THE PENNSYLVANIA STATE UNIVERSITY SCHREYER HONORS COLLEGE

DEPARTMENT OF INFORMATION SCIENCES AND TECHNOLOGY

LUXURY FASHION: FROM BRICK & MORTAR TO E-COMMERCE

GRACE MORGAN SPRING 2020

A thesis submitted in partial fulfillment of the requirements for a baccalaureate degree Information Sciences and Technology with honors in Information Sciences and Technology

Reviewed and approved* by the following:

David Fusco Assistant Teaching Professor of Information Sciences and Technology Thesis Supervisor

David Fusco Assistant Teaching Professor of Information Sciences and Technology Honors Advisor

Marc Friedenberg Assistant Teaching Professor of Information Sciences and Technology Faculty Reader

* Electronic approvals are on file. i

ABSTRACT

With the massive growth of e-commerce over the years, it seems like there is no store that is not online. The idea of transforming a physical store into an online e-commerce format may seem like it would not be a difficult task for brand. However, what if the brand had a deeply rooted history that was centered around the feeling of exclusivity and their store was centered around the idea of desirability?

This thesis aims to take a closer look at the intersection of e-commerce and luxury fashion industry, an industry centered around creating a feeling of exclusivity. It will take a look into the beginnings of e-commerce and its ubiquity. It will also look at exactly what the concept of luxury is and what the modern-day luxury fashion industry looks like. Next, it will delve into the luxury fashion industry’s adoption of e-commerce, beginning with the industry’s initial hesitance towards embracing e-commerce. Finally, it will analyze what luxury e-commerce will look like in the coming years and how it is expected to grow and change.

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TABLE OF CONTENTS

LIST OF FIGURES ...... iii

ACKNOWLEDGEMENTS ...... iv

Chapter 1 Introduction ...... 1

1.1 Methodology...... 2

Chapter 2 A Brief History of E-Commerce ...... 3

2.1 The Beginnings of E-Commerce ...... 3 2.2 E-Commerce Begins to Grow ...... 4 2.3 The Changes Everything ...... 5 2.4 E-Commerce Enters into the New Millennium ...... 6

Chapter 3 A Brief Overview of Luxury Fashion ...... 7

3.1 The Concept of “Luxury” ...... 7 3.2 The Luxury Fashion Industry ...... 8

Chapter 4 The Luxury Fashion Industry and E-Commerce ...... 10

4.1 The Luxury Fashion Industry’s Initial Hesitance Towards E-Commerce ...... 10 4.2 Luxury Fashion Begins to Embrace E-Commerce ...... 12 4.3 E-Commerce Use Begins to Grow Amongst Luxury Brands ...... 13 4.4 Luxury Fashion Brands Translate Their Luxury Image to E-Commerce ...... 15 4.4.1 Inclusion of Videos...... 16 4.4.2 Developed Product Descriptions ...... 17 4.4.3 Quality E-Service ...... 17 4.5 Luxury E-Commerce’s Growth Throughout the Years ...... 18

Chapter 5 Future Trends ...... 20

5.1 The Predicted Growth of Luxury E-Commerce ...... 20 5.2 Predicted Trends for Luxury E-Commerce ...... 24 5.2.1 A Personalized Experience ...... 24 5.2.2 The Rise of Mobile Online Luxury Shopping ...... 25 5.2.3 Using Data to Build Relationships with Consumers ...... 26 5.2.4 Digital Video Storytelling to Engage Consumers ...... 26 5.3 The COVID-19 Crisis ...... 27

Chapter 6 Conclusion ...... 29 iii

BIBLIOGRAPHY ...... 31

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LIST OF FIGURES

Figure 1. Predicted S-Curve for E-Commerce as a % of Total Luxury Revenue ...... 21

Figure 2. Luxury Online Shopping Popularity for Different Generations ...... 23

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ACKNOWLEDGEMENTS

I would like to thank for Professor Dave Fusco for his guidance along the way as I completed this research. I would also like to thank Professor Marc Friedenberg for his guidance during a particularly difficult time in completing this thesis. Finally, I would like to thank my parents,

Kathy and Dave Morgan, for being both the greatest parents and continuously encouraging me to be the best version of myself. Over the years, they have reminded me that there is nothing that I cannot achieve if I put my mind and hard work into it. Also, thank you for showing me what it means to be Penn Stater and how one-of-a-kind this university is. Penn State forever. 1

Chapter 1

Introduction

The luxury fashion industry that is known today began in the 1920s, just around 100 years ago.

Back then, there was no Internet, and no one would have been able to predict the impact of the

Internet would have on this industry. Long gone are the days when shopping for clothes solely entailed going into a physical store to purchase such items. In today’s world, the rise of the internet has led to the rise in use of e-commerce websites for online shopping. The intersection between luxury fashion and technology is more prevalent than ever, especially in terms of e- commerce. Convenience, ease of use, and the ability to shop internationally have all been cited as reasons as to why consumers choose to shop online (Nielsen, 1999). Consumers are starting to place a significant amount of value on the convenience and instant gratification that comes with shopping online. E-commerce sites are causing a shift away from traditional brick and mortar stores, as well as causing a shift within in the world of luxury fashion.

