The high-fashion industry is growing steadily: In the past 15 years, the overall number of luxury consumers has increased from 140 million worldwide to over 350 million.
According to the leading management consulting firm, Bain & Co., the global personal luxury goods market reached $251 billion in revenue in 2014, constituting a 3% increase when compared to 2013. This upward trend continued in the first quarter of 2015, and the market’s full-year performance is expected to increase 2-4 percent.
Most retail industry experts agree that the ability to operate on several marketing channels (including in-store, online and mobile) is a key factor which merchants cannot afford to ignore. This is especially true of high fashion customers that are very mobile and can transition among various purchasing channels and across countries with ease.
One thing is clear – no matter where or how these savvy customers choose to seal the deal, they want to be wooed and courted with an elevated and personally customised shopping experience.
Understanding local luxury purchasing
On the local level, it is important to understand the principles of show-rooming and web-rooming (or reverse show-rooming) within the luxury industry. Show-rooming refers to the practice of examining merchandise in a physical retail store and then buying it online, while web-rooming refers to customers who do their research online but ultimately buy products in-store.
Luxury consumers use both of these shopping methods. Due to the fact that they often purchase expensive items, after viewing a product online they may prefer to complete the actual transaction at a physical store. Whether it is an expensive article of clothing, a couture handbag or a top-priced watch, the customer wants to feel the texture or try the item on personally before closing the high-cost deal.
The fact that the luxury sector is going strong doesn’t necessarily mean that couture buyers are willing to hang the cost. Bain & Co. notes that price awareness and consciousness among consumers have increased significantly, leading to a rise in the off-price luxury market, which now represents more than 30% of total luxury sales.
When shopping abroad, luxury customers often come with a shopping list expressly to find cheaper deals in foreign countries. Bearing all this in mind, the high-fashion buyer may well choose to visit a local luxury store, check out a high-end item and then buy it online or off-price.
The appeal of free delivery and free returns
Many of today’s luxury buyers were not born with a silver spoon in their mouth. In fact, people who rose from rags to riches have a healthy appreciation of the rand and its value. They like special offers and enjoy attractive perks such as free returns and free deliveries as much as any other consumer.
While some luxury retailers are dragging their feet when it comes to free returns and free deliveries, these practices are fast becoming the norm.
A growing trend is same-day deliveries, which is proving to be quite a challenge for luxury retailers. When free delivery is offered, buyers tend to order much more than they would when charged for delivery.
The combination of free returns and free delivery appears to be irresistible to buyers. Laura Morroll, a Managing Consultant of LCP Consulting, notes that a retailer who is sure enough of the quality of its products to offer free returns, inspires customer confidence and loyalty.
In addition, many luxury retailers have discovered that when there is no charge for delivery, there are far fewer returns. As aspirational buyers, consumers might knowingly order an item in the wrong size and keep it for another season (or the next diet, depending upon which comes first).
In order to attract foreign luxury buyers, retailers must create brand awareness in their home countries. Even if buyers decide to purchase luxury goods abroad, they carefully study the various brands and products before leaving home.
Top-end brand retailers need to monitor where the luxury buyers are heading and provide signage and other assistance in the tourists’ native languages at the vacation destinations.
But luxury retailers also cannot afford to ignore consumers who decide to buy at home because they prefer luxury products crafted according to their specific culture. Some luxury brands are already creating lines for local buyers in China and India.
Global purchasing pitfalls
Bain & Co. states that tourism is the major driver of the global luxury industry’s performance. While touristic spending may be widespread, there are pitfalls that retailers must be aware of.
Imagine a tourist purchasing luxury goods in a SA branch of a luxury store and then returning to his or her home in London (or any other city outside of South Africa) only to discover that their return cannot be completed at the local branch of the same luxury retailer due to company policy, often driven by legislative reasons.
This is because luxury returns can only be processed via the same gateway used for the initial purchase, and many retailers use different gateways around the world to optimise payments by region.
While some merchants use a single gateway for all markets, mitigating the problem of international returns, these merchants face other cross-border challenges, such as steep cross-border and currency conversion fees, higher decline rates, and greater fraud risk.
Let’s take a look at some growing luxury markets.
Today, Chinese consumers constitute over 30% of global luxury spending. They are considered the main cause of the shift from local consumption to touristic spending, which now accounts for about 50% of all luxury spending.
The total amount of money the Chinese are spending on their shopping trips is surging, from $18 billion in 2002 to $154 billion in 2014.
Most luxury retail brands already have a presence in China. The exposure to leading luxury brands at home and on the Internet have made wealthy Chinese consumers knowledgeable about luxury brands and differences in pricing at various locations.
Gifting has been identified as an important motive for Chinese luxury product buying. In addition, many members of the growing middle class in China purchase high-end goods to mark themselves as part of the higher social class. At the same time, these luxury goods serve to differentiate them from members of the lower social class.
Some luxury retailers are already selling high-end products designed especially for the Chinese market, which incorporate Chinese designs and imagery.
