They say that the customer’s always right, but for most luxury retailers today, the question is: Who is the customer?
With luxury in a slump, it’s become obvious that the ultra-high-net-worth clients are not enough for a brand to continue to stay profitable. In comes the aspirational consumer, who many retailers have been trying to court for years.
However, in their quest to stay both afloat and relevant, brands have forgotten that the aspirational consumer has limited resources and is “financially vulnerable” to economic uncertainties, Mrin Nayak, managing director and partner at Boston Consulting Group, told Retail Brew.
Citing a recent internal study, she explained that brands may have “over-democratized” and expanded their scale significantly over the past few years as they try to rope in new customers.
“What we’re really seeing is that the pullback in luxury is from this bottom- to middle-of-the-pyramid, aspirational luxury consumer versus the top of the pyramid…ultra-high-net-worth consumer and so brands that have a high share of aspirational luxury consumers are the brands that we’re seeing have the most underperformance,” she told Retail Brew.
In other words, brands that are struggling have simply lost the heat with younger shoppers.
Gucci is a prime example of a retailer that has seen several executive and creative shifts over the past few years and yet continues to decline, becoming the linchpin of underperformance for Kering.
In contrast, other heritage companies like Hermès have consistently maintained consumer interest despite little to no marketing and its infamous and almost-impossible-to-purchase Birkin and Kelly handbags.
Nayak said there are a few things that determine brand relevance and heat, starting with heritage, which remains one of the most important aspects alongside a sense of exclusivity, which the likes of Hermès have a strong hold on.
“Having a clear strategy around exclusivity and what level of accessibility you do want to maintain for your consumers start to matter,” she said. “Of course, heritage and craftsmanship and maintaining the true luxury quality is almost like a table stake that doesn’t drive brand heat and cultural relevance…but that matters.”
And while both exclusiveness and heritage have their place in maintaining relevance, building an “emotional connection” with the consumer is also integral. This could be through a range of cultural platforms including art, fashion, music, design, tech, etc., that consumers engage with.
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“Brands that have really managed to stay on top of cultural fluency in terms of where these consumers spend time, where they engage, what other brands do they shop that you could have partnerships with and how do you have a level of newness that is culturally relevant, but at the same time not over democratized?” Nayak said. “It’s that fine balance a lot of brands are starting to think through as they think about marketing strategies and product strategies.”
Leaning into contemporary culture is not only crucial in order to get back in touch with the aspirational consumer but also the wealthy, top-of-the-pyramid set of shoppers that is increasingly “expanding beyond just luxury products into a broader set of experiences across travel, design, art, wellness, longevity, and those categories are also benefiting from from the top-tier clients,” Nayak explained.
It’s also why so many retailers including Louis Vuitton, Ralph Lauren, Versace, and Armani among others have increasingly invested in opening up restaurants or even hotels. In fact, Giorgio Armani also had a months-long tennis partnership with Four Seasons earlier this year.
Nayak said that this goes beyond just making revenue and is part of a strategy to “buzz engagement.”
“Some category extensions are revenue driving, but then a lot of the others are really to harness the community of customers they attract and think about ways to bring their consumers together into conversations and create an experience and a brand halo beyond just the product,” she said. “You’re starting to see some of that happen, and with the cafés…which extend brand loyalty beyond just a product to make it a little bit more of an experience.”
The ultimate lesson, however, is that luxury retailers that want to stay profitable and relevant will need to both figure out who their core consumer is and how to stay in touch with them.
“Where brands struggle is brands that have maybe moved too far away from their core consumer or move too far away from their core product lines that they’re known for,” Nayak said. “That’s where we see brands stuck in the middle, across the pyramid, which is not having either—not really being part of the cultural conversation, or having moved too far away from what their core consumer shopped them for.”