Luxury Institute News

March 2, 2016

Retail store system is broken: Luxury Institute

Luxury Daily
By: Sarah Jones
March 2, 2016

Bricks-and-mortar retail is still generally operating in an out-of-date fashion, creating obstacles for sales staff, according to the Luxury Institute.

The consultancy conducted a focus group with 40 store managers who oversee multi-brand, premium and luxury stores, and found that there are a number of improvements that companies could make to help their in-store staff be more productive and effective. From updating technology and CRM systems to reallocating employee resources, there is room for improvement that needs to begin at the top.

“Currently, stores are designed to be points of sale rather than relationship building centers,” said  Milton Pedraza, founder and CEO of Luxury Institute. “Stores need to be redesigned aesthetically and digitally to be spaces that make clients feel special and inspires them to buy.”

In-store solutions
Store managers frequently find themselves off the sales floor as they work to fulfill organizational tasks in the back of the house, such as sorting inventory, generating reports and communicating with the corporate office. This time they spend in their offices takes away from time they could be spending creating a relationship with customers.

In addition, sales associates may run into the back to open boxes, leaving them frazzled and potentially dirty when they return to meet clients on the sales floor.

Apple, for one, has changed this division of responsibilities, separating the functions of operations and consumer engagement into different positions. In place of the store staff, a specialized team could take care of back of house operations for a small region.

Hugo Boss New York Fifth Ave store 400
Hugo Boss store on Fifth Avenue

This frees up sales staff to focus on client retention, data collection and conversion, which will add up to sales in the long term. In this environment, Luxury Institute found store managers would feel more comfortable having higher sales goals set.

More than half of managers said they have absolutely no control over hiring and firing their employees, and none have complete control, creating an environment where up to 40 percent of workers are underperforming.

While they do not have the ability to build their teams to their specifications, store managers are still held accountable for the results generated by their employees. These managers would like corporate to enact educational outreach to train managers and associates in employee selection, helping them to assess a candidate’s fit for the job outside of their skills and experience.

Size of staff is also a concern, as the managers polled agreed that just raising their employee number by 10 percent could boost sales by 25 percent.

Most managers appreciate the annual meetings that bring together store employees and corporate representatives to discuss products and store challenges. However, most feel that this one-time meeting is not enough, preferring a biannual schedule or a meeting per new season.

Gucci_Store_ Montenpoleone_handbags
Gucci Montenapoleone store

Managers are also concerned about their coaching of employees, something that many say they never received any training on. The efficacy and frequency of coaching from a manager to a sales associate can have a great impact on sales.

Corporate should also give store-level managers a certain level of freedom to respond and react to opportunities in their local market to drive growth. This may mean sharing best practices with a non-competitive brand or using insights to innovate the store experience.

Typically, corporate chooses to dictate down to the stores, allowing minimal room for flexibility.

In-store technology has not caught up to today’s omnichannel shopping patterns. Retailers could be missing out on 10 to 20 percent of sales by not sharing inventory across channels, as they are unable to offer another option to purchase an out-of-stock item in their store.

Another investment that would change client engagement is the implementation of a customer relationship management platform. Many retailers have no CRM system in place, choosing to store data gathered at point of sale in clunky spreadsheets, and only half have a CRM that they like.

DFS shopper3
DFS shopper

CRM platforms allow associates to access data more easily, helping them to spot opportunities for client engagement. Technology is a big deal to staff, and stores without upgraded platforms may see their top performers leaving to join a competitor who does have the necessary technology to help them be more successful.

“Brands have spent millions of dollars on the best technology and digitization in their stores, yet are seeing no return on investment due to low usage of the technology,” Mr. Pedraza said.

“However, these tools cannot help the associates increase their effectiveness if they are not actively engaged in using them,” he said. “Training and education dramatically increase the probability that the front line will use these tools to build client relationships and drive sales.”

Another step toward retaining staff is through compensation. Bonuses, which can be anywhere from 15 to 20 percent of a base salary, are hinged on reaching what are often considered unrealistic goals, particularly in the face of turbulent economies.

