20150610 luxury online and omni channel framework full presented

Date : June 10, 2015 Confidential and Proprietary

Luxury online and omnichannel Key business and legal issues

Philippe Lucet

Brand Lead Legal Counsel e-Commerce Lead Legal Counsel

Global E-commerce Summit, Barcelona 10 June 2015

Date: 6/16/2015 XXXX: Confidential and Proprietary Date: 6/16/2015

I. The online and omnichannel luxury opportunity

II. Choices to make

III. The future

Outline

Global E-commerce Summit 2015 10/06/2015 2

The views expressed are the author’s own and do not necessarily represent the views of Richemont or its affiliates.


Luxury • History, tradition

• Quality («Swiss made» or «made in France»)

• Long-term v/ short-term

• Brand image

• Limited offer, exclusivity

• Dream, reward

• Service

• Perfection

• Mostly Swiss or EU (LVMH, Richemont, Swatch, Kering, Chanel, Hermes, Burberry, Tiffany, Coach)

E-Commerce • Recent, disruptive («creative

destruction»)

• Technology transition

• New forms of communication

• Broadcast => broadband

• Abundance of supply

• Connected clients

• Choice, immediacy

• (Dis)intermediation

• «Fast, fail and learn»

• Mostly US (GAFA) or CN (BAT)

Reshaping forces: production, distribution, information

I. Luxury and e-Commerce



Source: European Cultural and Creative Industries Alliance The contribution of the high-end cultural and creative industries to the European economy, November 2014

European cultural and creative industries



Companies Web Sales 2013 in USD (1)

Web Sales 2012 in USD (1)

Victoria’s Secret Direct & Pink, Bath and Body works

$1’630’000’000 $1’667’000’000

Ralph Lauren Media LLC $618’000’000 $479’900’000

Blue Nile Inc. $450’008’000 $400’035’000

Coach Inc. $401’500’000 $349’000’000

Tiffany & Co $241’860’000 $227’640’000

Yoox Group $627’178’960 (2) $517’463’940 (2)

(1) Source: Internet Retailer – 2014 Top 500 Guide (2) Source: Financial statements 2013/2012

II. The luxury opportunity



• « The experience of buying luxury goods cannot be replicated online » • Instead adaptation, transposition, coexistence

• Same high-level of brand image and customer experience online and offline

• « We cannot postpone it any longer » • The law allows for a temporary protection, which is legitimate, but

not a structural preservation (computers, auctions, music, hotels, movies, taxis, fashion, books and physical goods, etc.)

Risks



• Economics for digitally enabled consumer brands could be enhanced (Goldman Sachs, Global Investment Research, August 13, 2014) • Unbranded: May accelerate the share gains of brands relative to non-branded.

• Disintermediation: May accelerate and drive higher revenue capture.

• Consumer experience: May be enhanced, supporting pricing power.

• Asset turn: Fixed costs, inventory and capital tied up in stores, may be lowered.

• In addition • New (and connected) markets

• Rise of digital natives

• Shoppers on the move

• Increasing cross-border transactions

• Today it is a necessity • Where you customers are

• Where the attention is

• Need to compete for superior services

• Not replacing brick-and-mortar wholesale and retail but adding a new channel with new clients

Opportunity



Commercially



« e-commerce is a structurally higher-margin business and can lead to greater value capture by the brand: 2x vs. Mono-brand direct to consumer and 3.3x vs. the traditional wholesale multi-brand retail » (Goldman Sachs, Global Investment Research, August 13, 2014)

Financially



Inflection point



Distribution structure

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-11%

-16%

+16%

+12%


* Source: L2 Report, Omnichannel Retail, July 30 2014

Online to offline



The luxury industry digital landscape


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• Business model and structure

• Infrastructure • Technology

• Logistics

• CRM and customer service

• Data management

• Order funnel • Right design

• Right media mix

• Product availability

• Conversion

• Processes and execution • How to do things


II. Choices to make


• Delivering consistent high-level customer experience

• Impact is cross-channels and cross-functions • Launching an online business ≠ adding online to existing business • Centralized or decentralized (Brands, group / Central, local / CEO,

retail, marketing, communication) • Global, regional, or national (Client services and levels, SLA, DLT) • Function by function analysis.

