Reimagining Retail: How luxury can get folks to love them more and heritage brands that are cool again

On today's podcast episode, in our "Retail Me This, Retail Me That" segment, we discuss in-store retail media: what's holding it back, cooler screens and smart carts impact, and what digital advertising looks like outside the store. Then, for "Pop-Up Rankings," we rank the top three heritage brands that have found a way to become cool again. Join our analyst Sara Lebow as she hosts analysts Sky Canaves and Zak Stambor.

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Episode Transcript:

Sara Lebow:

Build, scale, and optimize your creator affiliate programs for maximum ROI with Awin. Leverage the platform's best-in-class technology and award-winning expertise in end-to-end influencer program and campaign measurement to your brand's advantage and drive impressive results. Visit Awin.com/emarketer to learn more. Hello listeners. Today is Wednesday, May 1st. Welcome to Behind the Numbers: Reimagining Retail, an eMarketer podcast made possible by Awin. This is the show where we talk about how retail collides with every part of our lives. I am your host, Sara Lebow. Today's episode topic is the state of luxury in 2024. Let's meet today's guests. Joining me for today's episode, we have senior analyst Skye Canaves. Hi Sky.

Sky Canaves:

Hi, Sara. Happy May Day, also known as International Workers' Day.

Sara Lebow:

Happy May Day to you too. I also cannot believe it is the month of May. Also joining us this May Day is Zak Stambor. Hi Zak.

Zak Stambor:

Hey Sara. Hey Sky.

Sara Lebow:

Let's get started with free sample, our did you know segment where I share a fun fact, a tidbit or a question. I've got a question. This quiz was featured in our retail newsletter last month. Ulta and Sephora both held spring sales events in April. Which of the following is the top category that consumers were planning to purchase during those sales? Is it skin care, hair care, fragrance or makeup?

Zak Stambor:

I'll go skin care.

Sky Canaves:

Oh, I'll have to pick something else. I'll say fragrance.

Sara Lebow:

You can pick skin care because it's the right answer.

Sky Canaves:

I thought it was skin care too, but I thought maybe fragrance is another nice choice.

Sara Lebow:

Yeah, fragrance is an interesting choice. I feel like I've been seeing more fragrance related headlines, but yeah, it's skin care. Skin care is the big,-

Sky Canaves:

Fragrance doesn't go on sale as much.

Sara Lebow:

Good to know. I feel like you need to buy it less often also than skin care.

Zak Stambor:

Well, it depends how much you put on yourself. Right.

Sara Lebow:

That's a great point.

Zak Stambor:

My nephew would beg otherwise.

Sara Lebow:

Let's jump in to our main segment, Retail Me This, Retail Me That where we discuss an interesting retail topic. Today's topic is the state of luxury in 2022. The state of luxury is not amazing. Luxury retail sales are slowing, growth is slowing in pretty much every category except for apparel per our forecast. Earnings from both LVMH and from Gucci owner Kering both posted less than optimal earnings for Q1 of this year. So what's going on with retail sales this year?

Zak Stambor:

So the market's falling back to Earth. That said, it's still fairly strong. We pegged personal luxury sales in the US at 4.4% this year, which certainly is a slowdown from 5.8% last year. But it's well ahead of the broader US retail market. And that's largely because the middle income aspirational consumer is thinking twice about splurging on high-end luxury items.

Sara Lebow:

So aspirational retail or aspirational luxury is taking a hit. Are we seeing the same thing from high-end?

Sky Canaves:

I think not as much, right? Because the high-end consumer, the 1% is still buying. But part of luxury's challenge right now is because the audience for luxury is so much larger now than it was even just a few years ago, brands are feeling the effects when those less well off customers pull back. So we still want to keep it in perspective. Looking at the growth of 2021 and 2022 for luxury sales, yes, we're seeing slowing growth here in the US. Pretty significant slowdown, but the market is still performing better than overall.

