Brands like Gucci, Hermès, and Louis Vuitton are opening new stores, strengthening their online presence, and connecting with a new generation of consumers in the United States, where demand for luxury has never hotter and the opportunity represents further growth in the coming years.
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Detroit, Illinois, Florida. What do all these destinations have in common? They are all new locations that luxury brands like Gucci, Dior, Louis Vuitton, and Hermès have opened stores in. In late January, Gucci confirmed that it would open a new store in downtown Detroit, in addition to its recently opened location in Oak Brook, Illinois. Last year, Louis Vuitton opened stores in Texas and Miami, and Hermès opened a space in Detroit.
Demand for luxury goods in the United States is such that companies are looking to strengthen their presence outside of traditional hotspots like New York and Los Angeles, to smaller cities where the potential for future growth could mean the difference between ending 2022 on a high or just meeting market expectations.
In the latest results from luxury giants LVMH and Richemont, the two companies each spoke of the growth that they had seen from the United States. LVMH which posted revenue of €64.2 billion for the full year ended December 31, up 44 percent compared to 2020, noted that the United States was its single best-performing country, accounting for 26 percent of sales in 2021. Likewise, Richemont said strong demand for its jewellery and watches in the Americas and Europe, helped it record a 32 percent rise in sales to €5.66 billion in the third quarter ended December 31.
And while growth in China is still expected to account for the lion’s share of luxury sales in the coming years, (sales are obviously booming there too) what is interesting to note is how luxury demand in the United States has strengthened since the start of the global COVID-19 pandemic and how leading brands have responded – by significantly increasing their own physical retail network, adapting their services, and strengthening their online presence in a bid to win over a new generation of consumers.
Analysts say what has helped drive luxury demand in the United States is a combination of factors including government stimulus, a buoyant stock market, and positive consumer sentiment. “Over the last couple of years, the revenue growth of the U.S. luxury market has accelerated relative to historical trends and been about twice that of the industry overall,” said Thomas Chauvet, Head of Luxury Goods Equity Research at Citi.
“Government stimulus, stock market gains, and reallocation of spend from experiences to goods have been some of the drivers behind this exceptional growth. Consumers have actually managed to save, against all odds, during this pandemic and reallocate some of that excess cash into discretionary spending, including luxuries,” he added.
“The U.S. has always been a very resilient market, even during the 2008 financial crisis,” said Robert Burke, CEO, and Chairman of Robert Burke Associates. “The market rebounded quickly. And because European and Western brands, particularly bigger groups like LVMH, Richemont, and Kering understand the U.S. market very well and are familiar with it, they have focused on building their direct-to-consumer relationships with their own stores and online presence, relying less on third-party department stores and wholesale.”
“Brands have been aggressive,” added Burke. “When we look at Tiffany’s and its swift repositioning (which is still ongoing) to bring in a new customer and evolve by changing their ad campaigns and jewellery collections and communicating in different ways to different consumers, it has been extremely successful.”
Part of those aggressive tactics we have seen from leading luxury brands is the opening of new locations where there are strong pockets of wealth across the country. “The U.S. has always been a very established luxury market and the amount of physical retail here is very, very strong,” said Burke.
“We’re seeing a number of luxury brands expanding within the U.S. in what would be considered, not primary markets, but very strong local markets like Plano, Denver, Troy, and Scottsdale. These are new cities that have strong pockets of wealth,” he added.
The Hermès store in Detroit. Credit: Courtesy of Hermès.
Those pockets of wealth are exactly what luxury brands want to target in the coming years, particularly because how and where consumers shop in the United States has changed dramatically since the start of the pandemic. With customers - who would normally have travelled domestically to shop in locations like New York or Los Angeles - now being limited in terms of travel or choosing to remain in other locations outside of big city centres, luxury brands are ensuring those purchases still happen, by being where their customers are and more importantly, through their own branded stores.
Not only are luxury brands opening their own retail stores in these locations, but they are also adapting their services to adhere to more COVID-safe measures: Curb-side pick-up, private showroom appointments, video shopping consultations with their sales associates, and communication via messaging apps are just some of the solutions that brands have devised to ensure customers are able to purchase what they want while the uncertainty of COVID still lingers and health measures remain in place.
“People moving from bigger cities to smaller ones definitely has an implication,” said Chauvet. “It has forced luxury brands to rethink about the depth of their retail network with greater focus on the quality of the stores and the shopping experience, and improved customer relationship management both online and in physical stores.”
And stores aren’t the only way that brands are trying to reach out to their customers. The recent rush into the metaverse by luxury brands demonstrates just how important luxury brands believe younger consumers are to their future growth, a new generation of consumers who are more likely to want to pay with cryptocurrency than cash or cards.
Louis Vuitton launched a Non-Fungible Token game to celebrate its 200th anniversary, Burberry partnered with Mythical Games to launch an NFT collection on Blankos Block Party, Balenciaga collaborated with Fortnite to create outfits for four of its characters, and Gucci, well Gucci was everywhere from Roblox to Superplastic.
“At the end of the day, it’s all about product,” said Burke. “Brands need understand their positioning clearly in the luxury market, and create something compelling. Customers are now more educated than ever, and brand really have to understand what their messages are and what their position is and how to back all of that up with their products.”
Other aspects that brands have focused on is the quality of service they provide to consumers. “The personal aspect of shopping and service is extremely important today,” said Burke, noting the success of The Webster, a multi-brand boutique with seven stores in the U.S. and an e-commerce site.
“During the height of the pandemic, they had their sales people in contact with their customers on Instagram and on WhatsApp. And they were going into the stores even when they were closed and pulling merchandise specifically for those customers and sending that over to them. Offering the level of service and personal shopping that previously had only been available to the very, very big spenders.”
“It was an extremely good lesson, it has stayed with people and it's paid off for the brands,” he added. I think that's kind of what people expect now, is that personalised service. That's changed enormously from pre-pandemic,” he added.
For Chauvet, he believes that in order to succeed in the U.S. market, brands must also invest more in ensuring they are hitting the right balance between storytelling, education around their history and pricing.
“The U.S. has traditionally been a more promotionally-driven market,” he noted. “There are a number of significant events in the calendar around Thanksgiving, Christmas, Valentine’s and Mothers’ Day which tend to drive promotional activity. The most successful luxury brands in the US are those which have implemented very strict markdown policies in full-price stores, while de-emphasising the outlets channel.”
“Storytelling needs to be done in a deeper way, pricing needs to be consistent, the service needs to be impeccable,” he added.
For Burke, it’s about understanding the nuances of the market. “I think it's a very good time to be in the U.S. but to establish yourself in this market, you have to understand the mentality. When everyone was working from home, customers were buying slips and tennis shoes and casual clothing and as soon as things began to improve, all of a sudden, high heeled shoes went through the roof. The customer is very quick to adapt her and I think it’s just kind of an American mindset.”