Diego Abba: Direct to Consumer is Shaking Up the Luxury Goods Market

Published on January 9, 2019

Watches from Switzerland, fine wine from France, designer handbags from Italy: As long as consumers have disposable income there will always be a demand for luxury goods.

The luxury shopping experience traditionally involves browsing seasonal collections of expensive imported items. Some consumers, however, are willing to go the extra thousand miles and travel to the country where their desired product is manufactured. There, they can stuff their suitcases full of luxury goods whilst bypassing price markups associated with import costs.

But this step is no longer necessary, thanks to savvy retailers which partner with luxury boutiques to provide direct-to-consumer (D2C) imports on e-commerce platforms. Such platforms not only offer consumers lower prices for luxury items, they also help retailers adapt to emerging trends in the luxury market.

Before we analyse how D2C imports work, let’s take a look at the current state of the luxury goods market.

Millennials and Gen Z

By 2025, millennial and Generation Z consumers are expected to represent 40% of the luxury market. Last year, 18 to 35 year olds contributed 85 percent to its growth.

Although the high price of luxury goods often surpasses the spending power of younger generations, who on average have lower incomes and more debt compared to their older contemporaries, it does not dampen their purchasing ambitions. In fact, a study from the Pearl Source revealed that nearly one-third of millennials “would forgo paying down debt if they could obtain more disposable income for luxury purchases.”

On paper, this is great news for retailers: a generation of luxury good enthusiasts undeterred by a lack of money. But a closer inspection of consumer habits reveals that this trend does not guarantee benefits for traditional luxury boutiques. Millennial and Gen Z consumers are more tech savvy than older generations and are particularly accustomed to online shopping. This presents a problem for many luxury brand retailers whose foundations are built on the use “traditional materials and long-standing brick-and-mortar stores.” Capitalising on emerging digital trends in the retail industry is thus vital to tapping into the young market.

China – a booming market

A lack of global price harmony is another important market issue, especially in Asia where luxury good prices are inconsistent and often more expensive than in other countries.

The Chinese market is a good example of this. According to Exane BNP Paribas, “Luxury goods purchased in Italy and France in 2017 cost 22 percent less than the global average, while the same goods in China were about 21 percent more expensive.” For this reason, Chinese consumers are willing to forgo the traditional shopping experience and travel large distances to purchase luxury goods. They are in fact among the most avid shopping tourists in the world.

The Spring 2018 Bain Luxury Goods Worldwide Market Study forecasts that “the Chinese consumer and the millennial generation remain the keys to the growth of an industry that could reach $459 billion globally in sales by 2025.” Right now, Chinese and Americans buy more than half of the world’s luxury goods – and many Americans are also willing to travel for better deals.

Clearly, attracting young consumers and tapping into the Chinese market is pivotal to future success for luxury retailers.

Direct-to-Consumer imports – a disruptive tool for success

D2C companies are transforming how people shop by allowing customers to buy imported goods from the comfort of their home. By sourcing products directly from retailers in Italy, France, or whichever country, the D2C model cuts out the importers, distributors and local retailers which ramp up the cost of importing goods. With D2C imports the value chain becomes much shorter, meaning consumers can purchase luxury goods at significantly lower prices. Customers also buy at the local retail prices, another advantage seeing as imported luxury goods are typically in short supply and thus more expensive than in the country where they were manufactured.

This business model is ideal for both attracting young consumers and for tapping into the Chinese market, as it offers lower and consistent prices and eliminates the need for expensive shopping trips abroad.

But there are additional benefits. With traditional imports, retailers rely on wholesale distributors to obtain products. They need to buy items in bulk and predict which product will sell best. Normally this means retailers will stock items according to seasonal preferences, leaving them with a less diverse range of products. By eliminating this step, the new generation of online retailers gains a much greater degree control over which products they sell, allowing them to respond to variations in consumption habits and customer preferences. This is a considerable advantage for online luxury retailers, as they can curate more original product lines “designed with a trendier, millennial customer in mind.” D2C imports eliminate the need to abide by the traditional fashion calendar, providing a further competitive edge as they can market collections not found in department stores.

Challenging the big brands

D2C imports present aspiring retailers with an outstanding opportunity to capitalize on emerging trends within the luxury market.

Original online platforms are crucial to engaging younger consumers, interested in below-market prices and accustomed to digital shopping experiences, whose diverse preferences are “disrupting the luxury paradigm.” Retailers can also tap into the booming Chinese market, where luxury good prices are higher than the global averages and consumers demonstrate a clear interest in buying directly from foreign boutiques.

If online retail continues to grow and if marketing efforts shift from traditional media to social media, the entire fashion paradigm will change. This shift, coupled with the rise of temporary stores and online distribution, will generate the perfect environment for a new generation of luxury brands to blossom and to speed up the product life cycle of all luxury brands.In such a scenario, D2C retailers will be able to compete with some of the world’s biggest brands, which until now have dominated the luxury market.

Diego Abba is a Columnist at Grit Daily. he is the CEO of Italist.

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