Their customers may have lavish budgets, but are luxury retailers big spenders when it comes to the technology they use in their businesses? Joanna Perry investigates
Their stores are flash and the products they sell even flasher, but when it comes to technology, luxury retailers have much in common with their value and mid-market cousins.
They still need core financial software, they still need networks to connect their store operations, and they still want to identify and reward loyal customers.
Where luxury retail differs is the look and feel of customer-facing technology, where brands are prepared to spend more.
Naturally they still want to get the most out of their infrastructure investments. In January, Valentino Fashion Group announced that it had signed a deal with BT Italia to design and build a wide area network to connect its four subsidiaries in Paris, New York, Tokyo and Hong Kong, the company’s Italian headquarters and more than 50 stores across Europe, the Americas and Asia.
Valentino chief executive Luca Vianello said that the network would be the basis for supplying technologies to all sites. “BT’s network will represent an excellent starting point to provide our stores with value-added services including multimedia, voice transmission and security. All of this, of course, using IP technologies.”
For core IT systems, luxury retailers can rely on the same packages that support the businesses of many of their larger mainstream peers. Prestigious jewellery house Garrard, for example, says 99.9 per cent of its ERP system is standard.
However, one area where luxury retailers’ systems differ from the pack is in demand optimisation. Darryl Owen, vice-president and head of trade industries, EMEA, at business software provider SAP, says that it is difficult for luxury fashion retailers to do the kind of forecasting that high street retailers are increasingly turning to. “High fashion stores are working with highly seasonal products that are sold for two to four months maximum. It is very difficult to know how they will behave,” he says.
“There is no price optimisation, because there is no competition. It is not a challenge at all. However, margin protection is important, because they have to make sure that they are operating efficiently.”
One retailer that has invested massively to improve its efficiency is Burberry. But its experience shows that luxury retailers can run into the same problems as the high street when it comes to major system implementations.
The difficulties were alluded to last year by Burberry chief financial officer Stacey Cartwright when she spoke about “re-phased” elements of the company’s Project Atlas IT transformation programme, which overshadowed the group’s good interim results.
The five-year£50 million project to redesign Burberry’s systems and business processes kicked off in 2005. The retailer has made changes to its plans during the two and a half years the project has been running – but projects of this length are rarely completed without amendments in such a fast-paced industry.
In the money
Burberry is now seeing the kind of return on IT investment that any other retailer would expect. During the 2006/2007 financial year, the company spent£21.6 million on the project – including the installation of a tactical system to improve visibility of retail sales and inventory – but saved an estimated£6 million from reduced procurement and sourcing costs and gains relating to replenishment.
Now in the third year of the project, Burberry’s retail and warehousing systems have been live throughout the third financial quarter. The company is expected to announce savings made throughout 2007/08 after the end of its financial year in late March.
The higher up the VIP chain a luxury retailer goes, the more important it is to provide a personal touch. Owen says that they must offer corporate memory – the ability to know which products their customers like – and which they have bought before.
However, he warns that loyalty cards are something of a contentious issue among luxury brands. “Harrods’ scheme is an excellent example of one with an Amex-type pyramid. It is a status symbol to hold the top level of card,” he says. “Conversely, a number of luxury brands that run their own outlets believe that a physical loyalty card detracts from the luxury experience. They want programmes without cards, so we have used different types of identifiers.”
Harvey Nichols rolled out a cardless customer information system to its tills late last year (Retail Week, November 28, 2007). It had piloted the system at its Birmingham store and says it found customers were happy to identify themselves to shop assistants at the point of sale. Gathering transaction information on each customer not only allows the department store to target them with more relevant offers by e-mail, but also offer them the most relevant services at the time each transaction is made.
Loyalty is not a new concept. IBM released the results of its study in the US last year to identify how retailers can drive customer advocacy. At the luxury end of the market it highlights the work of Neiman Marcus, which IBM says is considered the bellwether for excellent customer service in the apparel industry. The upscale retailer has incorporated customer insights into its key merchandising activities, identifying six product segments most important to customers and then delivering top-notch assortments in those areas.
Owen concludes that when it comes to customer-facing technology, looks count. “Luxury retailers expect sexy applications that reflect their brand. They have to be beautiful, he says.”
But while they might look different on the outside, inside, luxury retailers’ systems are almost the same.
Jewel in the crown
Crown jeweller Garrard had to replace its systems within a six-month window after being purchased by US private equity firm Yucaipa in 2006. Thankfully, the SAP ERP for Retail software it chose was implemented by Garrard’s systems provider Morse in just six weeks.
Garrard finance director Harry Patel insists that although the decision about which software to use had to be made quickly, it was still made with the long term in mind. “We have big plans. I could have gone with any other basic system, but I would have had to replace it within a few years,” he says.
Garrard has to make sure that it has the right stock in the right stores at the right time, which is especially important because the goods are of such high value. Stock will be shipped around the world from one store to another rather than holding, for instance, multiple 10-carat diamonds in each location.
Despite being a relatively small operation, the jeweller was able to afford the system because it could draw on Morse’s skills and kept to the standard version of the SAP system as much as possible. Patel says: “Where it gets costly is if you do bespoke work.”
Garrard’s system is hosted and run by Morse. Patel says: “Morse is my IT director and my IT staff. No one in Garrard is doing SAP support.”
This means that Morse also takes responsibility for keeping Garrard’s ERP system up and running. “Everything is outsourced – even my servers are located there. So I don’t have to worry about things like the air-conditioning going down in a comms room,” he explains.
The system has now been extended to include Garrard’s flagship US store in Beverly Hills. Adding the store proved simple. At the touch of a button, Morse can create a carbon copy of the system and enter the profit and cost structures for the new store. Garrard now plans to implement SAP in its four Japanese stores.
The system may even be extended to Garrard’s franchisees at a later date. “Body Shop has used SAP to run its franchises, so we know we can do it. It is something for the future though, as it would be a big investment for our franchise partners.”
Garrard doesn’t rule out a move into e-commerce but, for the time being, it says it is happy with its non-transactional web site, which is regularly refreshed.
Web sites take the shine off luxury retailers
Conchango has just released the results of its research into luxury brands’ web sites and the report makes uncomfortable reading for some of today’s best-known names.
The technology consultancy scored sites on categories including language, richness of imagery, layout and ease of navigation. Estée Lauder came out top, but with a score of only 109 out of a possible 190, it shows how poorly some other brands fared.
Conchango says that on the sites where visitors are able to buy, brands seem reluctant to sell. The Tommy Hilfiger site, for example, displayed confirmation screens in German and one order placed on Mulberry’s site was later cancelled because of availability problems. Gucci’s site scored well on readability, but was undermined by limited sales functionality and poor help and support. Conchango likens the situation to creating a beautiful store and then staffing it with unhelpful assistants. For instance, pressing the back button on a web browser on any product page within the online shop takes you back to Gucci’s home page, rather than the preceding product page.
Conchango’s biggest bugbear was that all the brands assessed placed a low value on visitor loyalty and engagement, with an almost complete lack of incentives for people to identify themselves and receive personalised content.
Conchango head of retail consulting Lynne Davidson says: “There is an expectation of a unique experience, so personalisation should come in earlier – though retailers have to be careful not to go down the registration route. They need to understand if each visitor is someone who wants a phone covered in diamanté or someone who wants something sleek and stylish.”