First thing’s first: Compagnie Financière Richemont is one of luxury’s savviest digital players.
This story first appeared in the June 3, 2015 issue of WWD. Subscribe Today.
The parent of Cartier, Van Cleef & Arpels and Montblanc has glittering online flagships and sells via the Web in the U.S., Europe, Japan and China, which just went live. The whole of the Asia-Pacific region will follow next year. Still, e-tailing makes up just 1 percent of Richemont’s retail sales, and while the company’s influential chairman, Johann Rupert, is happy to take the category’s swift growth, he is bluntly skeptical of its sales impact for luxe. “I don’t know the Maison where the e-commerce Web site is better, or should I say bigger, than their largest single brick-and-mortar building,” he recently told investors. “It’s growing fast, but…it’s not gigantic for any luxury goods company….The women, sorry ladies, they all order jeans that are slightly too small for them, and I can give you the statistics. They’ll buy five sizes, they’ll order five sizes, and send four back for free. It’s wonderful. People then order four watches and send three back. So, within e-commerce, it’s very difficult to say e-commerce and luxury goods.”
Rupert said e-commerce was a service for the company’s clients and one that needs to be seamless. “We’ll continue to grow it and it will help us keep our clients happy. I would actually love more of it because that would mean I wouldn’t get raped on Fifth Avenue, in Ginza, [Tokyo,] or in shopping malls around the world.”
But Rupert seemed resigned to the fact that such a day is far off into the future, if it comes at all.
That’s a resignation that could be very much tied to Richemont’s emphasis on hard luxury goods, such as watches, which haven’t blossomed online in the same way that apparel sales have. And his comments are in keeping with the general rhetoric in luxe, which treats the Web as another white glove service, part of a rarefied effort to give the customer what she wants.
“I am on the same page as Johann Rupert. Hard luxury is the last category that will break into the online space in absolute terms,” said Mario Ortelli of Bernstein Research in London, pointing to the barriers that remain for hard luxury sales online. “Hard luxury is very often used as a gift; it will take time for customers to trust the channel; and purchases are far less frequent than for soft luxury, where online is becoming more and more important.”
Ortelli said in the next five to 10 years, 10 to 15 percent of total luxury sales will be done online, and for hard luxury, online will represent a fraction — about 5 percent — of those overall sales.
“There may be an acceleration going forward — we don’t know what the next generation of mobile phones will be, we don’t know how technology will progress.”
There are still certain experiences that just don’t translate online.
“With jewelry, people are often very loyal to one company, and their relationship with the jewelry most likely began in a tactile way, by holding the pieces against their skin and feeling the weight of them,” said Sheila Teague, the London-based, high-end artisan jeweler and co-owner of Wright & Teague.
Teague said about 20 percent of her business comes from the brand’s e-commerce site, with the rest deriving from the one brick-and-mortar store in Mayfair and from private orders. There are a barriers to high-end jewelry selling online: “People need to know the brand and have enough confidence in it to buy online,” she said, adding that her online sales tend to be gifts or the less expensive pieces costing in the range of 500 pounds, or $770, that are purchased in haste.
She pointed out there are a number of things working against hard luxury’s success online: “The big brands are worried about distribution and exclusivity, especially with third-party retailers. Cartier doesn’t want to see its jewelry sold alongside something cheap. Controlling your image is difficult online, and there needs to be a level of exclusivity. And by its very nature the Internet is evidence of the ‘everywhereness’ of everything.” Teague also said that in her particular case, Wright & Teague has become a destination, a family jeweler following people from when they’ve had their children and through major commemorations and events. And those types of sales tend not to happen online. At 1 percent, Richemont for now seems to be running on par or ahead of the pack in hard luxury goods.
“One-tenth of a percent of all watches and jewelry sales are done via e-commerce. That’s virtually zero. For Mr. Rupert, that’s pennies on the dollar,” said Colin Gilbert, Digital IQ Index director at L2 Inc. “Only 4 percent of luxury expenditures are being consummated online in a checkout scenario, but we have data that says half of all luxury purchases are now influenced by some online touch point. You can’t ignore the digital influence.”
He noted that more than half of the e-commerce enabled brands — or about 20 of 37 companies in L2’s Digital IQ Index for watches and jewelry — have products listed on their sites that retail above $25,000.
L2’s December study looked at 82 brands in total and saw the highest average price point for direct purchase online of $58,000, with an average highest price listing of $85,400. Forty-five percent of the brands offer direct-to-consumer commerce, 38 percent provide concierge services, and 28 have both.
