Composable commerce trends for luxury retailers

The stakes have never been higher for the luxury retail industry to meet consumer demand for personalized digital experiences across multiple channels, including taking a deep dive into new fields of augmented reality and virtual reality. We have already seen a major shift to digital as a response to the global lockdowns, with early adopters in the luxury sector achieving exponential growth – the share of online sales nearly doubled for personal luxury goods, growing from 12% in 2019 to 22% in 2021, reaching $70.1 billion. Younger customers (Gen Y and Gen Z) continue to drive this growth, and together, are set to make up 70% of the market by 2025.

But simply providing online sales is the absolute bare minimum of what is considered digital transformation in 2022.

In our new and increasingly all-digital reality we see immersive technologies like AI, ML, AR and VR trending, all with the goal of engaging modern consumers in commerce anywhere and everywhere with deeply personalized, convenient and relevant experiences. Furthermore, luxury brands are now evolving from providers of products to committed players in the push for a more digitally connected, sustainable, diverse and equal society.

The caveat? There is no single platform that is able to provide best-in-class capabilities across all aspects of luxury brand customer experience. The solution? Composable commerce.

How can you make the most of composable commerce for your luxury retail brand? Below we outline some of the top trends that leading luxury retail brands are implementing to maintain their competitive advantage and stand out from the crowd – all thanks to composable commerce.

If you aren’t on the customer experience personalization train yet, you better jump on fast! Key findings in Gartner’s State of Digital Commerce report show that 90% of surveyed marketing leaders are aggressively expanding their investments with a particular focus on digital-first value creation and customer experience.

Today’s customers, especially in the luxury retail sector, expect white-glove shopping experiences, personalized products, recommendations, offers, services and engagement. This means that personalization needs to be built into the core of customer experience and impact every point of customer engagement. Product discovery, product recommendations, loyalty programs, inventory visibility, supply chain agility, sales assistant engagement, virtual assistant engagement, checkout and delivery processes, and any other customer interaction points on the buying journey should work cohesively to build a 360° view of each customer to provide highly personalized, relevant and compelling customer experiences.

Take the Mulberry customer experience, for example. Powered by Tulip to extend the aisle from the full product catalog, through technology and data, Mulberry are able to tailor the customer experience with a personal touch across channels, including:

• Scheduling customer appointments;
• Personalized emails to clients;
• Individual customer notes

When it comes to delivering such tailor-made customer experiences, composable commerce makes it possible to implement best-in-class solutions for each of the following critical business functionalities.

A 360° Customer View drives personalized experiences by gathering and analyzing customer data, including online behavior, browsing history, user interactions and transactions, social media activities, and more, to generate a wide range of advanced signals and Next Best Action recommendations that help marketers focus on high level business goals related to their customers, including:

• Propensities to channels and brands;
• Estimated customer lifetime value;
• Propensity to try new products, increase consumption, or churn;
• Estimated replenishment cycles.

These insights are critical for building strong customer relationships, improving customer lifetime value, and achieving strong competitive advantage. In fact, our Customer Intelligence Platform, using modern, best-of-breed tech, has helped our Fortune 500 retail clients achieve double-digit improvements in conversion rates.

Not only do customers in 2022 expect a rich set of digital loyalty rewards enhanced with on-demand customer service, personalized, individually crafted collections, special offers and recommendations, they want it at every touchpoint.

To provide the highest quality experience for luxury retail customers, your loyalty solution needs to be tightly integrated with your 360° Customer View solution, made possible by composable commerce’s API-first architecture.

American Eagle Outfitters gets it right with their modern, omnichannel loyalty platform. Read the case study here: Reimagining customer loyalty with an omnichannel platform.

With the emergence of revolutionary new approaches to producing personalized and context-driven search based on semantic vectors, visual similarity and recommendation models, luxury retail brands can rest assured that new and existing customers are empowered to find what they want, discover what they may need and have a delightful experience throughout.

Established search products such as Lucidworks, and emerging products such as Google Cloud Retail Search and Algolia, are expanding and developing these forward-thinking ideas, with a focus on:  

• Semantic search for deep contextual understanding of customer search queries and extremely precise results;
• Visual search to enable customers to search for similar products by uploading a picture of what they want;
• Recommendations to provide customers with relevant, personalized product recommendations across the buyer journey.
  

Advances in augmented reality (AR), virtual reality (VR) and artificial intelligence (AI) have dramatically changed the shopping landscape, with digitally-savvy consumers demanding literally out-of-this-world buying journeys and captivating new experiences.

From the creation of digital 3D models of products and the ability to use your smartphone to virtually furnish a room in your home with true-to-size 3D products, to a virtual try-on or browse-through of the latest designer shoes, clothes, cosmetics and accessories via a mobile app or in store via an interactive mirror – augmented shopping is becoming a mainstream reality. And little wonder. The augmented shopping market is projected to grow nearly 50% per year through 2027, and, according to Shopify, digital interactions with 3D/AR products already enjoy a 94% higher conversion rate than for products without 3D/AR.

