PARIS — “Digital is a must for luxury growth,” said Nathalie Remy, partner at McKinsey & Co. This is according to the latest study conducted on e-commerce in the luxury market by the global consulting firm.
The global consulting firm’s latest study on e-commerce in the luxury market found that online sales currently account for 6 percent of total sales in the sector, or 14 billion euros, equivalent to $15.51 billion at current exchange. But by 2025, the study predicts that figure will triple to an average of 18 percent, or 70 billion euros, or $77.59 billion.
This growth will be primarily fueled by luxury brands’ own Web sites, accounting for 28 percent of sales, along with department stores, which are expected to provide an additional 18 percent of revenues. The smaller the brand, the more impact the Internet is going to have.
“We are feeling a real momentum in market,” Remy said, although she added that some brands were warming up more quickly to the new sales channel than others.
“We know that luxury consumers are the most digital-savvy and most social-media active out there. Eighty percent visit a social media platform at least once a month, 25 percent are doing it daily; two-in-three luxury shoppers are posting content at least once a month, 15 percent are doing so daily. And this is not just a Millennials’ story. We know that 71 percent of Baby Boomers are using social media platforms, and invited by their grandchildren, they are the fastest growing group,” Remy revealed.
Still, she argued, the high-end sector fails to offer the same experience as mass market retailers such as Amazon, for instance. “Luxury brands have lost their historical edge, and so the question now is: How can they bridge that gap,” she said.
“Back in 2009, when the luxury goods market stood at 2 percent, not many brands had e-commerce. Today, watches and jewelry are still hard to find. The higher the price, the less likely you will find a product online. Beauty is currently leading the pack,” she observed.
Remy said the greatest challenges are a lack of resources and a risk-averse enterprise culture. “It takes a lot of money to get e-commerce up and running, which especially in times like these requires a great deal of effort. Also, the most coveted digital talent is rarely attracted by the world of luxury. It’s really up to the old guard to understand that yesterday’s reflexes are not identical with tomorrow’s. Unfortunately that takes time,” she noted.
According to the study, the rewards are high. “Once a brand reaches the 6-percent mark, sales tend to explode, reaching on average 20 percent within five years,” Remy noted, citing Kate Spade with currently 23 percent as the front-runner.
She said the key to success is to become extremely visible across a series of touchpoints and to offer coherent passages between offline and online shopping.
“In general, the city store remains the number-one touchpoint with the consumer, accounting for 80 percent of exposure, followed by fashion magazines with 66 percent and word of mouth at 50 percent,” she said, though she noted that these can vary depending on category and geography. “If you want to sell ready-to-wear in Italy, you will need magazines, apps and CRM. If it’s watches and jewelry in China, you will depend on sponsored events, apps like WeChat and cinema or TV ads,” she explained.
According to McKinsey, the “must-win battles” for all can be reduced to five touchpoints: the city store, word of mouth, online search, the interaction with the salesperson and the brand’s own Web site, viewing that three-quarters of offline sales are influenced by the Internet, a testament to how much the two retail channels depend on each other.