• Business and Legal approach

• Business extension (new markets, new features, enhancing existing features) vs State-based applicable law (consumer protection)

• Leveraging standard solutions vs cross-border compliance • International legal management + localization / local resources

• Structuring legal issues

• Local registration and licenses to carry out online business • VAT rules (Within EU: Threshold). Import formalities and duties

(Outside EU) • Online and offline distribution

1. Business model and structure

15


• Selective brick-and-mortar distribution is key for luxury brands • Brick-and-mortar: Opens the market and establishes the Brand

• Selective: Maintains luxury image and protects investments

• In the EU • Under the EU vertical Block Regulation Exemption of 20 April 2010 and

Guidelines on Vertical Restraints of 19 May 2010, every distributor is allowed to use the internet to sell products, however, a supplier may require compliance with certain specified qualitative or quantitative criteria (Par. 52 GVL)

• Online criteria «overall equivalent» to brick & mortar criteria (Par. 56 GVL)

• Exclusion of «pure players» / «brick-and-mortar requirement» (Par. 54)

• A contrasting approach • US: No specific rules regarding online sales vertical restraints (may be

counterproductive. Analyzed on a case-by-case basis under “the rule of reason”)

• Asia: Generally, there are no specific rules regarding vertical restraints in the context of online sales and selective distribution (except in case of abuse of dominant position)

Selective distribution



Cornerstones

Technology Front-office (web agency) Middleware (web services) Content Management System PIM / DAM Back-office (ERP) Payment Antifraud Web analytics Hosting Content delivery network (CDN)

Logistics Product assortment (offline/online) Stock allocation between channels Stock location (import/export,

customer service, DLT) Returns Quality control inbound / outbound

CRM & Customer service Key service for luxury Client Relations Center Information and sales Value-added service Social networks

Customer data Collection, processing and transfer Analytics Opt-in, soft opt-in, opt-out Re-targeting

2. Infrastructure



External Internal

Standalone Advantage • Cheap, sell, learn Issues • Accuracy, update (Legal, • Customer relationship, Reporting) • Lack of evolution

Integrated Advantage • Scalable • Specialized Issues • Lack of control (security, data) • IP (licenses, modules, open

source) • Level partner freedom (agency,

image, prices, promotions,) • Customer relationship

(information, complaint, return) • Revenue sharing in the long run • Termination (kill fee, IP)

Advantage • Scalable • Control Issues • Multi-systems • IP (licenses, modules, open

source) • Cross-functions / organization • Costs, time, resources

Technology



• Project management (a lot) – Legal as well

• Managing complexity in real time • Permanent updates: Photographs, videos, product descriptions,

models, ..

• IP: Rights validation (PIM / DAM)

• Accurate information in terms of reporting, stock, prices, sales (back-end information & integration)

• Specific and detailed SLAs • IT

• Logistics

• Client relations center

What you should be prepared for?



• Stock

• Product assortment online (display / sale)

• Stock allocation between channels (wholesale, retail, e-Commerce)

• Stock location (Import/export, customer service, DLT / SLA)

• Managing customer expectations and « reasonable assumption » that

the product is in stock

• Shipping flows

• Importer of records, licensing formalities, CITES

• Inbound and outbound Quality Control

• Repairs and returns

• Cross-border trade

• Currency, VAT rate, language

• Applicable law and consumer protection

• Communication, documentation, templates

Logistics



• Channel: Retail sales (No), Distant / Online sales (Yes)

• Brand return policy vs. mandatory right of withdrawal

• Brand policy: perfect condition, strict return policy (RAN, tags), no full refund, restocking fee.

• Mandatory “cooling-off” period

• Right: For the consumer to withdraw from the online purchase and obtain full refund.

• Rationale: Testing the goods he has bought as s/he would do in a boutique. • USA: Web sales (No), telephone sales vs. telephone solicitation • Japan: 1 week, unless otherwise stated. • China: 7 days. • EU: 14 days, with very limited exceptions:

• After the cooling-off period has lapsed

• Made to order or clearly personalized

• Buyer vs. gift receiver

• Product? Packaging? Documentation?

• Good condition vs. “liable for diminished value”


Returns


EU Right of withdrawal


Consumers will have 14 days to withdraw from the sale from the day on which the consumer […] acquires physical possession of the Goods or concludes a contract for services.

Delivery to consumer Decision to Withdraw Return

Refund 14 Days

14 Days

14 Days

Thereafter, consumers will have 14 days to return products from the day on which he/she has communicated his decision to withdraw.

At the same time, the seller will have a maximum of 14 days to reimburse all payments received from the consumer from the day on which he is informed of the consumer's decision to withdraw.


