The Luxury-Retail Revolution

, 11 min read

A guest post by Dr. Christian Kurtzke,
Former CEO, PORSCHE DESIGN | MEISSEN PORCELAIN

How state-of-the-art artificial intelligence will change tomorrow’s luxury-(retail-)service experience.

It was the year 2000. Together with a former manager of the Xerox Palo-Alto-Research Center (PARC) I had just launched a digital venture which aimed at leveraging state-of-the-art Artificial Intelligence (AI) and digital web technologies, in order to enhance the performance of corporate global business processes. As such we also offered web-based collaboration and smart, topic-depending routing of questions from the field to globally-dispersed experts, in order to accelerate problem solving in complex sales & service- and research & development processes.

And here we were: In Kuala Lumpur, Malaysia, at the top of a pretty impressive building from where you could oversee the whole city – invited by the Head of SIEMENS Malaysia, to meet with a well-respected owner of a leading local conglomerate who had gathered a variety of businesses in his diversified company. Once we briefly introduced him to our references and capabilities, he surprised us with a question. “You know, I just have a very simple problem.”, he started. “I have a 5+-Star hotel where everything is just perfect. We simply don´t get the right solution for the concierge counter: Either there is no guest to be served, or a guest might have a question that our concierges cannot answer appropriately or they take the time to care for a guest´s problem and others are getting frustrated because they have to wait and queue. Can you solve that problem for me – can you build an eConcierge for me?” We looked at each other, decided not to pursue the opportunity, went for dinner and next morning we took the plane back home.

Today, almost 20 years later, it seems to me that this owner´s original request is actually at the heart of the upcoming luxury-retail-/service-revolution which has been enabled by dramatic progresses in the area of artificial intelligence (AI) in the past decades.

The digital “hare and hedgehog” game OR: Welcome to the World of Omnichannel

Let´s first clarify the business context: I know that we are currently witnessing a “race for fastest exit” from the physical store reality. “Do we need those physical stores at all in the future?”, “Just look at where all the growth is happening!” – these are typical statements that you´re currently hearing over and over in shareholder meetings and boardrooms. But this is probably just an overreaction of those who finally realized that the have been far too late in embarking on their digital (ecommerce) journey. Or of those who are generally struggling with defining the relevance of their brand for the next generation, the “millenials”. Be careful: if you rush out of a door today, that same door might be closed for you in the future. Don´t play the digital “The hare and the hedgehog”-game – don´t let the online pure-players buypass you a second time, as they are already reaching out for the best physical retail locations.

Online shopping experience with a smartphone
Image source: Stanisic Vladimir/Shutterstock.com

Of course, one should always critically review the physical retail network and challenge individual locations, and for sure we need to rewind some of the flagship-store excesses of the all too “glamorous” luxury past. But with all the rushing don´t forget: In the end the winners will be the one that adopted an “omnichannel” approach that blends fixed locations with surprising (flexible, mobile) popup stores and with a variety of digital (mobile) online presences that offer a smooth and exciting home-delivery experience. Certainly, your retail network of the future will no longer be dominated by static stores. It will become a differentiated, agile network of “touch & experience zones” where people can coherently engage with the brand.

So how will AI change the future reality of the luxury industries?

In that scenario, AI (and machine learning) will be relevant at many different levels of the business. In a nutshell, there are three main areas where it becomes most apparent:

First, there are many relevant processes that can be automated. For example, many companies still struggle with their retail replenishment. Or they employ dedicated people to regularly perform cumbersome and error-prone manual processing. Even relatively low-level, (rule-based) AI will ensure appropriate focus and drive efficiency within and across the enterprise – including its suppliers and distributors. The impact is obvious when you can be certain at any time that all of your best sellers will always be where they need to be so that you minimize chances to miss out on any sales opportunity. And yes, with a smart channel integration you could also ensure effective routing or send it directly to the customer home from regional hubs if – for whatever reason – you don`t want all your bestsellers at all locations. This would actually be some kind of “pre-caching”, similar to what Amazon does in order to optimize its global distribution or what Gucci and Farfetch have been working on for the fashion side – in order to further accelerate “fast fashion” for the future.

