Retail or not retail – that is the question!

Every sector has its own cycle, and it seems that retail is in the thick of a massive renewal at the moment. The economic crisis in 2008 impacted every industry, requiring them to rethink their strategy, some faster than others.

In this article, we will focus on luxury businesses, as they are one of our areas of expertise at The Consultancy Group.

Up in the air 

Business aviation was impacted immediately by the 2008 crisis, with a dramatic decrease in chartered flights and the purchase of planes, both new and pre-owned. As we saw in a previous article on this blog, travelling reduced dramatically as a first step in cutting costs, business aviation included. The retail market for pre-owned jets became saturated and the market for new jet orders was severely limited. At its best, the leading manufacturers, such as Bombardier, Dassault or Cessna, went from building over 140 business aircraft per year to 35, according to a recent interview of Stefano Albinati, CEO and Founder at Albinati Aeronautics. The trend, however, seems to be shifting up again. At the 2018 European Business Aircraft Convention & Exhibition (EBACE: a major trade fair for business aviation in Europe, held from 21-23 May in Geneva Switzerland) industry professionals seemed optimistic thanks to signs of slow growth on the horizon.

Time is ticking  

The crisis came slightly later for the watch and jewellery industry, in 2012, with business thriving between 2006 and 2010. It’s hard to know for sure whether the sudden decrease was connected to the 2008 economic crisis or if it was more a question of rethinking a very old business model. What is sure is that the 2-digit growth per year needed for sustainability was not realistic in the long term. Some of the famous Maisons needed to re-invent themselves, and retail was one of the key points to address.

Source: Baselworld (2018)

A recent bombshell came in the form of an announcement from Swatch Group to bail out of Baselworld (editor’s note: The International Watch and Jewellery Fair each year in March in Basel/Switzerland). Did it come as a real surprise? No. Was it a shock for the industry? Yes. There has been talk for a few years now as to the cost efficiency of Baselworld and if the format was right, and research shows that Baselworld has lost over 850 exhibitors over the last two years.

According to a recent article in Forbes, Swatch Group’s decision to exit the fair will save them up to CHF 50 million. If we rely on Hodinkee’s information, the Rolex and Tudor three-story stand is worth over CHF 30 million in infrastructure and rental costs. Sascha Moeri, CEO of Carl F. Bucherer said:

"Twenty years ago, 70% to 80% of the year's turnover was done here, but not anymore"

From what we know, today brands barely achieve 30% of their turnover. The business has changed and Baselworld is not only about retail sales, but about investing in your brand image, however the cost may outweigh the benefit.

If global fairs are not the solution, what is?

Fifteen years ago, brands’ biggest debate was between retail versus wholesale. Some believed that wholesale was the answer, since they knew their market better than anyone. Others said that to get the best sales experience, retail was the solution via mono-brand boutiques. Even in retrospect, no one has been able to pinpoint which solution was best, nor the ideal proportion of each. Today, with millennials on the scene and brands expected to deliver an ever-inspiring experience, all aspects of the business are being reconsidered.

E-commerce tended to be the answer 

Starting in 2006 to 2008 we saw huge growth in E-commerce. It directly impacted the fast consumer goods industry, in addition to touching the luxury industry’s retail strategy. According to a recent report from Bain & Company, a top management-consulting firm, online shopping grew by 24% in 2017 to reach 9% of overall sales.

Would companies without e-commerce be seen as fools by their peers? Was it a must to switch to online sales, despite losing the in-store shopping experience? Before answering these questions, let’s make a parallel with e-commerce leaders Amazon and Alibaba. Both were created in the late 90s and boomed between 2007 and 2010, keeping their momentum ever since.  They have been game changers in how we consume. Today, both of these goliaths are investing heavily in physical retail space to add to their online sales. The example of Amazon buying Whole Foods for no less than U$S13.7 billion demonstrates how important traditional retail is on the path to growth.

What now? 

The example of Amazon and Alibaba helps answer the question of what now. It seems that companies that are able to find the right balance between wholesale/retail space globally, coupled with a strong online sales experience, will be best positioned to benefit from current growth. That being said, experience remains key and will be more and more important over time. Therefore, the solution might not be as easy as it seems. In-store shopping will need to evolve to include well-trained sales experts and a genuine experience, including pop-up stores instead of iconic flagship boutiques. Fairs may not remain the annual meeting spot if they can’t answer the current needs. Finally, e-commerce may continue to grow, but it will need to be accompanied by smart tools that guide the customer in his or her online journey.

A The Consultancy Group article, written by Anthony Schaub 

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