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Chapter 1

DIGITAL TRANSFORMATION

Despite the success of early trailblazers such as Net-A-Porter and Farfetch, the luxury sector has lagged behind the rest of fashion world when it comes to adapting to a digital future.

The luxury sector’s hesitancy in embracing ecommerce is understandable. It is an area of retail that has relied on a sense of exclusivity, as well as the beauty and inspirational nature of its store experiences, to sell to a consumer base that has traditionally responded well to both.

But, as retail continues to evolve, driven by developments ranging from voice technologies to social media, even luxury shoppers are starting to want different things.

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The shift online is reflected in sales figures. Consultancy McKinsey & Co reports that online sales of personal luxury goods currently account for 8% of the total luxury market. By 2020, it predicts this will grow to 20%. But as online sales grow, consumers are often being left disappointed by their experience with shopping online. New research from payment provider Klarna shows that 39% of consumers think high street brands provide a better online shopping experience than luxury brands. With great customer experience being at the heart of so many luxury brands’ proposition, this a comparison they should easily have the edge on.

However, luxury retailers have always excelled at bringing creativity to retail and they are starting to bring this to digital environments. Burberry has led the way among traditional retailers with a digital offer that has included live streaming of “see now, buy now” catwalk shows, and in-store interactive mirrors that show customers content based on the clothes they’re looking at.

In the last couple of years, other brands have embraced what digital has to offer. Gucci, for example, carried out a revamp in 2016 that led to better content, social media and digital marketing. The Italian fashion house has also experimented with more advanced technologies, working with Spanish artist Ignasi Montreal to create virtual-reality project “Gucci Hallucination” for its spring 2018 campaign with a series of scannable interactive ads. In 2017, Gucci reported that 50% of its sales came from millennials.

Getting digital right in a luxury environment is not easy, but it represents a significant source of future sales growth. Luxury consumers will react particularly well to certain parts of the digital customer journey – they are, for instance, more used to the personal touch, making them more likely to be open to sharing data and preferences.

The opportunity to impress customers using new media and channels, in the same way that high-end brands have always impressed with their stores, is an exciting one.

Chapter 2

LUXURY'S ECOMMERCE IMPERATIVE

Luxury brands that fail to satisfy customer demand for an easy ecommerce experience will fall behind their competitors.

By Luke Griffiths, general manager, Klarna UK  

luke griffiths

Luxury brands often believe their customers prefer to shop in store, and view investment into online experience as a wasted effort. However, our research shows that this is not the case: 90% of luxury shoppers claim to use online platforms at some stage when shopping for items.

Furthermore, luxury shoppers are aware of the discrepancy between luxury and high street brands when it comes to online: 40% agree that high street brands provide better and more intuitive online shopping than their luxury competitors.

This belief has held luxury brands back. But embracing the opportunities of ecommerce could revolutionise the way their customers interact with them. Ecommerce has permeated almost every area of retail, and there is no reason why luxury fashion should not reap the benefits.

Customer behaviour has always been the key driver for change in retail. By not evolving in line with customer demands, brands can easily fall behind competitors who go the extra mile.

That extra mile can be many different things: instant finance at the point of sale, try before you buy, click and collect, same-day delivery … the list goes on.

Our research shows that better delivery options (36%) and consumer finance (36%) are the top two benefits luxury shoppers look for in an improved online experience. Brands who offer these features and impress their shoppers could enjoy a significant uplift in spend, and greater loyalty to their brand.

Any brand that listens to its customers and reacts to that feedback will be a clear winner – it really is that simple when it comes to providing a superior shopping experience for consumers.

The luxury fashion sector needs to evolve in line with changing customer behaviour, and this means providing more options for shoppers. The services that high street brands have been using to differentiate themselves will become more popular among luxury brands.

More opportunities for shoppers to be smart with their money – such as the ability to pay after delivery or use consumer credit – will show which luxury brands really are customer focused, and which are stuck in the past.

Implementing these types of features will help propel luxury brands forward to become more innovative and user-friendly. That will be a crucial part of luxury’s development into the ecommerce space.

Chapter 3

WHAT CONSUMERS WANT

What do luxury shoppers want from the brands they shop with? Innovation and a better online experience are top of the list.

