MILAN — In the current chiaroscuro scenario, very important clients are driving the growth of luxury, Matteo Lunelli, chairman of Altagamma, said Tuesday in presenting the 10th edition of the association’s Consumer and Retail Insight report.
“There are 400 million consumers of luxury products and they are expected to be 500 million in 2030 and growth in this segment is being driven by the top bracket of consumers, the very important clients, who account for 30 percent of the luxury brand’s revenue on average,” Lunelli said.
A study by Boston Consulting Group unveiled during the conference defined this cluster as “Beyond Luxury” consumers, who represent less than 1 percent of the total number of luxury clients. But in terms of spending, they account for 21 percent — more than 200 times the average consumer. Their importance has doubled compared with 10 years ago.
You May Also Like
The Beyond Luxury consumers “are pushing companies to refine and improve their entire offering, from quality, experiential moments to impeccable service,” Lunelli said. “To meet the expectations of this increasingly demanding clientele seeking excellence, companies will have to continue to invest in technology and in attracting talent with new skills. Those interfacing with VICs become almost more important than the brands.”
For this reason, according to the BCG study, it is key for brands to identify the VICs locally but also as they travel around the world, mastering tools such as hyper-personalization, careful management of wait times for unique products, availability of high-level client advisers and a sense of community.
Client advisers are becoming increasingly important to form strong bonds with these customers. Guia Ricci, managing director and partner at Boston Consulting Group, said companies need to attract and retain client advisers since VICs are “more loyal to client advisers than the brands and 70 percent of consumers [polled in the study] said they will follow them if they change brands. Client advisers are like artists and they are a scarce resource.”
In addition, VICs are pursued and pampered by brands in every sector, from personal goods to hospitality and entertainment, “which makes them very difficult to impress, and the competition to engage with them is increasingly fierce,” Ricci said. The study also cautioned against artificially engineered wait times. The waiting game has become obsolete for standard products but is accepted as part of customized orders, as long as VICs feel engaged by the brands throughout the process, she said.
Filippo Bianchi, managing director and senior partner of BCG, said the True-Luxury Global Consumer Insight survey highlights how “The ‘Beyond Money’ segment comprises around 500,000 individuals who represent 20 to 25 percent of the total luxury market and are growing by 10 percent each year (CAGR). They are immune to economic cycles and geopolitical crises, consider luxury an essential and offer spending about five times less volatile than the aspirational buyer segment.”
Compared to aspirational customers, these high net worth individuals “have also more than doubled their spending in the past decade. This group includes very important clients, who buy products from 10 brands on average, but are identified and treated as such by only two or three of them. Important opportunities are therefore missed in 70 percent of cases; these could be recouped with more sophisticated target segmentation.”
A way to attract customers — established and new — is also through increasingly grand and impressive stores that offer more than just merchandise and Luca Solca, senior research analyst, global luxury goods at Bernstein, presenting the Luxury Retail Evolution study dubbed “Store Wars,” explored the race among larger brands and groups, from LVMH Moët Hennessy Louis Vuitton to Kering and Prada, to purchase real estate on luxury shopping streets.
“The stores are becoming bigger but more unique, filled with meanings linked to the brand, and geared at welcoming different categories of customers,” said Solca, adding that “even in the planning phase they have been projected into social media.”
He cited the Dior flagship on Avenue Montaigne in Paris as an example, which has a restaurant, a museum, the original and restored salon and “places to lose yourself,” which has become an attraction for the city.
“The major luxury groups have spent about 10 billion euros on retail over the past five years, with investments picking up pace significantly in the past 18 months,” Solca said. “These investments have primarily been focused on the major streets: Via Montenapoleone in Milan, Fifth Avenue in New York, the Champs-Élysées and Avenue Montaigne in Paris [and] Bond Street in London.”
These investments generate “a domino effect, driving those who can afford it to move in the same direction. The perceived risk for them is that they will be shut out of prime locations, in the same way as is happening in China’s top shopping malls.”
Investing in real estate stretches the balance sheet of smaller players and lowers the return on invested capital, Solca continued.
“The rental yield of a commercial property like the ones that house luxury stores is about 2 percent. Diluting the ROIC is negative, because it is accompanied by a decline in stock market performance and multiple contraction. This can lead to a drop in the company’s value and the risk of leaving itself more exposed as a potential takeover target. Not to mention the risk that these investments will have too much of an impact on the cash flow and will therefore negatively affect operational investments.”
He cited Prada, for example, which bought the Fifth Avenue building housing its flagship for $425 million, estimating a 20 percent impact on ROIC in 2023, compared with a 16.9 percent impact on ROIC at LVMH.
He advised smaller to find alternative retail strategies since “the scale of investment is simply too big,” in comparison with the spending power of larger groups. For example, “returning to streets that are currently less prized, such as Via della Spiga in Milan or Madison Avenue in New York, discover new areas that could become more important, and committing to open by appointment only VIP stores in high-end apartments, at a fraction of the cost of street-level stores.
In a conversation with Stefania Lazzaroni, director general of Altagamma, Scott Malkin, founder and chairman of Value Retail, also spoke about the importance of offering “emotional gratification” and “delivering memories” to VICs through, for example, the 12 “luxury travel destinations” part of The Bicester Collection, and Belmont Park Village, the first North American outpost of the collection, which is expected to house about 160 shops when construction is completed. The first phase of the village is expected to open in September.
The shopping village is part of a huge, unique setting in suburban Elmont, Long Island, sitting adjacent to the famed Belmont Park racetrack, which is being redeveloped and downsized, and the UBS Arena, home to the New York Islanders hockey team co-owned by Malkin, and a venue for concerts.
“I am a great believer in value created by luxury,” said Malkin, warning though that “margins cannot expand forever” and that in “the next stage navigating obstacles, Made in Italy is a great role model,” sustaining commitment to quality and craftsmanship.
The conference concluded with a fireside chat between Lazzaroni; Antonio De Matteis, CEO and men’s creative director of Kiton and president of Pitti Immagine; Aldo Melpignano, founder of Egnazia Ospitalità Italiana, and Altagamma vice president for hospitality, and Patrizia Cianetti, global marketing and communication director, of Ducati.
De Matteis said that keeping VICs in high value has been a family mantra since the early trunk shows back in 1986, “traveling city to city, store to store.”
Kiton was founded by the late Ciro Paone in Naples and the company continues to be family owned and family run by his nephew De Matteis; Paone’s daughters Maria Giovanna, who’s vice president and women’s creative director of the brand, and Raffaella, who’s head of human resources at the company, among others, including the third generation.
De Matteis said that this weekend, six couples of VICs will travel to Naples and the family will lead them through a tour of Ischia, Capri and Positano, “offering culinary experiences, bringing them to places less known to tourists,” for a dedicated experience.
“We often also travel to the homes of VICs — again with our chefs because our events cannot be disassociated from food,” he said to a round of chuckles, “who introduce us to other potential customers.”
He recounted how a pizza maker taught a group of Japanese VICs to make pizza. “They loved it, these customers could buy the company but they still enjoy simple and authentic experiences.”