Instead, managers suggest incentives based on exceeding the previous year’s results.

Millennial mindset
Millennials are growing into luxury shoppers, but despite having the same income levels as their boomer parents at their age, the more youthful set are saddled with more debt. In addition, this group favors experiences over things, making for a tougher sell for those marketing hard luxury.

One of the engagement tools that managers feel is underused is social media. Often, they are not empowered to use Instagram or Pinterest to communicate with a potential client by letting her know about new products or by sharing inspiration.

Consumers social media
Millennial consumers turn to social media for research

Social media has opened the world up for millennials and for the first time has allowed luxury brands to directly interact with tomorrow’s affluent consumers.

During Luxury Interactive 2015’s panel “Millennial Marketing — Tapping Into the Social-Obsessed Segment” on Oct. 15, executives from brands not typically associated with the millennial consumer discussed the importance of reaching out to this demographic while they are young to establish a connection and cement a bond that will mature as they age. Social media has emerged as the driving force behind these connections as various platforms allow the creativity and personalities of millennial consumers to flourish as they share and embrace their interests and passions (see story).

Leaders feel they do not have the resources or time available to effectively court millennials, either through special events catered to them.

“A common misconception is that millennials do not want human interaction,” Mr. Pedraza said. “Like other generations, millennials value relationships with those who prove to be experts on the product and are empathetic, trustworthy and generous. Luxury brands need to drive consumers to the stores through social media, outreach and events.”


October 21, 2013

Luxury Institute’s Wealth and Luxury Trends 2014 and Beyond: A New Model to Increase Profitability

(NEW YORK) October 21, 2013 – The luxury industry is closing out the final quarter of 2013 and preparing for another year of uncertainty ahead in 2014. Hyper-growth in the emerging markets since 2009 is showing signs of softening, while the year-over-year increases in U.S. sales are picking up steam. Europe, too, is on the upswing.

Looking ahead, brands are concentrating on existing stores, price increases, cost reductions, and emphasizing higher-profit products. Another area of focus enabling many of these initiatives is improving customer conversion and retention efforts.

Providing luxury goods and services to wealthy customers will remain a growth industry. Market share is the name of the game and competition is getting fierce in a slower-growth environment.

We work with dozens of top-tier global luxury brands each year. Based on recent experiences in New York, Milan, Paris, and London, here are seven trends that smart luxury brands need to address in 2014:

1.   U.S. Brands Ditch CRM Vendors Who Fail To Deliver Measurable Results

The honeymoon is over. After investing heavily in CRM systems and consultants, leading brands are now beginning to divorce their initial CRM vendors. Many top-tier luxury brands, particularly those based in the U.S., are terminating their current CRM contracts or confidentially seeking alternatives. They feel shortchanged by empty CRM promises at the database and analytics levels. They are also disappointed with CRM consultants unable to execute simple reporting requirements to support marketing and front line teams on a timely, error-free basis. As CRM vendors continuously fail to deliver, look for the Europeans to stage their own revolts from underperforming analysts and systems.

2.   Mystery Shopping Is No Way To Boost The Bottom Line

Luxury executives, mostly out of habit, have opted for mystery shopping as the preferred method for measuring sales team behaviors. It’s dawning on many brand leaders today that they are often getting reports that are clearly massaged by the vendors and/or the mystery shoppers, very much like fake online ratings and reviews. These are not real shoppers, nor are they even economically qualified to be luxury shoppers. Combine this with the fact that the number of data points does not equal a statistical sample, and you get a sense of the spurious conclusions that can be drawn from mystery shopping. The concept adds up to wasted resources and falls far short of the goal. Look for the leading edge brands to abandon mystery shopping as a relic of the last century that took years to wear thin. Customer experience surveys and customer metrics can take the mystery out of mystery shopping and be a better use of resources.

3.   Attribution Model Retribution

Brands are eager to pinpoint which marketing and sales channels are most effective so they can invest accordingly. It’s not an easy task, so data scientists have come up with a concept called attribution modeling.

