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Melissa Bernaisrchases takes advantage of flash sales on a variety of internet sites. She's had lots of luck finding luxury goods for low prices. She is seen in her Waterloo, Ontario home with some of her prize purchases on November 11, 2011. (JENNIFER ROBERTS/JENNIFER ROBERTS For The Globe and Mail)
Melissa Bernaisrchases takes advantage of flash sales on a variety of internet sites. She's had lots of luck finding luxury goods for low prices. She is seen in her Waterloo, Ontario home with some of her prize purchases on November 11, 2011. (JENNIFER ROBERTS/JENNIFER ROBERTS For The Globe and Mail)

Online sales growth the 'gilty' secret of luxury goods retailers Add to ...

The luxury goods industry has a reputation for being timid about using the Internet.

Many executives argue that all but the most cutting-edge consumers will balk at spending $1,255 and more on a handbag and a dress if they cannot touch it and try it on first.

However, a seminal report on the digital luxury experience, to be released by Altagamma, the Italian luxury goods association, and McKinsey, the consultancy, shows just how misplaced this shyness may be.

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The study surveyed more than 300 luxury brands, including the French behemoths LVMH and PPR and Switzerland’s Richemont, plus more than 700 web sites and 2.5 million online comments, including those from Twitter and Facebook.

Researchers also undertook 2,500 interviews across the U.S., China, U.K., France and Italy.

The most striking finding is that digital luxury is already a much more important market than many executives have acknowledged up to now.

Worldwide online sales in 2011 reached $7.9-billion, growing three times faster than the total personal luxury goods market with its estimated worth of $242-billion. The study estimates that digital sales will reach about $19-billion by 2016.

But, crucially, the survey finds that widespread use of the Internet by browsing consumers, for example for research and price comparison, means that about 15 per cent – or $31-billion – of total sales in the luxury goods industry are “directly generated” by digital media.

In addition, Altagamma and McKinsey estimate that as much as a fifth of store sales, a market worth about $43-billion, could be indirectly influenced by the “online experience.”

According to the report’s sponsors, Armando Branchini, executive director of Altagamma, and Marco Mazzù, co-head of branding and marketing in Europe, the Middle East and Africa at McKinsey, the implications of digital influencing total luxury sales far more than previously realized is far-reaching.

Mr. Branchini points out that, on this scale, the impact of the Internet on luxury sales means that “this is already a bigger market than China.”

But whereas luxury goods groups have ploughed hundreds of millions of euros into expanding into China, Latin America, Russia and other emerging markets of high-spending consumers, spending on the digital luxury shopper has been piecemeal, and it often dislocated from the rest of the marketing budget.

Another important finding from the survey is that luxury consumers are looking at more than four sources of information – from company websites to fashion blogs – in order to make choices about what they want to buy.

In Mr. Branchini’s opinion, this means there is “a lot less of an opportunity for a dictatorship” in terms of companies or media influencing consumers’ buying habits.

Worringly for the fate of its troubled IPO, the survey indicates that one online aspect that companies should be skeptical about is Facebook.

Companies involved in the survey increased their use of social media in the past year, with a 63 per cent rise in use of Facebook and a fourfold increase in use of Twitter.

Nonetheless, the research showed that, despite luxury goods brands invariably having tens of millions of Facebook fans, this strong following has little direct affect on their sales.

The reason, the authors speculate, is that few of those millions of fans can afford to buy the objects of their desires.

Nonetheless, as the curiosity of consumers inevitably increases as a result of the “freedom on offer on the Internet,” companies will also have to contend with the risk that consumer loyalty will be eroded.

The research found more than 50 per cent of digital sales went to full-price multibrand and mono-brand stores, bucking a long-held assumption in the industry that most sales on the Internet would be for cut-price goods.

Mr. Mazzù says the findings suggest that luxury goods groups need to be far more integrated across online and offline platforms in order to reflect how the luxury consumer moves seamlessly between online and shopping in stores.

Shoppers are also more demanding about wanting special offers and loyalty deals to be made available online by companies.

“People are becoming clearer about what they want to do, where they want to go, what they like,” Mr. Mazzù says.

The survey, which Altagamma and McKinsey plan to publish annually, comes as there are signs that the largest luxury goods companies are waking up to the Internet’s importance.

Richemont, the world’s second-largest luxury goods group by sales, last month reported that the strength of sales at Net-a-Porter, its online arm, helped its European business defy the economic crisis and to record growth of 20 per cent in turnover last year.

Meanwhile, Yoox, an online luxury goods start-up based in Italy, has confirmed that it is in talks with PPR on an unspecified “e-commerce project” that is expected to include developing the French luxury goods group’s digital sales.

PPR has said that it aims to increase its online sales to $1.2-billion by 2020.

Mr. Mazzù adds that in order for a company to succeed in this environment it is “a scale and skill game.”

“If you want to compete, you had better invest,” Mr. Mazzù says.

One area where investment is vital is at the checkout, as the survey makes clear that shoppers no longer tolerate technological hitches.

Consumers drop out of about a fifth of sales online just as they reach the checkout, because they are dissatisfied with some aspect of the payment experience or delivery fees, the findings show.

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