India’s gems and jewelry sector contributes around 6-7% of the country’s GDP. The domestic gems and jewelry industry has the potential to grow to $85 billion by 2018. The latest Gold Demand Trends report from the World Gold Council indicates that the total consumer demand for gold in India last year exceeded that of China.
India’s marriage market is huge. It is estimated at nearly $35 billion and is growing at about 25 percent per year. Due to the fact that jewelry signifies a woman’s married status in Indian culture, finely crafted gold jewelry is in high demand. Rather than using a wedding ring as Western cultures do, Indians wear a variety of ornaments according to regions.
Women often wear special jewelry just for their wedding ceremonies. Thus, the love for high-end jewelry comes naturally to wealthy Indian consumers, who are known to pour many thousands of dollars into their weddings to pay for jewelry, designer clothes, cars, gifts and more.
According to Karoline Huber of luxury watchmaker IWC Shaffhausen, in India it is common practice to invite a brand representative to one’s home to provide hospitality and view luxury items in a domestic environment, rather than visit a boutique or shopping mall.
Here, too, luxury brands are seeking to cooperate with local relationship experts in order to customise luxury goods to local holidays, customs and festivities. Some brands are already customising their products; for example, Hermès has created its sari collection in India.
Nevertheless, many Indian consumers prefer to travel abroad to do their luxury shopping, perhaps because they do not want to appear ostentatious in a country where there is widespread poverty.
When discussing the connection between the Middle East and luxury consumption, it is important to understand that it is a “two-way street.” Dubai serves as a major hub for luxury buyers from all over the world, but many Middle Eastern buyers also migrate to Europe for their luxury shopping.
The Middle East is one of the ten largest luxury goods markets, with sales exceeding $6.74 billion, according to a market study of the Middle East published by Bain & Co. After conducting price comparisons for high-end items worldwide, many consumers from all over the world are looking for new shopping destinations, such as Dubai, South East Asia and Australia. The report indicates that Dubai accounts for 30 percent of the luxury market in the Middle East region.
Whether the location of luxury shopping is in the Dubai or London, religion is an important guiding source for decision making among 71 percent of the consumers as compared to a global average of 32 percent.
Every year prior to the holy month of Ramadan, Middle Eastern shoppers arrive in London, and purchase an array of luxury gifts before flying home for a month of daily fasting. Another shopping surge occurs during the Eid al-Fitr holiday, which marks the end of Ramadan.
Despite the fact that no male outside of their household will ever see Arab women in haute couture dresses, Arab women buy high-priced designer clothing from the world’s leading fashion houses.
Although tourists from the oil-rich United Arab Emirates, Kuwait, Saudi Arabia and Qatar make up only a small percentage of total visits to Britain in comparison to U.S. and European luxury consumers, they are generally more lavish spenders. Official figures indicate that Middle Eastern tourists came second in total spending for luxury goods last year, reaching $1.5 billion.
In order to gain an edge, today’s high-end brands must craft a specialised shopping experience for luxury buyers at every physical and online channel, both domestically and globally. This includes understanding cultural and religious nuances, and speaking the foreign customer’s language both literally and figuratively to address the pitfalls standing in the way of truly frictionless luxury customer experiences globally.
This article was originally posted here on Entrepreneur.com.
Medium-Sized Businesses Reap Greater Rewards In Tough Times
With prominent industry names being added to business rescue reports almost every week, risking it all in times such as these may sound ludicrous.
We’ve said it before: Diversifying, streamlining and investing in new ventures during the tough times is vital to a company’s survival.
Running a successful and diverse business requires resources, passion and an unwavering vision. Poised for continuous growth, a company looks to its team of forward-thinking, calculated risk takers to help prepare and invest for the future, now.
Investing in the future and creating wealth means doing things right – right now. With headlines such as ‘real estate investments in SA increase by R28 billion’ and ‘the industrial sector is the top performer in the SA property market’, it makes sense to put your money where your mouth is in 2018.
Bartlett Construction is one such company. Wayne Bartlett, Contract’s Director for Bartlett Construction says that the company opened its property division several years ago in a quest to gain more market share and use its expertise to cultivate a robust property portfolio.
“Accelerating our economy through investment is key. While there are still high hopes for SA in 2018, applying a long-term strategy to property investment allows you to reap the real rewards in future,” says Wayne.
Acquiring, building and renovating factories and industrial spaces has been a focus for the company over the past few years. “We have all seen the headlines about the industrial sector performing well in terms of property and this is true. It’s truly sad to see some of the big names (in all industries) undergoing business rescue but ultimately, waiting for times to change and focusing on one strategy is never advisable – especially not in a market such as this one” he continues.
Creating a scalable business in times such as these is key. Wayne notes that medium-sized companies have remained notably robust by ensuring just the right amount of resources to remain lean, yet effective.
“The economic downturn has had significant impact on both big and small companies. Companies with high overheads, many employees and massive contracts on the line have been most affected. Small companies, on the other hand, with very little business and resources who rely on business from big and medium businesses have also taken a knock.”
