At first, the market was psyched about the Millennials’ arrival. One of America’s largest generations was about to kickstart the economy, moving into their prime spending years of buying cars, housing, and luxury goods. But then they went off script to create sharing economies for everything from travel lodging to commuting to tool ownership.
They get drivers licenses later and stay at home longer. As digital natives, they leverage the web for on-site price comparisons and peer reviews and generally reconfigure established shopping experiences. Most threateningly to retailers, what they want to buy doesn’t align with previous generations.
Shopping malls are feeling these changes the most. With 23.5 square feet for every man, woman, and child, the United States handily outpaces the world in available retail space: an excess that is quickly becoming a glut. Changing buying patterns will lead to 3,000 more shuttered stores this year as Millennials continue their embrace of online shopping, particularly with the mega e-tailer, Amazon.
MediaPost recently commissioned a qualitative study on affluent Millennials and their perceptions of luxury, with particular emphasis on their desire for luxury goods and services. In a blow to the Louis Vuitton’s and Tom Ford’s of the world, more Millennials describe “luxury” with words like “expensive” and “unnecessary” than previous generations.
Uh-oh.
Clearly times are changing. Again. So it’s interesting to note how the luxury brand Coach has been bucking back. Make no mistake; Coach is still challenged; their most recent quarterly sales slipped 3% to just under one billion dollars, while North American sales dropped 5%. Most painfully, the once mainstay revenue source of department store sales plummeted 40% in the same quarter. But the amazing part is, they recognized this decline coming and changed direction.
Their one significant bright spot? Sales at Coach-branded stores are continuing an upward trend, climbing 3% with net income up 8%. Analysts attribute this to better branding, something easily overlooked or discounted amidst the panic that comes with massive disruption. They made a conscious decision to cede department store sales to the cost-based, pragmatic Amazon juggernaut and instead focus on burnishing the value within their goods. Unlike so many others, Coach recognized that placing their high-end handbags adjacent to racks of wildly unrelated and often steeply discounted clothes and housewares did nothing to enhance their brand and frankly, actively hurt it. By pulling away from department store and focusing on their own locations, they control the product presentation, the floor set, and the entire shopping experience.
Short term, it hurts the top line but long term, it insures and asserts their premium status. Moreover, they’ve been gaining momentum and plan to deliver gains in the low single digits for revenues this fiscal year.
I hope they do. The market’s become too reliant on data driven tactics; branding may be a long play, but it works. In comparison, relentless discounting has no future.
So true. I’ve had some interesting conversations with the college students I teach about their views on shopping and on brands. It seems to me that a product’s price/value relationship matters, and that is often still (in my view) remains in part driven by a solid brand in terms of reputation, image and relevance.
Jobs understood this, being fanatical about controling everything to do with his brand and everything to do with the customer relationship. And especially his products and how they were presented. Hence Apple Stores became required.
PS: Early in my career I was told something by an old Bernbach disciple and I never forgot it. Interrogate, interrogate, interrogate: the brand, the product, the client, the customer. Don’t take anything at face value. Know more than the client. The questions yield the answers.