Of all the e-commerce pioneers that have tried to appeal to the public, perhaps none has had such an arduous climb as luxury e-tailers.
After all, how much do we expect a customer who has made shopping at Saks Fifth Avenue in New York City a part of his or her regular routine to transfer the experience online? Much of the joy of luxury shopping has to do with the in-store experience.
For those who have ever experienced the incomparable level of service offered at Tiffany’s, the thought of a solo online shopping experience at Tiffany.com seems watered down at best. The site is well-done, but it’s simply not the same.
Likewise for buying Ferragamo neckties at the incomparable Neiman Marcus department store in Dallas, Texas. The same ties at NeimanMarcus.com just don’t have the appeal without the elegant dark wood fixtures and the seasoned, professional salesmen.
So what lies ahead for luxury e-tailers? When the in-store experience is so crucial to the transaction, can luxury e-tailers really expect to survive? At a time when even mass appeal e-tail sites are hanging on by a thread, how does a business that focuses on only the top 0.5 percent of affluent Americans have a fighting chance?
Spending with Muscle
The truth is that the limited audience for luxury e-tail sites is not necessarily a roadblock.
According to Forrester Research, this exclusive consumer club is a highly active group of spenders. In fact, Forrester reported that consumers who have a net worth of US$1 million or more spend $100 per month on Internet purchases. That’s roughly twice the amount most online buyers spend.
In this case, time spent online correlates directly with expenditures, since wealthier shoppers tend to stay online an hour more per week than other shoppers. The combination of more time to shop and generous disposable incomesseems to result in strong spending.
Nonetheless, one has to wonder whether these spending efforts will be strong enough to sustain luxury sites that have often limited their inventory to watches, perfume, novelty electronics, diamonds and leather accessories. The market for Feng Shui aromatherapy candles is at best, finite.
Room for Improvement
Despite a constituency that is liberal with a buck, or maybe because of narrow product selections, luxury sites have not found a magic formula for survival or success. Since dot-coms rise and fall at record speed, even luxury sites do not have the luxury of time to figure this formula out.
Still, the key to their salvation could be as fundamental as good old common business sense. First, you know that if you are appealing only to 0.5 percent of the most affluent Americans, you need to broaden your audience. It is unlikely anyone in the emerging world of electronic commerce can count on longevity with a customer base this small, no matter how much money they have.
Second, did luxury sites simply overlook the critical importance of profit margin? Fine jewelry, upscale gifts and high-end writing instruments all generate strong profits, but luxury sites’ favorite son, wristwatches, do not. It seems obvious that attracting more customers and diversifying the offerings with an emphasis on big ticket and high profit items could give some of these sites a lift.
Most Undervalued Customer
Further, is it possible luxury sites are missing the most essential customer base — corporations? Yes, most luxury sites direct us to “click here for corporate gifts,” but graphically it’s often almost an afterthought.
Corporate gifts never go out of style. They rise and fall a bit based on the economy, but they are as much a part of corporate America as stocks.
Luxury sites should form alliances with high profile corporations. They would generate some consistent, dependable sales, and it wouldn’t hurt the credibility factor if users saw “Exclusive Corporate Gift Provider for AT&T” on the home page.
Harnessing the power and established image of corporate clients could go far in ensuring a healthier bottom line.
Not all is rough and tumble in the world of luxury e-tailing. Exhibit A for a potentially sustainable business model is Ashford.com. Why? In large part, because it already has a reputation as a tight ship that is run like a business rather than as an online experiment.
Ashford’s move up the luxury e-tail ladder also has to do with an emphasis on service. When holiday sales were anticipated to test the limits of the staff, Ashford added staff. With customers still smarting from last year’s delivery debacles, Ashford promised next-day delivery on most items.
Smart marketing and creative alliances haven’t hurt either. Last week, Ashford revived its marketing agreement with Amazon.com in a slick deal that required no up-front money from the luxury e-tailer. In fact, Ashford will pay as it goes for e-mail promotions and package inserts via Amazon.
Eye On the Prize
Finally, Ashford.com is the living, breathing example of the necessity for e-tailers to establish and adhere to measurable goals. The company has already declared its intention to realize a profit in this calendar year.
Take notes, luxury sites. If you want to attract and keep a decent size audience, one that will purchase items usually associated with a major brick-and-mortar shopping experience, you may have to dance a little faster and get creative.
Exclusivity is probably better left as an image, rather than a reality. After all, if middle America finds its way to upper echelon e-tailers, everybody wins.
What do you think? Let’s talk about it.
Note: The opinions expressed by our columnists are their own and do not necessarily reflect the views of the E-Commerce Times or its management.