Luxury Institute News

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 19, 2015

Weak Euro Undermines Chanel’s China Strategy

Marketplace World
By: Adam Allington
March 18th, 2015

If you’re thinking about planning a vacation to Europe, now would be a good time. The American dollar is worth more now against the Euro than at any point over the past decade.

While the exchange rate may be welcome news for some tourists, the same may not be said for luxury European brands like Chanel or Gucci. Chanel handbags are so much cheaper in Paris than in China that Chinese tourists are flooding Paris shops for luxury bargains. Chanel want them to buy its handbags in China, expanding its market there.

So Chanel will increase prices in Europe and cut them in Asia.

“I think the Chinese consumer will benefit from this, because they will get lower prices and they won’t have to go shop in New York, London or Paris in order to get the benefit of those relatively lower prices,” says Milton Pedraza of the Luxury Institute.

But high-end brands in particular need to think long and hard about changing prices from country to country.

“One of the keys to running a luxury business is that the customers understand that the prices don’t move all that often, and that you’re not waiting for products to go on sale,” says Stifel analyst David Schick.

Schick says long-term profitability for companies like Chanel or Louis Vuitton won’t hinge on exchange rates, but rather on how they are able to compete in a market that is increasingly crowed with competitors — many of whom are perfectly willing to sell you a handbag online, instead of through a shop on the Champs-Élysées.

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.

Can Apple Sell Wealthy Shoppers on a Luxury Watch?

The New Yorker
By: Vauhini Vara
March 9, 2015

Because Apple first unveiled its smartwatch six months ago, and little has changed about the product since then, there wasn’t much for the company’s C.E.O., Tim Cook, to tell his audience on Monday, when he took the stage at a theatre in San Francisco for a follow-up event. Everyone already knew about the watch’s cool, if not necessarily essential, features and its stylish design. Cook did reveal one bit of news, though: the price of a high-end version of the watch, encased with a special kind of eighteen-karat gold that is, according to Apple, twice as hard as regular gold, will start at ten thousand dollars.

Apple had previously explained that there would be three different versions of the watch—Apple Watch Sport, Apple Watch, and Apple Watch Edition—but hadn’t disclosed how much each type would cost, beyond announcing that pricing for the least expensive model would begin at three hundred and forty-nine dollars. The Apple Watch Edition, with its gold casing, was expected to be expensive, but the ten-thousand-dollar starting price still took people by surprise; John Gruber, who runs Daring Fireball, a popular and authoritative Web site about Apple, had guessed that Edition watches might begin at seven thousand four hundred and ninety-nine dollars.

As I have written in the past, smartwatches are a bit confounding, as tech products go. People tend not to gravitate toward gadgets unless they fulfill some unmet need. But smartwatches don’t do anything that existing devices, like smartphones and fitness trackers, aren’t capable of, and it’s unclear whether the convenience factor—having the device strapped on your wrist rather than stuck in your pocket—will make up for that fact.

Apple executives seem aware of that pitfall, and so, while they have pitched the Apple Watch as a tech product, they have also taken another tack, as if to hedge their bet: marketing it as a high-end fashion item. Last year, when the watch was still only a rumor to the outside world, Apple hired Angela Ahrendts, the well-regarded former C.E.O. of Burberry, as its head of retail; the year before, Apple had convinced Paul Deneve, a former employee who had gone on to become the C.E.O. of Yves Saint Laurent, to return to the company. Ahrendts and Deneve were surely influential in guiding the development of the deluxe watch, but so were more long-established Apple executives; in Ian Parker’s recent Profile of Jonathan Ive, the senior vice-president of design at Apple, a friend of Ive’s told Parker that Ive had “always wanted to do luxury.”

It’s relatively rare for a single watchmaker to simultaneously sell a three-hundred-and-forty-nine-dollar watch and a similar ten-thousand-dollar version; for the Apple Watch to be successful, the company will have to market to a mass audience and a luxury one at the same time. Some tech bloggers, accustomed to seeing high-end products priced at most in the hundreds of dollars, immediately balked at the ten-thousand-dollar price tag on the Apple Watch Edition, especially given that the guts of the watch—what’s inside the gold casing—are the same as what’s in the other, less expensive versions. But people from the luxury-fashion world were not particularly surprised; by their standards, the price was somewhat modest. Milton Pedraza, the C.E.O. of the Luxury Institute, a consulting firm, told me, “At ten thousand dollars, I would call that more of a premium watch”—that is, something less than a luxury watch, a term reserved for the highest-end watches that sell for six figures. The luxury-goods business model relies on selling exorbitantly priced items to small numbers of people, which means not having to persuade the masses (tech bloggers included) that the price tag is reasonable. Profit margins for luxury watches tend to be around thirty per cent, compared with ten per cent or less for mass-market watches.

