The global luxury e-commerce industry: What cross border retailers need to know

2019-01-11T08:48:23-03:00January 10th, 2019|News|

The luxury e-commerce market has historically been slower to grow than other online retail segments. The idea of making high-ticket purchases without the benefit of touching or trying on goods has always been a disadvantage for luxury retailers. However, as younger generations of consumers become more interested in luxury shopping online, this is changing, with online global luxury sales increased by 9% in 2017, compared to 7.6% in 2016. By some accounts, 55% of Millennial shoppers say they are “very interested” in purchasing luxury goods, with almost a quarter of that number learning about new luxury brands through social media channels.

As younger, tech-savvy millennial shoppers continue to go online to discover and shop for luxury items, brands and retailers must invest more resources into meeting consumer demands. At the top of that list of demands: a premium, localized luxury shopping experience across the entire customer journey.

As luxury e-commerce expands internationally, distribution models will have to catch up with the modern customer experience. For years, the luxury industry has controlled its distribution channels to better manage and maintain brand integrity and  the overall shopping experience. But to appeal to younger consumers both inside and outside of large global city centers, luxury brands and retailers are expanding their distribution channels by striking deals with online, multi-brand platforms to make it easier and faster for a broader audience to make purchases. In 2017, one-tenth of all global revenue in the luxury retail market came from online marketplace partnerships.

Here are the top six global markets where the luxury segment is gaining ground:

  1. United States. With a market volume of US$71,202M in 2018, luxury is big business in the U.S., due in part to a larger distribution of wealth as compared to other markets. Forty-one percent of the world’s millionaires live in the U.S. — almost as many millionaires living in the next largest nine countries combined.
  2. China. The world’s most populous nation generated US$35,854m worth of luxury sales in 2018. Millennials will account for 50% of the global personal luxury market by 2024 — and 40% of the total luxury market will be occupied by Chinese shoppers. The Chinese retail market is increasingly competitive. Many premium brands are partnering with domestic Chinese marketplaces to reach a wider audience. In 2017, Chinese retail giant Alibaba launched an exclusive “Luxury Pavilion” courting affluent Chinese shoppers. The Pavilion offers a range of categories, including apparel, watches, accessories, beauty and cosmetics, and even luxury automobiles from brands such as Burberry, Hugo Boss and Maserati.
  3. Japan. With a 2018 revenue of US$27,550m in the luxury industry, Japan is back in the top five after a setback in the financial crisis that ended in 2011. Japanese consumers are now spending 3.6 trillion yen (about USD$33billion) each year on luxury goods In Japan. Cross border retailers aren’t just competing with domestic e-commerce, but also physical stores: 87 percent of Japanese consumers still prefer to shop for luxury items in-store. In Japan, the younger generation of luxury shoppers favor cross border brands such as Céline, Balenciaga and Gucci.
  4. United Kingdom. The top EU nation on the list, with a 2018 revenue of US$19,825m, the U.K. still has some work to do to catch up with Japan in luxury e-commerce. One factor that brings this segment some uncertainty is Brexit. Domestic U.K. luxury brands are lowering retail prices due to unfavorable exchange rates brought about by the ongoing Brexit negotiations, and cross border luxury retailers will need to fine-tune their pricing to compete.
  5. France. With a 2018 revenue of US$16,220m, a luxury market known for some of the world’s top prestige brands such as Chanel and Dior is going through a transition. While in other global markets, luxury brands and retailers are partnering with popular online marketplaces, in France, these brands are separating from marketplaces to enhance their e-commerce experience in-house. Kering, the Paris-based luxury group that owns such brands as Gucci, Yves Saint Laurent, Balenciaga, and Alexander McQueen, is one such example. Recent geopolitical events in France, including protests by the middle class against tax increases and high-profile terrorist attacks in city centers such as Paris and Nice, have placed some uncertainty on the luxury in-store retail market. This could present an opportunity for e-commerce retailers to step in and fill the void, provided that they can offer a high-touch luxury experience online.
  6. United Arab Emirates. With a 2017 revenue of USD$10m, the UAE could be the next breakout region for luxury e-commerce. Consumers in the UAE have the highest per capita spend on luxury goods and are a top importer of Swiss watches, with Dubai alone importing one million units per year. Chalhoub Group predicts that the luxury e-commerce sales will reach USD$1.5billion by 2021. One note of caution: counterfeit luxury goods are a major challenge in this region, with more than $USD270m worth of designer knockoffs seized in Dubai alone in 2017. (Read more about combating counterfeit goods in global sporting goods and leisure markets.)

Redefining luxury: limited edition

As the average age of the luxury consumer skews younger, the definition of what makes good “luxury” is also transforming. For example, sneakers and athleticwear were once reserved for playing sports, but now they’re high-end fashion items. Brands make these goods more prestigious by offering “limited edition” versions of popular fashion and footwear categories. This is part of the reason British luxury retailer Farfetch Ltd. acquired Stadium Goods, an online marketplace seller of limited-edition sneakers. High-end athleisure is also a fast-growing sub-section of the luxury market, with global brands such as Carbon38 leading the charge.

One downside for luxury brands selling is price transparency. E-commerce makes it easier than ever for shoppers to browse for the best price on an item. Some luxury brands, including Chanel, solved this problem by standardizing prices in all markets. Another way to counteract cross border price comparison is for retailers to offer specific items for shipping only in certain countries.

The luxury e-commerce shopping experience

Luxury e-commerce customers expect the highest quality and a guarantee of authenticity. Luxury brands from Louis Vuitton to Chanel to Gucci have learned to embrace e-commerce, whether by partnering with multi-brand marketplaces like Farfetch and Alibaba, developing their own e-commerce websites and apps, or a mix of both. The biggest challenge in delivering a luxury experience online: creating a digital version of the “white glove” experience their audience expects. Just as in brick-and-mortar luxury retail outlets, the key to customer experience is exclusivity. Luxury e-commerce shoppers expect offers and limited edition items they cannot find elsewhere.

Another key component to a satisfying online experience is a digital concierge. Be prepared to offer customers the option to speak to a live support agent by phone, email, or chat. Some luxury brands take it a step further by offering premium assistance in select cities, such as New York, Paris, Tokyo and London, that include at-home shopping consultations. AI-powered online concierges are also a rising trend. Leading online luxury fashion retailer YOOX NET-A-PORTER GROUP of Italy is making strategic investments in this technology to provide a high-touch experience across its e-commerce websites.

An important harbinger of growth in the luxury e-commerce market is the highly successful IPO of U.K.-based luxury retail marketplace Farfetch Ltd., raising $885 million when it went public in September 2018. That valuation was well above the top range of the company’s expectations. Many see this as a sign of growing investor interest in luxury e-tailers.

For more information on how to expand your luxury brand into new global markets, contact Flow to speak with our experts.

Written by
Juliana Pereira is Vice President, Marketing at Flow Commerce. With 15 years experience in marketing and ecommerce, Juliana joined the Flow team after serving as Vice President of Marketing at Smartling. Previously Juliana worked across a variety of verticals and industries, from non-profits and publishing to tech and fashion, including management positions and key contributing roles at Ralph Lauren, The Met Store online (at The Metropolitan Museum of Art), Ziff Davis, and eMusic.