Complex Made Simple

From Michael Kors to Ralph Lauren: The big brands win online

Forget about digital democracy. It’s the familiar names with the funds to wave their own flags that win in fashion online – a huge advantage as shoppers increasingly ramp up their online spending.

The big brands are getting bigger and the smaller brands, well, are trying to stay afloat.

“You essentially have a winner-take-all economy where a smaller and smaller number of firms and people are garnering a larger share of the spoils,” said Scott Galloway, founder of L2 Inc. and a New York University marketing professor.

Among the major fashion brands doing well, he cited Burberry, Coach, Gucci, Ralph Lauren, Michael Kors, Kate Spade and Tory Burch – all brands that ranked in the top ten of L2 Inc.’s Digital IQ Index: Fashion. The study, which came out in early December, measured 83 brands on metrics including website and e-commerce, digital marketing, social media and mobile and tablet.

All told, 210 million site visits were logged for the 12-month period ending on October 31.

“The top ten sites of the fashion brands we track account for two-thirds of all traffic ,” Galloway said. “We don’t have conversion data, but would speculate they drive 70 to 80 percent of sales as the majority have better sites and operations, resulting in above-average conversion.”

According to L2’s research in offline luxury fashion, the top seven players – Ralph Lauren, Hugo Boss, Burberry, Calvin Klein, Gucci, Michael Kors and Giorgio Armani – command 25 percent of apparel and accessories sales.

But online, the top seven brands command 65 percent of clicks – a much larger chunk of consumer mindshare than the fashion leaders enjoy in the physical world. That’s a digital boon for those at the front of the pack, which include Michael Kors, Ralph Lauren, Coach, Louis Vuitton, Gucci, Chanel and Burberry.

And the leaders appear to be determined to stay that way. Both Gucci and Chanel this fall unveiled major new initiatives in e-commerce. Gucci in October relaunched its website in North America to reflect its new direction under president and chief executive officer Marco Bizzarri and creative director Alessandro Michele. The site has richer imagery and more editorial content to increase consumer engagement with the label.

Early last month, Chanel started selling eyewear online in the US, with eventual plans to layer on more accessories categories and expand online selling to more regions. The brand has sold its beauty products online in the past, but the move with eyewear marked a major push into fashion e-commerce by the French luxury brand.

“The algorithm for success is growth that results from hype, inflated stock price that results in cheaper capital – and then, you can spend more than your peers on online efforts, which results in growth. This is a virtuous circle,” Galloway said.

Clearly, spending big money pays off for brands looking for online exposure. But smaller brands coming into the market are still giving it their best and in some cases growing sizable businesses.

In October, Chad Horstman, founder of lingerie and costume e-commerce site Yandy, argued that the Internet levels his online venture with Victoria’s Secret.

“Victoria’s Secret in the real world has hundreds of locations and Yandy has zero, but online we have one location and they have one location,” Horstman said of Yandy.com, which he projects will likely do more than $50m in sales this year and hit $100m in sales by 2017.

That is all well and good, but Yandy’s sales, even in 2017, will still be dwarfed by Victoria’s Secret, which had revenues last year of $7.2 billion. And nothing Yandy comes up with online will rival the social media- and traffic-driving tsunami that Victoria’s Secret creates with its annual fashion extravaganza.

Al Sambar, managing partner of Kurt Salmon’s retail and consumer group, agreed that larger companies have the advantage in that they have the money to build out their digital presences.

Sambar said it’s not surprising that big companies have such success in gaining digital attention – even soon after launching e-commerce, such as the case with Michael Kors. The big names can spend big on paid search and customer acquisition.

“Nobody ever promised that the Internet is a level-playing field,” Sambar said. “The people who invest and drive the traffic get to drive that traffic first. It’s a mad race to figure out every new tool.”

This is why there’s an influx of attention when Burberry partners with Snapchat for its runway show. Sambar called access to this kind of direct commerce and new paths to commerce a “first-mover advantage” that favours the big-portfolio companies.

It’s a landscape that is every bit as competitive as brick-and-mortar retailing.

“You’re competing to make an emotional connection to customers,” Sambar said. “You’re competing for each individual customer. Knowing who each customer is individually is much different from posting your catalogue up online. That’s why you’re seeing this race to invest in all of these digital commerce tools.”

Sam Cinquegrani, founder and CEO of Objectwave, a digital marketing and technology services company, agreed. And he said certain luxury brands are “missing the point.”

He cited one French fashion house’s website that looks like a “product catalogue,” and requires consumers to go into the shop if they want to purchase its luxe handbags, many of which cost more than $2,000.

“A product catalogue is great but not appropriate for a luxury brand,” Cinquegrani said. “If I want to buy something, I have to go into their shop. Nothing like that replicates the experience online – yet. Customers like to buy in a certain way. If you don’t replicate that experience online, of course, it makes sense that you’re going to lose.”

© 2015 WWD/Condé Nast Publications, distributed by the New York Times Syndicate