Name any mass product category and chances are that online is winning the war on brick-and-mortar. And if Amazon has its way, it will soon seek dominance in food and beverages, with its $13.7 billion (Dh50.32 billion) deal for Whole Foods being just the appetiser.
But there could still be one category where online’s encroachment needn’t be as fast as in the rest. For that, physical retail has to thank luxury.
According to the consultancy Bain & Company, it could be 2025 before the digital world makes up 25 per cent of luxury goods sold in the world. That’s against the 8 per cent share luxury online sales had as of end 2016 and the 5 per cent from two to three years ago.
Clearly, the rapid advances in nearly every other category reduces to a more sedate pace in the world of luxury goods buying. “All of this means that the major share — 75 per cent — will still be held by physical stores,” said Cyrille Fabre, Partner at Bain & Company, which specialises in tracking the rarefied tastes of the rich and aspirational consumer. “It gives them an opportunity to scale up innovations in customer experience right at the store, whether it be in the assortment of displays, using digital to offer shoppers access to a wider range of choices while they are right there at the store, etc.
“Luxury retailers need to seriously think about perfecting the omni-channel way.”
One key factor in the more gradual shift to online has to do with demographics. Currently, those above 45 years of age make up only 3 per cent of worldwide luxury purchases done digitally, based on Bain and Company estimates. This is typically the age group who have the high discretionary incomes to spend whatever that catches their fancy. And, so far, the vast majority of their ranks prefer to do it in-store rather than turn to virtual options. (In comparison, those in the 18-to-25-year category — and with the means to do so — represent 14 per cent of global luxury online sales.)
“A key point of difference between luxury and the rest is in the way online channels are used,” said Fabre. “Online is where shoppers are influenced — up to 70 per cent of such decisions — to buy a particular luxury brand or product, whether on Instagram or a brand’s own website. But in most cases the actual transaction is still at the store level.”
That online sales will not overwhelm them in the immediate future will be of some relief for the global luxury industry, buffeted by indifferent sales in the last two years. Here, in the Gulf, what has been a torrid 2016 has not transformed into a better performance in the year-to-date.
Outside of the Gulf, there have been some pockets of recovery — sales of luxury merchandise in Europe, surprisingly, did have a decent enough performance last year, with gains of 7-9 per cent. Some of the gains had to do with the favourable dollar-euro situation. And while the free-spending Chinese may not be as willing to spend during their overseas trips, domestic sales of luxury goods was still upbeat, up by 6-8 per cent depending on the currency, as per Bain and Company estimates.
But American buyers disappointed, resulting in flat growth in luxury goods sales in 2016 and the first-half of this year. And this hesitation is amplified in the number of department store locations getting shuttered. But, “potentially”, the rest of this year could see some upward mobility on the buying side.
If that happens, it will be one less concern in the world of luxury retail.
Luxury online sales make gains, but gradually
* At about 8 per cent of the overall spending on luxury goods last year, eCommerce comes in third in terms of overall size, behind the US and Japan, according to Bain and Company estimates.
* But increasingly, luxury brands have competition from another category when it comes to consumer spend. Luxury “experiences” offered by travel and stays in exotic properties actually gained in comparison to what people spent on merchandise. In Bain & Company projections, experiences outpaced goods by 4 percentage points in 2016.
* “Casual” luxury is winning them over. Luxury brands and accessories still rule, but consumers are just as keen on acquiring the casual options. For instance, an estimated 3 billion euros (Dh12.34 billion) was spent on luxury sneakers, another 3 billion euros on denim from luxury labels, and a substantial 2 billion euros on backpacks from such brands. Clearly, luxury cuts every which way.