It is not just younger luxury consumers who are embracing everything digital can offer – consultancy McKinsey & Co reports that nearly 80% of all luxury items are influenced by digital in some way, with consumers hitting at least one digital touchpoint during their purchasing journey.

Luxury consumers are clearly keen on digital and the services it enables – it is now such a normal part of consumers’ lives that many find it second nature to research online or buy on a smartphone. Luxury retailers, however, are not always providing the level of service expected in digital channels.

Research from payment provider Klarna shows luxury shoppers want more forward-thinking behaviour from their favourite brands, to reflect their own evolving behaviour. Almost half (48%) said that high street brands tend to be quicker to adapt to customer demand than luxury retailers.

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In addition, a similar number (51%) said they want the luxury brands they shop with to be seen as up to date and innovative. This tallies with McKinsey & Co data that shows luxury shoppers are likely to be more digital than most – 77% of them own more than one digital device, compared with an average for all shoppers of 35%.

Heritage and tradition

Innovation was ranked as more important than heritage and tradition. While these qualities are often seen by luxury brands as the most important characteristics to nurture, fewer consumers (44%) felt it was important to them than innovation.

Nearly half (48%) of the consumers surveyed said the online experience for luxury brands is not as strong as it is in store, highlighting again the opportunity for retailers to improve their online experience.

Later payment

This changing consumer attitude is tied to a greater desire for convenience and immediacy. More than a third (36%) of those surveyed said that better delivery options, such as same-day delivery, and the ability to try clothes before buying would significantly improve their online shopping experience.

Consumers’ openness to ideas such as “try before you buy” also highlights an opportunity to introduce new services using digital technologies that brands may not have considered before. It is these services that will help brands achieve the same level of service that consumers are used to in store.

Exclusivity

Consumers are used to retailers having access to shoppers’ preferences. As a result, the new generation of luxury shoppers expect a high level of targeting and anticipate item suggestions when shopping online. In the age of social media and instant gratification, luxury shoppers can quickly lose patience with slow-moving websites and poor user experience that requires them to hunt through various landing pages to find an item.

More than half of the shoppers surveyed had abandoned a purchase because it was too expensive, and 40% of respondents to the survey also said they would choose one luxury retailer over another if it offered the ability to pay for clothes after they had tried them on at home.

Payment innovation is likely to become just as important to luxury shoppers as it is to mid-market shoppers, and this does not change for high earners – almost a quarter of those earning more than £55,000 a year said they would be interested in paying for products after they had been delivered.

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Evolving service

The definition of what great customer service looks like is evolving. Brands must now consider ideas they may have previously dismissed – the rental market for luxury clothes, for instance, is likely to start chipping away at full-price sales in the not too distant future. US rental site Rent the Runway is now worth almost $800m (£599m) and there is a clear opportunity for luxury brands to explore the idea, particularly around dressing for events such as weddings or summer holidays, or for time-limited wardrobes such as maternity wear.

Consumers have changed dramatically, and will continue to do so. Luxury brands need to evolve in response. It is not enough to launch a mobile site, or invest in high quality imagery – brands also need a shift in mindset. They need to consider the digtially enabled services consumers might want, and invest in technology accordingly.

This digital mindset is being practiced with aplomb by disruptive newer brands, which is in turn helping to cement consumer expectations. While stores will always be a crucial part of luxury, more effort is needed to bring digital channels in line.

Chapter 4

THE PRESSURE TO REMAIN COMPETITIVE

This pressure on luxury retailers to keep up with changing digital times is significant – and likely to keep growing.

Their consumers and their competitors are continuing to evolve. And, as discussed in earlier chapters, even the biggest names in the industry are starting to engage proactively with digital channels.

As Emma Diddi Nihlén, global head of ecommerce at lingerie brand La Perla, says, luxury is changing irrevocably: “From a marketplace that was completely dictated by the terms of the brands, we finally have new, mass feedback channels from our customers, which have shifted the power to the consumer.

“It has forced the entire industry to try to redefine luxury strategies in the context of new digital values such as transparency, immediacy, convenience and price, which normally wouldn’t sit well within a luxury context.”

High-value customers are becoming more digitally influenced, demanding multichannel platforms and communications in the same forms used by mid-market brands. Almost a fifth of luxury sales will be completed online by 2025, equating to €74bn (£65bn).

