The Posh Payoff

November/December 2006 Issue: Page 36

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Marketing luxury goods and services pads the pocketbook.

Diamonds, private jets, multimillion-dollar mansions, haute couture, luxury vehicles and high-end handbags - customers looking for upscale goods and services could probably find all these items in posh places like Beverly Hills or they could just head to the Web.

The online shopping environment for upscale merchandise has been robust in recent years.

Websites such as NeimanMarcus.com, with annual sales that jumped 30 percent in fiscal 2005, and Diamonds.com, are flourishing.

This climate of vigorous sales is driving merchants, including fashion icons DKNY and Prada, to unveil e-commerce sites in the coming months and incentivizing affiliate sites like American-Luxury.com and Splendora.com to promote high-end merchandise to their niche audiences.

Initially luxury merchants had trepidation about the effect the Internet would have on their brand equity. eMarketer's senior analyst, Jeff Grau, says, "Because the Internet is often thought of as the place to go for bargains, luxury merchants were concerned that it would cheapen their brand. Luxury brands' emphasis is on quality and fashion rather than price … they did not want to be associated with a channel that was for bargain hunters."

But lucrative benefits have outweighed these concerns - the Internet not only offers a new source of sales and higher profit margins, it is a way for merchants to avoid high overhead costs of paying employees and expensive rents in tony areas. And many luxury merchants that have moved online say they did so to meet increased demand.

LUXE FOR LIFE

That demand is evident in several categories. In 2005, Forrester Research found that jewelry/luxury goods, apparel and health/beauty were making the most inroads into total sales - and the market researcher forecast apparel and home products as the two categories to grow the fastest between 2005 and 2010.

Traditionally the categories that have sold the best online have been computer hardware/software, books, and toys/video games. ComScore Media Metrix found that for the 2005 holiday season, the jewelry and luxury goods and accessories categories showed a 22 percent gain in visitors in December over November.

Apparel: The conventional wisdom about e-commerce was that apparel never would sell well online because people want to try things on before they buy. But more familiarity with a brand's size and quality expectations as well as easier return policies are causing consumers to buy more apparel online every year, which accounts for a large segment of high-end merchandise.

"People are becoming more and more comfortable buying apparel online. For example, denim is one of our top categories - we keep adding more brands due to the demand of what clients are asking from us," Carel Hearon, eLuxury.com's marketing and affiliate manager, says.

Accessories/Handbags: According to comScore Media Metrix, the percentage of Internet visitors to Coach.com increased 117 percent in 2005, and a 2005 Women's Wear Daily poll found that a large percentage of women (48 percent) buy accessories online. Accessories such as handbags and scarves sell well over the Internet because they are not restricted by size or fit requirements.

"Handbags and accessories are our strongest categories. You don't have to try on a handbag, so there is a lower return rate," Hearon says. Others agree.

"We get lots of winning bids for eBay on terms like Balenciaga Le Dix and Chloe Paddington for handbags," says Michelle Madhok, who runs SheFinds.com, which focuses on shopping and fashion. Madhok notes that such handbags retail in the $1,000 range.

Shoes: Madhok adds, "We sell tons of shoes - especially from Zappos Couture" - with an average price point of $250. She says the reason is, "No matter your size, shoes always fit - that makes them especially attractive for Internet shoppers."

Trisha Okubo, founder of Omiru.com, a style and fashion affiliate, says, "Our best categories are shoes and other accessories, likely because the fit issue is minimized in these categories. Our experience with high-end shoes is that brand name matters. Bluefly has worked for us because it provides discounts on well-known designer names."

Lingerie: The 2005 Women's Wear Daily poll found that women like to purchase intimate apparel online such as lingerie because they enjoy the privacy of shopping from home. Underwear is SheFinds.com's No. 1 category. SheFinds.com partners with BareNecessities, which offers brands such as La Perla and Cosabella that sell bras that typically cost more than $100.

Jewelry: According to comScore Media Metrix, the increase in the percentage of Internet visitors heading to Diamonds.com was 223 percent, and the increase to Zales.com was 163 percent from November 2004 to November 2005.

Eddie Bakhash, president of AmericanPearl.com, which has been in business since 1997, says it has experienced a steady growth of approximately 20 percent annually for the past five years. The top-selling items are rings, earrings and necklaces, and the average price point for a product is $1,000. Brad Matson, chief marketing officer for Bluefly, says it added jewelry "based on demand," adding, "It is an important and growing segment for Bluefly."

Home Décor: Forrester predicts that home products will grow 8 percent between 2005 and 2010. Marilyn Olsen, who runs four sites, including American- Luxury.com and French-Luxury.com, sells a wide range of high-end merchandise including furniture, kitchenware, interior design and gardening essentials and is an affiliate for upscale furniture merchants such as Design Within Reach, Frontgate and Horchow.

She explains the success of these categories:

"As people furnish their kitchen, they want to be able to cook and entertain casually in as much style as they do in other parts of the house," Olsen says. When people visit American-Luxury.com to buy leather armchair barstools that retail at $729 each from Horchow, they can see a Jura Capresso Impressa espresso machine that retails for $2,399 from Sur La Table.

Other Items: The definition of a luxury item is something that adds to pleasure or comfort but is not absolutely necessary - an indulgence. Merchandise in all sorts of categories could match this description - such as spa treatments, luxury travel, upscale baby clothes, gourmet foods and high-end gifts.

For the 2005 holiday season, the leaders in the luxury segment were RedEnvelope with its December traffic (2.4 million visitors) seeing a 62 percent increase over the previous month; and Tiffany & Co., up 47 percent over November with 2 million visitors, according to comScore Media Metrix.

Luxury shoppers, who make up a mere 2 percent of all online buyers, account for nearly 7 percent of online retail sales. According to Forrester, the online shopping revenue reached $170 billion in 2005 - $12 billion (7 percent), was sales luxury sales.

Indeed, some online luxury shoppers are affluent people. Continued on Page 2...

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