Take a tour through Ralph Lauren’s 3D virtual store, for example, to experience a reimagined shopping experience from the comfort of your home.

Taking immersive shopping experiences to enthralling new heights is the virtual utopia called the Metaverse. The Metaverse holds massive potential for luxury retail brands as an untapped marketplace for unique digital “products” or NFTs (non-fungible tokens) that are bought and sold using cryptocurrency such as Bitcoin. These virtual assets come with certificates that show ownership and are greatly influencing the growth of the metaverse concept, as well as the popularity of luxury brands.

Going direct to avatar (D2A) is the new Metaverse business model where brands are selling digital versions of products directly to digital identities. Brands like Ralph Lauren, Gucci, Nike, and Dior offer digital goods that enable customers to personalize and customize their avatars in the Metaverse with event-, season- or mood-inspired shoes, hats, handbags, sunglasses and more.

The next generation of digitally-savvy consumers is already actively participating in the proto-metaverse experiences of Roblox, Minecraft, Fortnite and similar immersive games, where they learn to procure, exchange and value pure digital goods.

Digitizing your products, whether it’s for your ecommerce store, in-store virtual showroom or in the Metaverse, should be a priority if you want to keep up with luxury retailers already actively participating in these spaces.

Social commerce combines the best of e-commerce and social media for a compelling buying journey that meets customers where they are. With social commerce, the entire shopping experience – from product discovery and research to selection and check out – takes place right on a social media platform. Not only does social commerce drive sales, but it plays a critical role in building brand identity, driving awareness and creating a community of brand ambassadors.

The most popular social media platforms used by retailers are Instagram (75%) and Facebook (74%), but the channel for luxury retailers to watch in 2022 is YouTube – thanks to the recent launch of the live shopping feature.

Following the composable commerce approach, going headless enables a centralized framework to manage the product information, promotion, customer data and loyalty details, which becomes key to ensuring consistent customer experience as brands scale across all of these different channels.

Speaking of selling across many different channels, you might imagine that the process of managing inventory, orders and fulfillment must be a challenge. With a monolith system – yes. With composable commerce – no. Integrating the best solution for supply chain, inventory and order management into your comosable platform allows you to manage and optimize these processes seamlessly from a single source of truth.

With composable commerce, you can leverage solutions for:

• Distributed inventory management with a single view on stock, and near real-time inventory views across stores, channels and geographies.
• Inventory management optimization with the use of AI, including demand prediction, safety stock optimization and order sourcing optimization.
• Supporting inbound and dropship inventory.
• Providing reliable estimated delivery dates and exposing it all the way to product discovery.
• Achieving tight integration with product search/discovery, making both digital and in-store-only products fully discoverable, allowing multiple nearby stores to be selected and products to be discovered with respect to BOPIS and in-store availability, and making estimated delivery dates available as filters.
• Mobile ePOS & extended aisle to meet the customer where they are in store and deliver targeted experiences.
• Last mile focus, personalized engagement and seamless international returns.

A great example of a luxury brand that successfully delivers such all-channel convenience is Mulberry. By implementing Aptos solutions for pre-season and in-season planning and PLM and Supply Chain Management, Mulberry is able to manage product development and sourcing faster and with greater efficiency.

“With the market calling for greater agility and our business constantly expanding both in terms of geographies and channels, we not only had new planning needs, but also new requirements in terms of sourcing, costing, as well as increasing overall merchandising responsiveness,” explains Richard Cunningham, Group IT Director at Mulberry.

Appealing to the new generation of conscious consumers is essential in a social economy where ethics, sustainability and the environment are a priority. The socially conscious consumer makes their values known through the purchases they make, deliberately buying ethically produced and environmentally friendly products. In fact, according to a recent study from GreenPrint, 75% of Millennials said they were willing to pay more for sustainable products.

Leading luxury retailers such as Selfridges & Co, through their “Project Earth” movement, are pledging their commitment to the environment with the following marketing strategies:

• Exchanging/reselling authenticated, used products
• Creation of emissions offsetting and climate action initiatives tied to sales
• Enabling charity donations at checkout
• Driving circularity through mystery box product offerings for unsold and leftover stock

Composable commerce opens up a whole new world of opportunities for unrivaled competitive advantage, but there are challenges to implementing it properly in order to effectively realize the rewards.

At the start of a composable project, thorough planning, careful thought and expert advice is needed before a decision is made about the final solution architecture and vendor selection.

During the development phase of the project, a definitive team structure needs to be in place – not only in development teams but also in the business teams – in order to truly leverage the benefits of composable technology.

And finally, during the ongoing deployments of your composable projects, a clear deployment and QA strategy is needed upfront to align the teams and leverage the benefits of the technology.

Delivering composable commerce projects is a tough learning process. If you want to accelerate speed-to-market on a strong foundation with best-in-class technology, choose Grid Dynamics as your co-innovation partner.