FASHION LOYALTY IS HAVING A MOMENT Apparel retailers have doubled down on loyalty—but at what cost?

By Rick Ferguson

Partner, Loyalty Wired

?

In the hyper-competitive fashion retail landscape, brand loyalty isn’t what it used to be. The rise of e-commerce, coupled with inflation and shopper cost-cutting, has made loyalty more challenging to cultivate and retain. To overcome these forces, fashion retailers are launching and revamping their loyalty programs to drive sales, deepen customer engagement, and deliver personalized experiences.

?

In their rush to deliver rewards, however, some retailers are paying a price. Members of Nordstrom’s Nordy Club, for example, have accumulated so many points that the company attributed their $39 million first-quarter net loss in part to Nordy Club enthusiasm.

?

That, friends, is a formula for training an unwelcome C-Suite spotlight on your program. Loyalty Wired retail correspondent Edilsa Bueno cautions retailers not to rush into loyalty without a solid financial plan.

?

“You have to know the cost up front,” says Bueno. “Loyalty programs are effective but costly, and the number one mistake retailers make is not doing the math.”

?

With that caveat in mind, it’s an exciting time for fashion loyalty. Here are just a few of the ways that fashion and apparel retailers have doubled down on loyalty:

?

The Cash-Back Ecosystem

Since acquiring Ebates in 2014, Rakuten has built a powerful cash-back ecosystem with over 3,500 retail partners, seamlessly blending cashback incentives with its technology platform. A recent internal study found that higher cash-back rates not only boost shopping frequency, but also increase average order values.

?

The launch of Rakuten+, an exclusive program for designer brands, aims to maintain brand value without resorting to direct discounts. Members enjoy at least 10 percent cash back on luxury purchases, allowing brands to expand their audiences without diluting brand equity. This approach has helped position Rakuten+ as a valuable platform for brands looking to foster loyalty among high-spending shoppers.

?

The “Phygital” Approach

Reward expenses aside, Nordstrom can point to definite wins. The Nordy Club exemplifies a hybrid approach of blending digital conveniences with in-person experiences. In Q1 2024, the program saw nearly 70 percent of total sales come from Nordy Club members in Q1 2024, a testament to its effectiveness in fostering brand affinity. Through curated in-store events such as “Make Room for Shoes” and beauty “happy hour” parties, Nordstrom has successfully drawn loyal members back to its physical locations. That blended approach is essential, as digital sales now account for 34 percent of Nordstrom's revenue, highlighting the importance of its omnichannel strategy.

?

Meanwhile, Foot Locker’s redesigned FLX Rewards includes a new app feature, “Store Mode,” that enable in-store product scanning and checking to bridge the digital and physical experience. The program allows members to redeem points for exclusive drops or enter raffles for limited items, leveraging customer feedback to make meaningful changes.

?

The Power of Personalized Loyalty

A recent PYMNTS Intelligence survey revealed that, although 83 percent of consumers appreciate personalized offers, less than half find current offers relevant. Victoria’s Secret, facing a 5 percent decline in comps for Q1 2024 due to shoppers cutting back on non-essential purchases, has seized on this gap by shifting to a multi-tender loyalty program to tap into a broader customer base and deliver more personalized marketing. The retailer’s new multi-tender program now includes 30 million members and covers 80 percent of sales.

?

While Macy’s has not gone full multi-tender, the retailer follows a similar approach by focusing on hyper-personalized, connected journeys and leveraging rewards as a private-label accelerator to the tune of 72 percent of sales driven through their Star Rewards program. Both retailers have invested in machine learning and AI to improve offer precision and deliver highly relevant communications that drive conversions and engagement.

?

Next-Level Engagement with Web3

In a bid to stay ahead of digital innovation, Hugo Boss has integrated blockchain and Web3 technology into its loyalty program, Hugo Boss XP. By offering digital tokens that serve as keys to exclusive products and experiences, the brand allows customers to co-create and access limited-edition items. Tokens like the Frequent Visitor Token and Hugo Blue Token reward in-store engagement and purchases, respectively.

?

While major fashion brands like Gucci and Prada have experimented with blockchain, Hugo Boss goes a step further by fostering deeper connections through token-based engagement. For example, users can unlock unique wearables or access future co-creation projects, making them feel part of the brand’s journey.

?

The Loyalty Turnaround

In April 2024, JCPenney launched a revamped rewards and credit program, aligning with its “Make It Count” brand positioning and its ambitious $1 billion turnaround plan. The program enables members to earn CashPass points at a rate of $10 for every $200 spent, with enhanced benefits for credit cardholders.

?

Notably, JCPenney has emphasized community support and positive change in its messaging that resonates with value-driven consumers. The brand promoted its program launch with a high-profile campaign featuring Shaquille O’Neal, alongside social media challenges to boost engagement.

?

How to leverage loyalty as a Business Driver

With retailers investing heavily in rewards, personalization, and omnichannel delivery, how can they avoid breaking the bank and impacting a corporate earnings call? Edilsa Bueno offers these three keys to leveraging loyalty to strengthen the bottom line:

?

·????? Key #1: Do the Math

“I’m a little concerned about a few recent launches from JCPenney and Target,” says Bueno. “JCPenney already has $500 million back in rewards with nearly double the rate. Target’s Circle Card now offers an extra 25 percent off instantly. By dialing up their rewards costs, they might run into the same issue that Nordstrom did.”

?

The key, says Bueno, is to deliver just enough in rewards to drive incremental behavior without overtly running up program costs. A classic funding technique is to deliver a low base funding rate while reserving the bulk of rewards to drive profitable behavior shifts.

?

“There has to be an equitable exchange of value for both the retailer and the member,” says Bueno. “When you just give rewards to any customers whether or not they’re engaged in high-impact behavior, that’s when you start bleeding costs.”

?

·????? Key #2: Clean Your Data

Personalization is a worthy goal, but success requires precious zero- and first-party data. That data must also be fresh. During JCPenny’s recent loyalty revamp, their marketing team discovered that their customer data was woefully outdated—in some cases, a decade or more old. Bueno advises retailers to focus on simplicity and identifying actionable customer behavior.

?

“Brands that do personalization well know customer patterns,” says Bueno. “My favorite loyalty program right now is Dermstore’s—they target me at my shopping cadence, send me offers when it's time for me to re-up my favorite products, and help me discover new brands risk-free. It’s a simple but effective one-to-one approach.”

?

·????? Key #3: Think Holistically

One common mistake made by C-Suite marketers is leaving the loyalty budget siloed from the rest of the marketing budget. Bueno encourages retailers to look at your marketing budget as an ecosystem designed to reward and recognize customers at every touch point.

?

“Create a customer experience that fosters loyalty,” Bueno says. “Take your entire marketing budget: Your digital spend, your promotions, your loyalty rewards, and target that spend to drive behavior and deliver ROI. The key is to create an ecosystem that rewards customers holistically, throughout their journey.”

?

The above keys aren’t the only tools to unlock the door to profitability—but they represent a good place to start. By focusing on loyalty as a business driver, retailers can make sure that the fashion loyalty renaissance lasts longer than a moment.

?

Rick Ferguson is host of the Loyalty Newscast and a partner at Loyalty Wired. To learn more, visit www.loyaltywired.com.