• Luxury industry

• Client relation is key for the luxury industry

• Customer contact center is a major part of a luxury e-Commerce strategy

• Right balance between information and sales

• Highly complex

• Recruitment (business, commercial, technical, language skills)

• Systems integration, stabilization and real-time information (product information, prices, stocks, orders) + Knowledge management tool

• Coaching, training (tools and quality) and cross-channel

• Sales commissions, incentives and career path

• Monitoring, SLAs and Quality management (template responses, guidelines)

• Further reinforces client relationship and sales

• Social media, online chat key for cross-border customers (e.g. WeChat)

CRM & customer service



• Essential to recognize clients across channels and territories • Part of the service, especially in the luxury industry

• Requires cross-country data transfers and consolidation

• Consolidation = identification / Unique Client = unique identifier (email)

• From the outset, think transfer of data and databases consolidation (across channels, regions, and for marketing activities)

• Information and consent: Opt-in, soft opt-in, opt-out

• Consistent and multichannel approach: customer cards, contact center, online forms

• Data is key for online and omnichannel sales and cross-sales • Analytics brings context and helps to create a seamless experience

• Systematically use «you may also like» or cross-sales features

• Technical + resources issues («Big Data»)

• Re-targeting • Cookie placement and (new) regulations

• Avoid “re-targeting overload”

Data management



3. E-Commerce « funnel »



• Substance, form and user experience

• Great story-telling, simple design and efficient order process

• Communication and sales

• Use best practices and selected elements appropriate to your business

• Make it simple

• Huge impact on the conversion rate

• Once a shopper enters the conversion funnel, it's time to step back and close the transaction. Respect speed and deliver results.

• So the order process must be

• Fast and simple, not reinventing the wheel, no hurdles

• Customer reassurance

• Additional features or services

• You are the worst at evaluating your own site's usability

Right design



• For major luxury brands • Global communication campaigns remain a main driver of website traffic.

• Traffic sources: mostly organic, paid search and display.

• Among paid media: mostly print, digital in the range of 15-30% with an average between 20-25%

• But not sufficient • Optimized content is key (esp. for mobile)

• Traffic from unique and returning visitors

• Engagement (to decrease home page “bounce rate”)

• Dwell time (time spent on site)

• Conversion rates

• Global and localized content and offer

• Product assortment, domain names, languages, keywords, Images, videos, celebrities, social media, Email marketing

• Increases traffic and engagement

• E-Commerce specific

• Dedicated e-commerce marketing budget and Local P&L

• Integrated with social networks to reach customers

• If you are a small brand you might as well bet all on digital !

Right media mix

29


Site web

Engagement



122k 285k 1.1m 932k

and beyond



• Must-have

• Product prices, Sizing guide, Sort and compare products, Full-text

search, boutique locator

• Product images (Front, back, side, worn, packed + up-to-date

technology)

• Complimentary services

• Personalization / engraving / embossing

• Cross-channel information and services

• Boutique pick-up, returns and exchanges

• Click-to-call, online chat (e.g. WeChat)

• E-repairs, Warranty extension?

Added features or services

32 Global E-commerce Summit 2015 10/06/2015


• While in-store availability is now a standard feature for all American Brands, Overall cross-channel services are still a rarity even in the US

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Cross-channel


4. Processes and execution


• Your processes embody the compromise between business objectives, technical constraints and legal requirements

• As much integrated as you are, you rely on third parties

• IT Systems, PSP, anti-fraud, etc.

• Client relations center

• Delivery

• The “last mile” can ruin the overall experience

• Customer-driven business

• Scratched or damaged package

• Delay or simple inconvenience

• Integration or at least control

• Enforce your SLAs

• Mystery shopping


From « brand-centric » to « customer-centric »?

• Brand esp. for Gen Y

• DNA, quality

• Design, innovation, technology

• Build-on our existing distribution system, but connected

• Lower fixed costs and capital (inventory and leases)

• Omni-channel

• Address digital natives while retaining existing

• Analysis • Personalization or mass-

customization

• Value-added and tailored services

• Mobile

• Social media

• Cross-border

• Integrated service

III. Future (not-so-distant)



Omni-channel


Global E-commerce Summit 2015

Thank You !

Philippe Lucet

Brand Lead Legal Counsel

E-Commerce Lead Legal Counsel

[email protected]

10/06/2015 37

mailto:[email protected]

20150610 luxury online and omni channel framework full presented

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