The tenth edition of Altagamma Consumer and Retail Insight was held today at the Fondazione Cariplo Congress Center in Milan, during which a qualitative analysis of luxury consumers and new trends in retail was illustrated.
The growth of the high-end sector is driven by the highest segment of consumers, the Very Important Clients , who become the focus of brands’ attention, representing on average 30% of brands’ revenues and acting as their Brand Ambassadors.
To win them over, brands must identify them, guarantee the fundamentals of their offering (exclusivity, absolute quality of products and service, experience) and master the essential elements of the relationship with them: hyper-personalization, careful management of waiting times for unique products, availability of high-level Client Advisors and creation of a sense of community.
Even more significant is the impact on consumption at the top of the pyramid: Beyond Money consumers with an annual personal expenditure of more than €50,000 represent less than 1% of total luxury customers, but in terms of expenditure they account for 21% , more than 200 times the average consumer. Their relevance has doubled compared to 10 years ago.
The importance of Client Advisors is growing , with whom Beyond Money consumers tend to establish a relationship that is sometimes closer than that with the brands themselves: increasingly central and highly professional figures, who must therefore be attracted, trained and retained within the company.
On the retail side, luxury is experiencing a continuous escalation , with ever larger, more unique and distinctive stores, with a rush – by brands – to acquire properties on the main luxury streets of Milan, Paris, London, New York.
After the introductory speech by the President of Altagamma, Matteo Lunelli , the findings from the True-Luxury Global Consumer Insight ( Filippo Bianchi and Guia Ricci , Boston Consulting Group) and from the Luxury Retail Evolution ( Luca Solca , Bernstein) were commented on together with Stefania Lazzaroni, General Manager of Altagamma, by Scott Malkin , Founder and Chairman of Value Retail; Aldo Melpignano , Founder of Egnazia Ospitalità Italiana and Vice President of Altagamma for the Hospitality Sector; Antonio De Matteis , CEO and Creative Director of Men of Kiton and President of Pitti Immagine; and Patrizia Cianetti , Global Marketing and Communication Director of Ducati.
At the opening of the conference, Matteo Lunelli, President of Altagamma , underlined: “Even in a period of extreme uncertainty and market volatility and low consumer confidence, the high-end sector shows a growth outlook, albeit moderate. The stability of consumption is supported by Top Clients, who are pushing companies to refine and improve their entire offering, from services to the excellence of their creations. It is significant that 1% of customers account for 21% of spending and that their relevance has doubled in the last 10 years. To meet the expectations of this increasingly demanding clientele, companies will have to continue to invest in technology and in attracting talent with new skills”.
CONSUMER FOCUS
The True-Luxury Global Consumer Insight survey (summary attached) was presented by Filippo Bianchi, Managing Director and Senior Partner, and Guia Ricci , Managing Director and Partner of Boston Consulting Group, proposing in this year’s edition a specific focus on top spenders, defined as “Beyond Money”, that is, customers at the top of the luxury spending pyramid.
According to experts at Boston Consulting Group: “The ‘Beyond Money’ segment of buyers are the most relevant for brands: 500,000 individuals who represent 20-25% of the total luxury market and are growing by 10% each year (CAGR). They are immune to economic cycles and geopolitical crises, consider luxury essential and have a spending that is approximately 5 times less volatile than that of the aspirational buyer segment. Compared to the latter, they have also more than doubled their spending in the last decade. In this group we find the Very Important Clients, who on average purchase products from 10 brands, but are identified and treated as such by only 2 or 3 of them. For this reason, in 70% of cases important opportunities are missed, which could be recovered with a more sophisticated segmentation of the target”.
Among the findings that emerged from the study:
- The uncertain macroeconomic context and a constantly evolving market do not allow precise estimates on the future performance of the luxury sector, requiring an analysis on a weekly basis. However, a period of normalization is expected for 2024 with the forecast of a realistic scenario of 1-3% growth compared to 2023, with a slow recovery of domestic consumption in China and limited consumer confidence in Western markets.
- The most resilient and fastest-growing segment is the “Beyond Money” segment, or those consumers with an annual personal spending greater than €50,000, fueled by the growing wealth of Ultra-High-Net-Worth-Individuals.
- The study shows that the potential of this “Beyond Money” segment is not fully exploited by brands , due to a non-optimal segmentation that does not allow them to be identified correctly.
- Brands ‘ VIC (Very Important Client) engagement strategies must therefore be based on:
- Improve consumer segmentation and therefore identify those with the highest spending potential.
- Master the fundamental aspects (table stake), ensuring Exceptional Product Quality, Exclusivity, Impeccable Service and Exceptional Experiences.
