Byline: James Fallon

LONDON — The outlook for online luxury is looking up.
A recent report from Morgan Stanley Dean Witter’s luxury goods team in London, “Luxury Goods on the Internet,” predicts the online luxury market will represent about 5 to 10 percent of luxury goods sales by the year 2004, or about $4.3 billion to $8.6 billion.
The report is most bullish about sites selling such hard goods as watches and leather goods; brands that are known particularly well, such as a Cartier tank watch, and sites that sell gifts.
Much of the luxury e-tail business will be repeat purchases, the report predicts, especially in such areas as fragrances, an Hermes scarf, Thomas Pink shirts or Gucci loafers. However, it warned that online sales of designer apparel and shoes are likely to remain difficult in the near term.
The report, prepared by analysts Claire Kent, Sarah Macdonald and Rupert Jones, analyzes existing multibrand sites as well as a few sites launched by specific brands. The analysts believe brand-specific sites are the ones most likely to dominate in the years ahead, while a few generic sites will survive.
One of the main drawbacks to the generic sites is their design, which generally is poor when compared with the branded sites, the study said.
The Morgan Stanley team pointed to sites operated by Cartier, Tanner Krolle and Patek Phillippe as being particularly well designed, while those recently launched by Gucci and Bulgari also have a lot of potential.
But there are many major brands, including Hermes and Prada, that have yet to launch on the Web. Other companies that don’t plan to sell on the Internet include Tommy Hilfiger, Clarins and the Richemont group that includes Chloe, Cartier, Baume & Mercier, Alfred Dunhill and Montblanc. Richemont’s reluctance to sell on the Internet comes despite its purchase last year of a 20 percent stake in the luxury site Ashford.com.
Brands already selling on the Internet, or those that plan to do so, include LVMH Moet Hennessy Louis Vuitton, Bulgari, Ittiere, Wolford, Polo Ralph Lauren, Tiffany, Estee Lauder and L’Oreal.
But, Morgan Stanley warns, don’t expect things to remain static in the luxury e-commerce sector for long.
“We expect the e-tail scene for luxury goods to change as rapidly over the next 18 months as it has over the past 18 months,” the report reads. “We expect some sites to be bought by others, while others will simply fail. We believe this trend will be particularly marked in the beauty sector.”