Insights

Artificial Intelligence and the Role of Digital Transformation in Redefining the High-End Retail Landscape

The luxury market, long associated with exclusivity and tailored experiences, is beginning to unlock some of the potential of Artificial Intelligence (AI) but luxury brands face a pivotal challenge – embracing AI’s transformative potential while preserving the essence of luxury. Our Director of Digital Transformation at Squircle Capital, Nic Olivé, looks at the role of artificial intelligence  in redefining the high-end retail landscape in his latest article for Luxury Briefing.

In the ever changing landscape of luxury retail, a remarkable transformation is underway, driven by the convergence of data, Artificial Intelligence (AI) and digital technologies. It’s a shift that holds the promise of redefining the very essence of luxury retail. This wealth of data and technology is being harnessed to not only enhance customer experiences and tailor marketing initiatives but also to streamline supply chain operations, ultimately creating personalised shopping experiences that resonate deeply with luxury customers.

While the industry has for several years explored new digital frontiers such as the Metaverse and experimented with technologies like Blockchain and NFTs, it is AI that has emerged as the real gamechanger. Indeed, the luxury market, long associated with exclusivity and tailored experiences, is beginning to unlock some of the potential of AI.

AI empowers individuals in the workplace by automating mundane, low-value tasks and providing predictive insights to facilitate decision-making. Across the luxury industry, the prevalence of AI-driven assistants is also on the rise, offering valuable support and enhancing human capabilities. This of course frees up workers to spend more time providing the premium service that high-end consumers expect.

Unlocking the power of personalisation and immersive shopping experiences

At the heart of this revolution is personalisation. AI allows brands to analyse customer behaviours to curate highly tailored recommendations, offers, and experiences. This is far from the one-size-fits-all approach that has plagued digital marketing in the past. It makes every interaction with the brand feel uniquely personal, a reflection of the customer’s identity and aspirations.

Virtual reality (VR) and augmented reality (AR) technologies are also being used to craft immersive shopping experiences, enabling customers to virtually try on clothing, jewelry, and makeup. This approach serves a dual purpose: it enhances customer engagement and assists shoppers in making more informed purchase decisions. In doing so, it addresses one of fashion’s long-standing challenges — inconsistent sizing, which has the potential to substantially reduce return rates (good for the planet in reducing the ever-growing challenge of carbon footprint within the industry) while significantly boosting conversion rates, even at the luxury end of the retail market.

When customers feel seen, understood and valued, they are more likely to make a purchase and return to the same brand, fostering a genuine sense of loyalty. According to a survey from Klarna, 65% of respondents aspire to see shopping experiences become more personalised in the future. Additionally, 23% of those surveyed expressed a willingness to rely on AI for guidance on clothing choices that best align with their body type and style preferences.

AI has the ability to improve conversion rates by serving up products and experiences that resonate with each customer. It can also identify patterns of behaviour that signal changes in a customer’s preferences, allowing brands to adapt accordingly.

Our experience at Squircle Capital with one of our portfolio companies, a luxury fashion label, highlights the potential of leveraging AI tools in luxury retail. In early 2021, we utilised a specialised AI marketing tool to analyse our customer database, categorising it into distinct Customer Lifetime Value (CLV) segments and buyer personas based on their product purchase preferences. This strategic move allowed us to initiate a more personalised and refined approach to our marketing campaigns, yielding positive results: We observed a 43% increase in the conversion rate.

These outcomes underscore the impact of AI-driven personalisation on marketing strategies, demonstrating its potential to significantly enhance conversion rates, revenue generation, and customer engagement.

Embracing digital transformation while preserving luxury

Luxury brands face a pivotal challenge — embracing AI’s transformative potential while preserving the essence of luxury. To embrace this change, luxury brands must adopt a tech-forward mindset.  This transformation starts at the top, with executives and managers championing AI as an enabler of excellence, not a replacement for it. This frees up employees from tedious tasks to focus on the strategic and creative aspects of their roles.

Digital transformation extends beyond customer-facing aspects. From automating design processes to predicting demand patterns, it can help reduce costs for luxury retailers by automating and streamlining tasks, optimising supply chains, improving inventory management and speeding up production timelines.

For AI to continue working, customer appreciation of the impact the technology has is especially important. AI can help optimise design, materials, and production processes. It can also predict trends, ensuring that a brand’s collection aligns perfectly with evolving customer preferences. Additionally, AI can facilitate sustainable practices — a growing concern for luxury consumers, by helping brands optimise their supply chains and minimise waste.

Looking ahead

The future of luxury retail is unfolding before our eyes, and AI is at the forefront of this transformative journey. Personalisation, improved conversion rates, reduced costs, minimising waste and improving the carbon footprint whilst enhancing customer loyalty and improving brand image are just the beginning of AI’s impact. It also offers a unique opportunity for brands to create unparalleled and engaging experiences that resonate with customers worldwide. As these technologies continue to develop, they will become even more important for retailers who want to remain competitive in the luxury market.