The endurance of premium retail in New Zealand

Customers don't just shop to obtain goods and services. At the higher end of retail, they're searching for a feeling - prestige, caring, attention, ambience.

On a recent trip to San Francisco I rummaged through more shops than my finances would have liked in pursuit of that feeling. My favourite offered handmade clothing – the product isn’t unheard of and, in itself, wasn’t groundbreaking, but the in-store experience could not have been faulted.

I could clearly see and feel that quality was paramount for this retailer, but the staff went out of their way to educate me on the product and share their story. I was shown where the clothes were made, the process and materials used, and where these were sourced from. I was sold. In fact, I was sold three times. I walked out with my new jeans and two shirts, feeling as if they’re worth much more than what I paid for them.

As consumers become more savvy and wield more control than ever before, the world of retail has experienced the rise and rise of ‘premium.’ But putting a definition on the term isn’t as straight forward as it used to be. And for retailers themselves, it’s heralded a new landscape where pleasing the masses is a much more interactive and fluid process.

The term ‘premium retail’ conjures different images for different people. It can be comfortably applied to everything from traditional luxury stores like Prada on the high street of a bustling metropolis to a small-town retailer offering handcrafted wares.

In the traditional sense of premium, New Zealand isn’t exactly a mecca, with few international premium retailers trading here. The ‘luxury’ segment of New Zealand’s tourism site ‘100% Pure New Zealand’ emphasises outdoor experiences like fly fishing and heli-picnics over retail, directing wealthy visitors keen for some shopping to upmarket boutique areas like Auckland’s Parnell and High St, and The Tannery in Woolston.

However, in recent years a number of large fashion houses have made their presence known, with the likes of Gucci, Louis Vuitton, Tiffany & Co and Prada setting up shop while Hugo Boss and Chanel have shown interest. First Retail managing director Chris Wilkinson has suggested that the appetite for international luxury brands in Wellington was a factor in attracting Australian department store David Jones, which opened its doors on July 28.

On a global scale, however, real growth in the premium goods and services industry has eased to between 1 and 2 percent according to a report by Bain & Company. The data gives a good picture of what’s happening at the top end of the luxury market, but it doesn’t capture the breadth of what is now considered premium. Louis Vuitton handbags are part of the picture, but so are handcrafted bags made from New Zealand deer leather, not to mention aged meats sold in supermarkets.

News of this easing is supported by Euromonitor International, which stated in its Global Luxury Goods Trend report that the industry is entering a new phase where conspicuous consumption is giving way to more meaningful luxury experiences.

This places New Zealand, somewhat surprisingly, at the forefront of global luxury trends. With a market that isn’t as interested in high-end spending as, say, Tokyo, where a 2003 study by Saison Research Institute indicated 92 percent of residents in their 20s owned at least one Louis Vuitton product, Kiwis have instead focused on satisfying our own unique market situation. New Zealand has a reasonably price-sensitive market, which coupled with the rise of Millennial consumers, has dictated the move into a retail model that’s heavily based around experiences.

There has been a marked increase in the ‘experience over product’ trend in recent years. Premium supermarkets are becoming more prevalent; businesses are sharing spaces to create farmers’ market-like environments, and even that mass-market juggernaut McDonalds has introduced table service. This focus on customer experience is becoming the new hallmark of ‘premium’ as consumers come to expect more than just a product.

A premium retail experience does need to have a certain level of “story” to it for sustained success. Mark Gascoigne, founder and principal of creative interior design and retail architecture firm Studio Gascoigne, says: “The whole ‘I’ve got a shop so people will come buy stuff off me’ doesn’t really work anymore - it’s about the story. There should always be an implied backstory to go with the experience, because in the absence of that, you’re just a product. And as soon as you’re just a product, people can go online and find a cheaper option.”

The fact that people can and do go online as an alternative to shopping at bricks and mortar stores can obviously be to the detriment of the physical store, but it can also push retailers into thinking about their brands more holistically. Retailers can gain useful knowledge from watching a customer proceed through their path to purchase online. The question is, how do retailers provide an equal or superior experience and create a ‘premium’ environment and offering for their customers? Especially when it’s likely their product or similar can be sourced elsewhere for a cheaper price.

“One of the biggest changes and challenges has been the consumer taking control,” says Gascoigne. He feels it’s that shift in power that has driven retailers to bring unique experiences to customers. “A lot of retailers don’t understand this - they have a shop full of seemingly great product that has been selling well for years, then all of a sudden it seems as if it’s not what the customer wants.”

