11 Jan 2017

The Challenges Luxury Retailers Face in the Digital Landscape

Luxury retailers still haven’t quite tackled the problem of how to serve their audience online – and they are losing opportunities for sales by avoiding digital commerce.

With competition between luxury brands increasingly tight, those brands that don’t make themselves available online are losing out to those that have managed to conquer this channel.

Although the online market for luxury items has grown tenfold since 2005, online sales still only represent 7% of the total market, compared to around 20% for retail sales in markets such as the UK. Whilst luxury brands are reluctant to sell online, it’s increasingly obvious they are missing out by refusing to tackle this channel.

Even as late as 2014, some 40% of luxury brands just weren’t available to buy online.

Major players such as Chanel still refuse to sell items such as clothing online and prefer to encourage their audiences to visit physical stores – which tend to be few and far between. Although luxury customers tend to be internationally mobile, brands are still losing sales by not giving customers the convenience of buying online.

Luxury brands have preferred to focus their attention on creating personalized brand experiences that happen in the real world. International brands are instead expanding their bricks-and-mortar stores in emerging markets for luxury goods such as Brazil and China.

Yet it’s been calculated that digital could be ‘the new China’, with a potential online luxury market worth $43 billion by 2020 – that’s according to BNP Paribas. (find source and link)

The trouble with digital

There are many reasons why the luxury sector has tended to shun digital channels for making sales – for a start they don’t like to make themselves too available. Luxury brands focus on scarcity and exclusivity; whereas digital technology is very good at making everything available to everyone.

But there’s a problem with being too exclusive. According to a 2015 report by Bain and Company, consumers in mature markets such as the US, Japan and Western Europe tend to buy their luxury goods domestically.

By contrast, emerging market consumers tend to buy their luxury goods whilst overseas (often during the journey, as airport commerce represents a large proportion of spend).

With emerging market consumers now responsible for a sizeable number of sales, luxury brands are missing opportunities to sell to an increasingly important audience.

With increased demand for luxury items emerging from places such as the African continent, digital is the obvious way to reach customers that are not easily served by physical stores.

As these customers increasingly aspire to consume luxuries and become accustomed to online shopping, luxury brands are doing themselves a disservice by not being available online. Customers expect to have the opportunity to buy online; expectations that are being frustrated by the unavailability of luxury goods through online channels.

Although currently the region offering the smallest demand for luxury goods, African consumption of luxury goods is expected to grow at 5.6% a year to 2019: faster than any other region. Digital is the obvious way to reach consumers from new markets.

Risk and reward

For a sector deeply conscious of its own dignity, digital offers unwelcome opportunity for luxury brands to embarrass themselves. All brands need to take risks to succeed in new channels, and participation in digital and social media can expose brands to new indignities.

But it’s loss of control that luxury brands truly fear in the social media channel.

The temptation is to stick to glossy print media where it’s much easier to exercise control and there’s less opportunity for audience feedback.

Sticking to the safe world of print is not, however, a long-term strategy. Fashion magazines tend to have much smaller readerships than in the past and younger audiences can get their fashion fix online via bloggers.

How to do it

Luxury retailers can no longer pretend their customers aren’t online and aren’t wanting to buy through these channels. With a new audience of net natives increasingly ready to buy luxury – and accustomed to shopping online – the luxury sector needs to sharpen up its digital capabilities. So how do they do that?

There are a few ways that digital marketing needs to be approached differently if your business is in the luxury arena.

Access is an important part of the luxury ethos, so enabling that sense of exclusivity is a key part of cracking online marketing for luxury brands. Ways to do this include special invitations based on where they are in the world or exclusive access to content such as videos of fashion shows.

The personal touch is still important. For high-value customers, in particular, the digital journey needs to have a more personal touch with more emphasis on individual service.  

Finding the right way to merge personal service with the digital journey – effectively finding a way for brand concierges to reach out to customers both on and offline – is important to showing the customer they are considered and valued.

Brands also need to be aware of who their advocates and influencers are. Many luxury brands have founded key partnerships with celebrities and craftsmen, and digital is a key way to focus on these and showcase what makes the brand and its products so unique.

That’s the part of the digital experience that luxury brands have generally performed well at so far – from videos of catwalk shows to in-depth looks at various aspects of the craftsmanship behind the product.

Finding ways to tell the brand’s unique story still remains a challenge for some luxury marketers.

According to luxury marketing consultant Tony King, a typical research journey for a luxury consumer takes place across several devices and seven or eight visits. That’s a rather more complex journey than the average shopper takes, and making sure their experience is consistent across devices is as tricky as it is important.

Ensuring a seamless and high-quality customer experience online is challenging for any type of brand but for luxury ones, it’s absolutely critical.

The challenge for luxury retailers is a significant one but it’s vital that they crack their availability problem in the digital channel. In the near future, this could be a key differentiating factor between success and failure for luxury brands.



 
 

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