Luxury Institute News

They were late to the Internet, but brands like Ralph Lauren, Hermès and Tiffany are now making a real splash with their Websites. Some winning features: Live fashion shows, edgy blogs and Q&As with trendsetters. Oh, and nice merchandise. We rank the 10 best sites and window shop at upstarts like ideeli and Gilt.

By Jay Palmer
Barron’s 
Saturday, September 18, 2010

With lean times discouraging conspicuous consumption even among those who can afford it, the posh stores on Los Angeles’ Rodeo Drive, New York’s Madison Avenue, Paris’ Rue du Faubourg Saint-Honore and London’s New Bond Street all have been feeling the pinch.

But there’s one road where luxury sales suddenly are booming: the digital highway. As global sales of high-end goods dropped 20% last year, the category’s online sales jumped by at least 10%, and still are climbing.

It’s not that the well-to-do are only now discovering the Internet. Far from it; wealthy baby boomers were online pioneers. Instead, it’s the makers and sellers of luxury products who are finally getting comfortable with the ‘Net.

“To suggest the Internet had an important role to play in the rarefied world of luxury used to be an act of misplaced bravery, or outright heresy,” says Mark Dunhill, CEO of Faberge. “Today, however, all the major players in this sector are falling over themselves in a rush to embrace the online world.”

In other words they’re not walking on eggshells anymore, not even of the Faberge variety. From Burberry to Louis Vuitton, from Bergdorf Goodman to Tiffany, big-name brands and retailers are setting up inviting, and sometimes dazzling, Websites. At the same time, a whole new generation of online retailers such as Gilt and Ideeli are offering fresh deals every day on a wide array of luxury goods.

“Whether its diamond necklaces, designer cocktail dresses, opulent fur coats or trendy name-brand handbags and shoes, it is now no more than a mouse-click away,” says Milton Pedraza, CEO of New York’s Luxury Institute, a research firm focused on high-net-worth consumers. “Some categories are smaller and some are bigger. But overall, Internet sales account for perhaps 15% of luxury revenue. And as the Websites get better and the industry gains expertise, that could rise to over 40% within five years.”

That’s probably not a stretch.Unlike the early days of the Web, when Amazon.com and its ilk had to attract shoppers to an entirely new way of buying, consumers, especially well-heeled ones, now are now well-schooled in maneuvering online shopping-carts.

“Some of the wealthiest people around are from the leading decade of baby boomers, and these are the people who are the right age to be especially comfortable with computers,” says Susan Lyne, CEO of Gilt Groupe. Her Website offers discounts of as much as 70% on select luxury items in 36-hour sales. To provide a sense of exclusivity, Gilt requires that shoppers become members, which they can do only by invitation — but it offers invitations generously, and there are no fees.

Sites like that are a natural for any upscale consumer who doesn’t like fighting the crowds, and who takes pride in saving a buck.

Says Pedraza: “Wealthy shoppers are usually the best educated, the best connected and the most entrepreneurial. They are tech savvy, ready to appreciate the ease and convenience of buying online.”

The manufacturers and retailers of high-end wares increasingly get the message. Forrester Research says that of the nearly 200 global luxury firms they survey regularly, only a third sold merchandise on the Internet in 2008; today more than two-thirds do so, or are trying to do so.

Just about everyone who launches into Web selling assumes that there are some things that shoppers, rich or poor, wouldn’t be too keen to buy without first smelling, touching or tasting. But in practice, such items are proving few and far between. What sells and what doesn’t sell isn’t always predictable.

Expensive perfumes, exotic foods and snappy clothing are among the categories in which Internet traffic is high. So too are luxury-hotel getaways, rare vintage wines and jewelry fit for a princess.

Then again, some seemingly Web-ready products are proving to be tough sells. Although it’s now easy to sit down at your computer and select options for a BMW or a Benz, few people are driving off digital sales lots; they prefer to kick real tires and meet dealers in the flesh. Nor are luxury timepieces from the likes of Rolex, Breitling and Philippe Patek big sellers on the Web, partly because the watch makers fear antagonizing their traditional distributors.

