fewer are going to the malls. Buying is a hopeful sign. Worried people don’t buy.

The message in all of this is you can’t be both a luxury brand and be regularly discounting. Luxury brands are struggling to not be ubiquitous in the world, but at what price? Stocks will be punished and someone is going to have to do something about all the current inventory and orders in the pipeline.

How does all this news about luxury purchases waning affect your luxury store?

If you can only make a sale by discounting, you do not have a luxury brand built on legions of craftspeople across the world; you have no sales process that engages and creates demand for the best; and your employees are just one step away from Let’s Make A Deal.

As luxury brands are finding out, Let’s Make A Deal isn’t where you want to be.

The only way to stay in business, whether you are a luxury brand or any other retailer, is to stay true to your brand heritage, do the hard work of retail sales training to engage today’s jaded consumer, and make the sale at full price.

Bob Phibbs is a US-based retail advisor who can be contacted through www.retaildoc.com, by emailing bob@retaildoc.com, or via Stuart Bennie from Impact Retailing on 0414 631 702.

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