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PARIS — Consumers may be slamming their wallets shut during the economic crisis — but not their laptops.
This story first appeared in the December 2, 2008 issue of WWD. Subscribe Today.
Online selling remains one of the few bright spots in the fashion and luxury landscape, with many European luxury players plotting more expansion and predicting continued sales growth. “We are optimistic about the online platform as a vehicle to drive sales,” said Valerie Hermann, chief executive officer of Yves Saint Laurent, which launched e-commerce in the U.S. in October 2007 and plans to expand it to Europe in the near future. “In the current climate, the Internet serves not only as a limitless resource for information, but as a refuge from reality.”
Despite the overall optimism, brand executives and Internet experts cautioned they expect the online juggernaut to slow, given the widespread pullback by consumers at all income levels.
In October, comp-store sales at Neiman Marcus and Bergdorf Goodman fell 27.9 percent. By comparison, sales at Neiman Marcus Direct, which includes Web and catalogue operations, such as Horchow, were off 23 percent. The best-selling category in direct was beauty. The store will report November sales on Thursday.
But while brick-and-mortar comparable-store sales dropped severely in October, with many retailers reporting hits of 10 percent or more, so far the volume of e-commerce sale transactions appears to be on average about 10 percent higher than last year, based on Chase’s transaction reports, although margins have eroded due to the tremendous discounts that online retailers have been offering this season, said Forrester analyst Sucharita Mulpuru.
For example, Neiman’s, Saks Fifth Avenue, J. Crew and Active Endeavors offered discounts ranging from 50 to 70 percent before the Thanksgiving holiday. As a result, Forrester has not revised its projections of about 12 percent growth for the holiday period. On Monday, Deloitte said online spending in the U.K. is estimated to grow 10 percent this Christmas, to 4.7 billion pounds, or $5.87 billion at current exchange, and that consumers who do most of their shopping online plan to spend 15 percent more on the holidays than high street habitués.
“I think October was an anomaly because of the [presidential] election and it was just a month of such catastrophic economic news, it was the nadir of consumer confidence,” said Mulpuru. “The data I have seen is that consumer confidence has gone up a little bit. If we can get an infusion of customer confidence, things will turn around.”
Forrester has not yet projected sales for the whole year, although a growth rate of 15 percent to 16 percent is plausible, said Mulpuru. For 2009 and after, no matter what happens to the economy, it’s unlikely Web sites will continue their double-digit growth rates, because the channel is maturing.
“There will still be growth in e-commerce,” said Mulpuru. “Consumers are still shifting their wallet share to the channel, it’s still an easy way to shop, and the growth rate is still higher than what we see in brick and mortar.”
Online retailers also see a potential upside in the private nature of Internet shopping. Net-a-porter even offers its London and New York customers the option of discreet packaging, with orders delivered in a brown bag, as opposed to the black branded Net-a-porter.com packaging.
Whether or not growth rates slow, European executives remain bullish on a channel that’s a magnet for young shoppers and men, and they continue to layer on new markets and product categories and beef up staffing.
Louis Vuitton, which launched e-commerce in France and the U.K. in 2005, now sells online in the U.S., Japan, Germany and, as of this past summer, Italy, where sales are already exceeding expectations, said Philippe Schaus, Vuitton’s senior vice president, international.
“The share of Internet sales is growing,” Schaus said, describing the scale of business at online stores as comparable to a midsize brick-and-mortar Vuitton. “We believe it’s going to continue to grow in the next years in terms of the share of the business and in absolute numbers.”
According to a recent Bain & Co. report, global online sales of luxury goods rocketed 65 percent last year to 1.5 billion euros, or $2.06 billion at average exchange rates, and should post a material increase in 2008 despite the slowdown in consumer spending.
“Online selling should be less affected because it has a different and larger consumer base, and lower psychological barriers,” said Claudia D’Arpizio, a Milan-based partner with Bain and author of the annual Luxury Goods Worldwide Market Study, released in October.
She explained that some consumers might be intimidated by the “selling ceremony” in luxury stores “with highly knowledgeable and fashionable sales clerks.” Also, simply clicking to pay requires “less emotional involvement,” she added.
Bain also found that online consumers are usually younger than those in brick-and-mortar stores, and there are many working women. Both groups are “two strategic targets for luxury brands going forward,” D’Arpizio noted.
