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Op-Ed | The Age of Digital Darwinism

What does it take to survive and prosper in a luxury market where digital is becoming the new centre of a brand's gravity?
Source: Shutterstock
By
  • Antonio Achille

MILAN, Italy — Online luxury sales exceeded €20 billion in 2016, representing about 8 percent of the total personal luxury market. We expect this figure to reach €75 billion by 2025, representing one-fifth of the total personal luxury market. For many brands and department stores, digital is the only channel that's growing, as physical stores increasingly become empty temples of desire and go from being an asset to being a liability.

Today, already 74 percent of personal luxury sales are “digitally influenced,” meaning that your customers, before initiating a purchase, have one or more digital touchpoints with your brand. This number can actually be as many as 15 touchpoints in a journey that is becoming more articulated and less predictable.

It's no wonder that luxury managers have radically changed their attitude towards digital. In the early 2000s, the luxury industry was in denial, considering e-commerce as a tool for selling books or consumer electronics, but not luxury goods — a channel in which a luxury brand's storytelling could never express its hypnotic power in full.

It took only a few years for brands to accept that digital may well have been a positive evil, helping to discretely manage the disposal of end-of-season merchandise. Still, digital was either segregated in the organisation or outsourced to new creatures like Yoox that were emerging from the digital ecosystem.

Digital is no longer only a sales or a communication channel. It is a stress test that brands need to apply to every single element of their offering.

And here we are today, in a world where omnichannel has become an overly used buzzword whose implementation often falls short of consumer expectations due to multiple obstacles: obsolete IT systems, product coding that creates silos among channels and store-sale incentives favouring behavioural barriers to real omnichannel relationships.

At the same time, customer advocacy has emerged as a powerful — yet harder to control — way of connecting with consumers, who are just a click away from loving or hating your product.

We are now entering a new era: the era of “reverse omnichannel.” Digital is no longer only a sales or a communication channel. It is a stress test that brands need to apply to every single element of their offering in order to better understand which opportunities they can capture or to which risks they are exposed. Instagram is the new store window, and digital now becomes the source of inspiration to re-invent the role of the store and its accompanying customer experience.

The mobile phone is the new desktop, with luxury consumers spending four times more time on mobiles than they do on their computers. And let me tell you, compressing a brand's storytelling onto a ten by six centimetre mobile screen is an exercise that most brand managers are not eager to go through.

The organisation needs to evolve as well. There's no longer marketing and digital marketing — there's just marketing. Digital and IT officers are now one and the same. Winning brands source competencies from the outside, from the ecosystem, in order to ensure access to cutting-edge skills.

When it comes to luxury.com, the battle has just begun: more scalable, agile and technology-savvy e-tailers are emerging. Darwinism will claim its victims. E-retailers need to run faster than the wind and only the ones growing at 50 percent plus year-on-year while maintaining an agile, inventory-light model will generate superior shareholder value.

Source: McKinsey & Company

Enough? In reality, there's much more than this.

Tomorrow's winners are currently transforming their business models using technology and data. Big data and machine learning are bringing authenticity and relevance back into the customer relationship. Quite a paradox being "real and personal" using a machine, isn't it? But luxury brands that step up to the new game will win big here by becoming authentic with their consumers as luxury originally used to be. Mr Louis Vuitton hand wrote specific suggestions for a favourite customer of his travel bags who was preparing for a transatlantic cruise to New York City.

The era of contextual marketing has started, for instance, recognising that your customer is a different person when they book a hotel for a business trip than when they book a hotel for a romantic weekend in the same city. Indeed, creating intimacy and anticipating customer desires are emerging as powerful ways for brands to capture growth in a flat market.

Then there’s Industry 4.0, already a reality in sportswear, but rapidly gaining momentum in luxury. Digitisation is penetrating the entire value chain and creating opportunities for brands to be more effective and responsive. How far 4.0 can go in luxury? Last week we asked 100 luxury managers if (and when) they saw customers ordering 3-D printed products from luxury stores. Thirty percent of them believe it will happen in the next three to five years, with an additional 30 percent believing it will happen within five to 10 years.

What else can we expect? Just ask Amazon if you're curious or brave enough.

Antonio Achille is the global head of luxury at McKinsey & Company.

The views expressed in Op-Ed pieces are those of the author and do not necessarily reflect the views of The Business of Fashion.

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