Luxury fashion brands have been amongst the most resistant sectors of retail to launch into the use of e-commerce. The reason these brands have avoided the use of e-commerce is that they felt like it would weaken the luxury brand’s image, as well as lessen the sense of exclusivity that these brands try to cultivate (Beauloye, 2019). However, this is no longer the case. Luxury fashion brands are starting to realize the opportunities that e-commerce presents to increase their business and satisfy their current consumers. Digital entrepreneur, luxury marketer, and expert in digital luxury Florine Eppe Beauloye said, “E-retail sites are opening the doors to the world’s best luxury boutiques — boutiques that are open 24/7, without geographical borders. So, this 2 channel is both the next big challenge and a big opportunity for luxury brands,” (Beauloye,

2019).

This thesis intends to take a deeper look at the adoption of e-commerce by luxury fashion brands to understand the shift that is happening from traditional brick and mortar stores to e- commerce sites as a means of purchasing luxury goods. To do this, this research will look at luxury e-commerce from both the business side, as well as the consumer viewpoint. This thesis will continue next with the methodology that will be used for conducting this analysis. From there, it will discuss the history of e-commerce in order to first understand this entity separately.

Further, it will explore the intersection of e-commerce and luxury fashion, including the history, how luxury fashion is utilizing e-commerce, and the trends seen from this intersection. Finally, this research will conclude with a discussion and analysis on the future trends that are expected to emerge from luxury e-commerce.

1.1 Methodology

For this thesis, a secondary information and data analysis review will be utilized as the primary means of research. Various articles, publications by companies, and scholarly papers and journals were reviewed and analyzed for information and data points relating to luxury fashion brands’ adoption of e-commerce. These sources were very beneficial as they often incorporated information from experts in this field, information from luxury fashion brand owners, data and visuals that were helpful in understanding more about this topic. All of this information useful for garnering a more thorough insight into luxury e-commerce.

3 Chapter 2

A Brief History of E-Commerce

To begin, it is first important to understand what e-commerce is in its simplest form. Electronic commerce1, or e-commerce, is defined to be “the buying and selling of good or services using the internet, and the transfer of money and data to execute these transactions,” (Shopify, n.d.). E- commerce is essentially the purchasing and selling of physical goods via the Internet.

2.1 The Beginnings of E-Commerce

Many believe and say that the history of e-commerce begins in the 1990s, but it actually begins much earlier. The history of e-commerce begins in the 1960s. In the 1960s, electronic transactions were conducted through primitive computer networks (Hussung, 2016). Using

Electronic Data Interchange (EDI), companies were able to share business documents with other companies’ machines and complete transactions (Hussung, 2016). While this was happening, the

United States military was creating ARPAnet. ARPAnet was a creation that allowed for important information to be sent out and circulated around in the event that a nuclear attack had taken place on the United States (Hussung, 2016). Both EDI and ARPAnet served as the basis for which e-commerce would eventually be built upon.

In 1979 Michael Aldrich conceptualized a process that would revolutionize shopping forever. Aldrich created electronic shopping. To create electronic shopping, Aldrich connected a transaction-processing computer with a television through a phone line, thus creating the concept

1 “Electronic commerce” will be referred to as “e-commerce” throughout the entirety of thesis. 4 of “teleshopping” (Bhalla, 2019). This simple set-up would come to earn Aldrich the title of the founder of e-commerce.

2.2 E-Commerce Begins to Grow

Technology was rapidly changing in the 1980s and the public’s awareness was growing along with it. Aldrich had begun selling his revolutionary process under the name of “Teleputer.” The

Teleputer, through the use of phone lines, was able to allow for simple e-commerce transactions

(Harbone, 2019). However, in the early 1980s, computers were still predominately owned and used by businesses, not individuals. The Internet was not the same widely used service that it has become today. The majority of the transactions were specifically business-to-business transactions.

The evolution of e-commerce reached a significant milestone with the founding of the

Boston Computer Exchange in 1982. The Boston Computer Exchange (BCE) was founded in

1982. While there is some argument over it, the BCE has been noted to be the first ever e- commerce company and platform (Harbone, 2019). BCE used online databases to facilitate transactions between buyers and sellers for the purchasing and selling of items like computers and computer parts (Harbone, 2019). Throughout the 1980s, BCE would continue to expand their e-commerce platforms to support other sales. Even with these expansions, e-commerce remained a small portion of internet (traffic or service) until the 1990s. 5 2.3 The Internet Changes Everything

In 1991, the Internet went public and this was the beginning of some significant changes in the world of e-commerce. It was in 1991 that the National Science Foundation (NSF) decided to lift its restrictions of the commercial use of the word “net.” By the NSF lifting these restrictions this allowed for the commercial use of the word .net and opened a huge gateway for e-commerce

(Harbone, 2019).

The Internet began to grow exponentially, with 120,000 registered domain names by the year 1995. 1995 would turn out to be a very important year for e-commerce. In 1995, two huge e-commerce companies would launch. Their names were Amazon and eBay. Amazon was founded by Jeff Bezos initially as a service that was focused on selling books, but it would soon grow to be so much more than that (Harbone, 2019). Amazon’s product range would grow to include videos, CDs, and more. Eventually, Amazon would become the e-commerce site that would offer consumers a seemingly limitless selection of items. The timing of the creation of

Amazon along with its customer-oriented approach helped it to grow into a successful e- commerce site. The Amazon website featured searchable titles, the ability to browse by product category, and allowed for user-generated reviews of products (Hussung, 2016). Bezos had created the perfect formula for an e-commerce site.

At the same time that Bezos was launching Amazon, Pierre Omidyar was launching an e- commerce site known as eBay. Omidyar first called his new site AuctionWeb. AuctionWeb was an e-commerce site that would allow users to bid on the items of another user (Hussung, 2016).

