Two Major Disruptive Forces

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When listening to L2’s presentation on digital trends in luxury at the New York Times Luxury Conference back in April, I wasn’t surprised to hear that Kate Spade and Burberry are the top digital and social contenders or even that 90% of shares and engagement in fashion happen on Instagram. What’s specifically shocking this year is the disruptive force of Amazon and Apple.

Amazon is becoming a major force in distributing all luxury products, faster and less expensively.  In fact, apparel is the fastest growing sector of Amazon, even over consumer electronics.  By the end of this year they will be the largest apparel retailer in the US – and we are not speaking just online retailer. They will exceed the sales of department stores like Macy’s and Nordstorm’s. A luxury bag often purchased via Amazon will cost less and be delivered quicker than from the luxury brand’s own e-commerce site.  This begs the question: why would anyone choose to buy luxury elsewhere?

And then there’s Apple. Whether or not you consider Apple to be a luxury brand is irrelevant. Today, Apple is growing so fast in terms of operating margin and growth that it will take the primary discretionary purchasing power that consumers have traditionally spent on other products. Last year that growth was 51 billion – the cumulative force of the major luxury houses combined.  This affects nearly all luxury brands worldwide.

150311_TECH_Watch.jpg.CROP.original-originalFor example, within the first 9 months of its smart watch sales, Apple made $5 billion. While many of the traditional watch brands don’t feel they are contending the same market as a smartwatches, there’s no denying the facts. Global smartwatch sales have surpassed sales of traditional Swiss watches worldwide. Smartwatch shipments reached 8.1 million units in Q4 of 2015 while Swiss watch shipments clocked in at 7.9 million. This marks a 316 percent increase in smartwatch sales from Q4 of 2014.

How luxury brands respond to the disruption from Amazon and Apple will help determine their future health. If they do not acknowledge these disruptive forces, like they did in the past in denying the importance of social media and e-commerce platforms, they may find themselves lagging behind to their financial detriment. If they embrace it, like Hermes has for example, with partnering with Apple for a new fashion smart watch, they may be able to turn these disruptive forces around for their own benefit. Like it or not, brands will have to make the choice now.

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