The Digital Opportunities Luxury Brands Need to Consider
This pandemic has destroyed businesses but also given birth and accelerated new industries. One particular highlight is the digitalisation of brands. We've seen many brands including luxury fashion houses who have historically been known as laggards when it comes to embracing new technology really push the boundaries of their tech integration even before the mass market brands. While brick-and-mortar ateliers will still be the bedrock of the luxury shopping experience, the new money millennials have truly influenced these luxury brands to finally understand that the future is significantly digital. Now that we've given you a reason as a brand to embrace the digital space, let's take a look at the current trends that have swept the industry and even in some cases triggered a frenzy of participation.
Virtual Try-Ons / Virtual Retail
One of the key tech that bloomed while we were all stuck at home is Augmented Reality (AR) especially with most smartphones being able to utilise this technology to a surprisingly high level. With AR we are now able to project 3D objects into our real world environment as well as augment certain aspects of things IRL. That is where "Virtual try-on" comes into play. This technology allows consumers to quite literally digitally try-on lipsticks, make-up clothing, shoes, etc. Where in a world where contact is forbidden, this allows us to experience the pre-COVID shopping experience from the comfort of our own homes. This very fact accelerated try-on experiences and it has now become somewhat of a standard for many beauty brands to have as part of their experiential campaigns. As the tech continues to grow, we may see even more amazing use cases with regards to try-on AR.
Now that we slowly recovering and retailers start to reopen, the digital influence does not look to be going away with many brands still opting to employ these digital experiences and on top of that, combining it with physical experiences to create phygital campaigns.
Now that physical shops have reopened, brands and retailers are continuing to rely on digital experiences – or “connected shopping” – to drive in-store purchasing, where consumers have been found to spend more (compared to when they shop online), and where margins tend to be higher and return rates significantly lower. And thus far, the stats in the space are promising. According to a recent study by Snapchat and Foresight Factory, 35 percent of U.S. consumers would go out of their way to visit a store if it had interactive virtual services such as a smart mirror for trying on clothes or makeup. In addition, 62 percent of U.S. consumers who have used AR said that the technology encouraged them to make a purchase.
Virtual try-on tech clearly can provide brands with benefits, but it also comes with a range of risks – the most important of which is compliance with biometric laws and regulations, which govern the collection and use of facial recognition templates and other biometrics. In the United States, a handful of states (including Illinois, Washington, Texas, California, Colorado, and Virginia) have adopted laws that regulate the collection, use, and disclosure of biometric data. Meanwhile, as of this summer, New York City enacted a new biometric ordinance regulating how businesses handle biometric identifier information. Failure to comply with these laws poses significant risk for brands.
For example, class-action lawsuits have been filed against cosmetics powerhouses Mary Kay and Ulta, alleging their virtual try-on tools violated the notice and consent requirements of Illinois’ Biometric Information Privacy Act. Both lawsuits allege that the companies failed to obtain consent prior to collecting scanned images and videos of consumers’ faces, and the respective plaintiffs are seeking damages of $1,000 per negligent violation, $5,000 per “willful or reckless violation,” or actual damages.
Biometric laws and regulations generally require businesses to provide clear notice and obtain informed consent from individuals prior to collecting their biometric data. It is worth noting that these laws and regulations define “biometric data” slightly differently; so, brands should start by evaluating; (1) where the virtual try-on technology will be deployed (e.g., doing a more limited rollout in a handful of states versus a global launch) and (2) what type of data will be processed. Given the prevalence of biometric-related litigation, it is critical for brands to understand and address their compliance obligations in this space.
Non-fungible tokens – or NFTs – are one-of-a-kind digital assets that can be used to represent items, such as works of art, videos, and even digital (or physical) garments, and can be bought and sold like any other property. While they have been around since 2014, they are having a mainstream moment in 2021, with artists driving multi-million dollar auctions for their NFT artworks and luxury brands like Gucci, Rimowa, Burberry, and Louis Vuitton launching NFTs in order to reach increasingly digitally-connected consumers.
