The Covid-19 pandemic has had a major impact on the luxury sector, leading to a decline in sales of around 20% in 2020. Physical retail stores have been hit hard, while online luxury sales have skyrocketed. This shift has resulted in the rise of multibrand e-tailers and has reinforced the dominance of leading luxury labels. However, other players in the luxury industry will need to adapt and rethink their distribution strategies in order to stay competitive.

The line between offline and online sales has become increasingly blurred, leading to the emergence of what is now referred to as “onlife” sales. Online sales accounted for 12% of the luxury market in 2019 and increased to 20-23% in 2020, generating a remarkable €50 billion in revenue for the industry. This trend is expected to continue, with online sales projected to make up one third of the market by 2025.

Several factors have diverted consumers away from traditional monobrand stores, such as the influence of influencers, social media, e-shops, and multibrand websites. The decline in in-store traffic has been further amplified by the Covid-19 crisis. While the high conversion rates of e-tail channels have partially offset this decline, there is still a significant risk of diminishing sales per square meter for luxury labels.

Luca Solca’s study highlights the connection between growth in comparable sales and return on investment. This growth creates value and leads to stock market success for luxury groups, resulting in increased share prices. However, the pandemic and the rapid digital acceleration have negatively impacted footfall and profitability, putting additional pressure on luxury labels and forcing them to adapt in order to remain competitive.

To combat the decline in sales, luxury brands have implemented various strategies such as in-store events, capsule collections, pop-up stores, and ad-hoc customer services to generate greater added value. However, these strategies come with additional costs that only the most powerful luxury groups can afford. Now, this same logic is being applied to the online space.

Multibrand e-tailers have become even stronger as a result of the digital acceleration. Consumers are increasingly drawn to platforms that offer a wide range of products and brands, such as Lyst and Farfetch, which have significantly larger offerings than their competitors. These e-tailers, along with Mytheresa and Net-A-Porter, now attract more traffic than traditional department stores like Selfridges, Saks Fifth Avenue, and Galeries Lafayette.

According to Chris Morton, the CEO and founder of Lyst, multibrand e-tailers like his own platform are the new winning proposition. Lyst experienced a remarkable 50% increase in sales in 2020 and currently operates in 200 countries. The platform boasts 150 million annual buyers, 17,000 brands, and 8 million products. The technological capabilities and commercial power of e-tailers have allowed them to consolidate their e-concession model by tapping into the global inventory of the brands they feature. This model gives the brands more control over their prices and is more profitable than the traditional wholesale channel.

However, smaller luxury labels may find it challenging to compete in this new landscape as the larger labels have already integrated the e-tail model into their distribution ecosystem. Luxury houses like Dior, Hermès, and Louis Vuitton have the ability to drive traffic to e-tail sites and do not always rely on multibrand e-tailers for assistance.

Despite the rapid growth of online sales, some industry experts believe that in-store experiences remain essential in the luxury market. Michele Norsa, the executive vice-president of Salvatore Ferragamo, suggests a geographic and sales channel rebalancing rather than complete homogenization. Michael Ward, the managing director of Harrods, shares a similar sentiment and has witnessed a significant return of customers to the store since reopening. He believes that the luxury experience includes both the in-store experience and the convenience of ordering products online.

In conclusion, the luxury sector has undergone a significant transformation with the rapid growth of online sales, strengthening the position of multibrand e-tailers and leading luxury labels. However, other players in the industry need to adapt their distribution strategies to remain competitive. The integration of offline and online channels has ushered in a new era of “onlife” sales, and brands must find a balance between in-store experiences and online convenience to meet the evolving needs of consumers.

Useful links:
1. Op-Ed: For Luxury Brands, Future Innovation With ‘Exogeneous’ Tech is Down to Earth
2. The battle for small luxe stores post-Covid