Under the stress of the pandemic, e-commerce grew quickly as a wider audience adapted to variations of a “new normal” where consumers prioritized safety and health.
As people all over the world began shopping for essential and non-essential items online at a rapidly increasing rate, consumer behaviors shifted, creating new demands, and raising expectations for retailers across all categories. For the luxury sector in particular, the digitization of retail has given brands access to a wider audience that expects an elevated omnichannel experience, which includes seamless checkouts online and in-store, personalization, and engagement through social media.
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A recent survey conducted by Klarna, the leading global payments and shopping service, found that 39 percent of consumers think luxury brands are lagging behind high-street fashion brands and retailers in digital and e-commerce offerings.
According to Sebastian Siemiatkowski, cofounder and chief executive officer at Klarna, winning today’s luxury shoppers requires a consumer-centric approach that starts with understanding who the new luxury consumer is and then offering a holistic experience. It’s about creating an experience that brings together what luxury consumers love about shopping in-store with new behaviors learned from digital convenience.
Klarna’s network of over 250,000 global retail partners includes LVMH and Kering brands, Net-a-porter, Farfetch and Burberry, among others.
Here, Siemiatkowski shares insights into the behaviors and demands of the new luxury consumer, using consumer-centric data to enhance a brand, and the value proposition of offering flexible payment options.
Fairchild Media Group: How has the luxury sector changed in the past 19 months?
Sebastian Siemiatkowski: With the digitization of the retail industry and rising consumer expectations, luxury brands have had to pivot their strategies to reach and engage wider audiences in new ways and create a smoother omnichannel journey that marries their online and offline experiences.
The luxury sector has experienced accelerated growth in e-commerce as consumer priorities have shifted and behaviors moved to shopping online. Today’s luxury consumers are purchasing investment pieces that are built to last, valuing sustainability and mission-driven brands, and demanding flexibility and transparency in how they shop and pay.
FMG: What are the attributes of the “new luxury consumer” and what do they expect from brands?
S.S.: According to Bain’s 2021 Luxury Market Report, 40 percent of the global luxury sector today is occupied by Gen Z and millennials, and Klarna’s own survey data suggests 39 percent of consumers think luxe-brands lag behind high-street fashion in their digital and e-commerce offerings. Today’s luxury consumer is digitally savvy and smart about how and where they discover their investment pieces. They embrace technologies that create fun and frictionless shopping experiences, such as alternative payment solutions and livestream shopping, and expect the luxury brands they love to follow suit.
The brands that offer a convenient and more connected shopping experience while incorporating a feeling of exclusivity will ultimately win the hearts and wallets of the new luxury consumer. For example, TELFAR enables shoppers to tune in to exclusive live content drops and broadcasts with the ability to shop for its coveted items in real-time using Klarna.
FMG: As Klarna expands globally, how has the audience and demographic cohorts changed, and what does that mean for brands?
S.S.: Audiences that have never purchased an item online before are now online grocery shopping and finding the experience a lot more convenient. As more demographics shift to e-commerce and adopt alternative payment solutions like Klarna, the platform continues to grow and we see increased customer acquisition opportunities for our merchant partners globally.
FMG: What role does social media and the digitalization of luxury fashion play in shaping their behavior?
S.S.: Nearly 80 percent of luxury sales are digitally influenced, according to McKinsey & Co’s Luxury Report, and twice as many luxury shoppers own multiple digital devices compared to the average shopper, according to Klarna data. As more luxury consumers shop online and across various devices and channels, social media continues to play a significant role in a consumer’s discovery and purchasing habits. Luxury brands that are catering to these habits will see increased sales and average order values.
Our Bvlgari x Klarna Pink Edition partnership, for example, combined Klarna’s bold pink branding with Bvlgari’s luxurious products to create a curated collection of accessories. The collaboration was promoted across Klarna and Bvlgari’s social media and online channels and ultimately increased Bvlgari’s brand engagement and affinity with shoppers.
FMG: Why are physical stores important to these consumers? What role do stores play in forging an emotional connection to them?
S.S.: Klarna’s 2021 Holiday Report reveals that despite the rise of e-commerce, physical retail stores are still beloved by shoppers more than ever, with Gen Z more likely to hit shopping malls this holiday season than all other age groups. Physical stores offer an emotional and human interactive element that e-commerce has historically lacked due to its transactional nature.
The brands offering the best customer experience are those that are thinking about how to create a seamless, engaging and personalized journey both online and offline.
Burberry’s social retail store in China is a great example of a luxury retailer that is blending the digital and physical world with an immersive in-store customer experience. As one of the first payment companies to roll out an in-store product, Klarna is working with retailers to provide elevated experiences across nearly 80,000 physical store locations globally.
Additionally, our continued expansion into virtual shopping now enables our 90 million global customers to connect with physical store associates from the comforts of their homes in real-time, allowing retailers to act like peer-to-peer influencers with their customers.
FMG: What is the value proposition for luxury brands that offer flexible payment options?
S.S.: With 40 percent of the global luxury sector occupied by Gen Z and Millennials today, and data from Klarna’s Luxury Report revealing that one in two people will spend more if they can pay flexibly, there is a massive opportunity for retailers to reach audiences that are embracing alternative payment solutions when shopping luxury.
By allowing shoppers to pay for higher-ticket items when they want, on their own terms, retailers can ultimately acquire new customers, improve engagement, and increase conversion and sales. Out of Klarna’s network of 250,000 retailers globally, luxury partners saw 74 percent engagement rates from Gen Z and Millennials from our co-branded marketing campaigns and 20 percent average increases in conversions. One of our luxury partners saw that 60 percent of shoppers who checked out with Klarna were new to their brand.
FMG: And what is the value proposition of flexible and installment payment options for the new luxury shopper?
S.S.: Luxury shoppers, especially Gen Z and Millennials, are increasingly demanding easier and more convenient ways to shop and pay. Ninety-million customers globally choose to shop with Klarna because they can pay more flexibly, but also because they get exclusive access to product drops, curated content and fashion inspiration, and one place to track all of their shopping activity. We help luxury retailers provide an enhanced shopping experience across in-store and online channels which increases engagement, conversion rates, and sales.
FMG: What data is generated by Klarna and how is it used?
S.S.: Data must be approached from a customer-centric perspective first, which then benefits luxury retailers. Data provides a unique view into buyer behavior, enabling luxury brands to create a much richer, more personalized post-purchase shopping experience for consumers. At Klarna, we have access to sku-level data and digital receipts when we process transactions, which helps drive additional incremental sales on behalf of our retail partners while simultaneously enhancing the shopper’s experience. Customers can receive more curated content and deals based on previous purchase history, so they feel like their data is working on their behalf for a more personalized experience.