Tom Branna, Editorial Director07.06.15
The future of the luxury goods industry, hell, the future of every industry, was revealed during a Capstone presentation last month by 2015 graduates of the Cosmetics and Fragrance Marketing and Management (CFMM) Master of the Professional Studies at the Fashion Institute of Technology’s School of Graduate Studies. It’s a program that has borne fruit for the global beauty industry.
“The graduates of this program are the leaders of this industry,” said Camille McDonald, president, brand development and merchandising, Bath & Body Works, Limited Brands.
Stephan Kanlian is chairperson of FIT Master’s Program CFMM, which is now in its 14th year. In his opening remarks, Kanlian extolled the benefits of FIT and its president, Dr. Joyce F. Brown.
“FIT continues to evolve as a major innovation center for the global creative industries,” said Kanlian, who added that this year’s Capstone presentation research on the luxury sector captures the nature of FIT’s culture of research which brings together students and industry leaders to produce findings that are predictive of future strategies that will address the complex challenges of global consumer brands.
The Look of Luxury
This year’s research, “The Future of Luxury: Global Research Insights, Emerging Trends and New Business Models,” was enhanced with results of a consumer survey of 3,000 luxury consumers in China, India and the US. The survey was conducted in partnership with the Boston Consulting Group. The Capstone presentation was divided into three specific areas. The first, a look at luxury consumer values, was presented by Brooke Burdine, Coty; Winnie Cho, Elizabeth Arden; Kristen Levis, Bayer Healthcare; Laney Marx, Google; Corey Moran, Coty; Alyssa Navia, L’Oréal; and Chanel’s Mila Talabucon and Pierre Vouard.
In their opening remarks, team members noted that the foundation of luxury has expanded, and, as a result, heritage, craftsmanship and quality are no longer enough to satisfy today’s polymorphic consumers. These consumers are more likely to be single, are a mosaic of ages and ethnicities, and have an attention span that has dropped from 12 seconds in 2000 to just 8 seconds today—or about one second less than a goldfish, the team wryly noted. Furthermore, according to the graduates’ research, brand loyalty is disappearing; consumers wouldn’t care if 73% of brands disappeared overnight.
So what do these jaded consumers value? Capstone presenters said one in three want to spend more time with family—although 92% of respondents said that time to oneself was important to them (so much for family movie night!). And, when asked what kept them up at night, 97% said that health and well-being were most important.
The team urged the cosmetics industry to put the consumer first, increase consumer research to 8% of budget; measure consumer moods to identify their actual wants and needs, and explore metamorphic branding that enables products to change to meet the shifting wants and needs of consumers—consumers who are increasingly interested in experiences, rather than the acquisition of things.
Luxury Retail Landscape
These findings dovetailed with the next presentation on the future of luxury retail. The Capstone team included Rachel Ball, L’Oréal; Hannah de Boer, Firmenich; Amanda Bopp, Dunnhumby; Unilever’s Julie Conlon and Priyanka Mallhota; Juliana Hendershot, Chanel; Sonya Lucki, Estée Lauder; and Catherine Velazquez, Givaudan. They noted that 72% of Millennials would spend money on experience rather than product. Therefore, successful companies of the future must command share of time rather than share of wallet, according to presenters. At the same time, 72% of respondents in the Boston Consulting Group/FIT survey cited customization as a key attribute of luxury products.
The Capstone presenters noted that e-commerce growth is outpacing traditional store growth by a ratio of 5:1, which shouldn’t come as a surprise, as Millennials spend 5.4 hours per day on social media alone. As a result, while brick and mortar still commands 75% of the luxury retail dollar, traditional retailers must re-invent their four key elements of assortment, service, navigation and product, into four new elements of discovery, relationship, journey and experience, according to the graduates, who provided details on each:
• Assortment becomes a vehicle for customer discovery. Shoppers will seek curated retail experiences that offer a specific brand as well as other lifestyle products. The FIT graduates recommended that the store brand account for 80% of the product mix, with 20% from non-competitive brands that are complementary to the customer’s lifestyle. This 80/20 mix piques customer curiosity, providing an incentive for repeat visits, according to the presenters.
• Sales associates become “experience managers.” Through knowledge of the customer’s history and emotional motivations, these new experience managers can build a relationship and develop store loyalty with her customer to drive sales to a whole new level, predicted the FIT team.
• Technology-enhanced navigation is both high tech and high touch. Capstone presenters predicted that technology will enhance customer convenience and remove “pain points” from her experience. while fostering virtual exploration of product.