Then, of course, there is the question of relying on AI for mining all the tons of data gathered from customer interactions – the Business Intelligence (BI). Personally, I consider the Social-Media Listening as a part of that BI – from my perspective, it is actually a key component. Companies that do not master Social-Media Listening in the future will no longer really understand their customers and competitors, and they will end up like pilots flying a plane in the dark – with no instruments, just guided by their own intuition and guesswork.

Business Intelligence and Social-Media Listening – that’s where the benefits of the recent (deep-learning) advances in AI will open entire new perspectives in managing companies from a data-driven perspective. I consider this data-driven approach as the key-success factor for successful digital transformation, along with a sound and specific vision for the future business model(s). Of course only if the management is receptive to a data-driven reality which might actually impose a substantial challenge to (informal) power structures in a number of organizations that still believe that the “level of truth” of an insight correlates with the “level of hierarchy”. (Good news for all consultants out there: I doubt that the fact that those new insights will be gained by AI in the future will ensure their perceived relevance. So it will still require the role of organizational outsiders to get the relevant level of attention, listening and, eventually, decisions and actions. In other words: You´re safe.)

AI will drive efficiency gains and effectiveness. And a Revolution.

While the first benefit of AI in luxury retail mostly targets the organizations effciency, the second one targets the organizational effectiveness. But the third area of change will most likely be the most important. I believe, that we will see a real luxury-retail-service revolution.

“What has been the biggest revolution in retail so far?”

I believe that has been the transformation of our grocery stores from a personalized, consultative sales to self-service!

Maybe some of the readers are younger and haven´t experienced the „good old days“, where those giant economies-of-scale-driven supermarket chains were not yet predominant, where we enjoyed the richness of interaction and the background information of the service personell about this and that product and where we would surely get the personal welcome and touch. (To be honest, sometimes it was a very time-consuming experience).

I still remember very well how “impossible” and “cruel” it was for people to witness how the multitude of those smaller stores got killed and owners be forced out-of-business by the powerful chains. How diversity got killed and uniformity and standards got established. But the new supermarkets made the little store look old and out-dated. And this “impossible” transition from a “most luxurious”, personal customer experience in the grocery store to self-service was key for driving the growth of an entire industry and for coping with the increasing lack of time of an entire society. (Guess that´s called progress.)

At the time it was very hard for “normal” people to anticipate that development. Some even though that this substantial change of business model would be impossible. Well, don´t be surprised to hear that I believe that exactly that same transformation is about to happen in the luxury-retail-service-industry. As a part of the global digitization. And, by the way, in the meantime it has already happened in banking, at airline check-in counters, and probably in many more areas. And you really still believe that luxury-retail is so unique and different?

Just look at it from a luxury-customer´s perspective: I personally never want to wait in a store to be served. So just imagine that you´re shopping in a luxury cosmetics department: A smart mirror leads me to the new red lipstick that would be best for my skin tone, it would guide me step-by-step and teach me how it should be applied for best effects, inform me how I can combine that product with specific other products. And in the very same time it would have checked its in-store-availability in the background and added to the global statistics that another customer was interested in that new product and track how long this interaction would last and whether it would lead to a successful sale or whether something still needs to be improved at the product and/or process level. A new dimension of luxury retail.

A vision? Not at all, those products already exist and some brands are already experimenting with those „smart“, contextual-sensitive solutions at their points of sale. „Big-data is watching you.“

If you are interested to see some specific examples, I invite you to explore and experience the next SEPHORA beauty store or to take a look at the images taken by the Fung Global Retail & Technology team.

Did you notice: The future has already started

To give you a feel about how natural the interaction with those AI-based solutions will be you should listen to some of the examples of Lyrebird, an Montreal-based company that leverages AI-technology for delivering a more natural verbal interaction (https://lyrebird.ai/demo). And this is only the beginning.

