Luxury brands are racing to embrace ecommerce

Mar 22, 2018

Presented here for discussion is a summary of a current article published with permission from Knowledge@Wharton, the online research and business analysis journal of the Wharton School of the University of Pennsylvania.

Luxury fashion houses, once fearful that the internet’s mass access would damage their exclusivity, are now racing to embrace digital, whether by partnering with multi-brand websites, developing their own platforms or both.

Online sales are expected to make up 25 percent of luxury’s sales by 2025, up from an estimated nine percent last year, according to a 2017 report from Bain & Co.

A primary reason: “Millennials are maturing into their prime earning years and becoming the focal luxury consumer,” said Keith Niedermeier, Wharton adjunct marketing professor. Millennials now account for 13 percent of high-net-worth households, he said, and they grew up shopping online.

Luxury brands also became comfortable with multi-brand portals such as Yoox Net-A-Porter, MatchesFashion and Farfetch — as opposed to eBay or Amazon, for example — because these e-tailers are careful to maintain an upscale image.

Net-a-Porter, for example, offers two-hour delivery windows, fashion consultants available 24/7 and a new premier service in select areas for its “Extremely Important People” or EIPs. “You Try, We Wait” customers can get an item they ordered delivered on the same day, and the e-tailer’s agent will wait for them to try it on to see if they like it.

Content on the luxury e-tail sites replicates the feel of a posh fashion magazine.

On their own, Louis Vuitton parent LVMH last summer launched 24 Sevres, a shopping site that offers not only its own brands but also those of competitors.

Gucci has streamed fashion shows on Facebook Live, revamped its website to offer more attractive visuals, and posts content on social media constantly to keep fans engaged. By churning out videos on YouTube and Facebook, Channel leads the industry with more than 57 million social media followers.

Luxury brands are seeing that it is an omnichannel world and adjustments are required to reach Millennials.

“Millennials and Gen Zs who purchase luxury want much more than just a brand name and a status symbol,” said Ludovica Cesareo, Wharton post-doctoral research fellow in marketing. “They want an experience, which for them has to encompass some form of digital interaction, [and] has to be inspirational.”

DISCUSSION QUESTIONS: Why is online selling of luxury goods finally taking off? In what ways should selling luxury vary from the typical online shopping experience? What will digitally-driven Millennials expect from luxury brands and sellers that they haven’t generally offered in the past?

Please practice The RetailWire Golden Rule when submitting your comments.
"...economic factors shaping personal preferences have moved luxury shoppers out of stores."
"I don’t really think this is specific to Millennials, however. Plenty of folks in other cohorts can afford to purchase premium experiences."
"The more traditional players have taken time to adapt, but they’re now seeing the potential and necessity of performing on the digital stage."

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22 Comments on "Luxury brands are racing to embrace ecommerce"

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Max Goldberg

Luxury brands learned what other retailers discovered years ago — you fish where the fish are. Consumers are online and want that option for all of their purchases. The key is to develop an online experience that mirrors the luxury brand’s image in terms of ease of use, search, check out, delivery and returns.

Lyle Bunn (Ph.D. Hon)

The shopper journey is increasingly complex and brands must engage with consumer discovery and purchase from every possible vantage point. It is not just the emerging market for Millennials, but savvy Zoomers and “power-shoppers” who must be served. Through this brand affinity a lifetime customer value can be developed.

Neil Saunders

Online is where many consumers like to browse and find fashion inspiration, and that means luxury brands need to have a presence there. In particular, younger consumers — who are becoming a more critical constituency for the luxury labels — are digital natives and their needs can no longer be overlooked.

To be fair, not all luxury labels have been slow to adapt. A brand like Burberry has long since had a solid digital strategy; so has Michael Kors. Many of the younger luxury and accessible luxury labels are also keen e-commerce players. The more traditional players have taken time to adapt, but they’re now seeing the potential and necessity of performing on the digital stage.

Chris Petersen, PhD.

Luxury online is finally taking off because of the extra services like Net-a-Porter provides. EIPs at any age expect concierge services along with the luxury products they purchase. Millennials are not all that different from Boomers — they want more than luxury branded products, they want a differentiated, premium experience. Luxury brands are right to fear commodization of their products on sites like Amazon and eBay. Luxury brands that use social media to engage fans and provide a premier experience will increase sales to luxury customers of all ages.

Ken Lonyai

Luxury goods are considered a premium, both in quality and cost. They offer a cache where people can experience something a little out of the ordinary whether real or perceived. Beyond that, people are people and have the same expectations of delightful experiences, no matter if they are on a budget or have extensive disposable income. Why luxury has effectively forgone sales opportunities to watch from the sidelines for so long is a mystery. They never had to be aligned with eBay or Amazon.

