By: Martim Avillez Oliveira, Chief Commercial Officer at ESW
Luxury brands need to recreate online the personalised white glove experience customers receive in store and deploy those experiences across borders where the real growth is, says Martim Avillez Oliveira, Chief Commercial Officer at ESW, the leading cross-border DTC ecommerce technology and services provider.
Growth is returning to the post-pandemic luxury goods industry but understanding who is buying, how they buy and where they live will be critical to ensuring brands get their share.
The balance of power between a brand’s retail flagship store and its online store shifted dramatically in 2020 with digital sales growing at a faster rate than in-store, as ecommerce became the transactional driver for luxury.
Towards the end of 2020, Hermès reported that its online shop now receives more revenue than its Parisian flagship store on Rue Faubourg Saint-Honoré. And interestingly, 85% of those online orders were from new clients. Around the same time, Kering reported that 13% of its sales for the first nine months of the year were online, against 6% in the same period 2019. The analysts confirm this shift with Bain saying that online will likely account for up to 30% of the luxury market by 2025.
However, this shift will also require a change in mindset around digital.
Investments in style and beauty have remained in-store
With a reliance on in-store experience and exclusivity, luxury brands have often postponed investment in digital channels. Because markets were affected to different extents, Europe and the Americas suffering the most, the pandemic did galvanise the luxury market to reprioritise digital. The focus was on building better ecommerce experiences from showrooming, to online global Fashion Week events to maximise sales across a geographically diverse customer base.
However, building the trust required to encourage luxury purchases online dictates the best way to reach and serve this demand is through localised shopping experiences where ecommerce customers in every geography feel as if they are receiving the same level of service and convenience they would enjoy if shopping at their local store.
These opportunities increasingly lie away from the countries that these luxury brands currently call home.
The global luxury boom
One important observation demonstrates the importance of both online but also the sources of new business. Unable to travel, Chinese consumers in particular have been buying at home, but their thirst for luxury brands goes unabated. Research by Bain show that China will become the biggest luxury market by 2025. Bain adds that the global luxury market will return to 2019 levels by the end of 2022 or early 2023, driven by digital sales and China. Beyond there, according to Research & Markets, the global market for luxury goods was worth $224.8bn in 2020 and will grow to $312.8bn by 2027. Apparel alone will be $93.9bn by 2027.
While the lion’s share of growth will be in China, and many brands prioritise China because of the sheer size of the market, other markets, notably Hong Kong, Malaysia, India, South Africa, the Netherlands, Latvia, Israel, South Korea, Ireland and Chile, also demonstrate steep growth curves, and they are less demanding from a fiscal, regulatory and privacy point of view.
However, it is essential to work with a partner that has local experience in managing these various minefields. Understanding who is buying and therefore how they like to be sold to and communicated with is also critical to success in the cross-border DTC channel.
Who are these shoppers?
According to Boston Consulting Group, an influx of younger luxury shoppers, Millennials (1978 – 1992) and Gen Z (1993 – 2001) are predicted to make up 61% of the market by 2026, so understanding the mindset of this mobile-first, social-first generation is a necessity.
A major cross border shopping behaviour study commissioned by ESW, Global Voices 2021: Cross-Border Insights, covering 22,000 consumers in 11 countries found that 68% of shoppers made ecommerce purchases outside of their home country in 2020.The report looked at consumers’ cross-border buying habits and expectations across demographics and generational makeup.
Millennials make up most of the cross-border market overall and have the distinction of being the highest spenders, with 47% having spent more than £350 on cross-border ecommerce purchases in the past year, followed by 27% of Gen Xers and 15% of Gen Zers.
Gen Z should not be ignored though. They are comfortable spending money and already possess spending power of $44 billion per year in the US alone. The study found they are most likely to buy directly from brands instead of marketplaces or a combination of the two. Nearly 30% of Gen Zers who shopped cross-border shopped directly from brands, versus 23% of Millennials and 23% of Gen Xers.
The figures also reveal useful tactical insight for luxury retailers that get the best returns from a cross border investment. The top reasons cited for purchasing internationally were lower cost – including duties, taxes and shipping – (36%) and availability of products that couldn’t be found in the shopper’s own region (35%).
Know your markets
To take part, retailers must have a deep understanding of global markets that allows them to offer a localised, customer-centric and cost competitive shopping experience if they wish to maintain both the loyalty of existing customers and attract new ones. For those luxury retailers and brands that have not already done so, prioritising investment into the development of a best-in-class global ecommerce offering is critical to allow them to harness fluctuating, and profitable, global consumer demand. Recent events have shown that digital, and more specifically DTC is the future, meaning that the time is now for brands to pivot into this channel. But agility and speed to market is crucial for survival, and brands are in many cases significantly behind on the experience curve. Leveraging the resources, experience and infrastructure of a global DTC enabler like ESW can ensure luxury brands are in a position to capitalise on the opportunity, while offering the type of experience their customers expect.