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Online boom could be a ‘disaster’ for luxury retail

Luxury brands have been warned that ecommerce sales are cannibalising revenues in bricks-and-mortar stores and have been advised to put plans in place to avoid “disaster”.

Speaking at a Drapers luxury roundtable, Gyorgy Konda, partner at consultancy Bain & Company, said on a global basis ecommerce makes up 3% to 4% of total revenues at about €7bn (£6.04bn), but is growing strongly. UK brands are thought to be ahead of the average, with some edging above 5%.

However, Konda warned the channel was not adding to the bottom line. “It is cannibalising sales from retail operations,” he told delegates this week. “If you do not plan carefully you will see sales migrate from bricks-and-mortar.We are finding that once ecommerce is 20% of total revenues then it is a disaster for bricks-and-mortar stores.”

This could come as a warning to the wider clothing market, which is fast approaching the 20% mark.

Speaking at the Drapers Ecommerce Summit this week, Numis analyst Andy Wade said online sales in the general market could reach this tipping point by 2016.

Luxury online sales are behind the average - Konda said they would reach this mark in the next five to 10 years - but luxury brands would be exposed unless they put a strategy in place soon.

“When it comes it will hurt,” he said.

He advocated adopting an “omnichannel strategy” - a global, integrated approach to all channels, with luxury brands needing to reduce physical store space as online sales grow.

Konda highlighted Asia as a region in which a significant number of luxury stores had been opened, and warned that this could lead to oversaturation as online becomes more dominant.

Simon Burstein, chief executive of luxury indie Browns, said etail would remain a major avenue for luxury players as part of an omnichannel strategy.

“There is an opportunity, a growing opportunity, to penetrate areas where there isn’t [physical] distribution and this will far outweigh the retail footprint.”

Samir Ahsan, finance director at Calvin Klein Brands, agreed that all channels are important, with shops providing a service akin to a showroom.

He added: “The answer in terms of a strategy is understanding the consumer
and what their needs are. We know that consumers who interact with multichannel spend more because they are more engaged with the brand.”

Andy Thomas, creative director of website development agency Huge, said digital propositions could help increase overall sales for luxury labels if they adopt a new mindset “Unless you embrace an omnichannel approach you will be left behind.”

Readers' comments (2)

  • The internet is bastardizing brands and to make matters worse, many of those brands don't care. If you're an independent, how do compete against that when the brands won't support you?

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  • Chris Bishop

    Oh dear this headline belongs in the dark ages.

    Whether luxury or not, people don't buy via channel and consultants, brands alike need to understand it.

    Multi-channel, omni-channel are all great trade show terms however, I'm extremely worried for the industry as a whole if the takeaway from events is "(online) is cannibalising sales from retail operations".

    We all have a responsibility for the industry and senseless comments such as this will cause distress, procrastination, prevent growth and miseducate.

    Thanks, Chris
    Founder & CEO, 7thingsmedia

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