Luxury Institute News

November 25, 2015

Nordstrom, Bergdorf Goodman lead retailers in overall satisfaction: report

Luxury Daily
November 25, 2015
By: Forrest Cardamenis

Department store chain Nordstrom is the top-rated luxury retailer, according to findings detailed in The Luxury Institute’s third annual Luxury Multi-Channel Engagement Index.

Consumers evaluated six luxury fashion retailers both in-store and online across a total of 31 attributes – 15 online and 16 in-store. Because the findings come from consumers, they can help each retailer determine which areas it needs to improve on and what specialties will help distinguish it from competitors.

“[We wanted] to get the voice of the client, not to have a panel of experts, not to have one individual,” said Milton Pedraza, CEO of The Luxury Institute. “This is the wealthy consumer rating their own experiences, these are all clients of the brands.”

Ahead of the pack
Barneys New York, Bergdorf Goodman, Bloomingdale’s, Neiman Marcus, Nordstrom and Saks Fifth Avenue were evaluated on the ease of 14 common criteria both online and in-store. In addition, there was one additional criterion for online shopping and two for in-store.

The common traits are: finding desired products, the perception consumers had of the retailer, product selection, customizability, customer service, policy on returns and exchanges, product displays, exclusive or limited products.

Traits also included whether selections were relevant to the consumer’s lifestyle, the availability of proper sizes, pricing, loyalty programs, confidence that the retailer would meet the consumer’s needs and how often products from that retailer receive compliments.

SAKS 5th Ave
Dior beauty counter at Saks Fifth Avenue

Respondents had a median age of 52, minimum household income of $150,000 and an average of $289,000 and $2.9 million in net worth, numbers that align with luxury retailers at large. Among the findings about consumers is that twice as much spending takes place in-store, with women and consumers under 45 years of age being more likely to spend online.

Bergdorf Goodman beat out Nordstrom in some notable categories. It is best perceived as a luxury retailer, as having the best prices and having the best personalized shopping experience.

However, Bergdorf Goodman has only two stores, one for men and the larger for women, both on Fifth Avenue in New York, whereas Nordstrom has 118, which will play into perceptions of luxury. Nevertheless, Bergdorf Goodman’s relative aversion to discounting did not stop consumers from highlighting its prices.

Nordstrom topped the rankings of more categories than any other retailer. Among them: its convenient refund/return policy, carrying relevant products and styles, having a navigable Web site, including helpful ratings and reviews and good shipping policies online, convenient locations and in carrying products that are complimented by others. It also beat out national retailers in prices and having good personalized shopping.

Fittingly, Nordstrom is the most popular retailer online and leads in market-share on both channels.

Tough times

Mobile transactions do not comprise a large share of the revenue for any of the retailers. While mobile is an important part of the transaction journey for many consumers, who use it to research and in-store to compare prices and selection, it has not yet become a major source of transactions.

Retailers are missing out on significant revenue opportunities by failing to personalize consumers’ shopping experiences, thanks to the lack of adaptive pages, product recommendations and search functionalities on their mobile sites, according to a Retail Systems Research report.

In its “Personalization Across Digital Channels” report, sponsored by predictive analytics platform Reflektion, Retail Systems Research highlights the major faux paus that brands commit when it comes to mobile commerce. As consumers’ expectations for retailers’ digital offerings grow higher, marketers must deliver optimized experiences, including saved search histories, suggestions on previous purchases and responsive pages tailored to each device (see story).

neiman.hudson yards rendering
Neiman Marcus Hudson Yards rendering

Nevertheless, online shares have grown and retailers have proven themselves adaptable to new technology.

“I think what [the data] tells you is that, even though we thought that the luxury multi brand chains were going to be overrun with the likes of Amazon and others, that just hasn’t happened,” Mr. Pedraza said. “They have become very nimble and very agile at online and ecommerce. Don’t underestimate these omnichannel chains. They definitely will rise to the occasion.”

One of the major obstacles in both ecommerce and in being perceived as luxury is in discounting. Discounting is a surefire way to lure in new consumers short-term but represents longer-term risks for the brand.

As a result, many retailers have opened up discount stores, which, despite also risking perception, could become a venue to funnel discounted merchandise and leave the main store full-price.

Although this change could not be implemented suddenly without alienating some consumers, there are already signs that it is taking place and may become more visible as holiday shopping is amped up.

Bloomingdale's Ala Moana exterior
Bloomingdale’s Ala Moana exterior

Consumers should expect a reduction in holiday promotions from retailers, according to a recent report by Upstream Commerce.

Based on the past two years of holiday promotions, the report predicts that 2015 will see a decrease in both the number of products discounted and in the discount rate. Fewer sales incentives and lower discounts could indicate a new strategy based on the “right” offering rather than simply presenting more promotions (see story).

“There is a lot of discounting out there, but full-price will remain relevant,” Mr. Pedraza said. “Unfortunately I suspect there will be a lot of discounting in the fourth quarter because when you enter their store they are flushed with inventory, all of them, so I think there’s going to be a big reduction.