To Pedraza, the ten-thousand-dollar price tag seemed eminently justifiable. For one thing, the gold casing adds significant cost—in the high hundreds of dollars, at least—to the Edition watches. Perhaps more important, though, is that no one expects luxury products to be priced based on the value of their components; what’s being sold is cachet. “With the first caveman or cavewoman, the one who found the shiniest shell to make a necklace had an advantage, and ever since then people have been trying to one-up themselves,” Pedraza said.

Selling cachet, of course, requires special tactics. Pedraza noted that Apple’s marketing has tended to focus on the possibilities of achievement that are contained within a computer or a smartphone. The finest luxury brands, he said, draw their prospective customers’ attention, instead, to what a product suggests about the owner’s acquired achievement. In other words, he said, Apple might do well, with the Edition watches, to focus less on what the watch allows its wearer to do than on what it conveys to others about what the wearer has already done. “It’s about how people look at me and see me and how I want to be seen in the world,” Pedraza said. To an extent, Apple seems to appreciate that message; at Monday’s event, Christy Turlington, the supermodel, appeared onstage to show off her watch.

Apple will face another challenge with its Edition line. The luxury watchmaker Patek Philippe advertises its watches with the tagline “You never really own a Patek Philippe. You merely look after it for the next generation.” The point, of course, is that Patek Philippe watches—many of which are priced at twenty thousand dollars or more—are investments. Like art, they don’t lose value as time passes; they may even gain value. It’s hard to make the same case with an Apple Watch; at best, new technologies last for three years or so before they are seen as obsolete. “If you spent ten thousand dollars on an Omega gold watch, theoretically, in two years time, it should hold most of its value,” Bassel Choughari, a luxury-goods analyst at Berenberg, told me. “What are you going to be left with in three or four years time with your fifteen-thousand-dollar Apple Watch?”

Apple executives are surely aware of this issue; it could be one of the reasons the Apple Watch is built with removable straps, which can, at least theoretically, be removed from an obsolete watch and attached to the next version when it comes out. There is also some precedent for attempting to sell luxury tech products. A British firm called Vertu makes high-end smartphones that sell for tens of thousands of dollars. “A phone is more, in a way, like a car,” Vertu’s creative director, Ignacio Germade, told Sam Byford, of the Verge. “You don’t buy a luxury car because you want to buy it for the next 10 years or 20 years or 100 years; you buy a luxury car because even if you use it for two hours every three days, you want to have the best experience that you can have. If you look at the difference between when you buy a car and when you sell a car, you will realize that it’s actually a huge investment for a product that you use a few times a week.” Notably, in his Profile of Ive, Ian Parker quoted Ive’s friend as saying that Ive was “very interested” in Vertu.

March 9, 2015

68pc of millennials follow luxury brands on social media: report

Luxury Daily
By: Nancy Buckley
March 9, 2015

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.

“There is no one size all client experience 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,” said Milton Pedraza, CEO of Luxury Institute, New York.

“There are clear generational differences where the boomers are less digital and millennials are extremely digital,” he said. “If you want to look to the people with the most money, you want to cater to the older individual, who are not digital, but as you cater to the digital and the millennials.”

The Luxury Institute has conducted research on consumer attitudes and behaviors by surveying wealthy consumers in the United States with a minimum household income of $150,000 per year.

Technology changes all
Adapting to changes in technology can be difficult, but when looking at statistics, over half of affluents prefer to buy luxury products in-store. However, this number is about 40 percent when it comes to millennials and generation X.

Millennials also change the numbers when it comes to following brands on social media. Sixty-eight percent say they follow one or more brands on social media, while 64 percent of wealthy consumers follow zero brands.

Generation X also follows brands, with 58 percent reporting to follow at least one.

