An Unprecedented Opportunity in Luxury Ecommerce
With money to spend and two years of pent-up desire, wealthy consumers are propelling luxury goods sales to new heights. How can retailers cash in?
For the first year of the pandemic, sales of luxury goods suffered as department stores and high-end retail locations were closed for months and the suspension of live events and work-from-home arrangements negated the need for designer clothing and accessories.
Out of necessity, consumers the world over radically shifted their purchasing to digital channels, and they shopped online for categories that previously had low ecommerce penetration, including luxury goods.
Before COVID, most luxury consumers preferred to shop in person to judge a brand’s authenticity, see and feel the quality of the products, and enjoy the attention of dedicated salespeople in retail stores. But luxury brands quickly adopted ecommerce during the pandemic by modernizing their websites, embracing mobile commerce, and rolling out generous return policies to give shoppers confidence that they could send back goods if they didn’t meet their expectations.
As a result, online sales of luxury brands soared by 50% in 2020 and 27% in 2021, according to Bain & Company’s 2021 Luxury Goods Worldwide Market Study. Bain & Co. predicts that ecommerce will become the number-one channel for luxury goods by 2025, making up 28%-30% of the market, followed closely by single-brand physical retail stores at 26%-28% and more distantly by outlet stores (13%-15%), specialty stores (10%-12%), and department stores (10%-12%).
Although sales of personal luxury goods contracted in 2020, the market rebounded quickly. Globally, personal luxury goods sales across all channels grew by 29% in 2021 to reach 283 billion euro (more than $300 billion), 1% ahead of pre-pandemic sales in 2019. Bain analysts estimate that luxury goods sales are now on track to grow at a rate of 6%-8% annually through 2025.
The outlook for the luxury market — which extends from private jets and yachts, fine art, and luxury cars to jewelry, fashion, and accessories — is exceptional because the wealthiest 20% of U.S. consumers are sitting on “excess” cash, i.e., savings above pre-pandemic rates, totaling more than $200 trillion, CNBC reports.
During 2022 and the first half of 2023, upper-income consumers will spend an estimated $250 billion from this financial reservoir. “Economists say high-end restaurants, resorts, fashion, collectibles, jewelry, wine, and other businesses that cater to the affluent will do better in the coming months than retailers and businesses for the mass market,” the CNBC article says.
On a more practical level, the demand for new luxury clothing will expand because of the effects of COVID lifestyles on physical bodies. According to an NPD Group Trend Tracker survey done in March 2021, 40% of women and 35% of men were wearing a different size than they wore in 2019. Among the women whose size changed, 15% said they were a size smaller, and one-quarter were a size larger.
Prestige Brands Move into the Metaverse, NFTs, Social
During the pandemic, several top designer brands reached beyond typical websites to experiment at the cutting edge of digital commerce.
Gucci, for example, created a virtual Gucci Garden on the Roblox gaming platform for two weeks in May 2021. When players took their avatars into the experience, the appearance of their digital mannequins changed as they went from room to room — and Gucci-inspired visuals were unique to each visitor. “Upon exiting, visitors [could] view their avatars’ canvas and the canvases of others and take screenshots to share on social channels,” according to Vogue Business.
Some visitors who came away with free or low-cost Gucci virtual products during the limited-time experience found that they could make money in virtual resale on Roblox’s marketplace. One virtual Gucci bag was resold for Robux, the platform’s currency, worth over 4,000 real dollars.
“Fashion has become more than a boutique along the street in a capital,” Gucci Creative Director Alessandro Michele told the AP.
Gucci was not alone in the metaverse.
Balenciaga collaborated with gaming giant Fortnite to produce shoppable virtual clothing and physical products.
Designer Tommy Hilfiger teamed up with virtual marketing company EWG Virtual to digitize models, athletes, musicians, actors, and cultural influencers so that they could establish their own brands with the gamer community and elevate Tommy Hilfiger by extension. “If you look at what is selling, it’s virtual clothing and virtual accessories within a video game. It’s all about v-commerce. It’s the next form of digital retail,” Hilfiger told WWD.
Meanwhile, Louis Vuitton, Dolce & Gabbana, and Burberry are leveraging blockchain technology to create collectible non-fungible tokens (NFTs).
All these efforts are designed to make established prestige brands relevant to young consumers.
Up-and-coming generations — millennials and Gen Z — are also embracing social commerce. For its 2022 Relevance Report, Coveo tapped Arlington Research to survey 4,000 working adults aged 18 and over in the U.S. and UK. They found that 36% of millennials and one-third of Gen Zs discover products via social media, in contrast to 29% overall — and only 10% of respondents aged 55 and over.
Social media is more than inspirational; it has become an increasingly popular place to buy.
