LUXURY ONLINE SHOPPING IS FINALLY TAKING OFF, THANKS TO TECHNOLOGY THAT HAS ACCELERATED AND SMOOTHED OUT THE BUYING PROCESS.
The luxury retail experience goes something like this: you glide into a glossy, fragrant store in the nicest part of town; you are greeted and fussed over by dedicated staff; you sip champagne while trying on the season’s new looks; you glide out again with some crisply wrapped packages. Surely you wouldn’t swap this for a transaction on your smartphone?
But indeed, that is what a growing proportion of luxury shoppers are doing – especially now that they can consult an online stylist in the process and (depending where they live) have their package delivered to home or work in as little as 90 minutes. With no-fuss returns, shoppers are happy to spend $50,000 on something they haven’t tried on, even buying multiple sizes to send back what doesn’t fit. And while the world’s leading luxury brands and department stores have all opened online stores in recent years, the companies winning the race for luxury shoppers online are, for the most part, purely digital multi-brand businesses.
Online luxury sales have gone from €3 billion ($4.5bn) in 2009 to €20bn last year, according to global management consultancy McKinsey & Company. That still represents only 8 per cent of total luxury purchases, but the share is predicted to more than double by 2025 and be worth €74bn. This actual and potential growth is reflected in the frenzied activity in the digital space, with big online players seeing record sales: Matchesfashion.com has recorded a 61 per cent increase in revenue in 2016 to £204m ($350m), Yoox Net-a-Porter has seen a 17 per cent increase in sales to €1.87bn for the same period and Farfetch sold $US800m ($1100m) worth. Farfetch, valued at $US1bn, recently hired Net-aPorter founder Natalie Massenet for its board.
But the biggest move this year has been the longawaited entry of luxury giant LVMH into the multibrand digital space with 24sevres.com, an online extension of its iconic Paris department store Le Bon Marché. More than 60 people worked on the site, spearheaded by former Apple music executive Ian Rodgers, and it was so top-secret it was only referred to by its codename Babylon before its launch last month. It stocks more than 150 brands, at least 20 of them from LVMH’s stable, and it is the only multi-brand platform to offer two of fashion’s biggest names: Louis Vuitton and Dior. So why have luxury consumers and brands finally gone online? What has taken them so long and what does it mean for the industry that has historically traded on its exclusivity?
“The growth that is happening right now in luxury is coming from the fact that the consumer has more confidence, there is more product availability and we are becoming more sophisticated in terms of how we communicate with those consumers,” Tom Chapman, founder of Matchesfashion.com, tells WISH from his office in London. “Technology has largely enabled this. Mobile has a massive influence with 65 per cent of our traffic and 50 per cent of revenue coming from mobile. That is huge growth from where we were before. We started our business nearly 10 years ago and where were we then? Amazon took 24 days to deliver a book and Steve Jobs had recently made the announcement about his new product: the iPhone. We are seeing this incredible rate of change in technology and that is only getting faster and faster.”
Technology is of course the key to many aspects of the growth of online luxury shopping. Consumers now spend the most time on their smartphones (four times as much as on their desktops, according to McKinsey) and spend it not only shopping but researching on social media sites like Instagram and Facebook. It is not only the millennials but also the older consumer, with baby boomers spending 16.4 hours online per week compared to the millennials’ 17.5 hours. Boston Consulting Group has found that 60 per cent of luxury sales are digitally influenced – and that includes purchases instore. “Gone are the days when luxury revolved around traditional marketing and face-to-face interactions exclusively at the store,” the group says.
Technological advances have changed not just what happens front-of-house, but also behind the scenes, with
vastly improved logistics, delivery times and ease of returns. “We ship in 90 minutes in central London, next day to the whole of Europe and the east coast of the US,” Chapman says. “That kind of delivery time two years ago just wasn’t a reality.”
Even more important is the ease of returning an item, meaning luxury online shoppers can have the confidence to buy designer ready-to-wear and accessories. “Returns are a great thing because it means your consumer is out there and they don’t have that barrier of purchasing something because they are terrified of the returns process,” he says. “A customer who buys two or three pairs of shoes because they want to have one is actually a great customer for us because that is a customer with huge potential value in purchasing power. She is able to put all of them on her credit card and accept that they are an easy return.”
