Authored by:Nathalie RemyMarco CatenaBenjamin Durand-ServoingtDigital inside: Get wired for the ultimate luxury experienceApparel, Fashion & Luxury GroupJuly 2015The authors would like to thank Altagamma Foundation, and in partcular Mr Andrea Illy, Altagamma President, Armando Branchini, Altagamma Executive Director, for their valuable contribution to the research. Altagamma Foundation, which convenes the leading Italian luxury goods companies, supports the yearly Digital Luxury Observatory in conjunction with McKinsey & Company.Special thanks also to all Digital Luxury Experience Advisory Board members for their participation in the research and significant contributions to the knowledge shared here. The authors are also grateful to Nicola Sandri, Alberto Mussa and Nathan Labat at McKinsey, who contributed to the development of this report.3ContentContent 3Foreword 5The paradox of digital luxury experience 7Luxury e-commerce is gaining traction 9Beyond e-commerce, digital influences every step of the journey 12Three priorities for luxury brands to get wired for delivering the ultimate luxury experience 16Conclusion 175The merger of Yoox and Net-a-porter, the increased visibility of platforms like Farfetch or Gilt, the recent conversion to e-shops of emblematic luxury brands E-commerce is one of the hottest topics of Spring/Summer 2015 for luxury brands. Indeed luxury sales realized online have accelerated in 2014 reaching 14bn a +50% from 2013. They now represent 6% of the global luxury market for personal goods. And it is likely it will continue to rise.But as big as the luxury e-commerce opportunity is, it remains only the tip of the digital iceberg. A full assessment of the transformative effect of digital technologies on luxury consumers attitudes and behaviors requires looking at the sum total of these consumers digital activities their texting, Instagraming, Facebooking, YouTubing, and web surfing. Our latest research shows that three out of four luxury purchases, even if they still take place in stores, are influenced by what consumers see, do and hear online. Digital, in other words, is now the engine of the luxury shopping experience.The question is no longer if and when luxury brands should embrace the digital opportunity, but how they should go about doing it. Our findings, which are based on the ongoing work of the Altagamma-McKinsey Digital Luxury Experience observatory, reveal that the answer lies in understanding the complex and lengthy journeys that todays screen-staring, button-clicking luxury consumers embark upon when considering and making purchases. Embracing this new digital reality calls for a complete shift of luxury brands approach to engaging with consumers. This will require luxury brands to ultimately adjust many of their models of how they operate their vision, governance, talents, culture, resources and tools. In this report we outline our latest findings on how digital luxury consumers have become and discuss the ways luxury brands can get wired to fully capture the enormity of the digital opportunity.This years edition of Altagamma-McKinsey Digital Luxury Experience observatory analyzed the omnichannel decision journeys of about 7,000 luxury shoppers across 8 geographies, 4 products categories and 3 pricepoints.Foreword7Not only are wealthy consumers equipped with mobile devices, they are very well equipped. Nearly all luxury buyers have at least one smartphone globally, the figure is 95 percent and in most mature countries, its 100 percent. These figures reveal a much higher rate of ownership than that of the general population, where an average of 60 percent of US adults have a smartphone. But beyond that, a large majority of luxury consumers (75 percent) juggle multiple mobile devices, whereas only 33 percent of Americans own more than one. This is a critical insight because smartphones are the first truly personal devices much more so than our so-called personal computers. Smartphone, and sometimes tablets, are carried with us wherever we go and as a result, are driving the rapid development of new consumer behavior patterns, such as the “always on, anytime, anywhere, but only when and where I want it” attitude. Luxury consumers are also highly social, in digital sense. Some 80 percent of these shoppers use social media on a monthly basis, whether its Instagram, We-Chat, Facebook or Twitter. Half are weekly users and more than 25 percent are daily social media users. And theyre not passive users. Two-thirds generate social media content photographs, videos, product reviews or re-postings of content created by others at least once a month. Fifteen percent do it daily. In this way, luxury consumers are amassing more and more power relative to luxury brands. For each image that luxury brands post on their official Instagram account, for instance, there are on average 10,000 more that consumers have posted containing the brands hashtag. This raises the inevitable question of who is creating the messages and information that define a brands identity the brand itself or its consumers. This story of digital transformation is not just one of Millenials or of China, because these findings hold true across countries and generations. Generation Y luxury consumers and Baby Boomers own