Sunday, June 13, 2010

Luxury Industries and the Internet

As we all know, last Friday was another bad day for the equity markets. Most US indices lost just under 3.5%, triggered by the monthly payroll report. Payrolls were up (and the overall unemployment rate was down, but this measure is pretty much useless unless you happen to be in politics), but nearly all the payroll gains were temporary census workers who will be looking for jobs again soon.

So why am I bothering to write about this, when for the most part people in our business seem to agree that things are on the mend? Things may be getting better, but I haven’t heard ANYONE saying they are back to where they were 3 years ago. The bottom line is; things may be getting better, but business is going to look and feel a lot different for a while yet.
Reuters recently held its Global Luxury Summit and senior executives from Saks, Barneys and Oscar de la Renta all said that business had improved since the start of the year. One measure of luxury spending put together by SpendingPulse (of Mastercard Advisors) puts luxury spending up 14.3% versus this time last year when things were at a stand still. This, plus our own anecdotal experience, makes me think it is safe to say that high-end spending is coming back some.

But this spending looks much different now. More and more, the luxury fashion brands are embracing the internet and online sales. Bain & Co. estimates that online luxury goods sales rose 20% last year – not much rose 20% in 2009 at all. Luxury fashion houses seem to be getting over their fear of the web damaging their aura of exclusivity. Now, it’s a safe bet that most of these sales come from the fashion houses “second tier” lines, which are more widely available online. But regardless of whether the sales increases are from second tier or their more exclusive lines, the point is fashion houses are actively managing their brands online and as well as increasing sales instead of being worried about any potential downside of a greater online presence.

You can debate the decision to introducing second tier lines and I realize that the fashion industry is not a direct correlation to ours. But what we must take note of is the way these fashion houses have reversed course and are embracing the web. I think just about every designer and decorator is using Facebook and Twitter now to manage their virtual presence, but I think we would be mistaken to think that Facebook and 1st Dibs will be the only profound changes the web has in store for our industry. We have already seen some of the best trade publications go under, only to result in Lonny which is the next step in trade publications. Blogs are more important than ever. 1st Dibs has clearly revolutionized the business.

So what is next for the industry and its dealers and decorators? I’m not sure. But you can bet there won’t be any pricing power for a while and, if the effect on the web in other industries is any indication, there will be more transparency. When you consider the parallels of exclusivity between top fashion houses and our industry, as well as the relatively lack of transparency in many relationships in our industry, there are many aspects of our industry that could be in for a change. Case in point; Restoration Hardware’s website includes, in some cases, bio’s on the vendors that supply the pieces in question.

I’m not saying that in 5 years our industry will be one big transparent operation with regard to pricing and suppliers and everyone will be happily holding hands. By its very definition, luxury home furnishings will remain exclusive in certain respects. But we are already seeing the changes in how we manage our brands on blogs and social media. And I think we would be naïve not to expect some sort of changes in how we interact with clients and manage our supply chain.

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