Digital is affecting not just sales of luxury goods, but the entire value chain, from digital marketing and enhanced in-store experience to product co-creation.
Today, three out of four luxury shoppers carry digital devices so powerful that the word “phone” barely describes them. Millions of these shoppers now insist on interacting with brands digitally—using their computers, tablets and “phones”—before they decide what to buy, where to buy it or how much they’re willing to pay.
Our research shows that shopping behaviors are changing almost as fast as technology. In 2013, digital interactions directly generated more than 13 percent of offline luxury sales and influenced another 28 percent of sales. Pure online sales doubled to four percent of the total market, growing twice as fast as the luxury market overall. If current growth rates continue for five years, annual online luxury sales could reach 20 billion euros. And since five years is an eternity in the digital universe, that number could be higher.
The opportunities—and the risks—are huge. Brands that reach luxury shoppers with the right experiences and information at the right moment will win a larger share of growth and outperform competitors. Brands that don’t keep pace with their customers’ digital behavior and preferences will fall behind. And companies that provide frustrating or substandard online experiences may tarnish their brands and destroy value.
Our new research shows, however, that maximizing digital impact is not as simple as building a better website or sending more messages into the Twittersphere. Companies that make digital investments wisely, based on their unique brand archetypes and categories, will see measurably better results and create more value. Knowing exactly what to measure and how to respond to rapidly changing shopping behaviors will help marketing teams deliver on the digital promise for years to come. Meanwhile, digital knowledge-sharing and data mining will help deliver impact within companies.
The findings, insights and recommendations in this report are based on the ongoing work of the Altagamma-McKinsey Online Observatory. This year’s research encompassed more than 300 luxury brands in 12 categories, 700 websites, 13 million online comments, 300 questionnaires and 3,000 interviews in six countries.
The power of digital presence
For a growing segment of luxury shoppers, online experiences drive real-world decision making. Our research shows that more than 45 percent of luxury purchases are influenced by what shoppers find in the digital universe. We expect that number to rise in step with smartphone penetration and segment demographics.
While pure online transactions represent only about 4 percent of the total luxury goods market, they’re growing twice as fast as the sector as a whole. We expect the share of pure online sales to keep rising, especially for perfumes, cosmetics and fashion accessories, which now represent about 68 percent of online luxury goods sales—about 6.2 billion euros. By 2017, pure online sales should account for about 6 percent of the sector as a whole.
Not surprisingly, people cite convenience and speed as key reasons to make purchases online. The farther they are from stores, for example, the more likely they are to buy online. The shoppers we surveyed also cited their ability to compare products and prices and find a wider selection online.
Most shoppers may remain reluctant to purchase more expensive and custom products online, preferring to see them and touch them first, but many will compare product features and prices online before settling on one to buy and choosing a retailer. In other words, by the time many shoppers have reached a bricks-and-mortar luxury store, they’re likely to have a good understanding of all the products in the category, including features and prices. They’ll choose stores based on proximity, of course, but in the years ahead, online ratings and opinions may help drive more decisions about where to make purchases.
The luxury shopper is more mobile than ever
Meanwhile, smartphone penetration is fueling luxury shoppers’ “digital passion.” Three out of four own a smartphone, and about half of them own a tablet, according to our interviews of more than 3,000 luxury customers. They tend to use their smartphones and tablets in certain situations and rely on computers in others. When they’re at work, for example, they search on computers. But while commuting, at meals and while shopping, they’re more likely to use smartphones—especially to look for products and find stores.
The research therefore suggests that engaging, easy-to-navigate mobile sites are more likely to drive store traffic. Indeed, more than half of luxury shoppers’ searches are mobile, and more than one in five of the shoppers we spoke with said they often or always researched luxury products on a mobile device before making a purchase. The research also suggests that brands can’t expect to bring potential customers into the store simply by building better web or mobile sites. That’s because more luxury shoppers are looking for product-oriented sources of information, such as multi-brand and department stores, where it’s easier to compare brands, products and prices.
Some high-end retailers have invested in mobile applications to engage with their customers, but only about 4 percent of the shoppers we surveyed reported downloading a luxury brand app. Indeed, only about a quarter have downloaded any apps at all.
Surprising news about buzz
The impulse to post or tweet on the most minute topics does not seem to have infected luxury shoppers. Our research founds that fewer than one in three uses social media to post opinions about luxury products—and that only 3 percent of those comments are negative. More than half are not creating judgmental (e.g., most picture without comment). These shoppers do seem to care deeply about other people’s opinions online, however. More than half of “brand buzz” arises from social media, according to our research.
Among mentions in social media of all luxury goods categories, cars rule. Analyzing 13 million mentions from October 2012 to March 2013, we found that cars appeared 361,000 times, or about 2,000 times per day. On the subject of fashion accessories, more than three-quarters of mentions were about products—not brands. Events and companies appear far down the list, at 11% and 4% of mentions, respectively.