Retail e-commerce is a frequently recurring theme on diginomica, but one sector that hasn’t had as much attention paid to it is the luxury brand end of the market. Other than Burberry, high-end retailers haven’t made their e-commerce plays a significant part of their strategies.
In fact at times it seems that there’s active resistance to the market-levelling potential of online retail. Consider the comments from LVMH Moet Hennessey Louis Vuitton CFO Jean-Jacques Guiony this week, when he declared that the firm’s various brands - which includes Moet, Christian Dior and Louis Vuitton - do not view e-commerce as a “big opportunity”, more a necessary evil:
E-commerce is obviously something we need to have. We need to offer the feature to our clients, but in itself we don’t expect these to become a big, big channel otherwise it would have be the case already I would say.
We believe very much in the digital content of the selling experience having in mind that more or less all our clients before shopping within our stores grow on the website of the brand before.
So basically we have to make a breach between the website and the store in a stronger way. So that's what we have in mind and we also believe a lot in e-marketing particularly on the full network. Two years ago, it was not clear what we could do there, but now it becomes much clear.
The other thing that Guiony is certain of is that his conglomerate’s offerings are too high-end for the likes of Amazon:
We believe that the existing business of Amazon doesn’t fit with our luxury full stop, but also doesn’t fit with our brands. If they change the business model, I don’t know, but with the existing business model, there is no way we can do business with them for the time being.
Guiony is not alone in his apparent distaste for online retail. Earlier this year, Chanel’s president Bruno Palovsky told Vogue: .
We need to not forget in this world where everything is digital, that keeping this exclusivity is an important way to engage with customers… e-commerce is more about buying something and if you don’t like it then you send it back, which is difficult to do with what we are doing, so we try to keep something back.
How much longer?
Is this a sustainable stance? Clearly a large part of the retail customer experience when it comes to luxury brands is the visit to the store and the ‘touch it’ element of the purchase. But at the same time, this limits sales opportunities to those customers who can actually make it into those retail outlets.
According to research earlier this year by Contactlab in conjunction with Exane BNP Paribas - Digital Frontier 2016: Digital luxury is turning mainstream - luxury retailers need to do more to integrate e-commerce and offline activities. By ignoring online channels through which they can engage anywhere with customers, brands miss out on an accurate image of their customers’ profile, behaviour, and preferences.
Massimo Fubini, CEO of Contactlab, warned:
Luxury brands need to shift their perception and open their eyes to the mutual benefits of engaging with digital customers. Digital contact with customers is transforming the luxury industry and with the rise of e-commerce and digital engagement tools, luxury brands are gifted with information from customers’ online activity, allowing them to know 80% of their in-store customers by name. A luxury brand’s success is based on its ability to leverage customers’ digital profiles and purchasing decisions in order to tailor engagement.
There are some signs that cracks are beginning to show in the luxury sector’s resistance to e-commerce. Despite Palovsky’s comments to Vogue, Chanel has been expanding its e-commerce interests, launching a US site to sell sunglasses, albeit its entry-level pricing sunglasses. This follows a deal with Net-a-Porter last year to sell Chanel capsule jewelery online.
Meanwhile as of July, Net-a-Porter began carrying Prada merchandise in Europe, a shift away from its policy of not selling its ready-to-wear merchandise online. That’s a policy that’s coming under extreme pressure, with the firm’s turnover down nearly 15% and profits down 24% in the first six months of this year.
The solution to address this decline? A commitment to double e-commerce sales in each of the next three years, as well as increasing the number of categories of products that it is prepared to sell online. To put that in perspective, online sales only account for two percent of total turnover at present.
So with ContactLab pointing out that luxury e-commerce accounts for virtually all of the sector’s growth in 2016 and predicting that online market share is set to double to 15% by 2020, how much longer can LVMH Moet Hennessey Louis Vuitton hold back the tide?
A research note from Oliver Chen at analyst firm Cowen & Co suggests the answer to that is not long. While understanding Guiony’s attitude to Amazon, there’s a need to consider the potential that a tie-up would open up for the luxury retailer:
LVMH Moet Hennessey Louis Vuitton’s heritage of direct to consumer control on the selling experience, superior and innovative brand management, and conflicts with existing channels of distribution do not appear synergistic with Amazon.
The note adds:
We believe luxury customers continue to value the sense of trust they get from buying luxury items direct from the brand, vs. buying through Amazon. However, we acknowledge Amazon’s ’s recent partnership with Moda Operandi, which could be a step in the right direction regarding building trust and connecting directly with luxury customers.
Cowan & Co’s recommendation is straightforward:
We believe LVMH Moet Hennessey Louis Vuitton should consider pursuing an integrated luxury online department store of the future which is able to leverage a fast delivery supply chain, advanced mobile phone shopping innovation, and multi-brand traffic in order to compete differently from Amazon if the company does not pursue a direct partnership. This will be increasingly important and is a long-term risk factor as social media becomes more broadly pervasive and as younger customers reach sweet spots in luxury consumption ages & wealth profiles. Time is the new luxury and LVMH Moet Hennessey Louis Vuitton will need to look for omni-channel ways to add luxurious convenience and personalization to the selling and brand experience.
I’m not a target customer of Louis Vuitton, Prada or Chanel, so I can’t particularly comment from personal knowledge on the experience of shopping in store. But I do know people for whom getting up close and personal with the hugely expensive handbag is all part of that experience. That said, it's hard to see how much longer luxury brand providers can look askance at the omni-channel world.