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European Luxury Merchants Still Unsure About the Web
Will the Prada mystique hold if every cyber-schlub can buy one?
By Kevin Drawbaugh   Reuters
LONDON — Europe's luxury goods companies, with their premier names and fat profit margins, are edging warily onto the Internet with ventures that may end up telling a lot about the online future of prestige consumer brands.

Italian design house Bulgari will in March begin offering some of its lower-priced jewelry, watches and fragrances online, industry sources said on Wednesday.

The Bulgari venture will be in unusual cooperation with rival LVMH, the French giant of the luxury goods segment and its most Web-savvy player, industry analysts said.

LVMH Chairman Bernard Arnault, on his own and with his company, is active in numerous Internet ventures. The LVMH corporate Web site connects to no fewer than 30 subsidiary sites.

But most other big names in this most exclusive of consumer goods businesses, such as Gucci and Prada, have little more than a token presence on the Web, reflecting uncertainty in the $60-billion industry about the promise of e-tailing.

"It's very dangerous and these companies have to be very careful," said luxury goods industry analyst John Wakely at investment bank Lehman Brothers.

"The Internet is about mass distribution," he said. "But the luxury goods business is largely about restricted distribution ... and the store is very much a part of the aura you want to create when you're trying to sell someone a handbag for $500."

Will Luxury Sell Online?

Doubts are strong that chic-set shopping - with its high see-and-be-seen and touchy-feely elements - will ever translate to the sterile atmosphere of the computer screen.

Moreover, too much Web exposure could spell trouble for brands whose success depends in part on being hard to find.

But the industry sees opportunity on the Web to reach customers such as provincial millionaires who want luxuries, but don't want to travel to London, Paris or Milan.

In addition, the e-commerce drumbeat is so loud in the business world today that luxury goods managers feel compelled to listen. Hence, cautious venture like Bulgari's are emerging.

"This is very much seen as a test and if successful, Bulgari will launch its own online selling," said luxury goods industry analyst Claire Kent at Morgan Stanley Dean Witter.

Bulgari, like other luxury goods groups, already has a Web site but it is not possible to buy products. The same holds true for champagne maker Veuve-Clicquot, perfumer Chanel and Irish crystal and china maker Waterford Wedgwood.

"Like every other luxury branded goods company, we're looking at online selling very carefully and trying to rationalize the dilemma," said a spokesman for Waterford.

Italian leather goods and fashion powerhouse Gucci has a Web site with a few snapshots from fashion shows, a registration form and a promise of more to come in early 2000.

Even less formidable is the Web site from hot-selling handbags maker Prada of Italy. It has a picture of a model on a mountaintop below its logo and a sign saying "opening soon."

Independent Sites Fill Vacuum

In the vacuum left behind by most luxury firms' reluctance to click onto e-commerce, independent web-only designer goods sites have emerged. Among them are the sophisticated sephora.com beauty goods e-commerce site backed by LVMH.

Arnault is said to be developing a central luxury goods shopping mall-type site. And others are under construction.

Several sites that sell branded luxury goods, but have no formal ties to manufacturers, are up and running. These sell a mix of legitimate products and others, analysts said.

"Some luxury products are either seconds or fakes, potentially harming business ... but policing this is extremely difficult,"said Morgan Stanley's Kent.

If only to protect brand integrity, manufacturers may be forced into online sales, much as they were compelled to expand into department stores and smaller markets in the 1980s to combat sidewalk peddlers of counterfeits, analysts said.

So taken together, the promise and risks of the Web pose a quandary for an industry that has thrived in recent years and whose stock prices far outperformed the market in 1999.

Only experiments like Bulgari's and LVMH's are likely to reconcile these Internet challenges, analysts said.

"The big e-retailers are competing on scale, on price and on convenience. But these companies are not about that. They're about brand equity, about scarcity and about price premiums," said Cedric Magnelia, luxury goods analyst at CS First Boston.

"Some opportunity is there to develop an alternative distribution channel," he said. "But it's probably going to be a supplementary distribution outlet to traditional outlets."

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