But how long this can remain the case is open to considerable debate. Last week, Swiss retailer Richemont, which owns brands like IWC, Montblanc and Van Cleef & Arpels, announced an offer of €2.8 billion for the online fashion retailer Yoox Net-a-Porter (YNAP). Richemont already owns 49%, but now wants the remaining 51% in order to boost the conglomerate's competitiveness in the online luxury market.
YNAP chief executive Federico Marchetti has made clear that he supports the Richemont approach:
Richemont aims to provide additional resources that further strengthen and accelerate YNAP’s long-term leadership in online luxury. This means investing even more in product, technology, logistics, people and marketing.
Johann Rupert, chairman of Richemont, said:
With this new step, we intend to strengthen Richemont’s presence and focus on the digital channel, which is becoming critically important in meeting luxury consumers’ needs.
But how critical is this in reality? According to Bain & Company, in 2017 online sales accounted for only 9% of the total luxury goods market. But it’s the direction of travel that matters most of course. Bain & Company predicts that by 2025, online sales will make up at least a quarter of total revenues, after growing at 20% per annum for the past three years. Meanwhile the offline market is only turning in a 5% year-on-year growth rate.
So Richemont’s move makes sense, putting in place its own e-commerce platform to cope with those growth rates without having to enter an unholy alliance with Amazon. It’s not the first in its space to do so. Last May LVMH Moët Hennessy Louis Vuitton- the world’s largest luxury group and owner of Louis Vuitton, Dior, Marc Jacobs and Bulgari - launched 24 Sèvres online in 70 markets worldwide, offering products from more than 150 luxury brands.
LMVH is looking at doing about €3 billion in digital sales in its current financial year, up more than 30%, says CEO Bernard Arnault. But still there’s an almost schizoprehnic attitude on display towards online - it’s still seen as a necessary evil and something that the brand is struggling to come to terms with. Arnault says:
Let me say this, it is true that we have profitability in the digital sales and it is gaining ground. But it is true that the service level, the convenience expected by the customers, means that we will need to invest considerably in the online services and we’ve seen this in other more developed markets.
We have to be cautious. We want to be there where the customers are. We want to serve our customers as best we can. And the new generations except to be well-served. And yes, they want to be able to purchase the items sometimes online, but we have no typical strategy to improve profitability only, thanks to the online business. This is a portion of the market which is bound to increase significantly with higher expectations coming from customers.
One seeming fear is that online is perceived as synonymous with cheaper and that’s an uncomfortable fit for the likes of LVMH. Certainly Arnault doesn’t want his brand ‘sullied’:
We have a whole range of extraordinary products that we're going to launch. We're increasing our investments in digital technology, but we need to be prudent there. So it’s not to want to sell at all costs and try and be strong on the digital front where we go out and sell at all costs.
We mustn't really trivialize our products. I mean, Louis Vuitton is the only brand in the world that never does any sales. Certainly, other brands don't but they have a 20%, 30% revenue sold in outlets. We don't do that. We don't have a single store in which our products are sold at knockdown prices, be it in our own stores or outlets. We're very attentive to that. We could significantly boost revenue cause we could sell on the Internet and all possible channels but we don't do that. I think we're right.
But that said, LVMH has launched Le Bon Marche on the back of the 24 Sèvresacquisition. This has resulted in a centralized online place to shop LVMH labels as well as stocking competitors’ merchandise. CFO Jean-Jacques Guiony argues this is entirely consistent with the overall thinking:
First of all, the bulk of our Internet sales currently take place on the brand sites, particular of retail on Sèvres. As regards the 24 Sèvres site, the best comparison I could give would be Le Bon Marché. We have within the group Le Bon Marché that sells most of the luxury brands that is viewed as a luxury store, where we’re multi-brand de facto. So 24 Sèvres is the reflection of that situation. At Le Bon Marché, you only have very high-end brands. So the 24 Sèvres site will follow the same policy. It will be a site where you'll find the finest brands on the market. So there's absolutely no contradiction in terms in having both.
Still the ‘purity’ of the luxury brand remains a top priority. Michael Burke, Chairman and CEO Louis Vuitton, proudly pitches his businses as:
the only brand in the world, that totally controls its distribution, that never does sales on websites, just only sells on its own sites. Obviously this strategy is tremendous. It’s great for the brand awareness, for the image of the brand, and it generates better profitability because we avoid ending up with products that are sold by third parties at different prices, that are sold at knockdown prices as happens when a brand begins to sell with wholesale outlets, retailers who sell directly. So, as regards the underlying aspect, it’s probably the best and only strategy taht can be applied to all brands. These brands, when they are smaller, when they are already distributed, it's very difficult to backtrack. But it's a strategy that the group views as the best strategy.
Squaring the circle in the online luxury goods sector is still very much a work in progress, but it’s a sound strategy by Richemont to put down a marker at this stage to keep its options open. LVMH has done the same, although its seeming distaste for digital channels needs to be worked on. But getting the pieces in place now is going to be critical. Amazon and Alibaba are only going to encroach more and more. There’s also a salutary lesson in Condé Nast which last year shuttered its high end online outlet, style.com. This is not an easy move to make.