AuctionWeb, or eBay as it is now called, made e-commerce easy for people without technical skills to sell their goods online. Both Amazon and eBay were pioneers in the world of e- commerce. Their success opened up the door for many more e-commerce sites to be created in 6 the 1990s, such as PayPal, Yahoo Stores, Zappos, and more (Harbone, 2019). E-commerce was beginning to grow rapidly, and it looked like nothing was going to slow down its growth with the new millennium just around the corner.

2.4 E-Commerce Enters into the New Millennium

E-commerce only continued to grow after the turn of the century, even with the dot com bubble bust. Amazon continued to grow and dominate the e-commerce market, while many users began to use e-commerce retail sites like eBay (Harbone, 2019).

In 2004, major credit card processors released the Payment Card Industry Data Security

Standards (PCI DSS). These standards were created to outline secure procedures for processing online payments and securing sensitive payment data (Harbone, 2019).

A groundbreaking device was about to be unveiled by Apple’s CEO Steve Jobs In 2007.

Jobs unveiled and launched the first ever iPhone. While the iPhone was not the first smartphone to be invented, its introduction would still have a significant impact on the Internet and e- commerce. The use of the Internet would now begin to shift away from a desktop computer and transition to access via mobile phone. With this shift in the Internet, e-commerce sites had to shift with it, and it would only continue to grow (Harbone, 2019).

7 Chapter 3

A Brief Overview of Luxury Fashion

In addition to understanding what e-commerce is and its history, it is also important to understand what modern-day luxury fashion is and what can be categorized as such.

3.1 The Concept of “Luxury”

The concept of “luxury” is actually rather complex and can be considered subjective, as something deemed luxury by one person may not be considered luxury to another. In economic terms, a luxury good is defined to be a good in which an increase income yields a bigger percentage increase in product demand (Pettinger, 2019). For example, high-definition televisions would be considered a luxury good. Just because a good is identified as luxury, it does not necessarily mean that the good is made from a high-quality material. However, often times luxury goods are on the higher end of the spectrum in terms of both quality and price.

Although the above description does define luxury, luxury is a much less of a straightforward idea than just the economic definition.

It has been frequently argued that some of the main components of a luxury item are desirability and exclusivity. Luxury goods that are made from quality material, are meticulously crafted, or have an interesting feature offer a specific level of desirability that other goods may lack (Flynn, 2019). Additionally, luxury goods are surrounded by the feeling of exclusivity. This feeling is derived from the fact that maybe not everyone will be able to own an item that a brand is selling or experience that item (WBR Insights, n.d.). 8 Both of the components described above are important for understanding what a luxury item is. These components are particularly relevant in the world of luxury fashion.

There are many definitions are luxury that exist because, as previously stated, luxury is a rather subjective concept. However, most definitions of luxury have shared common core elements. These elements are a very qualitative and indulgent experience, a price that exceeds what the functional value would recommend, a tie to heritage and unique culture, a restricted and controlled distribution of the goods, a personalized accompanying service, and acting as a social marker, where the consumer feels a sense of privilege (Mu et al., 2020).

3.2 The Luxury Fashion Industry

The luxury fashion industry that is known today has historically been composed of brands such as Chanel, Louis Vuitton, Gucci, Prada, Dior, and Hermès, to name just a few. The luxury fashion industry is also known for its large fashion conglomerates such as LVMH, Kering, the

Prada Group, and Tapestry. These conglomerates own multiple brands and are the parent companies to the brands that they house (Segura, 2019).

According to the Luxury Goods Report, in 2018 the Luxury Fashion segment accounted for 30 percent of that year’s luxury goods revenue (Shaulova and Biagi, n.d.). The global revenue for luxury fashion was 99 billion US dollars in 2018 (Shaulova and Biagi, n.d.).

With fashion, there has always been a link between luxury, desirability, and exclusivity

(Flynn, 2019). Luxury fashion brands have often curated feelings of desirability and exclusivity in their store atmosphere, in their brand identity, and in the products that they create and sell. A prime example of this can be seen with the Hermès Birkin Bag. The Birkin Bag is known for 9 being so highly exclusive that it has an extensive waiting list to purchase it. The wait list is so long because there are only 200,000 in circulation and each takes 48 hours to make (Haddad,

2017).

Many luxury fashion brands are often highly associated with the core products and are known for a certain type of design style (Upmarkit, n.d.). These products are meant to transcend the current trends. For Hermès, this is the Birkin Bag. For Chanel, it is their quilted handbags.

For Louis Vuitton, it is their monogrammed products. All of these products are strongly associated with their brands.

While trends in fashion are constantly changing and the definition of luxury is always evolving, the luxury fashion industry continues to focus on superior uniqueness of their products and high-quality craftmanship. Experimenting with different styles and researching new designs and techniques is what helps build the luxury fashion industry. Additionally, luxury in fashion is the craftmanship that goes into product made by a brand (Sozzani, 2011). The luxury fashion industry has evolved into being more than just the high price tag, but rather a concept that surrounds the entire experience and feeling of luxury goods. And as part of that evolution, the luxury fashion industry has started to move their stores into an online format.

10 Chapter 4

The Luxury Fashion Industry and E-Commerce

The luxury fashion industry has been amongst the slower industries to embrace the use of e- commerce. However, this has begun to change. The use of E-commerce has become almost unavoidable for retail companies. In 2019, online retail sales accounted for 16 percent of the

United States’ total retail sales for that year according to the US Department of Commerce

(Young, 2020). This percentage increased from 14.4 percent in 2018. The revenue accrued by

US merchants through e-commerce in 2019 totaled $602 billion. E-commerce has become a huge driver for sales for retail companies, and the luxury fashion has now started to adopt it into their business models.

