19pc of luxury sales will be online by 2025

Luxury consumers are increasingly using digital channels within their purchase paths, with a mere 22 percent starting and ending their journey offline.

A new report from McKinsey entitled “The age of digital Darwinism” highlights luxury brands’ growing need for digital competency, as even boomers spend significant time online and on smartphones. Whereas the conversation in the last few years has largely been about translating a luxury experience to a screen, McKinsey now sees expectations hinging on digital impacting the bricks-and-mortar environment.

Digital drivers
Ecommerce sales of luxury goods are growing rapidly. Today, online sales of personal luxury goods are $20 billion, making up 8 percent of total luxury sales.

By 2025, McKinsey projects this figure will more than triple to $74 billion, with about one in five luxury sales happening online.

Currently, monobrand online stores are seeing the greatest share of purchases, but multibrand platforms are growing their sales more rapidly, which may shift the lead in the future. These etailers or marketplaces were born digitally, giving them an advantage over brands having to adapt legacy systems.

While much is made of younger generations’ digital habits, baby boomers also display significant social media usage and browsing time. Three-quarters of baby boomers are on social media, and they spend 17.5 hours on the Internet, compared to millennials’ 16.4 hours.

Consumers across age groups are browsing online. Image credit: BMW

With more options available to shoppers, most consumers’ purchase paths today are nonlinear. They typically consult multiple touchpoints before buying, with Chinese consumers using an average of 15, the most out of any nationality.

In a more digital luxury environment, consumers are playing more active roles, whether it is sharing content about brands on social media or participating as a secondhand seller or curator.

McKinsey notes that in an increasingly digital ecosystem, those that are poised for success are adopting what it dubs a “Luxury 4.0” operating model. Based on Industry 4.0, which integrates customer data with production mechanisms and design, it aims to create a seamless process from concept to consumer.

While luxury is centered on tradition and craftsmanship, 60 percent of luxury managers see their brand selling 3D-printed goods sometime in the next decade.

Data is also going to be key in customer engagement, bringing the concept of the handwritten note into the 21st century. As personalization becomes the norm, marketers will need to focus on delivering a customized and individual experience to many consumers using what the brand has learned about them.

Contextual marketing also uses data to determine the needs and wants of a particular client depending on where they are or what they are doing.

Rethinking omnichannel
Digital is changing consumer expectations, as they expect to be entertained and engaged in the offline space as well. “Reverse-omnichannel” means that rather than digital needing to live up to the store, the store now has to live up to digital.

Luxury brands are also facing competition from outside the industry.

Amazon is changing customer behavior, turning consumers into online buyers and making pushes into categories such as beauty and fashion. Amazon also accounts for 55 percent of consumer product searches, with shoppers starting their journeys on the platform (see story).

Luxury also has to contend with rises in alternative ownership.

The convergence of consumers’ thriftiness and desire for sustainability is creating new models for consumption, such as rentals and secondhand marketplaces. In a webinar from Euromonitor, titled "The New Consumerism: Impact on Beauty and Fashion Industries," two of the research firm’s analysts pointed out that brands in these categories need to regroup and deliver experiences and products that consumers are willing to pay for to remain competitive (see story).