Nordstrom Local Melrose – Photo: Nordstrom
Forget digital first. Stores first, digital second is the future of luxury retail.
Consumers have migrated to e-commerce at an unprecedented rate since the novel coronavirus pandemic began. One major luxury brand, however, is standing by the physical store as the future of retail.
Jean Jacques Guiony, chief financial officer of LVMH, recently told CNBC that the in-store client experience cannot be matched online. He believes the future of retail will be mostly in brick-and-mortar, with online complementing the experience. LVMH is the owner of Louis Vuitton, Marc Jacobs, Christian Dior and a number of other luxury brands. It recently acquired Tiffany’s for $15.8 billion.
Luxury retailers were slow to jump into e-commerce from the outset due to concerns over the internet compromising the exclusivity of the product. By 2018, however, brands were embracing special luxury-targeted platforms to cater to newly affluent, tech-savvy Millennials. Estimates have placed online as reaching up to 25 percent of luxury sales by 2025.
Some see the reopening of physical stores as inspiring a consumer rush for real-life shopping after more than a year of social isolation, which could move some luxury spending back to the physical world.
Data from May of 2021 reported on Fashion United indicates that the majority of U.S. shoppers are still making most of their purchases in-store, with 81 percent of Gen Zers enjoying purchasing at physical locations.
Even before the pandemic, luxury department stores were experimenting with new ways to make the in-store experience unique. Nordstrom, for instance, launched its Nordstrom Local concept, a physical showroom which carries little or no inventory and pushes digital fulfillment.
Nordstrom has said that more than half of its sales made online begin in-store, and a third of its online sales are tied to an in-store experience.
Saks began seeing a similar correlation between brick-and-mortar store locations and digital sales as pandemic restrictions lifted. At this year’s virtual NRF Big Show, Mark Metrick, president and CEO of Saks, said that when stores began to open again, there was a corresponding uptick in digital sales. Hudson’s Bay Co., which owns a controlling interest in the retailer, split the online and physical operations of Saks Fifth Avenue earlier this year to boost the individual value of the business. It recently announced a deal to do the same with its Saks Off 5th business.
- Louis Vuitton-owner LVMH believes the future of retail will be mostly in-store – CNBC
- The post pandemic shopping habits that are here to stay – Fashion United
- 1stdibs CEO Discusses Pandemic-Fueled Boom in Luxury e-Commerce – Observer
- NRF 2021: Saks doubles down on its luxury disrupted strategy – RetailWire
- Luxury brands are racing to embrace e-commerce – RetailWire
- Nordstrom’s Local concept needs work – RetailWire
- Nordstrom focuses on seamless shopping as stores reopen – RetailWire
- Richard Baker touts HBC’s value after deal to spin out Saks Off 5th’s online operations – Financial Post
Discussion Questions
DISCUSSION QUESTIONS: Do you agree with LVMH’s position that stores are the future of retail and that digital commerce is only a complement to the physical experience? Do you see luxury retail, in particular, remaining more tied to physical stores than other retail verticals?
Poll
Loading …BrainTrust
Lisa Goller
B2B Content Strategist
Di Di Chan
President of FutureProof Retail
For luxury apparel, the physical store will continue to be the primary driver of consumer purchases for the foreseeable future. However the shopping journey differs for individual customers and some customers may prefer online shopping, especially if they are confident that a brand carries a size they know will fit. Many other customers appreciate the theater of shopping and the personalized service they receive in stores, especially from luxury retailers.
Given the very long lines outside Louis Vuitton stores in most malls I have visited, I would agree that stores are far from dead! Of course, luxury retailers tend to invest more in their shops than mainstream ones and go to greater lengths to create an experience, which is one of the reasons why customers enjoy visiting. However there is no denying that one has become a more significant channel, even for luxury. So this isn’t an either/or question; luxury retailers need to invest in all channels and routes to market to maintain relevance and success.
I think the discussion of store first, digital first, etc. is the wrong way to think about it. We should be talking about brand first. Retailers should be focused on their brand message, from value proposition to product to marketing and back again. Then think about how to deliver that brand to their customers, consistently, across every channel. Stores, digital and what ever the next commerce channel that develops happens to be, all need to work in concert to engage customers.
While there will always be some who frame the argument as physical vs. online, it’s well understood that both matter and it’s not an either/or proposition. That said, I suspect that LVMH’s position on the importance of physical stores in the luxury category holds true. Delivering the luxury customer experience that you receive in a Louis Vuitton store simply cannot be delivered the same way online.