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Childrensalon

Further pressure on brands is coming from their innovative peers. Yoox Net-a-Porter, for instance, has led the way in online luxury retail for nearly 20 years, and it shows no sign of complacency. In September 2017 the company reported selling a single £70,000 item via messaging app WhatsApp, and said it is using the platform to introduce a more informal, conversational way of selling and communicating with its most valuable customers. 

Gabriele Tazzari, director of research & development, said at the time: “Over a year ago our personal shopping team realised that their EIPs [extremely important people] were constantly on WhatsApp and preferred to receive product suggestions and complete transactions via the app, rather than to check their emails or log in to the service.

The retailer integrated the platform with its order management system, meaning the messaging system could be used as a notification system for order and shipping confirmations. It said fewer than 3% of users asked to be unsubscribed, and it is continuing to develop its use of the platform to help provide an immediate, highly personalised service for valuable customers. 

Luke Griffiths, UK general manager at payment provider Klarna, says retailers that do not act risk being overtaken by competitors: “By not evolving in line with customer demands, brands can easily fall by the wayside.”

Changing behaviour

Brands are increasingly starting to notice changing consumer behaviour in their own data. Luxury kidswear etailer Childrensalon, for intance, reports that 73% of mobile customer transactions come through its mobile website or iOS App, and it expects this number to continue to rise.

Director of communications at Childrensalon Arianna Vaccas says younger shoppers are driving much of this change: “Millennials and generation Z shoppers have and will continue to revolutionise shopping methods, and social communication.”

Caroline Henne, chief marketing officer at luxury marketplace Wolf & Badger, observes that these younger shoppers are also influencing the buying behaviour of older generations.

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Wolf & Badger

She says brands increasingly need to offer something extra to remain competitive: “Quality and customer service will be key. But that alone won’t be sufficient. Brands also need to work on a truly unique offering and a transparent value chain, as customers are getting more savvy.

“Convenience becomes the most important thing and millennials and Generation Z are the key target audience for so many services now, such as [food delivery app] Deliveroo,” she adds. “There is a similar movement within fashion. We see a lot of millennials come into our stores, to look and try things on – they understand the product personally and then convert to online purchasing. But they need this touch and feel, whereas Generation Z is more likely to orders lots online and simply return unwanted items.”

The spectre of Amazon

Meanwhile, the spectre of the ecommerce market leader looms large over the fashion industry. Amazon’s no-frills image means it is yet to attract large numbers of luxury shoppers, but it is a dangerous business to under-estimate. It is steadily increasing its fashion presence and at the same consumers continue to change – if they have the choice between buying a product they have lusted after with one click and free next-day delivery from the etailer, or from a brand’s beautifully designed website with expensive standard delivery, they will increasingly choose the former.

Even if a brand’s products are not available on the site, Amazon, along with mid-market pureplay peers such as Asos, continue to shape consumer expectations around delivery and convenience. Convenience-focused services such as free next-day delivery, or try-before-you-buy, could soon become the bare minimum expected for high-end brands who want to remain competitive.

Chapter 5

MAKING DIGITAL WORK FOR LUXURY

A luxury digital offer is very different to a mid-market proposition: high-quality content and seamless systems are essential.

The ideal digital offer differs for each brand, but it is becoming clear that some elements are hygiene factors in the luxury industry.

For a start, high-quality content is crucial for luxury brands.

“We use background videos and content that shows where products have come from, why you are investing and why we are different,” explains Jade Holland Cooper, founder of British tweed label Holland Cooper, which is sold in Harrods, independent retailers and in the brand’s own stores, as well as online. “Quality is absolutely crucial. We need to be constantly creating beautiful content that engages the customer.”

Luke Griffiths, UK general manager at Klarna agrees, stressing the importance of using content to match expectations of premium in-store experiences: “Because of the high level of service shoppers receive in store, the online process needs to create a similar sense of customisation. Luxury brands should be incorporating a range of images, or 360° videos of products, and content should be immaculate and targeted towards individual customers where possible.”

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Net-a-Porter’s editorial content 

Stephanie Dorfer, assistant editor at retail research agency Stylus, points out that luxury brands’ heritage is an advantage online: “Rather than viewing heritage as a barrier to digital success, luxury brands should look to leverage the rich narrative and storytelling this affords – something that mid-market brands might not have.”