Attribution modeling attempts to determine which communication channels get credit when a prospect uses several of them before converting into a buyer. Data scientists analyze data and try to trace the customer purchase journey across touch points. They then weight the channel results using their own judgment to come up with an answer.

There are several challenges involved, including how to account for unknown offline influences, multiple device usage, and various digital touch points that may be a combination of social, display, video, referral, email and search. The inaccuracies are almost insurmountable. The process is biased from the start due to the fact that the most readily available data comes from online sources.

Predictably, the brand channel owner fighting hardest to get the credit also influences results. Today, data scientists build expensive attribution models that are very precise but highly flawed. Look for senior brand executives to demand full accountability from their teams and stop wasting money on inaccurate models that drive ineffective spending in 2014.

4.   Not Big Data, Relevant Data

The Big Data hype became huge in 2013. Since most senior executives are new to data and analytics, they must act duly impressed by the promise of Big Data, or they will be accused of being out of touch.

The reality is that most collected customer data is simply exhaust and not relevant in making predictions about future spending behavior. The 20% of the data that gives us 80% of the predictability models gives us what we term “lift”, or a higher probability.  This higher probability that a customer will buy an item is simply that, increased probability, not certainty. Timing is everything and even a good predictive model of what a customer might buy next may send the offer at the wrong time. Demand that your analysts prove to you which massive data they collect and analyze is relevant and why. Ensure that the data scientists verify the conversion “lift” of their models. Make sure that Big Data has a big return on investment. Sometimes just skip the propensity models and build strong customer relationships by simply contacting clients and asking how you can best serve them.

5.    Online Personal Shoppers

Finally there is innovation in delivering a customer-worthy online buying experience, and it looks a lot like the offline experience. The human being is en vogue again. Online-only and multi-channel retailers are developing personal shopper teams aimed at supporting their most valuable customers (top 20%) who may require a guided or curated experience with a trusted expert. Masses of affluent tourists are a preferred segment since many can be retained online after the initial store purchase.

Brands are incentivizing their specially selected and trained personal shoppers to use digital channels to develop deep customer relationships based on expertise, trustworthiness and generosity. It is not cheap, but the low conversion and high attrition rates among key customers and wealthy tourists require innovation that yields high returns, even if it is boring, low-tech humanity.

6.     Luxury Outlet Saturation

Recessions have a way of inspiring luxury brands to explore new opportunities for development. Luxury outlets are a growth engine right now. Many luxury retailers are reaching the point where discount outlets may soon outnumber their full-price stores. Right now, this strategy has delivered results and outlets are a source of good profits for brands, but don’t dismiss the negative impact this can all have on a luxury brand. A great deal of the merchandise in luxury outlets allegedly has never seen a full-price store. It is made of a lower level of design, quality and craftsmanship, created specifically for the outlet, and carries faux full price tags that are then reduced.

Luxury has rules that can’t be violated for long without serious consequences. True luxury consumers are highly educated and connected, and allegations have spread across fashion blogs. When you take the high quality, craftsmanship, and design out of your products, and also eliminate personalized service, you slowly erode the brand’s heritage and loyal clients will begin to doubt your legitimacy. Many executives in headquarters are quietly beginning to worry. Outlets fever will have a corrosive brand effect. The problem is that short-term growth feels so good and the negatives creep in slowly. Wall Street will cheer you on. You won’t notice your luxury brand has been damaged until full price loyalists begin to flee in droves.

7.   Customer Culture is the New Profit Mode

Like CRM, Customer Culture is a holy grail everyone discusses with passion, and can even cite the great culture-driven brands such as Zappos, Nordstrom and The Ritz-Carlton. Although most brands know their stores and websites are more like vending machines than relationship building centers, embracing Customer Culture is scary for many. Some will simply pretend they are customer-centric, while others do piecemeal work in an effort to create a client-focused environment.

Results from a 2013 Deloitte survey on culture and values show that companies with a purpose beyond selling widgets have much higher rates of profitability as well as customer and employee satisfaction. Luxury Institute’s own case studies reveal that data collection rates can triple and retention can double, especially for the top 20% of customers who drive 70% of sales. One automotive client recently won an award for CRM activities such as a 400%+ increase in lead follow-up.

