What to Watch: Clienteling Is the New Black for Europe’s Luxury Giants
Existing, wealthy clients are seen as a buffer amid a darkening economic picture.
With dark economic clouds gathering, Europe’s luxury brands would be wise to lean further into clienteling, an arsenal of tactics that were sharpened during the pandemic and have been lifting a vibrant sector even higher.
Most were applied to high-spending clients, who will be key to minimizing volatility in the near term.
“We are about to go through a tough six to nine months in terms of demand and the parts that will hurt most are the entry-level price points that are essentially driven by lower-means, first-time purchasers who, given the current uncertainties, will likely postpone purchases,” said Erwan Rambourg, global head of consumer and retail research at HSBC in New York.
As macro headwinds weigh, it will be tougher for Europe’s marquee luxury brands to bring in first-time purchasers, he argued.
Rambourg is bullish long-term on the luxury sector based on a phenomenal reserve of first-time purchasers that can be recruited. However, he allows that a consumer’s first branded watch or designer handbag “is generally coming at the expense of other areas of spending and will take a hit as aspirational consumers postpone purchases right now.”
“The short term should be driven more by existing, wealthier cohorts,” he stressed.
Luckily, many European brands are becoming extremely adept at extracting a large proportion of sales from small numbers of active, affluent consumers.
According to Delphine Vitry, founding partner of Paris-based luxury consultancy MAD, it comes down to conversion rates, which range from 10 to 30 percent for walk-ins at luxury boutiques, depending on traffic levels, but reach 60 to 70 percent for clients who shop by appointment.
While declining to specify the brands, she said “best-in-class” jewelers garner 40 percent of revenues from sales by appointment, and best-in-class fashion brands as much as 30 percent.
“The more you will do on appointment, the more you will sell,” she explained in an interview. “It’s not only about business, it’s about creating a bond, a relationship with the customer.…When you book an appointment, you’re definitely much more engaged.”
VIP clients have become such an important revenue stream that marquee brands like Chanel, Dior and Louis Vuitton have all created expansive spaces for these high-spenders at SKP in Beijing, one of the most productive luxury department stores in China.
Innovative and immersive store concepts — such as Dior’s multifaceted Avenue Montaigne flagship in Paris, and Gentle Monster’s otherworldly mechanized merchandising wizardry — plus grandiose pop-ups and activations are also part of the modern client experience.
Couture brands like Christian Dior have an edge in clienteling because when they were founded, all commerce was done by appointment.
“The way to take care of your client by appointment is to optimize, anticipate and prepare the moment when you’re going to receive the person,” Vitry said, noting that this comprises thousands of small details, from serving Champagne to wearing white gloves during the selling ceremony of jewelry or precious leather goods. “Cherishing the customer and his or her lifetime value is definitely what all luxury brands are trying to do, with more or less success.”
Last month, MAD released a white paper about what it takes to construct a well-managed luxury experience that allows the client to “concentrate on the dream that they have come to experience.” One of the key challenges for brands is to define an “experiential signature” that reinforces key memories across every channel.
The VIP salon at Montblanc’s Paris flagship on the Avenue des Champs-Élysées .
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For example, a brand may seek to make their clients feel glamorous, powerful, fashionable or edgy.
According to MAD’s tabulations, two out of three luxury clients are capable of turning their backs on a brand after encountering a poorly executed omnichannel experience, while brands with advanced omnichannel approaches can expect their multichannel clients to have a lifetime client value up to three times higher than that of single-channel clients.
Vitry said the most advanced brands employ a one-stock model and create omnichannel client journeys; empower sales associates with sophisticated clienteling apps, and motivate them with new renumeration models.
Step number one for brands to excel at clienteling is having the right company culture. Vitry noted that “technology has never been a driver for luxury” and that “creation has been at the center of luxury historically, not clients.”
Yet successful clienteling requires investments in new processes, talents, training, IT solutions and more in order to “master all touch points and interactions,” Vitry stressed.
“There’s no ambiguity — increase the conversion rate, reach VIP targets, increase the customer lifetime value, and invest massively to equip your company with top management, omnichannel devices, etc.,” she said.
She noted that most luxury brands focus on key performance indicators linked to the product, not the customer, which she characterized as a “huge shift” in mindset.
While queues in front of luxury stores might be seen as a signal of brand vitality by some, especially in cities with high tourist flows, Vitry noted they’re a concern for many brands, as queues can contain VIPs who might not have anticipated a line, or customers seeking after-sale service, for example.
“We are working with all the brands to manage these queues, to avoid these queues,” she said.
Indeed, Vitry said brands neglect or inconvenience new clients at their peril, since some could blossom into VIPs in the future. Jewelry houses should take great care with engagement-ring buyers, for example, since that’s often the first time people push the door on a luxury retailer.
“It’s a skill to identify the potential of a customer, not a science,” she said.
The coronavirus pandemic, which shuttered luxury stores in most international markets for long periods and halted waves of Chinese tourists, compelled brands to pay loads more attention to European clients in its main capitals.
According to Rambourg, “This has been instrumental in growth and carries the silver lining of luxury not being just a play on a specific market of wealth but one on global, very diversified, clienteles.
“Ironically being separated by COVID[-19] has made us become closer to end-consumer needs,” he added, citing selling over Zoom, at people’s homes, privatizing stores or other spaces as only a few of the new tactics that emerged.
“Hermès and Louis Vuitton have been really best in class in my view,” Rambourg said, also calling out Moncler’s top-notch CRM system known as “Monclient,” which has “proven to be an incredibly powerful tool.”
Vitry warned that staffing luxury boutiques looms as a future challenge, describing a “war” for the most gifted sales associates, and difficulties luring new employees who got a taste of home working and might balk at the 24/7 demands of enriching VIP client experiences.
Rambourg said he’s “still convinced that once we get past the current turmoil, luxury will be predominantly driven, as often, by recruitment rather than repeat consumers once more.”
“Just don’t forget who feeds you in good times and keep access to the entry level,” he said, advising that brands should not increase prices too much “as you risk alienating the local consumer.”
Beyond clienteling, the luxury analyst predicts that Europe’s big luxury players will continue to diversify into categories like hospitality, furniture and fine jewelry; address new markets in Africa and also smaller cities in the U.S.; focus on in-person events to create “emotional memories,” and strategize how to best capitalize on the eventual return of Chinese tourists.