“Traffic is down dramatically in all of these stores — some insider estimates, people on the inside of these companies, place traffic down anywhere from 20 to 30 percent,” he said. “It’s going to be a very tough fourth quarter, at least on market.

“We may see the top line improvement because of the discounting and you’re going to sell more, but we may see that the margins erode and by the way we may see comps that are not that good. Luxury right is in a very tough place, nowhere near what it was in 2008, everybody is suffering.”



October 27, 2015

Relationship building critical to luxury retail: Luxury Institute CEO

Luxury Daily
October 27, 2015
By: Sarah Jones

LONDON – The human element is going to be the top differentiator among luxury brands going forward, according to the CEO of Luxury Institute at Luxury Interactive Europe 2015 on Oct. 26.

As consumers increasingly experience the world through screens, they will come to crave the now-rare human connection. Here is where luxury brands can help themselves stand apart by outperforming their peers at relationship building and delivering a worthwhile personal touch.

“As consumers are more sophisticated, and as products become more commoditized, it’s the delivery of an optimized experience across channels that is critical and that high performance client relationships are our differentiators,” said Milton Pedraza, CEO of Luxury Institute, New York.

Brand image
Brands are struggling to define themselves, especially as they bleed into more affordable price points. For instance, a representative from an Italian jeweler told Mr. Pedraza that his brand does not know its own identity anymore, after a move down market left it straddling premium and exclusive.

Luxury Institute client Nordstrom now makes half of its sales via outlet stores. Recognizing that the customer retains a level of mystery, Nordstrom similarly remains ambiguous. Despite this non-specific label, the retailer still scores first in customer service in surveys conducted by the consultancy.

Nordstrom Anniversary Sale
Nordstrom heavily promotes its anniversary sale on social media

Consumers are becoming more sophisticated, and brands need to optimize their user experience for their requirements.

Across channels, brands in the luxury space are struggling to connect the dots between policy, procedure and system to deliver a rewarding customer experience.

While 37 percent of men and 49 percent of women find browsing without help from a store associate to be most effective, this does not remove a brand’s place in the process. For brands to guide consumers’ exploration, they should include signage in an on-brand way or have store associates communicate with the shopper to help them find what they are looking for.

Valentino Rome store women
Valentino store in Rome

Even in the digital space, which tends to be thought of as a do-it-yourself shopping channel, the human element cannot be entirely removed. Walmart might be able to automate and take out that the personal interaction from the buying experience, but for luxury brands, the relationship is everything. It is especially important to invest in this personal approach for top tier clients.

Therefore, sales associates should be taught interpersonal skills, such as trustworthiness. While often thought of as innate, these can be learned. Ensuring that all associates are pulling their weight will also help to retain top frontline employees over time.

For best practices, Mr. Pedraza suggests looking outside of the luxury industry rather than studying peers. Those that excel at relationship building are within the military, medicine and airline industries. For instance, brands can look to the military, which has developed successful methods of empowering soldiers, to gain insights on store associate education and guidance.

Making a connection
Mr. Pedraza asked each of the tables to discuss what changes they would make to their organizational structure, front line associates and compensation to help foster strong client relationships.

Ideas from around the room included rotating employees within roles to develop empathy, looking at the company from the consumer’s perspective and empowering sales associates with access to technology and a CRM system. Other suggestions included new roles, such as a customer information officer, which would span sales and marketing.

After hearing from the room, Mr. Pedraza shared his suggestions. These include empowering employees by shifting the organizational structure from a top-down management style to one where individuals are self-managed.

Milton Lux Int Europe
Milton Pedraza

On the same note, employees should be educated rather than trained, with the focus on ideas for creative relationship building rather than delving out a strict formula to follow.

Associates should be compensated for their actions, such as messages sent and appointments booked, rather than their sales results.

Brands should also make sure that each and every member of their team fits the culture. For many companies, this would mean eliminating employees who do not want to talk to anyone.

In addition, brands should ensure that the technology they are providing their staff with is up-to-date. Ineffective systems are often a dealbreaker for associates, particularly younger employees, and they will take their talent elsewhere.

While technology can help to deliver a high-touch experience to consumers, data and automation cannot replicate the level of engagement that a salesperson can create with shoppers, according to an executive from Moda Operandi at Luxury Interactive 2015 on Oct. 13.

Moda Operandi employs stylists, who work with its most valued consumers to provide personalized recommendations and one-to-one communications, but the process being used to deliver this service was tedious. Keeping the same human touch business model, Moda Operandi built a new platform to help its stylists deliver more relevant, visually appealing messages to the most important customers (see story).

“The key is that we’ve created these great channels, but we haven’t connected the dots,” Mr. Pedraza said. “And that I think is the critical issue.

“It’s not that we’re not innovating in each of those channels. It’s that we have not connected the dots to the point where, for example, a sales associate is empowered and inspired and maybe incentivized to send the client online,” he said. “Or that when the client buys online, the sales associate reaches out with a thank you card and a follow-up.

“We haven’t figured out those little basics that really create realtionships. Today we are very digital, very technical, we’ve disempowered the people in the stores, is one of my premises. We haven’t connected the dots, as simple as they are to connect, whether it’s technologically or humanistically, we haven’t figured out the policies, the procedures, the systems yet.”