StyleBop.com, a multi-brand site based in Germany, has also seen the dividends from efficient returns. “In recent seasons we have seen a clear tendency towards shopping extremely expensive pieces (Balmain dresses for €20,000 or Fendi statement coats for up to €30,000) as the customer becomes more comfortable with and trusting of online shopping,” the company says in its profile document. StyleBop.com, which has recently hired Australian Chris Kyvetos as its buying director, is projecting £100m in sales and had a 52 per cent increase in mobile traffic in 2016 on the previous year.
Online luxury retail “is going through a maturing phase”, Kyvetos tells WISH from his office in Munich. The Sydney boy worked at Harrolds and set up luxury streetwear retailer Sneakerboy before heading over to StyleBop.com. “In the last few years it seemed to be a space where it was all about pages and pages of online merchandise more than it was connectivity and convenience. I feel like it is now going through a bit of a clean-up.” A luxury website is now more like a boutique, he says, with a carefully curated collection of clothing, but with the infrastructure of a department store behind it.
Technology is also allowing companies to connect with consumers more than ever, whether through their purchasing system, Instagram or custom apps. Chapman, who started his business with a single boutique in London in 1987 before moving online a decade ago, says Matchesfashion.com has invested in a technology laboratory and built a mobile sales system that allows a “single view” of the consumer wherever they are. “If we come to Australia and do a pop-up or if they are on the phone or if they are in the retail store in London, the salesperson has full knowledge of the customer interactions with us,” he says. “Whether they have visited us online or returned an item, they know absolutely everything about that customer. And it is this single view of a customer that is central to us and is the centre of everything we do.”
The other emerging trend in this field is that it is not a choice between bricks-and-mortar stores and digital – customers want both and more. They may look at the products online and then go into a store or vice versa. The may want editorial content on websites (and even physical magazines as Net-A-Porter has done with Porter) or access to an online stylist or capsule collections or fashion shows.
Farfetch chief strategy officer Stephanie Phair tells WISH that physical stores are not going away, but companies need some digital connection with the customer. “Digital is everywhere and customers engage with it at all points in their journey,” Phair says. “It is no longer the case that brands or retailers need a website in silo; rather they must think about how can they put the customer at the centre of their experience.” Chapman also refers to the different parts of his business not as digital or physical but just as customer “touchpoints”. “Our focus is really driving as many customer touchpoints as we can because the greater number of touchpoints we have with the customer, the greater retention rate we have with them,” he says.
The other big factor that is driving more people online – and to multibrand sites – is convenience. According to McKinsey, almost 40 per cent of customers do research for purchases on multibrand sites (up one per cent on the previous year) compared with 31 per cent on official brand sites (down 12 per cent). “Multibrand websites are expected to capture a greater portion of the growth in online luxury fashion as single-brand sites have more limited growth potential,” the report says. “Multi-brand e-tailers allow large luxury brands the opportunity to reach both time-pressed customers who don’t have time to shop on multiple mono-brand sites and more rural customers who aren’t easily able to visit urban boutiques.”
But with such growth (and potential) in the luxury online shopping space comes increased competition and a few failures along the way, most notably the recent venture by Vogue publisher Condé Nast, whose foray into online shopping, Style.com, did not even last a year. According to McKinsey & Company’s global head of luxury, Antonia Achille, it is the age of digital Darwinism in the world of luxury online.
“The battle has just begun: more scalable, agile and technology-savvy e-tailers are emerging,” she recently wrote for the Business of Fashion website. “Darwinism will claim its victims. E-tailers need to run faster than the wind and only the ones growing at 50 per cent plus year-on-year while maintaining an agile, inventory-light model will generate superior shareholder value.”
So what happens next? According to Phair, the luxury world will keep evolving as the technology does, but it will always be about experience. “In 20 years, it may be that the idea of a distinction between physical and digital will be completely alien to customers – even so far as no one understanding (or remembering) that once upon a time stores did not have a digital point of access, or conversely that websites did not have a physical point where customers could enjoy the retail experience and amplify it.”
Chapman takes this concept one step further, having come back from a technology conference where all the talk was internet/virtual reality in your glasses – your normal specs, that is, not Google Glass. “We have to remain agile and embrace these things,” he says. “We can’t be paralysed by fear.” W
“In 20 years, it may be that the distinction between physical and digital will be completely alien to customers.”