Digital Luxury Experience 2017

Antonio Achille
Senior Partner and Global Head of Luxury at McKinsey & Company

May 25, 2017

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McKinsey & Company 2

Introducing DLE3

Experience

DLE3

E-future Enterprise

McKinsey & Company 3

Introducing DLE3

Win
consumer
with a
superior digital
relationship

DLE3
The tomorrow Transform
which is your brand
already to survive and
happening prosper

McKinsey & Company 4

Experience

Experience

DLE3

McKinsey & Company 5

Experience

Digital: €20 billion of pure online sales in 2016 to reach €74

THE channel billion by 2025, with penetration raising from 8 to 19%

Mobile is the By 2018 consumers will spend 4x more time on

new desktop mobile devices than on desktops

Customer Up to 15 touch points in a fragmented journey

journey blown vs ~9 in 2014
to bits

Business model Tomorrow’s winners are not today heroes: more

Darwinism scalable, agile and technology-savvy players are
emerging

Run faster than Sustained value creation requires yearly growth of

the bullet >50%

SOURCE: McKinsey & Company McKinsey & Company 6

DIGITAL: THE CHANNEL

Online: 8% of total personal luxury market in 2016

Sales of personal luxury goods1, € billions

254
239
224
218
211
192 Pure
234 offline
174 (92%)
223 sales
153 210 (93%)
204 209 (94%)
186 (97%) (96%)
169 (97%)
149 (97%)
(97%)
€20 billion
16 20 Online
14
(6%) (7%) (8%) sales
sales online
5 (3%) 6 (3%) 7(3%) 9 (4%)
4 (3%)
in 2016
2009 2010 2011 2012 2013 2014 2015 2016

1 Apparel, Footwear, Accessories, Jewelry & Watches, Leather Goods, Beauty & Perfumes
SOURCE: Euromonitor; Forrester McKinsey & Company 7
DIGITAL: THE CHANNEL

In 2016, 78% of sales influenced by the online

Sales of personal luxury goods1, € billions

254
Pure
56
offline
(22%)
sales

Sales
influenced
178 ~€200 billion of
(70%)
by the online
sales influenced
Online 20
by the online
sales (8%) in 2016
2016

1 Apparel, Footwear, Accessories, Jewelry & Watches, Leather Goods, Beauty & Perfumes
SOURCE: Euromonitor; Forrester; companies’ Annual Report; McKinsey & Company McKinsey & Company 8
DIGITAL: THE CHANNEL

1/5 of the luxury market will go online by 2025

Sales of personal luxury goods1, € billions
383
312
254

309
275 (81%)
234
Offline (88%)
(92%)

74
€74
37
Online 20 (8%) (12%)
(19%)
billion in
2016 2020F 2025F
2025
1 Apparel, Footwear, Accessories, Jewelry & Watches, Leather Goods, Beauty & Perfumes
SOURCE: Euromonitor; Forrester McKinsey & Company 9
DIGITAL: THE CHANNEL

Affordable segment and beauty products are driving online

luxury sales…
Online luxury sales penetration, Percent 2016

Price points Categories

Watches & Jewelry 5.3

Absolute 5.1

Accessories 8.2

Aspirational 10.6

Ready-to-Wear 8.7

Affordable 12.0
Beauty 9.2

SOURCE: Euromonitor; Forrester; McKinsey & Company McKinsey & Company 10

DIGITAL: THE CHANNEL

…and are also the segments with the highest growth

Online luxury sales penetration, Percent
2014 Delta 2014-2016

Pricepoints Categories

Watches & Jewelry 1.2

Absolute 1.5

Accessories 1.8

Aspirational 3.1

Ready to Wear 1.5

Affordable 3.5
Beauty 2.0

SOURCE: Euromonitor; Forrester; McKinsey & Company analysis McKinsey & Company 11
MOBILE IS THE NEW DESKTOP

Mobile is the new desktop…

Luxury consumers are more smartphone- By 2018, time spent by consumers on mobile
oriented than other consumers 4x higher than on desktops
Global Internet consumption, Minutes

98%
luxury consumers smartphones 113
equipped

vs an average of 65%1 ~4x

51 46
77% 27
luxury consumers
owning multiple devices

vs an average of 35%1 Desktop Mobile Desktop Mobile

2014 2018

1 Average based on USA figures

SOURCE: Zenith, “Digital inside: Get wired for the ultimate luxury experience", 2015 (eight countries surveyed: USA, China, Italy, Japan, Brazil, United Kingdom, France, South Korea) McKinsey & Company 12
MOBILE IS THE NEW DESKTOP

…and this is not just a millennials story

Generation Y Baby boomers
18-35 years old >50 years old
Number of
mobile devices
personally used
4.0 3.5

Weekly time
spent on the
Internet1
17.5 hours 16.4 hours

Social media
usage

98% 75%
1 Excluding professional usage
SOURCE: McKinsey & Company analysis McKinsey & Company 13
MOBILE IS THE NEW DESKTOP

