Luxury retail trends: The digital disruption is here

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Traditionally, luxury brands have been hesitant to embrace e-retail as part of their distribution strategy. Exclusivity is everything in the luxury market, and brands have been fearful of losing this core factor as they move online.

Multi-brand retail sites, in particular, have traditionally been considered inappropriate for upscale brands, with many luxury leaders considering online retail only suitable as a distribution channel for low to mid-range luxury goods.

For years, young affluent consumers were considered to be more interested in experiential luxury than buying luxury products, and then the pandemic happened. Global lockdowns and store closures accelerated the digital transformation, and early adopter brands were rewarded with exponential growth.

The share of online luxury sales nearly doubled in 2020, and online luxury sales are now expected to reach $9bn USD by 2025, when 30% of global luxury sales will take place digitally.

Luxury is one of the most resilient sectors, and the industry has already bounced back faster than expected – but there’s no denying that the digital disruption is here to stay, and now is the time for brands to adapt their strategies.

Digital is increasingly influencing the purchasing decision of high-net-worth individuals. According to McKinsey, online experience influences at least 40% of all luxury purchases, with customers hitting at least one digital touchpoint in their luxury shopping journeys, and the average luxury consumer engaging with brands through multiple touchpoints (up to 15 for Chinese luxury consumers where physical stores have less of a market presence).

This transformation presents both challenges and opportunities for luxury brands. So far, digital channels have not been able to drive the same level of upsell opportunities as in-store retail. Luxury consumers typically spend less overall per purchase when buying online – but luxury brands have so far failed to meaningfully leverage personalisation, big data and user experience to increase order value. Seeing their online offer purely as an extension of their bricks and mortar retail model is a mistake, and for luxury brands it leaves money on the table.

Affluent customers expect seamless experiences across all channels and ‘always on’ convenience. The pre-pandemic love of experiential luxury has become an expectation of the shopping experience, both online and in-store, and these shoppers expect the same level of personalisation and first class treatment across all interactions with luxury brands.

E-retail no longer waters down exclusivity or dilutes brand value. In fact, when leveraged correctly it has the completely opposite effect. And it’s essential for luxury brands to embrace digital if they want to tap into the growing spending power of younger generations.

Millennials (those born from 1978 – 1992) and Gen Z (1993 – 2001) consumers are a critical source of growth for the luxury sector. These generations are set to account for 70% of the luxury market by 2025 and contribute 130% of luxury market growth. And yet, as digital natives, they are largely still underserved by luxury brands.

When it comes to digital content, these generations are not just consumers. They love to engage online and want to co-create with the brands they buy from. For brands that embrace this, they become a loyal marketing channel – but this is not without reputation risk, and to leverage this effectively, management teams must prioritise effective brand stewardship to ensure their reputation remains intact.

These generations typically view luxury purchases as an investment, and expect a genuine commitment to sustainability and social responsibility from brands. They are redefining luxury, and to tap into these influential markets brands will need to adapt their strategies to resonate with these politically engaged consumer groups.

In the digital era, luxury brands need to find clever ways to navigate the accessibility and overexposure created by social media, balancing this with the exclusivity and aspiration that makes luxury products so desirable.

These pivotal changes can be scary for brands steeped in heritage, with a loyal luxury consumer base. However, it’s no longer a question of if online will overtake in-store sales, but when. And digitally-native consumers are driving this market growth, so luxury brands cannot afford to ignore the e-retail revolution any longer.

The top 5 luxury brands alone currently capture 57% of affluent customers’ attention and international search market share, so it’s clear that there is room for more luxury leaders to break into this space and benefit from first-mover advantage.

2022 is the year that luxury brands should prioritise e-retail, bring their brand values in line with affluent young consumers’ priorities, and pivot their strategy to creating seamless cross-channel experiences and highly-personalised digital interactions, to lock in loyalty from these influential audiences as their spending power continues to grow.