Luxury Institute's Three Most Dangerous Myths in Luxury and Retail Today

NEW YORK, NY--(Marketwired - June 01, 2016) -  As poor sales and earnings results continue to stream in from luxury and retail brands, Luxury Institute has been in the trenches witnessing the behaviors and causes of the decline. As they look back to one-on-one conversations and meetings they've had over the past three years with CEOs and C-level executives from management teams at many luxury and retail brands, the causes reveal themselves. The explanations for poor performance that Luxury Institute has heard are a reminder that many of the wounds in luxury and retail today are self-inflicted. They are also examples of the Dunning-Kruger effect, first documented in 1999 by Cornell University professors who concluded that people in many fields and professions are often unable to accurately evaluate their skills, and vastly overestimate their abilities, despite poor results. Today in luxury and retail, far too many executives are woefully unaware that they lack the skills to adapt successfully to a long list of challenges.

Luxury Institute has identified the three most dangerous myths that luxury and retail executives tell themselves, each other, and their shareholders, despite mounting evidence that their ineffective actions and inactions are the true root causes of the inability to successfully navigate the current storm. By their ignorance, they are putting their companies in the danger zone, and their own jobs in jeopardy. Just look at the rampant executive turnover currently taking place at all levels and functions of luxury and retail. Today, executives who can quickly identify and confront the brutal realities of the marketplace, develop a set of best practices, and take immediate, effective action come at a premium. Those who fail to get the job done in luxury and retail today seem to cling to outdated ideas and dangerous myths. Here are the top three.

1: "Yup, We're Already Doing That!"

The biggest and most dangerous myth in luxury and retail today is the widespread belief that companies are already doing all they can to achieve peak performance. Despite continuing to miss the mark, executives tell themselves and others that they are using the absolute best practices in critical areas such as employee selection, omni-channel compensation, front-line education, effective coaching, metrics, CRM technology, analytics, marketing, social media, inventory management, and a string of many other critical functions. Even in down times, if a brand is executing best practices, its results should significantly outperform those of its competitors. The fact is that most luxury and retail teams execute best practices poorly or not at all, and the dismal results in sales and profits demonstrate the deficiencies.

One vivid example of this trend comes to mind. Three years ago, Luxury Institute visited with a top-tier luxury brand's management team, having been invited by the head of retail, who was utterly dissatisfied with the retail training program and poor conversion and retention rates. The head of human resources, feeling offended, forcefully insisted that all of the best practices they suggested, including behavioral metrics and evidence-based coaching, were already in place. The head of retail left the brand frustrated six months later, and the poor performance persisted. Recently, the new CEO called Luxury Institute in again. The result was the same conversation, with the head of human resources annoyed, and insisting that the best practices were already in place. After receiving a call from the CEO following the meeting, he indicated that progress could not occur until the head of human resources was replaced. For more than a decade, one unskilled, yet highly opinionated, senior team member has held back a top-tier brand from achieving high performance on the front-lines. The company recently reported the latest in a long string of disappointing quarterly results.

Luxury Institute is often called in to conduct two to four-day senior executive alignment workshops in which they assist executive teams in confronting the great and not-so-great realities of their performance, and inspire them to chart a concrete way forward. Confronting harsh reality is often painful, but it can be done compassionately. It can be liberating to finally see huge opportunities for improvement. "Realizing exactly where you are, implementing the required best practices, and formulating a well-executed plan are critical to survive and thrive in today's luxury and retail landscape," said Milton Pedraza.

2: "Nope, We Can't Possibly Do That !"

When confronted with an innovative best practice, executive teams often reject the idea immediately, especially if it is extremely difficult to implement. Unfortunately, true best practices are usually 'best' because they are, by nature, very difficult to execute. Otherwise, everyone would execute them brilliantly. The first thing skeptics do is look left and right, and benchmark their competitors and the big consulting firms. They ask, "If our top competitors and the consultants are not doing it, how can this innovation possibly be actionable and effective?" That is why benchmarking is so dangerous in times of tumultuous change.

Take key performance indicators (KPI) and metrics, for example. Few practitioners truly realize to improve performance, measure not the results-based KPIs, but the causal and behavioral KPIs that create the results. Most brands in luxury and retail measure client data collection rates, conversion, average transaction value, and retention rates along with sales dollars. That is all well and good, but not effective in improving front-line associate performance. To improve data collection, identify, train, measure, and coach the exact behaviors that drive data collection. To improve conversion, average transaction value, and retention, one must identify, train, measure and coach the exact behaviors that, when executed better and better over time, lead to high performance. "However, that is extremely disciplined and hard work because you have to first identify the exact behaviors particular to each brand and category and how to do them precisely and well. Then trust sales associates to learn them, measure themselves, self-assess, and coach them in very specific ways," said Milton Pedraza.

Last year, Luxury Institute worked with a luxury brand's retail team. The best of the front-line team members developed their own training program in a workshop, and developed some very unique behaviors and metrics specific to their brand and category. They decided to use Excel spreadsheets to self-assess and report their daily behavioral metrics. They were excited to begin their high-performance journey.

Then, something really interesting happened. When Luxury Institute presented the program at a meeting with all the regional heads, there was mutiny in the room. The regionals adamantly rejected the new metrics as impossible to capture. They argued that sales associates could not possibly be trusted to self-assess and accurately capture their own behavioral metrics. In a moment of helping the clients to confront reality, Luxury Institute challenged the regionals. Was it that their people couldn't do it, or that the regionals would not allow their people to do it? Luxury Institute showed results from other brands that demonstrated it can be done, and showed that sales increased significantly. After constructively discussing the processes and coming up with simple solutions, the regionals finally agreed.

