The classic term “bricks and mortar”

was given a new lease of

life towards the end of the 1990s

as the growth of e-commerce

led analysts to seek definitions that

differentiated between two

modes of retail. The buzzword was

heard almost nightly on hype-heavy

news reports about the rising

share prices and soaring fame of

Internet companies. Analysts

seemed to make endless predictions

about the demise of retail stores

and the concept of serving

customers in offline locations –

places made of bricks and mortar.

Analysts argued that online retailers would become so powerful that consumers would soon need to do little more than switch on their computers to buy everything they needed. Delivery services would do the rest. Over a decade later, those prognostications have proven to be misguided. Digital has changed the face of retailing. While it is clear that Internet-based shopping probably will never entirely replace stationary retail, bits and bytes continue to transform the in-store experience. Correctly harnessed, they can help boost sales. Luxury retailers paid little attention to the dramatic predictions. Rightly so. Exquisite boutiques and hyper-personal service have always been hallmarks of the industry. A computer and a broadband connection are inadequate substitutes. Even as there are plenty of opportunities in online shopping for luxury brands, bricks-and-mortar retail will continue to flourish because consumers want to look at, study and become comfortable with a product before buying. They want to get the feel of it in the palm of their hand or gauge the exact fit. Inspecting a product personally, with the service provided by a luxury retailer, is part of the buying experience, especially when it comes to luxury items such as fine china or crystal. Most affluent consumers know more about the products and companies behind them than mass-market consumers, so they are even more anxious to see, feel and experience before they buy. Stationary retail offers both reassurance and instant gratification. For these reasons alone, traditional retail will remain a key component of the luxury business. Clearly many luxury retailers feel the same way. The world’s biggest luxury companies continue to open new stores around the globe.

THE NEW RULES OF LOCATION

Finding the right space to match a brand’s DNA is the first step in successful traditional retailing, and has become even more important since the Internet increased the familiarity of customers with brands and their products. Stationary retail allows a brand to go where its fans are or create a space where they want to be. Fifth Avenue, Beverly Hills, Paris’ Le Marais or Tokyo’s Marunouchi. These are all prime locations that cannot be ignored by a retailer who wants to maintain a strong street presence. Local shoppers will see the local stores of well-known brands as a home away from home and feel a sense of pride that their favourite manufacturers deemed their city important enough to have a location. It helps to make consumers feel special and wanted. Retail locations in secondary markets or neighbourhoods that are not so central offer the same, perhaps even to a greater degree. Stores in secondary markets can even be designed to become destination stores or used for temporary events, perhaps alongside an internationally known event such as a horse race, polo match or art show. “Smaller streets boast a higher density of storefronts within a confined space that are targeting the same luxury consumer,” says Laura Pomerantz, a founding partner of luxury retailing property consultancy PBS Real Estate LLC. “The stores have more reasonable rents and no attached fees like their mall counterparts, and because this trend is still emerging, prime spaces are available and not yet subjected to overly inflated prices.”

Luxury stores must have architecture and décor that resonate with the brand and its identity, interiors that invite customers to come shopping and to linger. Carefully selected artwork and furnishings can reassure customers that they picked the right brand. Customers should be wrapped in a brand bubble within a store. They should get tips for decorating and entertaining from luxury brands. Tom Ford’s second Paris store comes to mind, with its beaver rugs and Makassar ebony fixtures. Luxury-store architect Peter Marino commissions artworks specially for projects he is working on. Shoppers should never feel the need to dispense advice on what they would like the next time they shop in a store. Every need should be anticipated. Sales associates are also important here. Sales staff should fit the location and the people who shop there. Multilingual employees are a must. Since we know the Chinese love to shop in Europe, having associates with Chinese is a no-brainer. They also must be familiar with the cultural norms of the customer.

