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Compelling reasons for Luxury brands to join the e-commerce bandwagon

Luxury Fashion firms right from Louis Vuitton to Channel and Gucci are in the race to join the bandwagon of e-commerce, either by forging an alliance with multi-brand online firms such as Farfetch, developing their own platforms or both, says a knowledge.whartn.upeenn.edu report said. Stating that Farfetch is on the cusp of achieving something phenomenal in the realms of luxury retail, the report goes on to say that the entity might as well emerge one of the few luxury tech unicorns with an upcoming $5 billion IPO.Embracing Digital TechnologyThe lofty valuation marks a remarkable turn for an industry that had long been resistant to selling online, fearful that the Internet’s mass access would damage luxury brands’ exclusivity, notes the report. Apparently, luxury fashion houses are racing to embrace digital. The pivot to digital makes sense: Online sales are expected to drive future growth in the luxury goods market, making up 25% of the market by 2025 up from an estimated 9% last year, according to a 2017 report from Bain & Co. That means sales from offline stores will shrink to 75% of the total from 91%. Such projections serve as a wake-up call to luxury brands that have long relied on partners such as department stores — and their own boutiques — to sell products. But traditional retailers are struggling and more customers are becoming comfortable buying luxury goods online.Barbara Kahn, Wharton marketing professor and author of the upcoming book, The Shopping Revolution: How Successful Retailers Win Customers in an Era of Endless Disruption is quoted as saying, “It used to be enough to just have the very best luxury product. But in today’s extremely competitive retailing environment, it’s not alright to just be good at one thing. You have to be good at least two different things and good enough in everything else.”Wherewithal Denise Dahlhoff, Research Director, Wharton’s Baker Retailing Center says that nevertheless, many brands didn’t have the digital expertise to replicate a white-glove experience online by themselves, said. That’s why they are forging an alliance with multi-brand e-commerce platforms such as Yoox Net-A-Porter, MatchesFashion and Farfetch to run their online stores for them. With their digital savvy and understanding of the luxury market, these e-tailers know how to provide an ‘excellent’ online shopping experience appropriate for a luxury brand, and they also have global reach, she said.

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Wake-up CallE-tail sales are expected to drive future growth in the luxury goods arena, making up 25% of the market by 2025 up from an estimated 9% last year, according to a 2017 report from Bain & Co. Therefore, sales from offline stores will decline to 75% of the total from 91%. Such projections serve as a wake-up call to luxury brands that have long relied on partners such as department stores — and their own boutiques — to sell products. But traditional retailers are struggling and more customers are becoming comfortable buying luxury goods online, says the report.Extremely Important PeopleFor instance, Farfetch provides an e-tail space for 500 independent luxury boutiques and 200 brands so shoppers can use the phone to order that one-of-a-kind Alexander McQueen party dress — in their preferred currency. Furthermore, Farfetch handles customer service and arranges for express global delivery — including same-day service in London, New York, Paris and other major cities. In the U.S., customers get free shipping and returns, the report said.The other big luxury e-tailer, Yoox Net-a-Porter, through its Net-a-Porter site offers two-hour delivery windows, fashion consultants who are available 24/7 and a new premier service in select areas for its “Extremely Important People” or EIPs. Called the “You Try, We Wait” service, customers can get an item they ordered delivered on the same day, and the firm’s agent will wait for them to try it on to see if they like it. If not, the agent will immediately collect the item to be returned, noted the report.Comfort FactorLuxury brands also became comfortable with these websites in contrast with eBay or Amazon, for instance, because these e-tailers are careful to maintain an upscale image, says the report and adds that not only won’t they sell counterfeit products, but also they publish content that replicates the feel of a posh fashion magazine, according to Dahlhoff.For instance, Farfetch writes about wardrobe tips and dishes on the latest runway trends. Net-a-Porter has an editorial section with a recent cover story on actress Lisa Bonet, plus how-to articles on upgrading eveningwear or using lip oil argued the report.Faring WellStating that this approach has fared well for luxury e-tailers, which made high-end goods widely accessible to people globally, citing Reuters, the report went on to add that the London-based Farfetch grew revenue by 74% in 2016 to 151.3 million pounds. Yoox Net-a-Porter, based in Milan, also had reported its last year sales spiked by 17% to 2.1 billion euros, from online stores open in both 2016 and 2017 and excluding currency fluctuations. What is more, Yoox said 2017 was the first year that sales from mobile devices took up more than 50% of the total. In contrast, global retail sales overall increased by a much slower 5.8% last year to $22.6 trillion, citing eMarketer, the report said.Key ReasonsKeith Niedermeier, Wharton adjunct marketing professor, cited three reasons why online luxury sales are growing fast. First and foremost is the improved economy had boosted