Plagued by generalized lockdowns across the different markets and a dramatic halt in travel, the luxury sector is facing unprecedented challenges. The sector is estimated to contract by 20 to 35 percent in 2020, according to a recent report of Bain & Company.
The pandemic is pushing the luxury brands to redefine their models, fueled as well by the continued push of digital and the rise of new generations of customers.
The luxury sector observes a deep transformation of its distribution channels, with the intensification of online channels, such as e-boutiques, e-retail, market places and social commerce, that come in complement, or sometimes in replacement, of the traditional Brick-and-Mortar channel. Online channels will continue to gain share and are expected reach up to 30 percent of the market by 2025, according to Bain & Company.
As the General Manager of a leading luxury beauty brand for the Korean market shared with us few months ago “We have outpaced the market and extended our leadership because over the past 24 months we have implemented a successful omnichannel strategy, that integrates a maximum of touch points of our customers, and delivers the same value and experience across the different channels”.
We observe additionally the emergence of new luxury brands developing extremely fast locally but as well globally, reinforcing the competition in the sector. We can name for instance, Kaja, the new K-Beauty brand co-created by Sephora has seen its sales skyrocket over the recent months, or Ma Ke, the first Chinese brand to show at Paris Haute Couture.
The luxury sector is facing the rise of new generations of customers, the Millennials and now the GenZ. These customers are young, very savvy about brands and their products, and are digital-native.
The experience is essential for these new-gen customers. According to recent report of BCG for the Luxury sector, about 60 percent of Millennials and GenZ seek for an experience with personalized relationship with the brand. They want to develop an emotional connection with the brand and have products that will be (ultra) customized to them. The new-gens are clearly redefining the relationship and engagement the luxury brands.
This phenomenon is illustrated by the Head of a fashion luxury brand, leader on the China market “The pace in China is incredible. A strategy that was valid 3 months ago is now outdated. We have to continuously screen the market, to understand the changes in customer behaviors, while defining rapidly how to engage with them on the ever-changing digital ecosystem”.
Given the exceptional crisis situation and the fundamental changes at play, it is vital for luxury brands to take action to transform.
Key domains of transformation for luxury brands
As the Deputy Chief Executive Officer of a global Luxury Beauty company mentioned to us recently “Luxury brands have not only to adapt to the strong shift in distribution, but also to prepare to new competitors with Amazon, Alibaba, etc. These new players, that own the whole digital value chain, will decide sooner or later to launch their own brands.”
Luxury brands, that were historically distributing their products through boutiques or department stores, have now to embrace rapidly an omnichannel strategy, to defend their positioning on the market & seize new business opportunities.
Luxury brands have an ingrained product-centric culture. The product-push strategy, that drives all the advertising & promotion and retail operations has prevailed in the sector for the past decades.
However, brands are now witnessing the end of this product era as the new customers (Millennials and GenZ) look for personalized experience. Luxury brands must pivot from a product-centric model to a more customer-centric model. This change requires an in-depth rethink of the business model and change across the organization.
One central piece of the new experiences for the luxury customers is the experience of new products or services offered by the brands. Brands have an imperative to accelerate their innovation and their go-to-market strategy: longer list of SKUs filled by new products, shorter product life cycle, etc. These constraints demand more agility from brands all along the value chain.
However, many luxury brands are not structured today to respond to these agility needs, hence, the complications to adapt to the new pace of the market.
As exposed, luxury brands must be more digital with an integrated omnichannel distribution, more customer-centric to develop customer experience and maintain the connection with the brand, and more agile all along the value chain.
In this context, it is clear that data & analytics will constitute key enablers and factors of acceleration for the transformational challenges faced by luxury brands.
Data & analytics will permit brands to drive customer-centricity (thanks to integrated view of customer touch points and activation), foster sales & marketing effectiveness (thanks to a better measurement of ROI and optimization), build smart(er) operations (from innovation process to supply chain), and create new capabilities (through enhanced digital experience such as Augmented Reality, Product Recommendation, etc.).
The CEO Asia Pacific of a global luxury brand recently coined the paradigm “If we want to continue to lead the market in the region, we must continue to offer the best experience to our customers. To achieve this, we need to leverage data & analytics technologies”.
