Hard luxury is characterized by an exceedingly low sales volume. Time-series forecasting methods are ineffective at delivering any kind of supply chain optimization. Yet, the quantitative optimization of assortments, stocks and prices is possible for hard luxury - even when looking at the most disaggregated level, e.g. stores.
Being located here in Paris we get exposure to some of the world’s finest luxury brands. However, forecasting for these luxury brands and the luxury market is a completely different ball game, based on extremely high value products and sporadic, often difficult to track, purchasing patterns.
In this episode of LokadTV, we learn a little more about the lucrative world of luxury products and try to understand how you can forecast for those items that we want and desire, rather than need. We learn more about the approach that is currently taken and why the luxury market is so unique from other industries from a forecasting perspective. Even in luxury brands, where one could think that money is no object, the pricing of a product has a real role to play. Assortment optimisation is also a major question that needs to be considered from multiple angles.
Here, we discuss how prices can be determined with such an intermittent and sporadic sales history and why it is paramount to hold stock within a store to create demand. Demand generation and truly understanding your clientele are two central elements when it comes to the luxury sector, this former element meaning that a talented Store Manager can often be indispensable.
We investigate Lokad’s take on the industry and learn how highly interconnected products and a highly structured market means that statistical optimisation can be successful. Finally, we go in depth on just why luxury brands rotate products and how to calculate the opportunity cost of taking a product away from the eyes of potential clients.
00:32 The luxury market is very different to some of the more classic markets we work with. Perhaps we could start with what makes it so unique from a purchasing perspective.
04:52 How do they know which items they should put on display?
07:52 How about pricing?
11:14 Are we saying that those luxury brands are sort of gambling to get the initial pricing right from the start?
13:17 What is Lokad’s take on this industry? It sounds like there is a lot of randomness going on here and sporadic sales, so what can we possibly do ?
17:37 Are we not actually predicting demand but optimizing the assortment of goods we sell?
18:55 What steps can a luxury brand take in order to work on their expertise, but also to improve on that and take into account a quantitative vision as well?