When it comes to brand apps, luxury consumers are about even among those who download and those who do not. Fifty-three percent do not download apps, but 47 percent do. The majority of these consumers are in the younger generations, but 38 percent of baby boomers claim to download branded luxury apps.

“As boomers are behind in digitalization, they are by no means not digital,” Mr. Pedraza said. “Especially the highly educated global traveler.”

When it comes to fashion bloggers, baby boomers are even more separated from the younger population. Fifteen percent of boomers follow a fashion blogger whereas 62 percent of millennials say the same.

These bloggers are having influence upon the luxury consumer with the average of 4.2 purchases made from blogger suggestions among those followers.

Overall, technology is influencing decisions. Sixty-one percent of all affluent consumers believe that technology allows them to make more purchases, and 65 percent report technology changing the way they shop with luxury brands.

Blogging influencers
Since fashion bloggers arrived on the scene about a decade ago, they have gained influence and grown to be leaders in the industry, says a report by Fashionbi.

As these bloggers gained an audience, brands began to partner with them for advertising campaigns, events and other marketing efforts. While it may seem that fashion bloggers are losing their luster, they still have large followings that can rival magazines, creating an opportunity for luxury brands to reach a large, fashion-focused audience (see story).

Department store chains increasingly partner with fashion bloggers to promote new initiatives and publicize their stores.

Fashion bloggers often have a large degree of influence and many followers, making them the ideal spokespeople for high profile marketing campaigns and events. Retailers such as Bergdorf Goodman, Harrods and Bloomingdale’s have recently partnered with a variety of bloggers to promote their products (see story).

Digital is slowly immersing into luxury, and eventually it will alter the consumer’s experience entirely.

“[In the future,] there will be digital aspects that help the sales associate be a far more effective relationship builder,” Mr. Pedraza said.

March 4, 2015

Vancouver ramps up the luxury shopping experience: Expect doormen, personal shoppers and attentive staff to be standard service

The Vancouver Sun
By: Joanne Lee-Young
March 3, 2015

VANCOUVER — In downtown Vancouver, steps from a Taco Del Mar and the Subway next door, Michael Alaska is opening glass doors and greeting customers as if he was on New York’s Fifth Avenue or in London’s posh Mayfair district.

“I call it doorman ballet,” he says, theatrically rolling one bent arm and shuffling aside.

Alaska wears a top hat and long grey coat with a mandarin collar. He looks like a quintessential doorman, exactly what his employer, luxury retailer Holt Renfrew, wanted when it created his position last fall.

“Granville Street is our front door,” says general manager Jeanie Owen. “We wanted it to have a feeling of old-world elegance.”

The company has long employed doormen in Toronto, but Alaska is the first ever in Vancouver.

His appointment is part of Holt’s “service strategy,” a plan that started four years ago, Owen says.

It also comes as the local retail market gets ready to shop at and also work for legendary names like Seattle-based Nordstrom and, later, Saks Fifth Avenue.

Last week, Nordstrom named company veteran Chris Wanlass as manager of its Vancouver store at Pacific Centre, which will open in September. Tuesday, it begins the posting of 44 manager positions.

“They’ll learn about our culture, hear from company leaders and work side by side with a mentor manager,” says Wanlass in an email.

In total, the company expects to hire more than 1,000 sales and support positions in June.

“I think there will be a lot of coaching and extensive in-house work to replicate the (Nordstrom) culture” in Vancouver, says Milton Pedraza, chief executive officer of the Luxury Institute, a New York-based research and consulting firm. “It’s not just operations, and ‘how to do a transaction’ or ‘process a return,’ but the ‘how-to-behave’ part.”

Farla Efros, chief operating officer of Hilco Retail Consulting, says with such intense competition “across the board, online, the many established names and also the fast-fashion scene, the only way to differentiate yourself is around the customer experience.”

There are the usual ways to get an edge: customized events, personal shoppers, and even people to help organize your closets.

And then there are the “intangibles,” says Efros, recalling in 2011 when Holt Renfrew let go of Tom Hargitai, a doorman who had worked at its Yorkville location for 21 years.

“He was very well known,” says Efros. “People were very upset,” and jumped online to share poignant anecdotes, deeming the doorman, whom some affectionately called “the mayor of Bloor Street,” an institution.

