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August 14, 2024
Should Department Stores Offer a VIP Experience?
When it comes to department stores, just 1% of the highest spenders contribute to around 25% of sales, while the top 20% of spenders are responsible for 80% of the stores’ revenue, according to Inside Retail.
As a result, South Korean department stores have been enhancing the VIP shopping experience in recent years by renovating their stores and expanding their concierge services for top-tier customers. One such retailer, the Galleria Department Store, opened up a VIP clubhouse location in late 2019 to tailor to its biggest spenders. Only shoppers who spend at least 40 million won a year have access to the special location and what’s inside.
CNBC reported that South Korea is home to the most luxury retail spending in the world per capita, but the U.S. is expected to generate the greatest revenue, totaling $77.3 billion in 2024, according to Statista.
The benefits of having regular VIP shoppers at a department store can be formidable. If VIP consumers enjoy repeat shopping, they will contribute regular revenue and can also bring awareness to other VIPs and consumers in general.
Retail Pro International, a software company, explained that having VIP experiences can build loyalty for luxury retailers. “Customers spending thousands of dollars expect to feel valued,” the company stated. “These programs go the extra mile for clients who are not only big spenders but often also influencers.”
Moreover, per KED Global, many VIP customers are foreigners. For example, Hyundai Department Store’s Trade Center in South Korea serves over 500 foreign VIP customers who consistently spend more than 10 million won per visit. This contributed to a 205% increase in sales from January to April this year compared to the same period in 2023.
The outlet noted that “to attract foreign regulars beyond duty-free items to department store products, Korean department stores have introduced loyalty programs exclusive for foreigners, including reward points. Hyundai Department Store has more than 30,000 foreigners registered to earn its reward points.”
Some luxury department stores even charge an annual membership fee to shop as a VIP. According to PYMNTS, London department store Harrods opened an exclusive club last year in Shanghai called “The Residence.” The fee to become a member is 150,000 yuan ($21,000) per year, though it is currently only offering 250 memberships.
Back to the U.S., the official Beverly Hills website has a page dedicated to its shopping destination in California. The site caters to VIPs by providing a page on the website that explains how to shop like a VIP in Beverly Hills, including booking private appointments and accessing private rooms at various luxury stores, along with special perks for those deemed VIPs.
For example, Tiffany & Co. has a third-floor salon, while Louis Vuitton’s Beverly Hills flagship welcomes Very Important Clients (VICs) “into a sitting room and outdoor patio to sip champagne as they shop.” High spenders can also access closed-off areas like the Burberry Penthouse and Saint Laurent VIP suite, which grant amazing views. Meanwhile, Neiman Marcus has a special team of stylists and fashion pieces for those who can enter the “Bloom’s Room.”
Although requirements differ for each particular store, the general consensus has to do with spending plenty while at the store, and some are special-invite only.
In Las Vegas, Hermès opened a 13,000-square-foot boutique last month, “complete with the first VIP salon location for U.S. consumers to have a completely private luxury shopping experience,” per FashionNetwork.com. Hermès CEO Robert Chavez said of the VIP area, “We did it because we do have a lot of high rollers and we want to be able to cater to them and pamper them.”
Discussion Questions
How can department stores balance the exclusive benefits for VIP customers with attracting and retaining a wider base of regular shoppers, given the disproportionate impact of high spenders on overall sales?
How might different approaches to VIP retail experiences shape future customer loyalty programs and store design innovations?
What are the potential risks and rewards for retailers investing in personalized, high-touch VIP experiences amid shifting consumer behaviors and economic changes?
Poll
Loading …BrainTrust
Dick Seesel
Principal, Retailing In Focus LLC
Paula Rosenblum
Co-founder, RSR Research
David Naumann
Marketing Strategy Lead - Retail, Travel & Distribution, Verizon
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For a luxury department store that relies on high spending shoppers, some form of VIP experience is probably helpful. However, this needs to add genuine value to foster loyalty. Mainstream department stores, like Macy’s and Kohl’s, do need some added-value services for high spenders. However, they are reliant on mass consumption to make their models work. That means getting the basics right is more important than focusing on VIP services.