- Specialize in the differentiating factors that VICs love: hyper-personalization, tailor-made products that make the wait exciting, high-level Client Advisors, sense of community.
- The interviews with Very Important Clients reveal the scale of the challenge for brands: the dreams and expectations of VICs are evolving faster than companies are able to satisfy them. Furthermore, courted and pampered by brands in every sector, from personal goods to hospitality, to entertainment, they are very difficult to surprise and the competition to engage them is increasingly high. The study identifies
4 Key Expectations Brands Must Consider to Meet and Win VICs:
- Hyper-local personalization and global recognition: the shopping experience must be hyper-personalized, but must guarantee global recognition of their status at every stage of the customer journey.
- Unique products, without artificially constructed waits by brands: if the artificially created “waiting game” by some brands is becoming obsolete for standard products, the waiting time for customized products is generally accepted, as long as it is justified and engaging as part of the purchasing experience.
- Greater loyalty to Client Advisors than to brands themselves: 70% of Very Important Clients say they have a trusted Client Advisor (Sales Associate) with the brand, of which 70% would be willing to change brands if the Client Advisor moved from a competitor. Client Advisors are increasingly important, because the trust guaranteed by these figures becomes the decisive purchasing factor for these customers. Today, the best Client Advisors have a large client portfolio and are becoming an increasingly rare resource on the market, also considering the low propensity of the new generations to this type of work, leading to a “war of talents” that brands can address through training, the ability to attract talent and retain it thanks to a solid corporate culture, competitive salaries, incentives and benefits, flexibility and growth prospects.
- Be more than a customer and be part of a community: The new generations of VICs are less loyal to the brands they buy and look for a sense of community and networking opportunities. Over 80% of respondents believe that the emotional connection with a luxury brand is fundamental to their purchasing decision and want to be part of a community of “like-minded” buyers, with similar ideas.
FOCUS RETAIL
The Luxury Retail Evolution study investigates the evolution and prospects of retail strategies of high-end companies and this year, with the title Store Wars, has highlighted the acceleration in the purchase of properties in luxury streets by large brands.
“Over the past five years, the major luxury groups have spent around €10 billion on retail, with a strong acceleration in investment in the past 18 months ,” says Luca Solca, Senior Research Analyst, Global Luxury Goods at Bernstein . “The main streets have seen the highest concentration of these investments: Via Montenapoleone in Milan, 5th Avenue in New York, Champs Elysees and Avenue Montaigne in Paris, Bond Street in London. The topography of luxury retail in these cities is changing. Investments by the most important groups are generating a domino effect, leading those who can afford it to head in the same direction. The perceived risk is that of being excluded from the most important locations, in the same way that this is happening in the best shopping malls in China.”
Among the findings that emerged from the study:
- Luxury retail is experiencing a continuous escalation. Stores are becoming bigger and bigger, more unique and different from each other, condensing values and meanings that are rooted in the DNA of brands. They are able to welcome very different segments of consumers, to make a good impression on social media, and are prepared to entertain and make visitors lose track of time, playing a leading role among the most important attractions of a city, while remaining very profitable. This year’s analysis reveals another side of this escalation: the rush to buy properties on the main luxury streets of Milan, Paris, London, New York.
- Over the past five years, major luxury groups have spent around €10 billion , with a strong acceleration in investments in the past 18 months. The greatest concentration of these investments has been on the main luxury streets: Via Montenapoleone in Milan, 5th Avenue in New York, Champs Elysees and Avenue Montaigne in Paris, Bond Street in London. The topography of luxury retail in these cities is changing. Investments by major groups are generating a domino effect , leading those who can afford it to head in the same direction. The perceived risk is that of being excluded from the most important locations, in the same way that this is happening in the best shopping malls in China (Plaza 66 in Shanghai is an example).
- The problem is that investing in real estate depresses the return on invested capital (ROIC). Even more so for companies that have a smaller cash generation and invested capital base. This happens because the “rental yield” of a commercial property such as those that house luxury stores is around 2%. Diluting the ROIC is negative, because it is accompanied by a worsening of the stock market performance and a contraction of the multiple. This can lead to a decrease in value and the risk of being more exposed as a potential acquisition target. Not to mention the risk that these investments weigh too much on the cash and therefore have a negative impact on operating investments.
- It will therefore be very important for smaller luxury companies not to imitate the strategy of larger groups. In concrete terms, this could mean returning to streets that are less valued today (such as Via della Spiga in Milan or Madison Avenue in New York), being ready to discover new areas that could take on greater importance, dedicating themselves to opening stores for Very Important Clients by appointment, with operating costs that are less than a tenth of the costs of a store on the street.