“It’s ironic that Mr. Rupert is taking this pessimistic view of e-commerce because the Richemont brands are among the best at presenting the customer with both paths [direct e-commerce or concierge service online],” Gilbert said.
Eleven of the brands in the index are Richemont brands, including Cartier and Van Cleef & Arpels. Rupert’s skepticism comes at a time when luxe brands are increasingly pressing down the e-commerce accelerator. “Rupert is sharing his experience at Richemont,” said Anat Keinan, an associate professor of business administration at Harvard Business School. “He has the perspective of a hard luxury group/retailer; high jewelry and luxury watches are certainly not the most suitable products for e-commerce. However, consumers buy these items online more and more frequently. Luxury players have no choice…they need to embrace digital and e-commerce to provide their clients with the possibility of shopping and interacting with the brand online.”
Daniel Lalonde, chief executive officer of SMCP Group, parent to Sandro, Maje and Claudie Pierlot, said: “Younger consumers throughout the world are discovering brands and learning brands largely through then digital space. So I see it very seamlessly. I see the whole digital revolution as being seamless between physical stores, online stores and social networks. I think it’s all one, and not one channel or another.”
Lalonde, who has years of experience as an executive at LVMH Moët Hennessy Louis Vuitton, said e-commerce would deliver concrete sales increases for luxury brands.
“It will be the fastest-growing channel in the next five years and if the average penetration is 6 percent today, I think it’s very likely that it would more than double over the next five years in terms of penetration of overall sales,” Lalonde said.
Tony King, founder of digital agency King & Partners, absolutely sees e-commerce as a sales vehicle — if tackled correctly. In addition to a store, an app and a Web site serving as important places to conduct product research, they should double as points of purchase.
“When designing a flagship store you have the full attention of the ceo, designer and entire management team, yet when a digital flagship is designed, it’s not given the same focus or budget,” said King, whose clients include Akris, Asprey and Bottega Veneta. “The customer is ready; most of the brands still aren’t there yet.”
He acknowledged that he’s seen the strongest resistance to selling online from hard luxury brands. He cited Hublot, Rolex, Audemars Piguet, Chanel and Dunhill as brands that have sites that show every detail, provide great imagery and give the consumer all the information they would need to make an informed purchase — yet there is no “add to bag” button. (Chanel, long an e-commerce holdout, recently launched its new capsule collection of fine jewelry called Coco Crush with a shop-in-shop at Net-a-porter.com.)
“I believe those brands have the mentality that a product should be hard to get to keep it precious. To me that means limited supply, not hard-to-use channels,” King said.
Exane BNP Paribas and ContactLab projected in a recent report that direct monobrand e-commerce operations will account for 12 percent to 18 percent of total luxury retail revenues by 2020. That’s up from the estimated 6 percent at present.
More importantly, the research indicated that the “digital playground” — which encompasses digitally driven in-store revenues — will grow to 50 percent of sales from around 25 percent now. “Saying that an overwhelming portion of growth will come from digital is a wild understatement,” according to the report. “A more accurate statement is that the whole luxury industry is finally morphing structurally into ‘something new’ — the same way as, for example, financial services and travel did a long time ago. Physical assets will remain key and core — make no mistake. But the development of digital capabilities will be a necessary condition for survival.” Exane BNP Paribas and ContactLab also projected that by 2020, luxury brands will know virtually all their clients by name. Registered (45 percent) and digitally contactable clients via e-mail (41 percent) will represent almost 90 percent of all in-store clients.
Bernard Arnault, chairman and ceo of LVMH Moët Hennessy Louis Vuitton, told the company’s annual general meeting this spring that a digital presence was important both for brand communication and sales. He noted that Louis Vuitton’s Web site draws 100 million visitors a year, more than its stores.
“I think that as time goes on, more products will sell on the Internet. The question is, at what speed should one scale it up?” Arnault said, noting that Sephora already has e-commerce sites in a number of countries, but Louis Vuitton only sells a selection of products on its U.S. e-commerce site, for example.
The group is focusing efforts on developing services like “order online, collect in store,” he added. “There is high customer demand for certain services that we are trying to work on. It’s constantly evolving,” Arnault said.
At Kering, the majority of brands run an e-commerce site and online sales now account for 2 percent of the group’s luxury revenues.
“Digital is more than ever a priority for our group,” Jean-François Palus, group managing director of Kering, said recently. “The growth potential remains very substantial and we believe we can do more.”