Corduroy jacket by Ralph Lauren in the brand A store in Singapore retails for around S$900 ($693).
But a vanilla latte at a coffee shop? A steal compared to the S$9 price.
From Ralph Lauren to Coach, Louis Vuitton, Dior and Prada, luxury clothing brands are opening stores in Asia to connect with consumers who are increasingly prioritizing experiences over tangible purchases.
This is especially true for Generation Z, said Todd Kahn, CEO of Coach, “Squawk Asia Fund” Monday.
“Generation Z, all over the world, is really focused on self-expression,” he said. “Cafés (are) actually meant to expand that self-expression, this idea of community.”
Many Gen Z members are happy to share this “self-expression” online, leading to free word-of-mouth advertising for concepts like Coach’s “Chili Crab” soft serve ice cream, which comes topped with mantou or the brand’s fried bun, at the new café at Resorts World Sentosa.
New hook
Sunglasses and key chains may have been a gateway purchase to high fashion in the past. Today, new consumers can taste luxury at a lower cost – with the first handbags being purchased made from cake, rather than hand-stitched leather.
Khan said Coach’s foray into the food space began in Asia, where the company experimented with different food and beverage concepts. The brand is set to open a Coach-branded steakhouse at Singapore’s Jewel Changi Airport in October.
Ultimately, the company’s data showed that cafes “are probably the best format for us,” he said.
He said bus cafés in high-traffic areas are profitable in themselves. Furthermore, they sell more merchandise, often because shoppers’ companions have a place to rest and relax, allowing shoppers more time to stay.
“Where we had a café, we saw 15% to 35% better results in the core café,” he said.
He said that Coach has more than 980 stores globally, and its drive towards “experiential retail” may lead to the opening of more than 100 cafes around the world in the next four years.
Prices rise, purchases fall
Luxury industry profits nearly tripled from 2019 to 2024, according to McKinsey & Company’s State of Luxury report published in January. However, most of this growth – about 80% – came from price increases, not from higher demand.
A cappuccino at the Prada café on the second floor of Ion Orchard shopping mall in Singapore costs more than S$15 ($12, including tax and service charge).
Source: CNBC
Now futures for luxury goods companies are less certain, with sales falling 2% in 2024, triggering the industry’s first real slowdown in 15 years, barring the pandemic, according to management consulting firm Bain & Company.
“Traditional European luxury is up 10 times what it was 15 or 20 years ago,” said Coach Khan.
“I don’t feel good about having to tell someone you have to save up four months’ salary to buy a handbag, and the bulk of our products sell for $300 to $500, which is very achievable for young people,” he said.
However, Khan said, the coach’s strategy isn’t just about grabbing the attention of Generation Z.
“Soon we will talk about General Alpha,” he said.
CNBC’s Kayla Ling contributed to this report.
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