Retail luxury attracts clients, but the stores also serve as advertisements for a brand. Tourists sauntering down Fifth Avenue are there because of the names they see on the storefronts, instantly recognisable from film, TV and literature. Only a tiny percentage of those wandering by the stores have enough in their wallets to buy the products in the window displays. But they see the brands and are reminded of the stories behind the products. The same is true for affluent window shoppers. Brand aficionados might even stop after a few blocks if their favourite brand does not have a presence there, and wonder why. Other shoppers on their way to a specific store might be reminded by a window display of a purchase earlier considered but since forgotten. Stores function as brand ambassadors. Landlords certainly know this, and charge rents accordingly. If you are not where your customers are, someone else will be. Says Piaget CEO Philippe Leopold-Metzger, “When I look at the profitability of the China operation itself, it doesn’t really matter. You need to invest a lot in advertising, brand-building and stores because you will get the benefit of it in China and everywhere outside of it with the Chinese.” Stores pay for themselves in a variety of ways, not just by what is in the till at the end of the day. Still, rents can get pricey, as shown by the infographic on page 138.

CREATING EXCLUSIVITY

Exclusivity is a key component of luxury. You are unlikely to feel special sauntering into Tiffany’s on New York’s Fifth Avenue if anyone can stop in for a look. Louis Vuitton is leading the way in the future of stationary retail by not only ensuring its stores are present in key shopping districts (the brand visibility factor) but also by creating unique shopping floors and invitation-only events. Luxury brands know who their customers are and should use the information to create exclusive shopping events and experiences. Above its Bond Street store in London, Vuitton created a private VIP apartment and furnished it with leather couches and artwork from Gilbert & George. Shoppers feel elevated to a higher class of consumer as they are escorted away from the main room. The VIP area has private lounges where shoppers can browse in luxurious surroundings, shielded from prying eyes or cameras. The apartment is furnished like a luxury condo. The concept of a private shopping apartment originated in China, where brands report higher sales in the exclusive showrooms than in their actual showrooms. Although the exclusive spaces can be pricey (analysts estimate the Bond Street apartment cost about $50 million to build) they also bring other benefits. Companies can use the locations to entertain during special events, or for internal events and programmes such as employee motivation schemes. Exclusive suites are also an effective tool for dealing with the press. They can enhance a journalist’s experience when reporting even a minor story, and turn it into something unique. The apartments can be implemented as the true face of a brand. With private shopping apartments, companies can welcome customers to the inner circle and show other stakeholders how the brand behaves behind the scenes.

Fashion companies have been at the forefront here, often inviting clients to their local store for special viewing events. These offer customers the opportunity to see what is coming in the next season, and a chance to order products while perhaps making another spontaneous purchase. Because events and apartments make customers feel special, they also make them more loyal. We discuss loyalty in greater detail in chapter nine.

Vuitton has perfected the art of unique locations and outdid itself in Asia, where it built a jetty in Singapore and gave its adjacent store a nautical theme to appeal to the shopper who has everything – even a yacht. LVMH, Louis Vuitton’s parent company, has been noted for its efforts to craft exclusivity. Vuitton’s new retail concepts serve not only as shops but also as global PR tools for journalists to write about. It is a perfect use of an always-on media culture that has permeated every corner.

Other brands are working to expand the concept of stationary retail to offer more than just an experience. They want to create a 24/7 world of luxury in hotels and spas. As mentioned in our chapter on Asia, Armani has a spa in Tokyo’s Ginza district, which is also home to Gucci’s store and the Shiseido parlour with food, art and a tea room. Extending the experience to other parts of a shopper’s life can keep them in the store longer to spend more time – and money – with your brand.

POP-UP SHOPS

Pop-up shops can be very useful to create temporary and surprising urban sales locations. Companies might want to use them to develop a test market or to heighten brand awareness.

Location, location, location

Luxury retailers such as Louis Vuitton must pick their locations carefully, finding unique spaces such as historic London brownstones or on piers in Singapore. This should be done without seeming to follow competitors or forcing shoppers to go too far out of their way.

