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This is one of the six chapters comprising the Vogue Business Index: Spring/Summer 2023 edition and should be read in conjunction with the others. Please use the table of contents below to navigate between the chapters of the Vogue Business Index: Spring/Summer 2023 edition.
Key takeaways:
- The power of generative AI: From chatbots that give hyper-personalised recommendations to computer-generated customisation, the fast development of generative AI is likely to revolutionise the online shopping experience. Brands should be thinking about how it can enhance their offering.
- Transparency over speed: Many e-commerce businesses are reconsidering whether same- or next-day delivery is a necessity. The most important features for luxury shoppers are ones that give them clarity over the shopping experience, such as whether a product is currently available or the ability to return an online order in-store if it does not fit.
- Chengdu is a new luxury capital: Almost every major luxury brand is now present in Chengdu. Brands such as Louis Vuitton are benefitting from this by rolling out experimental concepts, including a new restaurant. With Chinese consumer spending predicted to build over the course of the year, fashion houses might also think about how they can make the most of this new luxury hub.
Is AI clienteling coming?
Burberry has regained the top spot in the omnichannel ranking thanks to the British brand’s comprehensive digital customer service offering and strong presence across markets worldwide.
The brand, entering a new phase under the artistic directorship of Daniel Lee, has always strived to lead on digital clienteling and offers five ways to directly get in touch with its team of customer service advisors. Other brands are advancing here too, particularly when it comes to chat functions, with four new brands, including Hermès, adding either a live-chat or chatbot function since last October. In all, 63 per cent of fashion houses now offer some sort of instant customer support.
Those that have invested in native chat functionality and accustomed consumers to using it are among those that are likely to benefit most quickly from the revolution in generative artificial intelligence currently being driven by applications such as ChatGPT and Dall-E 2.
Zegna is the first Index brand to integrate an AI-powered recommendation system into its customer service offering after working with Microsoft. Customer service advisors are sent potential outfit combinations or customisations that they can then choose to send on to luxury consumers. Valentino has also worked with a tech partner, GameOn Technology, on its enhanced AI chatbot.
The biggest name to experiment publicly is Kering, which has begun giving AI-driven product recommendations on its KNXT platform. Users are able to ask for hyper-specific suggestions, such as asking for clothing suited for summer trips to Rome or trousers that can make a statement in a formal office environment.
The possibilities for generative AI do not necessarily stop at suggested purchases; the next step for Zegna, for example, is the use of this technology to assist with its made-to-measure and tailoring lines. Creatives across many different sectors are already using AI to feed into design processes. Luxury brands armed with reams of customer data on preferences can do much more than the average creative if they dedicate resources to AI projects.
Given that labour rights are the sustainability issue that luxury consumers care about the most, some may worry about this technology eroding jobs. Zegna so far has stressed that its AI project is geared at enhancing the help that its customer service staff can give rather than replacing them entirely.
Social commerce in the West: What’s next?
Instagram’s promised revolution in social commerce — where users in the UK and US would have been able to start paying for products directly within the app, which was floated as an idea in 2019 — has unfortunately failed to materialise. Social commerce in the US made up just 4 per cent of all purchases in 2021 versus 13 per cent in China. Now, the Meta-owned platform is removing the Shop tab from the homepage, which some experts see as a scaling-back of its commerce strategy in pursuit of enhancing creator activity on the app.
No new brands have implemented Instagram or Facebook commerce features since October, with just five (Alexander Wang, Balenciaga, Burberry, Carolina Herrera and Ralph Lauren) using the in-app purchase integration.
This comes despite a fast-growing enthusiasm for social commerce stateside. Forty-two per cent of US luxury consumers say the ability to buy directly from social media is important to them, up from 31 per cent in the winter 2022/2023 Index. That is true of 50 per cent of US shoppers aged between 18 and 34.
Despite that, there is no sign yet of the mass live-shopping events that drive so much revenue in China taking off in Europe or the US. Instagram has stopped letting creators tag products in live broadcasts as of February. On the other hand, TikTok, gaining fast in the race for social commerce revenue, has been bolstering its shopping features of late and rolling out its TikTok Shop beta, which allows consumers to buy directly through the app, in the US and UK.
This may be because fashion fans outside of Asia are yet to fully acknowledge social media as a dominating influence over fashion. Thirty-two per cent of US consumers and as few as 14 per cent in Italy say they use social media to discover new products from luxury brands versus 55 per cent in China. Two-thirds (67 per cent) of Chinese consumers say being able to buy directly from a brand’s social media is important to them.
