April 24, 2024


Welcome to World technology

Luxury shoppers flock online, but stores aren’t going out of style

Luxury consumers shopped online more than ever in the past year, forced by coronavirus-related restrictions to stay away from city-center stores and airport duty-free concessions. But while the shift toward e-commerce might seem to herald the dominance of the digital, the physical store could still have a role to play in the future of luxury.

Since the coronavirus pandemic began its spread across the globe a year ago, luxury-goods stores have had to roll down their shutters for a good part of the year as governments attempt to limit contagions. International travel, too, has been curtailed on a massive scale–and with it, the big business of luxury travel retail.


Conversely, e-commerce sales have skyrocketed, with many if not most brands reporting increases in online revenue.

Online sales at Gucci’s parent company Kering, for example, more than doubled in the third quarter, the last period it reported on. They rose by two-thirds at German premium-apparel company Hugo Boss AG in the same period, and increased by triple figures at Swiss group Cie. Financière Richemont SA in the second half of its fiscal year. As a whole, online luxury sales almost doubled in 2020 to account for 23% of the market, Bain & Company said in a recent report with Italian trade association Altagamma.

Of course, the context for such soaring e-commerce growth is a pandemic-stricken year that saw the luxury sector contract by some 20% overall. But even when normality returns, the trend toward a greater prevalence of e-commerce looks indelible. Bain now sees online channels accounting for a third of total luxury sales by 2025, from 12% in 2019.


With the effects of the pandemic continuing to be felt in 2021, RBC Capital Markets analyst Piral Dadhania doesn’t expect online penetration to take a step back this year. “There’s likely to be inertia in terms of consumer behavior in returning to stores before people have vaccines,” he said.

Some players have proved better prepared than others for the rapid acceleration in online sales. Big fish such as French conglomerate LVMH Moët Hennessy Louis Vuitton SA have leveraged their size and the strength of their brands to weather the pandemic well, while smaller players, especially those lacking a strong online presence and overexposed to the more tourist-reliant European markets, have been left flailing.

Louis Vuitton boutique at the opening of Beverly Center shopping mall during the coronavirus pandemic in Los Angeles on May 29, 2020. (AP Photo/Damian Dovarganes)

Italian premium-footwear maker Tod’s SpA, for example, is expected to post some of the sector’s most discouraging earnings figures for 2020; preliminary results showed its online sales rose, but not enough to temper an overall drop of close to a third on the year. Tod’s compatriot Salvatore Ferragamo SpA has also struggled this year, with Jefferies analysts blaming in part a weak online offering. “For the brand to remain relevant in the medium term, something needs to give,” the bank said in a note.


“The pandemic has fast-forwarded changes that were already happening in the online world,” said Francesca DiPasquantonio, Deutsche Bank’s head of global luxury research. “Companies that were already better positioned and had invested [in the online channel] since a long way back, they’ve found themselves in the best place to benefit from this shift. Companies that have neglected this channel find it hard to catch up,” she said.

On the other hand, greater consumer focus on e-commerce could be good news for smaller brands. “You don’t need to be big to be visible [online],” said Federica Lovato, one of the authors of the Bain report. Concessions on online retail platforms such as Alibaba Group Holding Ltd’s Tmall in China, or Farfetch Ltd., could offer those brands a way to reach new customer groups without the significant capital expenditure needed to open new stores.

Such trends might seem to point to an inexorable march toward the online world, and concurrently a steady abandonment of bricks-and-mortar stores. In mass-market fashion, this may well be the case. Spanish retail giant Inditex last year announced store closures amounting to 16% of its global network, while in the U.K, the recent acquisitions of Debenhams Retail Ltd. and Arcadia brands by online retailers Boohoo Group PLC and ASOS PLC, respectively, notably didn’t include the brands’ physical stores.


But in luxury, physical stores play a more complicated role, and are perhaps less dispensable.

The difference between the luxury and mass-market sectors isn’t just the product itself, but how it is presented, Ms. DiPasquantonio said. “The selling ceremony [in luxury] is premium,” she said, pointing as an example to clients being given a glass of champagne in certain stores. “When the world goes back to normal, the shopping experience in a physical store could remain very valuable,” she said.

At-home shopping–where the brand physically goes to the consumer’s home with a selection of products–could grow, but will remain exclusive to the wealthiest clients, while stores could develop into places where consumers can “experience the brand,” through events and exhibitions, the Deutsche Bank analyst added.

Nevertheless, the future of physical stores remains difficult to predict, according to Mr. Dadhania of RBC. In certain markets such as Europe, many brands’ store network isn’t commensurate with the local demand, and will have to be reduced, he said. Conversely, there may be net store openings in Asia, where demand continues to grow.


In any case, brands aren’t likely to make hasty decisions on store closures, Mr. Dadhania said. Luxury stores require much greater capital expenditure than normal retail outlets, and tend to be located in sought-after and hard-to-obtain premises in areas such as London’s Bond Street or the Champs Elysees in Paris. The glamour of these places is part of the driver of luxury spend. Consumers traveling abroad to European cities such as Paris or Milan will often make a beeline for the brand store associated with that city, Ms. DiPasquantonio said. Travel retail will likely remain squeezed in the short term, but analysts expect it to recover to pre-pandemic levels before too long.

As more consumers see the appeal of online shopping, brands will need to adapt for a more digital world if they want to stay competitive. But when it comes to luxury, it seems physical stores won’t be going out of style just yet.