Traditionally, luxury brands have been slower to embrace the digital opportunity. Keen to maintain their brand heritage (and a mystique, perhaps), high-end retailers have generally avoided ecommerce and creating direct relationships with their consumers across the world wide web. Econsultancy has written many times about the issue, with focus on brands such as Prada and Louis Vuitton, struggling to find good examples.
More recently we’ve seen more luxury brands move, and improve, online. Usually starting small, with reduced product ranges, limited advertising and often a pretty poor user experience (websites focussed on brand rather than conversion), luxury brands are through the testing phase and can no longer ignore the promise of ecommerce.
According to a recent report from McKinsey, Digital inside: Get wired for the ultimate luxury experience, “[Online luxury sales] reached 14€bn in 2014, a +50% vs. 2013. The importance of the digital business opportunity makes it now a must for all players, and a key source of revenues growth.” Growing faster than any other sector, luxury ecommerce generally involves retailers as opposed to brands. The report highlights localised trends, noting that greater luxury ecommerce penetration in the UK is a result of more “digital savvy among UK consumers” as well as “the significant quality and quantity of online offerings.”
The sectors with the highest penetration of online sales are beauty (7.2%) and ready-to-wear apparel (also 7.2%), with accessories at 6.2% and watches & jewellery at just 4.1%. The report argues that, while this may be driven by price differentials, the differences are also due to the strength of ecommerce offerings in those categories.
Finally, the report predicts that “luxury’s share of online sales [will] double from 6 to 12 percent by 2020. By 2025, we expect the online share of total luxury sales to be 18 percent, worth about €70 billion annually, making e-commerce the world’s third largest luxury market, after China and the United States.” So how is this going to happen?
The winners and losers
The high-profile merger of Yoox and Net-a-Porter, in part a reaction to new entrants to the luxury ecommerce space, clearly shows the importance of a strong grasp on digital. Net-a-Porter is number 8 in L2’s Top Digital Retailers thanks to innovations like The NetSet app (a combination of social content, slick payment processes and even visual recognition technology).
Another superb example from the world of luxury and digital is Burberry. From winning London Fashion Week on Twitter to sizzling 24-hour Snapchat campaigns shot by Mario Testino, they are doing big things with digital and reaping the rewards. Since moving 60% of its marketing budget into digital in 2012, Burberry saw sales rise 19% between 2013 and 2014, and a further 15% the following year.
Indeed, according to the McKinsey report, the share of ecommerce is largely held by ‘aspirational brands like Burberry’ as well as more attainable luxury labels like Longchamp. “For foundational, high-end brands like Dior, Cartier and Chanel, the share of e-commerce is just 3.6 percent.”
On top of this, there has been an increased polarisation of the market. Government advisor and fellow of the New Economics Foundation think tank David Boyle predicts that, thanks to soaring property prices, the UK will soon have a "a strange society with a tiny elite and a long struggling, straggling line which is the rest of us". While luxury brands and budget retailers carve out their own space, middle-of-the-road retailers such as Debenhams will lose out.
The luxury problem
People buy luxury goods for a variety of reasons, but these reasons (exclusivity, status, experience) tend to manifest themselves better offline than online. For example, if you have to queue or ring a bell to get into a high-tech flagship fashion brand store, and then you receive attentive, highly personalised service, and then part with many thousands of pounds for a watch or scarf, then have it carefully wrapped in front of your eyes… all of this forms a major part of the luxury shopping experience, and is difficult to translate to the online world.
But not impossible.
Take personalisation, for example. Thanks to continuing advances in technology, brands can not only recognise visitors to their online store, present them with relevant products, and encourage them to the checkout with personalised deals, but they can also link up online and offline behaviour - so they ‘recognise’ valuable online shoppers when they set foot in the shop.
Luxury retailers point to ‘brand storytelling’ and ‘heritage’ as reasons to eschew innovation (Bespoke tailor Grieves and Hawkes, for example, have decided not to go for a mobile app, and stay away from “big shiny objects” ) - but the key is to consider digital as a tool for attracting today’s customers, rather than yesterday’s, and not to innovate for innovation’s sake. But how?
Pretty but useful websites
As noted in Econsultancy’s many articles on the subject, and elsewhere, luxury brands tend to place more emphasis on ‘brand experience’ than user experience, making shopping frankly a little difficult. Improving the navigation, categorisation and purchase process on (any) ecommerce website is essential to improve sales in this channel.
Websites are all very well, but the importance of digital touchpoints in the luxury buying journey cannot be understated. “In addition to the 6 percent of sales that are transacted online, another 68 percent are influenced by at least one online touchpoint..., three-quarters of the total luxury goods market is influenced in one way or another by a brand’s digital presence.” (McKinsey Report).
As well as beautiful stores and other offline essentials, brands must consider...
Optimising online search
As the McKinsey report points out, luxury brands are the first to set up eye-catching stores in prominent locations - but visibility in the online space may be lacking. If someone is looking for your brand, will they find it? Will you have to pay for the click? How much are you willing to spend to acquire a new customer (based on lifetime value)? And what about those online shoppers who are starting with a generic product search - will they find your site, and what they are looking for, easily and cost-effectively?
Understanding social media
Word-of-mouth, something luxury brands heavily rely on, happens online as well as between friends in real life.
While the Yoox Net-a-Porter Group and Burberry are case studies in leveraging social media to great effect, for many heritage brands the focus is still on ‘transmit mode’ rather than listening to, or engaging with, customers.
According to Deloitte, 85% of luxury consumers use social media - and use an average of 3 platforms.
Making the most of mobile
Luxury consumers are, rather obviously, the most likely to be equipped with the technology to shop whenever and wherever they are.
According to L2, “Instead of seeking a full-service in-store experience, luxury consumers are increasingly seeking low-touch convenience. That is especially true for affluent customers, especially emerging ones ages 18 to 39 years old. In the same week, 69% of emerging affluents and 56% of hyper affluents used their smartphone to research products and prices. The percentage of emerging affluents and hyper affluents purchasing products on their phone is the same.”
An app won’t be suitable for many brands, but a mobile/responsive website is a basic requirement - especially with Google’s algorithm favouring sites that are user-friendly for mobile users.
It’s less sexy, but luxury brands need to become adept at using consumer data more wisely for greater results.
As the Guardian recently noted, “Next generation CRM is looking at coordinating the three key communication channels on mobile: email, push notifications and in-app messaging... Getting luxury retailers to obsess over micro-, cost-effective and human-centered optimisations in their growth seems far-fetched today. They still care more about PR releases, new store openings and incessant production. But shrinking marketing budgets and tiny in-house marketing teams may force them to change their mind."
All brands should tell a story, but luxury brands put the story front and centre of everything they do. If it doesn’t ‘fit’ with the brand, the marketing idea simply won’t fly. For some, this has held them back from exploring the digital opportunity - from improving the customer experience, bringing their products to a wider audience, and connecting with their customers where they are, on mobile, social and other touchpoints. If the market is indeed to grow to 70 billion Euros by 2025, as McKinsey’s report suggests, luxury brands need to continue to follow the examples of Burberry and Net-a-Porter and embrace not only digital, but today’s consumer.
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