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3 Online Luxury Market Surprises

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The selling of luxury goods online has proved to be a boon to counteract slowing economies, particularly since it’s not dependent on any particular region. All that is required is Internet accessibility. That enables people anywhere in the world in search of high-end products, from designer bags to jewelry, to find a broad selection—also globally.

The online marketplace, though, of course is not without its own risks—and some of those risks can be surprising. Investors need to keep abreast of the hazards to luxury firms, and the surprises bubbling to the surface, as the online luxury market matures.

Here are three of the most recent developments.

1. Yoox Buys Net-a-Porter

Yoox SpA has agreed to buy Cie. Financiere Richemont SA’s Net-a-Porter business, which will make the online retail luxury goods business the largest in the world. The new entity, which will be called Yoox Net-a-Porter Group, will corner about 15% of the global online luxury market, according to Italian luxury association Altagamma, with two million customers and 1.3 billion euros’ worth of business.

Yoox runs the e-commerce sites for numerous luxury brands that range from Armani to Ermenegildo Zegna. The deal teams Yoox founder Federico Marchetti with Net-a-Porter founder Natalie Massenet, offering the potential for exponential expansion in the high-end fashion business.

Some may be surprised to hear of the agreement, since just days before, Amazon.com denied it had had any intention of acquiring the online luxury retailer. Reports in Women’s Wear Daily had said Amazon was “in talks” to acquire Net-a-Porter itself, and said such a move would be Amazon’s largest.

While Amazon already owns online shoe firm Zappos and the boutique ShopBop, it has not been as successful at dominating the fashion sector as it has been in books and electronics. In 2012 the online retailer declared its intention to enter the world of high-end fashion, saying that it would keep “the designer brands … happy,” according to a New York Times report, with the prices it would charge. But so far that hasn’t happened, although Amazon certainly sells a huge volume of clothing. However, its reputation still is more that of a shark than a supporter.

2. Chanel Will Finally Go Online

Chanel has been a longtime holdout against selling anything other than its makeup, fragrances and sunglasses online (and that’s only because those products are licensed to other companies), but the luxury retailer has finally decided to take the plunge. Women’s Wear Daily reported that Bruno Pavlovsky, Chanel’s president of fashion, announced that its online presence could go live at the end of 2016. Why? Customer demand.

According to the McKinsey paper “Luxury shopping in the digital age,” 75% of luxury shoppers use smartphones, and 50% use tablets. And more than half of them rely on mobile searches to find luxury goods when they’re not tethered to their desktop computers. “Digital is essential, brands must go mobile,” McKinsey said.

And it’s not just online sales that are affected by a company’s Web presence, McKinsey said. “[E]-commerce is only one aspect of the digital opportunity. Our research found that an additional 40% of luxury purchases are in some way influenced by consumers’ digital experience—for example, through online research of an item that is subsequently bought offline, or social-media ‘buzz’ that leads to an in-store purchase.”

For Chanel, it’s about time. According to a report from Bain & Co., the online luxury market currently accounts for 5% of all sales—but it’s grown by a factor of 12 in the last 11 years. And some 35% of luxury brands do not sell online at all.

Of course, there’s a learning curve to be conquered when going online. Bain said, “some [individual brands] are still struggling to find the right formula,” particularly since “[w]hen it comes to a physical shopping experience, consumers prefer a mono-brand environment, which still makes up more than 50% of the market. Conversely, online, they love variety and assortment and prefer buying in a multi-brand e-environment.”

3. Online Jewelry Sales Ballooning in India

Tradition has dictated that Indian families visit jewelry stores in person, dealers they know and trust, to buy the gold and other precious items that are so much a part of India’s culture. But that’s changing as consumers everywhere increasingly go online to buy—well, everything.

Currently online sales for India’s largest diamond and gold jewelry retailer, Gitanjali Gems Ltd., is around 1% of the company’s business. However, the firm expects that within two to three years, that will rise to around 20%. Other firms are also responding to increasing Internet interest by extending such services as allowing customers to have jewelry shipped to them on approval—thus countering the need to see and touch the product before buying.

Relaxed regulations have helped; since the government loosened constraints governing imports on gold bars and coins, Gartner Inc. estimated in reports that the online retail market in India in 2015 will hit about $6 billion. CLSA Asia Pacific Markets has estimated in reports that by 2018, it could be three and a half times that high, at $22 billion.

While many of the jewelers taking advantage of online sales outlets such as Amazon. eBay, Flipkart and Jewelsouk are gaining access to buyers who are not necessarily typical luxury goods shoppers, Bangalore-based online jeweler BlueStone has estimated in reports that the online jewelry market could surge to $2.5 billion within the next 5–10 years. The picture is so rosy that Ratan Tata, former chairman of the Tata group, has invested in BlueStone.