Wednesday, 21 June 2017

How will e-commerce threaten traditional luxury retail?

It’s getting tougher to sell the theory that high-end retailing is immune to digital competition. Even as Amazon and other online merchants decimate the industry’s midsection, some in retail still cling to the idea that luxury goods represent a defensible brick-and-mortar bastion. According to this line of thinking, big-spending consumers won’t follow the hoi polloi into digital markets. Luxury goods shoppers will always want to feel the cashmere, heft the Rolex and bask in the blandishments of fawning sales clerks.

It’s a comforting notion for those unnerved by the drumbeat of store closings at mall stalwarts such as Macy’s, Sears and J.C. Penney, and the shutdown of once-ubiquitous chains like Limited and Sports Authority. But there are some problems with the belief that e-commerce won’t disturb high-end retailing.

First of all, the luxury sector as a whole has been less than a juggernaut in recent years. According to a report from consultancy Bain, overall luxury goods sales were flat last year at about $280 billion. A surge in spending by newly rich Chinese consumers that lifted luxury sales from 2010 to 2014 has fizzled, and upscale shoppers in the U.S. and Europe spent less last year.

Slumping sales have triggered store closings and consolidation among retailing’s glitterati. Michael Kors, a purveyor of designer clothing, handbags, shoes and other pricey merchandise, announced late last month that it will close 100 to 125 stores. The news came shortly after high-end leather goods retailer Coach agreed to acquire rival Kate Spade, and designer shoe chain Jimmy Choo invited buyout offers.

The near future doesn’t look much brighter. A report by Boston Consulting Group predicts 3 percent annual growth in luxury sales from 2015 through 2022, down from a 5 percent annual pace between 2008 and 2014. The report also points to a glut of luxury stores in major metropolitan markets, including Chicago.

The second problem with the safety-in-luxury theory is strong growth in online sales of high-end goods. Bain reports that online luxury sales grew 13 percent last year and now account for 8 percent of total sales in the sector. That’s double the digital share three years ago and nearly the same as e-commerce’s share of overall retail receipts. Boston Consulting predicts e-commerce’s share will reach 12 percent of global luxury sales by 2020. “Digital is the new consumer reality,” one of the report’s authors says.

The shift isn’t lost on major premium brands. French luxury powerhouse LVMH has invested several million dollars in a digital initiative that will extend its global reach without new stores. The multibrand website, called 24 Sevres after the address of LVMH’s ultra-chic Le Bon Marche department store in Paris, will offer a range of upscale labels, including Dior and Louis Vuitton, and online access to Parisian stylists.

New competitors are popping up across the web as online luxury sites such as Net-a-Porter, Moda Operandi and Farfetch develop worldwide followings.

Finally, a wave of new technologies will make digital luxury shopping even more appealing. Data analytics and artificial intelligence will enable web retailers to offer highly personalized service. Virtual reality could make the online shopping experience even richer: Don a headset and you’re strolling along the Champs-Elysees in that snazzy Giambattista Valli tunic. Advanced distribution networks using robots and automated vehicles will add new levels of speed and convenience to online luxury shopping.

As technology evolves, more luxury sales will shift online, further reducing demand for physical store space. That’s bad news for anybody who thinks hefty price tags buy protection from the digitization of retailing.

from CRAIN´S Chicago Business

Coach new store Paris

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