And I came across a recent YouGov survey that kind of highlighted this. A survey conducted in February found that 26% of their respondents, and this is general population, said that they intended to purchase luxury goods in the next 12 months. And looking back, comparing that to 2021, that was a big increase when that rate was only 14%. So I think there's a big change in the luxury market. The consumers are still there. They're being more selective about what they buy and when they buy it. And I think that's something we see across the market. So I think as the luxury consumer base has expanded so much, the industry is just less insulated from broader economic trends.

Sara Lebow:

Yeah. That high-end category is also probably pretty difficult to grow compared to other categories. You don't necessarily have people entering the demographic of high-end luxury consumers. So you need to get the people who are buying to buy more and that can be difficult.

Sky Canaves:

And expand into new markets and raising prices is always an option for the top of the top brands like Hermes for example.

Sara Lebow:

Yeah, you make that Birkin bag a thousand dollars more.

Sky Canaves:

People will take you to court to get the bag.

Sara Lebow:

Another thing that we're seeing is people returning to brick and mortar. This isn't new. Right. This has been happening since we sort of transitioned away from pandemic patterns. I hate saying since the pandemic ended, but since we sort of moved back into stores. So I think that luxury e-commerce is kind of taking a hit there as well.

Zak Stambor:

Yeah, I think that's right. But while the vast majority of luxury sales are taking place in stores where consumers can have that really high touch experience, there's still a big role for the digital end of things in terms of fostering discovery and inspiration and customer engagement, and also just customer service as well to some extent. And so people are shopping in stores, but online still plays a key role within the broader shopping experience.

Sara Lebow:

Yeah. I mean, I'd imagine it's still very useful for attracting consumers even if the actual purchase is taking place in the store. Something we've talked about a little bit is the role of social media in luxury. I personally get a lot of content on my TikTok feed of people styling a Loewe dress, a Gucci pair of shoes, and sort of making that whole outfit work. And I suppose if I were a potential consumer, which I guess I am, I'm getting this content, that that's my entry point to making that eventual purchase even if the purchase takes place in store.

Sky Canaves:

Well, the social channels are really important for creating brand buzz and engagement because there's so much interest in luxury content among social users in certain demographics, especially younger consumers are looking to luxury, they're looking for inspiration. So TikTok, whatever its fate, has really forced brands to rethink their relationships with social and creators because the TikTok content that works is less of the polished brand advertisement than the real life content. Like runway shows are hugely popular on TikTok, behind the scenes, content creators talking about your brand. I think next week we'll see the Met Gala where TikTok is the big sponsor this year, we'll see an even bigger presence of creators and TikTok content all around the biggest luxury event of the year.

Sara Lebow:

Yeah, that was a big conversation last year was that the Met Gala had a lot more creators, a lot more influencers at it. I'm sure we will see that again this year. Maybe even more so. Probably more so. TikTok is also getting into its own luxury goods sales, right? TikTok shop just opened its pre-owned luxury market in the UK.

Zak Stambor:

Yeah. Shoppers can buy authenticated goods from, I think it's like a handful of approved sellers within the app and they see a huge potential market within the secondhand luxury market. I saw a report recently that the resale space has doubled in size over the past four years. And so there's a huge opportunity there for TikTok to really gain share.

Sara Lebow:

That's the opposite of I think some of the other resale news I've heard. Last year when we talked about this, there was a huge emphasis on luxury retailers owning their own resale market. Right. So instead of consumers going to Poshmark to buy that Coach bag, they were doing it through Coach's resale program. The last I heard, these programs weren't popping off as the giant resale marketplaces that these retailers had hoped they would be.

Sky Canaves:

I don't know that they're intended to be really big marketplaces as much as a part of engaging with consumers and engaging existing clientele and maintaining relationships with them. So I think we have seen some pullback, I think as brands overall have pulled back on more experimental efforts and maybe want to focus more on the tried and true marketing channels and their stores for example. But I think there's still great potential there. And with TikTok, I think luxury resale is very strong for live-streaming, for example, it's one of the best ways that live-streaming works on TikTok for shopping, is to show those one-off individual unique items that can be described in detail and shown in detail, especially because there's a lot of concern in resale around authenticity and whether a product is legitimate. So the sellers can really help to build trust through live-streaming by showing the products.