4.1 The Luxury Fashion Industry’s Initial Hesitance Towards E-Commerce

The traditional luxury fashion brands, such as Chanel and Gucci, were hesitant to use e- commerce sites to sell their products. Luxury fashion has always had innate characteristics that comprise its very being and many brands were did not want to compromise those characteristics

(Okonkwo, 2009). These characteristics included originality, craftmanship, an emotional appeal, and an enhanced brand image (Okonkwo, 2009). It used to be an unsaid rule among luxury fashion brands that participating in e-commerce was only for the middle and lower range products, not the luxury goods. were couple of reasons as to why luxury brands were uncertain about adopting e-commerce.

One of the main reasons was that many brands feared that it would dilute their luxury image and reduce the feeling of exclusivity that was an important component to many of the 11 brands (Beauloye, 2019). With the use of e-commerce sites, luxury brands were fearful that their mystique and exclusivity would become lost in translation within the website. The luxury brands believed that much of the appeal that surrounds luxury fashion is the experience of a customer walking through one of the carefully organized boutiques and conversing with the highly trained and knowledgeable personnel in the stores (Gotkin, 2017). Luxury brands did not think that this experience would be as appealing in an online e-commerce format.

Another reason why luxury brands were hesitant to adopt e-commerce was the fear that they would lose control over their brand by involving the public (Bjørn-Andersen & Hansen,

2012). Many luxury brands were worried that creating interactive categories on e-commerce site where customers could customize their products might lead to the brand losing control over their brand image (Bjørn-Andersen & Hansen, 2012). Luxury fashion brands did not want to jeopardize their brand control for the sake of e-commerce.

There was also a lack of trust in e-commerce sites that also made luxury fashion brands hesitant to embrace it. Many of the items being sold by luxury brands carry a somewhat significant to very significant price tag. It was thought within the luxury fashion world that consumers would not want to purchase items online with such a large price tag because, at the time, consumers did not fully trust buying luxury items online (Gotkin, 2017). Thus, luxury brands were also nervous that they would have to adjust their price tags to sell online, which was something that they did not want to do.

Additionally, for the luxury brands, much of their target market was not digital.

Traditionally, the target market for luxury brands were both older and less comfortable with using technology and participating in online shopping (Gotkin, 2017). Because of this, luxury brands did not believe that their main consumers would want to buy their products online. 12 All of the reasons stated above are the main reasons why the luxury fashion industry was initially so hesitant to incorporate e-commerce into their business model. However, these feelings of unease and hesitance surrounding e-commerce would soon change. Eventually, the luxury fashion industry would come to embrace the value that e-commerce presented.

4.2 Luxury Fashion Begins to Embrace E-Commerce

As previously stated, e-commerce was perceived amongst the luxury fashion industry to just be for the lower and middle range products to be bought online. Even as e-commerce began to flourish in popularity, the luxury fashion brands opted to just maintain their traditional brick-and- mortar stores that specialized in a superior shopping experience and high-quality customer service. However, this would begin to change drastically over the years, starting in the year

2000.

In June 2000, the company Net-A-Porter was formed in London. Net-A-Porter was both a luxury retail e-commerce site and a magazine (Lachowicz, 2016). Net-A-Porter was focused on selling luxury goods, such as designer clothes, bags, and shoes. It was originally predicted that

Net-A-Porter was going to be a massive failure, but it ended up becoming a huge success. In that same year in Milan, the online outlet stored named Yoox was also created. Yoox was focused on selling second-season designer clothing to consumers who had not had access to this clothing before (Sherman, 2020). The success of Net-A-Porter especially began to show other luxury fashion brands that their consumers were willing to buy luxury products online. The luxury fashion industry now saw that they had the opportunity to capitalize on using e-commerce to help sell their products (Lachowicz, 2016). 13 The success generated by Net-A-Porter was a motivating factor for many luxury fashion brands to begin selling online. In adopting e-commerce into their business model additional factors were taken into account. A primary factor was that many of the brands in the luxury fashion industry were overly dependent on the traditional brick-and-mortar stores as the sole means to sell their products. As e-commerce continued to grow, more consumers were starting to replace going to brick-and-mortar to shop with using e-commerce to online shop (Rogerson,

2017). In the UK in 2016, 15 stores closed every day for the first half of the year (Rogerson,

2017). For the luxury fashion brands, this meant that they were relying solely on a process to sell their products that was beginning to decline. This realization caused many luxury brands to open up more to the idea of using e-commerce. A second factor was that e-commerce offered the ability for luxury brands to massively expand their audience. Including e-commerce as part of their selling platform would allow them to sell their products globally. With the understanding of how a wider international customer base could increase their revenue, luxury fashion brands knew that the use of e-commerce could drastically benefit them (Rogerson, 2017). Finally, there was a fear among many luxury brands that not going online meant that they would start to lose out to their competitors. When Net-A-Porter and Yoox merged in 2015, it was a sign to many of the luxury brands that going online had become almost a necessity to compete with other brands

(Rogerson, 2017).

4.3 E-Commerce Use Begins to Grow Amongst Luxury Brands

Selling their products online, as compared to in a brick-and-mortar store, meant that the luxury fashion brands had to think more about how to market their products, without the same superior 14 experience that consumers received in stores. Translating that in-store experience to an online environment would provide some obstacles for the luxury fashion brands. Many brands did not have the necessary expertise to create and translate this experience into an online format (UPenn,

2018).

