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Commercial Basis: Footprinting Luxury

Commercial Basis // Oct 23, 2017

Commercial Basis explores how technology, branding and demographic preferences are shaping office and retail real estate in New York City. As these forces break down the barriers from where we live to where we work and shop, Lead Commercial Specialist Alex Cohen assesses the impact on real estate values and opportunities.

I just participated in a panel at the 2017 Luxury Interactive conference with the young founders of two luxury, multi-brand e-commerce websites who both have dipped their toes into (pop-up) retail. Physical stores, even short-term occupancies, are expensive for young companies, but once a nascent e-tailer attracts private equity capital (Warby Parker or UNTUCKit, for example), the reality that nearly 88% of all retail sales were still store-based in 2016 typically drives the retail footprinting of the brand.

Most of the growth in e-commerce, which is forecast to rise to 17% of all retail sales by 2022, will be driven by Amazon. But in the luxury brand category, as we’re not talking about buying paper towels or other necessities, the impact of e-commerce is much more nuanced and not necessarily a threat. Mobile phones will soon be the primary way we access the Internet (outside of work). Apps now dominate mobile phone usage with browser activity only representing 8% of time spent on the phone and lifestyle/shopping apps only accorded 5% of our attention. Messaging, chatting and following our friends’ activities through Facebook, Snapchat and Instagram now represent nearly 35% of our growing time commitment focused on our phones. This is fascinating, in that what attracts us most to this addictive technology is how it allows us to communicate with each other and express ourselves or appreciate the expressions of our friends and peers.

The luxury category of purchasing is about communicating our recognition of quality and demonstrating our status to others. A store like Canada’s luxury department store chain Holt Renfrew, that treats its customers as “omni-channel” purchasers and doesn’t differentiate between in-store and e-commerce shoppers, can generate 60-70% higher customer spending. The key to this customer approach is personal relationship and engagement realized (at least initially) only by face to face interaction with in-store salespeople. These relationships can become almost completely “virtual” because of the appeal and effectiveness of chat-based communication. A customer may only visit a physical store once a year, but would have never developed this a personal relationship without meeting a sales person face to face. If a sales person is enabled to know a customer’s buying history (and tastes) and creatively integrate both in-store and e-commerce offerings with a customer’s profile, messaging technology becomes a powerful tool to expand sales. None of this is possible if there’s no physical store.