Diamonds, private jets, multi-million-dollar mansions, haute couture, luxury vehicles and high-end handbags – customers looking for upscale goods and services could probably find all these items in posh places like Beverly Hills or they could just head to the Web.
The online shopping environment for upscale merchandise has been robust in recent years.
Websites such as NeimanMarcus.com, with annual sales that jumped 30 percent in fiscal 2005, and Diamonds.com, are flourishing.
This climate of vigorous sales is driving merchants, including fashion icons DKNY and Prada, to unveil e-commerce sites in the coming months and incentivizing affiliate sites like American-Luxury.com and Splendora.com to promote high-end merchandise to their niche audiences.
Initially luxury merchants had trepidation about the effect the Internet would have on their brand equity. eMarketer’s senior analyst, Jeff Grau, says, “Because the Internet is often thought of as the place to go for bargains, luxury merchants were concerned that it would cheapen their brand. Luxury brands’ emphasis is on quality and fashion rather than price ” they did not want to be associated with a channel that was for bargain hunters.”
But lucrative benefits have outweighed these concerns – the Internet not only offers a new source of sales and higher profit margins, it is a way for merchants to avoid high overhead costs of paying employees and expensive rents in tony areas. And many luxury merchants that have moved online say they did so to meet increased demand.
LUXE FOR LIFE
That demand is evident in several categories. In 2005, Forrester Research found that jewelry/luxury goods, apparel and health/beauty were making the most inroads into total sales – and the market researcher forecast apparel and home products as the two categories to grow the fastest between 2005 and 2010.
Traditionally the categories that have sold the best online have been computer hardware/software, books, and toys/video games. ComScore Media Metrix found that for the 2005 holiday season, the jewelry and luxury goods and accessories categories showed a 22 percent gain in visitors in December over November.
Apparel: The conventional wisdom about e-commerce was that apparel never would sell well online because people want to try things on before they buy. But more familiarity with a brand’s size and quality expectations as well as easier return policies are causing consumers to buy more apparel online every year, which accounts for a large segment of high-end merchandise.
“People are becoming more and more comfortable buying apparel online. For example, denim is one of our top categories – we keep adding more brands due to the demand of what clients are asking from us,” Carel Hearon, eLuxury.com’s marketing and affiliate manager, says.
Accessories/Handbags: According to comScore Media Metrix, the percentage of Internet visitors to Coach.com increased 117 percent in 2005, and a 2005 Women’s Wear Daily poll found that a large percentage of women (48 percent) buy accessories online. Accessories such as handbags and scarves sell well over the Internet because they are not restricted by size or fit requirements.
“Handbags and accessories are our strongest categories. You don’t have to try on a handbag, so there is a lower return rate,” Hearon says. Others agree.
“We get lots of winning bids for eBay on terms like Balenciaga Le Dix and Chloe Paddington for handbags,” says Michelle Madhok, who runs SheFinds.com, which focuses on shopping and fashion. Madhok notes that such handbags retail in the $1,000 range.
Shoes: Madhok adds, “We sell tons of shoes – especially from Zappos Couture” – with an average price point of $250. She says the reason is, “No matter your size, shoes always fit – that makes them especially attractive for Internet shoppers.”
Trisha Okubo, founder of Omiru.com, a style and fashion affiliate, says, “Our best categories are shoes and other accessories, likely because the fit issue is minimized in these categories. Our experience with high-end shoes is that brand name matters. Bluefly has worked for us because it provides discounts on well-known designer names.”
Lingerie: The 2005 Women’s Wear Daily poll found that women like to purchase intimate apparel online such as lingerie because they enjoy the privacy of shopping from home. Underwear is SheFinds.com’s No. 1 category. SheFinds.com partners with BareNecessities, which offers brands such as La Perla and Cosabella that sell bras that typically cost more than $100.
Jewelry: According to comScore Media Metrix, the increase in the percentage of Internet visitors heading to Diamonds.com was 223 percent, and the increase to Zales.com was 163 percent from November 2004 to November 2005.
