A luxury affair

Written by Anushree Bhattacharyya | Updated: Sep 17 2013, 14:29pm hrs
After their tryst with mass products, e-commerce players are now peddling global luxury brands. As they experiment with different business models, for the young, aspiring Indian customer, it's an opportunity to flaunt international labels

A young marketing executive gets an invite for a party scheduled for the following evening. However, as she is travelling on business, she is left with no time to go shopping for a dress. Desperately she flips through her favourite e-commerce websites. Voila! There's Jabong.com which sells designer dresses. Quickly, she orders an LBD by Elle. The next day when she reaches her office, a package is waiting for her. She opens it and finds the dress which she had ordered the previous day. In the evening she puts on the dress, and leaves for the party.

Harish Mehta, an NRI, is in India for a short vacation. He has just lost his favourite pair of Tag Heuer aviator sunglasses. Mehta does not have the time to visit the few shops in the city that stocks Tag Heuer sunglasses, and especially the model he wants. His problem is solved in a jiffy when he talks to his friend about it, who recommends him to visit Lenskart that retails luxury brands. Mehta goes on to the site, finds his favourite brand there and orders that one particular style.

The next day, Mehta makes a grand entrance at his college reunion, wearing his brand new sunglasses.

If in the last two years, the Indian e-commerce category has seen a rise in the number of websites dealing with mass products, in the last one year the category has witnessed an increase in the number of e-commerce portals selling premium or luxury brands. These portals retail a range of products sporting logos of brands such as Elle, DKNY, French Connection UK (FCUK), Gas, Timberland, Diesel, Dolce&Gabbana (D&G), Hugo Boss, apart from selling Indian designer wear by Manish Malhotra, Suneet Verma, Abu Jani and Sandeep Khosla , Ashish Soni, Savio Jon, etc.

According to the Digital Commerce 2013 report by Internet and Mobile Association of India (IAMAI), the digital commerce industry has expanded massively from

R19,249 crore in 2009 to R 47,349 crore in 2012. The market is expected to witness a 34% jump in 2013 to touch R62,967 crore. The e-tailing category (which comprises of consumer items such as books, apparels and footwear, jewellery, mobiles, cameras, computers, home and kitchen appliances, home furnishings, vouchers/coupons,

flowers and toys and gifts) constitutes 16% of the total digital commerce market, totalling R6,454 crore (Jan-Dec 2012). Interestingly, the category which stood at R3,842 crore

in 2011 has witnessed a 68% increase in the last one year.

Luxury brands currently constitute a very small segmenta miniscule 2% of the total e-tailing category. According to industry observers, the kind of brands that are currently being sold in India through e-commerce can mainly be grouped under two categoriessuper-premium and premium brands. Indians are yet to be exposed to brands which are actually luxury brands - Louis Vuitton, Prada, Christian Dior, Salvatore Ferragamo, etc. Only a handful of Indian consumers are aware of such brands and can actually afford to buy their products. Further, consumers in India are yet to be able to differentiate between a luxury brand, super-premium and premium brands. Currently, the kinds of brands that are sold on many e-commerce portals are either super-premium or premium brands, said Pragya Singh, associate director, retail, Technopak Advisors, a management consulting firm.

While premium/luxury brands such as Diesel, Zara, Gucci, Dolce & Gabbana, Alexander McQueen, etc., sell their products and services online via their own websites in international markets such as Europe, US and Middle East, these brands are mostly sold via third party e-commerce websites in India. This has lead to the mushrooming of many e-commerce websites. in this category. For example, Noida based website Strapsandstrings.com sells both premium and luxury lingerie brands. Every time I went abroad, I bought lingerie brands such as Victoria Secrets, Elizabeth Hurley, Chantelle and many more. These were brands that were not available in India. I realised that like me there would be many women who also buy lingerie abroad. This lead to the creation of the website, said Deeksha Jaiswal Dadu, co-founder and director, marketing, Strapsandstrings.com.

Similarly, another website called Excluzen.com offers products and services including that of Apple, Bang & Olufsen, Tag Heuer, Omega, Satya Paul, The Leela, The Oberoi, Samsung, Just Cavali, Rosenthal, Callaway, etc. Yet another e-commerce site called Perniaspop-upshop.com sells Indian designer wears.

These brands are sold through third party sites primarily because of the fact that there is no FDI (foreign direct investment) allowed in e-commerce in India. Secondly, most of the brands have very small store footprint and awareness in India and these brands would like to establish their presence through stores and then focus on e-commerce, said Mohit Bahl, partner, KPMG in India, a business advisory firm.

Finding the right location to set up a shop is a tricky job for international brands such as Debenhams, GAP or River Island. Usually companies prefer five-star hotels or posh malls, where they could have easy access to affluent consumers. It is here that e-commerce is seen to be playing an important role. In e-commerce, premium/luxury brands have found an alternative platform that allows them to catch the attention of the Indian consumer. This is also a way to test the market. For example, international footwear brand Caterpillar (also known as CAT) has recently tied up with Myntra.com because first, it wants to understand the consumer behaviour before opening its outlets.

There is no one particular business model followed by the e-commerce sites. The model varies in each case, be it in sourcing the goods or selling them to consumers. For example, Jabong.com which has a dedicated premium section on its website stocks most of the merchandise at its centralised warehouse in Delhi. We follow three different models. Under the first model we buy the product and store it in our warehouse. Under the second model, we stock merchandise in our warehouse, but pay the brand only after the products are sold. Lastly, we list products and pick them up from the company warehouse after a customer has bought it online, said Manu Kumar Jain, co-founder and managing director of Jabong.com.

