What's at the leading edge of luxury retail?

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By: Wise Marketer Staff |

Posted on February 21, 2007

The traditional January sales boost has given many retailers a lift, as expected, but those selling luxury goods seem to have gained greatly this year. According to Thomson Financial's figures for same-store sales at 55 US retailers, overall retail sales were up 3.9% in January compared to the same time the year before, while many luxury firms posted much higher gains.

According to Milton Pedraza, president of the Luxury Institute, current standouts include a gain of 11.4% for Saks, the storied brand that has divested its holdings down to its Saks Fifth Avenue luxury department store core. Nordstrom also continues to roll, posting an 11.1% boost in January numbers and continuing to enjoy highly favourable ratings from wealthy shoppers.

The Nordstrom difference
Knowledgeable personnel and a customer-friendly return policy propel Nordstrom ahead of rivals in customer experience. Both shoppers and investors are fans of Nordstrom. Shares of the Seattle, Washington-based luxury department have been hitting new highs on the New York Stock Exchange, and its customers give the company the highest score on the Luxury Institute's 2007 Luxury Customer Experience Index (LCEI) for luxury retailers.

According to this group, Nordstrom dominated other retailers on every brand experience variable that goes into the LCEI calculation. Nordstrom customers raved about the "delightful experience" they enjoy, including the "few questions asked" and "positive attitude" return policy. Employees at Nordstrom, observe wealthy shoppers, "seem happy to be working there" and they "provide great service always." Participants evaluate a brand's personnel on factors that include enthusiasm, courtesy, trustworthiness and product knowledge. Finishing overall in second and third place on the LCEI, respectively, are Barneys and Neiman Marcus.

Nordstrom appears to be sharpening its focus on its thriving department store core business as it looks to sell its French subsidiary. On 1st February 2007, Nordstrom said that it had hired Goldman Sachs to explore strategic alternatives for Faconnable, a high-end French retailer that it acquired in September of 2000.

Luxury fashion design leaders
A tent-city colony took up tenancy at New York City's Bryant Park from 2nd to 9th February this year, camped out for the 2007 Mercedes-Benz Fashion Week. The upshot of the seven-day semi-annual affair for designers and buyers was that women will be wearing classic but sexy wool pants and sweaters with embellishments. These "return to tradition" garments will be hot and are a big score for designers like Marc Jacobs and Heatherette's highly lauded duo of Traver Rains and Richie Rich who have designed custom garments for Britney Spears and Paris Hilton. But for the wealthy, the best fashion design experiences are most likely to come from established brands.

And classic leather appeal drives the Parisian luxury purveyor above the traditional Italian and British rivals. Hermes is the fashion design house rated number one by wealthy consumers in delivering brand experience, according to the LCEI study. Founded as a saddler in 1837, and achieving renown during the twentieth century for its leather trunks, handbags, and overnight cases, Hermes now trades as much on the reputation of its brand as it does on the style of its bags.

Interestingly, it finished ahead of Armani across all three pillars of brand experience - effectiveness, personnel and environment - although Armani is the brand wealthy consumers are most willing to recommend to friends and family.

Gucci, which ties with Ferragamo for third place overall, is identified by the wealthy as the fashion brand most deserving of a price premium.

Mainstream luxury still popular
The wealthy still love buying the more "mainstream" luxury brands such as Polo and Coach. Most wealthy customers (95.5%) say they will purchase Polo Ralph Lauren in the future, with 93.4% of the wealthy saying they will make a future Coach purchase.

Coach also gets high marks for brand environment, something that it's trying to burnish further with two Legacy stores opening this autumn in New York and Los Angeles. The company now has 25 of its premium Legacy stores inside existing Coach stores.

Luxury automobile leaders
American luxury cars can still compete and Cadillac is proof. The US makes a big dent in luxury automobile opinion with General Motors' iconic Cadillac brand, and proves that Japanese and European luxury brands are not the only cars that wealthy Americans want to drive. Its clients give the classic Cadillac luxury nameplate top honours for delivering the best experience of ten luxury auto brands.