October 15, 2015

Selling and service as terminology is dead: Luxury Institute CEO

Luxury Daily
October 15, 2015
By: Staff reports

NEW YORK – While luxury brands typically know the best practices in client building, most are not practicing these strategies for their own customers, according to the CEO of the Luxury Institute at Luxury Interactive 2015 Oct. 14.

The traditional training program for sales associates is out of date, as the focus should be on education that can be applied in a creative way rather than a rote set of rules and checklists that take the human element out of interactions. Additionally, these important members of a brand’s team should be rewarded more for their actions than their results, putting the emphasis on client retention and engagement, which will lead to sales over time.

Consumer behavior
In a survey of wealthy consumers, 68 percent of men and 64 percent of women say that their spending on luxury or premium products revolves around bricks-and-mortar. The frequent conception today is that consumers have conducted such detailed research prior to their store visit that they cannot be swayed or influenced by an associate, but Luxury Institute found 45 percent of women and 30 percent of men do not do any searching before they head to the store.

With 37 percent of men and 49 percent of women noting that they find browsing without the help of a salesperson to be most effective for finding new merchandise, brands may want to rethink their store strategies. Displays with product information or signage that assists with navigation or points out new items can help aid this independent exploration.

This eschewing of a sales associate’s assistance is even more prevalent online, where only 8 percent of men and 3 percent of women say they find new products best with the help of an associate via live chat or other online communication.

The sales associate does still have a place, but ensuring that the interaction is relevant and effective now comes down to technology. Retailers should be ensuring they are giving their salespeople the best tools since associates may think of taking their talents elsewhere if technology proves a deal-breaker.

According to a new study by Yes Lifecycle Marketing, many retailers are still unwilling or unequipped to tailor customer service to the individual.

The study looks at retailers in a variety of different sectors and finds that many have not sufficiently tracked clientele and are thus unable to provide sales associates with the personalized data that will help initiate and close a transaction. With consumers navigating freely between mobile, Web and in-store shopping, and brands therefore able to gather more information than ever before about frequent shoppers, properly cataloguing clientele has emerged as a way to provide the best possible customer service and showcase a great branded experience (see story).

Other trends shaping the luxury industry are the spending power of women, who will control the majority of assets. Seventy percent of women who inherit from their spouses change their financial advisor within a year, wanting to move on from someone who has mistreated them.

The only sectors that are successfully marketing to women are beauty and skincare.

“Beyond leaning in, you have to jump into the deep end of the pool,” said Milton Pedraza, CEO of Luxury Institute.


August 14, 2015

Millennials’ wealth management preferences differ from boomers: report

Luxury Daily
By: Kay Sorin
August 14, 2015

Millennial investors have different preferences compared to their baby boomer parents when it comes to wealth management, according to a new report by Luxury Institute.

While baby boomers and older generations prefer to work with full-service brokerage firms, wealthy millennials and members of Generation X are showing an increased preference for working with private advisors. Independent financial advisors can offer a more individual approach that is often appealing to younger investors who are accustomed to personalization.

“Independent financial advisors are able to do more things for their clients, because they are not working for a firm that has rules and regulations about what they can or can’t do,” said Milton Pedraza, CEO of Luxury Institute, New York. “The IFA is the fastest growing industry in wealth management.”

Different strokes
Luxury Institute surveyed investors earning at least $150,000 and found that at least 46 percent used some form of advisor to help them manage their finances. Among respondents aged 65 and over, this number rose to 59 percent.

Michael Kors affluent couple car
Wealthy millennials are inclined to prefer independent wealth managers

Respondents varied in their preferences for an independent wealth manager versus a full-service brokerage firm such as Morgan Stanley or Merrill Lynch. Interestingly, this preference strongly correlated with age.

“A full service firm doesn’t have a fiduciary relationship with the client, meaning that they are not legally obliged to serve the client’s interests only,” Mr. Pedraza said. “They can recommend an investment in which they will make a bigger commission.”

Millennials and members of Generation X and Y, defined as those 45 and younger, showed a significant preference for independent wealth managers compared to full-service brokerage firms. Thirty-eight percent chose to work with individual advisors while 27 percent preferred a big brokerage firm.

Michael Kors case
Millennials have access to more information and are well informed

Investors over 65 were much less likely to work with an independent advisor and only 28 percent reported doing so. They strongly preferred to go full-service with 56 percent using large firms to manage their wealth.

This difference between the generations is likely a result of their upbringing. Baby boomers were raised to expect to work with a big brokerage firm, while millennials may be more wary and distrustful after the recession of 2008.

Sotheby's London Property
Financial advisors can assist in major life decisions such as purchasing a home

Additionally, millennials have more information at hand, which allows them to be more selective with their advisors.

“Millennials are so much more informed that they depend less on a brokerage firm providing them with research,” Mr. Pedraza said. “Millennials don’t need as much because they are so informed.

“They know that very few financial advisors can outperform the market in the long term.”

