Analysis: Luxury E-Commerce in 2016 (Part 2)
We reexamine 2015’s hottest emerging luxury e-commerce markets—and reveal a new market to consider in 2016, too.
This is Part 2 in a 2-part series. Read Part 1 here.
Last year, we identified four top emerging global markets for luxury brands to target with localised e-commerce experiences. Last week, we examined how BRIC nations were faring this year, and if they were ready for luxury e-commerce expansion. (The short answer: a qualified yes.)
Now we'll revisit those top four markets we identified last year, and see how they're faring in 2016. Is India still a smart luxury e-commerce bet? Has Poland remained a solid Eastern European market? Do Iran and Thailand still make the grade?
Our analysis suggests these booming markets remain largely untapped, and worthy for e-commerce expansion—particularly for daring first movers. We’ve conducted additional research to complement the data we provided last year. We’ve also identified an all-new hot market for luxury e-commerce brands to consider.
Let’s dive in.
India’s economic outlook remains bright. In fact, it’s currently outpacing China as the fastest-growing major economy in the world: it grew by nearly 8% in March, up from 7.6% in the 2015 to 2016 fiscal year. Both the World Bank and the International Monetary Fund project a solid growth of 7.5% this year and next.
This is already generating considerable growth in Indian luxury retail. The market has experienced a compound annual growth rate (CAGR) of 13% higher than all other BRIC nations. Research shows a top-selling shift in the luxury market to fragrances, watches and jewelry, followed by skincare, apparel and fine dining.
While traditional retail reaps the benefits of economic growth, the market's luxury e-commerce sector remains in its developmental stages. We've identified a few roadblocks and opportunities luxury retailers should address, as they consider entering India's luxury e-commerce space:
Internet Penetration: Internet adoption is skyrocketing. Analysts believe the number of India’s Internet users will reach 460 million by year’s end, representing a nearly 35% penetration rate. That’s a 30% year-over-year increase—more than 100 million people!—from 2015. A luxury brand that manages to attract a mere 1% of these users can see a profitable windfall.
Language: While about 10% of India’s population is fluent in English, most consumers speak Hindi (the country’s official language), or other regionally-preferred languages such as Tamil and Gujarati. Before long, as one analyst told Bloomberg last year, “India is going to get to 500 million Internet users, but 300 million are not going to be proficient in English.”
Luxury brands that launch English-language e-commerce sites will certainly connect with middle-class urban Indians. But we've seen time and again that providing localised online experiences in multiple languages, in diverse markets such as India, really moves the needle.
Product Availability: As we reported last week, Chinese consumers who live outside major cities must travel hours to visit brick-and-mortar luxury stores. Wealthy Indians face the same challenge. According to one report, nearly 45% of India’s multimillionaires live outside major metropolitan areas. An e-commerce site serving these luxury buyers would deliver a convenient, effortless shopping experience—and it’d close a multi-million dollar revenue gap.
Plummeting oil prices have exposed vulnerabilities in many national economies (particularly in the Middle East), but Iran isn't one of them. Due in part to many years of trade sanctions, Iran has diversified its economy, making it less reliant on oil as a source of income.
And with the recent easing of Western sanctions, Iran’s economy is blossoming—it’s presently seeing a 4% lift in healthy growth this year.
This is translating into positive growth for Iran’s luxury market, too. Brands are flocking to the market. Roberto Cavalli opened shop in Tehran in February, and Versace is expected to open its first store soon. In fact, mere months out of its severest sanctions, Iran may already account for nearly 5% of the $1 trillion global luxury market. This demand will grow.
Expect for demand to especially flourish online. Internet penetration is already at about 55%, representing nearly 40 million users. And compared to other countries, the population's disposable income is quite high. According to the International Monetary Fund, Iran's per capita GDP is $16,500. (This is more than China, India and Brazil.)
We've already seen a surge of activity in the Arabic sites we operate in the Middle East since sanctions have eased. During Q4 2015, one fashion retail saw spikes across the board: a 122% year-over-year increase in revenue, a 33% lift in transactions, and 76% in sessions from users hailing from Iran.
We remain bullish on Iran as an expansion-worthy market, though it's not without its challenges for first movers. Keep these factors in mind:
Remaining U.S. Sanctions: These continue to curb full investment into the Iranian market. In one survey of executives, about one-fourth said these lingering sanctions remain a top concern for doing business in Iran. One-third of them said they could not get insurance to cover to their proposed business activities in Iran. Ouch.
Location: Luxury brands seeking to complement their Iranian e-commerce expansion with brick-and-mortar stores may experience setbacks. A challenged infrastructure, lack of quality real estate and shortcomings in workforce training still dog the market. These in-country x-factors can compromise a luxury brand’s reputation.
