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Tap Into the Growing Luxury Market By Understanding the Buyers

People who can easily afford full price look just as hard for a deal as those who can’t.

Oren Levy

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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.

Related: 6 Ways to Make Your Customer Service Better

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.

Related: 8 Keys to Award-Winning Startup Customer Service

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).

Luxury purchasing habits at home and abroadluxury-home

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.

Related: Tips To Go Above And Beyond With Customer Service

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.

China

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.

IndiaHermes-sari

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.

DubaiDubai

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.

Oren Levy is CEO of Zooz and an experienced professional with over 15 years of experience in payments, commerce, and global business. Prior to Zooz, Oren was an executive director at Brookline (USA) for 11 years, managing its worldwide sales efforts and strategic partnerships initiatives. Before Brookline, Oren held marketing, business development and technical positions at BATM, Fundtech and L.G.E.S.

Business Landscape

4 Vital Differences Between King III And King IV™ On Corporate Governance

April 2018 marks a year since the effective date of the IoDSA’s (Institute of Directors in Southern Africa) latest report, the King IV Report on Corporate Governance ™ (King IV™), on effective and ethical corporate governance.

Ilana Steyn

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What is the King Report?

If you’re not familiar with the King Reports: it’s a series of reports that translate international standards and big-time happenings on corporate governance into set of local principles. Each new Report replaces the former.

The aim of the King Report is to set up actionable principles for South African company leadership to act as modern, good corporate citizens.

It also ensures those in leadership positions act in the best interest of the company and all parties influenced by the company. The first Report, King I, published in 1994, and was the first officiated document of its kind in South Africa.

Why is it useful to my business?

The Report also promotes transparency within your company’s leadership to ensure transgressions aren’t hidden that will eventually damage the company.

Related: South African Millennials Key To Enforcing King IV

The Report also ensure blunders can be evaluated, found and corrected ASAP. Today, its mandatory for all JSE listed companies to implement the Report into their company policy. If you’re a smaller business or a non-profit, you can comply with the Report voluntarily; by applying the principles you’re essentially ensuring the long-term sustainability and survival of the business.

It also helps that create a healthy corporate culture and when your business’s foundation is healthy, growth is unthreatened. If you haven’t applied any of the former Reports in your business, you’re in luck; King IV™ is the simplest, and seemingly the most practical, Report in the family of four reports.

Why was King IV™ needed?

Companies, especially smaller businesses, often struggled to apply the King III due to its long-winded structure.

Also, King IV™ was needed because King III, published in 2009, was out-dated in terms of present-day concerns like technological advances, the increased need for online transparency, long-term resource sustainability and information security.

Here’s the rundown of the most significant differences between King IV™ and King III.

1. King IV’s™ structure is much simpler to apply

While King III did a good job of summarising the extensive scope of effective and ethical governance into 75 principles, the Report still lacked clear guidance on real-world application.

Ensuring the effective incorporation of all 75 vague, ethical principles was too exhaustive for most companies to implement, monitor and account for. That’s why King IV™ took a different structural approach.

King IV™ boiled good corporate governance down to 17 simplified principles, each supplemented with various recommended practices to make it easier for smaller companies to implement the principles within their day-to-day running.

2. King IV™ spotlights practical implementation

King III lists multiple ethical principles and then commands companies to explain how their management and actions honour those principles.

Unfortunately this meant companies approached it like a mindless compliance checklist.

King IV™ also states principles, but more importantly, requires organisations to actively report on the implementation of the recommended practices thereof.

Mervyn King, the chair of the King Committee, dubs this the shift from a “apply OR explain” mentality to a “apply AND explain” mentality. The Report also allows organisations to report on alterative-implemented practices – provided they support and advance the principle.

To make the application simpler to grasp, King IV™ clearly differentiates between the long-term Outcomes, the ethical Principles and the recommended Practices.

Essentially the new structure and its requirements mean companies have to engage in thoughtful implementation and reporting of those practices.

Related: 5 Thoughts To Give You The Courage To Make Change

3. King IV™ is inclusive to more than just large companies

After King III, there was a significant demand for the inclusivity of smaller businesses, and governmental or non-profit organisations in the King Report.

Consequently, King IV™ dedicates an entire supplement chapter to guiding municipalities; non-profit organisations; retirement funds; small and medium enterprises and state-owned entities in the implementation of the Report.