Last week, Emilio Pucci launched an online boutique in partnership with Yoox Group, which also handles Internet retailing for Valentino, Diesel and other brands.
“Today, luxury shopping is not just about brick-and-mortar stores, and we believe our virtual boutique will be an important aspect of Emilio Pucci’s retail strategy,” said Laudomia Pucci, the brand’s image director.
Pucci pointed to the fact that the company has wholesaled its collection for years to other online retailers, including Net-a-porter, Eluxury.com and Neimanmarcus.com — with encouraging results. “We have witnessed not only consistency in sales, but healthier and bigger buys as these accounts have gained more and more visibility,” Pucci said. “In fact, for Pucci, the department stores online represent between 15 and 20 percent of total buys with significant and faster sell-through.”
Eugenia Ulasewicz, president of Burberry Americas, said the brand plans to expand online selling to Canada next year, based on strong reaction across all 50 U.S. states.
“We are seeing double-digit growth year-on-year. The Web has exceeded our expectations and continues to do so every year. In terms of sales volume, it is our largest store after the New York flagship,” she said. “Online sales are a huge priority for us, and we’ve also found that sales on the Web are driving traffic into our brick-and-mortar stores.”
Ulasewicz said Burberry’s online consumer profile skews slightly younger. “Interestingly, the highest spend online comes from customers who regularly shop both channels. Children’s wear is huge online, as is gifting. The biggest surprise so far is that we have been selling up and down the product pyramid,” she said. “And we get more men.”
To wit: Arnys, the Paris-based men’s tailoring brand founded in 1933 whose made-to-measure suits are said to have been donned by Pablo Picasso, Ernest Hemingway and more recently Pierre Berger and François-Henri Pinault, launched its debut e-commerce site this month, selling ties, cuff links, belts, socks, shirts and Arnys’ signature La Forestière jacket.
Marni’s virtual store launched in Europe and in the U.S. in September 2006 and opened in Japan a year and a half ago. The Web accounts for 5 percent of the brand’s retail sales and has registered an annual 50 percent growth since its debut.
“Since its launch, the Marni Virtual Store has been a very positive experience and, despite the moment of economic slowdown, continues to be so,” said Carolina Castiglioni, who heads the accessories and e-commerce divisions of the brand. “Internet allows us to reach a vaster clientele, as the consumer does not need to go to the store to view and buy our collections.”
At YSL, Hermann declined to give sales figures or projections, but described “encouraging momentum” in the U.S. Best-selling items include the Muse and Downtown bags and the company’s iconic Tribute shoes with thick platforms. “It offers convenience and a private shopping experience, and is an especially useful service to the many potential YSL clients who live outside our boutique network,” she said.
Schaus said the Internet plays several roles, including “telling stories” to consumers, cataloguing the product range and offering the convenience of shopping “from the luxury of one’s home.” Vuitton can also offer services like putting initials on certain leather goods, which can be a cumbersome process in physical stores.
He noted the brand’s online clients are similar in age range but skewed more to men who are “searching for gifts or products for themselves.”
Asked about future expansion, Schaus said Vuitton is establishing call centers in Asia and German-speaking European countries, which create the infrastructure necessary for an eventual e-commerce foray.
“In the last few years, the fashion [industry] has truly began to understand the enormous potential in designer Web sites, both from a business point of view and in terms of image,” said John Hooks, deputy managing director at Giorgio Armani. “It gives brands increased visibility and a much farther reach to consumers, which, in turn, promise for increased sales through new customers. It also gives you the possibility of getting important and pertinent information on your customer, which allows you to approach them in a more personalized way.”
Armani launched e-commerce for Emporio Armani in the U.S. in August 2007 and a European site last June. Japan is also on the brand’s radar.
Schaus said the key challenge for a brand with a large product assortment is merchandising online, so users can “navigate through the collections….That’s where a lot of the improvement will come in the next years.” He also predicted building bridges between corporate and shopping sites will be a focus “to reach the next level of excellence.”
While Prada dipped its toes in e-commerce a year ago with the online sale in Europe only of its accessories, tricks gadgets, small leather goods and cell phones, the luxury goods house is looking to boost its virtual presence by investing in the necessary infrastructure in the U.S. and in some Asian countries. “We believe in the great potential of this channel, and at some point, we will launch a full-blown virtual shop, consistent with our product strategy and our brand’s propositions,” said Tomaso Galli, director of group communication and external relations.