One way in which individual advisors often distinguish themselves is by providing a more personal connection for clients. Luxury Institute found that expertise, trustworthiness and generosity were the most valued traits in financial advisors.

Affluent family
As millennials age they are in greater need of financial advice

More than numbers
Investors looking for both a personal relationship and a full-service brokerage firm may seek other solutions to find the ideal compromise. Ultra-affluent consumers often appreciate the relationship-building culture fostered at boutique wealth management firms, according to a report by the Luxury Institute.

The New York-based Rockefeller Wealth Management firm received the highest score in the report, followed by Atlanta-based Atlantic Trust Private Wealth Management and Convergent Wealth Advisors. As wealth management firms continue to repair their reputations following the financial crisis, prioritizing relationships over transactions will be important (see story).

Regardless of the size of a firm, relationships are often the deciding factor when it comes to choosing a financial advisor. To differentiate themselves from competitors, wealth management companies must make crucial changes that will only work if the alterations are part of the company’s core DNA, according to a speaker from the 2012 Forrester Customer Experience Forum.

It is no longer enough to just return calls and give a great customer experience, since clients at wealth management companies are not even thinking about those that do not require this. Instead, Morgan Stanley Smith Barney was forced to bolster its customer service in terms of technology, getting to know the customer and its consultants (see story).

Looking forward, it is essential for wealth management companies to take personal relationships into account in order to appeal to wealthy millennials.

“Millennials will be keen to stay with those who deliver and will dispense with those who don’t,” Mr. Pedraza said. “They will choose advisors based more on the client’s experience than on the client’s return.

“The baby boomers are kind of exiting the stage. Millennials will demand a far more objective and independent metric.

“Advisors need to be completely trustworthy and very responsive,” he said. “They need to go above and beyond to make the client feel special.”


June 8, 2015

Cadillac to Sponsor First-Ever New York Fashion Week for Men ‘I Am Very Much Interested in Taking Cadillac Into the World of Fashion’

Advertising Age
June 5, 2015

While the New York womens’ collections have failed to land a car company to replace longtime title sponsor Mercedes-Benz, Cadillac has signed on to become the first-ever automotive backer of New York Fashion Week: Men’s.
The agreement, signed to last two seasons, includes producing a variety of related events and providing Cadillac vehicles as shuttles for attendees. Shinola, Amazon Fashion, and Dreamworks have also been confirmed as sponsors for the fashion week focusing on menswear.

“I am very much interested in taking Cadillac into the world of fashion,” Cadillac President Johan de Nysschen said. “The whole idea of beginning to strengthen Cadillac’s position as a lifestyle brand is very much central to our mission. This is a good start.”

“It should be interpreted as a clear statement of intent that we will walk with a heavy footstep in the fashion world,” he said.

In addition to the role during men’s fashion week, Cadillac will continue as a presenting sponsor of New York Men’s Day, a special day formerly set aside during the womenswear-heavy New York Fashion Week to highlight emerging menswear designers. This year, that day will move to July in order to align with NYFW: Men. This will be the second season that Cadillac participates.

The new deal is a telling move from a 113-year-old brand that was reportedly considering the title sponsorship of what was formerly Mercedes-Benz Fashion Week, which primarily showcases womenswear. Mercedes-Benz ended its title role there earlier this year; the twice-annual event has suffered a deficit of energy since moving from Bryant Park to Lincoln Center in 2010. Many fresh, new fashion brands started showing their wares at off-site locations — often involved with Made Fashion week.

Earlier this year, Cadillac hosted arguably the hottest ticket during New York Fashion Week, when it allowed Public School to show its Autumn/Winter 2015 menswear and womenswear collection in the automaker’s new offices, situated between Tribeca and the West Village.

“We evaluated New York Fashion Week, and we continue to think it’s a worthy property,” Mr. de Nysschen says. “But we weren’t ready to figure out how to fully integrate that into our overallmarketing strategy.”

Cadillac’s decision to sponsor men’s fashion week (which is backed by the Council of Fashion Designers of America), rather than New York Fashion Week, speaks to its desire to return to the cutting edge of culture. In recent years, the automaker has struggled to revitalize its fuddy-duddy image; last year the average buyer of a Cadillac was 59.5 years old, according to the global information company IHS Automotive — much older than the thirties to early forties age range most desirable to luxury brands.

The men’s week sponsorship is totally new — a first. It’s an essential first at that, industry insiders say.

“Cadillac needs that cool, fashionable, ‘gets it’ association to appeal to all consumers, especially Gen Xers and Millennials, who still have a perception of an older brand,” Milton Pedraza, chief executive officer of the New York City- based Luxury Institute, said via e-mail from Stockholm.

New York Fashion Week: Men’s runs July 13-16 at Skylight Clarkson Square in downtown Manhattan. A spokesman for Cadillac declined to disclose the amount of the new sponsorship.


June 5, 2015

When is Luxury not Luxury?

June 4th, 2015

When Lilly Pulitzer released an exclusive line for Target in April, the entire collection sold out at some physical locations within hours. Good for the designer, good for the store, good for the buyers. A resultant Target website crash aside, good for everybody…right?

