Luxury brands embrace widespread digital revolution

For global luxury brands, remaining competitive means finding the right balance between exclusivity and availability, especially online, according to a recent study by Deloitte.

“Global luxury brands should take advantage of evolving technological and consumer demands to help boost profits and remain competitive,” Deloitte says in its second annual Global Powers of Luxury Goods report, which provides an outlook on the global economy and a forward look at the changing nature of the luxury consumer, notably through the impact of technology.

The study, released locally by Philippine member practice Navarro Amper & Co., found that consumers of luxury goods are now turning online for their needs—a challenge for luxury brands, which have been known to be resistant to new technology.

“Today’s luxury consumer is increasingly digitally savvy, time-sensitive, exacting, and experience driven,” Navarro Amper & Co. managing partner and CEO Greg Navarro says in a statement. “The luxury industry faces a number of challenges in engaging such a consumer, especially since this industry has been known to be a bit resistant to new technology, such as e-commerce.”

Why have luxury brands been resistant to technological advances?

Deloitte points to their need to “protect their brand heritage and maintain a reputation of uniqueness and exclusivity.”

However, “digital” and “luxury” are no longer mutually exclusive concepts.

A 2014 Deloitte survey of 1,000 high-income earners across Europe, for instance, found 45 percent of luxury consumers going online to search for information on new brands—with the proportion going up to 58 percent if limited to millennials, or consumers under 34 years old.

“The relationship between digital and luxury can no longer be ignored,” Deloitte says in a statement, adding that for technology to be effective in the “luxury space,” companies must not limit its use only to the marketing function—they must “integrate it throughout the entire value chain.”

“In particular, we’re looking at three main value chain touchpoints where luxury brands are likeliest to positively affect return on investment if they make appropriate technology investments: product development, CRM systems or smart analytics that allow them to capture detailed consumer information, and enhanced customer experience,” Navarro adds.

Going forward, luxury brands must focus on identifying the right channel for marketing, understanding purchasing motivations of luxury consumers, and addressing the differences in benefits between shopping in-store vs online, Deloitte says.

Even as millennial consumers are going online, traditional “brick and mortar” luxury stores, where luxury consumers can touch and feel their merchandise and talk with store staff, are still extremely important to the luxury industry.

According to the Deloitte survey of high-income earners, three in every four respondents (75 percent) cite “the ability to see and touch goods” as the most important benefit to buying luxury goods in-store, followed by “the ability to take goods away immediately,” which was cited by half the respondents (49 percent).

“Some luxury consumers see their purchases as investments, so they’re still looking for the complete experience when they shop: They want to feel and try out the merchandise, receive high-level service from knowledgeable store staff, and even build relationships with these staff,” Navarro says.

Filipino consumers, meanwhile, purchase luxury goods to accentuate their status, placing priority on high brand recognition among their peers or the public, according to a report by independent strategic market research data provider Euromonitor International.

However, the more affluent and sophisticated Filipino consumers are increasingly shifting to “absolute luxury” brands, which are characterized by exclusivity and understated luxury. For this segment, differentiating themselves from others is a big purchasing motivator.

The Euromonitor report also showed that in the Philippines, luxury boutiques dominated luxury goods sales in 2014, with Filipinos preferring to shop physically for luxury goods to ensure product authenticity. The lush in-store retail experience offered by luxury brands is also an added attraction for Filipinos, who look at luxury shopping as an indulgence.

As for the economic climate for luxury goods companies, the Deloitte study says that while on balance it is positive, it comes with risks and problems.

“On the plus side, the economies of the US, Europe, and Japan all appear to be on the rebound. On the negative side, economic growth in three of the four BRIC economies has either stalled or decelerated, the exception being India. Among the risks going forward are the possibility of a rise in energy prices, a drop in asset prices, and potential geopolitical shocks in such places as the Middle East and the South China Sea,” Deloitte says.

“In the Philippines, positive economic conditions and the rising disposable income of consumers are expected to continue fueling demand for luxury products,” it adds.

Data from Euromonitor has also showed that exposure to international fashion trends through the Internet, overseas travel, and media sources will raise Filipinos’ awareness of luxury brands, thereby increasing their interest in owning them, Deloitte notes.