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This is one of the chapters comprising the Vogue Business Index: Winter 2023/4 edition and should be read in conjunction with the others. Please use the table of contents below to navigate between the chapters of the Vogue Business Index: Winter 2023/4 edition.
Key takeaways:
- The status quo needs disrupting: Leading brands are now meeting the basic consumer expectations around digital shopping, with few reaching beyond. Brands looking to enhance the quality of their omnichannel experience should consider investing in AI features or innovations around traceability in an attempt to differentiate.
- Eyes on Hong Kong and Southeast Asia: The luxury destination of Hong Kong is seeing a bounce back: brands searching for growth should pay close attention to tourist numbers as they continue to tick up, despite being far off pre-Covid levels. In alternative Southeast Asian markets, brands are adopting more tentative approaches, regardless of the region’s promising growth.
- Don’t neglect the human touch: While investments in tools like chatbots and other generative AI features remain in the experimental phase, the proportion of brands implementing chatbots has actually declined, with an increased number opting for human assistants in live chat settings.
Innovation moves ahead
Gucci has regained the top spot in the omnichannel rankings, with Dior jumping into second place from a previous position outside the top 10. Burberry, last edition’s leader, dropped to third.
While these are big shifts, the changes driving them are comparatively minor: Burberry scrapped its loyalty programme on its e-commerce site, and Dior launched a WeChat brand store in China. Meanwhile, Gucci continued to deliver on its comprehensive omnichannel offering, having already come out ahead in previous editions, lending the house a strong buffer against competition.
The impact of these small shifts within the omnichannel pillar demonstrates how finely balanced the retail status quo has become, with top luxury names typically offering all the digital shopping functions that consumers now expect.
Although some brands are meanwhile playing catch-up. Click and collect, desired by 57.1 per cent of luxury consumers, as well as cross-channel availability, which 80 per cent see as important, were just recently rolled out by three additional brands. Pillar leaders have had these features in place for a long time, finding them specifically useful during the pandemic while traditional shopping habits were awry.
Nonetheless, it is imperative for brands to seek out innovation and find ways of adding value to their online shopping experiences in order to stand out. That could be, for example, AI-driven improvements to customisation or rolling out digital IDs to inform consumers and respond to the high demand for traceability. It could include taking a more exclusive angle — Phoebe Philo’s limited-edition drop sold out within hours.
Even simpler would be incorporating an in-store reservation system into the website, which little under a third of brands (31.7 per cent) currently offer, despite the functionality being more challenging to implement than click and collect. With consumers travelling to shop in far-flung locations once again, the stakes of in-store stock aligning to its live inventory are higher than ever, and real-time stock checks are now an expected feature that’s by no means universal.
Brands are growing increasingly comfortable with pre-order schemes; the 72 per cent of names offering this recognise how it successfully feeds into fashion’s traditional hype cycle. Boss and Balenciaga are pushing this strategy even further with a limited “see-now, buy-now” offering that allows consumers to purchase select items rapidly following shows. While see-now, buy-now is no new idea, it indicates that the hard lines between previous seasons are continuing to soften, with more brands making products available closer to runway unveils. Despite the risks around predicting demand, this tactic capitalises on the momentum of fashion shows and delivers on the desire for instant gratification.
Chatbots need the human touch
The rush of enthusiasm for ChatGPT, among other generative AI tools, has established expectations for the mass roll-out of sophisticated chatbots across all fashion brands.
This wave of interactive, talking tech seems already underway. Zegna announced AI-driven luxury styling via its ZegnaX, while Kering tested a recommendation bot on its KNXT platform.
Yet few luxury brands have followed in their footsteps. The biggest announcement in the second half of the year was a personal styling bot integrating ChatGPT on Canadian e-tailer site Ssense. Since summer, the share of brands offering live chat or chatbot services on their e-commerce portal has, in fact, declined from 63.3 per cent to 58.3 per cent.
If there is a trend towards anything, it’s favouring human contact. Kate Spade, Longchamp and Maison Margiela have all introduced live chat with a customer service operator as opposed to chatbots.
Nonetheless, the cost savings and administrative benefits that generative AI will likely bring — including chatbots — may be too appealing to ignore. We might consider this current period a “holding phase” as brands take a step back to work out how best to utilise this budding tech.
The human touch will likely be a key differentiator for luxury brands, with cost-focused labels opting to remove almost all physical customer service operatives. Bots have the capacity to efficiently handle administrative tasks, like showing stock availability and processing returns, while humans are better suited to creative and emotional tasks like styling advice and listening to concerns.
Many leading digital brands have already realised this with their efforts in AI clienteling. Pillar leader Gucci extended its video shopping, popular in China, to worldwide shoppers during the pandemic. Half of brands currently offer virtual consultations or video shopping, and chatting with friendly and supportive sales staff is a huge enhancer of this online experience.
Zegna has explained that the intention of ZegnaX is not to replace the sales representative, but knowledgeable sales staff equipped with AI-driven recommendation systems are likely to present a powerful online sales tool for the industry.
Mainland China: The bet for brands
Last year’s Covid-19 lockdowns in China may have led to a decline in sales, but a rapid recovery soon came underway, with Vogue Business and Barclays Research finding that two-thirds of local luxury consumers spent over RMB 15,000 ($2,075) on fashion and accessories in Q2. Although the economic uncertainty set in during Q3 and diminished much of the momentum, an increasing number of middle-tier luxury shoppers decelerated their spending. Meanwhile, spending among wealthier consumers remained consistent.