• Product becomes the customer’s creation. In the future, explained Capstone presenters, the brand will provide context, materials and craftsmanship, while the customer will dictate the color, texture and pattern. The customer dreams, the brand creates, they surmised.
Finally, the presenters suggested that retail can learn something from restaurants’ open kitchen format, in that the customer will be invited behind the scenes to witness the full lifecycle of product creation.
Where Luxury Resides
With consumers changing and retail in flux, it only makes sense that the towns, cities and countries where people shop are changing, too. An interesting take on the cities of tomorrow was presented by L’Oréal’s Thomas A. Reedman, Lauren Haffer and Nola Lawless; as well as Jessica Zavolas, Victoria’s Secret; Amanda Raus, Firmenich and Amanda Spencer, Optimedia.
Presenters predicted that 60 megacities will account for 25% of global commerce by 2030. As a result, they suggested that consumer product companies restructure their programs by focusing on Big Bet Cities such as Shanghai and São Paulo. At the same time, companies should reorganize talent by relocating human capital and recognize that city managers in Big Bet Cities may have more value to a company than a country manager. In fact, McKinsey estimates that by 2030, 600 cities around the world will drive 66% of global economic growth. The Capstone presenters described it as “luxury without borders.”
The team noted that 30% of global luxury consumption takes place in China, India and Russia and yet, before the industry forsakes the developed for the developing markets, the Capstone presenters highlighted Bain research that found the US market has contributed three times the growth in luxury consumption as China. Regardless where it originates, three factors are transforming luxury marketing in 2030:
• Tourism. The number of tourists will grow from 1 billion to 1.8 billion and shopping will be a major destination driver, according to the World Tourism Organization.
• Technology. In the next five years, according to McKinsey, online sales of luxury goods will grow from $10 billion to $23 billion.
• Transmigration. By 2030, 21% of the wealthiest cities will be located in emerging markets, especially China.
To harness the purchasing power of these dynamic cities and regions, the Capstone presenters recommended that luxury brand owners develop city-level strategies that include Dynamic Market Scorecards to help predict future luxury growth and understand cities on a deeper level. Furthermore, graduates recommended companies restructure their businesses into “Big Bet Cities,” such as Istanbul, Mumbai, Chicago and Mexico City. Similarly, key personnel must relocate to Big Bet Cities due to their scale and performance.
All of the Capstone presenters made one thing abundantly clear—traditional channels of luxury are changing. What consumers consider to be luxury products and services, and how and where they purchase them, are all in flux. Forward-thinking retailers and their suppliers must be agile enough to move with these dynamic purchasing patterns.
“The graduates of this program are the leaders of this industry,” said Camille McDonald, president, brand development and merchandising, Bath & Body Works, Limited Brands.
Stephan Kanlian is chairperson of FIT Master’s Program CFMM, which is now in its 14th year. In his opening remarks, Kanlian extolled the benefits of FIT and its president, Dr. Joyce F. Brown.
“FIT continues to evolve as a major innovation center for the global creative industries,” said Kanlian, who added that this year’s Capstone presentation research on the luxury sector captures the nature of FIT’s culture of research which brings together students and industry leaders to produce findings that are predictive of future strategies that will address the complex challenges of global consumer brands.
The Look of Luxury
This year’s research, “The Future of Luxury: Global Research Insights, Emerging Trends and New Business Models,” was enhanced with results of a consumer survey of 3,000 luxury consumers in China, India and the US. The survey was conducted in partnership with the Boston Consulting Group. The Capstone presentation was divided into three specific areas. The first, a look at luxury consumer values, was presented by Brooke Burdine, Coty; Winnie Cho, Elizabeth Arden; Kristen Levis, Bayer Healthcare; Laney Marx, Google; Corey Moran, Coty; Alyssa Navia, L’Oréal; and Chanel’s Mila Talabucon and Pierre Vouard.
In their opening remarks, team members noted that the foundation of luxury has expanded, and, as a result, heritage, craftsmanship and quality are no longer enough to satisfy today’s polymorphic consumers. These consumers are more likely to be single, are a mosaic of ages and ethnicities, and have an attention span that has dropped from 12 seconds in 2000 to just 8 seconds today—or about one second less than a goldfish, the team wryly noted. Furthermore, according to the graduates’ research, brand loyalty is disappearing; consumers wouldn’t care if 73% of brands disappeared overnight.
So what do these jaded consumers value? Capstone presenters said one in three want to spend more time with family—although 92% of respondents said that time to oneself was important to them (so much for family movie night!). And, when asked what kept them up at night, 97% said that health and well-being were most important.
