Retails Risky New Strategy

12/03/15 4:49 pm

s+b Blogs Posted: March 2, 2015

Shellie Karabell

Shellie Karabell is a writer, editor,

and communications consultant, based in
Paris, France.

Marketing, Media & Sales

Retails Risky New Strategy

You may be able to shop online, says Frederic Godart, associate professor of organizational behavior at INSEAD and the author
of Unveiling Fashion: Business, Culture, and Identity in the Most Glamorous Industry (Palgrave Macmillan, 2012) but you cant
eat online. Nor can you have a high-end tourist experience online. Thats why the new face of retailing is luxury palaces
eschewing the local middle class and catering to upscale travelers from around the world. Like elite casinos, these stores invest
heavily in creating an experience they hope no one else will match. They are temples of retail, says Godart, with the arts,
restaurants, and home furnishings. You can spend a lot of time having fun there.

The new face of retailing is luxury palaces catering to

upscale travelers.

Already, some luxury retail palaces have become major attractions in Berlin, Dubai, Paris, and London; others are under
construction in cities like Hanoi, Hong Kong, Mexico City, Munich, New York, Rome, and Sydney, They tend to be showcases of
ne plus ultra brands, such as Prada, Louis Vuitton, and Ralph Lauren, housed in multistory emporiums designed to create an
experience rather than just sell stuff. They are also, in some retailers eyes, a way to survive. For more than 10 years, e-commerce
has been capturing bigger and bigger shares of the retail market. This has led to the demise of many once-prominent retail brands
(Circuit City, Borders, Virgin Megastore, Office Depot, Radio Shack), troubled times for others (J.C. Penney, Sears), and
unprecedented pressure in Europe and North America on face-to-face retail.
But are there enough luxury tourists to meet the expectations inherent in these new storesand to earn back the multimilliondollar investments needed to build them? At first glance, this seems like a plausible strategy. Every year, more leisure visitors
roam the world, many from countries that only recently permitted their citizens to board international flights. Tourists are also
richer on average than ever before, and they love shoppingespecially for brands that convey status. According to a recent Skift
report, Chinese tourists spent a record US$164.8 billion overseas last yeara 28 percent increase over 2013as disposable
income rose and more people ventured abroad. And unless the threat of terrorist attacks increases dramatically, luxury tourism
shows no signs of waning any time soon.

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Retails Risky New Strategy

12/03/15 4:49 pm

Its a global marketplace today, says Mark Weber, former chairman and CEO of Donna Karan International and former
chairman of LVMH Inc. (the North American arm of the French luxury brand), and author of Always in Fashion: From Clerk to
CEOLessons for Success in Business and in Life (McGraw-Hill, 2015). Retailers always want to be where the customers are
whether thats in New York or Las Vegas or Shanghaiand they will follow them there.
Paris is arguably the leading international destination for luxury retail tourism. According to city government statistics, 32 million
people visited the City of Light in 2013a 5 percent increase over 2012. When it comes to must-see sites, many visitors rank
Chanel right up there with the Muse dOrsay. One well-known French department store, Bazaar Hotel de Ville (BHV), has
redesigned itself to feature the ambiance of the Marais, the aristocratic central-city neighborhood, as a way of drawing in tourists.
Only the hardware departmenta mainstay of the original, more downscale BHVwas left untouched.
Another leading Parisian retailer, Le Printemps, opened a petit (at 28,000 square feet) version of its flagship store on a site
vacated by Virgin Megastore. Across the street from an entrance to the Louvre, this showroom is clearly aimed at some of the
museums 10 million visitors per year, particularly upwardly mobile, affluent travelers from China, who are eager to buy designerbranded apparel for less than they would spend at home. Culture and shopping are the two principle motivations for tourists, Le
Printemps President Paolo de Cesare told reporters at its opening in early 2014. Most of the employees at this location, like most
of the shoppers, are Asian; in fact, the only flyer handed out in the store is written in Chinese.
Across the Atlantic in New York, Macys has nearly completed a US$400 million, four-year makeover of its century-old flagship
store, located one block from the Empire State Building. Even before remodeling, the store had 2 million square feet, annual sales
topping $1 billion, and 20 million visitors a year6 million of whom are tourists. The stores chief executive, Terry J. Lundgren,
personally convinced luxury brands such as Gucci and LVMH to create boutiques within the store. This strategy is presumably
based on Macys identity as a New York icon, capable of attracting high-end tourists. To experts like Weber, the critical factor for a
luxury brand is that combination of incoming traffic and total control of the retail environment. This includes, he says, the price
points, the way the brand is displayed, the products showcasedeverything. The brands, in turn, represent an important revenue
stream for Macys: Luxury brands pay rent plus a percentage of their sales and anything else that can be negotiated.
Despite these early successes, rebuilding their business around luxury tourism could be a very risky strategy for many retailers.
Anyone who doubts this need just glance at the once glittering Atlantic City Boardwalk, where many of the grand casino lights
have now gone out. It takes about five years to create a brick-and-mortar retail palace, whereas tourist destinations can rise or
fall in popularity overnight. The early successes of stores like Le Printemps, Macys, and BHV are already attracting many
competitors. This could mean that many new palaces will be built; but if the population of luxury tourists doesnt keep pace, only
a few palaces will survive. It will take more than money to pull off lasting success in this sector. The winners will be those with the
most imagination, flexibility, verve, and street sense. Theyll have to create and continually re-create retail experiences so unique
and compelling that tourists will want to go there againyear after yearor never leave.
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