For luxury, stores are paramount. Consumers want to examine goods, using multiple senses, before they pay big bucks. Attentive, face-to-face service and the immediacy of strutting out of the store with a big-ticket item gives brick-and-mortar an edge.
Today, the shopper’s experience is a brand experience. As a retailer, you can’t tell people where, when, or how to shop. You have to go meet them, with your consistent brand experience, as they wish. Some luxury brands have the “luxury” of pampering customers in their stores. Meanwhile, those same customers are more than happy to sit at home, sometimes, and press buttons to get their high-ticket items delivered to them. It’s a huge mistake for any brand that thinks they can go “store only.” Even “store first” is the wrong way to think of it. I have always believed that online shopping will top out somewhere in the 30 percent to 40 percent range just as catalog did in it’s day. The multi-sensory experience of in-store cannot be duplicated. People like to touch, feel, smell and try on the product. Virtual isn’t real and won’t be in my lifetime but catering to the customer is paramount.
You nailed it, Ken. It’s a huge mistake to think you can be store-centric or digital-centric. It’s both and the right balance will depend on each specific brand and its customers.
I agree with LVMH that stores are the future of retail for luxury brands, not for commodity brands. Luxury items are typically unique and more expensive, and the consumer will want to see and handle them in person before purchasing more often than buying online. Commodity items are frequently repeat purchases not requiring the consumer to make the initial purchase decision again.
Physical stores are needed. Period! It makes sense to have a store where you can have the experience of looking at what you are buying, trying it on or seeing how it looks (or sounds if shopping at a consumer electronics store).
Warby Parker does a great job with their online approach, but it does not replace the experience of going into the store to try on as many pairs of glasses as you want. I just purchased two pairs of glasses and, guess what, they had to be adjusted three times. The experience was flawless at a physical store compared to how frustrating it would have been to deal with sending them back over and over.
My wife purchased Allbirds (sneakers) for me online and they don’t fit just right, so I will go to their store in SoHo and get ones that do. Brands that have both a digital and physical store presence will win the customer’s loyalty.
Shopping for luxury, whether haute couture or high-end furniture is, in and of itself, an experience (the store atmosphere, the store décor, and the look and feel of the merchandise). These are factors that do not enter into the purchase of a can of soup or a screwdriver. In the luxury segment, the store will be king.
To piggyback off what Bob said, there are certain products where the experience of the purchase is just as – if not more – important as the functionality of the good. In fact in a recent C&Co. market study, 44 percent of consumers said they prioritized the experience a company provides over the quality of its product when making purchase decisions. (Obviously this will vary across purchase decisions, but the sentiment remains).
Luxury goods also have the odd added quirk where “the pain of paying” actually can become a central, and positive, point of the experience – as customers enjoy being able to showcase that they are able to pay, and the cost of the item is a corollary to the status inferred to the owner. The experience of being able to walk into a store without something, interact with humans (and gain a puff of status along the way), and walk out with a product is not something that is able to be replicated online.
It’s all about converting lookers to buyers. Period. Not likes. Not “social proof.” Enough people have to convert. In-store is 30 percent to 40 percent, online is 1 percent to 2 percent – and Amazon owns half of that market. A resurgence is underway for retail making even weak players look successful. To truly grow the category you’re wanting to stay competitive. It’s time to look past the screen to the human in the store. It is still is your point of distinction, your brand, and your customer to lose.
I am in absolute agreement that the in-store experience cannot be matched online. We have all just lived through a period of only online shopping, and while it got the job done, it was isolating and not a whole lot of fun.
Shopping is social and it’s tactile. Pressing a button and waiting for a delivery will never be as fulfilling as finding exactly what you want and taking it home in real time. At least not for me and that pile of apparel I purchased online that has to be returned.
Begging for business will never work in the long term. Nowadays customers have their favorite stores, but the retail field is not an easy harvest. Bragging about how good you are, or how you “love your customers,” is not going to fly in these days of hyper competition. Even the smallest independent store must play on the big field, where the best players are omni-present, and consistently making customers want to see and shop their world. Smaller independents must adopt to the use of all the tools used to do that. That’s become the ante in this game — if you don’t get in it, you’re out.
The item being shopped for plays a key role in whether the consumer will seek a brick-and-mortar or digital environment first. Premium products and brands lend themselves perfectly to a high-end, experientially-driven purchase path, but it’s up to retailers to figure out how to simulate that virtually. So far, very few retailers have gotten experiential to the same level online as they have in stores. Until we see more brands compete on experiential virtually, brick-and-mortar will remain the nucleus of the luxury path to purchase.