When Alaska first started opening doors for Holt Renfrew in Vancouver last November, a few longtime customers did a double take, he says. “People run across the street. They think I am him,” he says.

As much as Alaska revels in evoking the charm of another era, Granville Street can be a gritty portal into the polished floors of Holt Renfrew.

On a recent weekday, a reporter watched as a young man angrily confronted Alaska, finally spitting on the glass of one of the doors, yelling “that’s what I think of your store” before continuing with a string of expletives.

Alaska defused the encounter with a gentle response before retreating inside. “What happened is very rare,” he says, before admitting that “it’s a very interesting location. It’s not a hotel driveway and it’s not West Georgia.”

On the flip side, in a town perhaps not yet used to department store grandeur, Alaska says he has also has had some folks awkwardly “try to grab the door themselves,” apologizing to him that “they are just going through the store to get to their office.”

Alaska, who has worked in hospitality for airlines and cruises and was also previously a stuntman, says when he answered the Holt’s ad, it said “preferred background in entertainment and theatre. They didn’t want a security guard.

“I come from a place of wanting to do something like this, welcoming everyone. In my mind, I am thinking MGM 1950s movies kind of service,” he says. “I bring that all to the role.”

Why C. Wonder, Kate Spade Saturday spiraled down

Crain’s New York Business
By: Adrienne Pasquarelli
March 2, 2015

New York’s mass-market retailers are paying the price for the country’s stagnant middle-class wages.

Selling to the middle-class shopper has rarely been so tough.
Last week, Macy’s lowered its 2015 earnings forecast, amid sales-growth slowdowns resulting from shopper malaise. The department store giant’s troubles follow the January shuttering of Kate Spade Saturday, C. Wonder and Gap Inc.’s Piperlime—three businesses aimed at young, fashion-conscious professionals who can’t yet afford true luxury—and a spate of middle-market retail closures in 2014. And the hatchet is expected to continue falling.

“Being average in the middle is death,” said Kevin Mullaney, president of retail consultancy the Grayson Co. “The high end and the low end—those two businesses are thriving. If you’re in the middle, you’d better have a darn good reason for being there based on product and freshness.”
Hundreds of store closings

Unfortunately, many stores ­didn’t get the memo. Though fast-­fashion players such as H&M and Forever 21 are in expansion mode, and luxury brands from Ralph Lauren to Tory Burch continue to roll out new products, midtier retailers are struggling.

Bankrupt chains Delia’s, Wet Seal and Caché have all closed hundreds of stores since the fall, and 1,700 RadioShacks will follow. Though retailers are dealing with the oversaturation and decline of shopping malls, there’s a more widespread problem at play. Worried about an uncertain global economy and rising prices, middle-class spenders are seeking deals, such as a $6 T-shirt, or splurging on truly special, must-have merchandise, like a $1,200 Canada Goose jacket. Stores such as J.Crew, Gap and Aéropostale are getting squeezed as a result.
For the quarter ended Nov. 1, J.Crew reported that same-store sales declined 2%. In January, long-ailing San Francisco-based Gap announced it was letting go of its creative director, who had been with the company since 2012, and axing the position altogether.

Meanwhile, brands such as Aéropostale and Sears, which occupy the lower end of the midtier, are closing underperforming stores left and right. And Macy’s is investing an additional $100 million in capital spending this year for new store concepts and international growth, in order to ramp up sales amid sluggish traffic.
“We had another good year in 2014,” said a spokesman, noting that Wall Street always wishes for higher projections. Many of these brands are offering steep discounts to reverse the downward slide.
“You either have to be lighting people on fire and getting them excited about product, or you find yourself like J.Crew and Gap, running 30% to 40% off your entire store,” said Mr. Mullaney.

In addition, middle-market apparel sellers are also faced with increased competition from specialized online players such as Bonobos and Asos—buzzy brands that often don’t have the same overhead associated with large brick-and-mortar chains.

“There is such a wealth of options, particularly with the Internet,” said Kelly Tackett, research director at Planet Retail. “It’s really hard to stand out among that crowded field.”
The consumer buying these brands is part of a shrinking middle class whose wages nationally have stagnated. Median household income in the U.S. was $51,939 in 2013—adjusted for inflation, that’s 8% lower than in 2007 and 9% less than the 1999 peak, according to the most recent available U.S. Census Bureau data. For many retailers, this means marketing to customers who now care more about price than brand.