A brand you can walk into

Retail stores are an opportunity to add a dimension to luxury brands and surround customers with everything they love about their favorite manufacturers and fashion houses.

Pop-up shops evolved out of guerrilla marketing early in this century and we still see them as an effective way of leveraging an international event to raise brand visibility and sales. Luxury companies quickly embraced the concept from the start, and should continue to do so. Pop-up shops offer a number of unique advantages. First and foremost, they allow a brand to create a temporary showroom in an unexpected or even normally inaccessible location. A number of brands, such as Montblanc and retailer Saks Fifth Avenue, rushed into Washington DC during President Obama’s two inauguration ceremonies to exploit the influx of moneyed admirers. Formula One events, horse races and even industry events can offer similar opportunities. Events keep the attention of attendees for several hours at most, leaving them with free time to shop. By bringing a mini-outlet to the event location, brands can attract customers while preventing them from seeking out other retailers. The latest generation of consumers is accustomed to pop-up shops, so the concept is important. Many modern consumers might even expect seemingly impulsive marketing from their favourite brands.

TO MALL OR NOT TO MALL

On the face of it, there is nothing more pedestrian or non-exclusive than a shopping mall. The whole premise of a mall is to rely on major anchor retailers to lure shoppers who then provide increased foot traffic for smaller, local retailers and restaurants. However, in many areas, malls are the only form of retail, whether it is because a region has grown so quickly, as in Asia, or because of weather conditions, as in the Middle East. Malls become daylong destinations, making them unavoidable in some markets even for luxury retailers. They should be the antithesis of luxury retailing except for one simple fact: all consumers still love the condensed shopping experience offered by malls. Consumers in markets with established luxury shopping areas still seek out the centres, despite having extensive luxury retailing opportunities seemingly around the corner. Consider the The Mall at Short Hills just an hour from Manhattan, New York. There is also the Beverly Center in the heart of Beverly Hills. Hermès itself only recently opened a boutique at the Short Hills mall, putting the brand at the same address as such downmarket mall favourites as California Pizza Kitchen, the Gap and Brookstone. “High-quality regional malls continue to be alive and well,” says Robert Taubman, CEO of US mall specialist Taubman Centers Inc.

Malls in Asia are taking on a different flavour, in part because the market is growing so rapidly, and also because there is no alternative. Luxury malls are becoming a destination not only for locals but also for wealthy tourists and travellers. They offer brands a simplified opportunity for entering a new market, albeit with the extra expense and contractual obligations of locating in a mall. Still, brands benefit from the magnetic power of several high-profile names in one place. Brands opting not to locate in the proper destination may also run the risk of being relegated to secondary status by luxury shoppers disappointed by not finding their favourite products there. As with any location, luxury marketers should consider special events or invitation-only shopping nights to reward and encourage local customers.

TUNE IN, TURN ON AND SHOP

Leaps in digital innovation mean that every aspect of luxury retailing can be improved through the use of online tools and mobile apps. In fact, using what works online can be a template for offline success. The revolution in retail begins before a consumer enters the store, when they learn all they can about a product and what their peers think. Social media is the new water-cooler discussion about the sleekest sports car, slickest shoes and most sought-after watch. Bloggers have replaced dull newspaper reviews and, thanks to the interaction of social media platforms, they offer a more personal, intimate view. Shoppers can also go online to find out if a nearby store has the item they want. Or if it is a department store, where they can compare similar products. On the other end, retailers can harness these queries to ensure they have in stock just what their customers want. They can also send loyal customers special offers and react when repeat shoppers appear in a new location. You can now welcome a New Yorker to your Tokyo store with a special present, for example. This would have been difficult in pre-Internet retailing. There is much talk surrounding location-based retailing apps that push special offers when customers pass a shop. But this can come off as a cheap ploy to lure customers, like coupons from a Sunday paper. “Location-based services must be sensitive to consumers’ real interest levels. Pushing irrelevant deals too hard at shoppers will cause people to filter them out,” says Mike Milley, former manager of design research and strategy for Samsung USA.

