Don’t Let the Gloomy Macro Economy Mask Your Customer Growth Potential

This week has been gloomy for the luxury industry. Kering reported that second-quarter sales fell 11%, LVMH's revenue fell 1% in absolute terms, and Burberry and HUGO BOSS have issued ongoing profit warnings. Bain & Company predicts this year will be the weakest for the global luxury market since the height of the pandemic.

𝗗𝗼𝗲𝘀 𝘁𝗵𝗶𝘀 𝗺𝗲𝗮𝗻 𝘁𝗵𝗮𝘁 𝗶𝗳 𝘆𝗼𝘂𝗿 𝗯𝘂𝘀𝗶𝗻𝗲𝘀𝘀 𝗶𝘀 𝗼𝗻 𝗮 𝗻𝗲𝗴𝗮𝘁𝗶𝘃𝗲 𝘁𝗿𝗲𝗻𝗱, 𝗮𝗹𝗹 𝗰𝘂𝘀𝘁𝗼𝗺𝗲𝗿 𝗲𝗻𝗴𝗮𝗴𝗲𝗺𝗲𝗻𝘁𝘀, 𝗯𝘂𝗱𝗴𝗲𝘁 𝗮𝗹𝗹𝗼𝗰𝗮𝘁𝗶𝗼𝗻𝘀, 𝗮𝗻𝗱 𝘁𝗮𝗹𝗲𝗻𝘁 𝗶𝗻𝘃𝗲𝘀𝘁𝗺𝗲𝗻𝘁𝘀 𝘀𝗵𝗼𝘂𝗹𝗱 𝘀𝘁𝗼𝗽? 𝗡𝗼𝘁 𝗻𝗲𝗰𝗲𝘀𝘀𝗮𝗿𝗶𝗹𝘆.

In my recent consultations with three luxury retail businesses, their top-line numbers do not vary significantly— one with small single-digit growth, one with neutral, and one with minor YoY drops. However, by zooming into their customer segmentation performances, these businesses have fundamentally different challenges and opportunities:

𝗕𝘂𝘀𝗶𝗻𝗲𝘀𝘀 𝗔:

𝗖𝗵𝗮𝗹𝗹𝗲𝗻𝗴𝗲: There is no differentiation in how this business treats its different spending segments of customers, meaning a one-time customer who spent USD 500 on a wallet and a loyal customer who contributed over USD 150,000 over the last two years are treated the same way.

𝗚𝗿𝗼𝘄𝘁𝗵 𝗣𝗿𝗶𝗼𝗿𝗶𝘁𝘆: Start from the top—create profiles to understand the top customers and develop low-budget required service/experience/product-related benefits to engage, understand these loyal clients and reward their loyalty.

𝗕𝘂𝘀𝗶𝗻𝗲𝘀𝘀 𝗕:

𝗖𝗵𝗮𝗹𝗹𝗲𝗻𝗴𝗲: This business clearly understands its top 1% of clientele and has been focusing its client engagement budget solely on them. The challenge is that Client Advisors only know their top 1% of customers; the remaining 99% make no difference to them.

𝗚𝗿𝗼𝘄𝘁𝗵 𝗣𝗿𝗶𝗼𝗿𝗶𝘁𝘆: I have advised this business to enlarge its clienteling focus from the top 1% to the top 3-5%, depending on the store's client book size. By starting to appreciate and create initiatives to engage the next tier of high spenders, their customer retention dollar could double.

𝗕𝘂𝘀𝗶𝗻𝗲𝘀𝘀 𝗖:

𝗖𝗵𝗮𝗹𝗹𝗲𝗻𝗴𝗲: This business has a well-developed global customer engagement strategy but struggles with inconsistent implementation across different regions. While some regions excel in customer loyalty initiatives, others fall short due to a lack of client-facing team training and client engagement resources.

𝗚𝗿𝗼𝘄𝘁𝗵 𝗣𝗿𝗶𝗼𝗿𝗶𝘁𝘆: Business C's focus is to reallocate resources to ensure all regions receive basic support while prioritising initiatives that will significantly impact each region.

Don't lose sight of your customer base's unique needs and opportunities, especially in challenging economic times.