Lifestyle

Chanel who? E-commerce has barely made a dent in the luxury goods market

This is a guest post by investor Jenn Wei

The line between fashion and technology is blurring.

From the flock of tech founders snatching front row seats among the fashion elite at New York Fashion Week, to style icon Diane Von Furstenberg wearing Google Glass to produce a first-person intimate look at her life behind the runway, it is clear that technology is unapologetically setting new fashion trends and not looking back.

One of the most prominent ways technology has transformed fashion is through e-commerce. E-commerce penetration as a percentage of total retail spending in the US has more than tripled in the last decade (in Q2 alone it was up 15 percent versus a year go.) But upon closer examination, it’s in a very lopsided way.

Although approximately 10 percent of apparel and accessories are now purchased digitally, e-commerce has barely made a dent in the luxury goods segment, one of the fastest growing and anti-cyclical offline retail categories that is clearly ripe for disruption.

During business school, I was lucky enough to visit Paris and had the chance to meet with several of the enigmatic and larger than life personalities that lead the world’s most celebrated luxury brands, including Hermes, Yves Saint Laurent and Van Cleef & Arpels, to see first-hand how these companies define luxury and create a culture around tradition, craftsmanship, and exclusivity.

After all, luxury good is fundamentally an illogical product — why would any sane consumer pay 1000 percent above cost to acquire a monogrammed handbag or scarf?

However, luxury goods companies are selling much more than a product — they are selling a mentality, an attitude and a lifestyle choice. It’s the exquisite details on the Chinese panels and winding staircase of Coco Chanel’s first apartment at 31 Rue Cambon, the impeccably polished leather saddles displayed in Hermes’ private museum on the Champs Elysees, and the pride that every Ducati factory worker takes in the hand craftsmanship of their bikes. Luxury goods companies and their customers value heritage above all else.

When a consumer purchases a luxury good, he or she is saying to the world: “I am an elegant and tasteful creature unlike any other.” This has particularly taken root in emerging countries in Asia, the world’s fastest growing luxury market. For example, the increasing wealth disparity created by the Chinese government’s policies has created a need in the wealthier subset of the population to differentiate themselves, and they unabashedly embrace luxury goods as a primary mechanism to achieve this.

The primary issue is that luxury goods companies’ desire to maintain their brand image and tightly control their inventory, which directly conflicts with everything that e-commerce has come to represent. A flagship store in Paris, Shanghai and Milan communicates heritage and exclusivity, but a shopping cart over a teenager’s bubble-gum colored mobile phone does not.

However, this is all starting to change. Start-ups in the luxury space have begun to shake things up and make a splash.

The secret sauce of a successful luxury good e-commerce business is a founder and team who understands basic luxury consumer psychology and knows how to tap into it — companies like Ahalife and Net-a-porter have done especially well. In the past few years, curation has made e-commerce more personalized, subscription has allowed vendors to control product availability, and companies like Warby Parker and Urbanara have proven that brands can be viably created through a predominantly digital forum.

E-commerce is constantly innovating and will eventually evolve to a stage where luxury companies can digitally offer consumers an experience they can currently only offer in-store. We have a long round ahead, but it’s clear that the luxury goods industry should not continue to ignore e-commerce.

Jenn Wei is a venture capitalist at Blumberg Capital, an early stage venture capital firm based in San Francisco. Prior to Blumberg Capital, Jenn worked in technology investment banking and consumer/fashion private equity in New York. Jenn received her MBA from Stanford Graduate School of Business and B.S. in Engineering from Duke University.

Follow her on Twitter: @jennjwei

Top image via Shutterstock 

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