Luxury Retail: Revival and Success Strategies for the New Normal

LUXURYRETAILREVIVAL ANDSUCCESS STRATEGIESFOR THE NEW NORMAL WHITE PAPERS2LUXURY RETAILREVIVAL AND SUCCESS STRATEGIESFOR THE NEW NORMALAfter over a decade of economic boom, which saw the rise of an affluent class of Chinese shoppers, the COVID-19 pandemic and the global economic slowdown have cast a deep, dark shadow on luxury retail. The uncertainty around the resolution of the pandemic has dimmed the outlook for luxury retail for the next few years. The time to act is now, and luxury retailers will need to shift gears and define new business priorities. Ultimately, success will depend on the ability to make tough choices that don’t damage brand strength and identity. In this paper, GEP’s retail experts have identified opportunity areas where business leaders can take immediate action to minimize the impact of the recessionary environment without losing sight of the long-term luxury value proposition.BOLD, DECISIVE ACTIONS ARE NEEDED PRIOR TO THE HOLIDAY SEASONIn the short term, luxury retailers will need to take steps that will help them make the most of holiday buying, as well as set the stage for longer-term shifts in strategy. MAKE LIQUIDITY MANAGEMENT A PRIORITY The pandemic-related shutdowns and ongoing restrictions on store openings mean there will be less revenue available for luxury retailers. So, it is imperative to optimize working capital to ensure that cash is available to exploit upcoming opportunities.Historically, luxury retailers have been reluctant to pursue the more aggressive cash flow practices that have become popular with retail and CPG industries. Many of these companies have successfully extended payment terms with non-core vendors to 120 days or more, enabling them to free up significant working capital. This is one of the easier strategies that luxury retailers can execute. WHITE PAPERS3LUXURY RETAILREVIVAL AND SUCCESS STRATEGIESFOR THE NEW NORMALHAVE A GAME PLAN FOR STORE LABOR AND STORE OPERATIONSAs we near the holiday season, there remains substantial uncertainty. How will store employees feel about going to the store, interacting with customers and offering top-tier customer service? Will consumers have a stress-free shopping experience? Is luxury shopping worth the risk in a pandemic environment? The reality is, there are no clear answers right now. Further complicating matters, the answers will probably be very different region by region — and will change in unexpected ways over time.Luxury retailers must prepare a game plan in advance to address the most likely scenarios to stabilize store operations. They should have a flexible plan that will allow them to adapt to rapidly shifting factors.Government regulations loom prominently, so keep a close watch on fast-changing laws and restrictions. New in-store prevention and safety protocols have become mandatory requirements for both employees and other store labor in most regions. But it goes beyond wearing masks and providing sanitization. The layout of a store also needs to be re-imagined to ensure customers are safe and feel confident while shopping. TOUGH DECISIONS ON DISCOUNTING: WILL YOU OR WON’T YOU?Discounting has always been a sensitive issue for luxury retailers. Discounting can impact the long-term strength of a brand. It has even prompted some very well-known brands to go as far as destroying excess stock rather than eroding their pricing premium. It is a long-held belief that consistent pricing reinforces the relationship with customers and increases a luxury brand’s value proposition. However, the major, unprecedented drop in demand and sales1 has reopened the debate on discounting. What’s important here is to form your brand strategy prior to sales performance, so that you avoid holding too many products at the wrong time. Rather than a one-time COVID-19 sale, luxury retailers will likely be better off pursuing lower-profile discount strategies such as: • Private Sales: Special rates can be offered non-publicly to high-value customers, so the discount benefits only customers who have been successful for the retailer. • Inventory Management: Reallocate existing stock across regions and channels to privileged geographic markets that are less affected by the pandemic, and make sure to fulfill online orders. Leverage the returns infrastructure already in place. • Outlet Store Channels: For retailers that already have this infrastructure, this channel can be a solution to the increased stock than what would have flowed to it in the normal run. “Pandemic Continues to Dull Allure Of Luxury Goods” Pyments.com, 1 July 2020. Retrieved 5 October 2020 from https://www.pymnts.com/news/retail/2020/pandemic-continues-to-dull-allure-of-luxury-goods/1 WHITE PAPERS4LUXURY RETAILREVIVAL AND SUCCESS STRATEGIESFOR THE NEW NORMALRESET THE COST STRUCTURE Many luxury retailers have already taken steps to manage their Selling, General and Administrative (SG&A) costs through budget actions led by the finance team. Some of these are