By 2025, online luxury sales will triple to reach 1/5 of total product sales, according to McKinsey & Company (2015). If an online luxury experience seems obvious nowadays, it has not always been so. And although some luxury brands took the digital territory by storm, many of them were reluctant to venture there.
Where do luxury and digital stand now? Well the figures are quite encouraging. Luxury product sales online show an impressive double-digit growth these past few years, and they are growing much faster than offline products (+2%). However, there was once a time when digital and luxury seemed irreconcilable. Indeed, while digital is all about gaining access to anything and everything – in large quantities and immediately – luxury was built on uniqueness, timelessness and brand values.
Must luxury go digital?
Digital strategy and luxury
In 2014, 40% of luxury brands still did not sell their products online. However, these past years have proven decisive, and now a vast majority have taken the plunge. In 2018, online luxury shopping grew by 22% and now it represents 10% of all luxury sales. The question no longer arises, digital will shape the future of luxury, just like it is bound to shape the future of commerce as we know it. (Bain&Company studies)
We can safely say that the luxury market is still at the beginning of its digital transformation. And if we consider the specificities of the market, we must also keep in mind that luxury brands cannot use new technologies the way mainstream brands do. Because if the internet is filled with endless possibilities for any ordinary brand, luxury brands have strict standards to live up to. Their strategy is based on uniqueness and luxury goods must not become common and accessible. Buying luxury goods must remain an extraordinary experience and their products must always be rare, timeless and of impeccable quality.
E-commerce makes thousands of products available instantly, anytime and anywhere. And now that consumers are just one click away from the competition, it is much harder to keep their interest. Mainstream brands have made prices their weapon of choice to stand out, but that is not a solution for luxury brands. It is a fact: the internet cannot recreate the incredible experience on which luxury builds itself.
With a little imagination, we can compare luxury brands and e-commerce to the Orient Express facing high-speed trains. Their strategy simply cannot be the same as other brands. And that can raise doubts as to the compatibility of luxury and digital. In fact, most high-end brands did have second thoughts at first, they feared channel conflicts leading to a drop in offline sales, or feared they would be associated with mainstream brands.
But in the end, the most important question is this one: where are the luxury market’s target customers now?
Affluent consumers are online
With no surprise, wealthy consumers use the internet as much as everyone else. However, their behaviors differ in that they use it twice as much when it comes to gathering information. And they do not mind buying luxury goods online. In 2017, in the United-States, 74% of affluent customers have made online purchases.
In addition to shopping, luxury customers are very active social media users. More than half follow luxury brands accounts.
Another question arises: which device do they use? If we look at statistics, smartphones are favored. Just like other consumers, 64.6% visit luxury brand websites on their phone (ContentSquare). And 50% of them look for high-end products via this device. Therefore, it is very interesting for brands to invest accordingly. Moreover, in a 2018 Deloitte survey, 37% of respondents felt that luxury products and technology will become more closely linked. And more importantly, luxury consumers expect an omnichannel experience from brands, regardless of their age (85% of millennials and 75% of baby boomers).
The success of high-end multibrand online pure-players
Another evidence showing the high potential of the digital world for luxury brands is the success of multibrand luxury e-commerce websites. The two main retailers being Net-a-Porter and Farfetch.
The former, Net-a-Porter, was founded in 2000, at the very beginning of ecommerce. It was a gamble that largely paid-off as it is still achieves double digit growth 20 years later (in 2019, the brand’s revenue grew by 11%, although it suffered losses due to higher costs).
The second one, Farfetch, was created in 2007 and is based on partnerships with different luxury brands. It offers the latter an opportunity to sell their products online with secure delivery or click & collect. Famous worldwide, it now counts more than 21 million visitors each month and a growing revenue.
LVMH saw an opportunity in this new trend. It had launched eLuxury in 2000 (which turned into a magazine) and created 24Sèvres in 2017. This new website means to offer the world an online customer experience worthy of the greatest Parisian stores.
Divide and conquer: the luxury digital strategy
Although they are different from multibrand websites, luxury brands too have been settling online. Of course, given their uniqueness, not all luxury products can be sold online. As we have stated, their strategy cannot revolve around sales and exceptional discounts like any other mainstream brand. They prefer to approach luxury e-commerce by selecting several products that are adapted to this channel.
Very often luxury brands will sell cosmetics, perfumes, or specific accessories and clothes on their website, but their more high-end products will be exclusively sold in physical stores. That is the case for Chanel, who only offers its cosmetics and perfumes online.
Brands often showcase their artworks through collections visible online. However, customers will be invited to visit their physical stores to buy them and enjoy the specific customer experience luxury is famous for. The website is meant to guide affluent consumers in their reflection and increase their desire to own such or such product.
Going digital, an opportunity for the luxury goods market
The challenges of going digital for luxury brands
However, there are still several challenges luxury brands must face:
- How can they continue targeting affluent consumers? Attracting new consumers thanks to the internet is the lot of all brands. But luxury brands are not looking to attract everyone. They must find a way to be visible, without losing their positioning.
- How can they reach Millennials and Chinese consumers? They are the new favorite targets on the market. Millennials are the future customers, and they do not have the same expectations than the long-established affluent consumers. Chinese consumers have also become richer. Now, they deliver more than half of the global growth in luxury spending, and are expected to deliver almost 65% by 2025.
- How can they create a “haute couture” experience similar to the in-store experience? Customer experience and emotions are two key elements that determine everything that happens inside luxury boutiques. Once customers have walked through the door, they are swept off to another world ruled by the luxury market’s codes and the brand’s values. If brands have mastered the ability to recreate such a world in real life, recreating it online is a whole other matter.
- How to build loyalty among existing customers? The loyalty of affluent customers is equally important. Luxury brands are experts at creating a close relationship with their loyal in-store customers, but how can they do the same via a website?
How new technologies are disrupting the world of luxury
The Internet revolution has brought along new technologies that have completely transformed the digital landscape. They have opened doors to new opportunities:
- Augmented reality: this technology enriches reality by integrating new 2D or 3D elements. For luxury brands, it enables them to improve customer experience in their stores. For example, connected mirrors that allow consumers to know more about the article they are trying on. Or other technologies that enable consumers to “try” specific products from home (like Dior and Gucci who created social media filters and apps so consumers could try on their accessories).
- Digital gift cards: it is the dematerialized counterpart of plastic gift cards. They have the advantage of being sent instantly to the chosen recipient. E-gift cards are used by all the biggest brands in their strategies. From customer acquisition to loyalty, it is a tool that perfectly conveys brand values. It is ideal for luxury brands if they want to create a new emotional dimension: the pleasure of receiving and giving. How would affluent customers feel if they received a gift card from their favorite luxury brand?
Online sales of luxury goods still remain a small part of overall luxury sales. But digital and luxury are far from incompatible. In fact, digital is a goldmine for high-end brands. The challenge is to use it properly, that is, by successfully capturing the codes of luxury into their digital strategy. What must absolutely not be done, however obvious it may sound, is copy digital strategies from mainstream brands. Once again, just like the products they sell, the strategies implemented by luxury brands must be unique, so that customers always feel special when visiting them, whether in their stores or on their website.
Suggestions for further reading
Luxury: 7 tips to draw Millennials in