Luxury Institute News

January 26, 2012

Gilt Groupe’s woes may signify overall slump in flash-sale industry

By Kayla Hutzler
Luxury Daily
January 25, 2012

Luxury flash-sale site Gilt Groupe’s recent lay-offs and office closings are likely a result of overzealous growth but are also causing some experts to question the longevity of the flash-sale business model.

Gilt Groupe has announced that two major executives will be leaving the company, along with a rumored 80-90 additional employees from the company’s younger businesses, Gilt City and Gilt Taste. The question is, are the troubles at Gilt an indicator of the future of the flash-sales industry?

“I think one of the challenges for all flash Web sites is that they depend on discounting and, by nature, have lower margins than companies who sell full-price products,” said Milton Pedraza, president of the Luxury Institute, New York. “There is always a pressure on profitability.

“And number two is that as the luxury industry has experienced significant growth in the past few years and the luxury industry has tightened its inventory management, there is less supplies for what seeds the Gilt machines such as excess inventory,” he said.

Mr. Pedraza is not affiliated with Gilt Groupe, but agreed to comment as a third-party expert.

Shine’s off
Gilt Groupe made a statement earlier this week that John Auerbach, president of the group’s separate men’s brand Park & Bond, and Nate Richardson, head of Gilt City, will soon be leaving their respective positions.

The flash-sales company said that neither man was laid-off but that they both happened to choose this time to leave the company, according to a statement made to New York Magazine’s The Cut.

This announcement came only a day after rumors broke that Gilt Groupe would be laying off more than 100 of its 900 employees.

As of Monday at noon, a Gilt Groupe spokesperson stated to The Cut that the company had let go 80-90 employees, approximately 10 percent of its workforce, across its businesses. However, there were no more layoffs planned, per the company.

Gilt Groupe also closed six of its Gilt City offices including those in Philadelphia, San Diego, Houston, Seattle, Atlanta and Dallas. A central sales force will take over the work that was done in these offices.

“We have not been as successful in smaller markets and the resources they require take away from growing our core business,” the company said in a statement to Women’s Wear Daily.

Gilt said that December 2011 was its most successful month and that the restructuring is aimed at supporting the long-term goal of turning a profit by the end of this year, according to Gilt.

Gilt Groupe was founded in 2007 as a flash-sales site for luxury designers such as Alexander McQueen and Louis Vuitton.

In the past five years, the company grew rapidly opening similarly-flash focused sales sites Gilt Taste, Gilt Man, Jetsetter and Gilt City.

The company opened its first full-priced retail site, Park & Bond, this past June.

“While the company still seems to be keeping both of their new [business launches Park & Bond and Gilt City] going, I think that in time they may find they aren’t getting much return on their investment and shutter them both completely,” said Pam Danziger, president of Unity Marketing, Stephens, PA.

“This looks like an interim step unless they can figure out how to make these two very different businesses – daily deals and full priced menswear – work in the Internet space,” she said.

License to kill
To outsiders, it seemed as if the success was too good to be true, and apparently it was.

In fact, experts believe that this overly-rapid expansion into various industries could be the cause of some of Gilt’s current problems.

“I think the Gilt changes are a simple matter of a company whose eyes were bigger than its stomach,”  Ms. Danziger said.

“They grew too fast [for example launching] the Gilt City daily site and the full-priced men’s site Park & Bond and went outside of their core competencies and core markets into uncharted territory,” she said.

Another reason behind Gilt’s recent problems could be that it has always focused on discounting and not placed enough energy into creating a consumer experience and forming customer relationships.

Given that the main Web site sells mostly luxury items, Gilt should aim to provide luxury-quality service.

“I think that all of the flash-sale sites, unlike Net-A-Porter which has built itself on full price and service, but luxury flash-sale sites have ignored the service experience and have not created a customer culture,” Luxury Institute’s Mr. Pedraza said.

“They are very transactional but they have not created a long-term relationship based on a service component,” he said. “When you don’t do that and you have challenging times it is hard to reach out to consumers.”

In the future, Gilt should look to increase its customer culture and may want to consider a sole full-priced business model such as the one it has for Park & Bond.

