By Charles Whiteman
SVP Client Services, MotionPoint
Compared to retail sectors such as consumer electronics, books and entertainment, the luxury sector is a relative newcomer to e-commerce. Even today, with global online retail sales increasing 17% annually, “about 40% of high-end brands don’t sell via the web,” Bloomberg recently reported.
Despite the thriving growth opportunity, the industry’s prudence isn’t misguided. For some of these prestige brands, e-commerce represents the antithesis of a luxury retail offering – it’s a mass-market approach that lacks exclusivity, and an intimate sales experience.
But change has been on the wind in recent years. Why? Luxury brands learned they needed to cater to a new generation of luxury customers. These consumers are younger, digital-savvy, pressed for time and very practical.
As a recent business feature in The New York Times put it, luxury retailers “believe in the primacy of the customer experience … in touch, and talk. They also, however, have come to believe that the future of their business and a route to global expansion lie online.”
This pivot is paying off. According to a McKinsey report, luxury e-commerce sales are expected to reach $21 billion in the next five years. Furthermore, the luxury e-commerce industry is seeing much larger growth than many other e-commerce sectors. “E-commerce has been described as the ‘next China’ for luxury in terms of opportunity,” worldwide director of JWT Intelligence Lucie Greene recently said.
It’s clear luxury brands are starting to win big online. But those brands that are launching e-commerce sites in international markets stand to win even more. Indeed, global e-commerce is on track to hit $2.3 trillion by 2018, and most of that robust growth is hailing from overseas consumers.
But where to expand? Here are three hot markets for luxury e-commerce. They’re largely untapped by competitors, have strong economies and a demonstrated appetite for online shopping:
Cheap oil prices might have deflated the economies of many BRIC nations in recent months, but not India’s. Low fuel costs have actually positively impacted inflation and growth. That bodes well for consumer spending, especially in luxury e-commerce.
India’s population of 300 million Internet users is mobile-savvy; smartphone and tablet online use represents about 70% of the country’s Internet connections. E-commerce thrives here. In India, the luxury e-commerce market will grow to $25 billion by 2016, according to one report, with a compounded growth of 25% annually.
Research indicates high-end apparel, accessories, watches and electronics is where most of the luxury e-commerce action will happen.
Better still, the Indian online luxury market isn’t very competitive right now, which can prove profitable for first movers. Of the 500 leading international luxury brands, only 30% have a presence in India (compare that to China, which has 70% of these top brands present). Thanks to the country’s blooming economy, rising middle class and favorable regulatory environment and FDI rules, India is an ideal market for luxury e-commerce.
Thailand is Southeast Asia’s largest luxury goods market. Last year, its luxury expenditures reached $2.5 billion.
Relatively low housing costs help spur luxury spending here, as does plenty of consumer disposable income: the largest share of Thailand’s population (20.5%) is between 30 to 34 years old and earns over $150,000 annually. Residents 35 to 39 years old account for 18.6% of the population and are also increasingly affluent.
Internet penetration in Thailand is robust (54%), and mobile adoption is through the roof (150%). Our research indicates Thailand is poised to become one of the biggest m-commerce markets in Southeast Asia. In fact, some analysts believe m-commerce is the “last explosive sales channel” for luxury retailers.
We believe huge potential exists for luxury goods players, especially those that can persuade the many smartphone users who aren’t yet shopping online to hop onto the m-commerce bandwagon.
While other countries are struggling with economic recessions, Poland entered 2015 walking tall. According to Brookings, its “GDP per capita based on purchasing power exceeded $24,000 and reached 65% of the Western European (eurozone) level of income.”
Next year, Poland’s spending in the luxury market will be estimated at around $3.4 billion. Interestingly, its e-commerce spending will grow to $12 billion during the same time frame, suggesting clear overlapping opportunities for luxury e-commerce. At 67%, Poland’s Internet adoption rate is very good, too.
The Polish market provides an ideal frontier for clients who wish to enter an economically stable and safe central European market.
Should Luxury Forget BRIC?
With such stability and growth happening far from the borders of the much-touted BRIC growth nations, should luxury brands permanently abandon e-commerce expansions to BRIC? We advise against this.
Even though Brazil, Russia and China are presently facing recessions, this economic turbulence will eventually pass. Further, shoppers in these countries embrace unconventional buying practices, which can generate revenue.
For instance: We’ve found that a considerable number of savvy Brazilian customers shop for luxury fashion products on Portuguese-language websites operated by non-Brazilian companies. Why? They do this to enjoy a better selection, and avoid high domestic luxury taxes.
And while the Russian market isn’t as strong as in years past, its neighboring Commonwealth of Independent States nations are. Shoppers living here speak Russian, and shop on Russian e-commerce sites. As noted in our recent report on Russian e-commerce, one of our client’s Russian e-commerce sites has generated over $8 million in revenue so far this year – not from Russia, but from customers in the Ukraine.
In light of its current economic and political struggles, China is a different story. Chinese customers are shopping outside China via e-commerce sites, and this applies especially so to luxury goods. Many Chinese are now buying their luxury products in South Korea. In 2020, Chinese luxury consumers will spend $29 billion at South Korea luxury retailers.
Now’s the time for luxury brands to take their e-commerce efforts to the next level and expand internationally. With global Internet and smartphone adoption skyrocketing, and B2C e-commerce sales hitting stratospheric heights year after year, luxury brands can ill-afford to sit on the sidelines.
Engaging these thriving emerging markets, especially in their languages of choice, is a bold step in ensuring new customers and revenue streams, and immediate and sustained sales growth.
Charles Whiteman is senior vice president of client services at MotionPoint Corporation, the world’s #1 enterprise localization platform. He may be reached at email@example.com. MotionPoint is headquartered in Coconut Creek, Fla.