Conversations & Insights January 25, 2016

L2 Insight: E-Commerce Growth Drivers

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Luxury goods have historically had a bit of a standoffish relationship with the web. Slow to embrace direct-to-consumer e-commerce, retailers such as Net-A-Porter have entered the marketplace and filled the void.

When you look at the luxury e-commerce market in 2014, just 6% of total sales volumes occurred in an online capacity. However, if you look at the growth, 80% of luxury sales growth occurred via e-commerce.

This varies dramatically based on price point. At the pure luxury segment, only 3.6% of sales are taking place in an e-commerce environment. As you go down in price point to aspirational luxury brands, about 7.5% of sales occurring online. In the affordable luxury category, a full 8.5% of sales volumes are generated via e-commerce.

When we look at forward-looking projections for e-commerce in the luxury goods sector, about 18 to 20% of sales are projected to occur in an online environment by 2025.

Currently, some of the leaders—Kate Spade at 15.2%, Coach at 12.1%, and Ralph Lauren at 10.5%—have been selling for a decade plus, and in many cases, have highly promotional elements to their e-commerce businesses.

When you look at the future of luxury e-commerce, it looks a lot more like Burberry, and a lot less like Kate Spade. Burberry does not report e-commerce revenues; rather, digitally influenced revenues in its annual report. In 2014, Burberry rolled out collect-in-store capabilities to two hundred stores worldwide, which accounted for about 20% of all digitally influenced revenue.

To complement the experience on Burberry.com, Burberry has partnered with non-traditional luxury players Amazon and Tmall. Both platforms have not only provided an incremental consumer base, and incremental sales volumes, but have also allowed Burberry to clean up third party and gray market distribution on the platforms.

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