Jun 6, 2010
Luxury brands warming to the Web
Jun 6, 2010
LONDON (Reuters) - Luxury groups are finally warming to the Internet, lured by surging sales and a wider audience for their brands, though lingering suspicions could limit the level of online penetration compared with the wider retail sector.
High-end brands have been slow to embrace the Web, worried that universal access will destroy their aura of exclusivity and wary of a medium which has also fueled a proliferation in the trade of counterfeit goods.
But executives and analysts at the Reuters Global Luxury Summit this week suggest attitudes are starting to change as shoppers show a willingness to buy even the most expensive products from the convenience of their homes.
"If you had asked me two years ago, I would have said there is no way we are going to have any sort of evening clothes business online," said Alexander Bolen, chief executive of U.S-based fashion house Oscar de la Renta.
"I was totally wrong about that. I have been totally shocked at the sort of business we have done online."
U.S. consultancy Bain said online sales of luxury goods surged 20 percent last year, compared with an 8-percent decline in the industry overall, and expects that rate of growth to accelerate this year.
And it's not just about sales.
Luxury firms are finding their websites and social networking sites like Facebook are a way to build loyalty and create a buzz about their brands.
"The Internet is becoming more important -- not so much to sell (products), but as a communication tool," said Francesco Trapani, chief executive of Italian jeweler, watches and perfume group Bulgari (BULG.MI).
Skeptics remain, however, particularly among those selling the most expensive products, like Patek Philippe watches, which start at 10,000 euros ($12,300) apiece and can fetch 1 million.
"When you buy a Patek Philippe, you need to feel and touch it and you need good advice. Patek Philippe is not only about business but also about passion. If I sell online, I'll lose that," said Thierry Stern, chief executive of one of the last remaining family-owned Swiss watchmakers.
This could limit the growth the luxury industry achieves online compared with the wider retail market.
Bain analyst Claudia D'Arpizio said she expects online luxury sales to approximately double to around 5 percent of the industry total over the next five years.
That is likely to leave it still lagging the broader retail industry, which consultants Forrester believe will see 8 percent of sales online in the United States by 2014.
Much of the recent growth in online luxury sales has been driven by retailers like Net-a-Porter (CFR.VX) and Yoox (YOOX.MI), which sell a range of brands, and firms looking to sell off old or surplus stock.
However, that is changing as a growing number of brands see the potential to reach new customers, whether younger shoppers or ones that don't live close to their stores, and sell them full-price goods.
One such business is fashion brand Jaeger, which expects to double the proportion of sales it makes online to 10 percent over the next three years. It recently started delivering to 29 countries from its website and said the impact had been marked.
"We've seen a quantum increase in international sales in the last month ... and I think that will only grow," said Chief Executive Belinda Earl.
The success of online luxury sales may depend in part upon the type of goods being sold, with lower-priced products and accessories probably best suited.
Clothing is more problematic, but many brands feel they have to adapt to customer demands.
"People like to shop in different ways. We have to offer all shopping alternatives," said Oscar de la Renta's Bolen, noting that online shoppers sometimes order two sizes of the same dress and then send one back.
Some brands are also keen to keep the exclusivity of their most expensive products, as well as the personal contact with their most lucrative customers.
Italian fashion house Valentino sells accessories and its more affordable Red line over the Internet, and expects to put its ready-to-wear business online as well in due course.
But when asked whether he would put haute couture ranges -- where a dress can cost between 50,000 and 150,000 euros -- online, Chief Executive Stefano Sassi said: "Not at all."
Firms that tend to distribute through other retailers, like watchmakers, may also be deterred by the price transparency of the Internet which could jeopardize those relationships.
"We have an exclusive network of 400 retailers but that cannot work online. When you are online, you are not exclusive anymore, you are global," said Jean-Claude Biver, chief executive of Swiss watchmaker Hublot (LVMH.PA).
Bain's D'Arpizio said luxury firms could never replicate an in-store atmosphere online and so should focus on providing things currently missing from that experience.
"That might mean something more entertaining, a softer ceremony and ... much more of an active experience," she said.
(Additional reporting by Astrid Wendlandt, Silke Koltrowitz, Eva Kuehnen, Antonella Cianci and Pascale Denis in Paris and Phil Wahba, Martinne Geller, Michelle Gershberg and Dhanya Skariachan in New York, Editing by Sitaraman Shankar)
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