Indeed, flash-sale sites often catch on like rapid-fire but the fierce competition and purely transactional relationship with consumers are the ingredients for a short business lifecycle.

“Discounting business models are a race to the bottom because how do you differentiate yourself?” Mr. Pedraza said. “What happens when you can’t discount as much as the next guy? Consumers will abandon you.

“I think Gilt should try to do [only] full-priced business models [like it has for Park & Bond],” he said. “They have the right brand name, but it will take a while for consumers to think of Gilt has a fully-priced provider when they’ve built a business model on discounting.”

Luxury Real Estate Marketing: Is Customer Service a Luxury?

By Ron and Alexandra Seigel
Real Blogging
January 25, 2012

“The greatest danger for a luxury firm is to lose its status as a differentiated, premium brand, but wealthy consumer perceptions suggest that luxury overall may be in danger of losing its cachet,” said Milton Pedraza, CEO of the Luxury Institute. “This calls for a renewal of efforts to be unique and exclusive and to execute well on customer service.

The most frequently cited qualities that define luxury-superior quality (76%), craftsmanship (65%), and customer service (57%)-are the areas where wealthy consumers are finding the greatest dissatisfaction. More than half (56%) say that craftsmanship of luxury products is on the wane; 51% say that quality is decreasing; 50% notice a slippage in customer service quality and 48% say that luxury products are losing their design value.”

How does this apply to luxury real estate marketing?  Real estate as a profession is a service business, real estate agents and brokers are service professionals.   As we interview agents across the country for our series 50 Top Luxury Markets in the USA, we find that those who respond immediately to our queries are thriving in their marketplaces and those who want to eclipse the market leaders.  They are easy to access, willing to share their insights, passionate about their marketplace, return calls and emails promptly and are a delight to talk to.   One of the top market leaders recently interviewed said that you have to be nice to everybody regardless who they are or what their status in life.  He returns everyone’s calls personally.  As a result his client lists grows and referrals are plentiful.

Many of the agents we interviewed who are market leaders did not have websites, do not engage in social media, and do not know or care what SEO means or being #1 on Google.  They are differentiating themselves on service, manners and excellent communication skills.   They knock on doors; they meet people day in and day out.  They are relationship oriented.  They network face to face.  They practice the fundamentals of business.  They water plants for their sellers when they are out town.  They send handwritten notes, birthday cards, and take their clients out to lunch.  Tech is not the priority focus in their success equation and in many cases has been relegated to the back burner.

Luxury by definition implies rarity and exclusivity.  Given the results from the Luxury Institute, it is evident that customer service is a key indicator in choosing a brand/service professional.  People will remember you for your luxurious service.  In our practice as branding and marketing strategists, we feel that customer service should take priority, and technology should facilitate customer service.

January 25, 2012

How next-generation commerce platforms can work for luxury retailers

By Naveen Gunti and Chirag Patel
Luxury Daily
January 24, 2012

Luxury consumers are among a new breed of online shoppers who feel empowered by the Internet and research online to check the latest trends, find good deals and evaluate product quality.

Since luxury shoppers often pay premium prices, they feel entitled to a superior online shopping experience consisting of exciting product selection, rich visual content and excellent customer service.

Retailers understand the needs of their customers and are determined to create an online experience to cater to these shoppers.

In a recent Luxury CRM Association survey, 90 percent of executives agreed that luxury culture and values are directly linked to positive financial results. However, luxury firms tend to have smaller budgets and enter the ecommerce channel in progressive phases.

Bring your store online
As early-stage firms gained greater online visibility and brand awareness, they opened up light ecommerce capabilities based on a simple personal shopper model.

The personal-shopper experience allowed customers to email call customer service agents for placing orders on products that they were interested in from browsing the catalogs on the Web site. The customer service representative would appropriately respond through a follow up to complete and fulfill the order.

The success of this model eventually led these companies to start exploring additional online experiences to increase the throughput of the orders and support for enhanced merchandizing options for the products they want to sell online.

Retailers wanted to better enable the merchandising of their products, setup promotions and make them easier to find for the customers by allowing them to navigate in a meaningful and intuitive way.

As the businesses further scaled up and wanted to expand their reach, they sought multiple payment methods, strong order management, faster fulfillment, quicker checkout flow and increased customer engagement including post acquisition and conversions.