Experience matters

There are a huge number of influences on a consumer’s perception of a store. Factors involved in the shopper’s journey towards the store, their time in direct contact with the retailer, and the post-purchase (or non-purchase) period all play a part.

Touchpoints that were previously integral in some stores are now more harmful than they are helpful. The in-store salesperson is a prime example, especially amongst Millennial consumers. Where previously a consumer would seek the knowledge of a salesperson for a purchase like a television or phone, they are now much more likely to know more about the product than the salesperson does. Information about products is now so easily accessible and comparable that the customer has become an expert.

Apple’s retail strategy is a great case study of this. The stores are filled with knowledgeable and approachable staff, yet the experience is based around the customer picking up and using the product, with the stores being designed specifically for ease of product interaction. They know that the consumer is likely already technically intimate with the product before entering the store. This strategy is part of the reason Apple is the worlds most successful retailer, selling US$5,546 of product per square metre of retail space.

Having a fancy fit-out to accompany good product and good customer service is no longer enough. Paul Izzard, director of Paul Izzard Design (PID) confirmed this paradigm shift saying, “It’s no longer just about the fit out, but the ‘quality’ of the offering.” The company works on interior, architecture, branding, and graphic design projects for a range of retail and hospitality clients, giving PID a unique perspective on the evolution of premium retail.

For a restaurant client, PID created a space based around the experience of an open kitchen. The customers get to see the client’s handmade pasta being prepared and meats being cured in a traditional way.

“It’s about entertainment and there’s no getting away from quality and the real deal - it doesn’t have to be expensive, it’s all about the quality of the experience,” says Izzard.

Barkers general manager, retail and operations Glenn Cracknell says the bricks and mortar retail market in New Zealand has been lagging behind its online counterparts for a while, but retailers can get ahead by surprising customers with experiences that online stores can’t offer. In 2014, Barkers opened a bold new flagship store in a heritage building on Auckland’s High St, teaming up with coffee roasters Eighthirty Coffee to set up an espresso bar in the entrance.

The store also offers a separate made-to-measure suit department which runs directly out of the store. To complete the picture, it joined forces with Matt Swan of Mensworks Grooming Lounge for the Groom Room – a barbershop on the mezzanine level of the store.

Cracknell says Barkers’ play for premium arose from growth in its suiting department.

“Our CBD business evolved dramatically with the development of our suiting offering and the environment in which were operating not being suitable,” he says. “When number one High St came onto the market we snapped it up quickly as we knew the environment was unique and something we would be able to develop into a world class experience.”

The new environment and in store experience has broadened the customer base for the company, Cracknell says.

“The mainstay of our weekday clientele is very much the corporate worker, with the weekend bringing a higher number of tourists.”

The launch of Louis Vuitton's store on Queen St in 2008.

Curation of product

While consumers are beginning to wield more power in the retailer-consumer relationship, an interesting paradox is occurring as companies create experiences by curating products to specific consumer types. In other words, telling people what they want to buy before they know they want it.

Of course, people have been told what to buy and have fallen for it for years - ahem, advertising - but it’s the same factors that have allowed people to become more aware of this happening that has given companies the ability to create irresistible packages for people to purchase. The internet, and the ease at which it disseminates, collects and collates data, coupled with the proliferation of social media have been instrumental in this.

Gascoigne used delivery meal-kit service My Food Bag as an example: “They’re telling you what you should have for dinner and that’s a lot easier for the consumer than going to the supermarket, deciding what to buy, going home and cooking from scratch.” Instead, celebrity chef and My Food Bag co-founder Nadia Lim sends the consumer what she feels is best, and because her opinion on food is trustworthy, they’re happy to pay for the privilege.

My Food Bag was the leader into the delivery meal-kit market, launching the service in 2013, however others have followed. Premium grocery Farro Fresh joined the fray with Farro Foodkits last year. Dylan Yelavich told The Register that, “With the fast pace of life, Farro Foodkits is a direct response to what our customers have been asking for over the last few years. They’ve been wanting to not only eat, but also prepare simple and delicious meals.”

Harnessing the power of social influence, Farro has also constructed a premium feel for its Foodkits experience with chef, author, and Masterchef judge, Ray McVinnie being the ambassador and recipe developer.

The numbers don’t lie, and this is an area of the industry which has been very well received by consumers. In May this year, My Food Bag had more than 35,000 active customers in Australasia and forecasts revenue for the 2017 financial year will be at least $135 million. For context, the company stated 15,000 customers in March last year with annual revenue of $40 million.

The precinct

The idea of having a precinct-style shopping centre isn’t at all new or revolutionary - malls have been and still are extremely popular in New Zealand. It makes commercial sense to place shops together into one space. However, as helpful and efficient as malls can be for shoppers, they aren’t exactly at the pinnacle of premium.

