The Luxury Retail Sector: Trends in eCommerce and Returns
The UK’s so-called “Freedom Day” is fast approaching on 19th July, a date whereby all restrictions left over from April’s lockdown are expected to be lifted. Whilst consumer optimism has been growing over the last few months, footfall on the high street has been inconsistent. Early surges post lockdown earlier in the year have been followed by stuttering bursts of excitement, hampered by poor weather (imagine my surprise), the initial delays to “Freedom Day”, and caution over growing COVID-19 cases once again. Normality has yet to return to everyday life and by extension the high street.
What does this mean for the luxury sector?
High-end fashion is probably the category in retail most reliant on brick-and-mortar stores. So, the news that footfall has yet to return to pre-pandemic numbers, and does not look likely to anytime soon, is not promising. The sector declined by around 20% in 2020 and high street footfall would need to play a large role in its recovery.
Firstly, due to the high cost of the item, it is easy to assume that it is held to higher scrutiny by consumers than its lower cost fast fashion counterparts. Whether you are a frequent buyer of luxury goods or not, you want the item to be worth the extra money. That means ensuring a perfect fit, getting a feel of the quality of materials used, and checking the colour in natural light. Checks that are all much harder to pass through a phone or laptop screen.
Secondly, buying luxury items is also largely about the experience. The likes of Selfridges and Harrods are as close to national landmarks as stores can get. Both retailers are famous for curating a unique customer experience in their stores. Selfridges recently introduced SoulCycle Outside, live DJs, and “experience concierge” on hand to arrange activities ranging from skateboarding classes to beauty treatments across its department stores. Whilst luxury brands are experimenting with VR and better personalisation to bolster the online experience, it is unlikely to ever be able to fully replace the buzz of physical stores.
Finally, COVID-19 saw a sharp drop in tourism in the UK, and of course across the world. Tourism counts for around 20 to 30% of luxury sales in the UK and coupled with closed stores, it is easy to see why the luxury sector saw a huge dip in sales last year. With the current rising COVID-19 cases, and another spike predicted following 19th July, it is unlikely tourists will flock back to UK shores and make their way to Bicester Village.
Impact on returns
The shift online means for many luxury retailers, return volumes will have taken a large jump. Sales made in stores are returned around 5% to 10% of the time compared to over 25% when made online. With stores shut for nearly a year out of the last 18 months, luxury retailers have experienced one of the biggest shifts in the proportion of sales made online compared to stores. So naturally many high-end brands are experiencing return rates and volumes higher than ever before. Additionally, items sold to tourists are returned even less than the 5% average for stores. So, returns rates would have also risen as sales moved in-country.
To gauge how consumer attitudes to returns had shifted over the pandemic, ZigZag surveyed 1,010 UK online shoppers early this year to create our Retail Returns Study 2021 (which can be downloaded here). From our research, we discovered that 27% of consumers said they are most likely to make a return when purchasing from a Luxury or High-End Fashion retailer, second only to a Fast Fashion retailer (45%).
Types of fraud most prevalent in Luxury
A 2019 survey from Checkpoint Systems, revealed that around 20% of online customers will purchase a fashion item, wear it, and return it for a full refund. This ethically questionable process, known as “wardrobing”, costs UK retailers £1.5bn annually. Often a customer will wardrobe as a way of getting an outfit for a specific event or even a holiday and is most often done with expensive or luxury items.
In a very new trend, customers will fraudulently return as they only brought the product originally for the purpose of “staging”. Staging is particularly prevalent in high-end fashion when consumers wear the item solely to show it off on social media (particularly seen on Instagram).
The rise in reCommerce
According to ThredUp, over the past three years, the apparel resale business grew 21 times faster than sales of new clothing in 2020. With furlough and unemployment an unwelcome reality of closed stores and struggling businesses, consumers turned to their own wardrobes to bolster their bank accounts. With limited occasions to show off luxury clothes at events and bills to pay on reduced budgets, resale markets grew in stature.
Millennials and Gen Z were the most eager to join the second-hand market, shopping and selling their used apparel 2.5 times faster than Boomers and Gen X. However, all ages have enjoyed the extra cash and extra savings, with ThredUp’s 2020 Resale Report stating that 50% more consumers are digging out garments from yesteryear to sell on the likes of Depop, eBay and ASOS marketplace than they were pre-pandemic.
Luxury retailers naturally are likely to have experienced a drop in sales as consumers opted to shop around online for similar high-end products with a little wear and tear.
A positive look to the future
A bounce back in formal wear as restrictions are lifted seems inevitable. It was a blockbuster year for sports and loungewear. A year of comfort at home. Indeed, “Kantar stated that loungewear grew by an astounding 146% year on year to £122m over the summer of 2020”. But luxury items will once again start filling the baskets of pent-up consumers ready to impress at the first social gatherings with friends and big events since March 2020.
In Erwan Rambourg’s ‘Future Luxe: What’s Ahead for the Business of Luxury’ he talks of how unemployment and a bleak economic outlook post-covid may have less of an impact on Luxury brands than the desire to rewarding oneself. After having survived a traumatic year (plus), consumers may have less resolve to forgo luxury items and instead treat themselves.