In contrast, serving these customers online with localised websites brings numerous advantages, including counterfeit prevention, and a consistent-and completely controllable-elegant shopping experience.
Supply Limitation: As with China and India, brick-and-mortar product access remains a challenge for this market. About 60% of Iranian consumers say it’s been very difficult to find the clothing and shoes they want in traditional retail stores. Yet again, e-commerce can come to the rescue here.
It’s been another good year for Thailand’s prospects as a worthy luxury e-commerce market. The country’s economy expanded more than expected during 2016; GDP grew over 3% during Q1 2016, compared to Q1 2015.
Luxury goods maintained a record growth rate last year, too. Luxury goods are becoming more accessible in the market, thanks in part to an influx of high-end retailers.
Online retail stands to gain ground, too. Thailand's already robust Internet penetration should reach nearly 30 million users by year's end. That represents a 6% year-over-year growth of about 1.5 million users.
A 30% import tax has historically hampered luxury retail growth (both online and off), but this hefty tax will soon be rescinded. Expect a spike in sales, particularly from locals who'd be more tempted to shop luxury at home-or in their homes, via a localised e-commerce experience.
Defying our expectations from last year, Poland’s economy contracted a bit during the first half of 2016. Analysts project a rally during the second half of 2016, however, and strong rally into 2017. GDP is expected to grow 4.4%.
The luxury sector is still doing relatively well in Poland. Last year, the luxury market grew to $3.5 billion—more than expected—and that number is expected to grow during the upcoming years. Also on the rise: Internet penetration. It's now at 72% (compared to last year's 67%), which bodes will for e-commerce endeavours.
In the light of the economic growth, increase in Internet penetration and the trade flow within the EU, Poland still provides an untapped, and very tempting, expansion-worthy market for luxury e-commerce.
New for 2016: Saudi Arabia
In addition to reexamining our top four emerging luxury e-commerce markets of 2015, we also wanted to examine other expansion-worthy markets for 2016. One stood above the rest: Saudi Arabia.
And with good reason. Despite an economic slowdown due to low oil prices (the nation’s Q1 growth this year was the slowest since 2013), consumer spending remains high, and is projected to grow. Further, the market currently ranks 6th globally for luxury spending.
Internet penetration has continually grown since 2000, currently at around 65%.
General e-commerce is booming in the region, a very promising sign for luxury brands keen to engage Saudi consumers online. However, the market has a reputation among Western brands for being difficult to penetrate, due mostly to a lack of cultural fluency. Here are a few things brands should be mindful of as they expand into the Saudi Arabian e-commerce space:
Language and Localisation: Arabic is the official language of Saudi Arabia, and should be supported by any e-commerce site serving its customers. However, a region-neutral Arabic translation won’t be enough to woo consumers here. Some items and words require region-specific localised translations to resonate with shoppers.
Cultural Differences: Compared to many Western markets, Saudi Arabia has strict guidelines regarding content, and what is considered indecent. This means images and copywriting that may be perceived as innocuous to Western eyes could prove scandalous in the Saudi market, which highly values its culture and traditions.
There are clever ways to sidestep this market-specific challenge. By using localised imagery and text-content that is designed exclusively for the Saudi Arabian market, served on a company's site serving Saudis-luxury brands can eliminate risk, while delivering resonant, culturally-appropriate content.
Unique Payment Preferences: While Saudi Arabia saw a 40% year-over-year growth in the adoption of online payment platforms, about half of the market’s e-commerce shoppers prefer to pay via Cash on Delivery. As we advised last week with Russia, make sure your company can accommodate unconventional, locally-preferred payment methods.
Provide a Mobile Experience: Saudi consumers are glued to the mobile web, spending nearly 6 hours a day on their mobile phones. That’s far more than on desktop PCs (3.6 hours) and tablets (2.8 hours). This jibes with our research: mobile site traffic to one MotionPoint client’s Saudi site represented over 60% of the company’s total traffic.
E-Commerce = Convenience: Providing a luxury e-commerce site can prove convenient for consumers in ways most brands don’t anticipate. For instance, women are not permitted to drive in Saudi Arabia. A comprehensive luxury online experience can empower these customers, and others, to shop from the comfort of their homes.
Based on the changes we've seen in the past two years, it's clear that luxury retailers and brands are adapting to the times. Embracing online sales channels ensures their survival, and connects them to lucrative untapped markets.
Unlike physical stores, e-commerce experiences easily transcend borders and customs, enabling brands to target ideal customers with more ease than ever before. The time remains right for first movers to engage the millions of luxury e-commerce consumers who are being underserved both in their countries, and abroad.
That's a wrap on our Luxury E-Commerce Markets analysis series, but stay tuned! We'll have even more words of wisdom on luxury e-commerce-this time, on how to best woo these global shoppers-in the days ahead!