As an initial entry into the world e-commerce, many luxury brands turned to multi-brand portals to help sell their clothes and run their online stores for them (UPenn, 2018). These multi- brand portals included Yoox Net-A-Porter, MatchesFashion, and Farfetch. Because these online retailers were adept and more digitally skilled than the luxury fashion brands themselves, they were able to create the superior online shopping experience that the brands desired, as well as provide a wide global reach, according to Denise Dahlhoff, the research director at University of

Pennsylvania’s Wharton’s Baker Retailing Center (UPenn, 2018). These multi-brand portals were trusted by the luxury fashion brands, as compared to a site like Amazon, because they would maintain the upscale image that was an important component to luxury brands. These portals would not sell any fake products and they would post content that replicated the upscale image of the brands (UPenn, 2018). According to Reuters, in 2016, Farfetch’s revenue grew 74 percent to $190.0 million (White, 2018). This tactic of selling online has worked for luxury fashion brands, as it both maintained the luxury brand image and helped the brand become very accessible to people worldwide.

While some luxury brands opted to use these multi-brand portals to sell online, other brands chose to fully commit to e-commerce and create their own e-commerce sites. One strong example of this is the luxury goods company LVMH. In June 2017, LVMH launched its own e- commerce multi-brand portal, 24 Sèvres (Beauloye, 2019). This online retailer sells luxury products from its own brands, as well as products from brands that are outside of the LVMH 15 company. To keep the luxury, feel and the upscale image, 24 Sèvres features digital storefront windows and interactive customer service technology (Beauloye, 2019). By including this on their e-commerce, 24 Sèvres is able to translate their in-person shopping atmosphere into an online format, which helps maintain the company’s luxury image. Additionally, brands like

Moncler and Burberry, have become dedicated to creating an interactive online environment with an e-commerce site that is fully representative of the brands’ physical retail policies

(Bacigalupo and Elnaz, 2019). Moncler’s policy when it came to e-commerce was to constantly evolve and adapt to changes, but also keep the true DNA of the brand in mind. This policy has had significant success for the brand.

Many luxury fashion brands have chosen to embrace e-commerce in one form or another.

While some, like Prada, were extremely resistant towards adopting e-commerce, others, like

Moncler and Burberry, have fully adapted to the changing retail environment, while continuing to maintain their brand heritage and upscale image.

4.4 Luxury Fashion Brands Translate Their Luxury Image to E-Commerce

For fashion retailers, the obstacle of e-commerce was creating a website that was similar to the in-store experience of the retailer. This obstacle became even bigger when luxury fashion brands began to adopt e-commerce because they now had to attempt to replicate the luxury experience of shopping in-store in an online and engaging format. This is known as the “Internet Dilemma”

(Baker et al., 2018). Additionally, online luxury shoppers have different motivational factors and intent than in-store luxury shoppers. According to a study published by Liu et al., online luxury shoppers are more price-conscious, tend to prefer the online product availability, and have higher 16 level of trust towards online customer reviews. In-store luxury shoppers, on the other hand, are more averse to the online risk, prefer to see the product in-person before purchasing, and place a high level of value of the in-store shopping experience and interactions (Liu et al., 2013). This is something that luxury brands had to take into consideration when they were building their e- commerce platform. The website design of the luxury e-commerce was also an important part of building an e-commerce site that helped create a luxury atmosphere for the consumer. A survey conducted by Shen et al. found that the website design of a luxury e-commerce site significantly affected the customer-based brand equity, as well as created a strong sense of luxury among the consumers (Shen et al., 2016). Shen et al. concluded that the sense of luxury is an online experience that will affect the consumers’ evaluation of luxury fashion brand (Shen et al., 2016).

Additionally, a survey done by Kim et al. found that among online luxury consumers, website design influenced their overall attitude towards the luxury brand and had a positive impact of the revisit intent from the consumer (Kim et al, 2015). As e-commerce grew in popularity among luxury brands, there were trends seen on their e-commerce sites that assisted in creating a luxury shopping experience.

4.4.1 Inclusion of Videos

Luxury brands began to increase the use of videos on their website to engage customers.

In a research study published by Rina Hansen, in 2006, half of the observed luxury brands used video features on their e-commerce sites (Hansen, n.d.). In 2008, 80 percent of the observed brands now featured videos on their e-commerce site (Hansen, n.d.). The featured videos were usually of fashion shows or were brand or campaign video. Some brands, like Burberry, started 17 to use interactive 3D video that would allow visitors to drag the products and models in all directions (Hansen, n.d.). By doing so, Burberry created an engaging and interactive experience for their consumers of their e-commerce site.

4.4.2 Developed Product Descriptions

Over time, luxury fashion brands have added more content to their e-commerce sites. In

Hansen’s research study, it was reported that luxury brands had very sparse product descriptions below their products, with some brands only featuring the product code on the site (Hansen, n.d.). However, by 2008, the product descriptions went from being very sparse to a much more descriptive lifestyle text. Product descriptions on luxury e-commerce sites are now written as if a sales associate is describing the product to a customer in a physical store. Luxury brands are including feelings, atmosphere, and the tone of voice that is characteristic to their brand image

(Hansen, n.d.). This study found that brands that have the most developed descriptions, such as

Burberry and Louis Vuitton, are the brands that have the greater online turnover and digital focus

(Hansen, n.d.) Additionally, a report found that having product information on the luxury brand’s website has a positive impact on both the consumer’s revisit intention and the consumer’s overall attitude towards the brand (Kim et al., 2015).

