Special Report November 19, 2009, 1:11PM EST

Online Luxury Retail Remains Elusive

Many luxury brands still treat the Internet with caution, worrying an online presence will dilute a sense of exclusivity. Are they missing out?

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Sure, the bricks have it bad, but the clicks are struggling, too. Traffic tracking firm Comscore, based in Reston, Va., says that U.S. online retail spending totaled $29.6 billion in the third quarter of 2009, a 2% decrease year-over-year. It marks the first time on record that e-commerce has seen negative growth in two consecutive quarters.

But some experts believe the holidays will prove e-commerce's strength, especially when it comes to customer service. According to a recent report by Cambridge (Mass.)-based Forrester Research, 2009 U.S. online holiday sales will increase by 8%, to $44.7 billion. Offline sales are still dominant, amounting to $392.9 billion, according to the National Retail Federation. But with most analysts declaring that number will either remain flat or decrease by a percentage point or two, Forrester's prediction suggests many consumers are still shifting to online shopping.

That may be true for big box and specialty retailers, but there is one category where online presence is minimized: luxury apparel. While numerous studies have argued that affluent consumers spend more money online than any other market, many luxury retailers are still leery of accommodating their customers on the Internet. The fear in the corner offices of fashion houses in Milan, Geneva, and Paris remains that the Internet will dilute the exclusivity of luxury brands. Many mass market retailers such as Amazon.com (AMZN), Target.com (TGT) and Walmart.com (WMT), as well as aspirational sites such as Crateandbarrel.com, Bananarepublic.com, Redenvelope.com, and even upmarket department store chain Nordstrom.com (JWN), have found online success. But these brands still fall short of what many consumers consider true luxury.

Leading the Way

Still, there are changes afoot in the luxury sphere. Companies that once professed nothing but contempt for the Internet now at least have Web sites. Others, such as Ralph Lauren (RL) and Tiffany & Co. (TCO), have fully embraced e-commerce. Many companies are now even developing social networking strategies. The marketing teams behind Louis Vuitton (LVMH), as well as Yves Saint Laurent and Alexander McQueen—both of which are units of French retail giant PPR (PRTP.PA)—maintain Twitter accounts.

But for all that, they are still only tentatively dipping their manicured toes into e-commerce waters. McQueen, which is based in the U.K., operates a full online shop for U.S. customers only. The U.S.-only site of sister company YSL sells accessories, but not clothing. Same goes for Balenciaga and Bottega Veneta, also owned by PPR. (Balenciaga also accommodates British customers online, unlike the other PPR sites.)

The inconsistencies don't stop at PPR. At French luxury giant Moët Hennessy Louis Vuitton, better known as LVMH, sells its Louis Vuitton leather goods and accessories online, nothing more.