The Future of Online Luxury Retail

The Opportunity
• Online luxury sales are expected to triple as a proportion of the total global luxury market sales by 2025, reaching $91 billion USD. Nearly one-fifth of all personal luxury sales will take place online.

• Consumers’ online experience influences at least 40 per cent of all luxury purchases.

The Problem
• Luxury brands and high-end retailers need to identify new ways to engage with affluent consumers online. It is particularly important to avoid cannibalising performances of their offline retail stores.

• Online sales have so far not been able to drive the same level of upsell opportunities than their offline counterparts. Research shows that luxury consumers spent overall less per purchase when buying online.

The Solution
• Luxury brands first need to assess the contribution that digital currently has on their total sales performances and consumers’ purchase behaviours.

• High-end businesses then need to define a long term strategy to utilise digital as an impactful branding and sales component.

• Two broad online luxury retail approaches should be explored to drive digital sales: self-owned platforms and outsourcing to third-party resellers.

Traditional luxury brands have historically considered online retail to be a distribution platform fitted for selling low to mid-range luxury goods. Selling through multi-brand retail sites, in particular, was not seen as an appropriate channel for upscale brands. Multi-brand websites were often perceived as a threat to a luxury brand’s image amongst its affluent consumers.

High-end products were thus reserved for the premium experience of offline retail stores. This was based on the assumption that affluent consumers wouldn’t be willing to spend the premium price required for high-end luxury goods online. Indeed, wouldn’t luxury shoppers always favour a personalised customer service and a tactile shopping experience? The kind of experience that only a premium offline retail space could offer.

That assumption is now being challenged.

eCommerce sites such as Net-A-Porter and Farfetch have successfully demonstrated that digital retail works. Indeed, luxury consumers are willing to shop for high-end goods online at an undiscounted price that is on par with the offline retail premiums.

Online sales of luxury items across high-end categories such as beauty, perfume, footwear, jewellery, watches, and leather goods accounted for 8 per cent of the $313 billion USD global luxury market at the end of 2016.

According to Antonio Achille, Sophie Marchessou, and Nathalie Remy from McKinsey, the contribution of online luxury sales to the global high-end market will more than triple by 2025, reaching $91 billion USD. Nearly one-fifth of personal luxury sales will take place online.[1] The digital transformation in retail is effectively underway. Online luxury shopping is only just starting.

Furthermore, digital is increasingly influencing the purchasing decision of high-net-worth individuals. Research by McKinsey found that a consumer online experience in some way influences at least 40 per cent of all luxury purchases.

That digital luxury consumer experience most often takes place through online research for a product that is subsequently bought offline, social media conversations, or by browsing a luxury brand’s website.

Millennials and Generation Z consumers drive 85% of luxury growth
The growing importance of digital in luxury is driven mostly by a generational shift that is taking place in luxury sales. While older shoppers have traditionally been the growth engine of luxury sales, affluent buyers born after 1980, called the Millennials (born between 1981 and 1994) and Generation Z (born between 1995 and 2010) consumers, are now making up over 30 percent of all luxury spending.

Millennials and Generation Z consumers drive 85% of luxury growth
More importantly, Millennials and Generation Z consumers alone generated 85 percent of the global luxury growth in 2017.

“This power shift between generations, away from the baby boomers towards younger shoppers, means the latter are now the growth engine of the market in every region globally,” said Claudia D’Arpizio, a partner at Bain & Company who specialises in luxury and fashion. “In order to recover following the downturn, brands had to strategically reposition themselves towards this new demographic and their state of mind and distinct product and shopping tastes. But what has proven particularly interesting is how those habits and preferences are now shaping those of other generations, too.“

Established luxury brands have taken notice and most high-end companies are now readjusting their strategy to invest in digital. The exact role that digital will play in their broader brand positioning still needs to be defined, however. Luxury leaders are thus experimenting with various approaches. Some with more success than others.

Source:  Luxe.digital
Author:  Samantha Woodworth