Like so many things, gross generalities aren’t very helpful. Certainly physical retail plays a greater role in luxury and higher-end fashion than mainstream retail, but even back in my Neiman Marcus days we saw a strong cohort that was very much either digital-only or digitally-led. So as far as LVMH’s statement, it’s too simplistic, but clearly physical retail is a huge component of their success and will remain so for the foreseeable future.
From the data I have seen in recent years, the majority of luxury customer journeys either start in a digital channel or are significantly impacted by digital influence. So it’s not an either/or, it’s a blend, and the emphasis will vary depending on the customer segment and the purchase occasion. The key is to map out the different customer journeys and deeply understand the interaction of digital with physical and orchestrate a well-harmonized customer experience.
Yep, I totally agree that stores are the future of retail at the luxury level. The process of discovery in real stores just can’t be digitally replicated. Of course AI and VR will grow and have important roles in retail, but physical retail is the ultimate confirmation. Explore + Experiment = Experience. It is the comfort, confidence and validation derived from shopping in physical stores that will carry over into digital shopping. Not the other way around.
Famous last words, IMO.
Absolutely. The best e-commerce can do is to make buying things more convenient. The physical store offers a complete shopping experience that includes social bonding, the pleasure of browsing stuff in an environment that stimulates all senses, real-life customer service, and so much more. Stores are the heart of retail and that will always be the case.
The importance of the in-store experience certainly varies depending on the retailer. For LVMH selling luxury goods there is no question that it is more important than most. They are catering to a clientele that expects to be treated a certain way in a physical environment that reflects their lifestyle, which cannot be replicated online.
No question stores are the past, present, and future of retail brands! It’s not about digital vs physical anymore, it’s digital AND physical because it’s all just commerce. This is even more true in the luxury segment where shoppers want to experience not just the product before they buy it, but the shopping experience itself is part of what they are buying — it’s not just transactional like essential goods and merchandise.
Luxury retail will continue to invest in stores and the in-store experience. More importantly, they will invest in frontline workers so they can deliver that luxury feel in the shopping experience to customers. This does not mean luxury retail will fail to invest in digital channels, it means they will be further integrating digital into that in-store experience as well as the experience before and after the customer visits the store. That end-to-end relationship is what will define luxury retail in the future.
Well it’s certainly evident that the future of LMVH brands lies in putting the physical experience first. Their very successful strategy is not the model strategy for every retailer, however.
Retail is an industry of infinite variations and any generalization like that of M. Guiony cannot be universal. I find discussions about “what’s right for retail” to be quite frustrating in this regard.
Even the deluxe brands of LMVH have extended their presence to the digital realm, where customers can encounter them first if they so choose. Successful born-for-the-web brands often take an opposite path, adding physical stores selectively to buttress their brand positioning and establish a service standard — even if relatively few customers ever experience it.
I’d submit that the future of retailing lies in the physical-digital “cross-ruff” (to borrow a term from the card game Bridge). Every brand and class of retailer must determine the correct balance of emphasis according to their brand proposition and shopper preferences.
Stores are still the centerpiece for luxury retail. And the higher you go in luxury the more stores becomes important. However, that has little to do with stores as the future of retail. Retail will continue to be omnichannel and the customer will drive the medium of engagement based on their preferences. What can be said is that luxury retail will require the store more than other retail sectors. The real underlying question here is not whether digital is just a complement, but whether there is a real threat of stores being overtaken by digital channels (based on revenue). The answer is not anytime soon. A coexistence has formed and this will continue to evolve. However, nothing has shifted adoption of digital to exponential levels nor has physical retail begun to deteriorate at any noticeable pace.
LVMH has definitely created in-store experiences that are unmatched online and customers will (of course) come back to re-experience that feeling of luxury. For that reason, I believe luxury brick and mortar retail will continue to thrive and outsell other verticals for the near future.
The conversation with luxury shopping journeys should not center around whether it is a physical or digital experience, but rather an outstanding customer-first experience. Digital commerce is absolutely on the rise, and with that momentum there is certainly some blurring of the lines between the physical and digital shopping journeys.
Considering the pent up global demand for luxury goods and experiences, the exclusive, multi-sensory, inspirational luxury in-store model defeats anything that a digital app could drive by leveraging AR, AI, VR, automation and other innovations. This is clearly evident with the crowds flocking to any Gucci, Prada, Louis Vuitton, Tiffany’s or other luxury stores.
With that said, digital marketing, social selling, livestreaming, QR codes and other digital innovations can drive engagement and interest in the brands. However the luxury market’s brand equity has traditionally been built on the in-store experiences, and that will continue to be the case for the foreseeable future.