Brand leaders finally understand that technology, big data, and analytics are rendered useless without empowered and inspired human beings that engage the customer daily. We predict an increased focus on Customer Culture in 2014 as brand executives are forced by fierce competition and slower growth to innovate.

Dramatic progress can be seen when brands think beyond products and channels and focus on customer relationship building. Even Apple has recognized the potential of further engaging the customer, bringing Burberry CEO, Angela Ahrendts, on board in a new role to oversee both retail and online stores. Customer Culture is the new profit driver in a commoditized and fiercely competitive luxury world. Only the enlightened will thrive.

To hear Luxury Institute CEO, Milton Pedraza, speak more about the importance of relationship building with top clients, watch excerpts from “Bold Customer Culture: The New Profit Model” presented at the 2013 Luxury Interactive conference.

About the Luxury Institute (
The Luxury Institute is the objective and independent global voice of the high net-worth consumer. The Institute conducts extensive and actionable research with wealthy consumers globally about their behaviors and attitudes on customer experience best practices. In addition, we work closely with top-tier luxury brands to successfully transform their organizational cultures into more profitable customer-centric enterprises. Our Customer Culture consulting process leverages our fact-based research and enables luxury brands to dramatically Outbehave as well as Outperform their competition. The Luxury Institute also operates, a membership-based online research portal, and the Luxury CRM Association, a membership organization dedicated to building customer-centric luxury enterprises.


October 13, 2011


By Hedda Schupak
The Centurion
October 12, 2011

New York, NY—Despite burgeoning sales for 2011, most luxury brands have an appallingly low customer retention rate, losing between 80% and 90% of their customers in any given year.

No, that’s not a typographical error. Most luxury brands are deficient in retaining even half of their top customers, says Milton Pedraza, CEO of the Luxury Institute, a global luxury consulting and research firm. These figures are the central focus of the Luxury Institute’s most recent white paper, Wealth and Luxury Trends 2012 and Beyond: Raising Customer Loyalty in the Midst of an Uncertain World. (The Luxury Institute data is aggregated from all its clients; it doesn’t release individual company figures.)

“Nobody likes to publish those numbers because they’re not pretty,” Pedraza said in an interview with The Centurion this week. “But 80/20 doesn’t have to be the rule.”

Contrast those grim metrics to non-luxury e-tailer Zappos’ customer retention rate of 75% (the company does release figures) and it’s clear there is much opportunity for luxury brands that create customer-centric cultures, both in-store and online.

Luxury brands really fall down when it comes to customer relationship management (CRM), an area one would most expect them to shine, says Pedraza. Very few have a truly customer-centric culture, very few do proper clienteling, and many have surprisingly poor service for what’s supposed to be a special experience.

The good news is that customer retention figures for multi-brand luxury retailers—like jewelers—typically are a good bit higher than for single-brand shops. And the other good news is that most luxury brands and retailers already have the tools for increasing customer retention; all they need to do is use them.

Creating a customer-centric culture starts at the top, and assuming staff compensation is competitive, comes from three things: being expert at what you do, earning the trust of customers, and having a pleasant personality. Luckily, luxury jewelers excel in these areas, but Pedraza says it’s essential to ensure your employee compensation isn’t counterproductively holding you back.

“If you pay a low salary and expect sales associates to ‘eat what they kill’ as many luxury retailers call it, your customers are going to be attacked by sharks.” Better, he says, is to set commissions based on group sales and include customer relationship building goals as part of the total package.

Get social—or don’t. One of the biggest misconceptions about social media is that it’s the greatest marketing development since ads for sliced white bread. Yes, luxury consumers are online and on Facebook. And, yes, many luxury brands have millions of fans that “like” them on Facebook. But despite the fact that Facebook regularly tries new ways to influence purchases online, the Luxury Institute says there’s no evidence that having millions of fans has helped luxury brands acquire new customers or build business significantly.

