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The Future of Global Online Growth for Luxury Retailers

Online and luxury: uneasy bedfellows

It is now more than a year since Graham Charlton rather bluntly pointed out on the Econsultancy blog just where luxury brands are going wrong online. It’s still highly instructive to read the criticisms he levelled at the brands, mainly because so many still hold true: specific sites may have improved but the same mistakes continue to crop up with alarming regularity.

Amongst the issues identified were:

  • Incomprehensible navigation
  • Slow load times
  • The lack of, or discretely ‘hidden’, ecommerce
  • A preference for design elements over user experience

Try accessing web content from rising markets like China and the problems will begin to really spiral out of control. The simple truth is that luxury brands, for many reasons, have been slow on the uptake of online opportunities and often their online strategy has not been prioritised nor carefully strategised.

At the heart of the luxury brand lies the personal service available at the flagship store. The online experience has been sacrificed in favour of a continued focus on the in-store experience. Instead of trying to recreate a space online that offers everything customers need, executed with style and panache, the online channel has simply been seen as a poor cousin. This has been undoubtedly a mistake. Cinderella has come to the ball and many brands are having to play catch up as her carriage races away. We shall see that there is now a very real risk that big names may be losing sales, market share and, critically, brand equity. In particular a lot of ground has been lost to multi-vendor sites, and as the Yoox/Net a Porter merger goes ahead, the brands now have a £1.8bn online luxury fashion behemoth to contend with.

Let’s take a look at the challenges and opportunities that online presents to the luxury brand.

The online luxury market share

It was only two years ago that Chanel’s global director of fashion, Bruno Pavlovsky, parried questions about the lack of online sales with the assertion that “fashion is about clothing, and clothing you need to see, to feel, to understand.” Despite this most brands now interact with consumers through their own branded online store and on multi-brand vendor sites (such as Selfridges or Net-A-Porter).

Some brands continue to reserve some products as exclusively offline or limit the products they will list on multi-vendor sites (such as Hermès, Chanel, and Celine). Yet despite the extreme caution with which luxury brands continue to view the online channel slowly but surely things are changing, as the McKinsey report into Apparel Fashion & Luxury Practice highlighted earlier this year.

Online transactions are still just a very thin sliver of the total luxury goods market, but this represents the tip of an iceberg: nearly half of all luxury goods buying decisions are influenced by what is heard or seen online. It will not be long before that sliver becomes a slice, that slice a significant share, and that share a very serious sales opportunity.

Take women’s luxury fashion. By 2018, global digital sales are forecast to grow from 3% of the total market to 17%. That is nearly 500% growth in a $12 billion market.

Driving this growth is demand from developed, Western markets but truly propelling it forward is exceptional expansion in China.
Annual Online Sales Growth for Women's Luxury Fashion to 2018

Omnichannel marketing

Of course it is not just sales that are migrating to online: it is also brand awareness and that all-important creation of desire.

According to Deloitte’s study of the evolving UK luxury consumer, magazines are rapidly losing their dominance as the channel for consumers to become aware of new brands and luxury products.

Channels UK Luxury Consumers Use to Discover New Brands

The adoption of digital, however, amongst millennials has already eclipsed the glossy world of print.

Channels 18-24 Year Old Luxury Consumers Use to Discover New Brands

But, of course, in today’s omnichannel world it is not about either/or. It is about the total experience. According to McKinsey the shopping “decision journeys” of 7,000 luxury shoppers from across the globe revealed that three out of every four luxury purchases are now influenced by digital interactions.

The online experience

Burberry has been ahead of the game in realising how omnichannel marketing can succeed. It continues to take the in-store experience online and the online experience in-store. Its brand awareness campaigns are designed to drive luxury shoppers into the flagship stores and once in-store customers are encouraged to take and share photos, watch live streams and use in-store iPads.

The trouble, of course, for luxury brands online is that a lot of what makes them luxury brands occurs offline: it’s the fancy showroom, the personal service, the rarefied space.

In attempts to create something special online many luxury brands have simply ended up providing a poor user experience. There have been slow load times for image heavy sites, impenetrable navigability and simply a focus on creativity over focus on the user.

Here’s Whistles’ Jane Sheperdson, talking about its site redesign. Her comments were made back in 2009 but embody an ethos that can still be palpably felt when you visit some luxury brand sites.
“We spent a lot of time researching best practice online. We then threw out everything we had learned, and just designed something that pleased us visually.”

With the rise of Asia as a market for European luxury brand sales it is the internet basics, not those designer frills that will make or break sales.

Let’s look at China.

China and luxury sales online

Ecommerce has been described as the ‘next China’ for luxury in terms of opportunity. Yet China itself as a market has much to teach us about the online opportunities and challenges that luxury brands face.

There is perhaps no better example than China as an online market where success can be jeopardised by poor Internet performance. China’s geographic distance coupled with a congested and restricted connection to the global Internet can play havoc with the accessibility and load time of your site – and Chinese consumers are notoriously impatient as our recent Global Consumer Online Shopping Expectations survey revealed.

Any online global opportunity is also a global challenge. A luxury site must load as effortlessly for customers in Shanghai, Saudi, Singapore, South London and Seattle.

Luxury brands, more than anyone else, must deliver a consistent experience – through the selection and monitoring of content delivery networks and hosting locations. It is not enough to be there most of the time: your site must be available and reachable all the time. To do this you need to be not just on top of basics like user friendly site design but hold a 360° view of how the rest of the Internet may (and often does) affect your site performance.

Outages and slow response times have direct impact on customer satisfaction and ultimately on brand equity.

Perhaps the most important market to master Internet Performance in, and the most difficult to consistently achieve it, is China. It is a challenge that luxury brands have so far failed to face.
Luxury retail brands flocked to the Chinese market, with a sole focus on offline sales. Lavish store after lavish store was opened and quickly 35% of sales for brands such as Omega, Harry Winston and Balmain were coming from Greater China.

As the Chinese market has wobbled in recent months the cracks in the marketing strategy of luxury brands have begun to widen. Yet even before the Chinese stock market crash sales and profits were falling for many brands.

The strategy of opening more stores and building bigger inventory proved unsustainable. What would have been more appropriate would have been to amplify existing stores and inventory through the online channel.

This online blindness ironically has taken place in Asia whose ecommerce market is one of the largest in the world: valued at $525bn in online sales, according to an A.T. Kearney report, and forecast to grow annually at a rate of 25%.

The lesson for luxury

It is clear that the mainstream luxury market can no longer ignore an omnichannel marketing approach. Indeed the rise of online will, no doubt, see more success stories such as global luxury fashion marketplace Farfetch, which doesn’t even own or operate a single store.

Luxury consumption has become global.

At the same time it has become digital.

The challenge for brands is to retain that experiential element that flagship stores and personal service has always offered offline and ensure it can be replicated online, in every market and in a consistent way.

The core that luxury retailers must be built around isn’t the luxury item – it is seamlessness, convenience, speed and quality of service.

And Internet Performance will lie at the heart of this.

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Whois: Paul Heywood

Paul Heywood is the EMEA Director of Business Strategy and Sales at Oracle Dyn, a pioneer in managed DNS and a leader in cloud-based infrastructure that connects users with digital content and experiences across a global internet. Follow at Twitter: @Paul_Heywood and @Dyn.

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