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In reaction to lockdown store closures and social distancing, luxury brands like Harrods and Prada have imagined new ways to engage with their consumers accelerating the digital transformation which started 20 years ago.

According to the Business of Fashion, the luxury industry went through 3 waves of innovation. First the wholesale luxury business went digital with Net-a-porter as its poster child. Then challengers like Farfetch launched e-luxury platforms. Finally, the past 10 years have been the stage of interesting business models disruption. From renting haute couture with Rent the Runway, to peer-to-peer luxury goods marketplace like Depop, and new D2C brands like Aurate. All this time, traditional luxury brands have been selling through hybrid models combining traditional retail and direct-to-consumer sales in physical flagship stores.

Today, it looks like the cards are being redistributed. According to Bain & Company, online luxury sales are forecasted to take 25% of the market by 2025. Consumers are using this opportunity to shop directly with the brands. Brands like Gucci and Saint Laurent have invested heavily in developing unique e-commerce experiences that are integrated with their online marketing and social media platforms.

E-commerce is just one part of the equation

Selling online is not complex… for a ‘regular’ brand. However, when a big part of what your consumers buy is a premium shopping experience, translating this online becomes a challenge. We can imagine that is what luxury brands have been trying to solve for years. How do we maintain the same level of prestige? How can we deliver high-end experiences digitally so that consumers don’t feel they got their experience robbed?

For example, Chanel only recently began investing heavily in its online experience and Gucci uses augmented reality technology to let customers try on shoes. While Celine’s e-commerce imagery is set up as a fashion look book. While these mechanisms are useful, they do not fully solve the issue of how luxury brands can move from a mostly physical experience to an omnichannel experience.

Reinventing the Direct-to-Consumer Brand Proposition

Let’s learn from the media industry. In the last century, it was selling physical products delivered regularly to your door or bought at the train station. The digitalisation of the economy made news free, dematerialised, and accessible to anyone with internet access.

As a result, Media had to reinvent their value proposition, leveraging their unique assets – journalists, community, etc, as well as organise themselves differently to deliver such propositions to their consumers. They learnt how to monetise quality, exclusivity, and access. For example, WSJ+ offers exclusive perks for members including invites to member-only events and  access to Journal-hosted talks.

Having helped numerous brands invent new direct-to-consumer propositions in the media and consumer goods industry, there are 4 key elements that need to be considered.

Product: When you invest the kind of money that goes into luxury products you are perfectly entitled to have it personalised how you want it. Not how it comes out of the factory.

Content & Storytelling: Luxury brands sell status and dreams. From designers, new seasons, ambassadors, and influencers. Brands dispose of a vast range of assets to generate engaging content to keep their audience interested and entertained. Content is the best feature to communicate values to consumers. This is especially relevant for Millennials. In addition, they will make up 40% of luxury sales by 2025. They deeply care about engagement and emotionally connecting with the brands they buy through shared values like transparency and sustainability.

Services: From a premium membership providing exclusive access to a fashion show or the opportunity to connect with an expert to get advice. For instance, services can be offered online and offline as part of the shopping experience or as a separate service. For example, in 2017, LVMH developed their e-commerce site 24 Sèvres, which offers exclusive designers and pieces. Their loyalty program rewards consumers with benefits like invitations to private sales and personalized shopping advice.

Community: The sense of belonging to an exclusive group of people is a key part of the luxury experience and can be nurtured by the brand.

It is about creating long term relationships, not a high volume of one-off transactions.

To be successful, the business model needs to evolve.

The two sides of the coin need to be balanced to ensure profitability and contribution to growth.

• Generating value for the business. Beyond sales, direct-to-consumer represents the opportunity for luxury brands to build long-term relationships with consumers. By having high-touch personalised service as part of their DNA, luxury brands have tremendous know-how in gathering qualitative data on their consumers. If leveraged properly, these relationships will bring greater value to the business. With increased lifetime value and engagement. If reimagined, the new propositions can create new revenue streams – services, and exclusive memberships.

• Investment required. To deliver this new type of value proposition, companies will need to harness existing capabilities such as service and expert advice. To build new capabilities – content creation, community engagement and experience. For a smooth consumer omnichannel experience companies will have to hire new skills and change their ways of working. They will need to measure performance not only to drive sales but also engagement and retention.

Many consumers will have changed their habits during the pandemic and will likely keep them at least for a while. Hopefully, luxury brands can use the next few months as an opportunity to accelerate their digital transformation.