Online luxury boom ahead – McKinsey report
Online sales are projected to more than triple to US$74 billion by 2025, involving about one in every five luxury sales, according to management consulting firm McKinsey & Company.
Its report The Age of Digital Darwinism says there is a growing need for luxury brands to have digital competency, with McKinsey expecting the bricks-and-mortar environment to become dependent on digital.
It says luxury goods e-commerce sales are growing rapidly. Online sales of personal luxury goods are presently $20 billion, making up 8 per cent of total luxury sales.
Monobrand online stores are currently dominating, but multibrand platforms are growing their sales more rapidly. These e-tailers or marketplaces were born digitally, giving them an advantage over brands having to adapt legacy systems, says the report.
Consumers have become more active in the luxury online sector, whether it is sharing content about brands on social media or participating as a secondhand seller or curator.
In an increasingly digital ecosystem, those poised for success are adopting what McKinsey dubs a “Luxury 4.0” model. Based on Industry 4.0, which integrates customer data with production mechanisms and design, it aims to create a seamless process from concept to consumer.
While luxury is centred on tradition and craftsmanship, 60 per cent of luxury managers see their brand selling 3D-printed goods within in the next decade, says the report.
Data is also going to be key in customer engagement. As personalisation becomes the norm, marketers will need to focus on delivering a customised and individual experience.
Digital is changing consumer expectations – consumers expect to be entertained and engaged offline as well. “Reverse-omnichannel” means that rather than digital needing to live up to the store, the store now has to live up to digital.
Luxury brands are also facing competition from outside the industry, the report says. Amazon is changing customer behaviour, turning consumers into online buyers and making pushes into categories such as beauty and fashion. Amazon also accounts for 55 per cent of consumer product searches, with shoppers starting their journeys on the platform.
Converging thriftiness and desire for sustainability is creating new models for consumption, such as rentals and secondhand marketplaces, the report notes.