Are luxury fashion products suitable for e-retailing?

The luxury fashion industry is a global multi-billion dollar sector comprising of a multitude of brands with high relevance. Among these are brands like Louis Vuitton, Hermès and Gucci. They are also among the most valuable and influential brands in the world. Despite the large size and income generation of the global luxury fashion industry, the sector has witnessed a slow growth in its strategic business direction. This is because for a long time luxury brands were managed through traditional business methods where decisions were made based on intuition and sometimes on a trial basis. These traditional methods also featured a strong focus on product development and publicity generation through conventional advertising methods. However, the rapid development and complexity of the global business environment currently requires modern and sophisticated business practices in luxury goods management.

Present Situation:

In December 2009 the journalist Marie-Louise Gumuchian, wrote that luxury consortiums are concentrating on winning clients as they arise from the worst economic crisis in decades.  According to the consulting agency Bain & Company and their annual study Luxury Goods

Worldwide Market, they expected sales to drop 8 % to € 153 billion, for the year of 2009.

The authors of the earlier mentioned report foresee that a full recovery of the luxury market will not take place until 2011, but then the growth will be 4.2 % for the whole year.

The demand for global luxury online sales is on the increase. Recent reports indicate that the wealthy are almost all online and are pleased with making online purchases. In most developed economies, Internet penetration is as high as 95% and the ratio of wealthy people who have bought products worth above $250 online versus the rest of the population is 3:1. This has given rise to the question of selling luxury goods online.

Brand integrity and brand dilution

The hardest part for a luxury fashion brand is to balance the sales volume, the profit and the brand integrity. If this balance is not upheld there are several risks; selling too few products minimizes profit opportunities, selling too many dilutes the brand. Another problem is that the changes occurring in brand integrity and image do not happen all at once, they occur over a long period of time, this is why brands are often tempted to over-supply and when doing so it is easy to fall in the trap.

Luxury branding online/brand integrity online

In later years the Internet has been given a fundamental part in the marketing and communication strategies of many luxury brands. For many luxury brands the Internet is a very good media for accessing, organizing and presenting information directed towards their suppliers and consumers. The websites of the luxury brands present online today  differs a  lot in interactivity, level of consumer service, personalization, style, design and experience giving. Many different tactics and ways of presenting information online are tested by luxury brands regularly, but few seem to have really found  the exceptional way of doing it.

Researchers Riley & Lacroix (2003) say  that  the  Internet can be very effective as a communication medium for luxury goods mostly due to these products having high costs, low purchase rates and high value with high differentiation characteristics. On the other hand, since luxury products often are products where the buying experience is a large part of the buying decision, the Internet might be better as a source of information than as a selling channel.

E-Retailing:

The Internet is an important factor for these brands in order to reach a global consumer group, as mentioned earlier. Since the fashion trends are becoming more global, the brands can to a greater extent offer the same products to a bigger market, therefore is the Internet a suitable and convenient tool. For the brands is the Internet also a tool to keep a high level of band equity and a way for creating many opportunities for developing deeper consumer relationships.

To sell luxury products online has been a subject of a varying discussion. There are those that who think that e-retailing has a negative impact on the core attributes of luxury brands, like prestige and exclusivity. Another argument is that luxury products heavily relies on aesthetics and sensory factors at their sale points and therefore questions the ability to recreate this on the Internet. Okonkwo (2007) indicates however that recent advancement in e-retailing, as tools and techniques, has made selling luxury products online practical. It is therefore now vital for luxury brands to be online to be able to compete on the global market. The Internet has also made it possible for consumers all over the world to get access of the same information at the same time, thereby have their desire for more information and purchase possibilities increased. The assortment for luxury consumers has expanded greatly through the Internet. Consumers are now used to have access to product in this way and have therefore become more demanding and impatient. Product accessibility has for that reason become one of the key decision factors when buying luxury products.

The Asian market for fashion and apparel is expected to perform well in 2010, posting demand growth of almost 5% over 2009 and surpassing demand in Western Europe. The sector will continue to experience healthy average annual demand growth of about 5% through 2014.Luxury consumer behavior online

The group of consumers that buy luxury products online is growing fast and steadily, according to Okonkwo (2007). They make recurrent purchases in those luxury web-shops that exist today. These consumers are also more willing to do continuous purchases online than offline. However, the consumers most likely to buy luxury products online are those with earlier contacts with the brands. This is due to consumers being affected by their earlier shopping experiences, both offline and online. If consumers already have a good brand experience it enhances their evaluation process whether or not to buy the product online.

As emerging markets mature, consumption of luxury goods is no longer restricted to upscale department stores and boutiques. Electronic sales of luxuries via computers and mobile devices are expanding and becoming very profitable. Luxury brands were challenged to develop long-term digital strategies by accommodating e-commerce and m-commerce demand. New electronic luxury retailers have successfully entered the elite markets and continue to succeed in shifting the business away from the luxury retail locations in urban brick-and-mortar stores. Competition has created the phenomenon of discounted luxury, escalated by the global recession in the Western world and strong demand in the emerging economies where consumers eager to celebrate their new wealth by buying designer labels. Though luxury goods are available there for a several years, they mostly have been distributed by the middlemen and are out-of-season.