Of course there need to be and there will be many discussions about that. But in the end, three qualities of this „self“-service interaction will decide about the adoption of such new technologies:

  • Convenience for the customer, i.e. how easy is it to interact?
  • Speed & Accuracy and Completeness of Service (incl. payment, packaging, etc)
  • Level of Understanding of the Customer

Actually, isn´t that exactly what a good sales person is all about? He/She makes it easy and an even memorable service experience, is fast and knows what is right for me and thinks of everything even before I had the chance to think about that myself. And, most important, recognizes me, knows me and understands me – no wonder that the right term is „customer engagement“. (Probably one the reasons why people love to go shopping once they had been frustrated at home). Well guess what: Tomorrow´s AI-based solutions will be better at most if not at all of the above three qualities. And in the end it is not that different, the only thing that changed is that the sales rep´s small black booklet where he/she kept note about the relevant information has been replaced by a big-data inventory – stored somewhere, most likely in the cloud(s). Scary? Most likely. At least for some of the traditional luxury brands that have already hesited quite a while before even embarking on the trip towards (rather simple) ecommerce distribution.

No way to run away from the future: the past is a dead-end

But ignoring the change won´t help. In fact, this inevitable change will be driven from two different sides:

First, the grocery stores have started with the transition to self-service much earlier. So they are better prepared (also in terms of internal structures) to make the second-step and leverage the power of those new technologies. But you can also start from the green field: “Amazon” is obviously a driver at the forefront of that change, – not only in its online world which already listens and communicates with you at home, but also in the self-service grocery stores that it has started to deploy under the “Amazon Go” brand. And yes, there you don´t even need to think about paying – just take the products away. It´s that easy. Convenience redefined. Let´s the traditional supermarket look pretty old-fashioned and out-dated. Who does not hate queuing in the supermarket, with almost 100 percent certainty of chosing the wrong lane?

One might argue that this evolution will not directly impact the luxury-retail-service reality. But at the same time, the introduction and adoption of new technologies will happen in the online world, in order to enhance and enrich the online experience which is key for driving growth. And that has an indirect and a very direct impact on the luxury brands: Actually, already today the biggest pressure on retail staff to train itself and keep up with new product developments is the customer himself who permanently educates him-/herself by using the web and social media. (Interestingly today even patients are better informed about effective and/or critical medications than some of the doctors that have spent relatively little time on the web and educational trainings in order to keep up with the evolution in the industry).

As a result, the luxury customers will simply become used to it. After a while, they will even expect the same convenience, speed, accuracy, completeness and same level of understanding in a physical retail store – particularly when paying a premium for a luxury-service experience. So there is no option. We have to start to experiment and to combine the best of both worlds.

And yes, before we forget that, there is a second digital Revolution, which is at least as important as this retail-service revolution: The creation of innovative digital products, digital services and, finally, new digital business models and ventures which will give us access to a whole new segment of businesses and growth. This is also particularly important as we will see a transformation of jobs from the “analogue” to the “digital” world – in a similar way that we have experienced the transformation from hardware- to software-centric companies in the past. Failing to drive that structural change of the human resources in the organization will cause substantial, even existential problems for the future. This is true for organizations and, of course, as well for entire national economies.

A personal note in the end

Not to be misunderstood. I fundamentally believe that there will always be a role for people in the luxury-retail-service landscape, as inherently luxury is centered on (positive) emotions. And there is nothing more fulfilling then positive emotions that can be shared and celebrated between people, even if it´s only for a magic moment. Despite the power of (technical) illusions, this last step of “fulfilment” can only be completed by a human being who is passionate for serving and selling to customers.

Like the concierge in the 5+Star-hotel in Malaysia, who not only gave me the right information for a perfect place for dinner that night in Kuala Lumpur, but also gave me the feeling that he just shared something very insighful and special with me: he almost revealed a little secret. This made me feel special. This made it precious – and isn´t that what luxury is all about? So let´s get started.

Dr. Christian Kurtzke

About Dr. Christian Kurtzke
Christian is an entrepreneurial executive with 20+ years of experience in leading and transforming global premium & luxury-lifestyle brands. Former CEO Porsche Design, CEO MEISSEN COUTURE and Principal, Boston Consulting Group.

Cover image source: Halay Alex/Shutterstock.com