How to Bring in Luxury Shoppers—And Keep Them Happy

The rules of engagement in the luxury sector are tougher than ever.

For a while, it seemed the “new normal” for the luxury market would resemble the old one. Upscale retailers like Nordstrom, ­Tiffany & Co., and Saks Fifth Avenue logged impressive sales jumps in the first half of 2010, reflecting pent-up demand that came spilling out when affluent consumers finally opened their wallets after two years of uncustomary frugality. But then…something changed.

In June, MasterCard’s SpendingPulse report, which estimates total U.S. retail sales, announced that luxury spending fell for the first time since November. By July, sales of fine jewelry were down 13 percent, according to the same metric. No one is sure why consumers put on the brakes again, but as with the overall economy, improvement in the high-end will likely occur in fits and starts.

Ken Ross/
Fine jewelry sales were down 13 percent in July, said MasterCard’s SpendingPulse report.

“The luxury market bounced back, but I think we are going into a bit of a decline,” says Andrew Sacks, president of the Affluence Collaborative, which performs market research for upscale firms. “There is a general feeling that we averted [economic] catastrophe. But now that we are beyond that, there is also the feeling of, ‘Okay. We survived, but things still aren’t that good.’?”

Milton Pedraza, CEO of the Luxury Institute, predicts that “we will not see the heady days we saw in 2007 until the unemployment rate is 7 percent.” However, he doesn’t expect to see that number for several years. (Unemployment is currently at 9.5 percent.)

One major hurdle: The “aspirational consumers” who occasionally splurged on big-ticket shoes or watches have fled the market, says Greg Furman, founder and chairman of the Luxury Marketing Council. The remaining shoppers are a smaller but wealthier group—and when they do spend, they are more demanding than ever.

JCK spoke to a group of market gurus about the post-recession luxury landscape. Here’s how they see things shaping up:

Consumers will seek justifications to buy things.

After two years of watching every expense, affluent consumers still frown upon frivolous consumption. Today, people want to spend smartly. “If you are going to buy jewelry that will be seen by others, you will get questions about it,” Sacks says. “You will need to tell a story about why you bought this ring at this time, or why the watch was a good value.”

Consumers are also quicker to question a product’s price, though Sacks complains that most jewelry companies don’t even try to make their case: “If you look at Town & Country, 80 percent of the ads have photographs, a logo, and no copy. They are expecting consumers to notice the difference between the brands. But they are not taking the opportunity to say why and how they are different and worth what they are charging.”

By contrast, Sacks singles out Patek Philippe’s ad campaign—“You never actually own a Patek Philippe. You merely look after it for the next generation”—as one that “hits on everything. There’s a rational justification, but there is a picture of a father and son, so it’s also emotional.”

Consumers expect more from brands.

Buyers today stay true to a brand “only to the extent that it’s doing backflips to keep them happy,” says Furman. “Time was when the brand was enough to close the sale. Now that just gets the consumer in the door.” Pedraza thinks we are moving from a time when “brands validate customers” to a period where “customers validate the brand.”

“Because of the transparency of the Internet and the ease of communication, customers can talk to each other a lot more on Twitter, on Facebook, on rating sites,” he continues. “Word of mouth is amplified. And these instant reactions are what make the brand.”

“We will not see the heady days [of] 2007 until the unemployment rate is 7 percent,” says Milton Pedraza of the Luxury Institute.

Luxury companies will engage more with their clientele.

Pedraza advises companies to screen comments about their company on blogs and websites, and to send every customer a post-sale e-mail requesting feedback. “That gives you information about your company on a regular basis,” he says. Interaction is particularly important on social networks, Sacks argues. “If a luxury brand is on a forum where they are actively asking for feedback, it’s part of the social contract of these networks to respond,” he says. “Otherwise, they will turn off more than they will attract.”

Devotees are building communities around their brands.

This is taking place online and off, says Thomas Bodenberg, director of consumer economics and research for Unity Marketing, who predicts the “Tupperware party will go upscale” as consumers gather to view and discuss new products.

Social issues count…to a point.

While luxury consumers consistently talk up their humanitarian commitments in surveys, Sacks doesn’t believe this translates to actual sales. “A small percentage of consumers is willing to pay more for a green product,” he notes. “But that can’t be the only strategy.”

Still, he thinks social issues and other ethical concerns serve as “a great tie-breaker. If someone is looking at two similar products and one has a really committed program, it will work in their favor.”

Luxury stores will listen more to their front-line staff.

“Companies are realizing that people on the line are their greatest source of intelligence,” Furman says. “If they are treated as strategic partners, and their opinions are genuinely solicited, that is a huge advantage.”

Affluent consumers are demanding more personalized service.

Experts cite Patek Philippe as a brand whose image resonates with generations of buyers.

Sacks’ best advice for brands is to “hire people who know how to talk to people. So many brands are engaged in these intricate customer relation management programs,” he says. “They send out e-mails, but they are totally impersonal. Affluent customers need to be dealt with more intimately. They are used to personalized service and really resent it when they don’t get it.”

Pedraza suggests companies not “just send e-mails saying, ‘These products are 70 percent off.?’ That comes across as spam. Tell them that the navy sports coat they bought would go great with this pair of pants. That kind of customization is easily done, but very few do it.”

Brands will forge longer-term relationships with their customers.

Pedraza frets that many luxury companies still train their salespeople like they are “?’60s car dealers.”

“They teach their salespeople to overcome objections, as if they can hypnotize people into buying something,” he says. “The affluent are smart. If they don’t want to buy, they are not going to buy.” Instead, the wealthiest consumers desire knowledgeable sales­people who treat them as more than a dollar sign, Pedraza says. “That doesn’t require a lot of money,” he says. “Just a lot of humanity.”

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