Should high-end brands avoid Amazon?

Discussion
Photo: Getty Images
Oct 21, 2016
Tom Ryan

While Amazon seeks to add more luxury brands on its path to become the largest U.S. apparel seller by 2017, LVMH last week asserted it had no plans to start selling on the giant e-commerce site.

“We believe the business of Amazon does not fit with LVMH full stop and it does not fit with our brands,” LVMH CFO Jean-Jacques Guiony told investors on the company’s third-quarter conference call. “There is no way we can do business with them for the time being.”

The French company owns Louis Vuitton, Givenchy, Céline and a controlling stake in Dior, as well as number of high-end liquor, jewelry and watch brands.

The comments reflect a general apprehension by many high-end brands about e-commerce. These include concerns over pricing and counterfeits and whether online selling diminishes luxury’s cachet and exclusivity.

At the same time, Mr. Guiony’s statement speaks to sentiments that selling directly to Amazon is similar to selling to Walmart.

“For now, I think it is a smart move for LVMH to stay away from Amazon,” Jared Wiesel, partner at Revenue Analytics, told MarketWatch. “These two brands are polar opposites when it comes to what they stand for — Amazon is about access to everyday products at affordable prices for the masses, LVMH is about exclusivity and luxury.”

W Magazine notes that Amazon is gaining access to some designer brands such as Michael Kors and Kate Spade, but only entry-level goods and a limited selection.

Some feel Amazon must enhance its experience to support luxury selling. Yoox’s and Net-A-Porter’s luxury sites, for example, are filled with motivational content rather than deals.

Oliver Chen, the analyst at Cowen & Co. who asked the question on the conference call, however, believes LVMH has no choice but to consider Amazon or another dynamic online alternative given that luxury spending is bound to shift to online sales in the future.

He wrote in a research note, “Time is the new luxury and LVMH will need to look for omnichannel ways to add luxurious convenience and personalization to the selling and brand experience.”

DISCUSSION QUESTIONS: What are the pros and cons for luxury brands in selling on Amazon? Are the high-end vendor’s apprehensions valid about the risks of online selling and selling to Amazon?

Braintrust
"At some point a company like LVMH will take just the opposite approach of LVMH and make a deal with Amazon."
"So HOW can luxury brands sell both in high-markup luxury stores and on low-markup online marketplaces?"
"Luxury implies scarcity and as soon as a brand becomes ubiquitous people are willing to pay less for it."

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24 Comments on "Should high-end brands avoid Amazon?"

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Bob Phibbs
BrainTrust

This will be the litmus test for brands. Those struggling will continue to go down-market and become available everywhere. Those who are in it for the long run will eschew Amazon and the rest to remain exclusive. Part of the reason Michael Kors and Coach are struggling is overexposure. There needs to be fewer luxury stores in the world but better ones.

Ori Marom
Guest

I think that the issue here is not whether to sell on Amazon or not. To me, this sounds just like asking: should we sell in Seattle or not? Of course, anybody should!

I think that the interesting question here is whether LVMH can sell products in physical stores that command markups of 300 percent or more while also selling online. My answer to that would be yes, they can, but they do not yet know HOW.

So HOW can luxury brands sell both in high-markup luxury stores and on low-markup online marketplaces?

The only way to do that is to implement a new business model that compensates these physical stores for online sales. Most affluent buyers who visit luxury stores would still buy at the store even when the online price is significantly lower. At the same time price-sensitive buyers could still yield the store profitable referral fees from online retailers. I think that such an in-store digital-marketplace model is the only way forward for both luxury and non-luxury brands. Both Seattle and the Internet should be equally respected by reasonable forward-looking brands.

Peter Charness
BrainTrust

Online doesn’t necessarily mean “discount it.”

Ori Marom
Guest

Good point Peter. Ideally so. But selling on Amazon will often reduce brands’ control over prices and margins.

Naomi K. Shapiro
BrainTrust

Selling on Amazon doesn’t necessarily mean reducing brands’ control over prices and margins. The greater danger is Amazon seeing the prices and margins and going to school on retailers who dare to sell with them.

Peter Charness
BrainTrust

When all is said and done, people who own brands that shoppers want to buy will win, and they can manage the distribution channel any way and anywhere that helps them make it easy for the shopper to say yes to buying their product. The largest problem I see is counterfeits. If you can only buy a product from the brand owner’s store/website you are pretty well guaranteed of authenticity. If your brand is available online somewhere, then it becomes harder to control its presence elsewhere.

