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Deputy Diary: High street innovators blaze a trail for the luxury sector to follow

Who would have thought the luxury industry would look to the mere mainstream mortals for direction on growth?

At the Drapers luxury breakfast briefing I hosted this week, that was certainly the case, as far as etail is concerned.

When our speaker Gyorgy Konda, partner at consultancy Bain & Company, told us that etail will not be the channel to influence the sector in the next five years, there were gasps of surprise from the guests, notably from Simon Burstein, chief executive of designer indie Browns. But the majority of attendees, which included Burberry, Hugo Boss, Calvin Klein and Temperley London, were also shocked. Konda did use a couple of caveats. He was referring to the global luxury fashion industry and admitted the UK was ahead of the digital curve. He also stressed that success will come from an omnichannel strategy, which includes ecommerce.

What Konda went on to explain mirrors very much what is happening on the (mid-market) high street. He said it’s a case of simple maths: physical retail space continues to grow in the global luxury sector, but bricks-and-mortar retail sales are flat while online sales are up by double digits. Essentially, this means revenues per square foot are falling. When luxury online sales begin to make up around 20% of total revenue (at present it’s about 3% to 4%), businesses will need to close some stores.

The good news for the luxury sector is that it still has time. Luxury brands’ bricks-and-mortar portfolios are much smaller than those of major high street businesses and their online sales are not as mature. As I write, analyst Andrew Wade is speaking at the Drapers Ecommerce Conference and has said 12% of total clothing sales are now online; by 2016 this could reach 20%. This is way ahead of the luxury numbers but shows us the direction of travel.

But, as luxury businesses well know, the task ahead is not a simple copycat approach of the mid-market. Their customers have a higher expectation of service, experience and exclusivity. Brands like Burberry are currently leading the way. Look at its new Regent Street flagship. The atrium’s glass and bronze cabinets sit comfortably next to more than 100 screens and 160 iPads. In the changing rooms, tags fitted to the garments mean that as a shopper enters, the mirror displays information about the chosen item. The physical seamlessly meets the virtual and the store brings together two key factors in addressing growth in the luxury sector: experience and digital.

Luxury brands may not have to deal with the bloated bricks-and-mortar portfolios of many mid-market businesses, but they can’t rest on their laurels. If there’s one area that can’t afford to ignore innovation, it’s the luxury sector.

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