Approach for luxury brands to deliver business gains thanks data & analytics
When engaging their business transformation, luxury brands should steer their data opportunities closely. Brands should assess the data criticality for their business and for the markets where they operate, and assess the data maturity vs. their competitors. For instance, data criticality will be high for luxury beauty brands given the elevated number of transactions and the very digital-driven nature of their business. This is in contrast to Watch & Fine Jewellery brands which are much less transactional and much more in-store driven. Luxury brands should identify use cases where data can drive business impact, and lead the data transformation agenda.
Each luxury brand should have a clear view of their status quo. It is essential for brands to identify areas of strengths that could be leveraged (for instance, high penetration of loyalty program, high footprint in e-commerce, etc.), to list the opportunities for improvement, and to set an ambition.
This assessment will permit brands to define the adapted data strategy, with key objectives to align the business strategy with the organization data capabilities and to identify the right value-added data projects.
We have noted several key success factors, nourished by the numerous engagements for our luxury brands over the past years:
Luxury brands should prioritize their use cases
based on projected business value and complexity to implement
There is no “one size fits all” operating model on data & analytics for luxury brands. The right operating model will really depend on the actual data maturity (output of the maturity assessment) and the projected ambition of the brand.
Having said that, we have observed a pathway for the implementation of data & analytics operational capabilities that applies to luxury brands. This path is directly linked to the concentration of data skills across the organization: skills on data industrialization (data engineering), skills on the data computation (data science), skills on data governance, and skills on business data use (data translation).
We have observed that most luxury brands display a scarcity of data skills as brands tend to focus on their core business activities rather than data. In this context, brands should consider a centralization of skills, that enables them to maintain a high level of performance on data & analytics. The corner stone of this centralization is the setup of a Center of Excellence (CoE). The CoE has multiple missions: set the vision & priorities for data & analytics, steer data governance, centralize best practices for dissemination to business teams, and foster data innovation.
Main missions of the Data & Analytics CoE
The positioning of the Data & Analytics CoE within the organization remains an open question for many luxury brands. Should the CoE be positioned within the IT department? Or within a Corporate function (Finance, Operations)? Or directly into a Business Division?
Here again, there is no “one size fits all” for the positioning and organization of the CoE. We have noted though several key success factors:
Beyond building data & analytics skills, it is important as well for luxury brands to define and set up the right data governance. We observed most luxury brands are not equipped today with the adapted strategic & operational governance to address efficiently the rise in complexity and in the breadth of the data projects.
For instance, projects that aim to boost customer-centricity will surely highlight the challenge in data governance as customer data is by nature transverse across the organization, or initiatives involving product referential (like for demand forecast projects) will stress the complexity to handle and maintain the data referential.
We have defined some best practices when it comes to designing an efficient data governance:
A key asset for luxury brands is their ability to accelerate their innovation and their go-to-market. This requires a lot agility from the brands all along the value chain, from upstream product creation to operations.
However, we have observed over the past years that many failures of project are related to a wrong IT implementation: too slow, too complex, too costly, not scalable. It is crucial then for luxury brands to implement an IT architecture that is fast, agile, and reliable, and to think about project scalability ahead (industrialization by design approach).
We share here some key success factors for the implementation of data projects:
Industrialization should be included in each step of a data project
Luxury brands can develop this integrated approach thanks to the implementation of “Advanced Analytics Sandboxes”. An Advanced Analytics Sandbox is an environment isolating resources on the cloud (isolation of technical components, services and costs). The Sandboxes avoid impacting the core production environment with interim productions. Sandboxes can be automated thanks to templates (or scripts), defining the base environment and the selected set of services.
We have recently developed this integrated approach for a luxury client in Asia. We have implemented different templates aiming to accelerate both the deployment of existing data projects and of future projects, scheduled in the use case portfolio. Each template is corresponding to an identified scenario of data project: customer engagement, supply chain optimization, digital excellence, back office automation, etc.
In the current context of crisis and structural changes operating in the sector, luxury brands must take actions now to build their future. Brands should address each dimension of the business, from innovation to distribution, marketing and supply chain, and more importantly developing the experience and relationship with its customers.
Ekimetrics battle plan for the luxury brands: