Luxury brands – the final frontier for omni-channel e-commerce?

SUMMARY:

A $6000 handbag isn’t something you’re necessarily going to want to click-and-collect, but even the high end luxury retailers can’t ignore the e-commerce revolution.

The admission by Hugo Boss that digital is no longer an optional extra for the retailer raises wider questions about the role e-commerce can play at the high end of the retail market. To date e-commerce only accounts for a small percentage of overall luxury goods sales and that may be attributable as much to buyer attitudes as to the vendor’s own policies.

There are practical considerations. For example, do you, as an exclusive retailer catering and targeting to a particular wealthy demographic, really want the whole world able to browse your collection?

From the buy side, the argument against e-commerce can be tracked back to various possible aspects, not the least of which is the consumer experience. If you’re going out to purchase a dress with a ticket price of several thousand dollars, going into the store, talking to the personal shopper, having a glass of bubbly while you’re pandered to, it’s all part of the high end experience.

And then there are the logistical aspects. If you have made an online purchase of that $10,000 handbag, you’re going to want that turning up in pristine condition, not shoved in an Amazon box and sent to you in a delivery van. That ups the costs and logistical burdens on retailers.

But most of all, it’s about the brand and the brand’s attitude towards its target market and perceived consumers. There have been some sneering comments from the sell-side over the years. One frequently cited quote comes from Pheobe Philo, the creative director at fashion house Céline who told Vogue in 2013:

The chicest thing is when you don’t exist on Google.

A less controversial assessment was aired recently at a retail panel session at Columbia University’s Brite ’17 global brand leadership conference when Sara Gergovich, vice president of digital and ecommerce for Hermes, stated:

You really have to step back and say, ‘What’s right for my brand?’ ‘What’s my message?’ ‘What’s my voice?’ ‘Where is my audience?’

Digital coming

Those are highly valid questions and the answers will vary from retailer to retailer. But the answer to the last question is increasingly going to involve digital. Consultancy McKinsey & Company predicts e-commerce among high end brands will triple to €70 billion by 2025 — representing 18% of total luxury sales — and then plateau.

McKinsey has proposed a three phase ‘life cycle’ for e-commerce among luxury brands based on analysis of 50 such firms conducted as part of its 2015 annual Altagamma-McKinsey Digital Luxury Experience Observatory. The three stages are:

  • Ramp-up – during this phase, luxury brand will explore and experiment with selling online, either through partners or through their own e-shop, but will tend only to offer a limited range of product and not to draw too much attention to what’s going on online.
  • Scale-up – once e-commerce revenues hit around 7% of overall totals, it’s time to make a bigger commitment and to scale online sales efforts. At this stage, there’s going to need to be some investment in IT, customer support and supply-chain/fulfilment capabilities, which means that this becomes a management agenda item.
  • Plateau – McKinsey argues that once online sales hit around 20% of overall revenues, there will be a plateauing. There won’t be a tipping point at which e-commerce overtakes offline as the luxury brand in-store retail experiences remains an essential component of the business model.

The LVMH example

If McKinsey’s assessment is correct, most luxury brands should be at the very least in the early stages of this three phase journey. Certainly there are indicators that this is the case, as seen with Hugo Boss, but also with other brands such as Burberry and Hermes.

A good case in point might be LVMH, a global luxury goods company formed out of the merger of Louis Vuitton and Moet Hennessy and boasting brands across multiple sectors, from wines and spirits through fashion and leather goods, to watches, jewelry, perfumes and cosmetics.

Back during the first dot com boom, the group launched its own multi-label shopping website called eLuxury, but closed this down in 2009 to allow LVMH brands to take charge of their own digital destinies.

The end result of this decision was the creation of a hugely-fragmented approach to e-commerce across the group, with each of its 70 brands taking a different tack. Louis Vuitton itself sold via its own website, while Fendi and Marc Jacobs went to market via Net-a-Porter.

Meanwhile Céline, as might be gathered from Philo’s comment to Vogue quoted above, did beggar all.

But Céline is a good example of how that position is becoming unsustainable even in the most exclusive of markets. Last month the firm finally launched, albeit in a highly limited way, on Instagram, having had no social media presence at all until then.

Most radical of all though is the speculation that Céline will soon be venturing into e-commerce as part of LVMH’s decision to pull all its brands onto a single digital platform. This strategic reversal has been led by former Apple executive Ian Rogers who was brought in to LVMH in 2015 to overhaul its digital thinking.

Online sales at LVMH last year were around 5.3% of total sales, so the group is not quite at the ‘scale up’ point of the McKinsey theory, but not that far off it. Several of the brands in the group are in the early partnering mode. Although Louis Vuitton has rejected Amazon Fashion as a channel, third parties such as Net-A-Porter and MatchesFashion.com carry LVMH brands. For example, Lucy watchmaker Tag Heuer has a growing e-commerce footprint through a partnership with Alibaba Group’s tmall.com, which is also opening up the Chinese market. How LVMH strikes a balance between those relationships and its own investment in e-commerce will be something to watch in the coming months.

Where LVMH goes, others will follow. The luxury brand e-commerce opportunity is a real one, even if inevitably more limited than the ‘stack-em-high, ship-em-out’ model operated by the likes of Amazon.

But even the high end consumer expects a digital experience today and that’s something that can’t be ignored by any retailer other than the most blinkered.

My take

I’m not a $6000 fashion item buyer and don’t set foot inside the Gucci and Pradas of the world, so it’s a customer experience with which I am not familiar. Frankly I find it intimidating even walking through the door of some of those places.

But the relentless advance of digital on their business models is interesting to track. Last year, for example, Prada caved in to the e-commerce movement, partnering with Net-A-Porter and MyTheresa.com.

We’re going to see more and more of this. Prada last month set down an objective to double its digital sales in each of the next three years and increase the number of products that can be bought online.

All of this is only going to result in a closer relationship between commodity social technology and high end products. Net-A-Porter has announced plans to use WhatsApp as the e-commerce enabler for the likes of Prada and Versace. That’s a game changer in its own right if it can pull it off.

Image credit - Louis Vuitton/Burberry/Prada/Hermes