Sara Lebow:

Yeah. And the last thing I want to touch on in this first half is something that we have talked about a bit, which is using social media to get those younger consumers into the luxury fold. What are other ways that these high-end luxury retailers are getting younger consumers who don't have that spending potential yet into their brand?

Sky Canaves:

Well, a big one that a lot of brands are investing in is beauty and having their own line of beauty products. So in the past couple of years we've seen major brands like Prada, Hermes, and Valentino launch beauty lines. Many others are looking into it. Gucci is looking to bring beauty in-house and one of the challenges is that brands really have to take care to create compelling products when they launch a new beauty line. They can't just expect to put their name on makeup and have it sell. It might generate some buzz at first, but the product, that kind of hero product quality has to be there because right now on social, when beauty products take off, they tend to have something about them that is viral.

I think of Dior's Lip Oil that is sold out everywhere. So in many cases the luxury brands are working through licensing agreements with beauty conglomerates like L'Oreal or Coty to produce the lines for them. So they need to ensure that they get their brand DNA across and get the right product that is going to resonate with consumers. So in some ways it can be like celebrity beauty where many celebrities enter the fray, but very few really succeed to the level of say, Rihanna's Fenty Beauty or Selena Gomez and Rare Beauty.

Sara Lebow:

Yeah, I mean this is probably embarrassing to admit, but a lot of the brands that I started purchasing from when I was a teenager and starting to become a beauty consumer are the same brands that I use now. So it makes a lot of sense that if you can get some of those as luxury brands, that you're building a loyal consumer. Okay. That is all we have time for in the first half. Let's keep moving. Now it's time for pop-up rankings where we take a look at specific examples and we rank them. Today Sky, Zak, and I are going to share three heritage brands that have found a way to become cool again. These are luxury brands that may have lost their luster but are headed back into the mainstream. Sky, why don't you go first?

Sky Canaves:

Sure. My brand pick is one I've been hearing a bit about lately and engaging with, and that's Ralph Lauren. It's such a classic American brand and it's been very savvy in expanding the brand. Their latest results from the holiday quarter beat expectations that was led by healthy international growth and a really renewed emphasis on their direct-to-consumer channels, their stores, while cutting back on wholesale expansion. And that gives them the opportunity to have better control over their brand experience and how customers interact with the brand and also puts them in a better position in terms of pricing and reducing discounts. And they've shifted some of their focus to their higher-priced lines. And I think that's showing in their results. But they've really also been tapping into the cultural zeitgeist because there's this huge resurgence of interest in classic and preppy fashion. Part of that is related to the quiet luxury trend, but also whole old money aesthetic trends that are taking up a lot of space on TikTok and that are so closely aligned to the Ralph Lauren brand.

And it's really gone beyond just the products and into it's always been a great lifestyle brand and it's really had that resurgence. So right now for example in New York, the Polo Bar is the hottest reservation in town. It's almost like a private member's club. You have to be so in the know to score a reservation and for those who can't, they're expanding their coffee shops that are hugely popular as well and their content around them. I've seen some really engaging content, even if it's not brand-supported or brand-created, just helps to kind of elevate the awareness of the brand and affinity with the brand.

One of the most appealing TikTok series I've seen recently involves a creator who styles herself in outfits that basically try to recreate what the Polo Ralph Lauren teddy bear wears on sweaters and in the teddy bears themselves. So she has one where she's kind of wearing this layered sweater look and she has a teddy bear on the sweater whose look she's recreating. So it's kind of very meta self-referential fashion, and she's using items from her closet. Most of them aren't even Ralph Lauren, but it just helps to promote the brand and interest in the brand among younger consumers.

