Long having shunned online sales, luxury brands are now finding their way around digitally engaging tech-savvy, ethics-conscious customers
A Hermès store in Delhi. In-store ambience has been a defining feature of luxury retail
Image: Fabien Charuau
Traditionally, luxury goods came with pedigree, an exclusive in-store ambience accompanied by personalised service, and a very high price tag at a physical store located in a tony part of the city. However, if that address is post-scripted with a dotcom, the luxury brand would be sharing part of its address with all retailers, luxury or mass—for example with Walmart.com—stripping it of all exclusivity, and denying customers a unique shopping experience that justifies the price tag.
And yet, as global events lead to slowing sales growth, the changing order of things is dictating that luxury gets an online address. While US economic growth over the last few years did sustain luxury sales, security threats in Europe led to lower passenger traffic and correspondingly, lower sales at regional airports and retail stores. Further, saturation of stores in China and declining Chinese spending on luxury goods, due to the government’s anti-corruption drive, added to the slowdown. So there was jubilation when, after an entire year of stagnating sales in 2016, the global personal luxury goods market—high-end handbags, shoes and jewellery—showed growth of about 6 percent in 2017.
Adding to the general uncertainty are changing consumer lifestyles and expectations of existing consumers, dictated by a digital way of life. The wealthier customers have started shopping online, enjoying the luxury of ordering at their convenience, from a vast selection of merchandise and having it delivered to their doorstep in a day or two. Chinese consumers who fuelled a large part of the luxury industry’s growth in the past also sobered up in their tastes by shunning big logos and ostentation, and felt comfortable mixing luxury with fast fashion.
Finally, the newcomers to luxury, i.e. the millennials, now account for a larger share of premium goods sales. They are fickle, jump from brand to brand, and think nothing of participating in the shared economy by renting a designer outfit for a day from renttherunway.com.
The magnitude of the changes technology has wrought on luxury retail, and how to deal with it, was the subject at Wharton School’s Baker Retailing Center, which held a conference in 2015 on online luxury retailing for academics and retail executives. Not surprisingly, it pointed out that the sensory experience and ‘social distance’— ‘I’m better than you’—that are core features of luxury products can be difficult to deliver online. Using technology to connect with this new genre of digitally connected, shared-economy consumers is at the core of the dilemma luxury brands face today.
Speaking at the Georgetown event, John Idol, the CEO of Michael Kors, mentioned the American luxury company had 700 stores worldwide and 4,000 points of distribution and needed to understand how to harness big data to communicate with customers. Despite all the talk, it was only when the personal luxury goods market flat-lined in 2016—with sales at €249 billion, compared with €251 billion in 2015 —that it forced a rethink among luxury brands.
In 2017, as a result of price rationalisation between Europe and a traditionally more expensive Asia, as well as merchandising streetwear for younger customers, the personal luxury goods market reached €262 billion, according to Bain & Co and is estimated to grow to €295 billion by 2020. This bouncing back of growth illustrates the potential that changing the formula holds for the industry, even as it forecasts online sales to reach 25 percent of all sales by 2025, up from 9 percent at present.
Ironically, the internet has lowered advertising and marketing barriers, not just between luxury and mass brands, but between competing luxury brands as well. Newcomers to the luxe business, such as high-end jewellery and exotic skin handbag brand Kara Ross, in the absence of large budgets, are building the brand online and working with influencers or social media leaders who carry enough authenticity to guide and validate purchase behaviour among their online followers.
Customers today expect luxury labels to show commitment to human rights and the environment
(This story appears in the 02 February, 2018 issue of Forbes India. To visit our Archives, click here.)