Despite these fluctuations, few high-end houses have shown any signs of backing away from their sizable investment in local shoppers, with 11.5 per cent of brands having expanded their retail footprint in the Chinese market over the last year.
Gucci and Givenchy launched in Chongqing, where a new luxury gallery located at the city’s airport (not counted in the figures) has also enhanced Southwest China’s high-end sprawl. Six new shopping centres opened in the city in the first half of 2023, adding around 57,000 square metres of retail space.
Behind Chongqing, Xi’an was China’s next emerging hub for luxury, with the highest tally of shopping centre openings this past year, so it’s unsurprising to see brands like Fendi and Moschino open up shop.
Dolce & Gabbana expanded in Shenzhen in its popular MixC Shenzhen Bay shopping centre, meanwhile, Chanel staged its first runway show since before the pandemic in the city that now holds more billionaires than New York.
If fashion show location correlates with local market confidence, then it seems the uncertainty around Hong Kong is dwindling: Louis Vuitton menswear debuted in the vibrant Asian capital last autumn, and Dior Men’s is set to follow in March 2024. Chinese tourists are flocking back to the city since travel restrictions have lifted, carving out even more space for brand growth as visitor numbers are expected to hit pre-Covid levels in 2025. More than 91 per cent of Index brands now have store spaces in Hong Kong.
The rapid growth across the Southeast Asian market (70 per cent year-on-year between 2021 and 2022 according to Bain), is being met by a more tentative approach from brands. While Vogue Business tracked eight additional brands opening stores in the region’s emerging cities — including Jakarta, Hanoi and Ho Chi Minh — 12 of these closed retail outlets.
Kuala Lumpur is the second most popular Southeast Asian city for luxury retailers, 68.3 per cent of brands have a presence in the Malaysian capital, following Thailand’s Bangkok, with the country planning to impose a 5 to 10 per cent luxury goods tax this year — tourists will be exempt. While the exact items affected by the tax are yet to be outlined, the impact is hard to predict, with some retailers already expressing alarm.
Maintaining prestige across luxury retail
As the global downturn in luxury sales continues, high-end brands may look enviously at the success of sales periods in Western markets. Black Friday shoppers set an online holiday record, with promotional prices remaining a mass driver of sales.
Multi-brand retailers, the most obvious destination for bargain-hungry luxury consumers, reported a return of the aspirational shopper, whose decline deeply contributed to slowing sales in the US. While there is still pent-up demand for luxury, the price and the brand must be right. It is possible that brands may begin stretching their pricing structures or experimenting with diffusion lines (Love Moschino by Moschino, for example) to increase accessibility in the near future — a pattern that emerged during the last recession, too.
Many accessible luxury brands are now facing a lose-lose situation, where failing to cut prices risks holding onto inventory, but doing so means damaging the high-end positioning fashion houses try so hard to curate.
When asked which luxury brands offer the best value for money, high-end consumers tend to name those among the most expensive, including Dior, Saint Laurent and Chanel. This demonstrates the strong relationship between quality and prestige and the difficulty that many labels might face if they introduce more competitive pricing.
Those looking to avoid this trap may seek out alternative promotional techniques to differentiate their retail offering.
In China, the answer could lie in social commerce, although this is not necessarily the case in other markets. Brands are continuing to pull away from Instagram commerce, with the share of brands that have some sort of integration with the Meta platform decreasing from 81.6 per cent to 75 per cent (just 3.3 per cent now offer a direct option to purchase via the app). TikTok, meanwhile, has so far seen brands battling the age-old problem of fakes as well as low-cost alternatives in circulation.
Exclusive events or innovative retail concepts, alongside new online shopping features developed through AI, offer methods for brands looking to distinguish themselves from others in the space. Vintage and archive sales also provide new levers for brands looking to lower costs while doubling down on heritage and tapping into the pre-loved trend. According to the innovation pillar, a third (33 per cent) of brands now offer resale, with close to a quarter (22 per cent) providing this option directly.
Brands might also consider a bit more flexibility when it comes to currency differentiation between markets than in the past — most European destinations have benefited significantly from the return of international tourists. The exception is the UK, where the removal of tax-free shopping has hampered growth, according to management consultancy Bain, solidifying the importance of perceived bargains to shoppers from the likes of China and the US.
Case study: Gucci’s ambition for retail prestige
Few luxury brands have developed a retail offering rivalling that of Gucci. A regular leader in the omnichannel pillar, the Italian Maison pinned its rapid growth among young consumers on its targeted removal of all pain points that exist around online shopping.
Big changes are underway at the house, with a new creative director and CEO, its strategy is updating and the key lies in upping the brand’s perceived level of prestige. Its physical-then-digital Gucci Cosmos exhibition offered a clear example of the label emphasising its history, while the beautifully tailored, (relatively) essentialist approach in De Sarno’s debut collection focused on spotlighting its quality.
In retail terms, this strategy seeks to cultivate deeper relationships with high spenders. The brand’s new London flagship hosts a Gucci Salon, Europe’s first installation of the concept, where made-to-order and made-to-measure goods are presented to pampered VIPs. Balenciaga, another brand known for its younger lean, is perhaps attempting a similar pivot by opening a dedicated couture store on Paris’s Avenue George V.
Despite this impressive and considered retail approach, Gucci trails behind some of its rivals when considering quality and heritage — and, most crucially, in the eyes of luxury consumers. Executives will be hoping that the emphasis shifts across the brand’s design and marketing to help consumers realise just how good shopping at Gucci is.
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