Luxury hotel leaders
Ritz-Carlton remains at the pinnacle of customer experience in the hotel category. According to the Luxury Hotels & Resorts LCEI survey, the Marriott subsidiary edges out high-end hospitality rivals like Small Luxury Hotels of the World and Mandarin Oriental.

Holiday shopping preferences
This year, wealthy consumers spent more money shopping online for the holidays than they did in all other traditional stores combined. The Luxury Institute asked wealthy Americans with a median net worth of US$1.6 million and median annual income of US$215,000 about their shopping habits over the holidays. They spent an average of US$1,709 buying gifts online this holiday season and spent US$768 in department stores.

The hybrid model of using a telephone to place an order while reviewing a company's web site is more appealing to wealthier and younger consumers. Individuals between 45 and 54 years of age spent US$106 on average last holiday season ordering this way; those aged 55 and older only spent US$25 on average using a combined phone/internet approach.

Greater wealth also translates into a greater propensity for online gift shopping. Overall, wealthy Americans say they spent 10% more shopping online this year (US$1,709) than they did at department, specialty or boutique stores combined (US$1,546).

What makes web sites appeal?
Developing and operating web sites that appeal to customers comes down to executing on fundamentals. What do the wealthy care most about?

Seventy-eight percent say that having products arrive as ordered is the top indicator of good customer service, while 76% say getting back an email confirmation for an order is crucial. Three companies were particularly noted for doing online business correctly: Amazon, eBay, and Best Buy. Each received numerous positive mentions from the wealthy.

Less than half (44%) of the wealthy care about a site's look and feel, and the ability to make an easy return has become almost implicit; only 44% of the wealthy considered it a factor in deciding whether a site was excellent, though 14% say difficulty in returning would be a primary cause of poor customer service.

Top reasons for disappointment
On the negative end of the online customer service spectrum, reasons for disappointment are rampant. The most frequently cited sources of dissatisfaction (named by one-sixth of the wealthy) are out-of-stock products, difficulty in tracking shipping, and products not arriving as ordered.

Wealthier Americans plan to increase the dollar-volume of online gift shopping next holiday season. Nearly half (47%) of Americans earning more than US$500,000 a year and 40% of those worth US$5 million or more say they will boost their online holiday spending in 2007.

Drivers of store preference
Department stores are wealthy Americans' favourite brick-and-mortar stores for gift buying, driven primarily by ample product selection. Seventy-seven percent of wealthy consumers told the Luxury Institute that product selection is the key driver of store preference, followed by excellent service (65%) and great sales prices (63%).

Everyday low prices (EDLP) resonates with 56% of the wealthy, though a store sending coupons (37%) or having friends who shop there often (28%) are lesser factors. Coupons are more popular as drivers of women's store preferences than those of men (42% to 33%) and women are more likely to consider sales prices important (69% compared to 60% of men).

Traditional merchants have large amounts of untapped potential for online sales growth. According to the survey, only one third (33%) of the wealthy have made a purchase from the website of a retail store. High-income earners (those with incomes of $500,000+) are more likely than their lower income peers (53% - 30%) to have made an online purchase from an established retailer.

Among leading home audio sites, Bose beat Panasonic and Sony, winning top net ranking from wealthy consumers. For cruise lines, Disney Cruise Line's website finished ahead of its rivals.

Survey background
The LCEI is a composite score of each brand's ranking in categories such as overall effectiveness, personnel, and environment, as well as in outcome measures such as retention and loyalty, willingness of customers to recommend, being worthy of a significant price premium, and the incidence and resolution of problems. Participants in the LCEI survey have a median net worth of US$1.1 million and median annual income of US$214,000. For information about the survey and other luxury market publications, visit The Luxury Institute online - click here.

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