similar amounts of mobile devices on average and spend approximately the same amount of time on the Internet, around 15 hours per week in addition to any work-related usage. The only little generational difference we see is in social media, where 87 percent of Millennials use it monthly vs. 71 percent of Baby Boomers. (Exhibit 1)The results of our research paint a very clear picture of luxury consumers: They are highly digital, mobile and social, and because of this have extremely high expectations for what they want in a shopping experience. More so than most, luxury shoppers want a seamless, digitally enabled, multi-channel experience one that unfortunately most luxury players are not yet ready to deliver. Luxury players have historically been very cautious about digital and e-commerce. The Internet and digital more broadly have been indeed once perceived by the luxury industry as a loss of control over its brand image and storytelling combined with the challenge of tier distantiation towards customers. E-commerce has even more been seen as a threat: with CtoC platforms favoring the development of counterfeits and grey markets and with pure players becoming a conflicting channel with the brands own stores.In addition, new players from adjacent industries like Amazon, T-Mall, Best Buy or even Tesla are now setting the bar in terms of digital and omnichannel experiences. And it keeps raisingThe paradox of digital luxury experience 8This has created a gap between what shoppers are looking for and what brands are delivering. The good news is that most brands are growing increasingly aware of the need to embrace digital and bridge this divide.1 Excluding professional usageGeneration Y18-35 years oldBaby boomers>65 years oldNumber of mobile devices personally usedWeekly time spent on the Internet13.23.915.4 hours 14.7 hoursThis is not just a Millennials storySocial media usage97% 71%Exhibit 19The acceleration of luxury sales realized online is a first manifestation of this growing awareness: they reached 14bn in 2014, a +50% vs. 2013. The importance of the digital business opportunity makes it now a must for all players, and a key source of revenues growth.Online sales of luxury goods consistently outperform those of the total global market. Over the past five years, they have grown four times faster an annual growth rate of 27 percent vs. 7 percent for offline sales. Last year, in fact, nearly all of the 5 billion in luxury goods market growth came from e-commerce. This growth is coming primarily from two places: Luxury brands own websites, which represent one quarter of online luxury sales and are the fastest growing channel, and the online offering of leading department stores. Sales at multi-brand full price or off-price sites, on the other hand, have been less dynamic that in the past. Going forward we expect these trends to pursue. (Exhibit 2)With 14 billion in 2014, Online sales of luxury goods represent around 6 percent of the market, up from 2 percent in 2009. This, of course, is the global average. We see strong differences in online penetration by country, category and brand price point. 2 countries out of the 8 analyzed stand out. The UK experienced the greatest digital shift, with 11 percent online sales penetration. This accelerated migration is likely the result of a confluence of three elements: a higher than average degree of digital savvy among UK consumers, online purchasing habits that have developed in other categories, and perhaps most importantly, the significant quality and quantity of online offerings. On the other end of the spectrum is Brazils 2 percent online luxury penetration, a low rate thats due to the countrys relatively young luxury market and lack of local online offer. The 6 remaining countries range between 5 and 7 percent of online sales penetration. Across price points, there are more significant variations, with online sales decreasing as prices rise. For foundational, high-end brands like Dior, Cartier and Chanel, the share of e-commerce is just 3.6 percent. For aspirational brands like Burberry, it jumps Luxury e-commerce is gaining tractionEvolution of the global personal goods luxury market1494153200916951732010618619220117204212201292092182013142102242014+7%p.a.+27%p.a.OfflineOnlineOnline sales account for 6% of the 2014 global luxury marketBillion eurosExhibit 210to 7.5 percent and for more affordable luxury labels like Michael Kors or Longchamp, its even higher an average of 8.5 percent. Not all categories are equal either. The most active e-commerce categories are those of beauty products and ready-to-wear apparel, both with 7.2 percent of sales happening online, followed closely by accessories at 6.2 percent and eventually watches and jewelry with only 4.1 percent. These differences are certainly driven by price differentials but also by the extent to which there have been rich and compelling e-commerce offerings developed in the category. On this front, both beauty brands and fashion retailers have been dynamic in their innovation over the last few years. (Exhibit 3)Online luxury sales penetration3.67.58.5AbsoluteAspirationalAffordableReady to wearBeauty7.27.2Accessories6.4Watches and Jewelries4.1by Pricepoints by CategoriesPercent of global luxury salesExhibit 3