The first two months were messy for everyone, but welcome to the human race. In the third month, sales were up more than 20% and continue to show an increasing trend. Retention rates went up dramatically, too, driven by new specific outreach behaviors that were being measured accurately, if not perfectly, by the associates themselves.

Many luxury and retail brands believe that they can't possibly execute new innovations -- until they can. They need objective, trusted experts with a track record, who are willing to risk getting fired, to help them confront the reality of the marketplace, and the best practices required, and then coach them to high performance. Intellectual integrity matters, and it is in low supply today, just when it is needed most.

3: "I can do it, but I need more people, more money, and more time !"

It is amazing and impressive to see that even the stodgy U.S. military has adopted the enlightened management practices of extreme empowerment at the front-lines, where life and death decisions need to be made instantly and effectively. Meanwhile, luxury and retail brand executives still live by the command and control management best practices of the Industrial Age. Their stores resemble soulless factories when they should be transformed into thriving client relationship building centers.

The resounding cry of many luxury and retail executives today, as they reach crisis levels, is that they can only execute if they have more people, more money and more time. This reaction is based on the bigger-is-better mentality of the last century. Today, the reality is that less is more, far more.

Compare and contrast the approach of two luxury brands in the same category. The first reached out to Luxury Institute to deliver an army of external trainers to implement the new training program for a very large number of points of sale. They suggested that the client did not need to spend large sums for external trainers who did not understand their business. Luxury Institute recommended that their own store managers become the trainers, and master the program through teaching it to their associates. The company rejected their suggestions "because the decision was already made, and the budget was already in place," regardless of the fact that the lower cost approach would be more empowering, and far more effective. The program was executed the old-fashioned way with a traditional training company, which gladly took the money, and took one year to execute. This company continues to deliver mediocre results.

In contrast, a much larger competitor of the above brand approached Luxury Institute to help train their front-line associates. Their leaders knew that empowerment works, and recognized that Luxury Institute shared those same humanistic values. For this program, all agreed that the store managers would be the key initial learners who would master the program, and then would become instructors for their teams. Luxury Institute reinforced the program with videos and live Q&A sessions conducted virtually. The managers mastered the program and loved the idea of becoming teachers and coaches instead of bosses. The program lasted only three months and the project KPIs were exceeded, while sales went up significantly. The company won an award for its results, achieved with fewer people, less money, and far less time to execute.

Many of the luxury and retail executives who perpetuate the myths are extremely well-intentioned and good people, but this economic downdraft has caught many of them by surprise. Unfortunately, the telltale signs of a downturn, and the urgent need to adapt, were staring them in the face two years ago, and were certainly there last summer when Luxury Institute issued its Operations Optimization Checklist, July 2015.

In his latest book, "Peak," Dr. K. Anders Ericsson, one of the true pillars of the science of high performance and expertise, shares how even in the medical field, many doctors who have been practicing for decades, lack the critical skills needed for today's rapidly evolving medical landscape despite taking courses annually. In the medical field, as in the military, decisions are life and death. That is why Luxury Institute studies those fields to learn how to educate and coach luxury and retail executives. According to Ericsson, "Research into the mental processes of the best doctors has shown that while they may have prepared medical plans before they start, they regularly monitor their surgeries in progress and are ready to switch gears if necessary." These top doctors, he states, "have developed effective mental representations that they use in planning the surgery, in performing it, and in monitoring its progress so that they can detect when something is wrong and adapt accordingly."

Today's luxury and retail executives must get past the most dangerous myths they believe today. Instead they must continuously learn, innovate, test and execute best practices faster and better than ever before. That requires being honest, not brutally, but compassionately honest about what is working, what is not, and adapting real innovative solutions with fewer people, less money, and in far less time than in the past. "By shattering the three myths, take charge of your team and your own performance right now," said Milton Pedraza.

About Milton Pedraza and Luxury Institute, LLC

Milton Pedraza is the CEO of the Luxury Institute. Over the past 12 years, Milton has established the Luxury Institute, first and foremost, as a high-performance client relationship consulting firm serving more than 1,000 luxury and premium goods and services brands across dozens of categories. The Luxcelerate System has helped brands significantly improve client data collection, conversion, and retention rates. In addition, the Institute has conducted more research with affluent consumers and online and offline front-line sales teams than any other entity in the world.

Milton advises and coaches luxury CEOs and advises the boards of top-tier luxury and premium brands, as well as luxury startups. He is sought after worldwide for his practical, innovative and humanistic insights and recommendations on luxury and is the most quoted global luxury industry expert in leading media and publications.

Milton is also an authority on customer relationship management technologies, analytics, and Big Data. Prior to founding the Luxury Institute, his successful career at Fortune 100 companies included executive roles at Altria, PepsiCo, Colgate, Citigroup and Wyndham Worldwide.

Milton was born in Colombia, raised in the United States, and has lived in several countries. He has conducted business in over 100 countries, and speaks several languages.

For more information and additional insights visit www.LuxuryInstitute.com, or contact Luxury Institute CEO Milton Pedraza directly with questions (mpedraza@luxuryinstitute.com).