Historically, the luxury retail industry has been reluctant to embrace e-commerce. There’s certainly wisdom to this position; after all, online shopping doesn’t deliver the exclusivity and intimacy of an in-store consultative sales experience.
But things are changing. A new generation of global luxury customers has emerged. They’re younger, digital-savvy, and don’t have the same entrenched retail expectations of past shoppers.
Retailers are adapting. According to a recent New York Times story, they have “come to believe that the future of their business and a route to global expansion lie online.” As a result, about six in 10 high-end brands now sell via the web; the luxury e-commerce sector is growing faster than many other e-retail sectors.
These progressive retailers stand to win big. Luxury e-commerce sales will hit $21 billion by 2020, according to a McKinsey report. Some analysts have described the space as “the next China” in terms of opportunity.
E-commerce expansion into new global and domestic markets, via localized websites, is an affordable and effective way to engage new customers.
It helps inform brick-and-mortar expansion into these markets, too. By measuring engagement and sales in online channels, retailers can identify compelling markets for brick-and-mortar endeavors, thereby fulfilling the promise of e-commerce sites becoming the new “front door” for traditional retail stores, no matter where they may be in the world.
But which global markets now present the brightest opportunities for luxury e-commerce? Here are four, with complementary information on their feasibility as strong brick-and-mortar markets, too:
India is primed for online and brick-and-mortar luxury retail expansion. According to information compiled by The Wall Street Journal, the number of Indian households worth more than $3.8 million rose 17 percent from 2014 to 2015. This will more than triple by 2020. Brick-and-mortar luxury sales are soaring, too—they were up 25 percent in 2014 (compared with 7 percent in China). Analysts suggest luxury spending here will double by 2020.
Our research suggests the market is presently underserved, both in traditional and online retail channels. Of the 500 leading international luxury brands, only 30% have a presence in India (Compare that to China, where 70 percent of the leading international luxury brands have a presence.).
This bodes well for e-commerce and mobile e-commerce opportunities. India’s 300 million Internet users are mobile-savvy: 70 percent of the country’s online connections are via smartphone and tablets. The luxury e-commerce market will grow to $25 billion this year, with a compounded annual growth of 25 percent.
First movers are uniquely positioned right now, our research suggests. The Indian luxury e-commerce space isn’t very competitive. Between the country’s ever-growing middle class, favorable FDI rules and other factors, India is a worthy market for luxury retail and e-commerce.
In January, economic sanctions were lifted in Iran, a breakthrough, after more than three decades of austerity and economic exile. Luxury brands are wise to cast a keen eye to the market. With a middle class of nearly 80 million and growing, Iran is quickly becoming an ideal target market for global expansion.
Indeed, within the last year, the market has captured the attention of “luxury heavyweights,” The New York Times reported last month. Retailers are already planning brick-and-mortar expansions; high-end cosmetics brand Sephora is expected to open seven stores in Iran by year’s end.
Bulgari has plans to expand to Iran. “It’s very wealthy, and you have a population in Iran which has been used to luxury,” the company’s CEO recently said. “Iran will be the next big thing in the Middle East.”
And with good reason. Compared to other markets, disposable income among Iranians is quite high. Iran’s per capita GDP is over $16,500 – more than in Brazil, China or India. As with India, first movers can make an impact here, thanks to low competition.
The e-commerce opportunity is especially promising. Internet and mobile phone penetration rates are high, at 55 percent and 126 percent, respectively. Online shopping is already quite common in Iran due in great part to existing robust and secure e-payment platforms.
“The tech-savvy consumer here is just as hungry for immediate gratification as their Western counterparts,” a retail consultant told The New York Times.
Thailand is another appealing luxury e-commerce and brick-and-mortar market. In 2014, the country’s luxury spending hit $2.5 billion, making it Southeast Asia’s largest luxury goods market.
A low cost of living, and plenty of consumer disposable income, encourage luxury spending here. A full fifth of the country’s population earns over $150,000 annually (comprised mostly of professionals between 30 and 34 years old). Citizens aged 35 to 39, comprising nearly 19 percent of the country’s population, are also increasingly affluent.
“Demand is evident for greater variety in terms of brands, as well as products,” Euromonitor recently wrote. “Certain new brands are starting to emerge in Thailand such as Dior Homme, Jimmy Choo, Tiffany & Co, Roger Vivier, MCM, Roos and Alexander Wang. Furthermore, new flagship stores and the larger boutiques for certain brands such as La Mer, Charriol and Paul Smith have also been established.”
At 54 percent, Thailand’s Internet penetration is good, and mobile adoption is an astonishing 150 percent. This provides fertile ground for e-commerce and m-commerce opportunities. “A number of luxury brands provide online retailing websites and mobile applications, offering alternative channels through which consumers can place an order,” Euromonitor wrote.
Poland’s GDP per capita based on purchasing power alone makes it a compelling emerging market for luxury brick-and-mortar and e-commerce. According to Brookings, this purchasing power “exceeded $24,000 and reached 65 percent of the Western European (eurozone) level of income.”
Around 70 percent of global luxury brands are now present in the market, according to Forbes. Luxury spending should hit $3.4 billion this year. Brands are building brick-and-mortar presences where they can, particularly in Warsaw.
“There’s undeniable potential in Poland for the rapid development of the luxury market,” a Louis Vuitton executive told The Wall Street Journal in 2013, “not only through Polish clients, but also as Warsaw is an attractive destination for tourists from all over the world.”
This economic growth also impacts online retail. E-commerce spending will grow to $12 billion by year’s end, suggesting clear opportunities for luxury e-commerce. “Luxury goods brands often use online platforms to enhance the presence of their existing store-based retail outlets,” Euromonitor affirms.
Poland is an ideal frontier for companies keen to penetrate a stable central European market.
About the writer:
Charles Whiteman is senior vice president of client services at MotionPoint Corporation, the world’s #1 enterprise localization platform. He may be reached at firstname.lastname@example.org.
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