Jasmine Glasheen
Guest
Jasmine Glasheen
9 months 29 days ago

When talking about the luxury brands Amazon has gained access to, Michael Kors and Kate Spade, both have been sold in department stores. I’d call them aspirational brands, but not luxury.

Luxury implies scarcity and as soon as a brand becomes ubiquitous people are willing to pay less for it. LVMH is wise to avoid Amazon. They can sell their goods through their own website, where they can control the user experience and give it a luxury feel.

Naomi K. Shapiro
BrainTrust

Kudos for your answer, Jasmine. You covered all the bases nicely and succinctly.

Ryan Mathews
BrainTrust

I think someone at LVMH should do their homework. Some of their products are already on sale on Amazon. So the company may not want to do business with Amazon, but that isn’t stopping Amazon from providing a platform for consumers to access LVMH brands.

Ryan Mathews
BrainTrust

Sorry, but it’s true. This is the fundamental challenge to brands in the digital age. So, a more interesting question might be, “How can LVMH, or any other premium brand, stop resellers from using Amazon as a platform?”

Naomi K. Shapiro
BrainTrust

They stop selling to resellers. That’s what Birkenstock is doing when it walks away from Amazon this January.

Ryan Mathews
BrainTrust

My point is that if you go to Amazon today you are still able to order lots of their brands. All I’m saying is that you need to police the odd inventory floating through a channel before you announce you are not selling in that channel.

Kenneth Leung
BrainTrust

Luxury brands need to go omnichannel but when you sell on Amazon you lose the exclusivity and control of customer experience and, more importantly, you just gave Amazon access to your customer information. That’s why Apple kept the shopping experience and data in-house. For high-end exclusive brands it behooves them to build and maintain their own omnichannel experience focusing on high-touch service. Online does not mean discount, it means fulfilling the need of the customer for information and purchase.

Martin Mehalchin
BrainTrust

Most high end brands will continue to try to avoid Amazon, so the question is really how to do so. Relying on the department store channel is a ticket to declining sales over time. If you are a brand that wants to limit your distribution online (a strategy that preserves margins and brand cachet) then you need to be prepared to make heavy investments in your Direct to Consumer (DTC) business. For most, these investments should include flagship retail experiences in key cities worldwide and an owned eCommerce business that complements and extends the reach of physical retail.

Craig Sundstrom
Guest

I think it’s fair to say such brands can avoid Amazon, in that they’re “destinations” and will be sought out specifically, whether they’re on it or not. But is it a good idea? Is the loss of control in selling — however you define that — not offset by some incremental gain in sales? Might aspiring buyers fail to consider a brand because they’ve never been exposed to it in their years of shopping Amazon? Only the experience of each seller can answer those questions. And in the grand scheme of things, the internet is still quite new. Whereas the choice (of not selling there) may be a wise one today, it might not be next year — or next decade.

Phil Rubin
BrainTrust
9 months 29 days ago
Let’s all remember this quote, especially the “full stop” portion of it. Amazon is not Wal-Mart. Amazon has now captured nearly 75% of affluent households in the U.S. as Prime members. There are lots of luxury brands for sale there now, including LVMH goods, albeit through 3rd party sellers and counterfeiters. While that’s part of the challenge, they are on there because of economics, especially (not just supply but) demand. By not doing business with Amazon, LVMH effectively opens the door for those resellers and counterfeiters. While luxury brands have been slow to embrace innovation (e.g., ecommerce), affluent consumers value time and increasingly expect a better customer experience. Our office is across the street from a Nordstrom door. It’s easier and far and away a better customer experience to stand in my office and shop from Amazon than it is to go to Nordstrom. Sad, but true. At some point a company like LVMH will take just the opposite approach of LVMH and make a deal with Amazon. Such a deal will present the opportunity to protect the integrity of its brands, get Amazon’s help to keep counterfeit and grey market goods off the site and create a shop within… Read more »
Brian Numainville
BrainTrust

Totally agree. One can be the luxury brand of yesterday or the luxury brand of tomorrow. As you point out, “affluent customers value time and increasingly expect a better customer experience.” Time for luxury retailers to innovate their approach to retailing to truly serve all their customers, not just those who might happen into a physical store.