These brands will have to execute on two fronts:

  1. Keep the brand promise and provide better than ordinary experiences. However, technology is very democratizing so that’s much harder nowadays. Amazon, Walmart, convenience stores, supermarkets, etc. can provide near gratification with two-hour delivery. A large swath of e-tailers have hassle-free returns. AI personalization is taking hold. The gauntlet has been thrown down to them.
  2. Execute flawlessly. Commerce technology is mature and consumers are conditioned to high expectations even from discount brands. The tolerance for mistakes from high-end purveyors is minimal to none.
Evan Snively

Agreed that luxury retailers need to make sure they are delivering in line with today’s status-quo online experience with regards to returns, personalization, etc. However, one area I don’t think luxury retailers should concern themselves with is matching the speed of delivery that is now expected from the Amazons and Walmarts of the world.

Knowing that a package is being shipped from London, ENG instead of an 800,000 sq ft Amazon fulfillment center in Missouri actually adds perceived value to the item, as well as extending the acceptable timeframe of how long delivery will take. The exclusivity/scarcity of the item is part of the allure. With that said, if there is an extended shipping period it is all the more important that a brands tracking experience be top notch for their high-paying consumers.

Art Suriano

As stated in the article, luxury brands selling online are now becoming successful for the simple reason that we have Millennials today that can afford them. Typically, it’s usually those a bit more successful who are older that can afford the luxury prices. Now that Millennials are getting older and more successful with higher income, they can purchase higher ticket items. So it’s not that selling luxury goods online is anything different today than when the luxury online businesses started, but at that time they didn’t have an audience. As Millennials continue to get older, it makes sense that more luxury items will sell online. However, it is vital that the online experience be sensational, from easy website navigation to the fast delivery of the product purchased.

Bob Amster

While I am not totally convinced that the luxury segment should succumb to the pressures on more moderately-priced merchandise, I suspect that some brands have decided that “if you can’t beat ’em, join ’em.” Part of the allure of luxury brands is exclusivity, and having a product as a status symbol and brands have been very much aware of this factor. Selling luxury online should be a carefully restrained and classy offering that enables traditional luxury customers as well as Millennials the opportunity to purchase their products online. Features such as virtual reality will appeal more to those who have grown up with technology and those who are embracing it.

Brandon Rael

With the onset of the Instagram and influencer-driven retail revolution, image is everything these days, and luxury brands are more than ready to capitalize on extending their presence online and especially on mobile. Farfetch and Net-a-Porter have provided a channel for luxury brands to connect with digitally-savvy consumers. With both digital and mobile, the seemingly out of reach luxury brands now have a method to connect with the Millennial consumers. Even the smallest purchase or experience could lead to a long-term relationship.

Paula Rosenblum

I don’t think it’s just a Millennial thing. I think once you know the fit of a brand, you can buy it online and save yourself the trip. It’s an interesting phenomenon that the higher-end the retailer, the higher the percentage of online sales. I think Neiman is already at 26 percent, Nordstrom is at 19 percent, while Macy’s is at either 8 percent or 12 percent and Target and Walmart are at less than 5 percent.

Any brand, luxury or otherwise has to ask itself “Why give away the margin?” They just have to learn to ship in eaches.

David Weinand

Like with so many other product categories, once the friction of returns is eliminated, it opens up the opportunities for enhanced sales. Also, as digital natives move up the socioeconomic scale, it only makes sense that luxury brands and retailers stand to benefit. The expectations of Millennials revolve around experiences and, as the piece points out, luxury retailers need to keep that in mind. The ability to incorporate online-offline experiences into the buyer journey that enhance brand affinity is what will help to continue to drive higher online sales.

Chris Buecker

It had been just a question of time and the development of the right online channel. You simply cannot afford anymore to be offline when Millennials are or will be your future customers. Of course, as a luxury goods brand you do not want to see your product range sold on Amazon but the appearance of portals of shop designer fashion has changed the game. Digitally-driven Millennials want exclusivity, of course, but they also look for excitement, convenience and to be part of a exclusive interactive community and global brand. For this, the brand needs to develop a truly
omnichannel strategy and implementation.

Michael La Kier

All brands need to wake up to the fact that all channels make up the shopping experience, not just in-store. Shopping starts when inspiration or consideration hits, not only when people walk in the store. The same is true for luxury brands. Their luxury and brand must be consistent across channels. This does not always mean exclusive.