Though gas prices are down and the dollar is strong, many shoppers are dealing with inflation on everyday essentials like groceries, housing and education. The New York-area consumer price index for food rose 3.5% during 2014, for example.

Any extra income accumulated from gas pumps is being used to pay off bills or stored in savings, or spent on luxury items that are now must-haves, experts said.

“There’s not as much consumption as you might expect,” said Milton Pedraza, chief executive of research group the Luxury Institute. He noted, however, that technology is still thriving because consumers now consider such purchases essential. “They will stretch for iPhones, but may not stretch $70 for a J.Crew pair of pants when you can get them at Uniqlo for two-thirds of the price.”

Some of the recent closures can be attributed to timing. C. Wonder and Saturday were barely out of their infancy—C. Wonder was founded in 2011, Saturday two years later—and expanded too quickly out of the gate when consumers began tightening their purse strings.
Overextended brands

These brands tried to be everything to everyone at once, rather than focusing on doing a single product right and expanding into other categories over time.

Ralph Lauren started with ties when he founded his namesake brand nearly four decades ago, and eventually grew it into a $7.4 billion lifestyle label. C. Wonder has closed its 32 stores, which included three local shops. Saturday, a lower-priced label that lacked an identity distinct from its parent, will shutter its Spring Street store by July, along with 18 other locations.

“There were a lot of new entries at a time when retail wasn’t really flourishing,” said Rebecca Duval, a retail analyst at BlueFin Research Partners. “It wasn’t the best time to come into the market or try to develop a growth story.”

To attract spending, retailers need to introduce more eye-­catching products, experts say, though there are few trends right now to bet on. Athletic looks have already become ubiquitous; consumers can find the same me-too jogger pants at H&M that they can find at J.Crew.

“We have a plethora of retailers with that same weak message in terms of the trends they’re getting behind, and eventually they’ll continue to lose market share,” said Ms. Duval.

A version of this article appears in the March 2, 2015, print issue of Crain’s New York Business.

February 20, 2015

Can Kate Spade Recover From Closing Its 2 Spin-Off Brands?

Seeking Alpha
By: Eryn Johnson
February 18, 2015

Kate Spade & Company (NYSE:KATE) designs and markets branded women’s and men’s apparel, accessories, and fragrance products. The company’s portfolio of brands includes most apparel and non-apparel categories, and their products are available at retail locations throughout the world, including its own retail and outlet stores, and on its e-commerce sites. The company operates the Kate Spade New York brand as well as the Jack Spade brand, since closing Kate Spade Saturday. The company has a very competent management team, including CEO and board member Craig Leavitt, who has been CEO since 2010; COO George Carrara, former CFO of Tommy Hilfiger and Liz Claiborne; and CFO Thomas Linko, who has been with the company since October 2014 after being CFO/COO of Juicy Couture Inc.

According to the Kate Spade investor relations site, the brand “inspires women to live colorfully, delivering on our promise to help her lead a more interesting life. In every time zone and on every continent, kate spade new york is a global lifestyle brand offering aspirational luxury with a clever wit and playful charm that is distinctly our own.” The site also explains that Jack Spade “grew out of the simple idea that useful products could also be stylish. Jack Spade understands that taste and style say more about someone than fashion or trends. As a brand it stands for smart designs and ideas to help men live a layered life, and speaks to an expanding collection of discerning customers in the U.S., with a small but burgeoning business abroad.”

Click the link to read the entire article (subscription required) which includes quotes from Milton Pedraza, CEO of Luxury Institute: http://seekingalpha.com/article/2926306-can-kate-spade-recover-from-closing-its-2-spin-off-brands

February 3, 2015

Kate Spade Saturday is closing after 3 months in Georgetown. Is this the end of lower-priced spinoffs?

The Washington Post
By: Abha Bhattarai
February 2, 2015

Kate Spade Saturday lasted just 15 Saturdays in Georgetown before executives announced plans to shutter the store for good.

Parent company Kate Spade & Co., the brand known for its candy-colored handbags, announced last week that it is closing all retail locations of its lower-priced offshoots, Kate Spade Saturday and Jack Spade, in an effort to shore up sales at the New York-based fashion house.