Christopher P. Ramey
BrainTrust

Scarcity is a pillar of luxury. Another pillar: you are judged by the brands with whom you associate.

A luxury brand on Amazon is repugnant.

PJ Walker
Guest

If consumers can purchase $10,000 watches at Costco, what makes LVMH think that they won’t purchase their luxury items from Amazon? As long as the products are authenticated as actual LVMH items, the consumer will not be viewed negatively that the item came from Amazon. If you need more proof, just take a look at the success of online luxury consignment TheRealReal.

Naomi K. Shapiro
BrainTrust

Some of the reasons for a high end retailer — or other retailers, like Birkenstock for example — should stay away from Amazon (but find other ways to work on the omnichannel without Amazon) are: Knockoffs and imitations lead to loss of brand identity; you want to keep your own identity as the “go to” place to buy your particular clothes; you can’t and shouldn’t compete on price; your brand is your reputation, i.e. the point is having a unique, standout brand, and value; you don’t want Amazon to have all the data on your products, sales, popularity or customers. (From recent blog post: 7 Reasons Why A Retailer Like Birkenstock Would Walk Away From Amazon).

William Hogben
BrainTrust

High end brands are over. They’re damned if they do and damned if they don’t. Zara etc. manage to produce the same looks at 1/10th and 1/100th the prices, and in the same seasons. Branding, as a method of generating value, is being rejected by millennials in the US and EU and this will soon follow in EMEA and other developing markets.

Adrien Nussenbaum
BrainTrust
There are multiple ways to think about LVMH’s statement that it will not sell its products on Amazon. First, consider that a search of Amazon for Louis Vuitton returns 2,429 products across several categories. Some of that may be counterfeit product, but clearly LVMH’s distributors are selling on Amazon. On one hand, it would seem to be a strategic mistake: Amazon would use the sales data to improve their own high-end fashion boutique inventory and undercut LVMH, while LVMH would dilute its brands and lose its direct relationship with the customer. On the other hand, look at how department stores — LVMH’s traditional distribution channel — are struggling to stay in business. The fact is, Amazon has become a destination for fashion. It may not be the destination for luxury fashion yet, but stranger things have happened. During the dot com boom, luxury brands shunned e-commerce in favor of exclusivity only to start offering e-commerce in the digital world that is based on access for everyone. Something that may seem farfetched, but could become relevant in the future — after all the digital revolution has proven anything is possible — is LVMH launching its own marketplace. There, the company could… Read more »
Stu Conroy
Guest
9 months 26 days ago
if you are selling in the UK or USA I cannot see how you cannot have Amazon as part of your strategy. They are the logistic powerhouse and have made the whole online process easier than anybody else. There are many ways of working with Amazon and whilst there are lots of issues they face, as would any company growing at the rate they have, they do make it incredibly easy for the consumer. I have been very disappointed lately purchasing from big brands, on their own sites, who are shipping to the UK from different countries, providing poor customer communication and so far behind what Amazon can deliver on. The concern would be the dominance Amazon have and they have already started to squeeze with more intensity on suppliers as they look to get brands directly. The trouble is like in traditional shelf space they cannot give prominence to every brand so the brands still have to build outside of Amazon. Amazon should only be used as part of the strategy but like a few of the posters here have mentioned, if the big brands don’t do it, they will already see their products on Amazon and inevitably poorly… Read more »
Leanna Kelly
Guest
9 months 12 days ago

I think it’s insane to assume that Amazon doesn’t cater to a high-end audience as well. I do understand that the “experience” is lacking, but the audience is definitely there, and this can be partially remedied by the use of A+ pages. Two other big concerns for brands selling on Amazon: losing control of pricing (if they decide to go the vendor route) and dealing with counterfeiters. Amazon is making huge strides in the latter area, but the former is a decision a brand should make on their own. I think the best move for a designer label should be to sell as a 3P, not as a vendor.

wpDiscuz
Braintrust
"At some point a company like LVMH will take just the opposite approach of LVMH and make a deal with Amazon."
"So HOW can luxury brands sell both in high-markup luxury stores and on low-markup online marketplaces?"
"Luxury implies scarcity and as soon as a brand becomes ubiquitous people are willing to pay less for it."

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