Luxury E-Commerce: The Standoff  

luxonlineMORE AND MORE, retail is migrating out of the streets and onto the Internet. Whereas once you had to plan your Saturday shopping around store times and parking meters, you can now take care of almost everything from your mobile phone. Convenience is the Watchword. Convenience is King.

But what about luxury brands?

Two of the defining elements in luxury are its exclusivity and its rarity. If you want a Hermes scarf or a Dior handbag, you must seek it out, join a waiting list, and pay dearly. In fact, the exclusivity is what allows luxury brands to maintain high prices. If anyone could buy a Chanel tailleur online at a bargain price, who would pay $19,000 for the same one at the 57th Street flagship?

However, e-commerce and omni-channel retail are pronouncedly here and poised to take over the world.

Investments in e-commerce by retailers and venture capitalists are ballooning around the world – examples like China’s Alibaba and Germany’s Rocket show how much investor confidence there is as both IPOs were hugely oversubscribed but not, according to the experts, overvalued. According to Modern Distribution Management, over 70% of all US distributors planned to invest this year in e-commerce.

It seems that it is the future. And it seems the future is here.

The argument would seem to be, if everything is going online, why is luxury not part of this migration? What is about luxury that makes them drag their heels and say things like “we don’t like it”?

Can anyone afford not to “like” it anymore?

In an article in Business Week whose opinion was less than veiled (“Luxury Brands Are Stupid to Snub the Internet”, April 3, 2014), a case was made for convenience (again). The overwhelming thrust of the article was that rich people are too busy to buy luxury goods in stores. They need to be able to buy online. Just like buying a sack of potatoes.

Who has time any more to buy sacks of potatoes?

They allege that luxury brands were “losing” sales to competitors who are online. They say that 90% of this “$300 billion industry” is sold in stores, viewing it as a lost opportunity.

The business model for selling luxury goods online is not quite that easy. Luxury brands, first of all, do not lose anything to competitors. Brand loyalty is earned and maintained carefully and the true luxury consumer does not compare apples to Gucci or oranges to Mugler. That is one.

Two: if 90% of the sales happen in stores, and if the industry is worth $300 billion, it means that the stores are working. If one were to sacrifice a part of that 90% to bump up the 10% of online sales, would it enlarge the size of the industry? The short-term gain of going online would do three distinct bits of damage –

  • It would alienate a large cross-section of the clientele by eliminating rarity and exclusivity.
  • It would force luxury brands into more direct competition with each other, thus devaluing the “unique” quality of the brands.
  • It could possibly do the unthinkable: drive DOWN prices and therefore eroding the luxury sheen.

The case of Place Vendôme jeweler Mauboussin shows just how dangerous it is to loosen your grasp on the reigns of luxury. Mauboussin launched their first online shop in February 2011, nearly ten years after Alain Némarq took over as CEO. In the years between, the French luxury jeweler began displaying their prices publicly, running contests on social media, airing television advertisements for their jewelry, and dropping their pricing. As a result Mauboussin fell from its status as being “true luxury” and entered the undefined realm of “affordable luxury.”

The “affordable luxury” gambit that Mauboussin has played has been a winner in terms of sales, but otherwise very costly to the brand. No longer regarded as “true luxury”, Mauboussin continued to invest in digital and physical retail at the same rate, betting that volumes will make up for margins lost. But the New York flagship had cost them more than €20 million when they had to close it in June this year. Clearly the money in luxury is in the margins.

Mauboussin, despite these dismal figures, is considered by some as a success. The online sales, an area not yet mastered by many luxury jewelers, allow the brand to claim back a little of the lost margin. But the luxury tag is gone.

According to one school of thought, luxury must stay away from the Internet altogether. In an article which appeared in Forbes, Lauren Sherman took on one of luxury’s best known proponents, Jean-Noël Kapferer, saying that the brand guru was out of touch and off base in his assessment of luxury online. While Kapferer sides against e-commerce for luxury because of its easy availability and impersonal service, Sherman says his “argument against keeping luxury goods out of e-commerce is plain old bad advice.”

Sherman went to great lengths to argue that online buyers are more desirable –

“An October 2008 survey of high-net-worth individuals–conducted by Google and Stevens, Pa.-based research firm Unity Marketing–found that high-earning online shoppers made more per year on average than high-earning in-store shoppers. Their average net worth was also much higher– $21.7 million for wealthy online shoppers, compared with $3.4 million for wealthy in-store shoppers. Wealthy online shoppers also spent more per year on luxury goods: $114,632, compared with $23,000 for wealthy in-store shoppers. While online shops might not provide the same intimate level of customer service as their brick-and-mortar counterparts, they offer something much more valuable, especially in today’s society: convenience.”

Kapferer may be old-school in this regard, but his caution to luxury brands against the pitfalls of e-commerce makes sense. The allure of “convenience” is very dangerous to luxury. His should not be a call to stay clear of online shops, but rather a warning to make sure you pay attention to the minutia of luxury sales. It should not, in other words, ever be the same as buying potatoes.

What is the Golden Mean in all this? There would seem to be many ways in which a luxury retailer could preserve the traditions and rites surrounding luxury while still claiming his share of the e-commerce gold mine. Wait lists, exclusive buyers’ clubs, diversified online ranges, or personalized customer service could distinguish luxury from mass market online.

E-commerce, no matter what we think about it, is the current stage of retail evolution, and no brand, luxury or otherwise, can afford to ignore it. For a luxury brand, the choice to go into digital retail is not something to take lightly.

Like its consumers, it must be treated with great respect.


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