By: Jim Mann, Director of Acquisitions, UK, Thrasio
Forget exclusive boulevards, minimalist shops and pre-booking appointments. The world of luxury retail has undergone a sea-change in the past few years, and today’s high-end shoppers are just as likely as the rest of us to head online to get their goods.
For brands hoping to enter this space this has been revolutionary. You don’t need to fork out for real estate on the most expensive streets in the world to find your target audience. But, much like the rest of retail, when you’re looking to move beyond your home market and capture a global audience you’ll definitely come across some familiar challenges.
In many ways, global expansion is a necessity for luxury firms. There’s a higher order value, but you need to get scale in order to keep growing and convert orders into profit via economies of scale.
While ecommerce has been driven by convenience rather than luxury, and value brands are still top, this is something that we at Thrasio anticipate will change in the next few years. This will be driven by the growth of experience-first retail. Travelling to a store doesn’t feel like a luxury anymore – high value consumers want the store to come to them.
That’s driving a very fast development of the luxury market on Amazon, with brands racing to rapidly build DTC experiences.
When it comes to the Amazon seller, and specifically FBA market, this is an evolving and developing market. The first movers are typically businesses which have spotted a gap in the value or design, and focus on price competition for the sector. Beauty and beverages are key emerging trends too, especially when it comes to the skin cream and make up sector.
There’s lots of ways to grow internationally, but there’s a few best practices and principles that are essential to make sure your brand has the best chance of success overseas.
Luxury is a global sector with local nuance
It’s tempting to look at a map of the world’s luxury hotspots and try to take them all on in one go. But expanding in the carribean is very different from expanding to Hong Kong. This is a common mistake we see businesses make – not picking your next move strategically.
Navigating the logistics and nuances of multiple markets at once will usually push your resources to breaking point, and any unforeseen pressure, whether it’s a tax bill or shipping cost, could take you beyond and you’ll fail globally in a single move.
Especially when it comes to the global, high value low inventory market, you’ve got to think about the practicalities of moving your stock around the world. Each handbag sat in the wrong warehouse adds up very, very quickly.
Stock, like every other part of your business, has to pull its weight.
Brands can’t assume that what’s luxury for one market is luxury for another. Tastes and styles vary hugely around the world, so doing your research into what will make your market tick is essential. Do you need an entirely new range of goods, new branding or a different approach to pricing? Following your competitors is often a smart move. Let them do the leg work and move in when they generate enough market demand for competitors.
Technology and logistics are a vital part of the equation. If you only have the resources and experience to take on one market, pick the market that has a simple tax and shipping structure. Build your expertise and experience, as well as a network of experienced lawyers and other operations professionals, before you take on a market steeped in regulation and red tape.
Build your operations as well as your audience
The luxury market is a tight knit group, and people often consider working in luxury a calling as much as a career. That means they move between brands and roles building up sizeable knowledge banks of how the world of luxury really works.
Whether you’re new to this market or an old hand, you want to make sure you’re tapping into the right contacts to do the jobs that you can’t handle yourself.
Pick what items you (and only you) could have on your to do list and outsource the rest. The great advantage of luxury retail is that investing in your network will pay dividends because it’s such a global sector.
Take care of the finance first. Especially if you hate numbers. They don’t have to be full time – a fractional CMO can plug the gaps in the early stages of growth. Your CFO will make sure you have a tight handle on your cash flow, inventory, supply chain and contribution margin. Cashflow alone is one of the biggest killers of a fast growth company – get this right early and you’re in a great place to succeed.
Your CMO will work with you to make sure you know your customer, where they eat, drink, consume & sleep. From there you can develop your marketing plan from top of funnel through to the sale (smaller brands can rarely invest heavily in top of funnel – you need the sale now, not in 12 months).
Your CMO should also be looking at identifying new & emerging keyword searches and product opportunities which your customer is looking for (line extensions or product updates to keep you differentiated).
Big risks, big rewards
The luxury market is lucrative. There’s big rewards and long-term brand loyalty for brands who can get it right. International growth is often a necessity in this space but time and time again brands make the wrong moves and pay a high price for doing so.
Digital commerce has revolutionised the world of luxury retail, and for those of us in eCommerce it’s been a tremendous opportunity to enter a profitable niche.
Take the time to understand the rules, regulations and nuances of your market. Think through your moves and be ready to pounce on new opportunities. Brands who are able to do this will reap the rewards of international expansion.