Digitalize or die: will the luxury industry survive?
Madonna once said ‘’we are living in a material world ’’, however, is it still true?
The Digital Age is being recognized as capable of disrupting not only how technology operates, but also how other industries operate, including the luxury one.
The digital world has changed the way people shop, forming new habits that are hard to unlearn. Carlo Boselli, the CEO of luxury retailer La Rinascente, has said that
“The luxury industry is going through a huge transformation ”.
According to him,
“Technology is reshaping the industry and is transforming the old knowledge of architects, designers and artisans into the digital age ”.
Due to the increasing complexity of customer interactions, the role of digital in luxury retailing is enlarging. Digital technologies allow consumers to personalise their shopping experience by creating virtual shopping baskets, searching for products online, and exploring product details. (Girod, 2021)
Digitalization, together with the sharing economy, makes high-end products more affordable to the mass; thus making them less limited, reducing their rareness and uniqueness. Obviously, customers that have always used luxury items as a demonstration of their status cannot be satisfied with such changes, however, online is the new reality which has its own rules. (Belk, 2020)
According to Bain & Co, by 2025y, 30% of the luxury sales will take place online and consequently, Luxury Brands won’t have any other option but to adapt to these changes. Nowadays’ luxury customers value their time, and this is the luxury that online channels can provide.
With the means of digitalization and AI, it is easier for brands to analyze and categorize their customers and to target their most exclusive offers to the right clients.
Technology is a powerful resource that luxury brands can use in their favor. Big data and advanced analytics provide brands with the opportunity to offer products and services uniquely tailored to each customer’s need, making consumer relevance in the luxury world even more pervasive. Nevertheless, digitalization is not only disrupting traditional luxury marketing laws, but a whole new industry is born. Industry 4.0, a fully-digitized model for manufacturing, is the inspiration for luxury 4.0 (Achille et Al.). Thanks to digitalization, operations are going to be more agile and responsive, without losing the core characteristics of luxury products such as: personalization, heritage, and craftsmanship. If high-end brands want to stay on the top of the “desired” brands, simply selling marginally on the internet is not an option for most. Some are adapting to the new digital era, but the majority have not shifted their investments towards this direction yet.
By 2040y almost 95% of purchases will be carried out through e-commerce (eCommerce Statistics). This expectancy might be right for simple retail items, but the luxury sector seems to be a bit behind. Luxury products were meant to be bought only in physical stores and not online. Up until now.
In recent years the Internet has emerged as a viable alternative to traditional stores, even in cases where consumers are buying high-end products. Most of the luxury brands are facing a great challenge: leverage the digital innovation trends as well as creativity to create a powerful synergy in order to stay relevant in the long run.
The years ahead will call on luxury companies to evolve and be more in tune with the changing societal landscape. They will have to innovate in ways that are slowly but surely rooting in our evolving culture.
To understand to what degree is this phenomenon exemplary for "disruptive luxury", we might just look at some data regarding Millennials (i.e., digital natives). It is believed that by 2025, they will account for as much as 50% of the total luxury market (Danziger, 2019). Evidence of this consideration can be found in Gucci, which in 2017 claimed that 50% of its sales came from millennials themselves (Danziger, 2017).
So are we really leaving behind traditional luxury ways of operating? If the future is digital, then companies operating in the luxury industry will absolutely have to look for a way to be able to maintain and/or increase their sales at this juncture. The argument is not limited to sales, but also extended to the communication strategy that allows the various brands to represent their true value to current and potential customers.
However, at the same time, traditional luxury laws are not likely to disappear anytime soon. (Belk, 2020) The real challenge will be pursuing all this while trying to preserve the "classic" laws that have governed this market for dozens and dozens of years.
Sources:
Medina, A. (2020, May 7). Global personal luxury goods market set to contract between 20 - 35 percent in 2020. Bain. Retrieved September 26, 2021, from https://www.bain.com/about/media-center/press-releases/2020/spring-luxury-report/.
Achille, A., Marchessou, S., & Remy, N. (2018, February 23). Luxury in the age of digital Darwinism. McKinsey & Company. Retrieved September 26, 2021, from https://www.mckinsey.com/industries/retail/our-insights/luxury-in-the-age-of-digital-darwinism.
Belk, R. (2020). The changing notions of materialism and status in an increasingly dematerialized world. In Research Handbook on Luxury Branding. Edward Elgar Publishing.
DeAcetis, J. (2020, July 10). Digitize or die: Technology makes luxury brands more accessible. Forbes. Retrieved September 26, 2021, from https://www.forbes.com/sites/josephdeacetis/2020/07/09/digitize-or-die-technology-makes-luxury-brands-more-accessible/.
Danziger, P. N. (2018, March 16). Gucci's cracked the Luxury code with Millennials, thanks to its Dream team Of Bizzarri And Michele. Forbes. Retrieved September 26, 2021, from https://www.forbes.com/sites/pamdanziger/2017/11/16/guccis-cracked-the-luxury-code-with-millennials-thanks-to-its-dream-team-of-bizzarri-and-michele/?sh=16efdeb15239.
Girod, S. (2021, Jun 26). The Amazon Effect: How Luxury Brands Are Getting More Intimate With Customers. Retrieved from Forbes: https://www.forbes.com/sites/stephanegirod/2021/01/26/the-amazon-effect-how- luxury-brands-are-getting-more-intimate-with-customers/?sh=2c64ce1977ac
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