The team urged the cosmetics industry to put the consumer first, increase consumer research to 8% of budget; measure consumer moods to identify their actual wants and needs, and explore metamorphic branding that enables products to change to meet the shifting wants and needs of consumers—consumers who are increasingly interested in experiences, rather than the acquisition of things.
Luxury Retail Landscape
These findings dovetailed with the next presentation on the future of luxury retail. The Capstone team included Rachel Ball, L’Oréal; Hannah de Boer, Firmenich; Amanda Bopp, Dunnhumby; Unilever’s Julie Conlon and Priyanka Mallhota; Juliana Hendershot, Chanel; Sonya Lucki, Estée Lauder; and Catherine Velazquez, Givaudan. They noted that 72% of Millennials would spend money on experience rather than product. Therefore, successful companies of the future must command share of time rather than share of wallet, according to presenters. At the same time, 72% of respondents in the Boston Consulting Group/FIT survey cited customization as a key attribute of luxury products.
The Capstone presenters noted that e-commerce growth is outpacing traditional store growth by a ratio of 5:1, which shouldn’t come as a surprise, as Millennials spend 5.4 hours per day on social media alone. As a result, while brick and mortar still commands 75% of the luxury retail dollar, traditional retailers must re-invent their four key elements of assortment, service, navigation and product, into four new elements of discovery, relationship, journey and experience, according to the graduates, who provided details on each:
• Assortment becomes a vehicle for customer discovery. Shoppers will seek curated retail experiences that offer a specific brand as well as other lifestyle products. The FIT graduates recommended that the store brand account for 80% of the product mix, with 20% from non-competitive brands that are complementary to the customer’s lifestyle. This 80/20 mix piques customer curiosity, providing an incentive for repeat visits, according to the presenters.
• Sales associates become “experience managers.” Through knowledge of the customer’s history and emotional motivations, these new experience managers can build a relationship and develop store loyalty with her customer to drive sales to a whole new level, predicted the FIT team.
• Technology-enhanced navigation is both high tech and high touch. Capstone presenters predicted that technology will enhance customer convenience and remove “pain points” from her experience. while fostering virtual exploration of product.
• Product becomes the customer’s creation. In the future, explained Capstone presenters, the brand will provide context, materials and craftsmanship, while the customer will dictate the color, texture and pattern. The customer dreams, the brand creates, they surmised.
Finally, the presenters suggested that retail can learn something from restaurants’ open kitchen format, in that the customer will be invited behind the scenes to witness the full lifecycle of product creation.
Where Luxury Resides
With consumers changing and retail in flux, it only makes sense that the towns, cities and countries where people shop are changing, too. An interesting take on the cities of tomorrow was presented by L’Oréal’s Thomas A. Reedman, Lauren Haffer and Nola Lawless; as well as Jessica Zavolas, Victoria’s Secret; Amanda Raus, Firmenich and Amanda Spencer, Optimedia.
Presenters predicted that 60 megacities will account for 25% of global commerce by 2030. As a result, they suggested that consumer product companies restructure their programs by focusing on Big Bet Cities such as Shanghai and São Paulo. At the same time, companies should reorganize talent by relocating human capital and recognize that city managers in Big Bet Cities may have more value to a company than a country manager. In fact, McKinsey estimates that by 2030, 600 cities around the world will drive 66% of global economic growth. The Capstone presenters described it as “luxury without borders.”
The team noted that 30% of global luxury consumption takes place in China, India and Russia and yet, before the industry forsakes the developed for the developing markets, the Capstone presenters highlighted Bain research that found the US market has contributed three times the growth in luxury consumption as China. Regardless where it originates, three factors are transforming luxury marketing in 2030:
• Tourism. The number of tourists will grow from 1 billion to 1.8 billion and shopping will be a major destination driver, according to the World Tourism Organization.
• Technology. In the next five years, according to McKinsey, online sales of luxury goods will grow from $10 billion to $23 billion.
• Transmigration. By 2030, 21% of the wealthiest cities will be located in emerging markets, especially China.
To harness the purchasing power of these dynamic cities and regions, the Capstone presenters recommended that luxury brand owners develop city-level strategies that include Dynamic Market Scorecards to help predict future luxury growth and understand cities on a deeper level. Furthermore, graduates recommended companies restructure their businesses into “Big Bet Cities,” such as Istanbul, Mumbai, Chicago and Mexico City. Similarly, key personnel must relocate to Big Bet Cities due to their scale and performance.
All of the Capstone presenters made one thing abundantly clear—traditional channels of luxury are changing. What consumers consider to be luxury products and services, and how and where they purchase them, are all in flux. Forward-thinking retailers and their suppliers must be agile enough to move with these dynamic purchasing patterns.