Mobile focus

Ensuring a consistent and joined-up luxury brand experience across all touchpoints is also important, and mobile is key. At Holland Cooper, mobile makes up 80% of total traffic to its transactional website.

“The luxury experience is at every touchpoint digitally, so that the customer has the same beautiful experience wherever they are,” says Holland-Cooper.

“Maintaining luxury on mobile comes back to understanding what your customers need and want on the go. Offering functionality specific to the browsing environment is critical,” adds Clinton West, digital and marketing director at luxury childrenswear retailer Childrensalon.

Three ways to encourage a digital mindset

  1. Think about the customer: Every good business has the customer at its heart. Approach digital as a tool for creating a better customer experience, rather than as a something that is for the business alone and operates separately. 
  2. Weave digital into the business: In older luxury businesses, digital is sometimes siloed away from other areas. To ensure digital is involved in every decision made, it must be woven into the whole company and not separated out. Departments need to work together to benefit the whole.
  3. Research carefully and test selectively: Businesses can be nervous about digital because of the high cost of failure. To combat this, retailers should research widely and keep on top of the latest innovations, but only experiment with those best suited to the customer.

Physical stores remain important in luxury, and linking online and offline can help improve the overall business.

“Multichannel retailers can capture insightful quantitative and qualitative data in store, and vice versa [for example, combining in-store observations with data from online to build a fuller customer profile],” says West. “Having a symbiotic relationship between digital and store is vital to ensure you are talking to that customer with the correct message.”

Impeccable service

A digital luxury offer should reflect luxury’s strengths: impeccable customer service and personalisation. Ecommerce leaders must ensure innovation centres around the benefits to the consumer, to create a seamless and engaging experience.

In digitally native businesses this may come naturally, but for more traditional retailers, legacy business structures can be a hindrance.

“The traditional structures of these organisations do not promote an omnichannel outlook,” says Antonio Achille, senior partner at McKinsey & Co, speaking at the Luxury Law summit in May 2018. “Often companies are organised around technology or channel rather than consumer needs.”

Overcoming this requires a holistic view of digital and physical that synchronises the business so that everything is considered together.

“All of our tech and systems are built around our customers, providing them with the best possible experience – whether it is a streamlined logistics tool, or seamless web experiences,” notes West. “In a digital world, with an abundance of data and reach, it is easy to lose the personal touch with a customer.”

Holland Cooper agrees, adding that a new mindset is needed for luxury in the digital age: “We look at technology for our customer, what they want and what is applicable for us. It’s about making sure that you’re lining up technology with what the customer wants.”

Three essentials for an online proposition

  1. Content: The strength of luxury lies in history and heritage. Embracing quality content and mixing mediums – including photography, 360º images and videos – allows the effective communication of a brand’s heritage and value.
  2. Consistency: Luxury offers must link seamlessly across all digital touchpoints. Content, customer service and experience should be universally excellent, so a customer can move from one platform to the next, digital, mobile or in store, and enjoy a continuous interaction. 
  3. Ease: Premium brands should create a seamless journey online, as they would in store, be it through swift payment and delivery, personalisation or instant, excellent customer service. Technology and design should revolve around making the experience friction free.
Chapter 6

FUTURE: INNOVATION AND TRADITIONALISM

Luxury retailing in the future will look very different to today’s offer. 

For 14% of consumers aged 18 to 24, their first luxury purchasing experience is online, Bain & Co and Farfetch have reported. Even with all the change experienced so far, the introduction of a generation that has grown up with a digital-first mindset means further change is on the horizon. 

The channel in which these young consumers start to shop is where they are likely to continue, expecting a digital shopping experience that is convenient, personal and premium.

“The luxury fashion sector will have to evolve in line with changing customer behaviour, and this will result in increased options for shoppers,” says Luke Griffiths, UK general manager at Klarna. “The services high street brands have used to differentiate themselves will become more popular among luxury brands, with appropriate upscaling.”

Emerging technologies will play a key role in creating those options and in reshaping the luxury service experience for digitally connected customers. So, too, will a greater interplay of the physical and digital.

