The global online opportunity for luxury retailers and brands
The global luxury retail industry does not show any sign of slowing down, with the market expected to grow by 3-5% YoY to reach €320-365bn by 2025. Though the luxury sector has been well-known for its initial hesitation to expand online, its steady growth can be attributed to the increased adoption of digital commerce.
In fact, luxury goods sales are now growing nearly three times faster online (14%) than in physical retail (5%), while a fifth of sales in the sector are expected to be made online by 2025.
With Chinese luxury consumers representing a high proportion of the global luxury market and more than 50% of online shoppers in the Asia Pacific region making purchases from abroad there is also an increased interest for brands and retailers to boost their cross-border ecommerce offerings, which has the potential to be a crucial growth engine.
The opportunity for the luxury market
The luxury sector has experienced many changes in the past few years, from evolving consumer tastes to digital transformation. Within this time, the assumption that luxury consumers do not shop online has also changed.
This has been spearheaded by Millennials and Gen Z who have grown up with the internet and are more comfortable with shopping online, both on desktop and mobile. As these young, digital savvy consumers age and become wealthy, they are willing to spend the kind of money on luxury brands online that their parents never would have. With younger generations currently driving 85% of growth in the luxury sector and also predicted to represent more than 40% of the overall luxury goods market by 2025, it’s not something that luxury brands can afford to ignore.
As more consumers worldwide become comfortable with shopping for luxury online, there is also huge potential to increase sales by opening up this opportunity to international markets.
When brick-and-mortar stores are struggling with footfall, investing in an online strategy that accounts for cross-border can have a significant impact on revenue for luxury retailers and brands.
The strategy for global success
In order to make the most of the sales opportunities abroad, luxury brands and retailers need to ensure that international customers are being offered a seamless, localised ecommerce experience.
This starts by ensuring that platforms are compatible across all digital touchpoints. Global statistics show a huge increase in mobile ecommerce sales worldwide, with fashion and luxury as top categories within this growth. Our data for the cross-border e-commerce market supports this growth in mobile usage, with a 40% increase in the number of orders of luxury goods performed on mobile in the past year.
However, international customers have different attitudes to shopping online, and local market knowledge is essential. This includes tailoring shipping and return options to local preferences, as well as allowing shoppers to browse and buy in their local currency and with their preferred method. For example, in the United Arab Emirates, many shoppers prefer to pay with cash on delivery, while in Germany open invoice is very popular. What’s universal amongst international shoppers is the desire for a simple and straight-forward transaction, so a luxury site that includes a range of accepted local and alternative payment options will score highly – ensuring a hassle-free experience.
When it comes to shopping internationally, we should also address the elephant in the room – taxes and duties. In many international markets these can appear later down the line, surprising the customer when the parcel arrives on the doorstep and, given the high average order value that surpasses most local thresholds, can occur more for luxury goods than other categories. To avoid this, merchants should present these costs at the point of purchase, facilitating the ability to pre-pay all taxes and import duties at checkout. This guarantees complete transparency with the consumer on the overall cost of the sale.
It’s clear that with more people shopping online than ever before, there are enormous opportunities for the luxury goods sector to open up their online stores to international customers. However, luxury brands and retailers need to ensure that they are investing in a high-quality, localised ecommerce experience. Those that master this will boost global brand conversion rates, grow international revenues while improving customer satisfaction and loyalty.
By Nir Debbi, co-founder and CRO, Global-e
