Luxury Shoppers Are Slow to Convert but Demand Digital Innovation

Luxury retailers have established a reputation for their exclusive and upscale offerings, catering to a limited clientele characterized by discerning preferences and substantial financial resources.

Their primary emphasis on premium goods distinguishes them from affordable retailers, yet it also presents distinct challenges, including lower conversion rates.

However, the luxury sector continues to shape and lead the way in technology and customer experience within the retail industry.

High Value, Low Conversions

Luxury retail exists due to its ability to create exclusive products. Take Brunello Cucinelli, for example, which has made an entire business around quiet luxury, a type of fashion for the “if you know, you know” crowd, and is reporting profits.

“Exclusivity and rarity will allow a company to last a century,” said Brunello Cucinelli, executive chairman and creative director of the fashion house, during a company earnings call Tuesday (Aug. 29). “It’s not easy, but this is what we believe in.”

During the conversation, Cucinelli emphasized the importance of exclusivity several times, saying it is a pivotal factor driving the success of his namesake company. The firm witnessed an increase in both profits and revenues in the first half of the year. Net profit experienced a year-over-year surge of 31.9%, climbing from 50.6 million euros (about $54.6 million) to 66.7 million euros (about $72 million).

Labels like Brunello Cucinelli have been able to establish status because their items exude craftsmanship, and they come with price tags that make them inaccessible to many consumers. This exclusivity is both a blessing and a curse for luxury retailers. It attracts an audience willing to invest in quality, but it also limits the number of potential buyers.

Hence, luxury retailers frequently encounter reduced conversion rates when juxtaposed with budget-friendly retailers. Securing conversions in the luxury sector proves notably challenging in contrast to other industries. The luxury industry typically maintains an eCommerce conversion rate of 1.69%, in contrast to the overall eCommerce average of 3.25%, according to Cappasity on Medium.

The luxury shopping experience emphasizes aspiration, brand loyalty and the prestige associated with owning a high-end item. Shoppers may browse, engage with, and even interact with products, but their ultimate purchase decision could be delayed or even abandoned.

Nonetheless, it’s important to highlight that the luxury market often drives innovation within the retail industry, and consumers expect it.

The Technological Demand

According to the PYMNTS Retail Tracker® Series Report, 49% of luxury shoppers said they believe that stores should offer more than just a place to buy goods. Additionally, 67% of luxury shoppers expressed the desire for stores to incorporate greater levels of digital integration, while a substantial 80% of luxury shoppers affirmed that brick-and-mortar retail plays a significant role in their shopping journey.

Discoveries like these have prompted luxury retailers to employ tools like artificial intelligence (AI) for the analysis of customer data and the provision of customized recommendations as AI algorithms can anticipate consumer preferences, offering product recommendations that match individual tastes and buying history.

Luxury retailers have also been leaning into augmented reality (AR) technology to allow customers to virtually try on clothing and accessories or visualize how furniture would fit in their homes. This bridges the gap between online and in-store shopping and ultimately increases consumer confidence when purchasing and reduces returns. Take Cartier, which has teamed up with Snapchat to enable users to try on its luxury pieces, including the Love bracelet.

The results have been compelling for some. In June, PYMNTS highlighted that following Farfetch CEO José Neves’ positive outlook on AI in the luxury retailer’s first-quarter 2023 earnings report, Maison Valentino announced its preparations to introduce a virtual try-on (VTO) feature for its ready-to-wear collection.

The functionality is presently being driven by Wanna, an AR tech firm under the ownership of Farfetch.

By using this technology, customers are afforded the chance to peruse and purchase a carefully selected selection of men’s items from Maison Valentino’s Urban Flows Autumn 2023 collection. Additionally, they can virtually test out the ValenTie, a distinctive accessory from the brand’s autumn collection, which was exclusively available for pre-order on Valentino’s website during that period.

“Wanna’s clothing VTO not only enables brands to showcase the apparel with the utmost realism but also provides users with a novel experience of trying on clothing items before making a purchase online,” said Wanna CEO Sergey Arkhangelskiy at the time. “It is a second-generation VTO experience designed exclusively for eCommerce use, which is highly realistic and targeted at luxury brands. With the launch of the new virtual try-on category, we want to continue to help customers to make informed shopping decisions and increase customer confidence to purchase.”

Leading the Way in Innovation

One aspect of luxury retailers is their role as trendsetters in the adoption of technology. While they may face challenges with conversion rates, they are often the first to embrace tech trends. Affordable retailers often follow, recognizing the value of these innovations in enhancing the customer experience and increasing conversions.

In April, Mercari introduced a shopping assistant powered by ChatGPT to its platform for secondhand items.

The AI allows customers across the United States to engage in real-time conversations with a shopping assistant and receive product recommendations tailored to their chat prompts.

Then there’s Klarna, which debuted a personalized shopping feed powered by AI.

The new tool, which was announced in April, was part of a suite of new products for shoppers, creators and retailers from the Swedish payments company. It represented the latest example of AI’s prevalence in the commerce space.

“Our new AI-powered discovery shopping feed is the next evolution of the Klarna app becoming the starting point for every purchase,” Klarna Co-founder and CEO Sebastian Siemiatkowski said at the time.

In June, Walmart turned to generative AI to enhance the intelligence and effectiveness of its digital tools, as grocers sought ways to leverage self-service efficiency while addressing associated challenges.

The decision coincides with grocers’ efforts to substitute labor-intensive procedures with self-service options across the entirety of shoppers’ retail experience. As an example, Morton Williams, a grocery chain headquartered in New York City with 16 stores spanning the city and New Jersey, was preparing to introduce smart carts in May.

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