Luxury retailers join stampede to e-commerce
Competition is fierce as digital giants such as Amazon and eBay expand their online trade in high-end consumer goods
Axel Dumas moves up the sweeping marble staircase of the new Hermès store on the Mink Mile, his eyes lingering on the baby-calf-leather handrails. A week earlier, his luxury fashion company had flown in two of its leather craftsmen from Paris to hand-stitch the hide, which took three days – longer than it takes to stitch together many of its coveted handbags.
Still, for all the focus on this opulent two-level store, Mr. Dumas is paying more attention than ever to Hermès's online shop, which was relaunched in Canada this summer with 3,000 products, roughly 10 per cent more than previously, along with added editorial content and easier navigation.
Mr. Dumas may not be ready to sell Hermès 's waiting-list-only Birkin bags online – they cost $10,000 to $175,000 each (the latter a diamond-studded crocodile style) – but he and other posh retailers feel the need to embrace cyberselling after years of dabbling in it or outright ignoring it. As well-heeled customers inexorably shift online, Hermès and others are rushing to invest in their virtual stores and offer a wider range of merchandise, even as they try to maintain an aura of exclusivity.
"In a way, you have no choice," said Mr. Dumas, chief executive officer of Paris-based Hermès and a sixth-generation member of the founding family. "The customer of tomorrow will need to have access to your brand digitally. It will be to buy, not to buy, just to find some information. It's not for us to decide what the customer is going to do."
Research confirms swish brands no longer have a choice. By 2025, global online sales of personal luxury goods, such as apparel, handbags and jewellery, will make up 25 per cent of the market, up from 8 per cent of that $395-billion sector in 2016 (and less than 5 per cent in Canada), predicts consultancy Bain & Co. The burgeoning demand is being driven partly by millennials who, in growing numbers, head to high-end cybershops, it says.
"The world is really changing," said Larry Rosen, CEO of upmarket men's clothier Harry Rosen Inc. "All retailers – apparel and luxury retailers in particular – are challenged to up their game and become better in the online world."
Nevertheless, the digital path can be risky, said retail consultant George Minakakis, a former executive at eyewear specialist Luxottica Group, which includes the upscale Sunglass Hut. Online shoppers tend to be bargain hunters and thus not the sought-after customer of a premium retailer, he said. "E-commerce is not a real comfort level for luxury brands who have been so used to protecting their image and message."
Amid the shifts, luxury retailers continue to pour money into their brick-and-mortar stores. The new Hermès store, at 6,000 square feet, is more than twice the size of the one it replaced down the street; it and Chanel are among companies that have recently opened lavish stores in Toronto's Yorkville district.
Harry Rosen invested $100-million over the past five years in its business, with 90 per cent of it going into improving its 15 brick-and-mortar stores and the rest into digital, Mr. Rosen said. However, in the next five years, the spending breakdown will reverse, with the lion's share going toward tech upgrades, he said.
"We have a lot we have to improve in our online experience, service and abilities," he said. "The good news is: so do all our competitors … I don't think anybody in the luxury, better-end apparel sector is doing a great job in Canada. But that market is growing."
Already, Harry Rosen carries about 70 per cent of its merchandise online, the likes of $5,995 Tom Ford suits and Kiton leather sneakers for $1,495. While its overall sales are about flat so far this year to last, its online sales have jumped 25 per cent (although representing less than 3 per cent of its $300-million-plus annual total,) he said. His stores remain a critical advantage, partly because customers prefer bringing their digital returns to a physical shop, he said.
At Saks Fifth Avenue, more than 20 per cent of its annual revenues are online, making it a more established virtual player south of the border. But in Canada, its e-commerce business is smaller, with customers having to pay extra charges for cross-border shipping.
Saks's in-store customers are still its biggest spenders: Its online-only shoppers shell out nine times more when they come to one of its physical stores, Saks president Marc Metrick said. The store staff have long been trained to try to entice shoppers into buying more items; now, they are being coached on communicating with customers digitally to encourage more cyberpurchases.
At the same time, digital aesthetics are influencing Saks's stores. For example, the retailer has begun to lay out sweaters flat on tables in the same way they're shown on a web site, Mr. Metrick said. "We want to give customers that feeling of browsing online."
Still, cybercompetition is getting fierce. Amazon.com Inc. has been rapidly moving into high-end fashion. It joins online luxury leaders Net-A-Porter and Ssense of Montreal. Even eBay Inc. partnered this fall with Spring, a U.S. high-end fashion cyberstartup touting pricey brands such as Prada and Gucci. "More high-end luxury items are being sold online than ever," said Devin Wenig, CEO of eBay, in a recent interview.
Despite the flurry of initiatives, some luxury companies remain e-commerce laggards. Holt Renfrew & Co., this country's dominant tony fashion retailer facing a crush of competition, offers mainly just beauty items for sale online. Holts president Mario Grauso said he's moving "full-force" to a strategy of marrying store and digital shopping. For its part, Chanel doesn't sell products from its Canadian website.
Hermès was an early U.S. e-commerce player. It began in 2001 to carry a smattering of goods online and has expanded beyond basics to handbags, jewellery, home-decor items and clothing. Today, it offers many more items on its U.S. site than its Canadian counterpart, which was rolled out in 2012. Still, its relaunched cyberstore here is a pilot for Hermès internationally, Mr. Dumas said.
He said his family years ago debated whether Hermès should run its own digital operations or team up with another retailer, such as a department store, but quickly decided to do it alone. Hermès keeps its exclusive edge by generally not selling its products in department stores, except for smaller items such as perfumes, he said.
Operating its own e-commerce "will be more risky, it will be more costly," Mr. Dumas said. "But it will be controlled by us. The department stores: They like to have control. And us: We like to have control."