At the same time there are sites such as Fashionandyou.com and Strapsandstrings.com, that purchase products or entire collections in case of apparels from international markets and stock them at their warehouses. We mostly

acquire products from international markets in Europe and America and store it in our warehouse in Noida, said Dadu of Strapsandstrings.com. For brands that do not have an office in India, these sites ink a deal with them and become their exclusive online retail partner. The business model, however, is different for websites that trade in services related to travel, accommodation or wellness. Deals are signed directly with various hotel chains, airline companies or salon chain. For such services no stocking is needed, said Urvashi Bahuguna Sahay, CEO and founder, Excluzen.com. The e-commerce site sells everything from spa bookings to travel and sailing lessons online.

There are various ways to sell a product and this remains true even for e-commerce players. While a few e-commerce websites survive on deals and discounts, there are some serious players that sell premium/luxury brands on the marked price and offer discounts only twice a yearduring the change in season, spring to summer and autumn to winterto clear the old stock. For example, websites such as 99lables.com offer almost 90% discount to its exclusive members. In such cases, the inventory is either bought from flea markets in cities such as Bangkok and Hong Kong or e-commerce websites buy last seasons collection which they sell at a discounted rate, said Murthy.

And if initially deals and discounts had paved way for a few sites to attract consumers, finding a customer now has become a matter of survival. When you are selling a product that is also available on another website, the usual tendency of a customer is to compare the price offered by both the portals and then buy from the site which is selling the product at a cheaper rate. Following this strategy might allow one to sell the product, but the profit margin reduces drastically, added Murthy. He goes on to say that in such a scenario e-commerce websites should concentrate on launching their own brands.

For example, we had introduced premium women wear under the brand name donebynone online which is doing phenomenally well, explained Murthy. According to industry estimates, the conversion rate (where a casual visitor to the site actually buys a product) ranges between 0.5-1% in case of third party owned brands and increases to 3-3.5% for in-house brands.

For e-commerce players such as Myntra or Yebhi which operate in the mass as well as premium/luxury category, the cost of customer acquisition has always remained high. However, unlike the mass category, the modus operandi is different in case of sites selling premium goods as consumers are aware of the products and services they want to buy. Jain of Jabong.com says that in case of premium/luxury goods, while the volume of purchases per customer is low, the average ticket size is high. The role that luxury/ premium plays that it helps in bridging the gap on the balance sheet. After the sale of mass products on the site, the sale of luxury/premium brands compensates for the target left. While these brands constitute a significant portion of sales, they do not drive the volume, he added.

Meanwhile, the story is completely different for pure premium/luxury

e-commerce players such as Excluzen.com and Perniaspop-upshop.com that claim that a majority of their customers reside in India. Luxury brands are getting immense response online, especially when it comes to Indian designers. With e-commerce we have been able to overcome the accessibility barrier and now Indian wear is available everywhere across the globe with just a click of a button, said Pernia Qureshi, director, Perniaspop-upshop.com. The website says that domestic sales contributes to 60% of total sales, while international markets account for the rest 40%. Excluzen.com claims India accounts for 75% of sales and the rest 25% comes from international markets.

Interestingly, for sites such as Strapsandstrings.com the majority of its consumers reside in European and American cities. When we started we got one order a week, and today we get over 100 orders in a day. While 10% of consumers are based in India, 90% of consumers reside outside India. On any given day, we generate a traffic of 18,000 to 35,000 people on the website, added Strapsandstrings.coms Dadu. Dadu says that the minimum order size is R10,000-17,000 while the biggest order can be worth R1-2 lakh.

Not surprisingly, customers of such sites tend to pay in cash often for the transactions made. One of the reasons cited is that not many credit cards have such high withdrawal limits that would allow online purchases of R3-4 lakh. Many of our customers are high-profile people such as a politician or a celebrity. One of the reasons why these people shy away from using cards is the fact that no one likes their monthly credit card statements to reflect transactions of such high value, said an e-commerce player who did not want to be named. Cash on delivery, therefore, has come as a boon to such potential customers.

Dealing with consumers buying premium/luxury items is no childs play. Therefore, e-commerce websites offer various services to ensure that the buying experience here is different from that of a mass player. E-commerce sites such as Strapsandstrings.com provide 24x7 assistance to its consumers through live chats and a call-centre. Additionally, it organises private fitting sessions for its consumers, says Dadu. Similar is the case with Perniaspopupshop which, apart from providing trial sessions, has also recently launched a magazine that provides a peek into the seasons trends, etc. Luxury items are expensive and people make a thoughtful decision before buying them. In fact I also organise trial in my office, and for those customers who want a private fitting session, I also assist in that, added Dadu.

On the heels of a few international premium/luxury brands including Zara, Diesel, Alexander McQueen, which require a potential customer to register before zeroing in on a product, select sites such as Excluzen.com and Bestylish.com which retails premium/ luxury footwear brands have introduced the concept of exclusive membership.

As per this, a customer can place an

order only after she has created her

exclusive login id. As the name suggests, luxury/premium is not meant for the masses. Therefore, brands will like to maintain the exclusive nature of the brand even online, said Singh of Technopak Advisors.

Even as luxury e-commerce portals have found consumers in India, these companies are yet to turn into profitable ventures. For many of them, it is still about building a customer base, so much so that some portals have even resorted to selling counterfeit products. Luxury/ premium e-commerce portals need to understand that selling goods at a discounted rate does not work in the long run. Exclusivity is the only factor that will ensure that these sites continue to do business, whether it is about launching their own labels or inking exclusive deals with premium brands, said Murthy.