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Is fashion-luxury e-commerce getting close to maturity?

Via LinkedIn : Being a consultant and a teacher, I happen to hear or read different opinions, sometimes even radical, on many different topics. For example, I remember attending a business meeting a few years ago, and hearing the CEO of a quite famous luxury group declaring that within three to five years e-commerce would be the only remaining distribution channel for luxury goods.

Three years passed from that meeting, but it looks like that prophecy is far from being realised. According to a recent report from Bain & Company (October 2014), online sales represent 5% of a flattening 2014 global “personal luxury goods” market (in these estimates, “personal luxury goods” main categories include apparel, accessories, beauty, jewellery and watches). Yes, the estimated growth of luxury e-tailing vs 2013 is very high (+28%); but it is interesting to compare it to a less talked-about channel, that of factory outlets, whose share of the same market is almost double (9%) and whose growth rate is almost as strong (+22%). So, in order to define a long-term strategy on e-commerce, for a fashion-luxury brand manager the core question remains the same: what will be the share of online sales on the total distribution system when they reach their maturity? Assuming that their undisputable growth will happen at least partially to the detriment of other channels, this is not a scarcely relevant topic.

Up to now, the fashion-luxury industry has not shown a fully shared approach towards e-commerce. There is full consensus that online sales represent a powerful opportunity to reach new fashion-luxury customer segments, for example the digitally-native z-generation, or those living in emerging countries cities where brick-and-mortar distribution is still underdeveloped. At the same time, it is clear that mismanaged e-commerce may represent a serious threat for high-end brands. Therefore, no wonder that while some brands have their entire or almost entire product range available online (i.e. e-commerce already represented 7% of Ralph Lauren total sales in 2011), others only have a limited offer (i.e. Hermès’ Kelly and Birkin are not sold online); to an extreme, Chanel chose to limit its direct online sales to beauty, obviously believing that the full luxury shopping experience of fashion and jewellery commands personal interaction.

Therefore, what should the right strategy be on fashion-luxury e-commerce? Of course, there is no right or wrong: there are good reasons for both a prudent and an aggressive approach. However, some observations can be made, purely considering the strategies and the results of some key fashion e-tailers. Vente-Privee.com shut down its American branch at the end of 2014, stating that the road to profit would be longer than expected; Asos decided to shut down its French subsidiary, owing to unsatisfactory sales results; Gap Inc. recently announced they will close their multibrand fashion e-tailer Piperlime, believing it has low chances to cover the required investments; the growth rate of Yoox sales, even if always high, has been slowing down in the last fiscal years, despite the growing number of monobrand business deals, including the prestigious joint venture with Kering; not to mention that even some best performers like Net-à-porter or Zalando struggled to reach break-even despite growing sales, because of their high investments. Historically, some of the typical indicators of a market reaching its maturity phase are the exit of companies with low market shares or unprofitable results; the slowing down sales of major players; the growing concentration of leaders’ shares. Is this happening in fashion-luxury e-commerce now? Should we expect fashion-luxury online sales to plateau in the short or mid term?

When I recently discussed these figures with my students, one of them asked me: “Why don’t you believe in luxury e-commerce?”. This is not my point. I am just trying to foster a realistic view on any business topic, and fashion-luxury e-commerce is no exception. Excessive enthusiasm may lead to bad surprises. Some still remember the internet bubble of 2000, and how an interesting experiment in fashion e-tailing like Boo.com collapsed in less than one year, with 135 mln US$ of venture capitals burnt.

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