Is luxury compatible with e-commerce?

July 2010

Long hesitant to cross the threshold into the digital world, luxury brands have since integrated the Internet into their communication, marketing, and sales strat-egies. They are now launching advertising campaigns online, buying keywords on Google, creating event-focused mini-sites, developing iPhone applications, exploring opportunities offered by augmented reality, interacting with tens of thousands of fans on Facebook, and even opening online boutiques. From Moscow to Tokyo, passing by Shanghai, New York, and Paris, aficionados of exceptional products are ready to exercise their purchasing power on the Internet. There is definitely a market in cyber space, and online sales are going crazy. Louis Vuitton handbags can be bought like the latest Britney Spears album—with a mere click of the mouse.
Yet, a number of existential questions lurk in the minds of some luxury brand managers. Does being online denature the industry’s codes by trying to reinvent them in an invisible universe where the welcome is neither exclusive nor personalized, where leather has no smell, where products cannot be touched or tried on before being bought?
Just type the name of a luxury brand into Google, and you will get an understanding of the scale of the challenges facing a luxury brand on the web today—counterfeit items, low-end ads, heavily discounted products, among others. In cyber space, we are light years away from the prestige universe that luxury brands have taken so many years to construct.
In 2009, more than five hundred million searches for twenty-five watch brands were carried out by Internet users in the ten key export markets of the Swiss watch industry (source: WorldWatchReport 2010, an IC-Agency study). By clicking on their search results, how many web surfers looking for exceptional products will land on low-end sites where the presentation of the products is not well done or where the buying experience leaves a lot to be desired.
On the Internet, luxury brands are confronted with an environment that they must learn to control in order to be able to properly position themselves vis-à-vis these new types of players. For example, doesn’t a luxury brand endanger its image by letting its products appear at discounted prices on any given site? Doesn’t it imperil its credibility by letting some of its distributors sell its stock on auction sites such as eBay?
On April 20, 2010, the European Commission implicitly recognized the special nature of the sale of luxury products when it adopted new laws regarding competition related to the distribution of goods and services. The result of intense lobbying on the part of the luxury industry, these rules authorize goods and services companies to distribute their products only to retailers who have bricks-and-mortar stores where consumers can touch and try the items before buying.
The imposition of such conditions on their resellers should allow luxury brands to better control the sales of their products via the Internet. The regulation adopted by the European Commission—which entered into law on June 1, 2010 and will be applicable for the next twelve years—does not, however, give brands total freedom in the organization of their distribution network. It sanctions online sales and places the Internet on the same equal footing with other distribution channels. Thus, a supplier of goods and services is not permitted to limit the quantities sold on the Internet or to raise prices for products intended for online sales. From the time a supplier brings a distributor into its sales network, it cannot stop him from selling online. At the most, it can demand its distributors to use a site that meets certain pre-established standards.
Geographical restrictions linked to e-commerce are also regulated by the European Commission. A supplier may not require its distributors to automatically “re-route” its online clients to another site or to refuse a transaction if the credit card information of the client shows an address outside of the geographical area served by the distributor. In other words, the distributor remains free to sell to those clients who contact him by their own initiative (passive sale). Nevertheless, a distributor does not necessarily have the liberty to deliberately search for clients (active sale) that have been exclusively attributed to another distributor.
This law comes into effect at a time when more and more luxury brands are opening their own e-commerce channels, as shown by such watch brands as Rado, Longines, Bell & Ross, Cartier, and even Hermès. Very recently, the Richemont group announced the acquisition of Net-à-Porter, a British website selling luxury products online, which generated a turnover of approximately $122 million last year. Other prestigious watch brands will soon launch their own e-commerce sites, thus confirming the inevitable nature of online sales of luxury products.
The context of the new regulations implies strategic stakes for brands that will have to manage the digitalization of a part of their distribution network without absorbing the existing channels. On one hand, they must guarantee the profitability of their own e-commerce investments, while on the other hand, they must adapt their distribution agreements in order to include conditions authorizing intermediaries to sell online. Once these contracts are negotiated, it will be necessary to work with resellers and retailers in order to ensure that they offer their clients a buying experience and after-sales service that are of irreproachable quality.
Luxury brands have the means necessary to successfully negotiate the e-commerce bend and to create buying experiences that represent their philosophy on and offline. It is incumbent upon them to create a value chain between themselves and the final consumer and to offer these clients the luxury of interacting with the brand’s universe when they want, where they want, from any computer, anywhere in the world.

Source: Europa Star June - July 2010 Magazine Issue