“No target shouldn’t collaborate with Lilly just no ew ew ew keep Lilly Pulitzer classy people” – Katherine (@kathhlambert)

“lilly pulitzer collaborating with target is probably the worst news I will get in all of 2015” – Marisa Lyn Friedman (@marisalynnnn)

“Lilly pulitzer for target?! Holy hell What’s next?! the apocalypse??! affordable clothing for the masses!? Disgusting” – Pamela Beesly (@trillprincess47)

Those tweets (the third of which, c’mon, has to at least be partially sarcastic) went out not after “Lilly Pulitzer for Target” was released, but actually when the line was first announced, back in January.

The perception among Lilly Pulitzer devotees outspoken in their disapproval of the Target collaboration, then and now, seems to be that the value of Lilly Pulitzer clothing (and other items) is directly related to their cost. And if the cost goes down (Lilly Pulitzer dresses, which often sell for $200, were available at Target for $40), the brand itself diminishes in value.

It wasn’t only semi-anonymous Twitter users who expressed their disdain for Lilly Pulitzer’s availability to bargain shoppers. In an op-ed for Bloomberg, columnist Megan McArdle – having expressed her belief that Lilly Pulitzer clothes are in fact quite ugly and worn only as a statement by people too rich to care – wrote that “actually wearing Target’s Lilly Pulitzer line…signals the exact opposite of what it is supposed to.” That is to say, if you had to make an effort to buy those clothes, you don’t really deserve to wear them.

Crossovers between high-end brands and mass-market retailers – and the potential image risk to the former – are by no means a new phenomenon. In 1983, the designer brand Halston released a collection exclusive to J.C. Penney, and lost some luxury partnerships as a result.

Halston’s experience aside, the particular backlash to the Lilly Pulitzer/Target collaboration seems a bit out of step with the norm, as Target’s own partnerships with brands like Isaac Mizrahi and, as recently as this year, Missoni, or the recently-announced deal between H&M and Balmain, did not raise such a volume of ire among self-appointed consumer protectors of the luxury ideal.

While there is a risk of brand dilution in partnerships, a study from the Luxury Institute (which, you have to figure, knows a thing or two about this topic) showed that affluent shoppers are not turned off by luxury brands partnering with mainstream brands.

With specific regard to the Lilly Pulitzer/Target hookup, the Harvard Business Review crunched the numbers and viewed the outcome as purely positive.

“Unlike the market saturation and brand extension strategies that have de-valued other luxury brands like Michael Kors and Coach,” states the HBR’s report, “the Target collaboration was a smart move for Lilly Pulitzer. The limited-item, limited time collection allowed the company to expand the brand while maintaining its exclusive appeal.”

Given the success of the arrangement on almost every count (save, again, that unfortunate website overload), it is more than likely that more collaborations between high-end brands and mainstream retailers are on the horizon. Will there be outcries from those who, holding luxury in high regard, look down their noses at mass-market consumers? It’s likely. But it’s just as likely that such complaints won’t have much an impact on the bottom line.

After all, haters gonna hate.

Or, as Lisa Birnbach put it more eloquently in New York Magazine, Lilly Pulitzer herself “would not have approved of her ‘defenders.’” Referencing the Alexander Theroux quote, “Hypocrisy is the essence of snobbery, but all snobbery is about the problem of belonging,” she concludes that “Pulitzer, despite her last name, was no snob.”


May 12, 2015

Niche marketers target the 1% – at their peril

Crain’s New York Business
By: Anne Field
May 11, 2015

Last year, Steven Abt decided to overhaul the business model of Caskers, his five-employee craft-spirits company in Manhattan. He focused his marketing on two segments: the original customers who bought curated spirits on Caskers’ website, launched in 2012, and new, even more affluent buyers, who would receive one-on-one, concierge-style service.

A significant portion of his higher-end clientele was interested in such an approach. “It seemed like an opportunity to tap the luxury market, which is growing in general,” he said.

Five months later, the new offering generates about 2% of the firm’s annual revenue, which is just under $10 million, according to Mr. Abt. He expects that figure to increase to as much as 15%, with pretax margins of 20% to 30%, compared with 10% to 20% for the original service.

Mr. Abt is one of a growing number of small-business owners in New York City who are embarking on a two-tiered strategy in their marketing. That’s the result of a variety of factors: healthy demand for high-end goods and services, postrecession changes in the spending habits of affluent consumers, capabilities made possible by digital technology and the need to ramp up volume.

In some cases, it means branching out into a more upscale market, as Mr. Abt has done; in others, expanding from an affluent clientele to the mass market. Regardless, said Daniel Levine, a consumer-trends expert and director of the Manhattan-based Avant-Guide Institute, “these businesses are just following the money.”

Certainly, there’s a time-honored tradition in such sectors as fashion to bring a luxury brand to a mass audience. Take Lilly Pulitzer—known for its connection to Jacqueline Kennedy Onassis and the very rich—which recently began selling a line of clothing in Target stores.

