The “Next Big Move for Luxury”: Changing Face of Luxury Retail in Asia-Pacific | Retail in Asia

Luxury brands have continued to deliver strong sales in Asia although sales in European markets are stagnating. Increasing middle class spending power and sophisticated brand marketing suggest that luxury retailing in Asia will continue to diversify which requires the luxury retailers to seek larger stores, more creative flagship designs and a greater emphasis on “online & smart-phone” interactivity with customers. 

The report, examines where the luxury sector is heading and also looks more broadly at how innovation and local customer needs are driving retail real estate requirements across the region.

The report predicts that the shopping experience will become more exclusive to meet the desire for personalised luxury as luxury brands start to include VIP rooms in their stores after they find big-ticket sales of exclusive pieces are often made in private locations.

It also reveals that innovative technologies and greater interactivity with customers are revolutionising the way retailers utilise store space, design and marketing.

When international retailers are aggressively expanding in Asia-Pacific, they need to take into account key – factors, such as Real-estate Location, Price-points and good Supply-chain management as different Asian countries are at different stages of development of infrastructure and logistics capability.

“ Luxury Retail in Asia-Pacific is evolving and Retailers & Mall-Managers are responding to the desire for a more Tailored-Experience…We examine where the luxury sector is heading and also look more broadly at how innovation and local customer needs are driving retail real-estate requirements across the region”. 

The luxury retail sector has rebounded strongly from the financial crisis, with global luxury sales estimated to total EUR 212 billion in 2012, a 10% increase from 2011.

Across Asia, upscale brand sales are booming – and Chinese shoppers are at the front of the queue. By 2015, Chinese purchasing could account for over 20% of the world’s luxury sales, according to a report by McKinsey.

Definitions of luxury are also evolving in Asia’s dynamic consumer markets. Today’s savvy shopper is increasingly exposed to globalised branding and advertising. Experiential value, rather than just image, is coveted, and there exists an insatiable thirst for the new season’s luxury collections. Tapping into this broadening clientele while maintaining the premium appeal of a product is challenging. “The real luxury lifestyle must be rooted in authenticity,” says McKinsey.

“ If luxury brands stray too far from their roots, they will be reduced to little more than faded labels.”  

Evolving Brand Perceptions : 

In recent years, several upscale brands have eschewed logos and monograms in favour of more subtle product labelling. Louis Vuitton created a collection of bags without its famously intertwined initials, while understated brands, such as Bottega Veneta, are experiencing strong sales growth. This logo-less trend shows no sign of abating, while emerging design-led brands, including Rick Owens, Neil Barrett and Kiton, are repositioning themselves to target Asia’s knowledgeable consumers.

Luxury has also diversified beyond “Fashion, Watches and Jewellery”.

Take Fuel Espresso from Wellington, New Zealand, which has positioned itself as a luxury ‘espresso boutique’. Founded by Sanjay Ponnapa, the ambience of each Fuel Espresso store matches the world’s leading luxury brand boutiques, and delivers first-class service plus superlative coffee.

This perfection is paying off. Fuel’s boutiques in Hong Kong, Shanghai and New Zealand each sell several hundred cups of coffee per day, with the majority of clients hailing from the finance, insurance and real estate sectors.

Challenges for Retailers : 

As perceptions of luxury products shift, mall-owners must balance the demand from brands for larger flagship stores – particularly in Hong Kong and China – while maintaining a competitive, compelling tenant mix. Luxury retailers often desire their Asia flagships to be a minimum of 5,000 sq ft, and include large, decorative store facades to entice shoppers.

Once inside, store designs are responding to consumer trends. VIP rooms are now highly cherished by consumers because privacy and personalised pampering are a valued part of the luxury lifestyle. It is in such rooms that big-ticket sales of exclusive pieces are often made.

Even brands that usually require smaller retail spaces, such as Swiss watch brand Breitling are now including VIP rooms in their stores. In a recent meeting with David Reid, Managing Director of Melchers, during the launch of Breitling’s first mono-brand flagship store in Hong Kong, he noted that VIP rooms are a critical feature to cater to high net-worth customers who seek a deeper understanding of the brand, its heritage and the craftsmanship that goes into its products. This, Mr Reid affirmed, can only be achieved in a comfortable, relaxed and private location within the store.

New Mall – Designs : 

Increasing middle class spending power and sophisticated brand marketing suggest that luxury retailing in Asia will continue to diversify. For brands, this will require larger stores, more creative flagship designs and a greater emphasis on online and smart-phone interactivity with customers. The shopping experience will become more exclusive to meet the desire for personalised luxury.

Premium brands, such as Louis Vuitton, Prada, Gucci and Chanel, want to be present at the table from the initial stages of a new mall’s development. This enables them to shape the best, most efficient stores in tandem with the developer’s original design. It also helps forge long-term relationships that can benefit both the developer and the brand in a highly competitive market. Ensuring a premium level of comfort and exclusivity is a high priority.

Many large brands now expect ‘VIP drop-offs’ at the front of their stores, dedicated lifts and exclusive entrances for big-spending customers. As a result, millions of dollars are being invested in luxury store designs and fit-outs to create an unparalleled atmosphere of exclusivity from start to finish.

The Retail Transformation – Innovative technologies & greater interactivity with customers are revolutionising the way retailers utilise store space, design and marketing.

Retailing in Asia Pacific is undergoing a revolution. Competition among brands to entice and retain consumers in fast-changing markets is placing a stronger emphasis on the shopping experience. Store formats are being carefully tailored and marketing activities are formulated to exceed the expectations of tech-savvy, brand-aware shoppers.