This demand saw a number of retailers focusing on specific building blocks of the commerce supply chain and this phase saw a huge growth in large retailers starting to bring their stores online.

Learn about customers and adapt
When the firms noticed an increase in sales revenue as a result of their online presence, they started to learn more about customers and adapt to their needs by increasing their budgets to cater to these changes and enhance their ecommerce capabilities.

Retailers desired standard shopping cart and order entry features as well as better templates to communicate their brand effectively. These firms also invested more in online order processing and warehouse fulfillment operations during this phase.

Firms like these started to increase their presence in the market place and desired to more effectively compete with other firms in the same market space.

Also, firms choose partners that help further increase sales and drive down operational costs.

For example, a firm may choose to integrate its commerce platform with an order management vendor to help them achieve efficiencies in settling payments, providing customer service, and providing additional reporting for current and historical sales trends.

However, the issue with firms at this stage is that they have platforms that are costly to integrate. It will be large investment for such a custom integration, so a firm must plan ahead and allocate the proper budget.

Firms at this stage also wanted to expand into other international markets.

Commerce platforms at this juncture allowed for internationalization, but this was usually handled with a complex workaround such as creating a separate instance for each international market in which that firm desires to do business.

The disadvantage of this approach is additional operational overhead in managing merchandising and marketing of each international market through separate platform instances.

As the sales scaled up, they were forced to shift strategies in order to compete more effectively with others in the market place. These firms wanted to engage online customers in newer and different ways.

Driving commerce without constraints
With the customer reach expanding to various channels, luxury retailers started to explore different avenues in improving customer experience, retention, throughput and fulfillment.

With the increase in demand began additional sales revenue growth as well as greater budgets for their other online channels.

These successful firms desire to be industry leaders in adopting additional Web 2.0 capabilities such as user communities, blogs and social commerce.

These brands added in additional long-term strategies by opening up to international markets as well as additional cross channels such as mobile and Facebook commerce.

What is next?
Retailers are demanding more capabilities to manage their electronic commerce and related cross-channel business lines including mobile commerce and Facebook Commerce.

There are rare cases where your electronic business strategy is perfectly aligned with your technology capabilities. In these cases, your technology systems can quickly adapt to the needs of your growing electronic sales channels.

As retailers evolve and grow multichannel businesses, platforms must be able to adopt sophisticated technology to match the strategy. In other words, they need a commerce platform that is more flexible, agile and mature.

Firms that are rolling out multi-region/multi-language/multi-currency/multichannel commerce sales capabilities are opening up numerous revenue opportunities. However, this also increases the complexities of managing all of these various sales channels.

To remain profitable, you will want to make investments that keep the operating costs low for managing merchandising, brand content, orders throughput and fulfillment logistics.

AT THIS EXCITING time, clients are expanding into more channels and more markets internationally. They are localizing pricing and content by region so that it becomes easy for the retailers to create region specific sites for their international customers.

Luxury Institute research on the wealthy consumer use of mobile devices shows that 76 percent compare prices via mobile devices, while a rapidly growing 27 percent have bought via a mobile device.

In addition, 21 percent report that they use mobile devices to look up respective product information while shopping in stores.

January 18, 2012

Wealthy Consumers From Seven Nations Define What Constitutes Luxury and How They Shop and Rank Brands; Superior Quality, Craftsmanship and Customer Service Remain Essential but Many Firms Fall Short

(NEW YORK) Jan 17, 2012 — The independent and objective New York City-based Luxury Institute just released “Luxury Branding and Marketing: A Global Comparison of Wealthy Consumers in Top Markets,” a comprehensive survey of wealthy consumers in the United States, United Kingdom, France, Germany, Italy, Japan and China.

Topping the list of attributes that define luxury brands are superior quality (73%), craftsmanship (65%) and design (54%). Nearly half (47%) of wealthy shoppers worldwide cite customer service as a key consideration, with Chinese especially likely to judge a brand based on service.

Potentially distressing for luxury brands is the global perception by wealthy consumers that firms are getting worse at executing on these top criteria. Twice as many wealthy U.S. shoppers (34% vs. 17%) say that customer service and product quality have deteriorated in recent years. Japanese, German and U.K. consumers bemoan a slip in craftsmanship.

