2015 was a hugely challenging year for the global luxury goods industry, particularly in formerly fast growing emerging markets. Indeed, operating conditions for luxury brands have never been more challenging. On the one side, economic and currency volatility in key markets is hampering demand. On the other, a new generation of wearable electronics and other ‘smart’ technology, as well as a fresh wave of sophisticated and savvy consumers across all corners of the globe, are ramping up competition for share of wallet.
This connectivity is driving new opportunities in digital innovation, with the internet and social media reaching new frontiers. Formerly conservative luxury brands are busy rebooting strategies and are using this new found digital platform to etch out growth, while modernisers are eying innovation as the way out of trouble. With many young people shunning traditional luxury and looking further toward the experience of luxury, the stakes are high.
Euromonitor International will be joining WWD at its 2016 Digital Forum taking place in London on 20 April 2016. This conference will bring together 200+ digital marketers for a full day of networking and thought leadership to addresses some of the most critical challenges and opportunities facing today’s fashion, beauty, retailing and luxury industries and look at how the latest creative solutions in social, mobile, and e-commerce from around the world fit into today’s world.
Speakers at this year’s conference will include Amee Chande of Alibaba Group, Sienne Veit from John Lewis, Moritz Hahn of Zalando, Maria Hatzistefanis from Rodial Skincare, Juliet Warkentin from Amazon Fashion EU and myriad others.
Here, just before the WWD Digital Forum 2016 kicks off, Euromonitor International investigates the state of the market now, and its future and the impact that digital innovation is having on luxury goods.
A new surge in digital innovation in luxury goods
Innovation is a buzzword across all fmcg industries at the moment, and luxury goods is by no means a stranger to this. Indeed, 2015 started with a bang in terms of wearable electronics as the Apple Watch was unveiled. According to our latest data, global sales of wearable electronics are expected to grow at a phenomenal speed. At the same time, thanks to the merger of Net-a-Porter and Yoox in 2015, the stakes have never been higher in luxury goods e-commerce. Indeed, global online sales of luxury goods are booming and are widely seen as one of the industry’s key battlegrounds of the next five years. Global sales of online luxury reached almost US$25 billion in 2015, accounting for just over 7% of all sales. While, at first glance, this may seem comparatively small, this latter figure is up from 3% just 10 years ago, representing a massive increase of 134% on the 2005 sales figure. From virtual stores to live streaming of fashion shows, luxury brands have driven up investment in digital technology, with social media platforms becoming much higher profile.
With such impressive rates of growth, it could only be a matter of time before digital sales catch up with those of physical stores. According to our latest data, sales of online luxury are set to increase by an additional 50% in actual terms over the next five years, to account for almost 10% of all luxury goods sales. Indeed, the number of luxury consumers shopping online is soaring by the month, and affordable luxury goods will be increasingly on their radar.
Over 60-year-olds are the fastest-growing demographic for internet connectivity, and will be a key target of online marketing. This is a major uptick for luxury e-commerce: according to our latest income data, while people in their 40s overall will continue to dominate wealth, the over 65-year-old age group will be the wealthiest overall by 2030.
Luxury fashion houses have been beefing up their in-house technology capabilities. It is significant, for example, that LVMH recently appointed a senior executive from technology giant Apple as its chief digital officer. At retail level, there is also a growing fusion of online and physical platforms as leading brands (such as Burberry) bring the functionality of the internet directly into their stores.
Shifting boundaries in ‘smart’ luxury devices
Most of the leading luxury fashion brands have been exploring ways to embed technology into their watches, apparel, accessories and jewellery. Some are doing it openly, such as Ralph Lauren and Tag Heuer. Others are doing it more behind the scenes. All manner of products are coming to market, from handbags with built in battery chargers to designer dresses with live twitter feeds.
According to the latest data from Euromonitor International, global sales of wearable electronics are on course to hit US$29 billion in 2016, more than doubling their retail value of 2015. And there is plenty more growth where that came from. What is interesting is that autonomous wearable electronics have now overtaken passive wearable electronics in terms of value sales, as the likes of Apple and Samsung are muscling in on Fitbit’s former dominance.
However, the ‘smart’ luxury industry does not stop at personal luxury goods; with burgeoning demand for all things connected, we expect to see an uptick in the development of other high-end smart devices for the home, from washing machines and refrigerators to sophisticated cooking devices and even personal robots. Just as leading luxury brands have followed Apple into smart watches so they will want to cash in on luxury smart home trends too.
Luxury luggage with built-in technology is also set to become increasingly visible. Suitcases and carry-on luggage with functionality, such as fingerprint locking, built-in global-tracking, Bluetooth speakers, self-weighing scales, SIM cards and Wi-Fi hotspots will be an important growth area within personal accessories as luxury travel goods manufacturers look to cash in on global growth in smartphone and app usage. As luxury goods and high-end travel go hand in hand, this is an obvious match made in heaven.
Bricks and mortar retailers ramp up in-store digital innovation to create ‘phygital’ landscapes
Physical and digital shopping are starting to merge as retailers bring internet functionality into the bricks and mortar experience. We are increasingly seeing a blurring of online and bricks and mortar platforms as big-name brands and companies such as Burberry, McQ and LVMH look to bring the functionality of the internet into their stores. The focus will be on connecting with consumers in a more personalised way, such as using social media as well as apps and pop-up messages on smartphones. We will also see advances in augmented reality innovations; for example, so-called ‘magic mirrors’ with high-definition cameras that transport shoppers to catwalks, or advise them on which apparel, accessories and beauty products they should buy.
Google partnership with Burberry
M-commerce set to be the fastest growing segment of luxury internet retailing
It is striking that even in markets where the middle class is squeezed by economic pressures, such as Brazil, people are not giving up their smartphones. Yet, mobile internet retailing is still only scratching the surface of its value potential. We predict a sharp rise in luxury m-commerce as the year develops, fuelled by growth in so-called ‘shoppable ads’, whereby consumers can buy directly from advertisements viewed on their mobile devices.
Ownership of smartphones and broadband internet is the norm among middle-class households in developed and emerging markets alike. It has helped trigger a revolution in consumers’ expectations, and created myriad strategic challenges for apparel and footwear.
Key Luxury Goods Markets: Possession of Broadband and Mobile Phones in 2014
Source: Euromonitor International
Similarly, the growth in m-commerce is also paving the way for brands and retailers to offer more in terms of customer service and we expect to see more growth in brands and retailers such as luxury department store Harvey Nichols offering luxury reward programmes.
Like many brands in the retail industry, luxury retailers are having to adapt to the digitalisation of consumer lifestyles. Smartphones are ubiquitous; also, the functionality of apps and social media platforms is getting more sophisticated by the month. As a result, device-driven loyalty schemes and reward programmes will become increasingly visible and are just the beginning of the possibilities in terms of customer service for luxury consumers.
Register to attend the event: http://bit.ly/wwdldn