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The distribution dilemma: should luxury retailers go it alone?

Luxury retail brands have always been hesitant to embrace online. Concerns that the internet’s global reach would damage brand exclusivity and diminish luxury cache meant that online was deemed an unsuitable channel from the start. Furthermore, it was previously thought inconceivable that consumers of expensive, high-end goods would ever want to make purchases online.

Over the past decade, however, as luxury destinations such YOOX Net-a-PorterFarfetch and mytheresa.com have emerged, disrupting the market and creating new ways for consumers to shop, perceptions have gradually changed. Luxury brands have cautiously dipped their toe into online by using these platforms as a testbed for their digital strategy, and as end-to-end third-party service providers.

Today, the global luxury goods market is estimated to be worth $1.5 trillion, and around 10% of all luxury sales take place online. That’s a major change for a market that was expected to be a slow online developer. With online proven as a viable route to market for luxury players, many brands are now confident to scale the opportunity.

However, while growth is a priority, the age-old concern of exclusivity remains an issue. How can luxury players balance growth in the online environment while maintaining control of their brand, the customer experience, and customer relationships?

Luxury’s limitations in multi-brand etailing

While multi-brand etailing sites can act as a springboard for brands looking to quickly engage new audiences in diverse markets, luxury brands have found that they no longer have the same quality of relationships with customers as they’d like, and it’s costing them dearly.

Lack of direct access to customers means they’re unable to deliver the highly personalised, engaging experiences consumers expect of luxury brands. All customers are treated the same when purchasing through multi-brand etailing sites, regardless of which brand they’re buying. Changing that experience for one’s own brand when it is controlled by a third-party is hard and restrictive. Luxury brands increasingly want to take control.

The growth limitations via multi-brand etailing means that many luxury brands are looking to go it alone, bolstering their own ecommerce capabilities by developing in-house teams, their own fulfilment capabilities and their own transactional websites. While the sheer expense and complexity may appear too great given the infrastructure required to serve multi-country, multi-currency customers, cost analysis points to short-term pain for significant longer-term gain.

Taking the plunge

To drive growth online while maintaining control of brand and customer experience, luxury players are investing in their own websites and limiting stock availability on third party sites. Doing so means they can turn an ecommerce offer into an omni-channel offer, integrating their in-store experience and creating extended click & collect services.

In the past 12 months we’ve seen luxury players make bold moves to take control of their brand online. LVMH, the world’s largest luxury goods company, announced plans for its first multi-brand ecommerce site. Offering its own labels as well as distributing non-LVMH brands, it’s effectively going head-to-head with the likes of Net-a-Porter and Farfetch. Others are following suit.

 The path forward

With classic routes to market stagnating and growth imperative, luxury brands can no longer afford to hesitate when it comes to online and omni-channel excellence. To drive growth while regaining control over brand and customer experience, luxury players need to rethink their operating model by:

  • Understanding which brands and markets offer the best opportunity online: Luxury groups with a multitude of brands need to consider which brands in their portfolio have the biggest opportunity for online trading and look to prioritise them. They need to consider the audience they’re selling to, market demand and economic model.
  • Weighing up the long-term growth potential of setting up owned operations: Building an ecommerce operation from scratch is not for the feint hearted. All operations and technologies – from contact centres, warehouses, fulfilment, invoicing and tariffs, website development, order management and integration with warehouse management – and all ecommerce applications will need to be developed.
  •  Developing in-house digital and trading capabilities: To go it alone, luxury brands need experienced in-house teams to run and manage the new operations and technologies. They need to understand the running of an ecommerce website – from merchandising, web analytics, digital marketing and other related skills. Investing in skills such as analytics, campaign management and search optimisation will be critical to gaining insight into emerging consumer trends which can be fed back into R&D.
  • Reaffirming their ‘raison d’être’ through digital and in-store brand experiences: Reinventing the brand experience is top of the priority list for luxury players. Flagship store refurbishments and compelling digital experiences will be key to enticing consumers away from competing sites. Furthermore, using digital to enhance cross channel and in-store brand experience through enhanced clienteling or extended click & collect services is key.

By re-evaluating distribution strategies and taking ownership of online, luxury players will have a strong opportunity to drive double-digit growth, cement relationships with customers and drive deeper brand loyalty.

FIND OUT MORE about Javelin Group’s Digital Retail Strategy service line.

This article was first published in Essential Retail.