Luxury E-tailers Face Cyber-Challenges

The financial roller-coaster ride for high-end fashion retailer Boo.com and the demise of Foofoo.com have caused some industry analysts to question the viability of selling luxury goods via the Internet.

In fact, the challenges facing luxury e-tailers have forced some companies to change the way they do business. Ashford.com, for example, has revised its sales and marketing strategy several times since its inception. Once an attention grabber because of its deep discounts on high-end jewelry and accessories, the company now implements a more modest pricing system.

One obstacle for Ashford.com is the unwillingness of some luxury goods producers to acknowledge the viability of selling their products on the Internet.

Online Luxury Sites Struggling

Earlier this year, Kenneth E. Kurtzman, Ashford's chief executive, said some manufacturers of high-end goods "are still in denial" about selling online. In that category, he includes such established names as Mont Blanc and Rolex.

Still, Ashford has managed to put together working relationships with more than 300 brands ranging from Oakley sunglasses to Waterford pens. The company claims its average customer order is $500 (US$), yielding a $100 profit.

However, most traditional brick-and-mortar retailers would scoff at Ashford's profit-to-sales ratio, especially after the company lost $19 million last year.

Consumers See High Risk

Another major hurdle for online luxury sites is the reluctance of consumers to buy expensive items without seeing the products in person.

"There are some people for whom this will be too high a risk," said James Vogtle, e-commerce research director for the Boston Consulting Group. "They are going to want to see the whites of someone's eyes before they make that transaction."

These concerns are especially true for jewelry shoppers. Educated gem buyers know the importance of feeling a stone and closely examining it before buying. Still, Pascal Mouawad, co-founder of Mondera.com, expects that up to 10 percent of the diamond jewelry market will eventually move online.

Some industry analysts believe, however, that the only successful online luxury goods sites will be those that have brick-and-mortar counterparts.

Neiman Marcus is one company adopting the brick-and-click model. The fashionable department store will reportedly team with New York-based RichFX to offer an online boutique similar to Boo.com.

Once up and running, the Neiman Marcus site will allow users to mix and match clothing. The company will rely on its offline retail sites to provide return services and customer support.

A Diamond in the Rough?

Many analysts are now turning their attention to the debut of eLuxury.com, an e-tailer bankrolled by luxury product group LVMH Moet Hennessy Louis Vuitton. The site was supposed to be operational by Memorial Day, but has been delayed indefinitely. The company remains noncommittal about when the online store will be up and running.

"We don't have a firm launch date right now," said eLuxury spokeswoman Tenley Zinke in a published report. "Technically it's still spring, so there is no sense of urgency to get the site up until we are sure customers will be happy with the experience."

The company's concern about opening its site for business may stem from the recent string of e-tail failures and the collapse of investor support in the business-to-consumer sector.

Once operational, however, eLuxury.com will reportedly carry such items as Veuve Cliquot champagne, Louis Vuitton luggage and designer fashions from Christian Lacroix and Givenchy.