Lacking Exclusive Lines, You’ll Need to Add Value to the Products You Sell
Ira Friedman is the CEO of Bay Audio, a manufacturer of custom speaker solutions. He holds an MBA from the Harvard Business School. In 2008 Tiffany & Co’s stock traded around $26 a share, down from a 20- year high of $57 a year earlier. Today the stock is at $100. I use this example to illustrate the resilience of the luxury market, driven by wealthy consumers. Digging deep into the Tiffany numbers over the past five years shows consistent growth, strong margins, and a steady balance of sales, region to region. There are no accounting tricks, just consistent growth.
Tiffany’s success rests on its exclusive designs and in-house manufacturing, which represent the bulk of its sales. Tiffany operates stores, and it functions as a retailer, but in essence, it’s a custom manufacturer selling exclusive luxury goods direct to the public.
There’s something to be learned here. Look at other successful luxury merchandisers, from Zegna to Hermes to Ligne Roset. Each is a retailer, but each sells proprietary, in-house designed merchandise available nowhere else. These exclusive offerings are the mark of a luxury merchandiser.
In our industry, dealers have insisted on market exclusivity for decades. And some manufacturers of esoteric high-end products still play that game, granting exclusive market rights to a handful of resellers scattered across the country. But these are niche products that have little relevance in day-to- day integrated systems. This leaves the everyday dealer with virtually nothing “exclusive” to offer, and nothing “exclusive” to distinguish himself in the market.
Without exclusivity, it’s virtually impossible to be a luxury merchandiser. My local BMW dealer sells a luxury product, but you wouldn’t consider the dealership a luxury merchandiser; they’re just a conduit to a luxury product. The same is true of the online furniture store Design Within Reach, and the fancy men’s store in the center of town. These are all luxury resellers, competing with other luxury resellers one town over, or on the internet.
With that distinction, I suggest that integrators move from being luxury resellers to luxury merchandisers. The difference, primarily, is the exclusivity of the offerings. Luxury merchandisers rely on exclusive, in-house designed solutions available nowhere else. This sounds like an impossibility, of course, because the bulk of the products an integrator sells–from TVs to network devices, to certain control products–are commodities. But Tiffany sells simple chains and bracelets that aren’t much different than those available at Zales. The point is that Tiffany makes these chains and bracelets ever so slightly different, and this makes them exclusive.
Move from being a luxury re-seller, with razor-thin margins, to a luxury merchandiser, with the steadiness and profitability of Tiffany’s. This is a commodity: a Samsung UN65H7150
This is a not a commodity: A custom-calibrated Samsung 65-inch TV
You can see the difference, and you can see how simple it is to add value, and exclusivity to a TV. On the other end of the exclusivity spectrum are products you can have custom-made for your clients– products they couldn’t easily buy elsewhere. For example, you can add a custom motorized lift to that Samsung TV. And then you could specify a custom-configured soundbar and custom sized in-ceiling subwoofer. Add a control system with proprietary macros and graphics, and you’ve got a system that’s 100-percent exclusive.
Consider the plight of the luxury reseller: they present an expensive item, only to have it shopped elsewhere. The most successful luxury resellers are those who have the sharpest pricing on luxury goods. I can order a $50k Piaget watch, duty-free, shipped from a luxury jewelry store in Korea. All it takes is a quick internet search to find just about any expensive watch sold at a discount. But I can’t get a deal on Elsa Peretti jewelry anywhere, because her designs are only available through Tiffany’s.
Rethink the products you sell, and how you present them. Find a way to either add value (calibration), design (customization), or have them built-to-order (exclusivity). And make sure you describe these offerings in language that points out their uniqueness. This will move you from being a luxury re-seller, with razor-thin margins, to a luxury merchandiser, with the steadiness and profitability of Tiffany’s.