Service reimagined

“Luxury customer service will be shaped by the future interfaces consumers use to make online purchases,” says Kathryn Bishop, deputy foresight editor at trend forecaster The Future Laboratory’s LS:N Global. If luxury brands are to replicate in‐store levels of service in a digital settling, they will have to offer personal shopping wherever the consumer is.

Bishop says that artificial intelligence‐driven voice platforms are at the forefront of the new relationship with customers, encouraging a more conversational relationship. In the future, they will become at‐home personal shoppers, via voice-enabled devices such as Google Home or Amazon Echo, which are able to alert consumers to new collections and deliver efficient sales and services. The technology also offers luxury ecommerce an avenue for growth.

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Voice technology, Google Home

“Our [future] vision is the possibility for brands to create their own voice devices that offer a luxury lifestyle – a future concierge of sorts,” says Bishop. In this scenario, a voice device would become both a personal luxury adviser and a retail space where consumers can instantly shop through or book restaurants as recommended by the brand.

“Consumers will trust it because they have long bought into the brand and trust what it offers,” she adds.

Talking points

With voice technologies yet to reach that level of sophistication, brands are instead testing the conversational waters elsewhere. Last year, Louis Vuitton launched its artificial intelligence-powered chatbot during the busy US holiday shopping season. The Louis Vuitton Virtual Advisor offered an advanced search experience via Facebook Messenger, enabling users to find out more about the product range or see gift suggestions.

Once smart devices integrate intuitive, haptic technology and projection mapping, luxury brands will be able to heighten the ecommerce experience through the screen. Haptic technology, for example, will allow shoppers to run a finger over the screen to “feel” the leather of a bag or texture of a winter coat, while projections will allow shoppers to see how shoes or different cuts of clothing look on the body.

Augmented reality technology, such as Yoox’s Try, Share and Shop experience, already allows shoppers to virtually try on accessories before buying. The technology is increasingly being used for immersive brand storytelling, including by Burberry and Gucci.

“Luxury-sector businesses need to envelop the consumer in the ambiance of their brand with rich storytelling,” notes Lisa Montague, CEO of Aspinal of London. “The theatre in retail stores must be transmitted in a complementary way online – the ongoing challenge is to tune up both with authenticity.”

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Aspinal of London

Channel agnostic

Luxury consumers move easily across channels. “A big question for luxury is how to create an exclusive experience throughout the cross‐channel experience,” says Richard Wolff, managing director at strategy consultancy Javelin Group. “That will happen through recognising the customer and effectively turning the little black book in old‐style luxury and department store retail into a much more sophisticated, ‘phygital’ [physical and digital], clienteling experience.”

Harvey Nichols uses the Hero app to allow in‐store staff to chat to customers shopping on its digital channels, and provide advice in a WhatsApp-style messaging environment. They can also use video streaming to demonstrate the fit or size of a product. The objective is to leverage the downtime of store staff and use their knowledge to create a digital shopping experience for connected luxury shoppers. Customers unable to make it into the store can use the app to access style advice from store staff. For those planning a store visit, the app enables them to check product availability beforehand and even make an appointment to meet the sales staff when they arrive.

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Louis Vuitton

This level of service is only possible when brands and retailers invest in the systems and processes that give them a single view of the customer, visibility on stock availability and personalisation technologies. Alongside personal shopping, improved systems also open the door to greater choice in other parts of the shopping journey, such as click‐and‐collect.

“In future, consumers might be given a choice between convenience if they’re in a hurry and personal service when they collect,” says Wolff. “It’s a way for luxury brands and retailers to deliver a different and premium experience, and offer choice.”

Similarly, Klarna research found that a third of luxury shoppers consider choice in delivery options and consumer financing important for an improved online experience.

“Brands who adopt these features and impress their shoppers could see a significant uplift in spend, and more loyalty to their brand,” says Griffiths.

As Aspinal of London’s Montague notes: “In the fashion and creative industries, we owe it to ourselves to continually push innovation or die. Luxury is a sector of the industry – the same rules apply.”

Luxury’s digital revolution

Produced By Rebecca Thomson

Contributors Harriet Brown, Kaisha Langton and Angela Rumsey
Design by Alison Fisher
Illustrations by Cajsa Holgersson
Sub editing by Samantha Warrington
Sponsorship Johnnie Norton

Published in association with Klarna