The good news is that satisfaction levels across criteria remain high in the world’s most rapidly growing luxury market, China, where 63% of consumers say that service has improved. A vast majority applauds higher quality, craftsmanship and design.

“With signs of cooling in luxury retail, top-flight firms worldwide realize that fostering a customer-centric culture is essential for retaining and growing relationships with current customers and gaining new ones,” says Milton Pedraza, CEO of the Luxury Institute.

Respondents had minimum annual income of $150,000, or the local currency equivalent.

For details from this WealthSurvey and others, visit

About 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 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 Luxury CRM 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.

January 11, 2012

Should luxury brands back presidential candidates?

By Rachel Lamb
Luxury Daily
January 10, 2012

Select luxury marketers including Marc Jacobs, Diane von Furstenberg, Donna Karan, Tory Burch and Jason Wu are participating in an ecommerce effort in which proceeds from select items benefit the Obama Victory Fund. However, the general consensus is that brands which support a presidential candidate run a much higher risk of alienating consumers than gaining them.

The ecommerce initiative, called Runway to Win, ecompasses luxury goods that are sold to support the Obama Victory Fund, a foundation aiding the campaign for sitting U.S. president Barack Obama’s reelection. However, many experts believe that mixing fashion and politics is not a game that luxury brands should be playing.

“If the candidate wins, you get some halo effect of getting it right, and there’s always a pro to siding with a winner before they become a winner,” said Milton Pedraza, CEO of the Luxury Institute, New York. “However, the downside is that you can alienate a significant number of constituents by playing the political game.

“Politics in general is a rather controversial subject,” said Ron Kurtz, president of the American Affluence Research Center, Atlanta. “The U.S. electorate, even among the affluent, is pretty evenly divided between support for the presidential candidates of the two major parties.

“The members of Congress of both parties have very low job-approval ratings,” he said. “To be identified with one side or party could alienate an almost equal number of potential consumers.”

While affiliating with a presidential candidate could significantly turn consumers off for the time being, it may not be completely damaging since most U.S. consumers have short memories and the campaigns will be over in November.

Additionally, just because a candidate says that he has certain beliefs or has plans to accomplish something does not mean that he will actually do so if elected.

This does not have anything to do with any specific candidate, just that each has opposing parties that make it difficult to get unpopular decisions done, Luxury Institute’s Mr. Pedraza said.

“The ability for someone to really deliver on their agenda is limited,” Mr. Pedraza said. “It’s a tough bet to make and not something that most brands, specifically luxury brands, should make.

“There is a very significant and potential downside,” he said.

Alien policy
Politics, like fashion, is a passionate topic.

Therefore, it makes sense that luxury designers turn their fashion passion to another area.

Just as luxury brands could turn customers off, they could just as easily gain loyalists who share their presidential, moral and political affiliations.

However, the fact remains that fashion and politics do not have much in common.

“I don’t think that it’s worthwhile to become involved in politics because it is a game where there are tremendous emotions attached, good or bad, and playing the political game can damage a brand for no good business reason whatsoever,” Luxury Institute’s Mr. Pedraza said.

“You’re not in the politics game, you’re in the product and services game,” he said. “Your first priority should be to develop great customer relationships based on what you deliver, not one that candidates deliver.”

In a way, supporting a candidate who has the same morals or beliefs to a brand is similar to cause marketing, but without the charity aspect.

However, global consumers not living in the United States may be more inclined to accept a luxury brand that supports a presidential candidate.

“I don’t think the support of a political candidate is the same as cause marketing, at least not in the U.S.,” Affluent Research’s Mr. Kurtz said.

“[However], there may be some countries such as in Europe where Obama has a great image and the affluent consumers might like to see him being supported by a luxury brand,” he said.

“The upsides are not so great, but the downside could be catastrophic,” he said. “Brands should stay away from the political game and focus on building customer relationships, period.”

January 8, 2012

Management Consulting: Building Brand Loyalty Sweeps Clients Off Their Feet

By James D. Roumeliotis
WCW Insight
January 7, 2012

We constantly hear remarks and stories of deplorable customer service. I would think that brands would be more attentive and proactive. Unfortunately, this is not the case. You would have thought that they would make “devotion” a coherent strategy.