The 6.5 hectare waterfront precinct of Britomart is arguably the first area in New Zealand to deliberately create a more premium shopping environment. Saved from demolition in the early 2000s, restoration work began in 2004 and in 2012 The Pavilions was opened, giving consumers a complex of designer boutiques, courtyard gardens and hospitality spaces.

Retailers in the precinct offer unique community-minded events to increase engagement with their consumers and create a premium allure to the stores and the area. Nike Britomart organises the Nike+ Run Club which sees dozens of people convene on Wednesday nights to exercise and, subsequently, interact with Nike and its neighbours.

In keeping with this strategy, head of market intelligence Lorna Hall from trend forecasting company WGSN says brands are increasingly seeking to position their bricks and mortar stores as more of a lifestyle club, offering unique experiences that money can’t buy.

Despite the tragic events that were catalysts to its opening, the Re:Start container mall in Christchurch is a testament to the success of curated, premium retail spaces. After 30,000 people visited in its opening weekend back in October 2011, its 50 resident businesses have enjoyed sustained success in the years since. Statistics New Zealand has recorded a steady increase in both retail and hospitality sales for the city each year since the opening, with a rise of 32 percent compared with 25 percent for the whole country.

Where previously it may have been a frightening leap to move into close proximity to a competitor, retailers are recognising the benefits from synergies between themselves and other businesses. Rocket Espresso, a premium espresso machine manufacturer founded by two New Zealanders and an Italian has recently opened a store with a unique retail experience. The store is based on Ponsonby Rd and has gone down a not-so-traditional retail route.

At Rocket’s store, espresso machines line the black walls in a space that is shared by another retailer, Service Denim. The space also offers coffee and foodie treats from Atomic Coffee Roasters, so customers can literally browse racks of clothing with a coffee in hand, while they get their Rocket machine serviced. The offering from Rocket is, in itself, an experience - customers can test drive the machines to get a real-life feel for what is a very involved and big-ticket purchase.

Paul Izzard worked with the brands on the project and said, “It stems from the ‘precinct’ idea of Britomart and City Works Depot - it’s an experience where they all bounce off each other helping them improve their offering with the shared space.”

The world wide web

It’s taken a long time but it’s finally happening. Traditional bricks and mortar stores are seeing how important it is to have an online presence. Roy Amara, an American futurist said: “We tend to overestimate the effect of a technology in the short run and underestimate the effect in the long run.” A fitting statement when looking at the premium retail industry and its evolution during the past five years.

Both online and physical retailers have an equally valid place in the market but both absolutely must have a consistent and active online experience to even consider having a premium edge. Whether digital or physical, the rise of premium retail into a more experience-based offering is driven strongly by the connectedness and global nature of the internet.

“We are seeing a real move towards integration of online and bricks and mortar at the moment and that’s where the growth is in New Zealand retail - it’s the digital experience,” says Gascoigne.

The content creation and sharing capabilities of the internet - specifically social media - has given retailers the ability to ‘talk’ to their customers much more personally and frequently than before. And it’s this interaction which has helped shift the definition of premium retail into a new and exciting generation.

With practically all consumers being present in the social media realm in some way or another, they’re instantly open to the world. They can see what’s ‘cool’ in anywhere around the globe in real time and they naturally demand a similar experience in their own retail environment.

With that information at their fingertips, the consumer has become a powerful and sometimes uncontrollable spokesperson for your company. A consumer can relatively easily find out, on the spot, whether a product was produced ethically and sustainably or exactly what it was made from and where those materials were sourced. Then naturally, they share this information through their social channels.

Lion Brewery copped the sharp end of this stick as early as 2013 when it put out its range of ‘popular craft’ beers, Crafty Beggars. Its Facebook page fielded a number of comments from consumers who saw the brand as a cynical ploy by Lion to cash in on the growing craft beer category.

“Seriously crap beer, stop trying to be something you’re not,” said one Facebook user. You couldn't be further from craft beer. [Crafty Beggars] has no flavour or punch, just another big brewery cop out!”

Social media has become a mecca for the discerning consumer and because of its reach and the power of mass opinion, retailers are being forced to up their game and offer a genuine product or service. It becomes very hard to hide behind an offering that lacks integrity.

Paying hurts

Rapidly being eradicated as technology improves is the classic retail pain point: paying. No, retailers aren’t giving things away for free, they’re simply beginning to realise premium customers want to experience the offering and walk away with whatever is being sold without having to queue up or physically present cash or a card at a till.

