By guest author Laure Guilbault from Vogue Business
As e-commerce mitigated the impact of store closures during the Covid-19 pandemic, it has become the ground of a fierce competition between the two conglomerates.
Ian Rogers of LVMH and Grégory Boutté of Kering, the chief digital executives of the two largest luxury conglomerates, were back to their offices as soon as Paris opened up on 11 May to continue working on bolstering its main sales channel, e-commerce.
“We didn’t imagine that one day we would have to close our entire store network,” says Kering chief client and digital officer Grégory Boutté, calling via video chat on Microsoft Teams, speaking from his office under listed wooden beams in the group’s head office on the Left Bank.
“A lot of the hard work in this has been very simple: my fulfilment centre is not open; how do I ship to my customers? How do I keep the fulfilment centre safe?” says Rogers, in a Zoom call on a giant screen from his office in LVMH headquarters on Avenue Montaigne.
The pandemic’s forced store closures have underscored the importance of competitive luxury e-commerce strategies; LVMH and Kering have each been refining their digital presences for nearly two decades. Historically the two conglomerates have adopted different approaches: Kering spearheaded digital adoption at the group level, with operations outsourced to Yoox Net-a-Porter for all brands except Gucci to build capability. LVMH put forward a brand-level strategy with limited central input and has added a multi-brand website 24S (originally 24 Sèvres), in 2017, though after three years, it remains a small and unprofitable part of the company.
It’s thought the overall luxury e-commerce multi-brand business has struggled to turn a profit. Shipping and returns are costly, customer acquisition is notoriously high, and investments in IT is continual as expectations shift. Farfetch, founded in 2007, is still loss-making though it’s targeting profitability by 2021; losses at Richemont’s online distributors, which include Yoox Net-a-Porter Group (YNAP) and Watchfinder, widened to EUR 241 million in the year ended March 2020, its worst-performing division. Mytheresa is the outlier, profitable since it started. LVMH and Kering do not comment on profitability. Bernstein analyst Luca Solca says it’s reasonable to assume they are profitable.
While e-commerce is expensive, it’s imperative for fashion, expected to represent between 15-17 per cent of luxury sales this year, up from 12 per cent in 2019, according to Solca. Bain expects e-commerce to make up 30 % of the luxury sales by 2025.
To win, LVMH and Kering will have “to figure out how to offer a digital experience that is outstanding and radically different from any other e-commerce players”, says Benjamin Simmenauer, a professor at Institut Français de la Mode.
E-commerce strategies by group and by brand
Kering is currently bringing e-commerce in-house after it kickstarted with YNAP in 2012. Through the joint venture — 51 % owned by Kering and 49 per cent by YNAP — YNAP was in charge of development, maintenance, logistics and the technology platform while Kering had control over the brands’ online stores, product assortment, editorial content, art direction and digital communication.
Having learnt from the business, Kering is now going it alone. “Having robust e-commerce is a strategic asset beyond the rationale that we had in the past. This crisis reinforces our decision to invest early on in this area and to bring our e-commerce activities in-house, as per Gucci’s model,” Boutté said.
Tapping the success of Gucci’s online operations, by taking e-commerce operations in-house on a shared platform, will mean taking a more innovative stance. Gucci, which launched e-commerce in 2001 and is among the industry’s best in class, was an early adopter of WeChat, has a large merchandise range online and a focus on editorial. The megabrand generated around 10 % of its retail sales through e-commerce in the first quarter of 2020, considered “very good”, according to Solca. In 2019, e-commerce represented less than seven per cent of the retail sales of the Kering group.
At LVMH, e-commerce maturity varies across brands. It centralises technology, clienteling and analytics, like Salesforce for customer relationship management and Google for tracking. Alcméon, a startup housed in LVMH’s La Maison des Startups, is used for one-to-one communications. This lets the company compare conversion rates, bounce rates and cost of customer acquisition, all key to reaching profitability.
The digital experience competition
“Our physical stores provide among the best experiences in the market,” says Kering’s Boutté. “Our ambition is to do the same thing online. We will achieve that if we control the experience end to end,” he says, citing assortment, pricing and shipping. During the crisis, Boutté says consumer engagement has been “very high”. Still, Kering and LVMH will have to compete with multi-brand e-tailers who benefit from their wider choice of brands, versus single brand platforms.
For LVMH, Rogers says WeChat and WhatsApp became the real sales channels during the pandemic driven by direct contact between sales associates and customers. “We know that people want to speak with sales associates from their phones and their living room, they want to receive their product in a luxury way at home, they want great services when they do kerbside pickup, they want a video walkthrough of the collection by the sales associates.” LVMH also extended cross-border shipping and increased availability of merchandise online.
Investments in more immersive online experiences could help, and as fashion shows move online, they’ll become a necessity. LVMH and Kering houses have released virtual showrooms for buyers. Digital shows are coming up next as the viability of in-person fashion shows is called into question. It’s not out of reach, LVMH Rogers says: “For the designers, there’s an opportunity here to do something completely new. Paris Fashion Week is a calendar, and the brands fill in the calendar with creativity. You can do exactly the same thing online.”
The China opportunity
With Chinese consumers set to represent 50 per cent of the luxury sales by 2025, according to Bain & Company, the challenge for the industry is to capture the China e-commerce opportunity.
“Luxury houses were very reluctant until now to enter Chinese platforms as you get products that come from various sources including peer-to-peer and brands want a more controlled kind of environment,” says Bain partner Claudia D’Arpizio. “But due to the growing need to have an online footprint in China, they are now in the process of partnering or developing their own e-commerce website.”
“Platforms such as Tmall and JD.com are very powerful in terms of traffic and logistics,” says D’Arpizio. Indeed, JD.com and Tmall are going after luxury purchases: in 2019, JD.com merged its luxury platform Toplife with Farfetch China, and Alibaba teamed up with YNAP to launch a Net-a-Porter flagship on Tmall Luxury Pavilion.
But even with Chinese shoppers focused on these platforms, LVMH and Kering are taking a tentative approach. Leading brands are sticking to their own e-commerce operations for the moment. (Both Louis Vuitton and Gucci started their e-commerce operations in China in 2017.)
“I believe that in the long run, Chinese platforms and top luxury houses will be partners. The platforms bring consumer data, and luxury houses bring the high-quality environment. The leading houses will be the last one to join,” Ortelli & Co managing partner Mario Ortelli predicts.
None of the Kering brands are on JD.com. Kering’s Balenciaga and LVMH’s Kenzo have just entered Alibaba’s Tmall Luxury Pavilion. Two other Kering brands — Alexander McQueen and Bottega Veneta — are already on Tmall, while Kenzo is the first fashion brand of LVMH to join the platform (LVMH’s cosmetics brands except for Parfums Christian Dior are already there).
“We find Luxury Pavilion very interesting because it separates value from luxury and allows storytelling of the brands,” says Rogers. “Maybe it makes sense for Kenzo, probably it doesn’t make sense for Louis Vuitton. We try to evaluate the platforms for what they are and think of the requirements on a brand by brand basis.” Rogers notes that Kenzo joining Tmall “was completely unrelated to the [Covid-19 crisis] circumstances”.
China is also where digital trends emerge. “The big wave that we are all catching now is live streaming in China,” says Rogers noting that the LVMH brands aren’t using it in an institutional way at this point.
The executives are likely to watch what the other is doing while considering what the table stakes are in e-commerce.
For Doug Stephens, founder of consultancy firm Retail Prophet, the luxury houses need to go further moving forward: “Brands need to be prepared to make radical investments to carve out their own experience and become a true destination online.”