4.4.3 Quality E-Service

Luxury fashion brands are known for having superior in-store service. Their staff is well-trained and have a wealth of knowledge about the brand and the products. So, when creating their e- commerce platforms, the luxury brands put a lot of emphasis of translating the high-quality in- 18 store experience to an online format through the use of e-service. Luxury goods consumers expect to have a luxury service experience. Scholz et al. conducted a survey in Germany of Hugo

Boss customers who purchased products online in 2009. This study found that the efficiency, fulfillment, design, information, and responsiveness had positive impacts on the e-service quality perceptions. The same study found that consumers listed efficiency as the most important factor for evaluating and determining their perceived e-service quality (Scholz et al., 2012). In another report published by Kim and Kim, they found that website attributes, such as order instructions, order tracking information, and detailed shipping information, were rated as high in importance and positively impacted e-loyalty (Kim & Kim, 2016). Also, this report stated that a high-quality e-service perception positively impacted the consumers e-loyalty and overall perception of the brand (Kim & Kim, 2016).

4.5 Luxury E-Commerce’s Growth Throughout the Years

In 2010, about $4.7 billion of luxury good sales were made online (Sherman, 2020). In 2014, e- commerce was only 4 percent of luxury sales (Dauriz et al, 2014). In 2019, however, $37 billion of luxury good sales were made online and that number is only expected to increase in the coming years (Sherman, 2020). Today, many brands now have their own e-commerce site or are partnered with an e-commerce multi-brand portal to sell their products

E-commerce for the luxury fashion industry is only a portion of the digital opportunity that exists for these brands. Research conducted by McKinsey & Company found that 40 percent of luxury purchases made are influenced by the consumer’s digital experience (Dauriz et al,

2014). This included the consumer conducting online research about a product that they then buy 19 in store or hearing social media buzz and then being influenced to go and buy that product. E- commerce and the digital experience have allowed for an omni-channel marketing strategy that heavily benefit luxury fashion brands.

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Chapter 5

Future Trends

Now that the luxury fashion industry has learned to capitalize on the opportunity that e- commerce presents for it, the question that stands is: what will luxury e-commerce look like in the future? The future of luxury e-commerce is not certain. Based off of current trends, e- commerce and luxury e-commerce are only predicted to grow. However, luxury brands will have to continually adapt their e-commerce platforms in order to fit the demands and desires of their consumers. This will be key to their success.

5.1 The Predicted Growth of Luxury E-Commerce

Luxury brands are in the early implementation and utilization of e-commerce. As latecomers to the world of e-commerce, the luxury fashion industry is still growing its e-commerce platform and consumer base. In their research, McKinsey & Company analyzed the online sales trajectories for more than 50 luxury brands for the past decade. From this, they stated that the predicted sales trajectory for luxury goods resembles an S-curve, which can be seen below in

Figure 1.

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Figure 1. Predicted S-Curve for E-Commerce as a % of Total Luxury Revenue

In the S-Curve seen in Figure 1, McKinsey highlighted three main stages in the luxury online sales trajectories. The first point is known as the ramp-up. At this point, the luxury brands are looking into the possibility of selling their products online through the use of partners, such as Net-A-Porter, or developing their own e-commerce platform. During this stage, the luxury brand is selling a limited range of products online and are doing very little advertising for it

(Catena et al., 2015). The next stage is referred to as the scale-up. This stage occurs after a luxury brand has started to make a decent revenue from their online sales, which would be approximately six to seven percent of their total sales. The scale-up occurs after the luxury brand had reached the tipping point. This tipping point is defined as the point where the brand has very quickly increased the size and operations for their e-commerce sales and they have launched full e-commerce shops (Catena et al., 2015). The scale-up, as of 2015 when this research was conducted, is where many luxury brands were located on this S-Curve. During the scale-up, the luxury brands have most, if not all, of their products available online and they are increasing 22 their online and offline visibility. E-commerce during the scale-up has become a top investment and priority for many of the luxury brands, as they have now started to hire their own IT, customer support, and supply chain teams (Catena et al., 2015). The hope during the scale-up is to help the e-commerce sales for the luxury brand reach 18 to 20 percent within the next five years. The last phase on the S-Curve is known as the plateau. Luxury brands enter in the plateau stage when they have finally surpassed the 20 percent of total sales threshold. This phase is referred to as the plateau because the growth of the brand’s online sales tends to slow down once their e-commerce operations have become more mature (Catena et al., 2015). This S-Curve developed by McKinsey highlights the anticipated growth and trajectory of online sales for all luxury brands. According to research conducted by McKinsey & Company, it is estimated that online sales of luxury brands will reach $70 billion worldwide and will represent approximately

18 percent of total luxury sales by the year 2025 (Catena et al., 2015).

