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Luxury Brands Advised to Reassess Physical Store Strategy

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Luxury brands looking to assess their global brick-and-mortar strategies would do well to remember it’s not a one-size-fits-all approach.

A recent study by management consulting firm Boston Consulting Group and Bernstein research advises luxury labels to optimize existing physical locations, determine how best to cater to both tourists and locals, and consider streamlining stores in cases for which ecommerce would suffice.

Looking at retail geographically, the report says some regions are oversaturated while others are ripe for expansion. For luxury brands with multiple stores in New York, Tokyo, London, Paris, Seoul and Hong Kong, the findings show retail is poised to remain strong, as tourists and locals support flagships and secondary locations, respectively.

The report cautions against adding new doors in top Asian cities like Tokyo, Seoul, Hong Kong, Shanghai, Beijing, Singapore and Taipei where there are already too many locations and the size of the footprints outstrip demand.

For brands looking to expand, research shows that the U.S. is still a solid market. While luxury companies may find opportunities for new locations in key hubs, the focus in those cities should be on drawing more shoppers into stores, the report said. Opening new stores could be the best approach in second-tier cities where the local population could offer consistent traffic and sales. But first, it’s up to brands to determine which cities represent their best prospects.

“Brands must continue to invest in the tools and techniques that help them get better and better at segmenting markets and uncovering pockets of demand,” said Oliver Abran, a partner and managing director at BCG’s Paris office and the global leader of the firm’s luxury, fashion and beauty topic area. “Analytics software can be invaluable but it still needs the talent to make it effective and the processes to properly gauge potential markets.”

Though the luxury segment has been slow to adopt ecommerce, the report suggests it’s time to focus on omnichannel. For some markets, companies even may find that online sales eliminate the need for additional stores.

“[Brands] have to anticipate footprint reductions in select areas—especially in Asia—and work on getting more sales per square foot in existing stores rather than reflexively opening new ones,” Abtan advised.

 

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