Also, where King III used terms like “companies” and “boards”, King IV™ very purposefully uses more inclusive terms like “governing bodies” and “organisations” throughout the report.

It’s clear that King IV™ aims to move the principles on good corporate governance into real-world action – for all organisations.

4. Difference 3: King IV™ pushes for more accountability, transparency and reporting

What King IV™ does quite differently from King III, is recommending the application of its principles within set timelines, reports and committees within it’s recommended practices.

King IV™ strongly propagates transparency, the delegation of responsibility and the implementation of accountability by putting pen to paper in term of officiated aims, bodies responsible for those aims and the provisions of consistent reports.

Take leadership as an example, where King III would just stipulate what being a good leader means, King IV™ advises you to set goals, delegate responsibility and evaluate progress through reports and accountability.

An example would be to set up a committee, consisting of lower management levels, with clearly identifiable responsibilities and then to measure their progress via reports.

It comes down to the ignorance no longer being a valid excuse. Directors should be aware of all issues within your company.

Directors should take responsibility for everything that happens within their organisation – you can’t plead innocence on the grounds of not knowing. There should rather be reports in place to identify and uncover any discrepancies early on.

Essentially, where King III lacks in the aim of ensuring the actualisation of good corporate citizenship, King IV™ steps up the game.

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Business Landscape

How Economic Crime Is Impacting Business In South Africa

77% of SA organisations have experienced economic crime and CEO’s and boards are increasingly being held accountable for economic crime.

PwC

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South African organisations continue to report the highest instances of economic crime in the world with economic crime reaching its highest level over the past decade, according to PwC’s biennial Global Economic Crime Survey.

South African organisations that have experienced economic crime is now at a staggering 77%, followed in second place by Kenya (75%), and thirdly France (71%). With half of the top ten countries who reported economic crime coming from Africa, the situation at home is more than dire.

The Global Economic Crime and Fraud Survey examines over 7200 respondents from 123 countries, of which 282 were from South Africa.

The rise of economic crime

Trevor White PwC Partner, Forensic Services and South Africa Survey Leader, says: “ Economic crime continues to disrupt business, with this year’s results showing a steep incline in reported instances of economic crime. At 77% South Africa’s rate of reported economic crime remains significantly higher than the global average rate of 49%. However, this year saw an unprecedented growth in the global trend, with a 36% period-on-period increase since 2016.”

Related: PwC Focus On Sugar Tax

Economic crime in South Africa is now at the highest level over the past decade. It is also alarming to note that 6% of executives in South Africa (Africa 5% and Global 7%) simply did not know whether their respective organisations were being affected by economic crime or not.

While the overall rate of economic crime reported was indeed the highest for South Africa, the period-on-period rate of increase for South Africa and Africa as a whole was below that of our American, Asian and European counterparts.

Global indicators of a rise in economic crime

From a regional perspective, the biggest increase in experiences of economic crime occurred in Latin America, where there was a 25% increase since 2016 to 53% in respondents who indicated they had experienced economic crime. The US was a close second with a 17% increase over 2016 to 54% of respondents, while Asia Pacific and Eastern Europe experienced increases of 16% and 14%, respectively.

Asset misappropriation continues to remain the most prevalent form of economic crime reported by 45% of respondents globally and 49% of South African respondents. While the instances of reported cybercrime showed a small decrease in the South African context (29% in 2018 versus 32% in 2016), it retained its second place in the global rankings (31%) albeit at a lower rate of occurrence than 2016.

One of the new categories of economic crimes was that of “fraud committed by the consumer”.

It is the second most reported crime in South Africa at 42% and takes third place globally at 29%. This was followed closely by procurement fraud (39% in South Africa versus 22% globally). This indicates that the entire supply chain in SouthAfrica is fraught with criminality.

Related: PwC: Pria Chetty

When combined with the high instances of bribery and corruption reported (affecting more than a third of organisations at 34%), the resultant erosion in value from the country’s gross domestic product (GDP) is startling. Accounting fraud, which is usually perpetrated by senior management and results in the largest losses, increased from 20% to 22%.

Accountability of the board

Accountability for fraud and economic crime has moved into the executive suite, with the C-Suite increasingly taking responsibility, and the fall, when economic crime and fraud occur.”