Starting with the very basic disciplines of well merchandised and maintained selling floors!
Terminology – i.e. what is a “department store”? – often gets tossed around rather casually, and the perils of this are illustrated above: I saw no mention of Kohls, JCP or even macy*s; instead were noted Tiffany, Hermes and – in a grand gesture to the masss – Neiman-Marcus. The latter – except perhaps for NM (purely in terms of size and breadth of merchandise) – are hardly department stores…no one thinks of them as such, and they would either be amused or recoil in horror if you called them that. So I see two possiblities here: should high-end luxury stores offer a VIP experience? > Perhaps. Should department stores? > No.
Luxury stores often offer personalized shopping experiences, exclusive events, and tailored recommendations to create a sense of exclusivity for their high-spending customers. In contrast, mainstream stores like Walmart and Target may focus more on loyalty programs, discounts, and convenient services such as curbside pickup to retain their top customers.
Both strategies aim to enhance customer satisfaction, but they cater to different consumer expectations and shopping behaviors.
Personalization plays a crucial role in delivering excellent service to high-spending customers.
Advanced technology, such as AI and machine learning, can analyze customer data to tailor product recommendations and promotions specifically to individual preferences.
Additionally, augmented reality (AR) can provide virtual try-ons, and chatbots can offer instant, personalized assistance. These innovations help create a seamless and highly customized shopping experience for premium consumers.
By tailoring experiences to individual preferences and needs, stores can make their customers feel valued and unique. This not only enhances customer satisfaction but also fosters loyalty and encourages repeat business. Db
We’re mixing some apples and oranges here. Unless things have drastically changed, Korean department stores are more like multi-vendor bazaars than they are a single store. So it’s almost like the mall operator is creating the VIP experience. I’m quite good with that. In fact it might be a better idea.
the numbers presented certainly point to value in the VIP experience, yet we just spent some time bemoaning the Saks in San Francisco becoming appointments only. Same thing, sort of, no?
I also think it’s fair to say that true high end stores have similar things today.
the risk? Being perceived as classist. The reward? Know your customer better
High end stores already take care of their best customers. I’m sure there are perks a plenty for big spenders, so many the big spenders probably don’t even notice them anymore.
I like what Neil said about mainstream department stores adding value added services for big spenders. I’d prefer a twist on that.
What about added perks and services for loyal customers who shop those department stores on a regular basis? Those who shop those stores on a weekly/monthly basis. They may not spend a gazillion dollars on luxury goods, but they do spend thousands each year. Aren’t they important, too?
VIP offerings by luxury department stores are a form of loyalty program. Attributes such as extreme exclusivity, highly personalized attention, and anticipating and exceeding customers’ needs define the luxury brand-client relationship. While mainstream department stores rely more on technology and automated communications to engage customers, VIP luxury clients demand high-touch engagement supported by technology.
However, mainstream retailers can strive to create meaningful value-laden perks that reward desired spending levels. To have a lasting effect, these perks must surpass the unimaginative use of discounts, special sales, or other price-induced strategies.
Any retailer — whether a mass market brand like Macy’s, Kohl’s and JCP or a true luxury store — needs to build some sort of loyalty program around its highest-potential customers. This isn’t a new idea, but the methodology for middle-tier stores is not as dependent on high-touch customer service.
A better parallel would be airlines: They are also in the mass-volume business, but cater to their best customers with benefits like seat upgrades, club access, and so forth. These perks depend upon data science more than personalized service.
The question is, what is the ROI for concierge service in the luxury retail market? For some products it’s excellent. Certain customers expect high-touch exclusive services. And they reward the retailer with big purchases.
How can department stores balance the exclusive benefits for VIP customers with attracting and retaining a wider base of regular shoppers, given the disproportionate impact of high spenders on overall sales? They don’t have to. The 80/20 rule continues to hold true.
High-end department stores have known this forever. R.H. Macy probably took care of his best customers himself. There is nothing new here. High-end salespeople have the phone numbers and addresses of their best customers. They develop a personal relationship. I wonder if department stores forgot they used to do this?
