Like many sectors, luxury retail has weathered more than a few challenges, crises and storms over the last few years — illustrated by the 23 percent drop in sales (or around $228 billion) in 2020 worldwide. These challenges have put considerable pressure on brands to keep pace with changing market trends and customer behaviors.
For decades, luxury brands have relied on physical stores as a key channel for personalized human-to-human experiences and connections. The in-person shopping experience was imperative to a company’s storytelling, enabling it to appeal intimately and emotionally to customers. However, as shutters came down on physical stores during the pandemic, luxury brands faced a choice: adapt to e-commerce or face the consequences. Many were hesitant to shift online quickly, fearing they would no longer be able to create the exclusive and memorable buying experiences that are a staple of the industry.
Now, with online shopping taking new prominence in the new luxury consumer’s mindset, luxury retailers must focus on implementing digital strategies that build strong customer relationships and provide memorable, seamless experiences across physical and digital channels.
AI and Automation — Bridging the Gap
A key issue facing luxury retailers is that many lack the technology and data foundation required to meet today’s consumer demands and expectations — most notably around responsiveness and personalization. As a result, accelerated digitization initiatives have clashed with retailers’ legacy infrastructures, leading to disconnected customer services and data silos.
That’s why building a solid technology foundation supported by a robust data architecture and artificial intelligence (AI) strategy must be a priority. The adoption of AI and automation can help luxury brands improve their processes, integrate online and offline channels, and even empower their workforces. This all feeds into a superior customer experience, making it no surprise that 80 percent of retail executives say their companies will adopt AI automation by 2027.
In addition, AI enables companies to gather deep insights into human behaviors, and the emotional and physical drivers behind them. From these learnings, retailers can create more personalized experiences for customers. By developing predictive intelligence based on habits, routines and tastes, luxury brands can adapt and shape products to their customers’ realities and bring back human connections to the shopping experience.
Virtual Worlds — When You Just Can’t Get There in Person
Another emerging technology that retailers can utilize is the metaverse. While in its infancy, the concept is slowly capturing the imagination of consumers. And this trend is only expected to continue. According to Gartner, 25 percent of people will spend at least one hour a day in the metaverse by 2026 for work, shopping, education, social media, and entertainment.
However, investing in virtual world experiences may not be right for every brand. The key is to evaluate your target audience, understand whether it includes early adopters of metaverse platforms, and identify the entertainment channels where they spend their leisure time. If your audience consists of mainly younger consumers, especially those interested in gaming, creative outlets or emerging technologies, then the metaverse may be a worthwhile opportunity to cultivate lasting engagement as part of a direct-to-consumer (D-to-C) strategy.
Recent Valtech research revealed that only 10 percent of consumers who visit virtual worlds go there to shop. Therefore, brands should be deliberate about creating virtual experiences that align not only with their business goals, but also their users’ motivations for joining the space.
The New World for Luxury Brands
Although the luxury sector was slow to adapt to e-commerce, the recent growth in online sales sparked by the pandemic can’t be ignored. In 2021, U.S. e-commerce grew 14.2 percent, with consumers spending roughly $870 billion online compared to $762.68 billion in 2020. Luxury retailers must react to this without neglecting their physical footprint as a place for customers to engage with a variety of experiences.
Successful companies will be those that build a solid tech foundation, optimize processes through technologies such as AI, and build direct relationships with their customers through digital and physical channels. This is all vital to supporting the end-to-end customer decision journey and powering more impactful customer experiences.
Shannon Ryan is the executive vice president of North America at Valtech, a global digital agency.