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Evolve Or Die: Luxury Brands Must Embrace Digital To Thrive With many leading brands experiencing declining sales in key consumer markets such as the US, Europe and China, the business of luxury is at a crossroads.

By Kunal Kapoor

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The luxury sector is being shaken up like never before as it desperately fights to protect itself from fakes, with the anti-counterfeit market set to grow to US$4.2 billion by 2020. And with many leading brands experiencing declining sales in key consumer markets such as the US, Europe and China, the business of luxury is at a crossroads.

It is still a hugely lucrative industry, but how can a sector that is traditionally associated with physical buying survive in this brave new digital world? According to Bain & Company, the global luxury goods market is expected to grow by 2-4% to $296-302 billion in 2017, driven by healthier local consumption in China and increased tourism and consumer confidence in Europe.

However, the gulf between the winners and the losers continues to widen. To win in the new consumer landscape, where Red Bull is as powerful a brand as Rolex or Louis Vuitton, brands must think much more innovatively when it comes to how they engage with a changing consumer base. The obvious starting point is the consumer. Even when the landscape is changing so dramatically, focusing on the consumer is always the way to stay anchored to what's important. Let's take a look at Netflix, Airbnb and Spotify. These "disruptive" brands use a range of sophisticated algorithms to learn their customers' tastes and make ever-more personalized and relevant suggestions. By doing so, they offer their customers experiences that are enriching, rewarding, insightful and meaningful. Of course, none of this would have been possible had it not been for the digitalization of their markets but what's important is that it's the consumer who's in the driving seat; they are more empowered and informed than ever before.

But the luxury sector is a special case, isn't it? Not necessarily so. Leading luxury brands in the fashion world are built on exclusivity, which until recently has meant a minimal online presence. But shoppers' dependence on the internet -and slowing luxury sales- has pushed even high-end retailers to embrace digital technology. Digital can make a transformative difference in a brand's ability to connect with and keep their customers. Luxury goods and services are now pursued, tested and purchased in very different ways than they were in the past; consumers expect efficient e-commerce, engaging and exciting interactions on social media, and multiple channels through which to interact with brands.

Look at Net-a-Porter. By examining the ways in which their customers are interacting with brands as well as studying their changing consumption and purchasing habits, the company has created a seamless omni-channel presence across a variety of mediums in mobile, tablet and desktop. Tapping into the changing attitudes and behaviors, expectations and aspirations, of existing and new consumers provides opportunities for luxury brands to innovate and grow. By embracing digital technology, luxury retailers can reach their target consumers directly, and perhaps expand their audience to customers who would otherwise struggle to find them. Consumers would enjoy more access to some of their favorite brands while for investors, a brand's online engagement with luxury shoppers could mean stronger sales and new avenues for growth.

Most luxury good sales are now digitally influenced meaning shoppers either researched online and bought at the store, shopped in the store but bought online, or purchased entirely online. With relatively low penetration of e-commerce and social media by many of the leading luxury brands, there is an opportunity to boost direct-to-consumer engagement, particularly as younger consumers, such as millennials, spend increasing amounts of time online. Millennials view brands much more differently than previous generations. They're not as worried about brand names and will switch brands at a moment's notice. The exception is brands that they trust. Millennials will often stick with a brand through hard times, if that brand has developed an authentic relationship with them. Similarly, trust is central to the relationship between GCC consumers and luxury brands. The culture in the Gulf is still highly anchored in passing down habits and customs; a notion that creates reassurance through long-term commitment. When purchasing luxury items, especially online, it is this sense of trust that is so vitally important.

So, while the future will undoubtedly bring many new and exciting things for brands, it's the experiences that will increasingly drive sales by providing a sense of belonging, connection, authenticity and relatedness. With this in mind, brands that succeed will be those that inspire and are able to deliver on their customers' needs. New consumers, digital disruption of channels and business models, and changing attitudes to the idea of luxury, are quickly transforming the world of luxury brands. It's either evolve or die. Every luxury brand needs to innovate, to seize the opportunities to reinvent and drive future growth. By nature, luxury brands create a distance between the brand and their customers, generating the elusive aura and scarcity that rationalizes the price tag. But now is the time to bring your consumers along on your journey.

Related: How To Get Funded (And Keep Investors On Your Side)

Kunal Kapoor

Founder, The Luxury Closet

Founder of The Luxury Closet, Kunal Kapoor is a serial entrepreneur with a background in luxury and fashion. He built a successful sportswear brand in India, and then received an MBA from INSEAD in France. Kunal subsequently landed in Dubai, working for the French fashion empire Louis Vuitton. In 2011, Kunal founded The Luxury Closet, the largest marketplace for luxury items in the Middle East. This successful and unique venture sees luxury products from Louis Vuitton, Chanel, Rolex, Cartier, Louboutin and 100 other top brands sold for up to 70% off the original price. Kunal strongly believes that the ability to buy luxury items should be available to everybody. His love of entrepreneurship and fashion has been the heart behind The Luxury Closet.
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