Consumers are becoming the new marketing channel

Chanel Valentino
700 official posts 4,890 official posts
48,800,000 #1 24,140,000 #1

Vuitton Balmain
1,970 official posts 3,660 official posts
25,380,000 #1 5,690,000 #1

1 Hashtags, i.e., number of user generated content with the brand's name
SOURCE: Instagram, May 2017 McKinsey & Company 14
Experience – Key takeaways
The online race in Luxury continues…78% of sales is digitally influenced
▪ ‘Pure’ online sales today account for “only” 8% but is expected to grow to 20% by 2025

China: if brands could manage to win the “authenticity challenge”, digital could become a real overdrive to
secure growth in a complex market

Catch me if you can: the journey of luxury consumers is becoming more articulated and unpredictable.
Brands will need to be more flexible and inclusive to secure and measure results

Story telling 10x6cm: what happens when the smartphone screen becomes your communication channel
and store window?

Online is increasingly a C2C economy: the consumer is central from advocacy to sales (market place)

Competition to conquer the luxury e-shopper is fierce: new heroes with a tech-based value proposition are emerging
▪ Brands will need to distinguish their friends and enemies in a much more articulated ecosystems

Run faster than the bullet: value creation in digital implies CAGRs higher than 50%

SOURCE: McKinsey & Company McKinsey & Company 15

Enterprise

DLE3
Enterprise

McKinsey & Company 16

Enterprise

Luxury 4.0 Tomorrow’s winners are transforming today their

business models using technologies and data

Customer Big Data and machine learning to bring back

intimacy authenticity and relevance in customer relationship

Luxury Partnerships to upgrade and maintain relevant the

ecosystem set of competences needed to succeed

McKinsey & Company 17

LUXURY 4.0

Industry 4.0 is enabled by disruptive technologies

Data, computational Analytics and

power, connectivity intelligence
▪ Sensors ▪ Automation of
▪ Machine-to-machine knowledge work
▪ Cloud technology ▪ Big Data and advanced
analytics

Industry 4.0
Human-machine Conversion to
interaction physical world
▪ Touch interfaces and ▪ Industrial automation
next-level graphical (e.g., collaborative
user interfaces robots, AGVs1)
▪ Virtual and augmented ▪ Additive manufacturing
reality (e.g., 3-D printing)

1 Automated Guided Vehicles

SOURCE: McKinsey & Company McKinsey & Company 18
CUSTOMER INTIMACY

The new customer intimacy relies on four pillars

INTIMACY CONTEXTUAL
TO MANY MARKETING
▪ Comprehensive ▪ From many, to
customer information “segment of one”, to
▪ Enriched database YOU in the moment

The new
Customer
MADE TO PROACTIVE
Intimacy
DESIRE LOYALTY
▪ Personalization ▪ Interpretation of
of product and desires and needs at
services an early stage

SOURCE: McKinsey & Company McKinsey & Company 19

E-future

DLE3
E-future

McKinsey & Company 20

E-future

Reverse Instagram becomes the new store window:

omnichannel brands to ensure digital compliance in all directions

Spotification The end of luxury as we know it? Drexcode, Rent

of fashion the Runway, etc. are the vanguards of something
bigger?

The dark side of Can a lower degree of control undermine the

the Internet brand experience in luxury?

McKinsey & Company 21

REVERSE OMNICHANNEL

From omnichannel to “reverse-omnichannel”

Online sales, Percent

Digital skepticism Digital segregation Omnichannel Reverse omnichannel

Early 2000 2005 - 2010 2011 - 2015 2016 - 2020

<2% 2-3% 3-7% 8-…%

Digital denial
Digital as a clearance
Digital the fastest-
Digital educating choices

Luxury immune to digital channel growing channel on retail, assortment,

Early appetite, but
Power of advocacy communication
segregated in the
Organization becoming
organization/ outsourced digital immersive

SOURCE: McKinsey & Company McKinsey & Company 22

Enterprise and E-future – Key takeaways
Digital is penetrating the business model of brands and retailers

Being able to master internally, or through the creation of ecosystems, the needed capabilities will
be a key source of competitive advantage

It is not a matter of efficiency only: digital can support brands to become more relevant and
authentic in their customer relationships

Advanced analytics and Big Data are the key to secure organic growth in a more selective market.
An additional competitive advantage for multibrand luxury groups?

Reverse omnichannel: inspire and ensure digital coherency of key choices and investments of a
brand in the “real” world (stores, collection, etc.)

Spotification of fashion: from brands to products, from owning to using

The dark side of the Internet lies still: how to protect brand magic and coherency in an
uncontrollable environment?

SOURCE: McKinsey & Company McKinsey & Company 23

 Antonio Achille
Antonio_Achille@mckinsey.com

www.mckinsey.it @McKinsey_it

McKinsey & Company 24