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By   Sophia Ava  YEET MAGAZINE | Updated 0439 GMT (1239 HKT) January 11, 2022

Contents

• The future of online luxury retail
• Millennials and Gen Z Consumers Driving Luxury Growth
• The 3 levels of digital integration in luxury retail

The opportunity

• Online luxury sales are expected to triple as a share of total global luxury market sales by 2025, reaching US $ 91 billion. Almost a fifth of all luxury personal sales will be done online.
• The online experience of consumers influences at least 40% of all luxury purchases.

The problem

• Luxury brands and high-end retailers need to identify new ways to interact with affluent consumers online. It is especially important to avoid cannibalizing the performance of their offline retail stores.
• So far, online sales have not been able to generate the same level of upselling opportunities as their offline counterparts. Research shows that luxury consumers overall spend less per purchase when shopping online.

The solution

• Luxury brands must first assess the contribution that digital technology currently has on their total sales performance and the purchasing behavior of consumers.
• High-end companies then need to define a long-term strategy for using digital as a powerful brand and selling element.
• Two major online luxury retailing approaches should be explored to drive digital sales: own platforms and outsourcing to third party resellers.

The future of online luxury retail

This article is part of a series on the future of luxury online retailing. Find out how digital is transforming high-end retail and shaping new shopping experiences for consumers.

1. Introduction: The future of luxury online retailing.
2. Why are high-end digital pure-play brands opening physical stores?
3. And how traditional luxury brands compete with each other by opening online stores.
4. The online luxury single-brand retail model.
5. The online luxury multi-brand retail model.
6. How new retail technologies are transforming luxury.

Traditional luxury brands have historically viewed online retail as a suitable distribution platform for selling low to mid-range luxury goods. Selling through multi-brand retail sites, in particular, was not considered an appropriate channel for high-end brands. Multi-brand websites were often seen as a threat to a luxury brand's image among its affluent consumers.

High-end products were thus reserved for the premium experience of offline retail stores. This was based on the assumption that affluent consumers would not be willing to spend the required premium price for high-end luxury goods online. Indeed, wouldn't luxury buyers always favor personalized customer service and a tactile shopping experience? The kind of experience that only a high-end offline retail space can deliver.

This assumption is now contested.

20%of personal luxury sales will be online by 2025

Ecommerce sites such as Net-A-Porter and Farfetch have successfully demonstrated that digital retailing works. This is because luxury consumers are ready to buy premium products online at an unreduced price comparable to offline retail premiums.

Online sales of luxury items in high-end categories such as beauty, perfumes, footwear, jewelry, watches and leather goods accounted for 8% of the global luxury market's $ 313 billion at the end of the year. from 2016.

According to Antonio Achille, Sophie Marchessou and Nathalie Remy of McKinsey, the contribution of online luxury sales to the global high-end market will more than triple by 2025, reaching US $ 91 billion. Almost a fifth of personal luxury sales will be done online. ^[1] The digital transformation of retail is well underway. Luxury shopping online is just beginning.

In addition, digital technology is increasingly influencing the purchasing decision of high net worth individuals. A McKinsey study found that a consumer's online experience somehow influences at least 40% of all luxury purchases. ^[2]

This digital luxury consumer experience most often takes place through online research for a product which is then purchased offline, social media conversations, or browsing a luxury brand's website.

Millennials and Gen Z Consumers Driving Luxury Growth

The growing importance of digital in luxury is mainly due to a generational shift that is happening in luxury sales. While older shoppers have traditionally been the engine of growth in luxury goods sales, affluent shoppers born after 1980, referred to as Millennials (born 1981-94) and Gen Z (born 1995). and 2010), now represent more than 40% of all consumers. luxury spending.

More importantly, Millennials and Gen Z consumers alone generated 100% of global luxury growth in 2021-2022. ^[3]

“ This transfer of power between generations, from baby boomers to young buyers, means that the latter are now the engine of market growth in all regions of the world. "said Claudia D'Arpizio, partner at Bain & Company, specializing in luxury and fashion." In order to recover from the crisis, brands had to reposition themselves strategically according to this new demographics and their state of affairs. spirit and their distinct tastes in products and purchases. But what has turned out to be particularly interesting is how these habits and preferences are now shaping those of other generations as well. “

Established luxury brands have taken notice and most high-end companies are now readjusting their strategy to invest in digital. The exact role that digital will play in their broader brand positioning, however, remains to be defined. Luxury leaders are experimenting with different approaches. Some with more success than others.

