In a time of increasing pressure for the retail industry, luxury retailers have been somewhat less affected by store closures and shrinking margins but they have not been immune to the exponential growth of online shopping. Kering’s latest move to strengthen their digital positioning and take control of distribution reflects the wave of continued retailer investment into e-commerce but will it be enough to secure their profits in the long run?
In 2018, the group’s total online sales, including third-party distribution, accounted for 9.4% of Kering’s total revenues but web sales through its own brand websites and online concessions were only half that share, at 4.7% of revenue. By focusing on its own branded platforms to sell products, Kering’s strategy follows that of Prada who has also scaled back on third-party distribution, allowing better control over merchandise pricing and customer data.
The big luxury retail players have been relatively slow to invest in e-commerce but with a recent Bain & Co. Luxury Study forecasting e-commerce to reach 25% of sales by 2025, the move is certainly better late than never. Online luxury shopping continued to accelerate in 2018, currently representing 10% of all luxury sales, but there’s a significant driver of this growth that the new distribution strategy may not answer. Young consumers.
According to Bain & Co., Millennials and Generation Z accounted for 47% of luxury consumers in 2018, but their contribution to the market has been growing in significance with almost all of the 2018 market growth attributed to young consumers, compared to 85% in 2017. Therefore control of pricing and distribution may strengthen margins but how can Kering adapt to the preference of younger shoppers?
Younger consumers are increasingly more aware of their impact, with a Drapers report on Gen-Z and Millennial consumers finding that almost half of shoppers surveyed had abandoned a purchase because a brand or retailer did not fit with their values. Consider the impact of a recent ill-thought Dolce & Gabbana campaign and the subsequent global outcry in response, with many young consumers and celebrities calling for a boycott of their products and several retailers subsequently removing them from their platforms.
Equality is of significant importance to younger consumers, particularly consumers aged under 24, with Drapers reporting 82.7% of shoppers in this age bracket ranking equality as important, not just limited to gender equality, but also racism, discrimination against LGBT+ and disabled people. Being vocal on these topics may have been behind the growing success of brands such as Levi’s, a long-term supporter of LGBT+ equality, who recently returned to the stock exchange, going public earlier this year and raising $623 million in the process.
Taking more ownership of the end-to-end process will give Kering more control but ultimately, also more accountability and responsibility for their global footprint. Wider awareness of the impact of fashion manufacturing has resulted in a steady upward trend in sustainable fashion with Google searches for the term “sustainable fashion brands” rocketing by 450% in the U.K. since January 2016. A report by McKinsey & Co. argued that the end of fast-fashion was approaching, amid a growing market from younger users for refurbished or resold clothes, with Gen-Z turning to sourcing second-hand and retro clothes from charity shops, vintage wholesalers and mobile apps like Depop.
“Young people are increasingly connected to the circular economy and are looking for more opportunities to behave in a more sustainable way,” says Isabelle Szmigin, professor of marketing at Birmingham University. Earlier this month, Kering launched a new digital platform to boost interaction with its Environmental Profit and Loss (EP&L) account but the Drapers report highlighted that large retailers may have more of an uphill battle when it comes to communicating their efforts. For instance, few consumers may not guess that Primark’s jeans are among the most sustainable available on the high street and luxury retailers, historically associated with more controversial industries like fur and diamonds, may struggle to convince young consumers of any immediate and authentic change.
Mobile And Social
With the majority of U.K. citizens owning a smartphone, it’s no surprise that Gen-Z and Millennials are avid users of mobile and social channels. Most luxury retailers already have a strong mobile web proposition but mobile apps are another channel worth exploring with Drapers finding over 70% of respondents regularly purchase via mobile apps.
Beating Kering to the finish line, LVMH launched their own brand e-commerce site 24 Sevres back in 2017, and although it’s recently been renamed to 24S in support of international expansion, there was no mention of plans for development of the 24S mobile app which is currently languishing on 2.6 stars with less than 10 ratings on the U.K AppStore.
Mobile app usage doesn’t have to be solely focused on completing transactions though. Brands can take advantage of this channel in a multitude of ways aside from the end purchase. Digital natives may use apps to find information on deals and marketing promotions, receiving alerts or notifications for deals in their area. Discovery is also a key theme for younger consumers, with a Forbes poll finding 40% of surveyed consumers used a brand’s mobile app to discover new products and browse for further inspiration before perhaps shopping at a physical location. The increased data insights from mobile app usage can also be consolidated to provide a personalized combination of product preference, location and price alerts- fast becoming a communications tactic expected as standard by many young consumers.
Whilst Kering and other traditional brick-and-mortar retailers may be trying to strengthen their position by investing in e-commerce, the key to success will be addressing their positioning for the audience responsible for the growth in this area. How will they adjust their operational strategy for Generation Z and those that follow? Control over price and supply can only go so far, particularly at a time when young consumers are asking for meaningful change in the industry.
Despite the resources at their disposal, values positioning is difficult for big retailers to move on quickly and authentically. It’s not only the other luxury competitors that Kering should worry about, but perhaps the smaller, more agile brands ready to answer that call.
Date: July 04, 2019