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Selling Luxury Goods Will Change, Or Will It?

This article is more than 3 years old.

Late last year, LVMH announced its acquisition of Tiffany & Co TIF . Who is LVMH, some of you unfamiliar with the luxury goods (jewelry, fragrances, leather and fashion goods) sector may ask? Louis Vuitton, Moët Hennessy (LVMH) was formed in 1987, has a market capitalization of over $220 billion, over 60 subsidiaries and 75 brands. Many of the brands it acquired over the years have been around for a hundred years or longer. Household names from TAGHeuer, Dior, Marc Jacobs, Dom Pérignon and Guerlain to the seemingly ubiquitous Sephora are now under its umbrella. But how does a non-commodity brand take advantage of economies of scale typically expected from M&A?

I don’t typically write about a single company and why it shines or not because I am neither a stock broker nor analyst. However, when a company’s technology and sales strategy driven by its core values keeps on delivering year after year, I feel the need to dedicate some cerebral power to analyzing how they do it and why. This is especially true as many business models will accelerate their digital transformation in light of the Coronavirus. Plus, as you will see when you read on, I have a personal childhood experience with luxury good sales.

LVMH’ acquisition-based portfolio growth strategy, which grew revenue two-and-a-half-fold in the last decade with gross profit margins in the high sixties, shows that brick-and-mortar retail and consumer goods can thrive in the age of Amazon AMZN and Retailmageddon. While the Coronavirus may be swinging the consumer preference pendulum towards online shopping right now, it remains to be seen if this is a secular trend across all consumer segments. LVMH’s carefully calibrated expansion strategy very much suggests that each acquired brand will not be micromanaged, actively incurring the risk of alienating design talent and high-end customers. Brands function like a mix between center-of-excellence and start-up, despite their long history, instead of a pool of synergy potential waiting to be taken advantage of. Obviously, some supply chain and store location synergies are always on the table but the way a brand’s customer journey is mapped and digitally supported stays within the brand allowing brands to also acquire the related technology set on a brand-by-brand basis.

This approach flies in the face of best-practice M&A thinking where product portfolios, locations, vendors, customer lists, back office processes and technologies are rationalized to realize the cost advantages promised to investors. Given the luxury retail market’s reliance on constant design creativity, high brand loyalty and a growing, yet relatively small consumer population, careful calibration is necessary. There are high stakes at play as customer spend often starts at $20,000 annually in just a few trips to the store. The store experience may also occur in multiple locations around the globe. Retailers and consumer product manufacturers would be well-advised to stalk these high net-worth clients like a pack of wolves shadowing a herd of buffalo as it crosses the retail prairie.


Touch this fabric, smell that aroma, feel this finish, appreciate the craftsmanship...online?

If the brand and its values conflicts with a 100% digital or even broad, omni-channel distribution model, what do you do? Answer: Selectively pick and choose for which brand or product it makes sense to go the eCommerce route as well as who you could and should sell to. In addition, optimize and accelerate offers to capitalize on sales opportunities called “moments”. LVMH has certainly done the former and I see increasingly more brands tackling the latter.

These notions are largely guided by the need to individualize the customer experience across available channels. Generally, this is not done by offering rebates or buy one-get one free promotions. Instead, these brands are masters of understanding their consumer, his/her research, browsing and buying patterns within their buying journey. In order to persuade buyers brands look to additional data points at play here, which are not readily harvested from traditional point-of-sales (POS) systems. Leading consumer products companies are now leveraging weather, trade, other product or service sales, travel and social data, including how their in-store sales associates interact with customers online. Capturing customer interactions from well-trained associates, can shed new light on buying motivations like birthdays, upcoming travel and other life events on top of interests like physical fitness and gadget obsessions. It reminds me of my shopping experience in a Japanese department store where a single sales associate knows the twenty products in her section so well, she could be mistaken as working for the manufacturer instead of the retailer. This hyper-focus may look inefficient but it comes with its upside as the related product price tag rises.

Luxury items like fragrances, jewelry and a $5,000 dress are physical items requiring a physical engagement within the brand’s four walls, as temporarily difficult as this may be, based on what values and aspirations they represent. Digital transformation, driven by millennial technophiles, is taking increasingly a stronger share in strategic thinking. However, the lack of the physical experience, the potential of counterfeits and the absence of human connections are reasons why stores will continue to matter for luxury retailers and product firms. While much of the consumer’s product research will continue to move online and certain brands will broaden their distribution via third parties like Net-a-porter, the physical experience will persist. This tactile journey, as illustrated by a fairly typical three-hour store visit trying on twenty pairs of shoes and walking out with a fragrance and a coat can render detailed insight into the buyer’s life. With social distancing and wipe-down guidelines changing store patronage capacity, floor layouts as well as novel reservation and invite-only shopping models will emerge.

This reminds me when I hung out in my aunt’s store in my early teens. Her patrons would frequently call ahead. Her family were furriers and watching her, my uncle (head of the guild) or my cousin engage in high-brow chit-chat with largely older ladies has not changed in the following decades. While selling them on an expensive mink coat, they often were able to add a fur hat and sell coat alteration, cleaning or storage services for previously purchased garments. You never knew when they were back in the store unless they revealed news around upcoming weddings, funerals or appearances at the Vienna Opera Ball.

Back then these facts were either captured in a medieval bible-look-alike “account” book or just committed to memory. Today, such “moments of truth” must be captured, fed into an ever-growing secure data repository and connected to relevant shopper profiles, which cannot only be used by a single brand’s marketing and merchandising group but across the enterprise. Each brand’s Center-of-Excellence can now contribute a data nugget to shorten its own or its sister-brand’s next store visit.

Finding “Customer Journey Synergies” is where the real opportunity lies for expanding, high-end consumer product conglomerates. The underlying tactical imperative is to identify, predict and capitalize on real-time customer motivational signals. While it will certainly continue to be important to let legions of data scientists loose at all this data to find interesting patterns of up and cross-sell or influence opportunities, an ideal technology footprint will likely not require ten but also not one single technology to realize this vision. 

Data capture and harmonization should be integrated into real-time analytics because you want to make a compelling proposition to the client while he or she is still in the store or your website. A quick pop-up on a sales associate’s iPad, the cash register or check-out webpage can do the trick. No time to wait for tuning machine learning algorithms to reveal fine-tuned insight days or weeks later. That is something, which can and must occur but does not drive the imminent opportunity discovered by a best guess given some basic shared characteristics with similar customers - see my statistical twin argument in an older post. After all, the sales associate – customer relationship is an infrequent association or “moment” in this business and even with brand loyalty, time is the enemy as in most sales situations and having decent data earlier has a financial value. While luxury brands are generally relatively immune to economic downturns, especially with a low debt-to-equity ratio mitigating the effects of a pandemic, an unexpectedly popping up barrier to visit the store, such as the Coronavirus outbreak, illustrates that a combination of a diversified distribution strategy and quick action based on good insights can be superior to a perfect one delayed by analysis paralysis.

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