Customers can be greeted by a sales associate armed with a tablet. The tablet can offer exacting answers to probing questions, and tell your employees who the customer is and what they have purchased in the past. Predictive software can also feed salespeople information on products that may interest the consumer. Once in-store, the opportunities for digitally assisted shopping are only limited by what marketing and technical staffs make out of them. Clothing stores can offer instant try-ons with computer scanners and flat-screens. The technology is still developing but is worth considering. Does this dress warrant even trying on? If the answer is yes, it could be good for sales. Statistics show that 67 per cent of shoppers who try on an item buy it. While that is from mass-market retailing, luxury shoppers are even more discerning in their choices. But if the dress fits perfectly, they would be more inclined to buy it. We want to also mention here a similar application for restaurants, not because we think it is entirely applicable to Michelin-rated locations, but because it could serve as inspiration. Restaurants are trying out flat-screen tables that show what a diner’s order could look like and even lets them place their order, reducing the number of personnel. This, of course, is not feasible in high-end restaurants where service is a chief component of the experience, but perhaps a virtual tour of a wine cellar could be enjoyable, adding extra information about particular wineries. It is important to keep developing untraditional ideas. After all, experimentation leads to innovation, a hallmark of luxury.

As we point out in chapter five, Burberry has been an early adopter in digital. The brand once invited key customers to 25 major stores around the world. They were presented with an iPad in a Burberry sleeve. They watched the introduction of the company’s latest collection on the devices and then browsed through the collection on the tablet, from which they could order clothes. This is just the tip of the iceberg. Consumers today also use tablets and smartphones to scan barcodes or product names to find out more information, place an order or search for the right size. The important part is to minimise the dull scanning process and to accentuate brand interaction and support from employees. Digital should also be used to complement the actual shopping experience. If an item is out of stock, customers could be allowed to order in-store with free shipping to their home address. And shoppers can take advantage of tax-free Internet sales while enjoying a showroom experience. It must be noted that the future of tax-free Internet shopping is in jeopardy; most governments around the world have at least discussed taxing online sales and many have already introduced legislation, so brands should factor this in to their calculations.

We do not agree with those who declare that computers and the Internet mark the end of traditional retail. Certainly, the rapid growth of online sales is impressive, but even the most optimistic estimates put online sales at a fraction of offline sales. That proportion is growing, however. Second, properly cultivated and leveraged, computers and an online presence can support sales, especially of luxury items, because they can vastly improve service and the shopping experience. Retailers can consider shifting some sales online to reduce rents, and move warehouse and supply activities that do not affect product quality to more optimal locations.

“As the Internet creates a more savvy and demanding consumer, the pressure is on for these labels to differentiate themselves with a memorable shopping experience,” says Pomerantz. “Bricks and mortar has become an essential component in building this emotional connection to the brand.” It is clear that the future of stationary retail remains a profitable one.

INFLUENCER
Céline

It was the smallest of changes, but when Celine became Céline it marked the rebuilding of an old French fashion house into one of the modern luxury market’s strongest brands. The accent on the “e” symbolised a new era, instigated by British fashion designer Phoebe Philo when she took over as head of design in 2008. The brand, acquired by LVMH for €412 million in 1996, had been struggling financially for years, unable to find a clear design direction.

Philo had been pursued by the chief executive of LVMH’s fashion division, Pierre-Yves Roussel, to help turn around Céline’s fortunes. Philo, previously successful as chief designer at Chloé, accepted the job – but only if LVMH agreed to her terms. First came the name change. Next, LVMH shut down 20 of the 100 Céline stores worldwide, cut ties with less-exclusive department stores and stopped producing its handbags in China. The manufacturing was relocated to Italy. Furthermore, the company pulled all remaining inventory from stores, giving Philo a completely clean slate before she unveiled her first collection in autumn 2009.

