PRINTABLE VERSION HERE

![2020 ARTICLE E-commerce & Department Stores

E-commerce has become an essential part of the department store toolkit. It is tasked with increasing sales, improving service to customers and, thanks to an optimised structure, boosting profitability in the same way the return on space did in yesterday’s model.

However, e-commerce pure players and most of the e-department stores are losing money in operations, competing for a fickle customer who appears to chase the cheaper option in their mostly indistinguishable offers.

*Is that an inescapable fate? If it is, why are some department stores entering the game now, when so few have succeeded so far? Learning lessons from the small number of best-in-class players, the few who are making money, might be a good idea for the newcomers.

And for others too.*

“Think about customer relationships, revenue will follow”

Michael Kliger, CEO Mytheresa

For a long time, Rinascente of Italy has been sceptical of e-commerce. And yet over the last two years, under the impetus of its owner Central of Thailand, it has invested 20 m Euros and created a 50-person business unit to make 15 000 items from 650 brands available to its customers in Italy. Liberty of London, which has been online for 12 years (its site now accounts for some 10% of sales), has restructured its e-commerce through an investment in a Salesforce CRM platform and a datalake with Azure to allow its 40-strong team to improve their service as well as to link with their recently launched B2B platform operating in 32 countries. LVMH, owner of historic Bon Marché store in Paris, last year rechristened its 24Sèvres website (named after the address of the Bon Marché) as 24S, increasing its offer to men’s wear, bringing its total number of brands on offer up to 200, available in over 100 countries, most recently South Korea and Germany.

The future is online…

One reason, of course, is that, as Bain tells us, by 2025 e-commerce will account for 25% of the luxury market. Customers, as we are repeatedly told, are “channel-agnostic”, that is they expect to be able to shop whenever, however, and wherever they want. Furthermore, the competition is upping its game: brands are going direct to consumer and bypassing intermediaries (Gucci and Burberry are examples of prominent presence on the web with substantial visitor numbers); multi-brand sites are also growing with Farfetch, YNAP, Ssense, Mytheresa and MatchesFashion as notable examples.

…but does the future pay?

However, it is also generally acknowledged that online retail is at best a lower margin business than physical retail has been, and at worst a seriously unprofitable one. Unlike physical retail, the main cost headings online are fulfilment and supply chain; customer acquisition; and IT investments. Even those companies mentioned above are rarely straightforwardly profitable. The 2019 YNAP results were seriously impacted by what has been described as “its painful tech upgrade” with a losses of around $10 m. Ssense, which said by its owners to be profitable, recently acquired Polyvore then immediately shut it down, an expensive customer data purchase. The Farfetch CEO has declared that it would reach break-even by 2021, some 14 years after its launch, while reporting a current loss of £85 m. Only MatchesFashion and Mytheresa (which both started as small brick and mortar shops) are currently profitable. They have also remained small in terms of assortment, while on the other hand YNAP offers upward of 800 brands, and Farfetch some 2000.

What lessons can be learnt from this and what are some of the success factors?

Retail brand or product brand?

Online retail is not the same as physical retail. The cost structures and business models are different.

![2020 ARTICLE E-commerce & Department Stores

Rinascente has announced that it will soon be introducing a “gamification” element to its site. While this will be welcome to the extent that it contributes to engagement and productivity, it should take care not to reduce the convenience of online shopping, even though it expects 70% from mobile. The company is aiming for sales of 80 m to 100 m Euros in 2 years. Since it will ship from store, it will serve Italian customers only, for the initial phase. However, the pick-from-store solution was a serious drawback to the recently launched Fenwick site in London during the lockdown. It also apparently proved a disaster for the early Sälling online experiment in Denmark. It is indeed difficult to imagine pickers competing with the huge number of shoppers which Rinascente attracts on many days. Breuninger of Germany cleverly operated the other way around when it used stores as extra stock for web purchases when the DC proved too limited for the rush of online orders during confinement. SM of the Philippines also initiated a new “channel” during lockdown which served customers from the stores.