Sara Lebow:

Who is wearing it better? The teddy bear or the creator?

Sky Canaves:

Oh, that's a good question. I think, I mean, the teddy bear is always going to win for cuteness, right? But the creator wins for creativity.

Sara Lebow:

Yeah, it makes sense that they're having this resurgence. They were innovator, like from the beginning as a preppy brand before that was even really a category, even really a common style. So it makes sense to me that they continue to grow in that sense.

Sky Canaves:

Right. And there are non-luxury brands I'm seeing that are also leaning into their heritage and being really creative and reinvigorating themselves by participating in these trends and collaboration. So two good examples I think are also like L.L. Bean is one and New Balance is another. They're really riding a lot of interest in these trends and doing really well as a result.

Sara Lebow:

Zak, why don't you give us the next brand that has found a way to become cool again?

Zak Stambor:

Yeah, I want to talk about another iconic American brand, which is Coach and in the US, Coach has the Tabby On Tour pop-up show, which is these themed pop-ups that are traveling around the country focused on the iconic Tabby bag and they're popping up in cities and college campuses and allowing consumers to take a quiz, grab an ice cream, get a bracelet, and just engage with the brand in a really fun engaging way. And then abroad Coach is also leaning into the immersive experiential retail experience by opening the Coach restaurant and the Coach coffee shop in Indonesia where the iconic C is just like everywhere you look from the hamburger bun to the server's uniform. In Singapore, they opened the Coach Play house, which is a really engaging, large experience where they have everything from a mirror room with LED displays that really immerse you within the brand to a display of vintage coach bags that have been restored by Coach craftsmen. So in a lot of different ways and hitting a lot of different notes, they're engaging consumers with the Coach brand.

Sara Lebow:

Yeah, that international aspect actually brought me back to thinking about Ralph Lauren, something that we missed talking about them, which is that the Olympics are coming up. Isn't Ralph Lauren iconically the Olympic brand?

Sky Canaves:

Oh yes. They always style the US delegation in the parades. So you get to see the big polo horse kind of all over the place.

Sara Lebow:

Yeah. So that's another big one. But I realize I stepped on your Coach toes. Great to see Coach becoming cool again. Okay. My brand that is top of mind as a brand that's become cool again is Prada. Prada just posted pretty good earnings last week, I believe even as other luxury brands aren't doing the same. They topped the lists index of the hottest brands in Q4 2023 because they opened the Pradasphere two, which was an exhibit in Shanghai. They also collaborated on NASA's Lunar spacesuits, or it collaborated with Axiom Space on NASA's Lunar spacesuits, which is pretty cool. And they're just finding a lot of ways to be in cool places. Beyonce just wore a Prada Bolo tie, and notably for me, Caitlin Clark wore all Prada in the WNBA draft.

Sky Canaves:

I think they're also benefiting from the halo effect of the sister brand, Miu Miu, which has been one of the hottest brands among Gen Z and on TikTok over the last couple of years with its very trendy micro skirts and just really hitting all the right notes in terms of fashion. So there's definitely that. And then the interest that translates to the heritage brand, the original brand as well.

Sara Lebow:

Yeah, they're up there with Loewe, I think as brands that are maybe bordering aspirational luxury and high-end luxury. Maybe there's this sort of middle category where it's achievable luxury, so it's not like your Lululemon where it's something that someone might wear every day, but it's something that if you're going to buy one luxury item might be one of those brands. Okay. That is all we have time for today. So thank you for joining me, Zak.

Zak Stambor:

Yeah, thanks for having me.

Sara Lebow:

And thank you Sky.

Sky Canaves:

Thanks Sara.

Sara Lebow:

Thank you to our listeners and to Victoria who edits the podcast, which for me is a huge luxury. We'll be back next Wednesday with another episode of Reimagining Retail, an eMarketer podcast. And tomorrow join Marcus for another episode of the Behind the Numbers Daily, an eMarketer podcast made possible by Awin.