Now open

Her sleek, simple and refined aesthetic represented a complete overhaul for a brand. Céline started in 1945 with a collection of children’s shoes and later expanded into women’s clothing. Philo introduced recognisable designs in the shape of three bag lines, keeping the design free of ostensible logos. “I felt it was necessary to establish quality for the brand,” Philo said, explaining the drastic changes at the time. “Now that we are establishing that and the top of the pyramid is in place, we can open it out.”

The efforts to recreate Céline’s image and gain control over its products cost the company €98 million. It was an investment that paid off, even as the price point of the clothes and accessories went up. Trousers for €1,000, shoes for €600 and handbags for €2,000 sold out almost as quickly as Philo could design them. In part, that is a testament to her talent as a designer, but also to her acumen in understanding the luxury consumer.

Céline offers quality products without recognisable logos at limited access for elevated prices. This combination enamoured shoppers to the brand, even as the company decided to forego branching out into the lucrative e-commerce sector. Going against the digital current has established Céline as a brand that consumers want to experience in person, making the stores an exciting destination. In fact, since Philo arrived, Céline has doubled its turnover to €400 million.

On sale

Following the opening of a Céline flagship store in New York, further shops will be opened in Hong Kong, Los Angeles and Paris. The bottom line? While LVMH does not reveal the earnings of individual brands, chairman and CEO Bernard Arnault has singled out Céline’s “exceptional results”.

Confirming his decision to hire her, Roussel forecasts the brand’s income to double again in the next three to five years. Considering the brand’s success so far, it seems like a reasonable expectation.

“The principle of scarcity works.”

An interview with Jörg Wolle, CEO of DKSH, a Swiss consultancy that markets and distributes customer brands alongside its own luxury products in Asia.

DKSH has been active in Asia for 150 years and, among other things, handles the marketing and sales of luxury brands. How do you view the relationship of e-commerce and stationary retail?

The luxury industry simply tried to escape the mega-trend of e-commerce for a long time. When that was just no longer possible, it undertook several initiatives under the motto “if you can’t beat them, join them”. In our view, the trend to e-commerce will keep growing strongly and its driving force will come out of Asia. In Asia, the average buyer of luxury brands is about 14 years younger than the average buyer in Western Europe and about 25 years younger than in the United States. This means that in Asia, we have younger, very affluent luxury consumers who are net savvy. Not only have they grown up with the Internet, but in countries like South Korea, people are real digital trendsetters.

Is stationary retail going to become less important as a result?

You need both. With flagship stores, it’s about presenting the brand experience to the consumer. To make sure that the store isn’t just a billboard that’s generating losses you are going to need a strong brand that draws people there. It’s the old problem of the chicken and the egg. But it’s clear, without a strong base in stationary retail where people can handle the products, luxury brands don’t work. Customers who are looking for a watch have to be able to feel its weight, or look at the craftsmanship details on a dial or see how it fits. They can’t do that on the Internet.

So shops will remain the focal points of brands?

Yes, we see shops as being the place where the aura and the brand experience present themselves to customers. E-commerce simply has an additional multiplier effect. An example is when we took over the watch brand Maurice Lacroix, which is very well-known in Germany. The first thing we did was to invest in flagship stores in Asia, and straight after that, opened two in Berlin. The one on Kurfürstendamm is for Berliners and the other one on Friedrichstrasse focuses on tourists. I was confident that the shops would work in Asia but I wasn’t so sure if they would in Berlin. Within a few months though, the boutiques started turning a profit. After we took over the majority of shares at Maurice Lacroix, we revamped the brand’s identity. Through the shops we could communicate our new message, “the time is now”, directly to consumers. Additionally, this allowed us to give our resale partners in Germany a point of reference. Because a flagship store is important not only for consumers but also for retail partners.

Did the growth of e-commerce come at the expense of stationary retail? Or is the pie big enough for both?

The pie is big enough and it’s growing, at least in Asia. E-commerce doesn’t work without stationary retail. Brands need to have a presence in both worlds, especially because of young consumers. We see the digital world as being an extension and ambassador of the brand. A place where you can make your friends aware of a product: “Take a look here at what I’ve found. Which one do you think you’d like?”

