The debate over whether luxury goods can be sold online has raged for years and probably bored many people en route. Thankfully we are close to a conclusion on this subject because increasing amounts of hard evidence suggests consumers will buy pretty much anything online – from cheap tat to ultra-expensive baubles.
Item of evidence 1.
At a Barclays sponsored event recently Mark Newton-Jones, chief executive of Shop Direct Group, revealed that research had shown serious growth in customer confidence when shopping online. In 2009 as many as 25% of consumers stated a willingness to make a £1,000 transaction online, compared with only 12% in 2007, and this figure is growing.
Item of evidence 2.
For the biggest spenders online, their propensity to shop across this channel is increasingly driven by convenience. This highlights a move away from price being the key driver of online sales. The internet is no longer the place consumers go just to bag the cheapest deal. Some people still do, but the majority of shoppers are now buying online because it’s the most convenient channel for them and they’ll spend big amounts.
Item of evidence 3.
The undisputed success of pure-play internet ventures in the broader field of luxury and fashion, such as Net-a-Porter, Asos and Yoox, which have shown that there is serious money to be made online in this category.
And the beauty of the online channel is that it works for luxury brands of all sizes. The smaller brands can enjoy massively reduced fixed costs by using online as their distribution and communication channel. According to broker Bernstein Research, the retail rental costs and the bill for media advertising amount to more than 25% of revenues for the typical luxury goods brand. Going online reduces this percentage significantly.
As for the larger mega-brands, they can use the internet for broadening their appeal to shoppers who are outside their core customer base and might well be intimidated by the glitzy oppressive flagship stores of the big name luxury brands.
So if we are to believe this strong body of evidence, the big question is what exactly is the online market worth for luxury goods online? Our friends at Bernstein have helpfully calculated that it could account for around 5% of the total luxury market in the EU and US, which would equate to a chunky £4.4 billion.
This looks like a pretty decent reason for luxury goods brands of all persuasions finally getting their acts together and joining the online party.