the sales of high-end brands. Secondly, luxury has been slow to move online, with many brands very reluctant to embrace the trend for fear of reducing exclusivity and commoditizing their offerings. They now see that it is an omnichannel world and they are quickly embracing the opportunity provided by serving all these channels.Millenials MantraPrimarily, Neidermeir says millennials are maturing into their prime earning years and becoming the focal luxury consumer. Millennials now account for 13% of high-net-worth households, he said, and they grew up shopping online.Ludovica Cesareo, Wharton post-doctoral research fellow in marketing said: “While the rich have always propped up sales of premier goods, young shoppers are key to future growth. We have seen an incredible rise in millennials and Gen Zs purchasing luxury, and these digital native consumers want to purchase luxury goods online. That is why luxury e-tailers are on the rise.”Citing Bain, the report pointed out that millennials and Generation Z shoppers accounted for an estimated 85% of 2017’s growth in luxury goods sales. “They represent the new aspirational class,” Cesareo said. “Millennials and Gen Zs who purchase luxury want much more than just a brand name and a status symbol. They want an experience, which for them has to encompass some form of digital interaction, [and] has to be inspirational.” Added Dahlhoff: “When your customer base is aging, you have to think about bringing in new customers, younger customers.”Luxury Brands Are ListeningSome luxury brands are jumping the bandwagon wholeheartedly, says the report. Last summer, Louis Vuitton parent LVMH launched 24 Sevres, a high-end online shopping site that offers not only its own brands but, in a rarity, also those of competitors. The online portal offers live, one-on-one video consultations with Parisian stylists, a ‘Style Bot’ on Facebook Messenger to engage fans and delivery to 75 countries.Ian Rogers, LVMH’s Chief Digital Officer and former Apple Music Executive said, “We felt it was time to take our expertise in visual merchandising, which our Maisons have long brought to their stores, and transform it online.”Similarly, Gucci has streamed fashion shows on Facebook Live, revamped its website to offer more attractive visuals, posts content on social media constantly to keep fans engaged and collaborates with contemporary artists on marketing campaigns. Embracing digital has turned the firm’s fortunes around. In 2017, Gucci’s revenue surged by 42% to 6.2 billion euros, according to parent Kering. CNBC terms Gucci one of the industry’s stars performers, the report said.Chanel has more than 57 million social media followers across the world, the most for any luxury brand, citing Luxury Society the report said. One reason for its success: It has posted more than double the industry average of high-quality videos to YouTube as well as 47% more Facebook videos. “Chanel, despite being a century-old brand, has radically modernized its brand status through social and has ultimately become a master of online video,” the website said. “Chanel posts regularly and consistently, cross-platform.”Chinese PlayersTwo of China’s biggest e-tailers — Alibaba and JD.com — are also trying to get into the luxury retail market, especially since the Chinese account for a third of luxury goods sales, according to the Bain report.Alibaba unveiled ‘Luxury Pavilion,’ an invitation-only shopping website featuring Burberry, Guerlain, and other brands. JD.com, which already invested $389 million into Farfetch, unveiled luxury website ‘Toplife’ with fashions from Saint Laurent, Emporio Armani and more. It also forayed into white-glove service where specially trained couriers in suits and gloves hand deliver luxury items like a $2,000 designer handbag, the report said.Taking Ideas from YouthThe big fashion houses have also changed in another way: They are taking design ideas from the youthful masses. “It used to be that traditional luxury companies had designer items they would bring to market and more mass-oriented brands would copy them. Now, sometimes it’s the other way around. Luxury is taking inspiration from streetwear brands for the younger set such as T-shirts, sneakers, denim and other goods”, Dahlhoff said.According to the Bain report, sales of luxury T-shirts showed an upward tick of 25% in 2017, sneakers 10%, flip-flops 50%, down jackets 15%, denim 6% and parkas 8% — for a total of 13.1 billion euros in sales out of an estimated 262 billion euros for all luxury goods, the report said.Personalization Brands are also enabling some personalization through a limited choice of designs or colors so they can offer different options but still retain quality control. Young shoppers ‘want to be able to express their own identities through the luxury products they purchase,’ Cesareo said. Young luxury consumers also mix and match items — buying a few pieces of luxury items or ‘affordable’ luxury such as a keychain, a wallet or scarf to go with everyday apparel — not only to create their own individual outfits, but also because on average these customers don’t have unlimited disposable income, Dahlhoff added.Offline StoresWith luxury e-commerce taking off, will offline stores still play an important role? “Luxury brands must still be committed to physical retail stores because the bulk of sales still occur there,” Niedermeier said and added: “Furthermore, showrooming (visiting a store to see a product before buying it online) is a key part of the shopping journey that smart retailers understand and embrace. Pure online players will have to provide unique services or exclusive offerings to be competitive in the long run.”