Despite all the enthusiasm for e-commerce, luxury brands have opened more shops in China than anywhere else in the world. Is that due to the size of the market?

At first, it was just about quelling the hunger of Chinese consumers and boosting sales. But the hype has died down, and many brands now realise that quality is a lot more important than quantity. I came back a few days ago from a long trip through Asia. The biggest problem that brands like Gucci or Louis Vuitton have in China is that they’ve become too popular, and that the truly wealthy Chinese are no longer buying them for lack of exclusivity.

E-commerce doesn’t work without stationary retail. Brands need to have a presence in both worlds, especially because of young consumers. We see the digital world as being an extension and ambassador of the brand.

What can be done then?

The principle of scarcity works whether you’re Hermès or Ferrari. Every brand and supplier needs to ask themselves: What do I want to be? You can’t be all things to all people. Trendsetters are distancing themselves from popular brands again and really want something very specific, something unique.

Too much of a retail presence can be damaging?

Absolutely. You have to decide what you want. We sell writing instruments in Japan made by the German companies Lamy and Graf von Faber-Castell. We have hundreds of sales points and shop-in-shops for Lamy. For Graf von Faber-Castell, we have one single boutique in Tokyo. But this flagship store for the upmarket Faber-Castell brand is a world of its own.

How important are malls, especially in Asia?

Extremely important. While these retail complexes no longer play a role in Germany or Switzerland, and London has perhaps two or three big ones, shopping malls in Japan, Korea, Thailand and Singapore are the strongest player in the luxury business. When I first came to Hong Kong 25 years ago, I wondered why the locals stormed to the malls with their families on Saturdays and Sundays.

And why did they?

Because back then, they were incredibly beautiful environments. On top of that, the malls were air-conditioned and most of the people there had no air conditioning at home. This was a quarter of a century ago.

And now everyone has air conditioning.

The important thing is that customers have remained loyal to these malls over generations. In hot climates you’d rather take a trip to the nice air-conditioned mall with your family than go out jogging. Customers arrive in the morning and don’t leave again until the evening. They go there to have something to eat, buy new trainers or even a new watch. But you have to offer something in return if you want this kind of customer loyalty. For our brands in Asian malls, we offer special bonus programmes, personalised shopping with a customer-care assistant, VIP dinners and shows in restaurants where different brands have the chance to introduce themselves. The malls in Asia have little in common with their namesakes in Germany and the United States, where many of the products that didn’t sell on the high street end up being sold off in them.

We see shops as being the place where the aura and the brand experience present themselves to customers.

What future trends do you see in retail?

Everyone could and should learn from Japan. The salespeople there are often better dressed than their customers, and are highly qualified and can advise you in detail. Sales staff will soon receive better training in other parts of the world so that they, too, will be able to provide customers with more detailed information. We send our top salespeople and customer service watchmakers to visit the workshops of the brands that we sell. These are trends I am seeing in retail. Better training, personalised customer service and individualised advice which lets you experience the brand.

Are loyalty programmes becoming more important?

There are still bonus programmes for basic products, and for our more important customers, they come with loyalty cards, true to the maxim “know your customer”. It’s becoming increasingly important that you understand your customers, track them and let them know whenever there is news. This trend is mainly due to personalisation. Marketing is going to have to adjust itself more to the customers.

It’s becoming increasingly important that you understand your customers, track them and let them know whenever there is news. This trend is mainly due to personalisation. Marketing is going to have to adjust itself more to the customers.

Does technology such as data collection play a role?

Absolutely, but it’s more in the background. People don’t want to be constantly confronted with it. It can be uncomfortable if you’re a customer sitting across from someone entering everything into a laptop or iPad. But if the consultant jots down the information using a Faber-Castell Perfect Pencil and only later enters it to a database, it’s not so obvious, yet they still have the follow-up under control.