Luxury retailers build their reputations on exclusivity and historically have been resistant to participate in discounting and promotions as a result. There’s a fear that by investing in these incentives they will be diminishing their brand value.
But things are starting to change in the luxury space. Throughout Q4 2023, luxury retailers have been feeling the pressures of inflation for the first time. In June, high-income shopper spend was negative for the first time in over two years. While these high-income shoppers slowed their spend, luxury merchants continued to raise the prices of their “big ticket” items, like handbags, to a point where even tried and true high-end shoppers may be unwilling to pay, especially in economically uncertain times.
Discover New Audiences
Luxury retailers are now faced with an unprecedented challenge. But navigating this challenge can provide retailers with a new opportunity to expand their audience, attract the next generation of luxury shoppers and nurture life-long loyalty.
At Rakuten, we conducted an internal study that found that during this time of economic uncertainty, aspirational luxury shoppers were actually “tiering up” their shopping and buying more expensive luxury items as investment pieces, while typical high-end luxury buyers were either halting their spend or “tiering down” to lower price points.
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Moving forward, luxury retailers should start to consider aspirational luxury shoppers as part of their core audience if they want to remain competitive — and getting creative with pricing strategies and investing more in incentives will be crucial to appeal to this audience.
The Price is Right
Retailers that want to tap into that aspirational shopper have adjusted their pricing strategies as a way to attract those new shoppers. Product segmentation, for example, has helped luxury brands develop tailored shopping experiences that are meant for different customer bases with different purchase behaviors and shopping priorities — all without alienating their core customer base.
Retailers understand that aspirational shoppers prioritize price, so by lowering the price point for certain products or categories, luxury retailers have created entry points that make their brands more accessible to those who can’t afford the marquee handbags. At the same time, those luxury retailers are maintaining higher prices for certain items, like handbags, providing the level of exclusivity that their core luxury shopper values.
Luxury retailers are realizing that their brand isn’t negatively impacted by opening their doors to a more aspirational shopper, so long as they still offer experiences and items that are less accessible and more expensive.
Get Ready to Compete
In addition to pricing, aspirational shoppers look for discounts and deals on almost every purchase that they make. Luxury purchases are no different. An overwhelming 92% of Gen Z shoppers actively use discount codes, and with younger generations expected to represent 80% of all luxury purchases by 2030, it’s important for luxury retailers to take notice.
By investing in engaging incentives, luxury retailers can attract younger aspirational shoppers who don’t necessarily have the brand loyalty as those core luxe shoppers who’ve been buying their handbags for years. But simply participating in sales events and slashing prices won’t be enough.
While discounting and incentives might be relatively new to luxury retailers, they have had to learn fast in order to protect their margins and win during key shopping moments like Black Friday and Cyber Monday. Cash back is a great tactic that will help retailers compete here, as the cost comes out of the marketing budget and protects negative impacts on margins.
Adjusting “on the fly” can be difficult, but smart luxury retailers understand that aspirational shoppers want incentives that are unique. Providing a unique incentive doesn’t mean simply increasing discount rates. Instead, retailers are finding creative ways to stack incentives — for example, offering a 5% discount with a 5% cash back rate and the ability to buy now and pay later.
Creative incentives become increasingly important the higher the price point of an item. Luxury brands have historically shied away from discounts in fear of harming their brand image, but smart luxury retailers have been adopting these strategies for years now. Those that have taken the leap have been able to tap into aspirational shoppers and win share of wallet.
Help Shoppers Buy (and Sell)
Resale networks have made a massive impact on the democratization of luxury, creating more opportunities than ever before for shoppers to take their first step into luxe — while also leaning into the trend of purchasing luxury items as investment pieces.
While resale networks like The RealReal and Fashionphile helped grow the resale market, with luxury resale expected to grow to a $52 billion market by 2026, luxury retailers are starting to capitalize on that growth and create first-party resale networks that keep buyers and sellers within their own ecosystems. Now a shopper can buy a handbag from Gucci, wait for the item to appreciate in value and then re-sell for a profit without ever having to work with a third party.
But the price-conscious and the investment shoppers aren’t the only audiences luxury retailers are accessing when investing in in-house resale. There are several niche sub-categories of the luxury shopper who can be reached as well — from the sustainable luxury shopper to the vintage shopper and beyond.
Embrace Change
Even though inflation has been softening, shopper behavior hasn’t budged. The average shopper is going to wait for the best deals and incentives — something we saw clearly during Black Friday and Cyber Monday this past year.
Luxury retailers that choose to adapt and create points of entry for new, aspirational luxury shoppers are going to find long-term success. Investing in these strategies now will give them the opportunity to foster loyalty with new customers and help guide them throughout their lifelong shopping journey.
Someone who buys an aspirational luxury item today might end up becoming a high-end luxury shopper later when they have more discretionary income. Building relationships with that shopper now creates opportunities for the future. Those who choose to alienate the aspirational shopper will ultimately suffer financially — no matter how exclusive their brand may remain.
Julie Van Ullen is Chief Revenue Officer at Rakuten Rewards. She brings more than 17 years of sales and digital advertising experience to this role, where she leads the company’s revenue-generating, sales support and product marketing operations. Van Ullen was previously Managing Director and Head of Revenue at Rakuten Rewards, where she oversaw monetization strategies to bring the best merchants, consumer experience and value to Rakuten members. Van Ullen first joined Rakuten in 2018 as General Manager and later Managing Director at Rakuten Marketing (now Rakuten Advertising), where she led the U.S. commercial operations of a global leader in performance-driven, brand-driven and people-driven digital ad solutions. Van Ullen also has held leadership roles at Comcast, FreeWheel and OpenX.
