While high-end brands have been slow to adapt to an online world, consumers haven't. Now the brands need to dive into digitalization, or get left behind by shoppers and investors.
Staying out of the online fray is no longer an option for most luxury brands, especially if they want to be where their shoppers are.
Leading luxury brands in the fashion world are built on exclusivity, which until now has meant a minimal online presence. But shoppers' dependence on the Internet—and slowing luxury sales—has pushed the high-end of the retail market to reconsider diving into digital, according to a recent Morgan Stanley Research report.
More than 60% of luxury good sales are now digitally influenced.
Going digital could offer something for everyone. Luxury retailers can reach their target consumers directly, and perhaps expand their audience to customers who would otherwise struggle to find them. Consumers would enjoy more access to some of their most beloved brands. Meanwhile, for investors, a brand's online engagement with luxury shoppers could mean more robust sales and new avenues for growth—so long as they know which companies are maximizing their digital investments.
Indeed, the luxury online channel is expected to grow at a compound annual rate of 15% annually through 2020, compared to the 2% to 3% compound annual growth rate projected for the personal luxury brands market overall, according to Bain-Altagamma.
To be sure, high-end brands still prefer to interact in-person with their shoppers. Exclusive white-glove service has traditionally been part of the experience that many customers prize when they go shopping for luxury products, from shoes and handbags to watches and formal wear. However, more than 60% of luxury good sales are now digitally influenced—meaning shoppers either researched online and bought at the store, shopped in the store but bought online, or purchased online outright—according to recent analysis by the Boston Consulting Group.
“With low penetration of eCommerce and social media by luxury peers, there is an opportunity to boost direct-to-consumer engagement, particularly as younger consumers spend increasing amounts of time online,” says Louise Singlehurst, who covers the luxury goods and brand sector.
Brands that have started on their digital journeys are already seeing results. For example, site traffic and sales for one high-end apparel and handbag company improved after relaunching a more user-friendly website earlier this year. Singlehurst adds that brands taking an omnichannel approach that fuses brick-and-mortar stores with online retail, such as exploring web promotions of in-store products or offering “click and collect” options to customers who buy it online and pick it up at a local store, will also likely experience a boost in store sales.
Digitalizing a business doesn't happen overnight and isn’t simple. “Developing digital competence is a multiyear process that requires organizational change,” Singlehurst says. “Adopting a cross-divisional, companywide digital strategy can be costly, and requires cultural openness to doing business differently.”
Investors hoping to ride the wave of luxury brand digitalization can track company progress in four proven areas of digital competency:
- Hardware: Luxury brands will need to have the supply chain and fulfillment infrastructure to serve their customers at every stage of the buying process. They also must be able to adjust their supply chains to respond to seasonal data.
- Software: As they grow their digital initiatives, brands will need flexible, scalable software that supports omnichannel processes. Updating their software capabilities in an easy, cost-effective way is also important.
- Sensing: This refers to a brand's ability to collect and then use consumer and operational data to improve efficiency and performance. “We think this could be an important differentiator for brands and drive share gains if executed well,” Singlehurst says.
- Organization: A successful, sustainable, digital effort needs responsibility and accountability across departments. Companies that relegate digital initiatives to one or two teams, instead of spreading such efforts throughout the corporation, may end up with data overlap, missed opportunities, and inability to fully maximize their digital investment.