But such a strategy can be a gamble. The premium brand that expands to a less-affluent market may dilute its cachet. Even trickier is going after a higher-end customer. Companies often are reluctant to admit to doing so, fearing they’ll alienate potential buyers in either market. And it can be difficult to convince more elite customers that their product or service is top of the line.

“It’s always harder to go upmarket,” said Milton Pedraza, CEO of the Luxury Institute, a consumer-trends research firm in Manhattan. He points to British-based Mulberry, a maker of high-end leather bags. It recently stumbled, with declines in profits, during an international expansion that included a flagship store in SoHo; it also increased prices to an ultraluxury level.

Many factors are contributing to the two-tier trend. For small businesses in New York pursuing wealthier customers, one of the most important is postrecession spending by upper-income households. From 2009 to 2012, the total growth in U.S. consumption, adjusted for inflation, happened mostly at the higher end, according to Steven Fazzari, an economist at Washington University in St. Louis.

Two ways to grow

Among those at the bottom 95% of income distribution, there was 2.8% growth during that time period, compared with a 16% increase among the top 5%. That trend has likely continued in recent years, according to Mr. Fazzari. “Growth in consumption has been exclusively driven by the top,” he said.

Companies have also been reacting to significant changes in the buying habits of affluent customers since the recession, according to Jim Taylor, a senior adviser at, a Waterbury, Conn., firm that conducts surveys aimed at better understanding public views about products and current affairs. He is the co-author of The New Elite: Inside the Minds of the Truly Wealthy.

He divides the affluent into two categories: those who seek “worth” and are willing to pay a premium for the things they buy, but go through a rigorous vetting and shopping process. Others are “discounters,” focused more on price. “They derive pride from squeezing their vendors,” he said.

Using technology platforms strategically has also helped some companies expand smoothly from a premium-only service to a larger market. Kofi Kankam co-founded Manhattan-based Admit Advantage seven years ago to provide advice to graduate-school and college applicants. He charges about $200 an hour, with packages running as high as $10,000.

About three months ago, the company launched, an online platform that is more affordable to a wide audience. It allows applicants to interact with current students and alumni at schools where they are applying and for admissions offices to search for potential recruits. The basic service is free, but customers can pay about $10 a month for additional capabilities.

“We want to build a scalable business,” said Mr. Kankam, whose profitable, five-employee company has $2 million to $4 million in annual revenue.

The big benefit of expanding to a mass audience is increased volume—especially for small-business owners who have made their name providing time- and labor-intensive, hands-on service. Take Joey Healy, founder of a three-year-old company in Manhattan that bears his name. At Joey Healy Eyebrow Studio, which provides eyebrow-shaping services, Mr. Healy spends about an hour working with each client. He charges $135, up from $85 three years ago.

More recently, Mr. Healy formed a partnership with hair-removal specialist Spruce & Bond to train eight employees in his eyebrow-shaping techniques. They were placed at all four Spruce & Bond stores (three in Manhattan, one in Scarsdale). Called Browlab, the service at the stores costs clients $50; customers also can buy from Mr. Healy’s line of products. “It brings me a new audience,” he said.

Underwriting expansion

About 10% of Mr. Healy’s total revenue, which is “just under $1 million,” now comes from Browlab, but that should increase as Spruce & Bond expands to more locations in Manhattan. Also, in October, Mr. Healy plans to move from his 500-square-foot studio to a bigger space, which will serve as what he calls “more of a flagship” for the profitable company.

In some cases, small businesses regard their premium market as a way to underwrite expansion to a larger mass clientele. Four years ago, Kim Caspare, who has a doctorate degree in physical therapy, opened PHlex Health and Wellness Studio in Manhattan, where she treated patients who were able to pay out of pocket and were mostly referred by doctors.

Since then, she has added such services as acupuncture and meditation and expanded from 1,500 square feet to about 2,200, with plans to increase to 4,600. She recently started treating a new group of patients with insurance coverage, too. Her premium clients, who pay from $160 to $300 an hour for a variety of services, “subsidize everyone else,” said Ms. Caspare. Her profitable, nine-employee company has $1 million to $3 million in annual revenue.

For those adding a higher-end tier, the key is retooling the product or service to make it attractive—and worth the price—to a wealthier clientele. That generally means not moving too far upstream from the company’s original segment.

At Caskers, Mr. Abt had already sold pricey spirits, usually in the $40 to $60 per-bottle range, to affluent buyers. Although his concierge clients have paid as much as $27,000 for an order, “moving to the high end has been a natural extension of the business,” he said.

Another notable example is concierge medicine, through which doctors provide extra services to their patients, who pay an annual fee. About a year ago, Dr. Herbert Insel, a cardiologist and internist in Manhattan, introduced this option.

He charges a $2,500 annual fee to cover services, such as a lengthy physical exam not reimbursed by insurance, longer visits and a direct telephone number to the office. So far, 10% to 15% of patients have signed on. Many of them “are very busy executives in their 40s and 50s who are used to this type of approach,” said Dr. Insel. “They were champing at the bit.”


