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03-04-2008
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Luxe Brands Follow the Money to the Internet
from wwd...

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Luxury and designer brands have woken up to the Web ó and it could be a bright spot in these tough economic times.

After years of ignoring e-tailing, luxury and designer brands are finally opening up shop online in sizable numbers. Recent entrants include Prada, Louis Vuitton, Yves Saint Laurent, Stella McCartney, Boucheron, Bulgari, De Beers and jeweler Karen Karsh. In the future, expect Calvin Klein and Pucci. Already selling top-of-the-line handbags, shoes, accessories or ready-to-wear for more than a year are Gucci, Bottega Veneta, Oscar de la Renta, Judith Leiber, Christian Dior, HermŤs, Burberry, Tiffany and Ralph Lauren.

David Yurman and Ferragamo have shops created by Neiman Marcus, which are evolving into stores with a more stand-alone feel and distinctive look. (Neiman Marcus also runs a cobranded store for Armani Collezioni, where jackets start at about $2,000.) Early efforts focused heavily on accessories and footwear, but substantial offerings of rtw are becoming readily available, as at YSL, Gucci and Marni.

Holdouts include Chanel and Donna Karan, which do have online shops but only for lower-priced lines and beauty.

On Wednesday, Stella McCartney opened an online store for the U.S. In December, Prada opened an online store serving Europe and the U.K. (A U.S. version is due soon, although the company declined to be more specific.) Vuitton opened its U.S. online store in November, and YSL opened an American shop, which features a striking graphical Mondrian-like design, in October.

"I think eventually every company that runs stores will have e-commerce," predicted Mark Lee, chief executive officer of Gucci, which is widely regarded as a leader in online commerce for opening its store in 2002 and handling the technical side in-house. "Whatever the initial fears or reluctance, people are embracing it. It doesn't harm the brand in any way, and it's also very profitable."

Indeed. The wealthy do more shopping online and spend twice as much as other consumers, according to Forrester Research Inc. In 2005, the most recent year for which figures are available, luxury customers ó defined as those who shop at sites such as Neiman Marcus ó spent an estimated $12 billion on all types of goods online, not just luxury, excluding travel.

For 2007, the size of the luxury market for just apparel and accessories online is expected to reach approximately $1 billion at least, said Forrester analyst Sucharita Mulpuru. And despite problems in the broader economy, for now "the luxury market online now is still going strong," she said.

Retailers realize the wealthy customer is online and wants to buy.

"When we launched the site, we were told e-commerce was all about discounting and price comparison," said Brendan Hoffman, president and ceo of Neiman Marcus Direct. Now the retailer is taking in $500 million in revenues from its combined sites and catalogues, which include Horchow, Bergdorf Goodman and Chef, in addition to Neiman Marcus. At neimanmarcus.com, fine jewelry is a new focus, with an average price of about $7,000. Oscar de la Renta, Stella McCartney, Christian Dior and Yves Saint Laurent are some of the fastest growing labels in rtw.

"I think there is a customer for whom money is no object, and that customer exists online as well," said Alex Bolen, ceo of Oscar de la Renta, which opened a store selling $2,400 handbags, shoes averaging $500 to $800, accessories and fragrance in 2006. (The store has been temporarily removed and will relaunch in the next few months with more categories of merchandise, said a spokeswoman. In the meantime, customers can order over the telephone through a personal shopper.)

Gucci has sold several very expensive handbags online, including the $7,990 Mink Indy. Merchandise online and off has always been very similar, and in February Gucci added women's rtw to the U.S. store. In 2006, the brand's online business grew more than 65 percent. "The only channel that grew faster was China," said Lee. Gucci did not break out e-commerce figures for 2007, but as of September the company was operating Web stores in 10 countries, including Italy and Switzerland.

"Where this is coming from is consumer demand," said Natalie Massenet, founder of multibrand fashion and accessories e-tailer Net-a-porter.com, which, in the fiscal year ended Jan. 31, 2007, had revenues of 37.2 million pounds, or $73.9 million at current exchange rates. "Customers now expect it, particularly from the big brands. [Not having e-commerce] would be like going to a store at one in the afternoon and having a sign on the door saying, 'We're currently not selling from this store.'"

