Covid startled luxury brands. What comes next could be worse

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The biggest headlines in fashion lately have not been about catwalk shows, fashion weeks, designers or collections. They’ve been about something luxury goods firms have long been ambivalent about – the internet. Swiss luxury conglomerate Richemont and Alibaba last month invested $1.1 billion (£820 million) in the online luxury retailer Farfetch and its new Chinese marketplace to drive sales in its biggest and fastest growing market.
A few days later LVMH, the world’s largest luxury group, whose labels include Fendi, Dior and Loewe, named Louis Vuitton vice president Michael David its first “chief omnichannel” – online and offline sales – director. The move was part of a shake up of digital executives at the conglomerate following the decision of chief digital officer Ian Rogers to step aside to become chief experience officer at the cryptocurrency startup Ledger. Elsewhere German luxury e-commerce platform Mytheresa filed to float in the US and Yoox Net-a-Porter (YNAP) appointed Geoffroy Lefebvre, formerly group digital distribution director at parent company Richemont, to succeed Federico Marchetti as its CEO.

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Why the sudden flurry of digital activity? Covid-19 has fast forwarded fashion into a digital future that it had been reluctant to embrace. As shops and factories closed and catwalk shows and fashion weeks were cancelled, sales at bricks and mortar stores have slumped by double digits in every major market, with devastating impact. Many of the brands and retailers that once filled the high streets and malls are dying. Barneys New York, Neiman Marcus, Lord & Taylor, John Varvatos, Brooks Bros, Diane von Furstenberg, TopShop, J Crew, Oasis, Debenhams and True Religion, to name just a few, have either tipped into bankruptcy or teeter on the brink.
Brands have had no choice but ramp up their digital offerings fast – and it has worked. Online luxury sales doubled this year, according to Italian luxury brands committee Altagamma, even as overall revenues declined by 23 per cent. The Kering conglomerate, which includes Gucci, Saint Laurent and Bottega Veneta, has seen its e-commerce revenue more than double year-on-year. The market value of Farfetch has risen more than four fold since the start of the year to reach $18.6bn.
Jonathan Siboni, of Paris-based data intelligence firm Luxurynsight, estimates the overall share of global online fashion sales has doubled to 22 per cent since March. And that’s just beginning. With Chinese consumers, who are forecast to account for nearly half of all luxury goods purchases by 2025, turning increasingly to the likes of Alibaba or brands’ own website because they cannot travel overseas to buy as they used to, the global figure is likely to hit 25 per cent by 2022.
Fashion must follow the customer or die, which means it has to go faster and deeper into the digital world. Michael David is expected to speed up the integration of all LVMH’s brands onto a single, global technology platform to make it easier to service customers who shop at many of its different brands. Brands will push into new online sectors. Louis Vuitton has begun a partnership with video games developer Riot Games, producing a collection of basics inspired by the online multiplayer game League of Legends, which takes advantage of young audiences’ growing desire to cultivate unique virtual personas.

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Western brands will continue to look to China, not simply to expand as Richemont and Farfetch are trying to do with Alibaba, but also to learn from Chinese retailers. These are often more advanced than their western counterparts because, thanks to the rapid economic and technological reforms of the past two decades, most Chinese consumers regardless of their age, have developed a taste for shopping online first.
The push online creates new opportunities for existing and new players. Established multi-brand retailers, such as YNAP, have an essential role as “playgrounds, providing inspiration and offering a journey of discovery”, according to management consultancy Boston Consulting Group (BCG). Personal shopping app The Yes, e-commerce site Ssense, designer site Luisaviaroma and luxury streetwear platform End Clothing could gain a larger market share.
The more innovative apps will become targets for consolidation, BCG says. Deep pocketed conglomerates that tightly control their production and sales and, therefore price, and can leverage economies of scale, will thrive. But Luca Solca, an analyst at Bernstein, warns that some medium-sized, privately-owned brands might get squeezed. “Do Tod’s and Ferragamo have the money they’ll need to invest to take on Louis Vuitton?” he asks.
So much for clicks. The shift online will mean some of the bricks and mortar outposts of the brands that survived the crisis will die, says Solca. “There will be fewer stores in many of the smaller cities across the world,” he says. That’s bad for mall operators and landlords. “Many more department stores are going to go bankrupt, too,” Solca predicts. Part of the problem for department stores is that to succeed online brands need to reduce their exposure to wholesalers, since these retailers can discount merchandise at any time, which makes it harder for brands to maintain full price online.

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But branded boutiques will survive and in many cases thrive, predicts Siboni. “They’re not dead and are never going to die for a very simple reason. Luxury is not a commodity that you can get as easily or perhaps more easily online. It’s about desire and emotion. Stores will always be at the centre of developing this link between the consumer and the brand,” he says.
A recent study by consultants Bain confirms that 50 per cent of fashion buyers value personal, face to face relationships with sales consultants. Federico Marchetti, who remains chairman of YNAP, does not need Bain to tell him that. He can see it with his own eyes. “In Milan when they opened physical stores at the end of November after lockdown, there were queues in front of the stores on Cyber Monday. People love to shop in the old ways as much as they love to shop in the new ways that YNAP has pioneered.”
But with brands’ own online offerings getting better and better – Ralph Lauren and Dior are among many using AI and video to offer shoppers tours of their stores on their mobile phones – physical stores are going to have to work far harder to attract consumers. LVMH’s Rogers says Fendi is leading the way. “Serge Brunschwig (Fendi’s CEO) said to me recently: ‘What we need is not necessarily more square footage but more people and better tools for them to talk to customers at a distance’. I agree.”
Rogers argues new stores and existing ones must even more become “a temple to the culture of the brand” – but not one where customers genuflect at the “haultar” of the label, as in the past. Rather, they must be places “to get involved, to discover, interact, and buy. They will have to have a broadcast studio to livestream events and collections to bring the store to the consumer. They must have a space for pop up and exhibitions.”
Supporting these new flagships will be “more people both in store and out, armed with the absolute best tools with which to talk to their customers over whatever channel they prefer,” says Rogers. “They’re going to be talking to customers, not only in stores but over WhatsApp, Instagram, FaceTime, WeChat, whatever comes tomorrow.” Siboni describes the new approach as “magic plus logic”.
One thing Rogers, Siboni and Marchetti agree on is that, outside beauty, Amazon is not going to be a part of the digital future of fashion. The Seattle-based giant is redoubling its efforts to break into luxury after several false starts, hiring Vogue’s former creative director Sally Singer as head of fashion direction. It has had some success luring some smaller or mid-market brands but that is where it will – and should – stop, says Siboni. “Amazon kills the personality of a brand. There’s no personality, no emotion in Amazon. No matter how much volume you make, you sell your soul to Amazon.”
Ian Rogers was one of the speakers at WIRED Live – the inspirational festival bringing the WIRED brand to life. Find out more about future WIRED Events here
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