Eddie Bakhash, president of AmericanPearl.com, which has been in business since 1997, says it has experienced a steady growth of approximately 20 percent annually for the past five years. The top-selling items are rings, earrings and necklaces, and the average price point for a product is $1,000. Brad Matson, chief marketing officer for Bluefly, says it added jewelry “based on demand,” adding, “It is an important and growing segment for Bluefly.”
Home Decor: Forrester predicts that home products will grow 8 percent between 2005 and 2010. Marilyn Olsen, who runs four sites, including American- Luxury.com and French-Luxury.com, sells a wide range of high-end merchandise including furniture, kitchenware, interior design and gardening essentials and is an affiliate for upscale furniture merchants such as Design Within Reach, Frontgate and Horchow.
She explains the success of these categories:
“As people furnish their kitchen, they want to be able to cook and entertain casually in as much style as they do in other parts of the house,” Olsen says. When people visit American-Luxury.com to buy leather armchair barstools that retail at $729 each from Horchow, they can see a Jura Capresso Impressa espresso machine that retails for $2,399 from Sur La Table.
Other Items: The definition of a luxury item is something that adds to pleasure or comfort but is not absolutely necessary – an indulgence. Merchandise in all sorts of categories could match this description – such as spa treatments, luxury travel, upscale baby clothes, gourmet foods and high-end gifts.
For the 2005 holiday season, the leaders in the luxury segment were RedEnvelope with its December traffic (2.4 million visitors) seeing a 62 percent increase over the previous month; and Tiffany & Co., up 47 percent over November with 2 million visitors, according to comScore Media Metrix.
Luxury shoppers, who make up a mere 2 percent of all online buyers, account for nearly 7 percent of online retail sales. According to Forrester, the online shopping revenue reached $170 billion in 2005 – $12 billion (7 percent), was sales luxury sales.
Indeed, some online luxury shoppers are affluent people. In March 2006, Time magazine found that of adult Internet users with household incomes of at least $150,000, 12 percent of respondents said that the Internet was their primary place to shop for apparel and 18 percent said it was their secondary place. And upper-income shoppers have been driving sales for the past two years, noting that luxury goods retailers were the strongest performers during the 2005 holiday season, according to Ernst & Young Consumer Trends Center.
Forrester finds that luxury buyers are comfortable with Internet and Web technologies and have shifted a great part of their spending to the online channel as usability has improved. Luxury buyers, in fact, are 36 percent more likely to be comfortable with online transactions involving their credit cards and are 25 percent more likely to be technology optimists than average online shoppers.
CONVENIENCE IS KEY
And the Internet is an excellent way to reach lucrative clientÃ¨le – high earners who work long hours and have little time to shop. American-Luxury’s Olsen attributes part of the growth of her site to this. “I think a lot of it is time constraint,” she says. “The sophisticated customer is increasingly very, very busy and they don’t have time to go to the mall.”
Forrester found that convenience-driven consumers make up approximately 31 percent of all online shoppers and represent nearly 35 percent of all online spending. And many of these convenience shoppers are buying upscale merchandise.
“It turns out it is a convenience thing – most of our customers live in major metropolitan cities – they could have gone to the stores,” says eLuxury’s Hearon. “We thought our top buyers were going to be in places like Des Moines, Iowa, where there were not stores to buy the latest Rock & Republic jeans.”
And for people who live in more rural areas, it is certainly more convenient to shop online than to take long trips to metro areas. eMarketer’s Grau says, “The Internet makes it easier – it brings into reach the items that people in small towns cannot get.”
Jeremy Palmer, QuitYourDayJob.com’s CEO, says he has worked with Zappos.com, and was surprised that there was a market for expensive shoes but reasons that “people in fly-over states like Utah [where he lives] want luxury shoes but are limited in what they can buy – the audience is smaller but there is demand.”
