After a tough 2016, earnings growth among luxury retailers is expected to nearly double from 4% to 7% this year, marking a welcome boost in a sluggish market, according to Moody’s Investor Service.

However, the sector isn’t likely to see a return to the double-digit growth it experienced between 2010 and 2013 until 2020 or later.

Growth in this segment could relieve pressure from fierce competition in the space, which has led to huge pullbacks on brick-and-mortar stores and consolidation.

  • Luxury retailers like Ralph Lauren and Coach have been reducing their reliance on department stores as wholesale channels grow ineffective. In addition, many are shuttering their own stores to cut costs amid declining foot traffic — Michael Kors announced plans to close up to 125 stores after a poor performance in its last fiscal quarter (ended April 1), which saw a 14% year-over-year (YoY) decline in same-store sales.
  • Meanwhile, companies are teaming up to boost sales as they struggle to achieve organic growth in the stagnant market. Coach agreed to buy Kate Spade in May for $2.4 billion, in a bid to acquire the company's strong millennial following. Kate Spade had been struggling to improve profit margins for several quarters.

However, a return to double-digit growth will require creating digital presences capable of standing up to thriving e-commerce pureplays. Online sales of personal luxury goods demonstrated strong growth of 13% YoY in 2016, even as the overall market remained lackluster, according to a study by Bain & Company. And with millennials gaining more disposable income, online sales are likely to become even more important to this segment going forward. Nonetheless, few luxury retailers have made an effort to create a strong digital presence — LVMH only just announced plans for its first multibrand e-commerce site in May — while digital-focused new entrants like Farfetch and Yoox Net-a-Porter are increasingly onboarding high-end shoppers. If legacy luxury retailers continue to lag in their digital efforts, they risk losing market share to these e-commerce pureplays, which are already achieving earnings growth far in excess of the rest of the industry.

The quality of customer service consumers experience through all channels (email, phone, etc.) can significantly impact a retailer's bottom line. In fact, 66% of US consumers are willing to spend more money with a company that provides them with excellent customer service, according to Microsoft, while 60% of consumers say they have not completed an intended purchase due to a poor customer service experience.

As consumers increasingly buy products online that they haven't seen in person — leaving room for purchasing errors and buyer's remorse — it's now more important than ever to provide customers with positive customer service experiences.

Nancee Halpin, research associate for BI Intelligence, Business Insider's premium research service, has compiled a detailed report on customer service that looks at why customer service matters, which stalwart channels are still top performers, and which new channels have the most potential. It also takes a look at why luxury retailers, or even just retailers with high-income consumers, need to be especially attuned to providing solid customer service help.

Here are some key takeaways from the report:

  • Even a single negative customer service experience can deter potential customers from spending money with a company. 60% of US consumers have not completed an intended purchase based on a poor customer service experience. That translates into an estimated $83 billion in lost sales for US retailers.
  • Negative customer service experiences loom larger than positive ones. It takes 12 positive customer experiences to negate the poor impression left behind from one unresolved, bad experience.
  • Lack of effective customer service on social media seems to be spilling over into users' willingness to interact with brands at all on the channel. Just over half of consumers plan on either not contacting or reducing their contact with brands through social media this year.
  • Providing the best-quality customer service is especially important to luxury retailers, whose customers expect a personalized experience to enhance the exclusivity that comes with luxury retail. Nearly half of all luxury consumers demand an apology, refund, or incentives following a poor customer service experience.
  • Traditional channels like phone and email are still preferred by consumers, but new technologies — like messaging apps and live chat — are beginning to take off.

 

 

 

 

 

 

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