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Burberry retains an edge in e-commerce, but luxury goods rivals are gaining

British luxury goods company Burberry Group Plc is battling to retain its edge in e-commerce as other high-end labels are beginning to find their feet.

For a decade, Burberry, best known for its plaid patterns and trench coats, has been a step ahead of its rivals in the online world, building a loyal following on a variety of electronic platforms that have been key to its success. It's a critical arena: The company said in its 2016/17 annual report that 70% of its customers' buying decisions are influenced by digital channels.

But peers such as Kering SA's Gucci and LVMH Moët Hennessy Louis Vuitton SE's Louis Vuitton are catching up fast. With strong brand desirability, a digital focus and deep pockets, the France-based luxury goods giants could become the new digital trendsetters.

Burberry provided information on its digital strategies for this article but declined to comment further.

"In our view, Louis Vuitton and Gucci appear to be the brands showing the most attractive combination of untapped digital potential and seem best positioned to capture the growth potential in digital," Sanford C. Bernstein analyst Mario Ortelli said in a Feb. 21 report.

Ortelli cited Gucci's strong online presence, including its website that is yet to be rolled out in some geographies, as well as Louis Vuitton's progress in its corporate website, which has been revamped to focus more on user-friendliness than visual impact. LVMH hired Apple Inc. executive Ian Rogers as its chief digital officer in 2015. Rogers led the June 6 launch of 24 Sèvres, LVMH's multibrand website, which delivers goods to more than 75 countries and allows customers to chat with stylists while browsing the site.

The gap between Burberry and its rivals has narrowed sharply. Burberry in 2016 was ousted from top spot in the L2 Digital IQ Index, which tracks the digital competence of consumer brands. Burberry has led the index in the fashion category in most years since L2 was founded in 2010.

SNL Image

Burberry said in its 2016/17 annual report that 70% of its customers' buying decisions are influenced by digital channels.

Credit: Associated Press

The luxury goods sector has been more cautious to adopt digital platforms than the rest of the retail industry, not least because of the impact it might have on brand values and on customers who enjoy the experience of walking into shops and examining luxury goods, especially when they are considering splurging on extravagant purchases.

The proportion of online sales in the luxury goods market rose to 8% in 2016 from below 5% in 2014, according to management consulting firm Bain & Co.

Burberry's digital focus has been an important factor in the London-based company's growth. Its digital efforts date back to the 2006 appointment of Angela Ahrendts as CEO. Although Ahrendts left in 2014 to become senior vice president of Apple's retail business, under her leadership Burberry shifted its customer focus to millennials — typically 15 years younger than the baby boomers its peers were targeting and, importantly, digitally savvy.

It's a critical market. Millennials and post-millennials will represent 45% of total luxury goods spending by 2025, predicts Bain.

"Burberry remains miles ahead of the competition" with its digital initiatives, said Maxim Group LLC analyst Tom Forte, adding it was still nearly a decade ahead of its peers.

Burberry has actively participated in social media, launching fragrances on Facebook, or developing "Tweetwalk," which allows Twitter followers to view the latest collections before models walked down the runway. Even under Christopher Bailey, who took over as CEO in 2014, Burberry has continued to embrace emerging digital platforms, while also renewing its mobile and e-commerce sites.

On Twitter, for example, Burberry has 8.09 million followers compared with Gucci's 4.47 million and Louis Vuitton's 6.32 million.

But as a social media platform, Twitter is growing at a considerably slower pace than Instagram, where Burberry has fewer followers than both Louis Vuitton and Gucci. Burberry also lags behind Louis Vuitton on Facebook. Brands such as Chanel and Dior have also attracted more followers on Instagram than Burberry. The number of monthly active users on Twitter has grown 5.8% in the past year, compared with 17% for Facebook, according to their disclosures. Instagram users have grown by about 40%, according to TechCrunch.

In 2016, Burberry launched its iPhone app and a WeChat commerce platform in China. It also debuted a commerce platform on Facebook Messenger through which customers can directly buy Burberry products. In January 2017, it experimented with augmented reality on LINE, a chat app used by more than half of the Japanese population, to explore new ways for users to interact with Burberry's beauty products.

Burberry's digital presence hasn't translated into superior financial performance, however. Its comparable store sales, which include all digital revenue, grew just 1% in the year ended March 31, 2017. That compares with expansions of 6% for LVMH and 8.1% for Kering — including Gucci's 12.7% and Yves Saint Laurent's 25.5%.

"Burberry's digital edge has not been a silver bullet for superior financial performance with peers now catching up," said RBC Capital Markets analyst Rogerio Fujimori said in a May 19 report. "We believe digital focus is necessary but not sufficient to drive share gains in a sector that relies on brand desirability and product novelties to drive store traffic."

In July 2017, Bailey will relinquish the job of CEO and return to his previous role of chief creative officer in a move that could help boost the Burberry brand's desirability and connect that with its digital efforts.

He will be succeeded as CEO by Marco Gobbetti, who has developed brands such as Givenchy and Moschino and most recently headed Céline. "His arrival should allow Mr. Bailey to focus on his Chief Creative Officer role and do what he does best," said Fujimori.