Olsen agrees. “In some areas of the country, it is harder to find upscale merchandise. I think they tend to appreciate Internet shopping more than someone who has access to brick and mortar,” she says.
In addition to convenience, Grau says the growth in luxury online sales is due to the maturation of e-commerce where consumers feel more comfortable buying very expensive things online, so there are more items offered to meet demand.
“Merchants started out with books and CDs and gained confidence to where consumers buy a watch or a ring, whereas a year earlier they never would have. There are three main reasons: trust, education and presentation,” he says.
The biggest tool for building trust is improved customer service with excellent phone representatives, consistent delivery of quality products and better shipping policies for easier returns.
Madhok says, “Shoe companies are great with free shipping and free returns, so there’s no risk in ordering.”
Hearon adds that, “For apparel, such as denim, people will buy two sizes and keep one and return the other so they can avoid the hassle. We have great shipping policies to do that.”
Grau explains that merchants make it possible to enter into a live chat so there is more hand holding when it comes to buying a high-end product.
“You see on jewelry sites lots of educational information that explain what to look for when buying a diamond ring – how to evaluate quality and what carats mean. They [service representatives] help a customer shop and they gain more trust in the brand that takes the time to educate the customer about how to buy a diamond ring.”
Another important component to luxury shopping online is the presentation of merchandise that websites offer.
Consumers visit websites after they have been in a store since they can often find a great range of color and sizes. Online shopping is not only about pre-shopping, but securing exactly what you want, according to Grau.
Olsen says, “I work like a personal shopper and make it easier for people to find things. I am able to show them all of the options in one place and make their decision making more simple.”
Luxury shoppers do not think of the Internet as limited or the lesser alternative to off-line shopping but as a unique way to shop, according to Bluefly’s Matson.
“At Bluefly, you can see 100 dresses in one color very quickly – you would have to go to 10 stores to see that,” he says. “Bluefly has an engine that lets you look at all of the dresses that are black, size four and between $200 and $400, from more than 365 designers.”
There are some e-tailers that allow customers to enter their physical dimensions and the site will in turn offer up styles that are suited to your figure, Grau says.
Online shopping also serves consumers who want to stay on top of the trends, making it easier to achieve a certain look. Hearon says many of eLuxury’s customers “have high household incomes but some are willing to live in a shoebox to have the latest Louis Vuitton bag and shoes. They are very fashion-conscious and are aware of the trends and want to wear them and will do whatever it takes.”
Celebrity gossip and style watcher websites have brought the demand for “it” labels to cyberspace.
“Now women want the bag they see Jennifer Aniston carrying. Before, to get their hands on the designer item, they’d have to shop in a big city. Now designer labels – even discounted designer labels – can be found on eLuxury, Neiman Marcus, Yoox and Bluefly’s websites,” Madhok says.
Omiru.com’s Okubo says that, “the growing status-consciousness of our culture encourages the gravitation towards luxury brands. What you buy and what you wear is seen as an extension of your personality, really; an extension of you. What does this mean for retailers? People want Prada or Polo, not a private-label brand. Luxury brands have an automatic stamp of approval on them.”
NICHE IS NICE
This phenomenon provides an opportunity for publishers to focus on an area of their expertise, become an evangelist for a brand and reach potential customers – whether it is for premium watches, fine crystal or evening handbags. Moreover, luxury purchasers tend to be passionate and loyal and showy about their brands and this lends itself well to merchants looking for loyalists to endorse their products.
Liane Dietrich, vice president of Merchant Services for LinkShare, attributes the increase in luxury-brand sales online to affiliates.
“There are lots of niche and content sites that are playing the role of ‘recommender’ – they recommend products and merchants to consumers and that is paving the way for luxury brands to take their place.”
Clearly affiliates are attracted to upscale merchandise for the high commissions – many luxury sites do not offer discounts and have limited “sales” or “clearance” sections. Luxury merchants report that paying full price does not deter consumers from buying.