The decision comes just two years after Kate Spade introduced its Saturday stores, following in the footsteps of a number of high-end designers, including Dolce & Gabbana, Marc Jacobs and Missoni, that have created secondary lines in a race to woo younger shoppers.

But those lower-priced spin-offs, which often come with thinner profit margins, can dilute a brand’s cache and analysts say that’s bad news for higher-end brands looking to capitalize on their exclusivity. This could be the year, experts say, that retailers pull back on their lower-priced efforts and outlet stores and instead shift their attention back to their primary brands.

“A lot of brands in luxury are realizing that playing at the bottom doesn’t pay,” said Milton Pedraza, chief executive of the Luxury Institute, a New York-based research firm that focuses on wealthy consumers.

While lower-priced offshoots are nothing new — Donna Karen started DKNY in 1988 — the recent recession, coupled with an influx of millennial shoppers, have given way to a number of new secondary brands. Vera Wang created the line Simply Vera for Kohl’s months before the start of the Great Recession in 2007. Zac Posen and Alexander Wang followed two years later with Z Spoke and T by Alexander Wang, respectively.

“It’s something that became very en vogue” after the recession, Pedraza said. “A lot of Wall Street analysts, private equity firms and hedge funds were pushing these companies and egging them on. But now I think you’re seeing the consequences in lower margins and discounting.”

Pedraza points to Coach, the maker of handbags, as a cautionary tale.

“Look at Coach — they opened a bunch of outlet stores and they paid the price,” he said. “They are trying to go back up market now, but it’s not very easy.”

At Kate Spade, executives had hoped the Saturday line would reach a younger, less affluent demographic.

Leather wallets at Kate Spade Saturday, for example, range from about $95 to $120, whereas a similar wallet by Kate Spade New York retails for $228.

“I think they had some good successes with the brand but overall the business didn’t meet expectations as quickly as they wanted,” said Mary Ross Gilbert, a retail analyst at Imperial Capital, a Los Angeles-based investment bank.

During the third quarter of 2014, overall sales at Kate Spade rose 30 percent to $250.4 million even as the company posted a loss of $9.13 million.

All 19 Kate Spade Saturday stores are to close by the end of June, but executives said some items from that line will be sold at the company’s higher-end Kate Spade New York stores.

Jack Spade, the company’s 22-year-old men’s line, will also shutter all 12 locations but will continue to be sold online.

“This is a year where you eliminate the hobbies and you eliminate the non-essentials, and that’s exactly what Kate Spade is doing,” Pedraza said. “You’ll see a lot of brands backing away from that this year. You’ll see a lot fewer outlets, a lot of deemphasis on outlets on the part of luxury brands.”

Source: http://www.washingtonpost.com/news/digger/wp/2015/02/02/kate-spade-saturday-is-closing-after-3-months-in-georgetown-is-this-the-end-of-lower-priced-spinoffs/

January 23, 2015

Study says luxury brands fundamentally misunderstand their audience

Retail Customer Experience
December 29, 2014
By: Retail Customer Experience

Luxury brands lose 50 percent of their top customers annually because they routinely misidentify their demographic and economic profile while also failing to create a personalized sales experience for them, according to new research from Epsilon and The Luxury Institute.

The survey analyzed and compared 30,000 luxury shoppers to uncover insights, myths and stereotypes of the luxury shopper, according to the companies.

Luxury brands mistakenly believe their customers are typically female and on average 45-years old with a net worth over $1 million, the study found. However, 57.5 percent of luxury spenders are in fact, male. They are likely to be of Asian and Middle-Eastern descent with a net worth over $500,000. Additionally, nearly 13.8 percent of shoppers with a net worth over $1 million invest mostly in modern, contemporary décor and gifts as opposed to high-ticket apparel items.

“Luxury brands need to truly understand who their customers are and what they are looking for in a luxe shopping experience,” said Jean-Yves Sabot, vice president, retail business development at Epsilon. “This is critical in creating a personalized experience for the customer that drives engagement, retention and satisfaction.”

The study also found that online shopping accounts for less than a quarter of sales for multichannel luxury retail brands, because these consumers typically want to see and touch the product. While 98 percent of luxury shoppers use the Internet regularly, more than 50 percent of the time they are researching products and comparing prices on their mobile devices. Luxury shoppers crave the experience of the brand and look for a VIP interaction, according to the report.

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