Established more than half a century ago and with Wayne having 30-plus years of experience in the industry, it’s fair to say that he has seen it all. “What’s helped our company through the years is remaining scalable and finding balance. Times are tough, and everyone is feeling the pinch – success is dependent on how the industry performs but we try our best to never over invest or under invest; we diversify whilst maintaining high-levels of competency in our current projects, we are fair and reward long-standing, loyal employees who give us that competitive edge and we adapt according to industry and client needs.” Wayne concludes.
How To Leverage Partnerships, Industry Associations & Endorsements
Nobody can succeed in business entirely on their own without personal as well as professional support. ‘Signing up’ can be a deciding factor in the growth of a company, says the Proudly SA CEO.
Leverage by association can be a great business tool. Hitching your wagon to an industry associated body, joining a local chamber of commerce, or seeking a respected contemporary’s endorsement can change your brand recognition struggle to an opportunity. Becoming part of a whole new entity can be one of the best decisions you will ever make.
How to choose your partner or affiliation?
You know the expression ‘Two heads are better than one’ so you should choose a partner or affiliation that exposes you to twice as big an audience as you can reach alone, preferably with a different customer base. Find an association that fits with your own business ethos and has the same goals as you, otherwise you will find you are working against each other rather than complementing each other.
What do you stand to gain?
By association you will appear in listings, on websites, you will be invited to related events where you can network your socks off, and in some cases, doors will automatically be opened for you. Visibly aligning yourself with an organisation that can propel your brand and/or product into the market place should be grabbed with both hands.
What does the partner stand to gain?
Your relationship with a partner should be symbiotic, benefitting from each other’s contacts as well as a platform for sharing ideas.
What are my responsibilities towards the other party in the relationship?
Perhaps you will have to add a logo to your marketing collateral or packaging, perhaps you will have to comply to standards even higher than those you set for yourself. Perhaps you will have to pay subs or a small joining fee, or even a large joining fee, so you need to decide what you can afford and when.
But you must view the relationship in a positive light even if it involves redesigning artwork or re jigging your material. There is no point in ‘signing up’ if you’re not prepared to share your brand affiliation with your customers and suppliers. It’s like getting married and refusing to wear a ring.
How long should I sign up for?
You really should take a long-term view of any marketing relationship. Your hook up may take time to filter down into the market place, you may have a lot of pre- relationship stock that doesn’t have the logo of your new partner on it, so you will need to give a fair chance to the whole exercise.
What happens if one party brings the other company into disrepute by association?
No one wants to be brought down if someone or something with which you are closely associated is found not to be quite as ethical or honest as you. Don’t forget this isn’t a JV, it’s a brand partnership, and so as long as you are operating separately, you will always be able to distance yourself from any scandal should the need arise. (But hopefully you chose your brand affiliation well!) , but by and large, being the single part of a whole can only be beneficial when you’re starting to build your brand.
How does using the Proudly South African ‘tick’ logo fit in?
The Proudly SA logo is the mark of an authentically locally grown, manufactured or produced item or service that is of proven high quality. It can be leveraged in the same way as any other brand affiliation and can assist in providing access to market and building trust with your buyers and suppliers.
The Differences Between A Supplier Relationship, Agency And Distributor
To a large extent I suppose it depends on industry, the vision of the business and how quickly you wish to scale.
Many businesses reach the point where they have to consider in which way to best expand its market share and reach. In many industries, a customer and supplier arrangement are sufficient, but in others different arrangements such as agency or distribution are preferred.
So, the question is – what is best and when?
Well, to a large extent I suppose it depends on industry, the vision of the business and how quickly you wish to scale.
1. Supplier / Customer
This is a typical arrangement of a willing buyer willing seller. In most instances this is the typical way in which business is run or at the very least to a large degree this is the starting point. Clients or customers are typically engaged by agreement usually a form of terms and conditions or perhaps even an agreement detailing credit.
An agency agreement could either relate to an individual or an organisation. This means an individual or a business could represent the supplier of the goods or services and earn a commission or remuneration for their efforts to sell the goods or services.
In this context an individual is often referred to as a “rep”, which is a typical arrangement for wholesalers marketing products to retailers. In many instances these agreements do not constitute employment contracts and further, the agent does not buy and on-sell the products.
The agent usually refers orders to the supplier and therefore is cost effective for both parties and further limits risk. This also means that the supplier benefits from a relatively low input cost and commitment but increased sale. An important portion of an agreement such as this is that the agent has certain powers in representing the supplier. It is therefore of crucial importance that the agent’s powers are constructed in such a way as to serve the needs and best interests of both parties.
A crucial difference between agency agreements and distribution is twofold – one: that the distributor does not have any power of representation as an agent would typically have. Secondly, that the distributor usually purchases the goods / products from the supplier and then stores, transports and sells, as the case may be. In most cases these agreements are confined to goods.
It is therefore important for the business to assess what would sell the most products or services in the shortest space of time. Then to seek professional advice to construct the most suitable agreement.
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