Another reason affiliates promote luxury products is the cache that luxury items offer them.
“I think it’s very important to note that affiliates are attracted to luxury merchants for the perception of high-average- order value and high conversion, as well as the visual value that the luxury connection adds to the affiliate’s site,” Dietrich says.
But affiliates need to be sure they offer the brand that leads a potential customer to their site. Shawn Collins, president of Shawn Collins Consulting, warns, “If unchecked, affiliates will exploit the brand – they will leverage the brand names like Gucci or Dior even if they don’t sell those products. Affiliate managers should kick them out after one or two ‘outs’ if affiliates mess around with the branding. For example, in paid search arbitrage, affiliates can bid on trademarked names such as Dior but these keywords frequently get abused and affiliates drive traffic to their sites when there is no product there.”
SELECTIVE, EXCLUSIVE, DISCRIMINATING
Affiliates should be aware that in exchange for potentially high commissions, the programs are not easy to get into and will require that affiliates not only have a highly trafficked site, but a well-designed site that features other upscale sellers. And they will be closely monitored with their keyword buys and how they present brands on their site.
“Luxury affiliate managers are pretty brand-protective. They are looking for a reduced level of discounting; a clean, visually appealing site; and possibly some other merchants on the site that would help raise the legitimacy of the website,” Grau says.
“Obviously, Rolex doesn’t want to see an advertisement for Rolex watches on a Wal-Mart affiliate site,” Palmer says. “The terms and conditions of luxury programs spell out how they want their brands advertised.”
Hearon says, “We are very selective – we have 300 people apply per week and I let in three. I evaluate the ‘look and feel’ of the site and I have an intern look at every affiliate. I make sure we are not on coupon sites.”
“You have to be cautious with affiliate marketing – if you are selling a fine-quality product, you want it to be showcased in the best possible light,” AmericanPearl.com’s Bakhash says. “Consumers evaluate the company and product based on where it is – which is why we really like Yahoo Shopping and Amazon.com.” AmericanPearl is on dozens of other sites through Yahoo Shopping, and Yahoo Shopping is their best affiliate.
Sak’s Fifth Avenue and Neiman Marcus are private programs and currently Neiman’s must approve all photos used on a site, according to Madhok. “I’m hoping as they begin to trust us, this requirement will go away since it impedes the speed of Internet publishing.”
But not all luxury brands are strict.
“Every luxury merchant is going to have a different tack on it. Some luxury merchants are very open to driving revenue that is valuable additional traffic for them – whether it comes from a very high-end affiliate or a small niche affiliate might not be as strong of a concern,” Dietrich says.
Matson says Bluefly has “hundreds of affiliates, which is helping Bluefly to grow. We get 60 [applicants] per week and take 20 or so. We look at quality and fit and examine each affiliate on a case-by-case basis.”
Hearon attributes the success of eLuxury’s affiliate program to “partnering with the right companies and making sure we send out newsletters once a week and communicate as often as possible with our top affiliates [such as] ShopAmex and American Airlines.”
These types of membership and loyalty sites work well for luxury brands by playing up the benefits of being a member in addition to getting the points or rewards. In addition, it plays into the idea of a luxury brand – because of membership, because people are often getting the first crack at a newly released item.
Each of the affiliate networks has a share of luxury merchants. Commission Junction has Bluefly; Performics has RedEnvelope and Frontgate; and LinkShare has eLuxury and Blue Nile. Merchants are looking for networks that are sensitive to where their brands might be, and how their brands are portrayed in any sort of marketing. For this reason, the networks offer a variety of tools that provide merchants with the reassurance that their brand is being marketed correctly.
The days of thinking that companies such as Overstock and eBay, which sell mass-market products like books and iPods, epitomize online shopping are over. The Internet is no longer incompatible with the exclusivity of luxury goods. Retailers of upscale merchandise are and will continue to look to online shopping as an essential sales and marketing channel.