Success Online Requires More than Luxury Watches

(Bloomberg Opinion) -- After dismal updates from luxury goods groups this week, the company behind Cartier could be forgiven for a 47% slump in sales in its first financial quarter. More disappointing is that Richemont’s powerful digital platform did little better..Sales at the company’s online distributors, led by Yoox Net-a-Porter, fell 42% in the three months to June 30, a much worse performance than analysts had expected..That raises questions about Richemont’s strategy to expand its online platform. Now that the Swiss luxury group owns 100% of YNAP, it has the option to sell it, if it so desired, and there would be suitors. But it should stay the course..Across the market, demand for shopping via the click of a mouse or tap of a smartphone is rising strongly. Just look at the performance of mid-market online retailer Zalando SE, which on Wednesday upped its sales and profit forecasts..Richemont should clearly learn lessons from how it managed the impact of the pandemic. YNAP was hurt by warehouse closures. The decision not to use heavy discounting to clear unsold stock was risky. Zalando was able to keep all its warehouses operational..This doesn’t invalidate the current strategy. When it comes to pricing, Richemont chose to preserve its relationships with the fashion brands that supply YNAP by not slashing the prices of their goods. As luxury houses cut back on distribution via third-party sellers, this could prove wise in the longer term..There is also evidence YNAP’s e-commerce know-how is supporting Richemont’s other businesses. Online sales fell by a less startling 22% if the digital arms of Richemont’s brands such as Cartier are included..YNAP’s joint venture with digital retailer Alibaba Group Holding Ltd. and the opening of a dedicated Cartier boutique on its luxury Tmall platform helped sales when stores in China were closed..Demand for online shopping is likely to remain strong even when stores reopen. And that is going to apply to the top end as much as mid-market clothes and accessories. Digital’s share of luxury sales could more than double to 30% by 2025, according to Bain & Co..There will always be detractors who question the profitability of online luxury. Logistics expenses, particularly when it comes to product returns, offset the savings of having no rental bill. New warehouses and technology consume ever more investment to meet the demands of impatient, big-spending customers like YNAP’s..Even so, Richemont is on the right side of the trend with its online push. Indeed, the lesson from the last few months could be that the group should pare back its collection of fashion houses, such as Dunhill, Chloe and Peter Millar. That would allow it to devote the extra time and capital that the online and core watches businesses seem to need..This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners..Andrea Felsted is a Bloomberg Opinion columnist covering the consumer and retail industries. She previously worked at the Financial Times..©2020 Bloomberg L.P.

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Success Online Requires More than Luxury Watches

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