It should begin with the “trust” factor. Seth Godin, the highly respected marketer, asserts, “Institutions and relationships don’t work without trust. It’s not an accident that a gold standard in business is the “handshake”. Today, it’s easier to build a facade of trust. Not delivering impacts not on a firm per se but on an entire industry.

Some firms react to this by telling customers to “Read the fine print”. Financial Institutions cruise ship operators, and discount outlets are some of the most negligent in the customer service department.

Building “devotion” on the other hand, should be instinctive. If you cannot forge and emotional bridge to your client base your strategy needs a serious rethink. Branding strategy by definition means creating the right attitude to maintain loyalty to ethos of the firm, its products or services.

If you question this principle, think again. The internet and blogging throughout the social networks makes this imperative.

CRM is the key competitive differentiator CRM should be your first line of defense. Customers know the difference and it will separate your firm from your competitors. Loyal customers buy more and serve as de facto advocates of your brand.

Marty Neumeier states this clearly in his book, The Brand Gap:

“The brand is not what you say it is. It’s what they say it is.”

Talking either to prospects or current customers is paramount. If you do not recognize what your clients want or think how can you serve them better?

Not every firm takes the time to do this. You should if you wish to stand apart. It is worth the time and energy.

Take the example of Best Buy v. Amazon. The differences between the two organizations are transparent. If you buy something at Best Buy and decide you do not want the product or made a mistake and try to return the product, the response you will receive is “Sorry”.

Amazon, on the other hand, understands the context of online buying and has put into place the model for CRM. Make the wrong purchase or change your mind, the response is “No Problem”.

The end result is you will not think twice when buying a product Amazon sells or promotes.

Luxury Brand Management: The importance of customer loyalty

You would think that the situation would be clearer in luxury brand management. Guess again. Clients may be more discerning and have more DPI. But top products are not enough. CRM should accompany the product.

“Hermès has impeccable products, the top-tier of luxury goods,” said Milton Pedraza, CEO of the Luxury Institute, New York. “In terms of what customers want, they have the top design, quality and craftsmanship. What Hermès may need, however, is a refresher course in customer experience.”

“Consumers tell us in research that Hermès is the pinnacle of product delivery, but they could become far better in customer experience,” Mr. Pedraza stated.

Audi, the German automobile manufacturer focuses relentlessly on making its cars the number one premium car brand of choice. CRM is clearly one of their keys to success. They understand that the right product and after service and you win a client for a lifetime.

The Audi approach delivers excellent customer satisfaction. Internally, they made the firm the “best” place to work as well. Why?

By attracting the top-notch people, they can deliver customer experience in line with expectations. Spending money on appropriate marketing to attract new clients is not enough. Staff must have the skills to close the deal. An inadequately trained sales force will botch the sale. A positive buying experience is fundamental. It is what I refer to as ‘human marketing” not “buy this carpet, this carpet flies”.

The name of the game is to build a lasting, profitable relationship with them, and turn them into loyal and devoted repeat customers. If you do this with élan, then you have created a cadre of brand ambassadors.

Whether it’s B2C or B2B, sales and marketing people should co-exist. Every one in the sales chain needs to be brought on board including the receptionist, delivery team, and oddly enough those who work on the financial side.

Take the case of YO! Sushi established in the UK. They initiated the Japanese concept of “kaiten” sushi bars in the West. They serve Japanese style food on a conveyor belt travelling 8cm (about 3 inches) per second. It is the original and most famous sushi brand in the UK.

The experience is fun and exciting. Clients love the place.

Simon Woodroffe, the firm’s visionary entrepreneur and founder totally understands the nature of CRM and building brand loyalty. By doing so, the enterprise not only attracts new clients via marketing, it gains their continued patronage, which covers advertising costs.

Employees are well trained and know that they are the “marketing” team.

On the basis of these examples, it is necessary to take into account:

1) In a progressive customer driven entity, training and developing the human assets should be an ongoing process

2) Companies should be an enemy of the “status quo”

3) Mystery shopping (in person and/or by phone, as well as online) should be frequently conducted to get a sense of what an actual customer experiences – then taking action to rectify and improve the experience.