Trying to sell luxury goods online through eCommerce has been a struggle for many traditional luxury goods makers or retailers but online luxury retailer LuxeYard (OTC: LUXR) may have a good shot at taking on traditional brick and mortar luxury retailers like Saks (NYSE: SKS), Tiffany & Co. (NYSE: TIF) and auctioneer Sothebys (NYSE: BID) without the tackiness of Groupon (NASDAQ: GRPN) or non-exclusivity of Ebay (NASDAQ: EBAY) or Amazon.com (NASDAQ: AMZN). More about LuxeYard (LUXR) later but first it should be pointed out that in this (so-called) �recovery,� the two ends of the retail market, the bottom and the top, have largely held up. In other words, consumers are either buying low cost items at dollar stores or high priced brands and goods from luxury retailers or makers. However, I should mention that luxury retail stocks like Saks (SKS), Tiffany & Co. (TIF) and Sothebys (BID) (the later is not really a �retailer� but it is a good gauge for the strength of the luxury segment) have given a mixed performance for investors in recent years while other luxury brand or luxury goods stocks like Coach (NYSE: COH), which is up 46% over the past year, have given outstanding performances. Nevertheless, there could be storm clouds gathering on the horizon for traditional luxury retail stocks and luxury goods stocks.
Luxury Retail Outlook
For 2012, forecasts for the luxury retail industry have turned gloomy with growth predictions coming in at 10%. And while that may not sound bad in this economy, its half the growth pace of 2011. Specifically, analysts are worried about slowing growth in the European and North American luxury markets as these economies continue to struggle while the increasingly important Chinese economy (and hence Chinese luxury market) also appears to be slowing.
Online Retail Sales Are Growing
Nevertheless, online retail sales in general continue to be a bright spot for the retail market as a whole. In fact and according to Forrester, online retail sales in the US will reach $327 billion by 2016 while the overall share of the retail market for online sales is expected to increase from 7% to 9%. In addition, 167 million consumers or 53% of the US population had purchased something online in 2011 and this figure is expected to reach 192 million or 56% of the population by 2016 while yearly online spending will rise from $1,207 per person in 2011 to $1,738 per person.
More importantly, Forrester found that consumers are becoming more comfortable with making a wider range of online purchases. In fact and back in 2001, a Forrester consumer survey found that only three out of 30 retail categories had 20% or more of their sales coming from eCommerce. By 2011, the number had reached eight categories and its expected to hit 14 by 2016. In other words, retailers or consumer goods and services makers have learned or are learning how to sell better to consumers who go online.
The Problem With Online Luxury eCommerce
On the other hand, the intended luxury retail experience is completely opposite of the traditional online retail experience. For starters, the 2-dimensional odorless online experience is the polar opposite of what one experiences when they walk into a luxury retail store as luxury goods, especially those that are hand crafted, are intended to be experienced by all the senses (e.g. think of the smell of leather in a luxury automobile). Moreover, the image associated with buying or selling online has not been helped by the tackiness of Groupon (NASDAQ: GRPN) or all the mom and pop store fronts thrown up on Ebay (NASDAQ: EBAY) or Amazon.com (NASDAQ: AMZN) that are intended to cater to the mass market.
Nevertheless, it appears the luxury retail market has split into two factions: Those who are sticking to the traditional methods of selling to upscale clientele because they worry that selling online will cheapen their brands and those who are investing into digitizing their brands in part out of necessity. For example: The UK based Burberry Group plc (LON: BRBY) has decided to hedge its business from the sinking European economy by both going after Chinese consumers and investing heavily in technology and social media in order to sell online.
For those luxury goods makers and luxury retailers who are taking the plunge online, a 2010 article on eConsultancy.com noted a few best practices or potential avenues for success when it comes to eCommerce sites selling luxury goods. Their list included:
- Exclusivity as in allowing Internet users to look at the site but not necessarily �enter� it automatically. In fact, it was mentioned that Faberge was taking exclusivity to a whole new and extreme level online in that viewers need to receive a personal call from a �sales advisor� before being let into the website to shop.
- Invitation only and time limited sales � potentially useful for luxury product launches or discontinuations at the end of the product lifecycle.
- So-called progressive disclosure just like when high spenders visit an luxury retail shop and are led into a private room to view the latest exclusive offerings. In other words, there needs to be some areas of the ecommerce website where entry is obtained only after some kind of event happens, such as a purchase or certain buyer behavior.
LuxeYard (OTC: LUXR)
With those best practices in mind, this brings me back to LuxeYard (OTC: LUXR). LuxeYard is a members-only flash sale site selling luxury home furnishings and decor plus fashion apparel, accessories and lifestyle products. What makes LuxeYard different from the literally hundreds of thousands of other online store fronts or eCommerce sites that have sprung up is it offers access to unique luxury products sourced by a seasoned team of buyers for a fraction of retail prices. Moreover, LuxeYard gives its members the power to decide what luxury items are sold on the site as well as a group buy option where they can lower the price through sharing the item with friends. Finally, LuxeYard is partnering with celebrity Trendsetters as well as insiders in the design and fashion industry industry in order to deliver a �curated� buying experience as well as a point of view to all members of the site.
I should mention that LuxeYard was only launched on January 24, 2012 but as of March 14, 2012, total membership had reached the 425,000 mark and the company's goal is to reach one million members by the end of this coming June. During that period, LuxeYard had featured over 6,500 products and the average transaction value was nearly $200 � not bad for an eCommerce site. LuxeYard also showcased products from well known home furnishing brands such as Domitalia, Lexington, Novica and Sefte Bedding plus added trendsetters such as Daniella Clarke, Nicki Hilton and Jillian Reynolds to the site. These trendsetters bring their personal style and tastes to LuxeYard by picking out their favorite products from the site�s weekly events. Finally, its worth noting that LuxeYard has put together a veteran management team consisting of eCommerce, digital marketing and retail experts.
Of course, I should mention that LuxeYard is a small cap OTC stock trading at $0.88 with a market cap of $48.84 million and it has ranged from $0.03 to $0.90 since its debut earlier this year. On the other hand and if LuxeYard becomes the next online eCommerce equivalent of Saks (SKS) or Ebay (EBAY), investors right now have a chance of getting in for less than a dollar and potentially see out of this world returns.
The Bottom Line
LuxeYard (LUXR) appears to have put together all of the pieces needed to make an eCommerce site focused on selling luxury goods work � meaning its well positioned to take on traditional luxury goods sellers Saks (SKS), Tiffany & Co. (TIF) and Sothebys (BID) along with mass market eCommerce sites like Ebay (EBAY) and Amazon.com (AMZN).
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