Many luxury brands initially saw the Web as little more than a sales outlet for excess inventory. But the severity of the recession pushed them to look for new revenue wherever they could, and that meant taking the Internet more seriously. Furthermore, the cost of doing business the classic way has continued to climb, especially for luxury brands looking to build new bricks-and-mortar stores.

“A sophisticated Web store can be created for a few-hundred-thousand dollars now,” says one luxury executive who didn’t want to be identified. “That’s less than the legal fees to review a lease for a new store.” Adds Dunhill of Faberge: “The price of a piece of real estate on any prestigious luxury street or shopping mall around the world has become prohibitive to all but the wealthiest brands. The cost of creating a presence online is less intimidating.”

None of which is to say online luxury sales are a cinch. Most purveyors of luxe are still unsure exactly how to blend their image with the reality that the Internet is a mass-market selling forum. They have been slow off the mark and have a long way to go before their presentations catch up with top ‘Net retailers like Amazon, Expedia and Netflix, whose sites are comprehensive and easy to use. With only a few exceptions, existing luxury Websites tend to be heavier on glitter than on utility, blending music with high-quality photographs of products placed in up-market settings (think Tuscan villas and gardens).

On Prada’s site, for instance, which opens with singer Katey Judd’s sexy rendition of “Fever,” it’s hard to find the e-store amid the other info, including links to fashion catalogs, videos of runway shows and the Fondazione Prada, which publishes books and sponsors art installations.

But the luxury sites are steadily improving. Most have added editorial features, including fashion blogs and videos. Nordstrom, for example, displays photos of customers showing the clothes they chose for work, home life and weddings. Better still, the company broke down its traditional walls, tying its Website into its full inventory. If there is just one handbag available of a particular style, even if it’s on the other side of the country, a shopper would still see it come up as available online, ready to be shipped.

Gucci has managed to create a site that is both stylish and easy to browse. Though you can’t rotate images, you can view them from four different angles and quickly surf through lines of matching accessories. Another well-regarded success story is Louis Vuitton, the maker of leather goods and clothes. Unlike many of its peers, it offers nearly all its products on the Web.

The biggest innovation in online luxury retailing is the development of start-ups such as Gilt, Ideeli, HauteLook, Swirl and scores more. They sell designer clothing and shoes, electronic gadgets, home furniture and furnishings, tableware and luxury vacations, including accommodations at resorts and plush city-center hotels. The prices are often fantastic and on one, Rent The Runway, you not only can buy clothing but rent it for short periods.

These start-ups have been attracting big-money investors and may eventually go public. Kleiner Perkins Caufield & Byers, a venture-capital firm that backed Google and Amazon, has put money into One Kings Lane, a site selling home decor. Gilt Groupe got its start with $55 million from Matrix Partners.

“Luxury online is open to a potentially bigger audience than luxury brick-and-mortar stores,” says Paul Hurley, CEO of Ideeli. “You can reach everyone everywhere who has a computer, including those who are maybe not especially rich, but in this particular case want to buy luxury. Everything is super-convenient, and this is an entirely new retail channel that is in my view ideal for luxury goods.”

The new sites are offering far more than clothing. Last week, Gilt Groupe’s Jetsetter subsidiary was selling a South African tour ($5,800), a plush Jamaican resort ($180 a night) and the Berlin Grand Hyatt ($180 a night). The only real drawback: Nearly all sales are nonrefundable.

The major brands and retailers are making some clear progress on their own Websites. Just look at the 10 in our ranking on this page. As the sites work to perfect their presentations — from the background music to the blogs about luxe living and tools for zooming in on merchandise — they are sure to attract and keep more shoppers. With a little more competition from the likes of Gilt and Ideeli, they may even start trimming their prices.

In the discriminating world of luxury, the Internet might yet become the most luxurious place to shop.

http://online.barrons.com/article/SB50001424052970204914704575489824199921124.html