LUXURY BRANDS: Wealth of opportunity

Luxury brands have tended to ignore the Web, fearing a loss of exclusivity. But with big spenders being big surfers, ecommerce is a must-have, reports Dominic Dudley. You can read more here

They may set the pace on the catwalks, but when it comes to the Internet, luxury brands have for years been trapped in the role of followers, not leaders.

What the top brands are now rather belatedly realising is that their affluent customers are online and willing to spend more money than most (see box). With that realisation has come an upswing in interest in both online marketing and ecommerce. In a reversal of the offline world, the most exclusive companies are having to follow mass-market sites like Ebay and Amazon to discover what's possible online.

"It's becoming so obvious there are opportunities for them that they're at last getting off their hands," says Peter Matthews, CEO of Web agency Nucleus, which specialises in the luxury sector. "They're now thinking that ecommerce is a viable channel for them."

While luxury brands may once have thought they could ignore ecommerce, the potential sales are becoming too big to overlook. They are also realising that it's a useful way to reach into countries where they don't have any physical shops.

"We've been seeing a considerable number of the brands revamp their sites over the past six months, and there's a general mood now among luxury brands to move their Web sites forward," says Marc Cohen, director of luxury sector specialist Ledbury Research.

"As a sector, it was the last to embrace the Web," says Sam Flint, account director at digital agency Wheel, which has worked with luxury goods manufacturer Asprey in the past. "It always considered that its audience wasn't online. If you're talking about the Saudi royal family, that's true, but the mass affluent are online and they have money to spend."

There are some companies that are holding out even now. Prada, for example, only has a few glamorous pictures on its site. But for every company like that, there's another like Tiffany & Co, which has made far more of its online opportunities. The upmarket jeweller has seen consistently strong growth in recent years. In the first quarter of this year its combined online and catalogue sales rose 14% compared to the previous year, due to both more and larger orders.

Across the sector as a whole, though, it's often smaller brands that are most willing to embrace the Web. London-based Skywire specialises in building sites for luxury clients like Jimmy Choo and Dior, but its most recent work is for Heidi Klein, a holiday-wear company with just three shops, which wanted a full ecommerce site.

"Some of the smaller brands are more adventurous," says Eva Hoff, founder of Skywire. "They have less to lose and are more flexible than some of the older ones. For smaller brands, the Web is a very important outlet."

Another company that recently began selling online is jeweller Boodle & Dunthorne. It hired agency Panlogic to develop a new site, but at first including ecommerce wasn't the aim.

"Our primary goal was marketing," says Boodle's head of marketing James Amos. "But as the project progressed, ecommerce became a no-brainer. There's a lot of opportunity there."

Boodle & Dunthorne treats its site like an eighth shop. But even so, it remains more cautious than with its physical shops. The most expensive thing on the site at the moment is a #185,000 diamond necklace, compared to a #1m diamond ring in the shops. It's also restricting ecommerce to the UK, with Amos suggesting that it'll be at least six months before it fully opens it up to an international audience.

More internationally renowned names are even more cautious. Fendi, which is owned by French luxury goods conglomerate LVMH, is revamping its site but, for now, only offers online sales to customers in the US. Even that's only through its sister site, the eLuxury portal, which sells goods from across the LVMH stable. Versace is developing sites in eight languages, but only the English version is up and running for now and that still has no ecommerce.

There are several reasons for this lingering reluctance to engage properly with customers online. For companies built around a feeling of exclusivity, the democratic nature of the Web is a shock. You could call it the Burberry effect: they worry that if everyone is wearing their clothes it'll cheapen their brands. The transparency of the Web can also make it difficult to maintain the different prices they charge in different markets around the world. They're also unsure how the Web can possibly equal the level of service they provide in their shops - what's the online equivalent of a uniformed doorman?

"We're trying to reflect our offline brand online to the very last degree. You can't give customers a glass of champagne online, but you have to come as close to that as possible," says Amos.

