The luxury world was once fiercely opposed to all things Internet, but a lot has changed and now, ironically, e-commerce is the only area of luxury that’s growing.
As the importance of online sales and marketing in the luxury category expands, online know-how “could be the key feature which determines success from failure over the next few years,” said New York University marketing professor and Red Envelope founder Scott Galloway.
Last month, he and other members of NYU think tank LuxuryLab released the first annual ranking of 109 luxury companies according to their online competence, called the Digital IQ Index.
Electronics and car companies topped the chart, but fashion, beauty and watch companies Louis Vuitton, Ralph Lauren, Tag Heuer and Clinique also made the top 10.
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Others in those categories were described as “average” or “challenged.”
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Brands were ranked in four broad areas: how well they translate their core values into the online space; traffic and online buzz; innovation and use of the online medium such as interactivity and video, and how well they use social media.
Vuitton was number one in the apparel category for its integration of offline and online, specifically for e-commerce, editorial and mobile.
Ralph Lauren was number two. “Arguably Ralph Lauren is one of the best e-commerce consumer companies in the world right now,” Galloway said. “They invested early and it paid off. It’s easy to find the products on the site, it has exceptionally robust search and doesn’t sacrifice imagery or brand values.”
If the Nineties were the decade of building out flagships, then this could be the decade of online branding, he said.
“Until 18 months ago, the luxury sector was arguably the most successful business in the world,” he said, citing double-digit growth in the top and bottom lines for the last decade or more. “Great product always works, but the model of taking a photo and putting it in an expensive book and selling from your Fifth Avenue flagship — that model worked marvelously well for a couple of decades, but now that model just seems to be broken.”
In the next few years, small- to midsize brands will succeed through online channels, while traditional brands take a hit, he said. Brands such as Tory Burch that don’t have the capital to open a flagship on Fifth Avenue can create a successful presence online.
“Tory Burch can put up a great Web site and establish relationships with tens of thousands of consumers, and do it for tens of thousands of dollars, as opposed to tens of millions,” he said. “Online, nobody knows how big your muscles are or how deep your pockets. It’s less about resources and more about being innovative.”
To a certain extent, companies such as Gilt Groupe and Rue La La have popped up because existing brands and retailers were not innovating online, he said.
“All the reasons luxury brands cite for not going online — fears about price [inconsistencies], counterfeits, the loss of romance — all of these were the same excuses Williams-Sonoma and Levi’s gave in the late Nineties,” he said. “These are real issues that are hard to address, but the opportunity becomes so big that someone else will figure it out and start taking sales from the guys who aren’t selling online. Williams-Sonoma is now selling online, and if they hadn’t Crate & Barrel would have eaten their lunch.”
Galloway predicted three-quarters or more of luxury watch brands on the list will be selling online within three years.
Luxury sales are down 25 to 30 percent, but the online traffic of the brands who scored high on the index is up 61 percent, he said.
Next month, LuxuryLab and NYU will host a conference about luxury and change called the Innovation Forum. Speakers include Tina Brown of The Daily Beast; Henry Blodgett; Daniel Lalonde, president and chief executive of Louis Vuitton North America, and New York Times perfume critic Chandler Burr.