With US shoppers increasingly on board, the best approach for brands now would be to keep experimenting with and developing the shopping experience as far as the platforms allow. The best places for that will be where social commerce already has a strong influence, including China, South Korea and Japan.
Longer — but more accurate — lead times for deliveries
One of the biggest changes since the winter 2022/2023 edition of the Vogue Business Index has been the tightening of delivery times by many luxury fashion retailers. In the UK, our reference market, the share of brands promising that consumers will receive their package the same or next day has decreased from 52 per cent to 45 per cent. At the same time, the share of brands saying it would take three or more days at a minimum has dipped from 18 per cent to 12 per cent.
Brands are placing less focus on super-fast delivery times while also being more specific in the timeframes they are advertising. This makes sense given both the unpredictability and added costs of logistics movements over the past few years, with supply chain shocks causing delays to parcel deliveries worldwide.
It also reflects what some retailers see as a greater desire for convenience and transparency rather than speed among some consumers. Saks Off Fifth, the luxury department store’s off-price brand, has started informing online shoppers when an item might be expected based on where they live and other factors.
Fast delivery times remain important to luxury consumers, according to 67 per cent of consumers, but features that bring more clarity to their omnichannel shopping experience, such as real-time stock availability (80 per cent) and the ability to return products across channels (74 per cent) rate even more highly. Burned by delays to product replenishment during the pandemic, consumers are keen to know that shopping at their favourite brands is going to be as pain-free as possible.
Chengdu solidifies status as luxury capital
Despite China facing challenges of trade restrictions with the US and multiple Covid lockdowns across the country, its economy is rebounding faster than many analysts expected. Retail sales were up significantly in the first quarter compared to last year, and tourism to Hainan Island, famed for its luxury shopping, was up by nearly a fifth.
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While 2022 was a year for expansion of European store networks, the first few months of 2023 have demonstrated luxury fashion’s confidence in the Chinese market. Nearly nine out of 10 brands (87 per cent) now have a store in Chengdu, up from 77 per cent in October. There has also been an increase in luxury stores in Shenzhen, Chongqing and Tianjin.
Louis Vuitton chose Chengdu as the home of its first restaurant in China after opening its third store in the city late last year. Dior, Balenciaga and Bottega Veneta have all opened new or refurbished outlets since last summer. The only emerging city outside China to demonstrate comparable growth to Chengdu was Manila, capital of the Philippines, where three additional brands have opened a store since October.
Another geographical trend since September has been an increase in the number of brands with a dedicated e-commerce portal in Saudi Arabia. As of April, 43 per cent of fashion houses had an online business in the country compared to 35 per cent in October.
Shoppers from the Middle East (the countries surveyed include Qatar, Kuwait and the United Arab Emirates in addition to Saudi Arabia) spend disproportionately highly on investment pieces like watches and handbags, but also footwear too. Sixteen per cent of luxury consumers from the Middle East bought six or more pairs of casual shoes in the past 12 months. The equivalent global figure is just six per cent.
Middle Eastern consumers are more likely than the global average to highly value multiple customer service channels (71 per cent versus 65 per cent globally) and real-time stock availability (84 per cent versus 80 per cent globally). Brands newly operating in the region must make sure that they have strong inventory software and enough Arabic-speaking client advisors to cater for that demand.
Case study: JD.com powers up luxury offering
The last two years have seen Chinese retailer JD.com work hard to forge partnerships with luxury brands. It courted Louis Vuitton in part by allowing users to directly access the brand’s Wechat mini-program through the JD.com search bar. These efforts with the brand have led to the recruitment of a number of its stablemates.
It now counts nine out of 11 LVMH Index brands in its roster — as many as are on Wechat — and three more than on Tmall Luxury Pavilion. Tiffany Co. also joined in February, with the partnership publicising the move by changing the JD.com app interface to the jewellery brand’s signature robin egg blue.
Nearly three-quarters (73 per cent) of all luxury brands in the Index now feature on JD.com, with five new names having signed up between October and April. It still trails behind Wechat and TMall Luxury Pavillion (both 83 per cent), but the gap has narrowed.
Shares in JD.com have been sliding since the reveal of slowing sales growth in Q4 and plans for a massive discount campaign. Nevertheless, with Chinese consumer demand forecast to increase again in the second half of 2023 and with so many luxury brands now on its roster, any brand absent from JD.com may soon think again.
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