[HOTR] Luxury Sector: “The real digital transformation will take place in a few years’ time”

By July 15, 2014
Nicolas Colin

Commoditisation in the luxury goods and services sector is now giving way to digitisation, as digital entrepreneurs add value to luxury brands.

Interview with Nicolas Colin, co-founder of startup accelerator The Family and a commissioner at the CNIL, the French state body which oversees privacy requirements in electronic data, ahead of the Hackers On the Runway event, which L’Atelier partners. The event brought together players in the digital and luxury goods sectors on 1-2 July in Paris.

L’Atelier: Is digital causing disruption in the luxury goods and services sector?

Nicolas Colin: In the luxury goods and services sector, just as in other sectors, digital will bring about a re-shuffle of the cards.  It will be more about distributing value between the companies that are already there and new market entrants who will make digital a driver for growth and entrepreneurial vigour.

Are luxury brands balking at shifting to digital?

The luxury goods and services sector is protected by high margins and by the power of brands. By its very nature, this sector tends in any case to take its time, because promoting a brand is always a question of long-term strategy.  But even so, we should applaud their efforts to diversify their distribution channels, especially with e-commerce. Very early on, these brands seized with both hands the opportunities offered by digital and began to market their products in a different way. However, I think that major transformation has only started to happen in the last few years, with the transformation of the in-store experience – especially with the synergy between the traditional distribution channels and social network presence. Online marketing is increasingly structured around the brand through interaction with the customer community.

Could you give us an example?

Well, the brand that has gone furthest in this respect is Burberry. Burberry has challenged its own way of doing things and decided to geographically restrict its traditional distribution circuit. It has closed stores and withdrawn licences from distributors and then has counter-balanced this by raising its profile on the social networks. But this experimentation is still fairly small-scale. The real digital transformation will take place in a few years’ time, when new luxury brands emerge. Digital entrepreneurs will acquire brands and breathe new life into them. They will be creating a native digital company, whereas today luxury goods and services companies are usually fairly traditional manufacturing firms.

There’s always a traditional aspect to luxury. Isn’t there a clash here with the new technologies?

Over the last thirty years the major luxury companies, especially the French firms, have succeeded in transforming a small-scale business into a large-scale industry. They’ve capitalised on the globalisation of trade and invested in logistics and distribution capacity in order to reach markets worldwide. Industrialisation of the luxury business has enabled France to retain its position as a major luxury provider.

Now the same movement will take place, but this time it will be due to digitisation. It will be about learning to grow the business not by taking an industrial approach but by making use of digital tools. This will be driven either by incumbent companies or entrepreneurs, along the lines of for instance Bernard Arnault, who took over Dior and completely revived the brand. When he acquired Louis Vuitton, he increased the power of his group many-fold. Initially, his objective was to purchase a brand and expand the business chain of what was essentially a small-scale company. In the same vein, it’s by no means impossible that a digital entrepreneur will have a shot at breathing new life into a moribund luxury sector brand rather than setting up a new company.

To go back to the in-store experience – can the luxury industry do without stores?

Well digital does not necessarily mean virtual. Digital giants such as Apple have completely re-invented the in-store experience, exploiting digital to the maximum in order to streamline the client relationship – especially by dematerialising payments – and so enabling salespeople to get back to their job of assisting the customer. The ‘physical’ experience hasn’t disappeared. It has in a sense been re-invented by digital. This is all about creating a different – personalised, hassle-free – client experience.

Predictive tools have become an integral part of the customer journey for leisure brands, such as, for example the Parc Astérix brand.  Will Big Data play a role in the luxury sector going forward?

Oh yes, Big Data will be a very important factor in the luxury industry because luxury providers need to have highly detailed knowledge of their market. The luxury sector needs innovation within continuity. And what forges the continuity element is the power of the brand and/or the longevity of the product. So brands need to collect huge amounts of data in order to offer the same product to a changing clientele. In addition, Big Data also helps to personalise the brand service and enhance the relationship with luxury industry customers, who are often very demanding. These people are very keen on personalisation. So Big Data will help brands to get to know their customers better and keep a step ahead of their needs so that they feel really immersed in the luxury experience.

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