Distribution strategy decisions for luxury fashion brands

Posted in: Academics, Marketing on November 17th, 2014

Note: This was written for a marketing course I took in 2011 as part of my Master of Marketing program. It has been edited for this blog and to protect the privacy of the other students involved. This post was part of a discussion regarding distribution strategies for a luxury fashion brand, XYZ Fashion. The post is in response to another student who had advocated for XYZ Fashion to setup exclusive partnerships with up-market department stores. 
Fancy shoes!

I would advocate for XYZ Fashion to setup a chain of company owned and managed boutiques, henceforth known as flagship stores.

In regards to financial investment, your point about not having significant financial investment [for flagship stores] is unfounded and I believe the financial investment required would not be prohibitive. If we consider that XYZ Fashion is a couture brand, there are only a limited number of areas in the US that could bear the prices of haute couture, and they are concentrated in or near major cities such as Miami, San Francisco, Los Angeles, Chicago, and New York (City-Data, ND; Gopal, 2009). Also, Martinez-Ruiz, Matinez-Carabello and Amatulli (2010) suggest that there are opportunities for luxury store success in prestigious tourist locations. In the US these could be areas such as Hawaii and Las Vegas, as well as some of the aforementioned areas. Therefore, XYZ Fashion would not need to open a large chain of stores; they could instead focus on a small number of flagship stores in high traffic, luxury shopping and tourism areas. Examples of these areas are Rodeo Drive in Beverly Hills, 5th Avenue in New York and the Grand Canal, Las Vegas .

Moreover, Moore, Doherty and Doyle (2010) posit that purchasers of luxury fashion items tend to shy away from large department stores, and that customer visits to flagship stores enhance customer engagement and interest in a brand. Pollit (2011) explains that customer-focused staff who are able to personalize their sales strategy to individual customers increases sales in luxury stores.

Although department stores could have [as the student had suggested] “highly trained staff”, it is not possible for employees to harness the depth of knowledge of the XYZ Fashion brand relative to staff in a flagship store; they must be familiar with the many other brands that department stores carry, therefore, diluting their knowledge of XYZ Fashion. Therefore, I believe that flagship stores provide a superior shopping experience, and that the personal service, exclusivity and special attention, that is demanded by luxury consumers is best satisfied by distribution through flagship stores.

Finally, this quote from the Journal of Strategic Direction (2005) sums up the purchasing behavior of luxury customers and hints that the use of reference pricing could be beneficial to Luxury retailers. Setting up flagship stores in high-fashion shopping areas can provide XYZ Fashion the opportunity to utilize an undercutting, reference pricing strategy.

The strategy [for selling Louis Vuitton products], although undoubtedly much more sophisticated and complicated, seems to go like this. You make a few handbags that the world’s wealthiest women must have, stick on an enormous price tag and watch and wait. The good fortune of those who acquire one translates into envy among those who don’t. They console themselves with a cheaper (but still extremely expensive) bag and think “What a bargain.”

References:

City-Data (ND) Top 100 cities with highest median household income (pop. 50,000+), viewed 30 July 2011, http://www.city-data.com/top70.html

Gopal, P. (2009) The Wealthiest Towns in America, Bloomberg Businessweek, viewed 30 July 2011, http://images.businessweek.com/ss/09/03/0317_richest_zips/1.htm

Martinez-Ruiz, M.,P., Matinez-Carabello, N., and Amatulli, C. (2010) Tourist destinations and luxury commerce: business opportunities, Journal of Place Management and Development, 3, 3, pp. 205-220, viewed 30 July 2011, http://0-www.emeraldinsight.com.library.newcastle.edu.au/journals.htm?issn=1753-8335&volume=3&issue=3&articleid=1889812&show=html

Moore, C., M., Doherty, A., M., Doyle, S., A. (2010) Journal: European Journal of Marketing, 44, 1/2, pp: 139-161, viewed 30 July 2011, http://0-dx.doi.org.library.newcastle.edu.au/10.1108/03090561011008646

Pollit, D. (2011) Training helps salesforce to sparkle – Program develops listening skills at jeweller, Human Resource Management International Digest, 19, 1, pp. 15-16, viewed 30 July 2011, http://0-www.emeraldinsight.com.library.newcastle.edu.au/journals.htm?issn=0967-0734&volume=19&issue=1&articleid=1901942&show=html

Strategic Direction (2005) Vuitton bags the affluent customers How luxury-goods companies woo the wealthy, Strategic Direction [Journal], 21, 7, pp. 5-7, viewed 30 July 2011, http://0-www.emeraldinsight.com.library.newcastle.edu.au/journals.htm?issn=0258-0543&volume=21&issue=7&articleid=1500284&show=html

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