In January 2005, I was approached by Interactive in Media Retail Group (IMRG) to contribute to their E-Retail 2005 Annual Report, here’s an extract…
[Down the full IMRG Report Here]
FASHION / LUXURY ONLINE
In 1999 / 2000 during the internet boom Fashion and Luxury brands were very reticent to become involved in selling online as there were considerable risks to their brand reputations and a substantial investment was required.
Following this reluctance to risk internet e-commerce exposure, two online business models subsequently developed simultaneously.
Firstly pure play full price internet retailers, such as Net-a-porter.com, e-luxury.com, asos.com developed, (together with unsuccessful start ups such luxuryfinder.com, luxlook.com) and secondly discount fashion / luxury pure play e-retailers such as Yoox.com and Bluefly.com were created to resolve the issues of unsold inventory at the end of fashion seasons.
However traditional off-line UK based multi-brand retailers such as Harrods, Harvey Nichols, and Selfridges have not translated their highly regarded bricks and mortar retail fashion operations into successful commercial online models.
One of the primary reasons off-line department stores have been unable to develop successful online e-commerce sites is that the merchandise being sold through the department stores is often not owned directly by the store as it is being sold through concessions directly operated by fashion and luxury brands within the store.
This lack of common stock ownership has created a substantial barrier to department stores creating integrated e-commerce operations.
This logistics issue together with major initial scepticism of the online sales potential for high priced merchandise has resulted in leading department stores being unable to exploit their huge existing offline brand values as premium retailers within the online market place.
In effect department stores have become “landlords” rather than retailers for fashion brands, which historically made financial sense in creating consistent earnings and lowering volatility of earnings from offline fashion retailing.
However fashion e-commerce has the ability to improve both operating margins and inventory risks more dynamically when compared to the offline business model.
The success, profitability and continued rapid growth of online pure play businesses such as Net-a-porter.com, Yoox.com, and Asos.com is starting to result in both off line stores and major fashion brands re-evaluating the potential for online sales operations.
US retailer Neiman Marcus Direct reported that website sales in the 12 months to July 2004 had increased by 50% to $240 million. The consistent success of Neiman Marcus in the USA in driving sales growth demonstrates the potential value department stores can achieve within a well executed online retailing strategy.
A further indicator of the rising interest by major fashion brands in online activity has been the successful trial by the fashion world bible Vogue magazine in the USA, which launched a website in Sept 04 that only allowed magazine advertisers to sell merchandise through the vogue website once they had purchased at least one full priced magazine ad page (currently around $100,000 per page), Vogue estimated that the website created at least 30 additional ad pages for the magazine. Vogue is intending to repeat the website operation to match the launch of the Mar 05 Vogue magazine.
The successful online e-retail business model has the ability to increase the operating margins in both fashion and luxury merchandising and it has now been proved that websites which provide consistent high standards of customer service, together with world wide luxury fulfilment operations can develop very substantial, highly loyal, global customers, which gives e-commerce a global advantage against off-line competitors.
Mark Quinn-Newall
Co-Founder Net-a-porter
This archive extract was first Published January 2005, in Interactive in Media Retail Group’s (IMRG) E-Retail 2005 Annual Report [Down the full IMRG Report Here]
