Bloomberg Intelligence: Balancing tradition and digital in the luxury goods market

This analysis is by Bloomberg Intelligence analysts Deborah Aitken and Maja Rakic. It first appeared on the Bloomberg Terminal.

How can an industry steeped in heritage, craft and tradition use digital platforms to its advantage? The luxury industry is in transition, as just half of major brands have complete browse-to-buy services, according to Bloomberg Intelligence analyst Deborah Aitken. This Bloomberg Intelligence report looks at how and why luxury brands would benefit from a digital strategy.


Luxury goods must balance tradition with technology for success

  • Digital luxury goods sales are booming and expected to rise 9% a year to 2020, according to Euromonitor.
  • The segment will comprise 10% of the market by then, or $42 billion, versus the 6% share expected in 2015.
  • Still, digital’s 2016 growth is expected to be three times that of overall luxury.
  • Entry to digital is vital as luxury shoppers have little time and are tech savvy, and many aspiring customers don’t have access to luxury shops.

Before leaving home, tourists decide on 75% of luxury purchases

  • Luxury-goods sales can be increased by boosting a tourist’s brand awareness throughout his or her entire journey.
  • According to research by Global Blue, 75% of traveler purchasing decisions are made before the journey even starts, with shoppers investigating brands via mobile applications, search engines and social media.
  • As well as boosting online sales, an Internet presence may help local stores sell a brand to tourists. Demand for online shopping grew 16% in China in 2015 compared with a year earlier.

Terrorist events could speed luxury sales’ digital transition

  • The luxury goods digital sales model has room to maneuver if some clients choose to avoid major cities amid heightened terror alerts, in preference for the safety of home.
  • However, just half of major brands have complete browse-to-buy online services.
  • Burberry is a leader in online luxury goods sales, with digital accounting for more than 10% of its retail sales.
  • Other peers include Tiffany at 6%, Cucinelli at 5% and Prada below 1%.
  • Yoox Net-A-Porter is the leading online luxury retailer, delivering to over 180 countries.

L’Oreal, Lauder sales up as perfumes favored online vs. in-store

  • U.S. consumers are increasingly reluctant to buy women’s fragrances in store, with 2015 volume down 7%, based on IRI data.
  • By contrast, online beauty-product sales are up more than 10% a year, according to eMarketer.
  • The trend for sending consumers free samples to try at home, combined with convenient personal delivery and competitive pricing, adds significant appeal to the online model. Luxury brands such as L’Oreal and Estée Lauder, which have a larger digital presence, could stand to gain the most.
  • Estée Lauder has opened 100 digital brand locations globally, on both its own and retailer sites.
  • Its fragrance sales rose 12% in 3Q, buoyed by digital and social media.
  • In 3Q, L’Oreal reported that 50% of its group growth came from online, which is still just 4.6% of group sales.

Read next:  How to market a luxury brand in the digital age