But CRM metrics have shown that customers who have a human relationship with a brand ambassador (be it owner or sales associate) typically buy double from that brand and stay loyal for a longer period of time. The long-term success of the brand depends on the individuals who interact physically with the customers. This means both minimizing staff turnover, and doing a lot of old-fashioned legwork: knowing the customer’s likes and dislikes, calling when something special comes in, sending handwritten notes, knowing their special dates and life milestones, and so forth.

“I don’t mean that social media isn’t good. Does it build awareness? Yes, and that’s good. Does it build relationships? It might, but clienteling is better,” Pedraza told The Centurion. Social media is appropriate for most luxury brands—but not all. For an upscale community jeweler who uses it to have an ongoing conversation with customers, it’s wonderful, but for a super-high luxury brand whose cachet is extreme exclusivity, customers don’t want it to be where “everyone” has access to it.

Ironically, one brand that still uses mainstream advertising—TV, print, and even billboards—more than social media is Apple. And while its legendary in-store retail experience is central to Apple’s image and success, Pedraza thinks the brand could do even better if it would follow up after sales, an area where it’s surprisingly lacking. He says he’s never been contacted by an Apple associate following any of his purchases. (Editor’s note: We own two Apple computers, two iPhones, and countless iPods, but we haven’t ever been called for follow-up, either.)

Luxury predictions for 2012. While 2011 was the year luxury came back—indeed, a banner year that topped even 2007 sales figures for many brands—next year growth is likely to slow down, especially on a global scale, says Pedraza. He predicts there will be modest single-digit growth for luxury in the United States—in the area of about 5%—but that growth may be driven by price increases, not volume.

“The top 20% of consumers are doing well. In the intermediate term, we will see the affluent continue to buy,” he said, but cautions that the continued bifurcation of the U.S. consumer marketplace is not healthy for the long term. Furthermore, while the affluent are somewhat insulated from economic ups and downs, they’re not immune.

“For long-term [economic] success we need a strong middle class,” he told The Centurion.

Much of the pre-recession growth in the luxury market came from just such middle class spenders, sparking the proliferation of aspirational, “mass luxury” items to target a wider audience. Then, during the recession, luxury retailers, including many jewelers, found that lower-priced items were the saving grace that kept the doors open.

But with the big spenders coming back, is it now time to reassess? Have too many luxury retailers abandoned the market that made them in the first place? Or is it too soon to cut the affordable-product lifeline?

“Those who serve the ultra-wealthy can have extremely high priced product, but it’s not scalable,” says Pedraza.

“The brands that are most resilient are the ones that have diversified. Tiffany sells both a $250 bracelet charm and engagement rings starting over $10,000,” he says. And they do it very well, he emphasizes. Louis Vuitton is another brand he says has been able to successfully serve mass without losing class.

Achieving the right mass-to-class balance is both an art and a science—and a very fine line that’s often invisible until you’ve crossed it, warns Pedraza. Too much logo, too much bling, and you get too many of the customers that really aren’t your market while alienating those that are.

Even if the price point stays high, straying too far from a brand’s point of view isn’t healthy either, as evidenced by this recent Harper’s Bazaar article detailing the Italian fashion house Bottega Veneta. The brand, famous in the 1970s for its costly but low-key woven leather bags and advertising “when your own initials are enough,” had become a caricature of itself. From the epitome of refined, restrained elegance, by the late 1990s it was sporting hot-pink punk and leopard spots. In 2001, its new creative director Tomas Maier stripped away the wretched excess and restored the brand’s core aesthetic of restraint, till once again it became a brand sought by the world’s tastemakers.

How to reach down successfully?

“The key is in how you define your entry level,” says Pedraza. “You don’t want to go so far down that you make your customers uncomfortable, but having entry level product was a Godsend for many stores [in the recession].”

But diversification is a better strategy than discounting. The fire-sale prices offered by panicked luxury retailers in 2008-2009 may have cleared out inventory, but they also retrained customers to expect a discount every time.

“It makes it very difficult to raise prices [afterward]”, Pedraza told The Centurion.