Understanding the challenge of the global luxury retail market

According to CBRE’s "Special Report on Global Luxury Retail: A Divergent Market", the luxury economy had, until recently, seemed immune to global events. The overall downturn in consumer confidence in some markets did not have an adverse impact on luxury spend.

However, this has begun to change in the past few months. Understanding the needs of luxury consumers and their behaviour is also essential.

Impact of changes

Target markets are changing as the penetration of luxury in established markets reaches maturity. New markets also require a distinct strategy, as consumer requirements and behaviour differ.

The development of the luxury consumer is formed by experience, access and knowledge.

It is essential for brands to ensure access to the products in a place that works for consumers. This may be outside their home market.

Asia has the most luxury brand outlets in the world. Between 2008 and 2011 there was a 42-per-cent increase in luxury stores in Asia, compared with 28 per cent in Europe and 5 per cent in the United States.

However, this growth has slowed in the past five years. Some brands are reviewing their store portfolio to ensure they have the right stores in the right locations.

One of the key challenges is forecasting the dynamics of Chinese consumers, as China now makes up over 30 per cent of global luxury purchases.

Many brands have recognised they expanded too quickly into China, as Chinese consumers prefer to shop for luxury products abroad.

As individual affluence increases, there is a great appetite for travel, and many purchases will be made during visits to Europe or North America. This is also true to some extent for Thai consumers.

This phenomenon makes it a challenge for brands to plan their physical expansions.

Today’s consumers are tech savvy – they are looking for information on products they want to purchase, and the first source is usually online.

The importance of a website – the look and feel, functionality and ability to give insights into the brand – should not be underestimated.

The "reverse showrooming" effect is coming into play, where most consumers prefer to look online first then buy in-store. Research shows that consumers tend to be more certain of their purchases with prior online research rather than an impulse purchase in-store.

Online channels are viewed as valuable research and discovery tools because of the high price tag associated with the purchase.

Younger consumers are now also more active on social media, particularly Instagram. In many cases social networks have replaced magazines as a platform for luxury fashion. Globally, the future of luxury retail lies in a blended retail model, which would bring the human factor to online without losing the experiential aspects made possible by having a physical space.

The service factor remains the biggest maker of a luxury brand. Overall, the expectation of service is more associated with physical stores, as they have the ability to create far more emotional affinity with a shopper than online channels.

They are also more prone to criticism with the reliance on the human touch, which can be the greatest asset or vulnerability.

The risk often increases as more people travel and compare experiences of a brand at home and abroad. One bad experience can also ruin 10 good experiences.

Therefore, despite the changes and challenges of luxury retail, the service and experience element should never be compromised. Aliwassa Pathnadabutr is managing director of CBRE Thailand.