The survey shows that almost every serious incident of fraud has been brought to the attention of senior management (95%).

85% of South African respondents indicated their organization had a formal business ethics and compliance programme in place.

In addition, 20% of local respondents indicated that the CEO (who is part of the first line of defence) has primary responsibility for the organisation’s ethics and compliance programmes, and is therefore more instrumental to the detection of fraud and the response to it.

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Business Landscape

PwC Focus On Sugar Tax

The proposed sugar levy is unlikely to make sizeable dent in fiscal deficit, but the Sugar Beverage Industry is offering a helping hand to reduce obesity.

PwC

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PWC

In 2016, the National Treasury announced a Sugar Beverage Levy (SBL) on sugar-sweetened beverages (SSBs) scheduled to take effect April 2018. The aim of the levy was to prevent and control obesity in South Africa, but key industry players also viewed it as a potentially significant new source of revenue that could help plug the growing fiscal deficit.

The fiscal deficit has been widening as National Treasury faces slow economic growth and a shrinking tax base. Initially estimated at 3.1% of GDP, fiscal deficit projections increased to 4.3% of GDP in October last year.[i]

However, official data suggests the deficit already reached R195 billion in the first 8 months of the 2018/19 fiscal year, so it could amount to approximately R250 billion, thereby exceeding Finance Minister Gigaba’s October projections by 25%.

The levy has undergone various changes since it was first announced.

When the levy takes effect in April this year, it will amount to 2.1 cents per gram of sugar per 100ml, above 4 grams per 100ml.

This is down from an initial 2.29 cents per gram of sugar with no exempted amount.[ii]

Related: Silver Linings For Smaller Businesses In Budget 2018

Our estimations suggest the tax burden is approximately 10% given current levels of sugar content, down from approximately 20% previously. In addition, industry has recently reacted to the news of the SBL, reducing the sugar content of popular beverages by including non-nutritive sweeteners.

In addition to efforts to reformulate, the industry introduced smaller bottle sizes to curb excessive sugar consumption and limit the excise tax burden.

SBL excise revenue estimations

We estimated that in a scenario in which the beverages industry makes no change to the sugar content of SSBs, the levy would result in an estimated R1.5 billion loss in sales revenue and a R 1.4 billion excise revenue gain for government.

However, a reformulation by industry would result in a lower loss in sales revenues of only R1.07bn and lower than expected excise revenue gain for government of R990mn.

Given the estimated fiscal budget deficit of up to R250bn, additional revenues of between R990mn and R1.4bn are unlikely to make a significant dent in plugging the deficit and could support the assertion that the levy will focus on curbing sugar consumption rather than providing significant additional revenue inflows.

In our quantitative analysis of the proposed tax on SSBs, we use the PwC Economic Impact Assessment Model to derive the potential impacts, based on a 10% sales reduction calculation due to potential excise driven price changes.

Although excise revenues are expected to increase, other tax revenue streams are likely to experience a decline. Not considering excise impacts, the prospective tax revenue loss stemming from reduced sales revenues and showing in lower VAT, corporate income tax (CIT) and personal income tax (PIT) could range between R363 million and R518 million in the reformulation and non-reformulation scenarios, respectively.

Related: 4 Budget Speech 2018 Outcomes To Know For Your Business

Therefore, the net impact on estimated tax revenue combining the implications for excise tax, VAT, CIT and PIT revenue would only range between R631 million and R856 million, subject to which scenario is implemented.

It is unclear whether the SBL levy will assist in reducing consumers’ sugar consumption. However, industry facilitates lower sugar consumption by reducing bottle sizes and through reformulation.

Smaller sizes nudge consumers to lower sugar consumption

In addition to reformulating popular SSBs, the beverages industry has altered the size of the 500ml buddy bottle to 440ml, potentially nudging consumers to reducing their sugar consumption.

The move to the 440ml bottle represents a 12%[iii] reduction in size and means that sugar content fell from 53 grams in the 500ml bottle to 46.6 grams in the 440ml bottle.

The implementation of the new levy could still result in an approximately 61 cent increase in the price of the 440ml bottle.

It remains to be seen how South Africans will react to the current and impending price change of SSBs and if the SBL can indeed assist in reducing obesity. It is clear that monitoring and evaluation are key tools to help government and industry understand the effectiveness of this initiative to prevent and control obesity in South Africa.


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