E-tail: the great challenges facing the luxury industry

In 2017, e-tail accounted for 10% of global luxury goods consumption, and it is forecast to carve out a 25% share of the market in 2025. Faced with this e-tail acceleration, luxury labels are absolutely forced to adapt their strategies, as illustrated by Luca Solca, in charge of luxury goods research at Exane BNP Paribas, at the workshop on high-end retail and consumption organised by Altagamma, the association of Italian luxury goods companies.


Louis Vuitton’s sales grew by a third between 2015 and 2017, while its retail network remained stable - DR

The luxury industry has accepted the idea that digital distribution is a priority, since it is one of its most significant growth vectors. Proof of this are the growing presence of luxury brands on the web in China, one of the key markets for the luxury goods industry today, and the increase in online sales of high-end products in the USA. "In the last 12 months, they grew by 30%, and 60% of this increase was generated by Dolce & Gabbana, Prada, Fendi, Brunello Cucinelli and Tod’s," said Solca.

This kind of expansion has several strategic implications. The first, predictable one is the shrinking of brick-and-mortar store networks, starting with monobrand stores but especially affecting wholesale clients. According to analysts, this kind of 'rationalisation' is essential in order to preserve the perceived exclusivity of brands and their long-term value.

The second impact regards the nature of monobrand stores and the role of their sales staff. Stores can no longer limit themselves to simply offering products that customers are able to purchase online, especially when they know exactly what they want. There is the risk of cannibalisation. "Stores will become places [where consumers] are able to discover products, brands and prices. The expectation is that luxury labels will design stores that are more focused on their brand narratives, creating genuine relevance for consumers."

"But care should be taken in not turning stores into showrooms, letting customers do their shopping elsewhere. This would nullify the investment on retail outlets. Brands will need to deploy a fast cycle, making it possible to harness immediately the interest for a purchase that is generated in-store," said Luca Solca. For example, by facilitating the purchase on the brand's e-tail site.

Another pitfall brands should steer clear of is bad distribution management. The web exposes mercilessly the least weakness, especially discounted sales and promotions. No point in waiting for customers to come to the store if they can buy the same products more cheaply on the web.

"The web acts as a magnifying glass, exposing the shortcomings of brands with regards to their commercial policies, and their lack of control on their own distribution. This adds extra pressure to labels which are more dependent on the wholesale channel," said Solca.

For example, apparel, eyewear or watch labels, which are mostly sold in multibrand stores and most frequently on other websites at lower prices. They must at all costs raise the level of their transparency if they don't wish to lose their full-price sale customers, or see their products turn stale.

Luca Solca also reckons that regional department stores will gradually disappear, while the more reputable names, like Harrods or La Rinascente for example, will turn from generalists to selectors, featuring a range targeted to specific customer profiles. The same holds for multibrand e-tailers. While labels will increasingly tend to take direct control of their digital business.

"The most likely scenario is that, in the next five years, luxury e-tail will become extremely crowded. Luxury brands will have largely developed their own e-tail capabilities, since using a concession formula, as with Farfetch, would earn them less (from 80% to 85% of the product's starting price), and relying on multibrand sites like Net-A-Porter even more so, between 40% and 50%," said Luca Solca.

Not forgetting department stores, which will deploy their own e-stores, Chinese pure players, now becoming increasingly influential, the new arrivals constantly flocking to the market and all the emerging labels which are being launched directly and exclusively on the web. 

Translated by Nicola Mira

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