Some of the retail innovations being introduced across Asia-Pacific appeal to human emotions as well as purchasing capacity by creating shopping experiences that are enhanced by sight, sound, smell and spacing. The use of LED screens and interactivity is becoming an inventive part of the retail experience.

Burberry, for example, now incorporates cutting-edge technology and video screens that enable customers to mix and match outfits whilst in the store. Sensory selling is also becoming more prevalent. Several retailers now scent their stores so that the fragrance evokes a particular memory when customers enter the store. Shanghai Tang and Abercrombie & Fitch are leading purveyors of this approach, while shopping centres such as “ifc Mall” in Hong Kong have commissioned bespoke scents that are circulated through the air-conditioning system.

New technology is at the heart of new retail marketing innovations that combine the ubiquity of smart-phones in Asia Pacific with the rising influence of social media. Founded in 1985, French menswear brand Cielo has stores in 70 countries. “Cielo is focused on developing business in emerging markets, and India is at centre of its global play” says CEO of Cielo Future Fashion Ltd. 

“Digital technology is a fast method to create brand salience among our target clientele, and we have aggressively grown our customer database in stores and on social media.” This strategy includes Celio Fantastic Rewards, a mobile-based loyalty programme. “Customers with a smart-phone can instantly access their points, purchases and offers, as the app is compatible with all major social media platforms.”

Community-based inclusivity is another contemporary tactic : 

“ Several retailers are enhancing the shopping experience to keep people in store rather than online. Nike has established the Nike Run Club that is free to join and meets several times a week in store to warm up and then run on planned routes with Nike staff around the city”.

A vibrant collective of artists and independent retailers, such as Zara Bryson, Pigeonhole and Miss Brown Vintage, became temporary neighbours for nine months, forming the first pop-up community in the Perth CBD. Inventive fit-out solutions enhanced each store footprint, improved sightlines and supported contemporary merchandising solutions. These pop-up stores were linked throughout the property, enhancing the presence of existing retail offers to drive visitation and spending.

International Retailers are aggressively expanding in Asia-Pacific and becoming more flexible and focused on local-market requirements : 

Until recently, several high-profile American and European retailers had been reticent about committing serious investment dollars to expanding in Asia Pacific. Times have changed. Now, convinced that rising incomes and relatively low dependency ratios will continue to drive consumer spending for the foreseeable future, retail brands are moving swiftly and decisively.

Having watched and waited, leading international retailers evaluated individual markets and ascertained the similarities and differences in consumer behaviour that exist between, and within, Asian countries. Consequently, they are localising store formats, product lines and the marketing and advertising mix to make direct connections with consumers from Delhi to Dalian and Saigon to Sydney.

The diversity of Asian retail markets means that conducting detailed research and studying the demographics of residential clusters is crucial.

“To be effective in Asia, international retail strategies need to be tailored to the nuances of the local market”. 

“Different Asian countries are at different stages of development of infrastructure and logistics capability. Therefore, retailers must take into account key factors, such as real estate location, price points and good supply chain management. Such issues hardly exist in the developed world.”

Fashion and luxury products are prime examples of nuanced markets. A strong appetite for both is evident among consumers across the region, but affordability and value are both highly prized. “International retailers that have little disparity between price and service from country to country have outperformed peers that lack that same consistency”.

Tailoring products to local tastes and preferences is increasingly in vogue. In 2010, French luxury brand Hermes opened the first Shang Xia store in Shanghai. The China-inspired clothing, accessories and home decorations brand was specifically created for aspirational Chinese consumers, and will expand to Paris in September. Also in China, carmaker BMW and its partner Brilliance have created a new brand, called Zinoro, specifically for the Chinese market.

Upscale shopping experiences continue to appeal to consumers in established and emerging Asian markets, and the success of retail expansion often depends on the strength of the brand and brand recognition. Revered Paris-based department store Galeries Lafayette recently opened a branch in Jakarta, while fashionable watch purveyors, Breitling and Maurice Lacroix, opened mono-brand stores in Hong Kong. London’s Harrods department store has announced it will extend its brand into the luxury hotel sector, with one of its new Harrods Hotels to be located in Kuala Lumpur.

Other fast-expanding retailers have devised “fast fashion” to bring affordably priced products to market in quick cycles. High-profile brands such as Gap, Zara and Topshop have all entered Australia in the last three years, and are rolling out new stores. Zara stores feature clothing collections exclusively designed for the southern hemisphere’s seasonal trends, and frequent stock turnover ensures new options are always available.

Food & beverage retailers are similarly extending their reach, particularly as mall managers seek a more diversified tenant mix to attract and retain shoppers. Coffee shop chains Starbucks, Costa Coffee and Coffee Bean & Tea Leaf are ubiquitous in Asian cities, as are McDonald’s and KFC which both offer menus tailored to local tastes. In Japan, KFC even teamed up with local potato-chip brand Calbee to create and market the Savory Salt Ginger Chicken chips. Supporting these Asian store rollouts and new brand concepts are a variety of market-focused strategies. Giordano’s localisation approach in China is a good example.

The clothing retailer revamped its management structure, to direct operations in the strategic cities of Beijing, Shanghai, Wuhan and Guangzhou, plus the company’s e-commerce site. “Significant improvements were seen in various areas, such as local marketing and merchandising, franchisee consolidation and new store expansion programmes”.

Giordano has also promoted greater autonomy and flexibility in each region, enabling managers to react to market change and local needs swiftly and effectively.” As international retailers expand across Asia Pacific, their strategies and objectives will continue to evolve.

One thing will not change, however – focusing on the changing needs and preferences of Asian consumers will remain a high priority.


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