April 20, 2015

Changing Tactics, Apple Promotes Watch as a Luxury Item

NY Times
By: Brian X. Chen
April 19, 2015

SAN FRANCISCO — Apple has scrapped its usual routine for releasing products with its new device, the Apple Watch. The company is instead taking a page from the playbook of another industry: luxury goods makers.

Gone are the long lines in front of Apple stores that would accompany a typical iPhone release. Gone is the flooding of a vast worldwide distribution network where Apple would make a new iPhone available. The company is selling the Apple Watch, which goes on sale on Friday, in just nine countries and exclusively through its own channels, not through third-party retailers like Best Buy. In contrast, Apple unveiled new iPhones in September in more than 30 countries and in numerous retail outlets.

Continue reading the main story

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For the first time, Apple is also bringing personal attention and tailoring into the mix through a process for trying on the watch. While consumers typically couldn’t touch a new Apple device until it was publicly available, the company this month began inviting customers into its stores to see, wear and feel the watch.

Evan Weissbrot, a 33-year-old watch collector, experienced the sneak preview firsthand. After he arrived at the Apple Store in SoHo on April 11, an Apple employee took Mr. Weissbrot to a station and unlocked a drawer containing a variety of the watches. In between small talk, the employee showed Mr. Weissbrot different straps and cases — and even let him check out the gold watch, which costs more than $10,000 and typically requires a separate appointment to try on.

The amount of personal attention and the allure of the process “was a rip directly from a high-end watch store,” Mr. Weissbrot said.

All of this echoes the tactics of luxury goods makers like Burberry and Hermès. Giving consumers an early peek before they buy things is a familiar strategy in the fashion industry — as, increasingly, is tempting early adopters with the bonus of circumventing the shop. When Burberry shows new lines of clothing and handbags on the runway, the company lets customers order select items immediately after the show for delivery even before the products arrive in stores.

Apple also appears to be mimicking the scarcity-creates-desire approach, one that has served Hermès well with items like the Birkin and Kelly bags. They are rarely in stock, and customers sometimes wait months to receive one. That strategy has also worked for companies like Ferrari, which has loyal customers who pay thousands of dollars just to get on a list to wait as long as a year to own the next hot Italian sports car.

“They’re definitely treading on new territory,” Milton Pedraza, chief executive of the research firm the Luxury Institute, said of Apple. While high-end fashion brands, jewelers and luxury car brands often use selectivity and personal attention to generate interest when a product makes its debut, it is new for Apple, a company whose products typically speak to an enormous consumer audience as opposed to a privileged few, he said.

The strategy is a deliberate move by Timothy D. Cook, chief executive of Apple, and Angela Ahrendts, the company’s retail chief and a former chief executive of Burberry, to lay the groundwork for a successful introduction of the watch. The watch is the first entirely new device Apple has introduced under the leadership of Mr. Cook, who took the helm in 2011, and brings the company into the fashion market, as well as the luxury market, with the 18-karat gold version of the watch.

Continue reading the main storyContinue reading the main storyContinue reading the main story
In a recent letter to Apple’s retail employees, Ms. Ahrendts said the company needed to come up with the preview approach for selling the watch because “there’s never been anything quite like it.” In the memo, which was cited by the blog 9to5Mac, she said it was unlikely that people could buy the watch at Apple stores before June because of supply constraints.

An Apple spokeswoman, Amy Bessette, said Ms. Ahrendts was not available to comment on the retail strategy for the watch.

Apple’s top brass has been energetically promoting the watch over the last seven months, granting interviews about the creation of the device to The New Yorker and Wired. Apple has also invested significantly in advertising, spending an estimated $36 million since March 9 on a television campaign for the smartwatch, just slightly less than the $38.5 million that it spent on TV ads for new iPhones since mid-November, according to iSpot.TV, an analytics firm.

The watch’s success remains far from assured. Mr. Cook said on Apple’s financial earnings call in October that the company would report sales of the watch in a group with other products, rather than breaking it out into a separate category.

“I’m not very anxious in reporting a lot of numbers on Apple Watch and giving a lot of detail on it, because our competitors are looking for it,” Mr. Cook said.

Sales estimates for the watch are modest compared with Apple’s past best sellers. Toni Sacconaghi, a financial analyst for Sanford C. Bernstein, predicts Apple will ship 7.5 million watches in the second half of the company’s fiscal year, while tens of millions of iPhones fly off the shelves every quarter.

For now, Apple’s luxury experiment with the Apple Watch appears to be bringing in mixed results. At Apple’s London flagship store nine days ago, employees asked people if they wanted to sign up for personal appointments to get hands-on with the product. Several people were bemused that they could not handle the watches without appointments.

At an Apple store in Hong Kong, a Chinese tourist from Beijing, Scott Sun, took photos of the gold watches to send to his friends but said every version of the watch — which starts at $350 — was too expensive for him.

“There’s no way I’m going to buy one,” he said. “But for rich people, this gold one will definitely be popular.”

Another question raised by Apple’s luxury experiment with the watch is whether customers will believe it is worth the wait. While the watch will begin shipping to customers on Friday, some customers have reported that their shipping times have slipped to May or June.