Rinascente is so far a modest e-commerce proposal but is planning to be augmented in the future by a “marketplace” offering many if not most of its 120 concessions in order supposedly to generate more traffic and income at little extra cost. While the benefits are extolled by tech company salespeople, they may be less obvious on the ground.

![2020 ARTICLE E-commerce & Department Stores

Liberty, which is still experiencing very limited traffic online (just over 600K visits last May, compared to YNAP’s 13 m or Farfetch’s 21 m), is both a retailer brand and a product brand – and an international one at that. It apparently derives the greatest part of its profits from own-brand merchandise and from selling fabrics as a wholesaler. This places it halfway between a retail brand (which most department stores are) and a product brand (such as Burberry, its Regent Street neighbour). Arguably, product brands need to “tell a story” online, while retail brands need to prioritise curation and convenience. This difference is, or perhaps should be, reflected in the online experience: is it proposing shopping involving browsing and gifts, as claimed by the Liberty e-commerce director, or is it an efficient experience for time-poor customers? In this sense, it falls between two stools. In some ways similar to Liberty, is the Fortnum & Mason web site which, according to the chief customer officer, is in effect the ground floor of the store (and it also consists mostly of its own brand offer). It would be inconsistent for the Liberty site to offer a marketplace, like Rinascente is planning.

![2020 ARTICLE E-commerce & Department Stores

On the continuum of models, 24S plays both the card of the Bon Marché store of which it is the website, and that of LVMH, many of whose luxury brands it offers as well as others. But it comes down more on the side of retail than of brands. Most of its sales are apparently achieved outside France, and perhaps for this reason, it has never wanted to be associated through its name with the Bon Marché store which is relatively less well-known abroad. 24S probably has about twice the traffic of Liberty, because of the notoriety of the brands, but is still very small compared to other multi-brand websites. On profitability, Bernard Arnault, the owner of LVMH and 24S has been quoted as saying “we haven’t found a way to make it (24S) profitable… they are all losing money… the bigger they are, the more money they lose”.

Bon Marché operates a separate site called La Grande Epicerie, dealing with the high-end food offer of its eponymous store.  Although food online is a case on its own, partly because it is primarily local (apart from food gifts), it nevertheless offers a range of services from which there is much to be learnt.

Limited assortment and unlimited customer knowledge

The right and appropriate assortment is just as important online as it is offline. Successful online players limit their assortment online. The “endless aisle” is a trap: some 65% of the business comes from 30 brands, according to Mytheresa CEO, and inventory costs also exist online. Furthermore, operational efficiency increases if there are fewer photographs to be taken.

However, keeping the assortment curated requires excellent customer knowledge. This means being prepared to select customers on the basis of their lifetime value and eschew the lure of the quick one-off sale. Sophisticated and effective customer acquisition requires data and the intelligence to use it.

Typically, the more wealthy customers who have the potential to become long-term clients value curation and convenience online. Understanding which customers are worth engaging and which aren’t, also solves part of the customer acquisition puzzle. A corollary of this point is, of course, that buying requires a high level of expertise and agility in order to satisfy and indeed anticipate those precise customers’ needs.

![2020 ARTICLE E-commerce & Department Stores

The recently launched Printemps online site (printemps.com) challenges some of the above: it complements their small specialised online offers as well as the Place des Tendances by the Printemps.com site, launched in 2013, and which is a relatively small site offering around 400 brands. The Printemps.com has been described as mobile first, targeting 20 to 40-year olds and is forecast to break even in 4 years. It is very much a “magazine” format offering goods for sale. It is possibly an attempt to create a “story line” for a multi-brand retail format by using the magazine format to deliver brand value through lifestyle.

Conclusions

Recent high-end fashion online launches and upgrades thus demonstrate several things:

• That online and offline are different businesses
• That retail brands and product brands require different models
• That there are indeed ways to make online retail profitable
• These include

+ keeping a tight rein on assortment

+ choosing customers according to their lifetime value

+ and making sure the buying skills are sufficient and adapted

• That there is perhaps still some room for innovative thinking and new models

Credits: Dr Christopher Knee, IADS