By and and  on May 25, 2010

PARIS — During the luxury boom, Bernard Arnault liked to boast about the long lines snaking outside the Louis Vuitton flagship boutique on the Champs-Elysées here. More recently, however, the luxury titan expressed concern that customers in crowded Vuitton stores were not being served well enough, and vowed to invest more in improving the shopping experience.

“When people walk into a Louis Vuitton store, they should get the best service in the world,” Arnault told analysts at LVMH Moët Hennessy Louis Vuitton’s last results presentation.

It was a strong signal that Europe’s big luxury players — after spending years constructing megaflagships and expanding their banners to second- and third-tier cities — are focusing on becoming better and more productive, rather than ubiquitous, retailers.

“After a significant retrenchment in luxury consumption, the emphasis must be on space productivity,” said Luca Solca, senior research analyst at Sanford C. Bernstein Ltd., noting that directly operated stores have high fixed costs and lower sales “can quickly damage economics.”

According to Solca’s estimates, major luxury players like Gucci and Louis Vuitton continued space expansion at a decent clip the past five years, approaching 10 percent in 2008.

Marc-André Kamel, a partner at Bain & Co. in Paris, characterizes “retail optimization” as a key strategy as luxury goods firms ease up on expansion and attempt to ramp up productivity in existing doors.

“It’s how do you make sure you create more sales per square meter from the existing assets?…Can I extract better returns from my stores through better execution of my retail concept?” Kamel explained.

Considerations include whether brands have the “right value proposition for the right customer segment” as well as an emphasis on “retail excellence.”

The latter pertains to “everything from training the sales force to the way the sales force behaves.” Brands must “execute all the levers or the elements of the retail formula, all the way to one-on-one marketing,” he said.

According to Bain’s tallies, luxury brands opened 750 stores in 2008, compared with only 300 in 2009 as the financial crisis deepened, dampening demand for expensive clothes, leather goods and watches. Kamel noted that most luxury openings last year were in emerging markets, and firms “had to go with what was already signed and engaged so much that they couldn’t stop it.”

During the luxury boom, the rate of space growth in mature markets tended to exceed the rate of sales growth, and then the downturn hit. “In this period, people looked at their current capital inflow and realized that not all the investments in stores and new spaces have provided fruit,” Kamel said.

He predicted a “prudent” return to openings for luxury players. Bain has forecast 4 percent growth for luxury goods sales this year.

“Opening stores requires capital.…Everybody is becoming a little bit more cautious in the way they spend,” he explained. “They need the growth: They know they still need to open stores in areas where they don’t have the right aspect, but they are more cautious with the way they spend their cash.”

Offering a “better customer experience” in stores, along with select expansion, is key, according to Yves Carcelle, chairman and chief executive officer at Louis Vuitton.

“We dedicate a lot of our energies to making sure we give our customers a more refined experience and more luxurious stores, in addition to more space,” Carcelle said in an interview.

The recent emphasis on boosting productivity in existing doors, versus expansion, is reflected in recruitment activity. Floriane de Saint Pierre, who runs an executive search and consulting firm in Paris, described retail optimization as a key recruitment focus ever since the economic slowdown for such positions as retail performance directors, CRM (customer relations management) directors and customer service directors.

High-level business school graduates are prized as candidates, and luxury and fashion brands are also tapping key talents from the airline, hospitality and banking industries, known for “best practices” and long experience in customer engagement and retention. However, fashion companies have yet to boast “loyalty program directors,” a position common in other industries, she noted.

Besides boosting the productivity of each square foot of retail space, brands are also keen to acquire knowledge about their customers and are building their worldwide databases in order to better “interact and entertain their audience through e-communication,” De Saint Pierre said, adding that such data are “key to launch global e-commerce.”

Kamel agreed the online channel is viewed as an important path to optimization.

“Online has become a fantastic traffic generator, a fantastic service provider in terms of browsing the ’Net, finding the right products, etc., and creating a fluidity between the physical stores and the online stores.”

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