Luxury’s digital challenge

What if the internet were to become luxury’s third biggest market, after China and the United States? According to Digital or Die: The Choice for Luxury Brands, a new report from The Boston Consulting Group (BCG), the question isn’t so much “what if” as “when”. As Olivier Abtan, co-author of the report, explains, luxury brands generate just 7% of sales online and are lagging behind. Luxury has been a fast-growing segment in recent years, driven by demand in China, and this partly explains why digital uptake has been slow among luxury brands, which have focused instead on opening physical stores along the world’s main shopping thoroughfares, including in emerging countries. Not to mention the luxury heavyweights’ deeply entrenched belief that nothing can replace the in-store retail experience.

A mass of niches

But times are changing, and so are consumers. Olivier Abtan predicts that growth in the next few years will be reduced from 8-10% per year on average to between 2% and 5% at best. And that digital will transform luxury consumption habits, particularly among the younger generations. “Luxury goods consumers are more connected than the average consumer,” says Abtan. “They are inspired by the web, by social media, by private sites and those run by bloggers and brands. They compare products and prices, then they buy.” Because of this, forecasts the BCG report, the luxury industry will catch up and, by 2025, triple its online share of sales from the current 7% to around 20%. A few luxury brands have got ahead of the pack, nonetheless. Burberry was an early adopter, having shifted its strategy to digital since 2006. As Christine Barton, report co-author and senior partner at BCG, notes, “luxury consumers expect brands to be digital and act digitally.” Six out of ten luxury sales are now swayed by digital approaches such as researching online before purchasing offline. How long before that figure is ten out of ten?

The world’s biggest luxury group, LVMH, is a strong advocate of digital, and undeterred by the failure of its first e-commerce venture, eLuxury, which it closed down in 2009, is launching 24Sevres.com in early June. This new platform will showcase some 150 brands, including around twenty that are owned by LVMH. The name refers to the address, 24 rue de Sèvres, of the upmarket Parisian department store Le Bon Marché, which also belongs to LVMH. This will be the first time that Louis Vuitton and Christian Dior products have been part of a multibrand web environment. LVMH is giving its second e-commerce endeavour every chance of succeeding and has poached Ian Rogers, the 44-year-old American who spearheaded Apple’s online iTunes Radio station. (Prior to this, the former Beastie Boys roadie was at the helm of Yahoo Music then Beats Music, which was bought by Apple for $3 billion). Since 2015, Chief Digital Officer Rogers and his sixty-strong tech team have been working in offices in Paris’ 15th arrondissement, in a start-up atmosphere, away from LVMH’s corporate headquarters. “When it comes to the internet specifically, there isn’t necessarily a reward for being first,” Rogers declared in a recent New York Times interview. “We don’t want to be early adopters. We have been before and we paid the price for that. There is, however, currently a major focus on omnichannel and experience, and we are moving from a mass culture to a mass of niches. If there’s quality in what you do, you’re not threatened.”

Don't get left behind

One of the ways 24 Sèvres will stand out is through its emphasis on visual rather than editorial content. This “Parisian” notion of fashion will also embrace top-flight services such as video chats with stylists, delivery to 70 countries and glossy packaging. Based on 2016 results, Reuters estimates that LVMH makes in the region of €2 billion in online sales, which is 5.3% of the group’s total revenue. Its objective is to reach levels close to those achieved by established players such as Yoox Net-A-Porter, created following a 2015 merger and with Richemont as major shareholder. It posted 19% growth for the first quarter of the year and is intent on keeping up the same pace over the next three financial years. Rival site Farfetch, which earlier this year recruited Nathalie Massenet, who founded Net-A-Porter in 2000, has also enjoyed meteoric growth of around 70% a year since it was set up in 2007.

Isabelle Chaboud is a professor in the finance department of Grenoble Management School. She believes digital offers important opportunities for growth, provided luxury brands realise that “digital marketing is about more than just selling products online.” Despite this potential, fine watch brands remain conspicuous by their absence from this type of platform. Instead, they prefer to reserve themselves for their own sites and barely open the door to online sales. There may be no reward for coming first, as Ian Rogers says, but are brands right to run the risk of being left out of the race altogether?