For Mr. Weissbrot, the watch collector in SoHo, the wait was not a deterrent. He placed an online order for an Apple Watch Sport, which is the least expensive model and has an aluminum case, before the session in which he tried one on. The estimated date of arrival for his watch is May 13.

“It’s kind of a bummer,” he said, before adding that he was still excited to be among the first to have the device.


March 30, 2015

Digital channels influenced $1.5T in-store sales in 2014: report

Luxury Daily
By: Nancy Buckley
March 30, 2015

More than 70 percent of consumers expect brand digital channels to have knowledge of in-store product availability, according to a new report by L2.

Accommodating both digital and in-store trends requires brands to adapt to e-commerce expectations of click-and-collect or free shipping, but also adhere to in-store demands. Many traditional brands face pressure from online retailers to offer better options for consumers turning to digital for both browsing and shopping.

“While luxury fashion in the past required a high touch, in person sale, things have changed,” said Eleanor Powers, director, Insight Reports, L2. “Overall fashion brands are still focused on online e-commerce conversion (e.g. by providing free shipping options).”

Channel options
Prior to interaction with a sales associate, 80 percent of United States consumers know what they want and how much they plan to spend. This knowledge stems from Web rooming, a concept that should be encouraged by brands because it leads to 40 percent higher conversions.

Digital channels effect 50 percent of in-store sales, despite direct-to-consumer ecommerce only accounting for 4 percent of sales.

Ecommerce is being challenged by larger online retailers. When British retailer AllSaints began accepting Amazon Payments there was concern among fashion brands, which escalated with the rumors surrounding Amazon and Net-A-Porter.

Amazon may be in talks to purchase Net-A-Porter, if reports that have been rumored are true.

The etail giant has been unsuccessful in entering the luxury industry in spite of attempts in recent years, and this potential acquisition could be significant for the future of both companies. The impact that this purchase could have on Net-A-Porter is unclear, but the retailer has been not been profitable despite its popularity (see story).

Amazon Prime’s rewards encourage consumers to shop online and receive free shipping for an annual fee. The Prime membership concept has been adapted by ShopRunner, a platform used by one-fifth of luxury brands.

Without ShopRunner, consumers are shopping to a minimum spending level to receive free shipping, but even with that many consumers are pulled away from luxury brands to find less expensive items online.

Some brands, especially in Europe, offer click-to-collect. Without these options, consumers are Web rooming for products and then purchasing in-store. Even with this option, consumers expect brands to have easily accessible information about store availability.

Generational thing
Difference in digital options also vary across generations.

Consumers are split on their willingness to download luxury brand applications, but when dispersed into generations, 72 percent of millennials are inclined to download a branded app, according to a report from The Luxury Institute.

Digitization of the luxury world is slowly evolving as younger generations grow into being affluent consumers. Luxury clients differ across more than just generations, but understanding the prime and upcoming consumer can prepare marketing teams for the future (see story).

Changing to adapt to generational and technological changes requires brands to look internally and adapt within every channel.

“Brands also need to support the hand-off from digital to in-store to support a seamless shopping experience,” Ms. Powers said. “This requires investments in infrastructure for local inventory visibility and providing options for click-and-collect and in-store returns.”


March 10, 2015

Generational shift to luxury digital

Data sourced from Luxury Daily; additional content by Warc staff
March 10, 2015

NEW YORK: Affluent consumers in the US prefer to buy luxury goods in store but there is a discernible generational shift taking place as fewer millennials are concerned to shop this way with more inclined to explore options via an app.

A report from The Luxury Institute surveyed wealthy consumers in the US with a minimum household income of $150,000 per year and found that only 40% of millennials wanted especially to shop in store, while 72% would download a branded luxury app.

“There are clear generational differences where the boomers are less digital and millennials are extremely digital,” Milton Pedraza, CEO of The Luxury Institute told Luxury Daily.

“There is no one size all client experience,” he added, “and we have to understand the consumer not as a segment but as one individual, as a human being, in order to build a long-term relationship.”

That said, the differences leapt out in a number of statistics. Overall, 53% of luxury consumers did not download apps, while 47% did so, with most of these being in the younger generations.

Another instance came in social media, where almost two thirds (64%) of wealthy consumers didn’t follow any brands. But among millennials a similar proportion (68%) followed at least one brand and among Gen X the figure was 58%.

But more than one third (38%) of baby boomers also claimed to have downloaded branded luxury apps.

“Boomers are behind in digitalisation, [but] they are by no means not digital,” said Pedraza, “especially the highly educated global traveller.”

The Luxury Institute drew attention to the role of fashion bloggers in reaching and influencing the younger generation.

It found only 15% of boomers followed a fashion blogger compared to 62% of millennials. And followers had made an average of 4.2 purchases from blogger suggestions.

Even if these bloggers can find it difficult to maintain a leading edge position, Luxury Daily observed that their followings can compare favourably with magazines, the traditional influencer in luxury fashion.

The influence of technology is inexorably influencing purchase decisions in some way: 61% of all affluent consumers said it allowed them to make more purchases, while 65% said it was changing the way they shop with luxury brands.

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