Consumers with digital identities will exert a significant influence over half of all luxury product sales, and the distinction between specialist boutiques and online stores is already fading fast, according to a study by In Contactlab and Exane BNP Paribas, which concluded that the success of any luxury brand will depend increasingly on its capacity to integrate its users' digital profiles with diverse sales channels.
The study report, entitled 'Digital Frontier: The New Luxury World of 2020', estimates that between now and 2020 the luxury goods market is set to grow significantly, with digital's influence on total sales volume rising to 50%.
A transformative process is underway in the luxury industry with an entirely new paradigm emerging: digital contactability. As early as 2014 it sustained a quarter of sector turnover and is set to be a key growth driver across the industry, going on to impact some 50% of revenues by 2020. Implicit in this development is the rise of e-commerce, which is predicted to increase as much as threefold over today's size.
According to the report, over the next five years, luxury brands will get to know virtually all of their customers by name: in fact, customers who have digital identities will represent around 90% of each brand's user base, between those who are registered users (45%) and those clients contactable through email or push notification (41%).
The actions of these digital customers will in turn influence over half of brand global sales revenues. The development of digital assets in conjunction with the adoption of an evolved digital customer engagement strategy is crucial then to determining fashion brands' success or loss of competitiveness. This in itself does not signify the impending obsolescence of brick and mortar stores, but rather the contradistinction between a physical presence and online sales will no longer make sense.
Digital contactability is and will continue to be the key factor in unifying the physical and the digital in a relationship of mutually valuable exchange.
E-commerce already accounts for around 6% of global brand turnover - an increase of over 50% from 2013. But from now until 2020, that number is expected to grow to at least double - and possibly even treble - the current volume. By 2020, e-commerce is predicted to account for up to 18% of total brand revenues.
However, this is just the tip of the iceberg: cross-channel customers are really driving the market and, by increasing their own expenditure year-on-year, will progressively impact a greater degree of global expenditure.
"If we look at retail turnover we can see that only a quarter of it stems from digitally contactable users; the other revenue is generated by anonymous users (another quarter), and users who are registered but who cannot be contacted for one reason or another," explained Massimo Fubini, CEO for ContactLab. "Digitally contactable users spend 20% - 30% more both online and in-store, so if brands learned to identify and make contactable this anonymous 'block' it would unlock hug revenue-generating potential."
The number of customers who are registered and are digitally contactable continues to rise. These consumers are high spenders both in-store (+16% compared to unregistered users) and cross-channel (+60% compared to those who only shop in-store), and their average spend on luxury goods increases year-on-year (from 30% in 2011 to 37% in 2014).
What emerges from these findings is a customer profile that effortlessly shifts between the physical and digital, and which draws few distinctions between the two areas. To distinguish themselves from the competition in the eyes of these customers, brands need to better satisfy their needs, make their lives easier and make the relationship ever more personalised.
The continuing relevance of POS will depend on the integration of customer digital profiles with in-store actions. Even today this is apparent in the diffusion of the ROPO (Research Online, Purchase Offline) phenomenon, practised by 60% of consumers - and set to rise to 80%. This should be seen as something of a wake-up call for brands that have not yet become fully established in (or who have still to complete their penetration of) the digital world.
The study, which looked at the market and its revenue from an integrated, multichannel perspective, suggests a doubling of forecast revenues generated by customers who have a digital identity. In particular, the extra spending directly attributable to digital customers in 2020 will impact approximately 15% of the turnover of luxury firms, coming from 5% of customers in-store, 6% of online customers and 3% of cross channel customers.
"Given the disruptive impact of digital evolution for luxury companies, digital strategy should increasingly be guided by senior management with implications across the rest of the organisation and also on revenue, profit attribution by channel and on the logics governing the reallocation of marketing budget from offline to digital," said Marco Pozzi, Senior Advisor to ContactLab.
"To say that luxury markets will be responsible for an increasing percentage of growth is common. What's less common, and more precise, is to say that the entire luxury industry is radically shifting," concluded Luca Solca of Exane BNP Paribas. "Physical points of sale will remain fundamental and indisputable assets, however, development and adoption of digital competencies will be a necessary condition for brand survival."