It’s yet another measure to improve the customer journey through a store and create a more premium-feeling offering.

To step outside of New Zealand again and use a global retail leader, Apple stores have staff roaming the shop floor with devices that simply require you to tap your card. No queuing and no waiting for receipt - it’s sent to you via email.

Closer to home, Visa is working to give online retailers the ability to offer a better purchasing experience with Visa Checkout. The service will integrate with a retailers online store and essentially allow a secure one-click purchase of the contents of a consumers basket. Much like what Amazon provides with its one-Click ordering.

The curious case (study) of Countdown

Countdown isn’t known for its premium image within the market. In fact its slogan, ‘You can count on us, to keep prices down,’ and its in-store ‘Price Lockdown’ promotion seem to oppose the ‘premium’ label entirely.

However, with the opening of its first premium store in Ponsonby earlier this year, the company seems to have entered the premium retail space in a big way. And as it turns out, its strategy has encompassed each of the main factors that define the new experience-based retail offering that is giving more and more retailers a premium label.

Countdown is the first retailer to open in the $120 million Vinegar Lane development. It has carefully considered how it can offer a more premium experience here than the brand has done before. After a careful inspection of the future consumer base to better understand their shopping habits, in-store decisions were made.

Store manager Jason McQuoid told us, “We looked at the Ponsonby community to make sure we had a store that reflected it and the consumer base that we knew existed in this area. There are a lot of affluent shoppers that we know want a bigger range of premium products, so we’ve got an extra 2,200 products in this store. They’re almost all considered premium as well.”

Once the product offering was finalised, the team focused on the experience and how to make it feel premium through each touch point. With a range of new and premium products on the shelves, the company had to ensure consumers were being educated in how and when to buy and use them.

“We’ve employed three food specialists that have all come from hospitality. They’re chefs by trade and have come from a background of dealing with food and fresh ingredients. We knew our customers would want to learn about these products, so to help them and our team we’ve introduced the roles to help educate them,” says McQuoid.

The food specialists set up in store each afternoon to give demonstrations to try and demystify some of the products and provide people with a new arsenal of foodie ideas.

“They’re in store to have a yarn to customers about how and when to use what product - they’re there to not just serve the customers but have a conversation over food,” says McQuoid.

Along with the food specialists, Countdown has created a unique experience around the beer and wine selection - quite significant in itself, with 1600 wines and 136 beers. The employment of a sommelier warrants the huge local and international selection as knowledge of the wines is accessible through a real conversation with a real person.

Good examples of how simple aspects of a fit-out can contribute to a premium experience are seen throughout the store as well. Countdown Ponsonby’s aisles are wide – something many would not consider addressing, but truly, it makes a difference. Perhaps the biggest impact comes from the open service areas and much lower counters. It gives customer the ability to talk to service staff like butchers and fishmongers in a way that feels much more local and friendly.

And obviously, holding all this together and keeping the experience alive, are the staff. Countdown used recruitment software by Weirdly to base each hire entirely on personality. McQuoid justifies this strategy by explaining that the company wanted employees who would be willing to engage with customers and ensure their journey through the store is a premium one.

We’ve talked about the influence that the internet can have on stores such as Countdown, but from a commerce perspective, the internet is an obvious and lucrative opportunity to extend your offering and add an additional level of appeal. Countdown Ponsonby has attempted this with its click and collect service, allowing consumers to purchase online and collect from a private locker in the store.

BNZ data shows a 13 percent increase in online spending since 2014, with 2015’s spend now exceeding $3 billion.

Premium is the new premium

So the question is, is there actually more premium retail? Well, yes. The constantly evolving and varied definition of the term has created a market that relies much less on the premium-ness of a product or service and much more on the overall premium-ness of the experience that is on offer.

New Zealand is now getting competitors from a number of places: premium retailers are getting squeezed by online retailers peddliing similar or fake versions of what they’re offering; traditionally mass-market retailers like Countdown and McDonald’s are lifting their game; and businesses are becoming much more social media savvy, giving them the ability to converse with consumers in a unique and interactive way.

There is no doubt the premium end of the marketplace is getting more congested. Mark Gascoigne notes that, “Previously you had dirt cheap products, average products, good products, and very premium ones - now it’s much more mixed up.”

So, it appears that in this new and rapidly evolving age of retail that the more powerful consumer and proliferation of the internet and social media, have redefined what we think of as premium retail. It’s the combination of honest human interaction, considered store design and layout, a curated product or service offering, and clever utilisation of social media and online presence that makes a top-end retail experience.

This story originally appeared in NZ Retail magazine issue 745 August/September 2016 and on The Register.