It may not be widely recognized as such yet, but digital technology will be the game-changing innovation for luxury brands in our era.
The #DigitalRevolution came fast and forcefully, everywhere, to each business, whether they were ready for or not.
After it was initially met with uncertainty and scepticism, digital soon proved it was able to open up countless opportunities to create tailored offers and provide bespoke services to many more customers than ever before.
Its distribution channels widen the playing field for every sort business, luxury brands included, allowing to reach out to consumers impossible to get before, and engage online with them in markets where a brand has no (physical) stores.
According to a study by The Boston Consulting Group (BCG Focus, January 2014) in the US market alone, consumers anticipate spending between 20% and 30% of their total outlays online in the next few years.
But not all brands are there yet.
Indeed, luxury lags other consumer sectors when it comes to understanding and applying digital technologies.
For more than a few luxury brands, then, the issue really is embrace Digital or Die: the speed of technological development is endangering their current business models faster than they predicted.
The Hard Reality of Digital Everything
Luxury brands are up against tough growth challenges.
If we look at the previous decade, their growth was all about consumer spending and new store openings in emerging markets—notably in China.
But the evident result is that today China has more luxury stores than its consumers demand, and consumer spending has cooled progressively.
So, one after the other, even the more reticent luxury brands had to admit that digital could make a transformative difference in their ability to reach and retain customers.
Nowadays, luxury goods and services are sought, sampled, and purchased in very different ways than they were in the past. Consumers expect efficient e-commerce, engaging and exciting interactions on social media, and multiple channels through which to interact with brands.
Moreover, brands cannot delay the move toward more virtualized interactions with consumers. Although consumers will still want to interact physically with luxury products, they see virtual experiences as a path to more immediate gratification.
So now, brands value digital technologies as a way to create new products, novel business models and new channels, while exceeding and individualizing their services far beyond the store.
The simple fact is: digital is an inevitable, inescapable business shift.
New research from BCG indicates that currently, almost six out of ten luxury sales are digitally influenced.
The research (carried out on approximately 10,000 consumers in ten countries plus interviews with industry leaders) also found that online commerce, which now accounts for 7% of the global personal-luxury market, will grow further to make up 12% of that market by 2020.
“For every action there’s an equal (and opposite) reaction”
Riding the new trends successfully is not a matter of setting up an appealing website or catching as many followers as possible on social networks.
Evident signs of change are also detected when disruptive novelties occur in the top management structure.
When Ralph Lauren CEO Patrice Louvet announced that the former Burberry’s director of digital marketing had been hired as the brand’s first chief digital officer, the underlying message was clear: finally, the American luxury brand was getting serious about enacting change.
“We are moving urgently to expand our digital presence all over the world. We have to meet consumers where they are, which is increasingly online, and digital expansion is one critical way we will drive new growth for our business and brand.”, stated Louvet.
Ralph Lauren’s action is striking: it demonstrates it is a different, open-minded luxury brand and, more importantly, to have understood the essential of getting up to speed in digital across all fronts — increase digital wholesale and direct retail sales, increase digital marketing spend, drive e-commerce platform management, and improve their presence on social platforms.
They signal to the world that time to invest on digital advancements came, and that progress is on the horizon.
The champions & the secret formula of “digital” success
Ralph Lauren was not the exception, but the rule.
Burberry, Marc Jacobs, Bentley, even historical luxury brands such as Hermes or Chanel, have demonstrated they are ready to welcome this transformation. First move, by creating engaging website and well-fed social media accounts, with the purpose of adding dimension that draws more potential customers to a brand.
Chanel’s website, for example, features video clips from its runway shows, celebrities and legendary designers. More online customers mean more data can be collected, which can help hone a marketing strategy.
Chanel has been able to master YouTube by extending its global reach to half a million subscribers and more than 100 million viewers.
The Apple Watch Hermès represents a good example of new partnerships between an old-school luxury brand and the American technology giant brought by digital.
Net-a-Porter, in creating a global online luxury retailer and fashion magazine, illustrates how digital is reshaping distribution channels.
Michael Kors’ products were offered online through retailer Niemann Marcus. Embracing the concept of a dedicated eCommerce platform, MK ramped up their digital efforts and established their flagship online store, reporting a 73% growth in online sales.
Bentley’s website allows customers to take a virtual world tour in the cockpit of one of their luxury models — the next best thing to a real test drive.
They’ve also developed the Bentley ‘Inspirator’ — a personalization app that analyses customers’ facial and emotional reactions, then recommends the perfect personalized car, colour, and interior.
understanding when to expand into new markets is paramount to ensuring a healthy spike in growth, revenue, and profitability!
How Luxury brands are embracing
the Internet revolution
Internet is the new China: it silently conquered us all. The immaculate Luxury world too. No exception.
The whole industry has a new challenge: appeal to #millennials.
#millennials are customers who are very knowledgeable about the real value of the product.
They are deeply influencing other generations towards how they are approaching luxury.
They tend to want to spend more on experiences rather than material things, and who now have more options to rent luxury items, for instance designer outfits, rather than own them.
With the ubiquity of personal technology – AKA mobile phone ownership – and consumer hunger for experiences beyond the sterile “add-to-bag & pay” e-commerce option, luxury brands had to heavily re-evaluate their engagement and retailing strategies.
Luxury is about #exclusivity. The Internet is about mass. And when reducing those boundaries, it’s the beginning of a real conflict no holds barred. So now, who do you think is holding all the aces in this battle?
If your answer is the customer, you’re damn right!
“Companies struggle with digital transformation because the scope of change is massive and often very disruptive” said study lead and Gartner analyst Mark Raskino. “However, CEOs are under pressure from boards and external stakeholders to drive the digital future.”
So the conclusion is that as long as people are shopping online, luxury is going to have to go in that direction.
A Generational Shift
In a study conducted for Fondazione Altagamma, Bain & Co. estimated the personal luxury goods market in 2016 was “essentially flat”, at about $264 billion, the third straight year of “modest growth” when excluding currency impact. However, sales dropped 3% each in the Americas and Asia (excluding Japan), two major luxury markets.
According to another study carried out by Deloitte, for the luxury industry “leadership will need to break free from nostalgia. Luxury is different, but not that different. Luxury is special, but not that special. For some luxury brands, there will be different pressures which come from heritage or private/family ownership—resulting in a risk of inertia, over-control, caution and a lack of agility.”
In a nutshell, luxury brands that have been reluctant to follow their peers into the digital arena they have no other choice but becoming more flexible and move with the times or they risk to become increasingly irrelevant and go meet a bleak end.
A New Battlefield
The challenges to a sector steeped in tradition are pretty clear:
- Avoiding ‘throwing the baby out with the bathwater’ and ensuring any engagement strategy maintains all the good things associated with luxury— #quality, attention to detail, and #personalized service —while presenting them in a digitally enabled, agile context.
- Recognizing the importance of providing cross-channel and social experiences, even if the brand has been built on a traditional in-store sales model.
- Committing to investment in the best, most audience-appropriate digital services available to make sure there is continuity and #trust across all customer and sales journeys.
As Deloitte made clear, luxury brands that are unable or unwilling to keep pace with the ever-evolving digital experiences favoured by consumers are likely to find themselves on a dead end.
And there’s nothing worse – particularly in this sector – than being viewed as old fashioned, irrelevant and unable to take advantage of the most attractive elements:
Quality, superior service & experiences!