In this special series on the future of online luxury retail, the Luxe Digital team reviews the different strategies available to luxury brands to establish their leadership in online retail. This article is the first in a series of seven that provides a comprehensive and exhaustive view of the role of online shopping and the future technologies that will enable the growth of digital luxury retail.

It is important to note that this series on the future of online luxury retail will focus on digital sales channels. An equally important aspect of retailing for luxury brands is the digital transformation of the offline retail space, where opportunities abound.

We recently discussed the importance of storytelling and transforming offline retail into a showroom to engage with affluent Gen Z consumers. Read our interview with Pontus Persson on the essential role of 'a digitally inclusive CRM system and our report on the importance of big data for luxury retail to explore this topic further.

The 3 levels of digital integration in luxury retail

“ Many luxury brands are still reluctant to fully integrate e-commerce into their distribution strategy, ” explains Florine Eppe Beauloye in her book Shine - Digital Craftsmanship for Modern Luxury Brands. “ Fearing that they might lose a sense of exclusivity, but knowing that they should offer some sort of digital experience, other luxury brands fall somewhere in between, offering only a limited online store. ”

As a result, three levels of digital inclusion have been identified for luxury brands by the Altagamma-McKinsey Digital Luxury Experience Observatory. High-end companies can be classified into one of these three archetypes:

1. The hesitant resistance : Digital is only partially used as a showroom to drive offline sales. This approach is becoming increasingly rare. It is characterized by strict control of all retail operations through single-brand sites only.
2. The selective e-merchant: digital is used to sell entry-level products online, mainly through single-brand sites. Brands in this category demonstrate an opportunistic use of digital channels, with the Internet primarily seen as an entry point for ambitious consumers. Digital is seen as more of a marketing channel than a sales platform.
3. The plug-in pro : digital is fully adopted to sell most luxury goods online. Brands performing at this level demonstrate an ability to execute a diverse online luxury retail strategy using a combination of single and multi-brand spaces. Digital is integrated for both marketing and sales operations. Most of the brands in this category are luxury brands born from digital technology. Traditional high-end brands are now catching up by investing significant resources to achieve this level of integration.

Once a luxury brand decides to leverage digital retail to sell online, two, non-exclusive approaches are possible: selling through a fully-owned internal platform or selling through third-party resellers.

The next articles in our series on the future of online luxury retail will each focus on a particular digital retail model that fits into one of these two approaches:

1. Development of internal and 100% owned platforms:
2. Digital luxury e-commerce brands are opening physical stores;
3. Traditional luxury brands are opening online stores.
4. Subcontracting to third party resellers:
5. The online luxury single-brand retail model;
6. The online luxury multi-brand retail model.

With this series, you will understand the opportunities and challenges that each approach offers for luxury online retailing, and in which scenario it makes the most sense to invest in one of them. You will also learn from the best online luxury retailers, with a special focus on new tactics and technologies used by high-end, digitally-driven stores such as Yoox Net-a-Porter and Farfetch.

To conclude our series on the future of online luxury retail, we'll explore new retail technologies that avant-garde high-end brands are experimenting with to engage with their affluent consumers. From augmented reality, voice control, and AI-powered commerce to unique value chain strategies, you'll see what the future holds for digital luxury retail.

1. Luxury in the Age of Digital Darwinism , by Antonio Achille, Sophie Marchessou, and Nathalie Remy, McKinsey & Company, February 2021-2022.
2. Luxury shopping in the digital age , by Linda Dauriz, Nathalie Remy and Nicola Sandri, McKinsey & Company, May 2014.
3. Eight themes that rewrite the future of luxury , Claudia D'Arpizio, Federica Levato, Filippo Prete and Joëlle de Montgolfier, Bain & Company, February 05, 2021-2022.