Luxury brands once feared selling online would tarnish their aura of exclusivity, and fashion companies disliked the look of the online environment. They even feared putting up clear images online would encourage counterfeiting and online stores might make it easier for counterfeiters and gray market distributors to buy. But the Web is quickly losing its low-rent reputation.

Selling online does not alter your customer base, said Massenet, although it might expand it. "Democracy is great from an access perspective. Being able to reach more customers has got to be a great thing. Still, [to buy luxury] you have to be able to afford the brand and have the lifestyle to wear it," she said. Not everyone can buy a Roland Mouret dress just because it is available online, for example.

And of course, a Web store can be highly profitable.

"I hope this is not too blunt, but people are following the money," said Bolen. "They've seen the success of Neiman Marcus, Saks and Net-a-porter. These examples are becoming very important from a financial perspective, not just as a brand message. They are generating a lot of profit [for the brands]."

The ubiquity of high-bandwidth connections, combined with creative design, has improved the look of online stores. Luxury brands prefer sites that resemble print advertising rather than software.

Createthe group, an interactive agency whose many fashion clients include David Yurman, advocates using art and photographs that convey a mood and a feeling, rather than merely information. Even product shots can look better when the backgrounds aren't plain black or white, said ceo James Gardner.

Better design options convinced Marni to open its own store online, in August 2006. "I think everyone knows this is the time to do it," said Gianni Castiglioni, the company's ceo. In the past, many brands were approached by other retailers to create Web stores "but the approach to the product was really dead, really old," he said. Marni's store creatively tries to offer customers the same experience as in a brick-and-mortar Marni store, with a look that changes with the season, similar stock, sales help via phone or e-mail 24 hours a day, and suggestions for complimentary purchases.

"When you enter our stores, somebody welcomes you, explains a bit of the collection, and says, 'This goes with this,' so we try to give you the same experience online," said Castiglioni.

Net-a-porter also has tried to replicate the in-store experience, but in a fashion that works on the Web.

"Where we can't compete with stores is in the store environment, but it can be an equally good or better experience," said Massenet. "It still has to be immersive and make the customers feel like they're entering a great new space. People who are spending a lot of money want to shop in a place that makes them feel great. For us, that meant investing in the entertainment, the visuals and putting a lot of effort into the editorial content on the site, which is very inspiring. It's really the equivalent of sitting down with a cup of tea with the best shop person or expert on fashion and discussing the latest trends and trying them on. The difference is trying them on at home, in the privacy of one's own space, which in itself is a luxury."

Bergdorf Goodman recently took the idea of replicating the in-store experience to a new level with a simple yet effective interface that makes the customer feel as if she is moving through the store. A drawing of the building facade shows each floor. Clicking on a floor brings up a photo of the floor and a list of designers sold there.

Designer firms are finding the online customer is no different from the one who shops in person. She may live in a big city and shop the online store when she is pressed for time or buying a gift, said Tomaso Galli, group communications director for Prada. Alternatively, she may live far away and may or may not travel frequently to New York at the right time to buy, he said.

At neimanmarcus.com, about half the customers come from within brick-and-mortar store trading areas. "We have only 38 store locations, so there are lots of pockets that don't have access to Neiman Marcus, and through the Web they do," said Hoffman. The store has been holding events in areas where it has a sizable numbers of Web customers but no store, such as Seattle and Nashville.

It is not unusual for frequent online luxury shoppers to be cash-rich and time poor. That is often the case at Net-a-porter, where 19 percent of customers are busy ceo's and executives, typically in banking and media.

"Now there is a consumer for whom luxury is service and time. But the desire for the product is the same," said Massenet.

Good online customer service should make shopping online nearly effortless for the customer. Neiman Marcus offers help via phone, e-mail or live chat 24/7, an easy return policy, and good visuals with zoom and detailed descriptions. The next step for the company is to bring in a fit model to try on each garment so the retailer can specify if a garment fits tight, loose or true to size, said Hoffman.

Because customers like to see four or five views of each item, including the inside of a bag, eFashion Solutions LLC of Secaucus, N.J., which handles e-commerce and fulfillment for Judith Leiber, recently enlarged its photo studio to keep up with increasing demand. The same studio can produce shots for online ad campaigns, editorial-style trend pages and online video.

