Luxury products are by nature intended to be a special purchase, a sense of the exclusive, they have an aura of the highest possible quality and style and the experience of buying them needs to reflect this. Luxury brands are fiercely protective of their goodwill and reputation and whilst wanting to be innovative and fresh they are careful in changing tried and tested business models and ways of presenting their goods. They tend to operate in similar ways, so it is no surprise to see luxury brand flagship stores in the fashion capitals and the largest shopping centres around the world.
Thailand’s “Iconsiam” shopping centre cannot go without mention. It is ranked among the 4 best shopping centres in the world. It includes the largest number of super-luxury brand flagship stores and even has a special dedicated building, “Iconluxe”, where all luxury brands have styled special interiors.
Now think of Paris, another excellent example. Not only because the French luxury market represents a quarter of the global luxury market (or because this is one of the most beautiful cities of the world!), but also because the city has a dedicated area for luxury goods, located in the 8th quarter of Paris, appropriately referred to as “le Triangle d’Or” (the golden triangle). It is formed by Avenue Montaigne, Avenue George V and Rue Francois 1er. This is the heartland of Paris’ Haute Couture shops. Avenue Montaigne, on its own, is home to a cluster of the major designers (see the map below).
Luxury brands also commonly use selective distribution structures to sell their goods. This is a system in which a luxury brand agrees to supply only approved distributors who meet specified minimum quality criteria, and the distributors themselves agree only to supply end users or other distributors or dealers within the approved network i.e. who meet the standards needed to maintain the goodwill and aura surrounding the brand. Competition law recognises the need to use selective distributors and therefore allows certain counterbalances for luxury goods in selective distribution systems, allowing some clauses that would potentially otherwise run into legal problems. In July this year the EU announced a review of these rules to try to adjust for new multiple distribution channels both offline and online.
So everything was going well for the luxury industry: the demand for luxury goods was high, luxury consumers were travelling and were appealed by the experience of visiting a luxury brand flagship store and the exceptional and personalised services that come with when making a purchase there.
And then the Covid-19 pandemic occurred… Luxury and fashion companies, like many other businesses, were strongly impacted by the decision to close all non-essential stores and to reduce gatherings in public (the Paris Fashion Week had to adopt an online format for the first time ever) and they experienced the effects of the pandemic on manufacturing and sales activities.
In light of this, the entire luxury industry has been forced to embrace or focus on digital sales and reach customers through new online channels. This seismic shift for the sector has actually been very positive and fructuous. Luxury goods were the fastest growing cross-border e-commerce category in the first half of 2021, increasing by 50% compared to the end of 2020.
According to the latest data from eShopWorld, more than half of e-shoppers for luxury brands are based in Mexico, China, Russia and South Africa. This is not surprising: the majority of luxury consumers live outside the traditional luxury markets. During the pandemic and still even now (the travel restrictions do not make it easy to fly from one country to another), these customers have been increasingly buying luxury products online due to the inability to travel. More more, luxury consumers are generally more comfortable to forego the white glove in-store experience for online convenience. The challenge for the luxury brand is therefore to replicate the experience of that special purchase online.
This is a huge change of business model and approach for luxury brands. They are now innovating in many ways to provide their customers with hyper-personalised customer service through their websites since customers expect the online experience to mirror the level of service received in-store. Luxury brands need to focus on delivering unified commerce and omnichannel strategies that give equal importance to all consumers touchpoints merging the digital and physical worlds to create innovative retail experiences.
What does the experiential online luxury retail look like? What are the online boutique privileges? Hermes, Dior, Louis Vuitton, Yves Saint Laurent - just to name a few - online stores for example offer free express delivery, free returns, special iconic gift boxes, personalised message, complimentary trial sizes, etc. The aim is to bridge the perceived divide between online and in-store. Some other brands, like for example Charlotte Tilbury (British make-up brand), increasingly utilise technology and offer virtual services.
Ashfords have been working closely with luxury goods manufacturers – in particular with one of its clients, Aquazzura - on this accelerating journey and their global expansion within the offline online and travel retail experiences. It is no longer just a bricks and mortar strategy. The consumer experience is now truly omni-channel.
This also means that, when it comes to e-commerce, luxury brands often prefer to opt for D2C (Direct To Consumer) rather than only going through their usual distributors/retailer networks.
The eShopWorld data reveals that online luxury sales are predicted to increase to 30% in 2021, with a boost driven by Millennial and Gen Z shoppers, who will account for a fifth of all luxury fashion spend by 2025. The spending of Gen Z shoppers (who have a digital native lifestyle) was not reduced when stores were closed.
Luxury brands pay close attention to the younger generations’ buying habits as they lay the foundations for the future of living and older generations tend to follow and adopt the habits of the former. Take for example the use of Instagram: it started with teenagers and now we see that the older generations are now keen users.
Not very surprisingly, we now see that TikTok is another platform that the fashion and luxury industries use to connect with Gen Z consumers. TikTok has made luxury accessible to audiences who might ordinarily feel alienated. It is the key of their survival: they appeal to these younger generations by livestreaming shows or providing users with fun, relaxed behind the scenes glimpses into the design process. In other words: providing another type of exclusivity, exclusive insight all designed to make the consumer of luxury goods feel “special”. In a mass world that is a precious commodity.