Just as importantly, though, there's still very little expertise within these companies. Top brands often have very small teams of marketers who aren't particularly knowledgeable about the Internet. "There isn't the technical understanding. They're traditional marketers rather than new media marketers," says Skywire's Hoff.

It's not just the fashion sector. Brian Tickle, ecommerce director of Orient Express, which owns around 30 of the world's greatest hotels, admits the travel industry has often been found wanting too. "The sites are atrocious," he says. "The hospitality industry isn't a hi-tech industry so they don't have the in-house expertise."

One possible solution is the luxury portals, such as eLuxury, where high-end brands can club together like an online Bond Street. In the first half of this year, eLuxury enjoyed double-digit sales growth. Others are also doing well. UK fashion etailer Net a Porter's head of marketing Martin Bartle says it has doubled its turnover every year since it set up in 2000.

Last month another, independent portal launched, Luxury Explorer, bringing together many of the world's best hotels. Developed by Nucleus, it's aiming squarely at what Matthews describes as the "strato- lux" sector.

Such sites still have to work to maintain a sense of exclusivity. "We had an enormous number of potential partners that wanted to be included, but we're very selective," says Matthews. "The quality of our partners has to be impeccable, so we've turned a lot of them down. The partners we do have are extremely picky about the company they keep."

Not only do the hotels have to be top notch, so does their online presence. "They have to be the best hotels and the best hotel Web sites," adds Matthews. "Some partners have been admitted to Luxury Explorer on the condition that they'll improve their sites within 12 months."

Getting the site right is crucial. "The propensity of the customer to book online is directly related to the quality of the site," says Tickle.

Matthews adds, "You must have a site that's easy to use, with high- quality images. Fulfilment has to be flawless. Picking and packing has to be as good as it is in-store. If anything goes wrong, attentiveness has to be as good as in-store."

The Internet also offers a way to reach customers where brands don't have shops. "Luxury goods tend to be under-distributed worldwide," says Matthews. "The problem for real luxury brands is that they can't be everywhere. The Web allows them to change that. There are some markets that have high levels of broadband and an appetite for luxury goods, like Korea. It's a huge market, very sophisticated, very brand-aware, and yet very few luxury brands have gone there."

Companies still have to make sure people come to visit their sites, though. Search and email marketing are the most important elements to the online marketing strategies of most luxury brands.

"We're seeing much more activity in email marketing, which a few years ago they frowned on," says Hoff. She points to Louis Vuitton and Gucci as particularly active, but almost all sites are joining in. Even when they don't offer online sales, they want to keep their customers informed of product launches and new-season ranges.

Other marketing techniques aren't as well regarded. "We concentrate almost exclusively on search engine marketing," says Tickle. "We've tried all sorts of advertising around the Web and most of it was a complete waste of money."

One potential problem with search marketing is that the results page is likely to be crowded with sites offering cut-price versions, even if it's sometimes for goods that are a season or two old. But that shouldn't matter, according to Cohen.

"When it comes to luxury brands, authenticity is key," he says. "If you want a Louis Vuitton bag, you'll go to the Louis Vuitton site. Price comparison doesn't exist when it comes to luxury goods. The rich don't use the Internet for cost savings. It's convenience, availability and service.

This should encourage more brands to be bolder online. And as they follow their customers onto the Web, they'll also have to find ways to be just as innovative in their online strategies as they are in the designs of their products.

QUICK TAKE

* Luxury brands have been slow to move online, scared it will undermine their exclusivity and unsure how to provide a high enough level of service through a Web site

* A second generation of sites have been coming onstream, with many brands offering ecommerce for the first time

* Gucci and Tiffany have been among the most active of the larger firms, but the likes of Prada have yet to properly engage with an online audience

* Smaller brands are often more willing to experiment online, finding it a good way to reach customers without a large retail network

* They're all having to learn lessons from mainstream brands like Amazon and Ebay, which have set the standard for ecommerce

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