Friday, October 29, 2010

Luxury re-defined

Gilt’s first acquisition of Bergine, a San Francisco based company, stirred quite a discussion within the e-commerce sector, particularly as it pertains to the luxury goods and services industry. The best place to get the specifics of the deal (which, after all, was between two private companies so don’t expect to find any numbers) is in Geoffrey Fowler’s WSJ Blog of October 26, 2010 ( Mr. Fowler thoroughly covers what has grown to be a very competitive landscape of online discount retailers on luxury deals, for example discounts on five-star restaurants, wedding planning consultations, or high-end flower design. The deals have an expiration date, are good for one use only (this could however include a package of services), and allow the masses or financially mindful to partake in the luxury lifestyle industry.
All this is very nice. It seems however that the idea of luxury for such type of operation is a fleeting one. While Gilt City (which launched in New York last May and quickly expanded to Boston, Chicago, Miami, and Los Angeles) is gaining market share against competitor Groupon, (which controls a considerable percentage of the market and has been growing thanks to a strategy of determined acquisitions of small, local businesses that keep cropping up), the question of how is luxury doing online remains unanswered.
Technology has changed the way people think and has contributed to educating them on various topics and industries. The masses are suddenly aware of the unique and highly exclusive restaurant where a dinner for two may easily cost their weekly wages, if not more. They are able to taste that extravagant dinner once thanks to the online discounts (purchased on Gilt City or Groupon). Do they become permanent clients at this establishment? Probably not, but according to the analytics of traffic, sales, and return customers, one who has bought a discount dinner may be on the look out for another discount at the same restaurant. The restaurant, on the other hand, remains open thanks to the people who pay full-price for their meal. Most importantly, the restaurant maintains its status within the luxury world because it is not accessible to everyone.
I find the current developments within the particular segment of the online luxury market very interesting. The phenomenon will certainly continue for a few years and until all regional markets are covered. But once this has been achieved, it will also spur a leap in prices within the luxury lifestyle sector. This is because our culture prizes excess. The people who can own excess demand exclusivity and those who admire excess desire both the product and the privilege of exclusivity.  This is how human psychology operates.
Consequently, I cannot agree with the generalizations online retailers of discounted luxury goods project. Who do we group under the “online luxury” label? More importantly, which product and service do we specifically distinguish and denote as luxury? While the online market will be consolidated in a greater degree, so will the luxury lifestyle sector. When cards are reshuffled, they are reshuffled in all directions, albeit not at the same time. The more prolific the online discount deals on the so-called luxury goods, the greater the spike in the prices of exclusive products. This is how the economy works, either on paper or online.

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