I remember Dayton’s doing this – nothing new under the sun. What we’d call “personal shoppers” at the Oval Room in Minneapolis who could handle everything from outfitting full wedding parties to refurnishing entire houses, arranging world tours from tickets to steamer trunks and all the necessary clothing and articles. Trusted lifetime relationships and an encyclopedia of contacts all over the world. (sigh) Today we have Amazon?
Give the monied class what they want. Do that, with the strength of a already strong brand behind you (Sorry, this would not work at, say, a Belks) and you have a winner. Get strong customer service oriented sales associates on your payroll and Voila! – almost instant brand affinity and loyalty.
Now if only Department stores could get everyone else to start shopping there again, perhaps we would have reason for optimism in this segment again.
Luxury department stores have the “luxury” to provide extremely premium benefits and experiences for their VIP customers. Standard departments stores, which are in a challenging segment to differentiate and remain profitable, have a harder time of justifying the cost of providing expensive perks to their VIP customers. That said, I think they can learn from the loyaly programs in the airline and hotel industries that have been successful at providing tiers of loyalty benefits that truly reward those customers that spend more with their brands.
On the first question, “How can department stores balance the exclusive benefits for VIP customers with attracting and retaining a wider base of regular shoppers…” – The thing is they can’t and probably shouldn’t. Consumers who get jazzed up about being a VIP of a brand or store aren’t going to get the emotional rise out of being a VIP for a brand that increasingly caters to a wider base of “regular” shoppers. So they will be on to the next exclusive thing. Live by the sword, die by the sword.
“Luxury retailer” and “department store” are not interchangeable terms. And tactics that are core for luxury retailers may or may not make sense for most department stores. I’m not too worried about VIP’s being underserved at luxury retailers. I would be worried about over investing in VIP services in most department store locations. While I’m sure it would work in a couple of zip codes, most locations would be doing great just to elevate to the level of providing service, much less VIP service. Service…like stocking and maintaining the selling floor. Like occasionally running into a sales person on the selling floor instead of just having cashiers behind the register. Department stores do a pretty good job in investing in their “A” stores with high profile shoppers. And they are now closing a lot of “C” stores where they can’t make the math work any longer. The middle market is not going to be saved by offering VIP services. Skip the “Very”. There are still a lot of “Important People” shopping every day that would just like to be entertained by great product, great storytelling and great value.
A recurring theme in my reading and research ties back to the expectations of Gen Z and younger consumers just entering their peak spending adult years. It’s clear that the high end luxury department store has no relevance to them as a source of brand name goods and exclusive VIP experiences. That means that as older consumers age out of the marketplace, the relevancy of high-end department stores will go down, not up. This begs the question for department store executives; what are you doing to remain relevant for your target consumer, now and in the future? Doing what you’ve always done is not going to ensure your future, I believe…
The reason that Louis Vuitton and Lexus create so much attraction to do business with is that they “set the frame” with an experience design philosophy. This is done across their entire value chain to the consumer. It’s that glass of champagne you receive that sets the tone for the entire experience. It’s the cafe in the dealership that established the ethos of a coveted experience from which all others are measured against. They obsess about the user experience. For department stores to maintain their relevance in the face of Target and Walmart, they need a “separator” to distinguish their value proposition.
Shouldn’t every customer feel like a VIP? Just some VIPs are more important than others!
Seriously, a program that makes a customer feel important is powerful. The VIP services offered to higher-level customers can be a powerful way to create repeat business and customer loyalty. Most major higher-end retailers (Nordstrom, Saks, etc.) have personal shoppers who serve their best customers.
When I think of department store and the categories of apparel, I think about the transformation needed of the fitting room. This is as simplistic as gaining access to fitting rooms in today’s security conscious environment, but further (as Temu and Shein have demonstrated), its about empowering the customer’s smartphone while they are in the fitting room. It can be hard enough to locate product while browsing the store in-person, but if we can get that customer to the point where they fight through on-floor selection and access control to fitting room, let’s over-service the heck out of that while in there.