Many reports believe and estimate that e-commerce for luxury fashion industry will only continue to grow in the coming years. A report published in 2019 by Bain & Company stated that in 2018, online luxury shopping quickly grew 22 percent to $29 billion and represented about 10 percent of all luxury sales (D'Arpizio et al, 2019). The Americas alone represented about 44 percent of those online luxury sales (D'Arpizio et al, 2019). Bain & Company estimates that by the year 2025, the online channel will represent 25 percent of the market value for the luxury fashion industry. Additionally, it is predicted about half of the luxury purchases that will be made will be digitally enabled because of new technologies. It is also predicted that almost all luxury purchases made will be, in some way, influenced by different online interactions

(D'Arpizio et al, 2019). 23 E-commerce for the luxury fashion industry has been consistently growing since it began and it is estimated that it will only continue to grow in the coming years. Online luxury shopping is becoming an increasingly popular way to purchase luxury goods. A survey conducted by

Deloitte highlights the popularity of online luxury shopping among different generations as of

2017. This can be seen below in Figure 2.

Figure 2. Luxury Online Shopping Popularity for Different Generations

As seen in Figure 2, a total of 37 percent of luxury purchases are made online, either by a computer or a mobile device, for the total survey group. Millennials have the highest luxury online shopping percent at 42 percent, while 58 percent still shopped for luxury items in physical stores. Overall, Figure 2 shows that luxury online shopping is becoming popular across all generations and market segments, but it is particularly popular among the younger generations. 24 5.2 Predicted Trends for Luxury E-Commerce

As luxury online shopping continues to grow, the luxury fashion brands have to ensure they continue to adapt to an evolving online environment, as well as listen to the demands and preferences of their consumers. These steps will assist them to stay relevant and a maintain a competitive advantage. There are trends in e-commerce that luxury fashion brands should stay aware of.

5.2.1 A Personalized Online Shopping Experience

As luxury fashion brands continue to evolve and enter into a new digital age, their market is also beginning to change. While the target market used to primarily be older, millennials and generation Z are now driving about 85 percent of global luxury sales growth and represent over

30 percent of luxury shopping (Woodsworth, 2019). This means that this new expanding demographic of the luxury market is also a market that is more digitally-savvy and want to have a personalized shopping experience on the luxury brand’s e-commerce site. This experience can be created through the use of artificial intelligence (AI) and augmented reality (AR). With the use of AI, luxury brands will be able to create AI-driven recommendations for consumers. Over time, this would improve consumer engagement for the luxury brand, as well as create a personalized experience that the consumer desires while online luxury shopping (Woodsworth,

2019). Augmented reality is an alternative to virtual reality because it does not require that consumers purchase any additional expensive equipment. AR is able to integrate the real environment on a phone or tablet with digital information. Luxury brands can utilize AR in a multitude of ways. The luxury brand Jazmin Chebar is using AR to feature and highlight the 25 quality and materials of their luxury products through the use of 3D imagery (Harris, 2019).

Luxury brands can also use AR to simulate an in-store experience for consumers, from any device in any location. Consumers would be able to virtually try-on products before they would purchase them, just like they would in a physical store (Harris, 2019). As the luxury fashion industry market has begun to shift to younger demographics, the seamless integration of an online and offline experience is important. Luxury fashion brands need to consider adding to a virtual shopping experience on their e-commerce site, as it is a desire by their consumers.

5.2.2 The Rise of Mobile Online Luxury Shopping

In a survey conducted by McKinsey & Company, it was stated that more than half of luxury shoppers’ searches are done on a mobile device. Additionally, more than one in five luxury shoppers in the survey said that they almost always do research on a mobile device before purchasing a luxury good (Dauriz et al., 2014). Additionally, in 2019, 57 percent of US consumers used a mobile retail app to learn more about a product (Duncan, 2019). This means that it is important for luxury brands to have an e-commerce site that is highly optimized for mobile devices. The e-commerce site on a mobile device should be easy-to-navigate, as well as have all the important information necessary for consumers to make purchasing decisions about their products. With an optimized mobile device e-commerce site, it is more likely to drive store traffic than a website solely designed for regular computer screens (Dauriz et al., 2014). 26 5.2.3 Using Data to Build Relationships with Consumers

Big data is becoming an important component for building relationships with luxury consumers, according to a report published by Deloitte (Deloitte, 2017). Because luxury fashion brands have a very specific consumer base, it is important that they establish good relationships with them.

Luxury brands are starting to use big data and data analytics tools to focus on specific segments of their audience to help create relationships with their consumers. Through the use of consumer segmentation, behavior and sentiment analysis, and predictive analytics, luxury brands are becoming able to provide strong and personalized customer service to their consumers (Deloitte,

2017). Luxury fashion brands are also beginning to use business intelligence tools and software to help capture data and generate insights that will assist in the creation of effective marketing campaigns (Deloitte, 2017).

5.2.4 Digital Video Storytelling to Engage Consumers

To increase consumer engagement on their e-commerce sites, luxury brands are beginning to turn to featuring video storytelling on their sites. Consumers, on average, stay on the site 2.6 times longer if their e-commerce site features video content (Harris, 2019). A study done by

Jiang et al. found that an increase in customer involvement and interactivity leads to a higher purchase intention from the e-commerce site visitors (Jiang et al., 2010) Video stories can help communicate resonate a message with the consumers. Interactive videos can also get a consumer interested in the product that it highlights. Generation Z, a newer addition to the luxury market, are also particularly interested if they see a video story (Harris, 2019). Burberry has implemented this trend into their brand. On Burberry’s e-commerce site, there is a section that is dedicated to 27 featuring several videos, such as their fashion shows and the history of Burberry. The use of digital video storytelling can enhance the luxury brand’s online presence (Harris, 2019).

5.3 The COVID-19 Crisis

This thesis was written before the COVID-19 crisis in 2020. During this period, the world drastically changed, seemingly overnight. To help slow the spread of the coronavirus, stay-at- home orders were put into place, businesses were forced to close, and the world was told to socially distance themselves. The luxury fashion industry has not been immune to the impact of the COVID-19 crisis.