The company can send a handwritten thank-you card when a luxury customer makes an online purchase. Luxury firms also should consider rewarding their best customers with special perks, such as access to online VIP areas where they might be able to purchase items not available to the general public, said eFashion Solutions ceo Ed Foy.

"Tease 'em, don't offer the whole line," he advised.

Or retailers can let customers sign up for hot items in advance, as Net-a-porter has done.

Bottega Veneta, which opened its online store in December 2005, has a personal shopper dedicated to the site who can help clients who may not live near a Bottega store pick out something from the site or from the full collection during store hours.

Retailers are finding that single-brand shops complement, rather than compete with, the existing multibrand boutiques.

"It's very important that the brands have their flagship store," said Massenet, "and that there's a mix between the flagship and the multibrand stores online. The flagship creates an entirely immersive environment for that brand that the brand can control, and obviously the multibrand experience is for positioning, marketing and cross-selling and to be seen amongst other brands that are similar to them. Much in the same way a flagship and clothes at Barneys coexist beautifully. You go to each store for something different."

"This is an additive business, business we wouldn't otherwise be getting, just like Neiman Marcus and specialty boutiques and Oscar de la Renta can all exist in the same market and have different points of view and different takes," said Bolen. "This allows us to address different customers online in just another way."

Many executives likened the online frontier to China and other developing parts of the world that are growing quickly.

"I see no reason why that the momentum shouldn't continue in the coming years," said Gucci's Lee. The general trend, as Gucci has done, is for brands to start selling in the U.S. and English-speaking countries, then move into continental Europe, then Asia, then other parts of the world.

"In the rest of the world, the customer is not yet demanding e-commerce at the same level as the American consumer, but it's just a matter of time and it will happen, and our goal is to stay ahead of that curve and that demand," said Lee.

It's unclear how the economic downturn will affect the luxury business, although most observers remain bullish.

"Up to now, everyone's been really worried," said Guy Salter, deputy chairman of luxury trade group Walpole of London. "They've been thinking about it nonstop, but today ó particularly at Christmas ó performance wasn't that bad. There is a cloud hanging over everyone but no solid evidence of any serious impact yet."

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03-04-2008
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continued...

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If sales in the luxury sector slow down, online sales could decrease in parallel or keep growing. "We are probably in a unique position in that we are in a business that is growing overall," said Massenet. "Every day and every month, customers are turning to the Internet to shop, so we are adopting new customers, and are coming at it from being a new business and a new way of shopping."

She noted that expensive items sell best, and said the company expects to add 5,000 customers in 2008. "I think we will ride this out," she said.

Overall, the online environment may change the relationship between the customer and the brand as the customer expresses herself through social media and by voting with her pocketbook.

"Online retailing is the simple bit, even though it's taken a long time for luxury businesses to see the opportunity there," said Walpole's Salter. "The next level of interaction is the opportunity for dialogue that Web 2.0 represents."

Now that small family firms have become global, they beam out their power through traditional advertising, fashion shows and stores, which function as temples. But luxury customers are becoming more discerning, and in the future brands will need to treat them as equals rather than disciples, Salter said.

"The great opportunity that Web 2.0 has brought is the ability to interact with people in a whole new way," said Salter. "Some brands realize it's good to bare their soul a little more and entertain comments from customers both positive and negative. I see a day when people will meet each other in the context of commercial brands," he said. For example, a brand-related social networking site could be very useful for luxury customers who want recommendations from peers they trust.

In the next month or so, Walpole plans to release a report on what luxury firms are doing online. More than 400 executives around the globe were contacted about their attitudes and spending plans regarding e-commerce and collaborative technologies such as user-generated reviews and blogs.

"I think [online retail] is about offering the consumer access, much smoother and faster access to goods," said Massenet, "and creating much more of a dialogue between the consumer and the brand. I think it will be a great opportunity for brands to understand the consumer better and for the consumer to get what they want and for there to be a much closer relationship between the two."

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03-04-2008
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interesting i like the LV shop on eluxury but to be honest when i do splurge id rather do it at the actual shop like Paris i just like the experience of it

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03-04-2008
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^ I would too ... but I have been known to spend $$$$ online for selection reasons ...

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