NFTs also have touted as promising anti-counterfeiting applications, a particularly relevant proposition in light of the ever-growing global market for counterfeits and the rise of secondhand fashion, which has led to the increased sale of counterfeit luxury goods. Not necessarily a simple process, NFTs can be used to record the provenance of associated physical products, and then aid in authentication efforts, potentially restoring consumer confidence in a resale industry that is been riddled with counterfeiting controversies.
Arianee, an Ethereum-based project, for instance, is building a business in order to meet this growing need and establishing “NFT digital passports for luxury goods,” which will also digitize service history and repairs. At the same time, the Aura Blockchain Consortium similarly takes aim at counterfeiters by recording all newly-made products on a shared blockchain ledger and issuing digital certificates of authenticity. LVMH-launched Aura’s digital certificates will also detail products’ sourcing and sustainability metrics, a benefit that Aura hopes will promote trust in brands’ increasingly-widely-marketed sustainability and ESG credentials.
NFTs are an increasingly important tool for fostering – and soon, for protecting – brand value, but they also pose novel enforcement challenges. The rising demand for digital luxury goods has brought an insurgence of NFTs that trade on luxury brands’ rights. For example, the “Baby Birkin” NFT, an animation of a baby growing inside an Hermès Birkin bag, recently sold for $23,500 – over twice the initial retail price of Hermès’ “baby”-sized Birkins. This NFT references the “Birkin” word mark and famous trade dress, but is not affiliated with – or authorized by – Hermès.
E-Commerce: Emerging Channels and Challenges
The pandemic has fundamentally changed the way consumers purchase products, namely, by supercharging the e-commerce sector, which grew from 16 percent to 19 percent of global retail sales in 2020. According to a recent global survey from Shopify, a whopping 84 percent of consumers shopped online during the pandemic, and many consumers, including ones that were previously less comfortable using e-commerce, are expected to continue to rely on digital consumption going forward.
All the while, the pandemic has also increased demand for convenient, immediate, and streamlined e-commerce experiences. To meet such enduring consumer demands, brands have adopted omnichannel e-commerce strategies to sell across numerous digital channels. Social commerce, in particular, has become an important tool in brands’ omnichannel strategy, with social commerce streamlining purchases by selling directly through social media platforms, and thereby, emerging as a key sales channel during the pandemic due to its integrated and frictionless shopping experience – especially among Gen Z and millennial consumers.
Notwithstanding its benefits, social commerce also poses challenges for brands. For example, brands may not have the ability to establish a direct relationship with the consumer and to leverage all of the data collected in connection with a transaction. There are also important legal considerations around who acts as the merchant of record and who is responsible for making required consumer disclosures, maintaining data security, and processing returns. Brands also need to understand and comply with each social platform’s terms, restrictions, and other requirements relevant to social commerce. As such, brands are encouraged to work with counsel to understand their obligations before pursuing social commerce.
Further, while the proliferation of e-commerce has benefited brands, it has also created a perfect storm for counterfeiters. In 2017, counterfeiting was a trillion-dollar problem for brands, with nearly one-third of the lost dollar value relating to online sales. In that year, alone, brands lost $323 billion globally to online counterfeits.
Online marketplaces provide counterfeiters with a certain degree of anonymity and truly sweeping access to consumers, which allows them to sell products to the masses without a supply chain verifying authenticity. COVID’s erosion of brick-and-mortar retail has also enabled bad actors to target less sophisticated and/or experienced online shoppers, as well as those looking for luxury knockoffs through social media influencers. For example, counterfeiters have capitalized on the need for face masks by flooding social media with infringing goods. A quick scroll through Instagram’s #designerfacemask feed reveals countless counterfeits of designer brands like Chanel, Louis Vuitton, Burberry, Fendi, and Gucci. These designer replicas are also widely available on popular online marketplaces such as Etsy, eBay, etc.
Brands can combat online piracy by adopting a multipronged protection, monitoring, and enforcement strategy.