Luxury brands chase mass-market giants in the online service revolution
By Peter Campion, Senior Research Executive, Wealth-X
The retail landscape has seen substantial changes in the last decade, with online shopping having been a true sea-change for the industry. The luxury sector has made significant inroads to keep pace with mass market retailers in the online space, and this growth is set to continue. McKinsey reports that by 2018, global digital sales for women’s luxury fashion is expected to have grown from 3% to 17% of the total market size; a total of US$12bn (1).
Now, new developments are raising service levels across e-commerce platforms, affecting the elite proposition traditionally offered by luxury brands. Previously, luxury brands were known for setting the highest standards for service, but now mass-market giants such as Amazon are upping the ante. Recent developments such as 1-hour or same-day delivery have already elevated consumer expectations, but future developments may continue to raise this bar. For instance, Amazon’s patent application in July of this year shows the company’s plans to implement 3D modelling that would allow customers to provide a digital model of themselves, and see how clothes would fit them online before making a purchase (2). Such types of developments are continually raising consumer expectations and challenging luxury brands to differentiate themselves from mass-market offerings (3).
Some luxury retailers are making great efforts to be seen as leaders in online service. For example, Net-a-Porter has introduced same-day delivery in New York and has been effectively tailoring its email communications to customers (e.g. making them aware of sale items remaining in their size). However, there are some brands that still have very restrictive returns policies (whereby customers can only claim online or in-store credit) – and this inflexibility could cause frustration when other brands not only have less restrictive policies, but are making the purchase journey significantly easier.
Compounding the issue, this is not the only challenge luxury brands are facing in the wider retail landscape. High street brands like Zara have been posing a significant challenge to luxury brands, because they can produce similar styles as the major fashion houses at a quicker rate and at a fraction of the price, whilst also adopting similar marketing/branding and retail techniques (4). Furthermore, luxury brands’ distribution within department stores is also being threatened, as they are challenged by online providers (5).
Given this rapidly changing landscape, luxury brands need to identify the most important elements of online service to differentiate themselves from major mass-market brands and ensure they do not fall short of expectations and ultimately lose potential and existing customers.