The Statista Research Department conducted a study of online activities for online fashion retailers in France during the COVID-19 outbreak. The study analyzed the activities during the time period between 24 February and 29 March 2020. This data was compared with data from the time period of 6 January to 16 February 2020, which was the time period before the outbreak. The study found that for the week up until 15 March, there was a 31 percent decline in online traffic for the fashion retailers. During that same time period, the total conversion fell by 50 percent and the conversion rate fell to 24 percent (Statista Research

Department, 2020).

Nosto also published a report analyzing the effect of the COVID-19 epidemic on the fashion, apparel, and accessory e-commerce. This report tracked the sales of 271 fashion, apparel, and accessories e-commerce retailers during the time period of 1 March to 25 March

2020 and compared this data with the data from the same time frame from previous year. This report stated that in March, online fashion retail sales fell 30 percent year-on-year (Nosto, 2020). 28 On 20 March, online fashion retail sales revenue dropped by 32 percent and visits dropped by 24 percent (Nosto, 2020).

The COVID-19 epidemic has hit e-commerce and the fashion industry hard. It is making fashion brands look at the industry in a new way and think carefully about what the future of fashion looks like.

29 Chapter 6

Conclusion

This research aimed to take a closer look at the intersection of e-commerce and the luxury fashion industry. It began by looking at the beginnings of e-commerce and its rise to ubiquity. It also took a look at how the concept of “luxury” is defined, as well as what defines the luxury fashion industry. Next, it delved into how e-commerce and luxury fashion merged, starting with understanding the luxury fashion industry’s initial hesitance towards adopting e-commerce into its business model. Finally, it analyzed what luxury e-commerce will look like in the future and what are the anticipated trends, including if the luxury fashion is predicted to grow and be successful.

After conducting this research and analysis, it is clear that luxury e-commerce will only continue to expand in the coming years, provided that the brands continue to embrace the changing environment. The luxury fashion industry is one of the late comers to the world of e- commerce. The fashion industry is still relatively new to the world of e-commerce and is only beginning its online presence. Some brands, like Gucci and Burberry, have been very open to the integration of e-commerce and creating an online presence. Other brands, like Prada, were far more skeptical of adopting e-commerce, especially out of fear that they would their exclusive and high-end image. However, this research has shown that luxury fashion brands do not have to comprise their brands’ image of exclusivity and luxury in order to sell online. Many luxury brands have been able to maintain that image through their e-commerce site and online presence.

While e-commerce is starting to become a very successful channel for the luxury fashion industry, that does not mean that they should forgo their traditional brick-and-mortar stores. 30 Brick-and-mortar has been an essential part of the luxury fashion industry and remains where most of the revenue comes from for the brands. E-commerce not only drives online sales, but it also helps luxury shoppers make decisions about a product before purchasing it. According to the

Bain & Company study, it is predicted that all luxury purchases in the future will influenced by online interactions and experiences, in some form or another (D'Arpizio et al, 2019). This could mean a consumer looks at and compares products on the e-commerce site before purchasing in store. It could also mean that a consumer was influenced by a social media post to purchase a luxury product. E-commerce is not just a driver of sales, but also a channel that helps consumers make purchase decisions.

E-commerce has opened up a new realm of possibilities for the luxury fashion industry, which was once thought to be dying. Through the use of e-commerce, luxury brands have been able to expand both their age group and global markets. While the future of e-commerce is never entirely certain, it is predicted that luxury e-commerce will only continue to grow in the coming years, as more luxury brands continue to embrace and invest in e-commerce as a significant driver of sales.

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ACADEMIC VITA Grace K. Morgan [email protected]

Education The Pennsylvania State University, University Park May 2020 Schreyer Honors College Major: Information Sciences and Technology Minor: Digital Media Trends & Analytics, Security and Risk Analysis Dean’s List: Fall Semester 2016 – Fall Semester 2019

Project Experience PTSD Coach App Advancement Fall 2019 • Worked with a client to develop an artificial intelligence chatbot for an app to help PTSD patients • Managed and worked on a project from beginning to end, with the final deliverable being an interactive prototype Implement Database Design Using Web Interface Fall 2017 • Objective was to develop an idea for a website and implement the idea by creating a database design to link to a web interface • Created an E-R diagram for the database, implemented this design using SQL, and linked the database to the web interfaces using PHP and HTML files • Analyzed the website by checking its functionality with desired SQL queries, modified the format of the website to make it user-friendly, and presented the idea to the class in a presentation

Work Experience Coach (Tapestry Inc.) June-August 2019 North America Retail E-Commerce Intern at Coach • Assisted with brainstorming creative shop concepts and site merchandising on the retail site using Demandware Salesforce • Presented in weekly cross-functional team meetings on data regarding homepage user engagement • Utilized Google Analytics and Excel to gather site data and formulated insights based on the collected data Department of Teaching and Learning with Technology May-August 2018 Digital Publishing Assistant at Penn State University • Assisted with formatting 7 different textbooks for Penn State professors to be used for different classes • Communicated with other employees and professors to give up-to-date information about current projects • Utilized Google Docs, Excel, Press Books, and Box to organize and maintain project files Tröegs Brewery June-August 2017 Greeter at the Tasting Room Restaurant • Greeted guests and explained the way the restaurant operated and answered any questions Hershey Entertainment & Resorts May-August 2015 Hostess at Trevi 5 Restaurant at Hotel Hershey • Greeted guests, followed seating guidelines, and made reservations with Open Table Hershey Entertainment & Resorts April-August 2014 Activities Attendant at Hotel Hershey • Provided childcare services to children of guests, including supervising and running activities