Ralph Jacobson

I’m not certain the whole luxury brand segment has been slow to adopt e-commerce. I think there are just as many retailers and CPG brands that have been laggards in other segments, too. I’m just defending those innovators in the luxury segment. 😉

I also think that it’s not only Millennials (they’re NOT all digitally-driven, by the way), but all digitally-driven shoppers who are already demanding that brands keep up with their lifestyles. The examples in the article are great, and others are taking hold as we speak. In fact, there are several “mainstream” brands that create a very high-end shopping experience that some luxury brands could emulate.

Joanna Rutter
1 year 9 months ago

Got me thinking about the recent Deloitte insights paper debuted at Shoptalk regarding how disparity in income growth has impacted shopping habits. It’s a great read. High-income (+$100,000) earners were the only group that saw an increase in discretionary income, and high earners are more drawn to shopping digitally vs. low-income earners, who prefer to shop in-store. It makes sense that luxury is moving online — economic factors shaping personal preferences have moved luxury shoppers out of stores.

Ricardo Belmar

Millennials may be a trigger point for luxury online retail, but I think it has more to do with where every consumer now is with respect to online shopping, digital influence, and desire for ultimate convenience. It may have taken longer for the trend to reach luxury retail brands, but shoppers have educated themselves and learned to appreciate easy returns, fast delivery, and digital search and discovery for all products.

Shoppers have every reason to want this from any brand, luxury or otherwise. Frankly, the expectation from shoppers only gets higher the more luxurious the brand. That may be why we see higher percentages of online sales vs store sales for luxury brands that embrace this. It’s all about the experience and the perceived experience gained from buying luxury products. That’s true whether you are a Millennial or not!

Patricia Vekich Waldron

The online “race” started 20+ years ago….

Cate Trotter

I think that online shopping has reached a mature state in a number of key markets and that’s giving luxury retailers more confidence. The fact that companies like Farfetch exist also helps luxury retailers overcome some of the hurdles of getting online. I think authenticity of products is one of the biggest things about selling luxury online — customers are usually paying larger amounts of money for products so they need to know they’re getting the real deal. This is why luxury brands tend towards selling through their own sites only, or with partners in the sector like Matchesfashion. I think though that the store experience is going to remain very important in luxury. Customers want to have that great treatment and experience — whether they are a regular luxury shopper, or if they’ve saved up for their first piece.

James Tenser

Clearly online retailing has evolved past its race-to-the-bottom origins to embrace new digitally-enabled experiences. The luxury brands mentioned here have discovered that their shoppers value other aspects of the experience – especially personalization that involves actual persons. Who woulda thunk?

I don’t really think this is specific to Millennials, however. Plenty of folks in other cohorts can afford to purchase premium experiences. The aha! here is that some brands are working out how to appeal to those customers recognizing that the experience should align with luxury expectations, not just low price and free delivery.

Evan Snively

Two areas that luxury brands need to execute on a higher level than the typical online shopping experience are:

  1. An Elevated Unboxing Experience. The value and character of a brand needs to live in every single element of the package. From exterior boxes and dusters all the way down to adhesives and packing slips – the quality of every detail must be accounted for. If a customer feels guilty throwing away the box their item arrived in, things are on the right track.
  2. Immediate Customer Service. Luxury brands need some type of channel where customers can communicate with a brand rep in real time. I’ll wait a day or two for an Amazon vendor to respond when my dinosaur-shaped taco holder arrives broken, but when there is an issue with my $3,000 watch, I want someone on the phone NOW.
Allison McGuire

Selling online luxury goods is finally taking off because the younger, tech savvy generation can afford the finer things in life. The one thing missing for Millennials in that experience is the community aspect. Notice that you won’t see customer reviews or chat on many of those high-end ecommerce sites. They have no interest in giving up control over the narrative or humanizing the experience, it needs to remain untouchable. We’ll see how that plays out over the next few years.

Min-Jee Hwang

All companies need to go where their customers are and provide an experience that makes them want to return. Luxury brands have perfected the in-store experience and many have also worked on creating their own or partnering with luxury marketplaces to meet their customers online as well. Online shopping often has a reputation of price competition, but luxury brands that do well will be the ones that offer added value and enjoyment to their online shopping process.

"...economic factors shaping personal preferences have moved luxury shoppers out of stores."
"I don’t really think this is specific to Millennials, however. Plenty of folks in other cohorts can afford to purchase premium experiences."
"The more traditional players have taken time to adapt, but they’re now seeing the potential and necessity of performing on the digital stage."

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