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Amid luxury struggles, the time may finally be right for Amazon's high-end expansion
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Reactions to the launch of Amazon Luxury Stores last week ranged from the “empire-has-fallen” to “who-cares.” There was also some of the “this is not the future of luxury” pearl-clutching, which I am sure Natalie Massenet also heard when she started Net-a-Porter back in 2000.
The reason why Amazon may finally succeed has little to do with our ideas on the future of luxury, which is already bifurcated and operates according to a number of diverging business models, brand strategies and growth scenarios.
It has everything to do with timing.
Amazon waited the luxury sector out.
In the first half of this year, luxury spending shrank up to 35 percent. Kering reported 29 percent dip in YoY revenue. LVMH reported 20 percent. Prada’s total sales fell 40 percent. Luxury is choked by the lack of global travel, closing of physical stores and consumers shifting towards more casual outfits, after months of quarantine and more months of remote work and social distancing.
Here are some business, operational and consumer behavior indicators of Luxury Stores’ belated success.
Service. With Luxury Stores, Amazon gave control to brands in terms of merchandising, visual presentation and pricing. The front-end can look as finely designed and carefully edited as a stand-alone brand website or a traditional physical concession setup. The backend is Amazon’s massive global infrastructure of customer service, centralized warehousing, vast delivery network and 100 million Prime members. At the time when owning a direct relationship with customers is key, quick and convenient delivery, exceptional customer service, and a mass of highly personalized data on Prime members is a win. The most compelling part of Luxury Store’s pitch is not “access to the latest collections and exclusive items” but “Prime delivery.”
Personalization at Scale. Amazon has more granular data on their 100 million Prime customers and lookalike demographics than most luxury brands have on theirs. While personalization is provided by a number of high-end aggregators, this personalization is mostly limited to one-on-one, individual relationships. Luxury Stores can offer this personalization at a massive scale, and “store within a store” model ensures that this relationship is still fronted by brands. This is a powerful combo.