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Luxury's dilemma: Does it pay to play with Amazon?

Thursday, August 21, 2014 - 02:16

Brands in the premium luxury segment are taking different approaches to manage their relationships with Amazon, and sometimes walking a fine line. Lily Jamali reports.

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If you're a a high-end luxury brand, does it pay to play with Amazon? Right now, most high-end labels don't officially distribute through the e-commerce giant in a bid to maintain control. But few, like Burberry, are starting to play ball. Mabel McLean is a researcher with L2, a think tank that studies the digital performance of brands. SOUNDBITE: MABEL MCLEAN, RESEARCHER, L2 (ENGLISH) SAYING: "There are some brands that have managed to strike a happy arrangement deal with Amazon." L2's new report on Amazon - represented by a shark on the cover - explains why. Amazon launched a store devoted to luxury beauty products last October. For now, it includes Burberry, L'Occitane and Molton Brown. Notice this Burberry fragrance is the same price on Amazon as it sells for on Burberry's own site. And here comes Amazon's deal sweetener: SOUNDBITE: MABEL MCLEAN, RESEARCHER, L2 (ENGLISH) SAYING: "In the case of Burberry, third parties can't list Burberry's inventory." Still, many on the high-end keep Amazon at arms-length. Take LVMH - which owns Dior. It has a no-engagement policy on Amazon. In turn, third party sellers go unpoliced. SOUNDBITE: MABEL MCLEAN, RESEARCHER, L2 (ENGLISH) SAYING: "When you search Dior, thousands of fragrance SKUs pop up on the platform.// Whether they're choosing to engage with Amazon or not, they're still present on the platform." Yet it's a risk some high end brands are taking. Morningstar analyst Paul Swinand says LVMH and Estee Lauder take this approach for good reason: SOUNDBITE: PAUL SWINAND, EQUITY ANALYST, MORNINGSTAR (ENGLISH) SAYING "The more exclusive you are and the higher price point you are, the more you really want the customer only to experience your product only in your exclusive retail store because you want to strictly control all aspects of the customer experience." He says LVMH barely has an online sales strategy because they don't need to: SOUNDBITE: PAUL SWINAND, EQUITY ANALYST, MORNINGSTAR (ENGLISH) SAYING "Luxury retail is a strange conundrum because the scarcity of supply actually created more demand. It's almost backward economics." But Alibaba's entrance into the US market has the potential to shake things up. McLean says the Chinese e-commerce giant is working hard to reverse its reputation as a repository for counterfeits. But Swinand expects prestige brands will remain cautious about selling on the new e-commerce site.

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Luxury's dilemma: Does it pay to play with Amazon?

Thursday, August 21, 2014 - 02:16