Luxury Consumers Study Highlights Saudi Arabia, Generative AI, Megastores
MILAN — What if ChatGPT could help, say, Dior to personalize the shopping experience of a Saudi Arabian young consumer traveling to Paris and visiting for the first time the brand’s megastore on Avenue Montaigne?
This could very well be, according to the ninth installment of the Altagamma Consumer and Retail Insight presented Wednesday in partnership with Boston Consulting Group, or BCG, and Bernstein.
More from WWD
Natalie Portman, Rosamund Pike Turn Out for Dior, Riley Keough, Lupita Nyong'o for Chanel
Louis Vuitton Unveils New Tambour Watch, Cuts 80 Percent of Lineup as Part of Upscaling Strategy
The former estimates that luxury consumers total 370 million people globally, and that 20 million out of those are the highly courted VIC, or very important clients. Overall, 40 percent of luxury consumers are expecting to spend more on luxury goods in the current year compared with 2022, with Chinese netizens expressing a net spending appetite almost double the average quota.
Assessing about 12,000 luxury consumers across 11 geographies, on average spending 39,000 euros a year on personal luxury goods, the BCG study highlights the driving forces that will shape the sector, offering insights on how luxury brands can win over top tier clients.
The consultancy estimates an 8 percent increase in the sector’s sales in 2023, a rate that could well inch up to an 11 to 13 percent increase if China fully rebounds on the local and global markets. The domestic market now accounts for 82 percent of Chinese luxury consumption versus 45 percent in pre-pandemic years.
Although luxury brands are hoping for China’s rebound — set to be defined by a thriving digital ecosystem and the emergence of second and third tier cities — the country has a relatively low-key, potential market winner at its heels: the Middle East.
The region is shaping up as a resilient and driving force, not only relying on the United Arab Emirates, a longtime luxury hub, but also in light of Saudi Arabia’s rising luxury market, which is projected by BCG to contribute 6 billion euros in local luxury goods sales by 2030 and 12 billion euros globally.
“The local [luxury] development is a greenfield, the market is up for grabs,” said Filippo Bianchi, managing director and senior partner at Boston Consulting Group. “Consumer preferences will be highly influenced by the presence of luxury brands in locations that do not exist yet,” he said, pointing to the number of retail developments spicing up the country’s real estate. In Riyadh alone, the three main developers are channeling 1 trillion euros geared at building 5.3 million square feet in luxury retail space.
According to the study, Saudi consumers are young and digitized, currently making their purchases in key fashion and luxury capitals around the world and will likely contribute to bolstering the VIC segment.
The latter is rapidly growing, speedier than the market and demanding unique experiences. That’s where enhancing and customizing the customer journey — as well as keeping up with incredible competition — come into play.
According to Bernstein’s senior research analyst, global luxury goods Luca Solca, luxury powerhouses — think Louis Vuitton, Hermès and Dior — are escalating the retail competition with the relatively recent concept of the “landmark flagship” store, as in Dior’s Avenue Montaigne unit and Tiffany’s revamped Fifth Avenue door.
“They are not monuments just for the sake of it, they are cash cows,” he said, adding that they best interpret Berstein’s formula for modern luxury retail dubbed “summit up,” which stands for sizable, unique, meaningful, multilayered and versatile, Instagram-ready and memorable, time-pausing, universal and landmark-level, and profitable.
On the latter he stressed that retail space productivity, or profitability, is the polar star in any well-executed retail expansion strategy.
“These are multitiered [units] where there’s room for everybody, from a consumer spending 50 euros or 500,000 euros per visit,” he said. “One of the greatest goals is to be part of the top 10 lists of the not-to-miss attractions for each city….For lots of tourists visiting Paris from outside Europe, the Dior store is among the top attractions.”
Luxury powerhouses may play in a league of their own, since smaller-scale brands have hardly the same financial muscles and market penetration to do as much.
According to Solca, smaller players should focus on fewer stores but better executed ones. “It’s like being David against Goliath, they need to do things differently,” he said, citing a few examples, including eyewear specialist Gentle Monster’s pop-up store in Daegu, South Korea, furnished as a laundry.
When it comes to the omnichannel and online experience, the battlefield is even more complex. The BCG study’s highlights tracked about 2,600 customer journeys to find out that the majority of consumers are unhappy with the integration of e-commerce and brick-and-mortar.
Although luxury brands are by far outpacing mass market players in terms of customer satisfaction in physical retail, the former are actually underperforming online. The reasons, BCG’s Bianchi said, can be found in functional table stakes such as fit and sizing transparency, product tangibility, reliability of the purchasing process and delivery time.
“We think the issue here is ingrained in the operational model. Companies measure each channel’s performances [individually], but the single channel does not exist in consumers’ minds, customers perceive their journeys no matter the touchpoint,” Bianchi said. “We measure the value of a [online] strategy based on conversion rates, however it’s clear enough that any ‘click’ on a [luxury] website is overshadowing the opportunity for consumers to have a better experience in store.”
BCG sees two playbooks ahead, either embracing and catering to a niche and courting them, then tapping into its preferred journey or “more aggressively” customizing and tackling all customer journeys for all consumers, with massive investments on that front, as well as perhaps a little help from generative AI.
Guia Ricci, managing director and partner at Boston Consulting Group, highlighted how the latter can serve brands in defining customized journeys for all the estimated 370 million luxury consumers, thus expanding the footprint of the “VIC treatment” to the 90 percent of luxury spenders that are not currently part of the premium tier.
Attending a brief panel capping off the study’s presentations, Etro’s chief executive officer Fabrizio Cardinali summed up the current perspective on the evolution of luxury consumers.
“They want to live the ‘Via Montenapoleone’ experience, with the same speed of execution they experience with Amazon, usability seen on Netflix and the same assortment of Esselunga [supermarket chain],” he said.
Best of WWD
