KEY INSIGHTS

1. There are significant differences between premium and luxury goods in successful brand management practices; therefore, elevating the brand from a premium positioning towards luxury requires special online features.

2. Adding Business-to-Consumer (B2C) operations to an existing Business-to-Business (B2B) supply chain framework requires changes to the distribution center (DC) operations.

3. Focusing on the luxury segment requires the addition of personalization capabilities and labor force to focus on custom packaging, as well as bilingual customer service representatives for Canada.

Introduction

Ralph Lauren is an American lifestyle brand that features a wide range of products, including apparel, home goods, furniture and accessories. Ralph Lauren is established globally in more than 30

countries with e-commerce channels set up in several of them. Ralph Lauren intends to expand its e-commerce operations into the Canadian market. While doing so, brand elevation towards the luxury segment is a strategic objective. This research examines how the supply chain network would adapt to the launch of an e-commerce channel alongside the existing B2B operation.

In this research, we examine Ralph Lauren’s challenge by approaching it from various aspects. We assessed the current state of the Canadian consumers and looked at the online presence of competitor brands. Combining the findings with the insights from the literature on luxury marketing, we recommend features that should be found on an attractive luxury website. We document and compare e-commerce operations in the US and Canada to suggest changes to the distribution network in Canada. Also, an initial examination of the transportation carriers is provided, which could be utilized for the B2C operation.

Supply Chain Network Considerations for e-Retail of Luxury Goods in Canada

By Dilek Tansoy and Yi Linn Teo Thesis Supervisor: Roberto Perez-Franco

Summary: This research explores supply chain network considerations for the e-commerce business of Ralph Lauren in Canada. The company’s strategic objective of elevating the brand is at the core of our research while recommending possible supply chain network considerations. This leads to recommendations on how to build a successful website for a luxury goods e-retail channel, including suggestions on projecting the luxury image online and on customer-facing features on the website in line with the company objectives. Also, the supply chain network should be reshaped to accommodate these changes.

Dilek Tansoy worked in the biotechnology industry as a Process Engineer and Supply Chain Analyst prior to joining the SCM program. Upon graduation, she will be working in the digital commerce industry.

Yi Linn Teo worked in the fast moving consumer goods industry as a Supply Chain Executive prior to joining the SCM program. Upon graduation, she will continue to pursue her research with SUTD in Singapore.

The intent of this research is to examine how the supply chain network should adapt in the case of a brand that transitions from a predominantly premium positioning towards luxury on an e-commerce platform.

Research Approach

In this research, we utilized various methods to obtain data and evaluate market conditions for Ralph Lauren’s brand elevation and growth strategy. Due to the lack of sufficient information on the supply chain networks for luxury goods distribution, we used a mixture of qualitative and quantitative methods, namely - interviews, surveys, field visits, market research and data provided by the company. We used triangulation of results from different methods to interpret findings. Our key findings are presented below.

The Canadian Market

The Canadian market holds a high potential for Ralph Lauren to enter the luxury market. According to information regarding the retail industry, the country has a high rate of Internet users. It was found that 30% of this population has never shopped online. Those who shop online visit the brand websites directly rather than cross-buying sites. This points to an opportunity for Ralph Lauren as it plans to enter the market. The current trend on retail spending is also increasing in Canada, as seen in Figure 1 below.

Figure 1: Retail E-commerce Spending in Canada

Previous research shows that a new e-commerce channel and an existing brick and mortar (B&M) store can complement each other and increase the overall

sales, which may seem counter-intuitive initially. With multiple channels of sales, customers would be able to enjoy increased convenience, variety and service options, all of which contribute to the luxury shopping experience.

E-retail of Luxury Goods

Luxury goods are difficult to represent online. Due to the reliance on the five senses for the shopping experience and the challenge in creating the luxury touch online, this explains why the luxury industry is lagging behind other services in utilizing the Internet technology available. Many premium apparel brands are using the Internet to showcase their products, and generate sales through large volumes. This has been successful, and brands such as Ralph Lauren are now innovating to attract the technology-savvy shopper.

By comparing Ralph Lauren’s online presence to that of its competitors, various characteristics and features are found to be a necessity for the successful marketing of the brand. We recommend that the following features be included to the e-commerce website.

• 360° rotating views and videos of models wearing the apparel

• Videos that highlight the exquisite quality and handmade craftsmanship of the product

• A story and the heritage of the product

• Incorporate music and signature backgrounds on the home webpage

• Customer service live chat option

To emulate the luxury experience, an exclusive luxury club can be set up to ensure that particular groups of customers are constantly being kept updated by the company on new season offerings, and product launches. Involving the customer and making them feel special through value added services like post-sales follow-ups can attract customers to continue following the brand’s trends closely.

Supply Chain Operations

With a move from B2B to B2C operations, the fundamentals of the supply chain network would change. Currently, distribution in Canada takes

places via routes A and B as shown in Figure 2. These routes are based on the movement of premium goods to the stores. As the volume of luxury products being sold is small, they are sent from New York direct to the stores, as represented by route C.

Figure 2: Supply Chain Network Map

However, with the introduction of e-commerce, both premium and luxury products will now be delivered to customers’ homes. This would mean a change in the distribution network for the luxury products, and we recommend route B or D to minimize touch points and involve the current Toronto DC in the fulfillment of individual customers’ orders.

With an increase in small orders with few line items, and a decrease in bulk orders of many line items, there would need to be more automation of DC operations to cope with the increased volume and be efficient in the fulfillment process.

Conclusion

The difference in successful brand management policies for premium and luxury goods, noted as a result of literature research, call for special measures to be taken for the luxury positioning on the web. We attempted to provide supply chain network considerations as shaped by a successful luxury e-commerce website. The website. We propose that Ralph Lauren consider the addition of the following features to the luxury website: Improved zoom to display the finest detail in fabric, 360° rotating views, videos of models wearing garments, videos on the craftsmanship and material quality of items, display of items in a luxury lifestyle context along with visual material regarding brand heritage, sound effects and music designed to create the desired feelings as well as verbal

descriptions of sensations associated with touching the items (for example, cashmere), signature wallpaper on website background, signature packaging, and easily accessible customer service including live chat. While these additional features may result in higher operational expenses, they will highlight the distinction between luxury and premium items, providing the customer with the experience that drives sales in the luxury segment. Also, the customer will perceive a higher brand value that may translate into higher margins in all categories. The supply chain. The addition of the B2C channel in Canada catering to the website would mean direct fulfillment to many customers in small quantities, resulting in significantly different operations compared to bulk volumes that were previously shipped to few customers. Therefore, the placement of advanced material handling equipment in the Toronto DC is recommended, along with IT infrastructure for customer tracking purposes. For the luxury component of the supply chain, more manual labor intensive work would be required in the gift wrap and personalization options to be offered. Product personalization equipment should be acquired, along with trained personnel at the Toronto DC, since customization creates the feeling of exclusivity, one of the pillars of perception of luxury. With an additional B2C network to support, besides the bulk B2B business, the right transportation / logistics provider should be selected to provide high quality services that match the customer experience Ralph Lauren would like to showcase. Additionally, customer-service representatives who are fluent in both French and English have to be hired to work in the customer service center for Canada. We recommend creating a club for core luxury customers that represent the top percent of luxury volume and spending, providing special perks to assure customer loyalty.