According to eMarketer, social commerce sales surged 39% in 2020 and 36% in 2021. The consulting company defines social commerce as goods and services ordered through social networks directly, bought via links on social networks that lead to a retailer’s product page with an immediate purchase option, and transactions that start on social platforms and payment is made on another platform, such as PayPal.
Growth of social commerce will slow slightly to 25% in 2022, when the channel will be responsible for $46 billion in sales, more than twice its size in 2019. By 2025, the market will almost double again to $80 billion, eMarketer estimates.
“Global social media giants are doubling down on developing in-app shopping experiences,” according to McKinsey’s State of Fashion 2022. Brands such as Chloé, Michael Kors, Oscar de la Renta, and Marc Jacobs are using Instagram’s Shop feature, and “Snapchat is applying its augmented reality capabilities to enable users to virtually try on clothes and accessories from brands such as Prada and Piaget.”
“Whether or not Gen Z is your primary consumer, they definitely set the trends and drive brand heat,” Jenny Campbell, Kate Spade CMO, said in a Vogue Business interview. “And when you look at where trends start and where things go viral, it is almost always with Gen Z.”
5 Keys to Capturing the Luxury Buyer
Luxury consumers are ready and eager to refresh their wardrobes, they have cash in their pockets, and they are planning to do more of their buying digitally than they did before the pandemic. Yet, they haven’t let down their high expectations for product quality and customer service.
What can you do in ecommerce to emulate the in-person boutique experience and win these customers? Here are five recommendations.
1) Greet them at the door.
Luxury customers expect the highest level of service the web can provide, so the logical step for ecommerce retailers wanting to get their business is to provide state-of-the art search anchored by machine learning (ML). Modern ecommerce websites have learned that they can no longer present customers with a search box that makes them do all the work. Autocomplete, or type-ahead, is now common, but the technology is based on guessing words, not picking up on intent, which ML-powered relevance platforms can do.
On‑site searchers are 216% more likely to convert than regular visitors. With ML, you can provide a curated experience even to those who have never visited your site before or who have deleted cookies or use virtual private networks (VPNs). ML can make assumptions based on the patterns of visitors who have come before to make the search box smarter. What have been the most common recent searches? Which search results were clicked on most often? Which promotions have been getting the most traction?
2) Make search results relevant.
Relevance is a complete experience, not a single feature or collection of features. To shoppers, it includes finding the items they want quickly, along with enough information to make them feel confident in their selections. It also means finding products they didn’t know they wanted.
ML-powered search analyzes and identifies content from across all of your company’s available systems and sources — inventory systems, brand promotions, category guides, social media, and more. It uses the history of other site users in aggregate to pinpoint products and content that will be most helpful to a given shopper in real‑time.
ML‑powered search can also provide personalized recommendations — without a search query — in chatbots, product description pages, and more.
3) Personalize products and content.
Most retail executives will claim that they are providing personalized experiences online, but customers beg to differ. In a survey of 4,000 shoppers across the U.S. and UK conducted by Coveo, 47% said they expected online shopping to be as good as or better than in-person, but only 13% said they always experienced an online shopping experience that felt personalized to their specific buying habits.
Luxury customers have even higher expectations, so having technology and systems to ensure personalization is critical for this segment.
ML-based technology makes search smarter and powers personalized recommendations by learning more and more about individuals as they take actions on your site.
For example, if shoppers put golf shoes in their carts, they’ll get recommendations for golfing gloves, visors, and windbreakers. If luxury shoppers sorted the shoes according to user ratings, a smart recommendation engine won’t present them with related products with the best discounts.
4) Give shoppers tools to make buying decisions.
Although ML can make search easier and provide compelling recommendations, discerning luxury customers will have needs and desires ML can’t deduce. Give them user‑friendly ways to sort, filter, explore, and navigate to find the perfect result for them. This includes comprehensive pull-down menus, well-organized category pages, and the ability to sort by a variety of values (e.g., manufacturer, size, color, style, price bracket, in-stock online, in-stock in store).
Luxury shoppers, who have traditionally preferred physical stores, are coming back to retail, and they want to take advantage of Buy Online, Pick Up in Store (BOPIS) capabilities. Intelligent search allows them to find out which products are available at their local store, as well as through ecommerce delivery.
5) Experiment at the cutting edge of digital shopping.
Your high-end shoppers might not be looking for virtual outfits or accessories now, but, based on current trends outlined above, they will be. You also want younger generations to know that your brand is staying relevant. Take a fraction of your budget to pilot social selling, gaming platforms, virtual reality (VR) shops, and augmented-reality technology that allows customers to try on clothing, eyewear, makeup, sports gear, etc.
