December 26, 2000, 9:55 AM

Fashion500 thinks it has the answer to turning a profit in the luxury goods market

The news this fall from the luxury selling segment was not good: Miadora.com, one of the web’s premier luxury sites, shut down. So what would cause another luxury retailer to launch a site only a few weeks later? “We’re different in a lot of ways from the other luxury sites,” says Michael Bereck, chairman and CEO of New York City-based fashion500.com, which debuted in October.

Fashion500 is not just a site that sells luxury goods; it is also a company that operates web sites for the manufacturers of luxury goods. Fashion500 already has signed 40 fashion/luxury manufacturers to its hosting service and is negotiating with 20 more, Bereck says. That approach, Bereck believes, will make fashion500 a profitable business. “I’ve been telling the world that the cost of buying and building technology for just one site does not work unless you’re a Dell or other big seller,” Bereck says. Bereck thinks, in fact, that the recent troubles in e-retailing lend credibility to his position. “Until recently, it’s been like telling world, ‘I’m normal and everybody else is crazy,’” he says.

In today’s market, it’s not a bad idea to have a different strategy. Hundreds of sites compete for the affluent dollar-and fashion500 is not the last one to come online. In fact, eLuxury.com debuted late in October. Others are confirming Bereck’s approach by merging: BestSelections.com and NYStyle.com, for instance, came together in mid-November.

For the near future, there may be a lot of affluent dollars to go around. Researcher IDC of Framingham, Mass., predicts huge growth ahead in the luxury market. Consumers spent a mere $77 million in online jewelry purchases last year. In 2004, they’ll spend $1 billion, says IDC. Competing for their piece of the upscale dollar are such well known names as Tiffany and LVMH Moet Hennessy Louis Vuitton, which launched a site in June, as well as Internet start-ups such as Ashford.com and Bestselections.com.

Who are they?

Those figures and larger demographics are clearly what’s attracting luxury retailers to the web. For instance, affluent households are disproportionate users of the Internet. While households with income over $75,000 a year represent 18.9% of American households, they represent 36.7% of web-connected households. Or looked at another way, 62% of all households with annual income over $100,000 have Internet access vs. 16.5% of households with incomes under $50,000.

But the growth in luxury web sites is also the result of the booming economy. The number of American households with a net worth of $1 million or more nearly doubled in the 1990s, from 2.82 million in 1992 to 5.35 million in 2000. Even more telling when it comes to Internet-related activity is the trend toward greater affluence at an earlier age. The Spectrem Group, a New York-based research organization, reports that the average age of households with investable assets of more than $1 million actually fell last year-from 63 in 1998 to 59 in 1999-meaning that those more prone to linking to the Internet (i.e., younger adults) had a higher proportion of well-to-do individuals.

Add to that real affluence the aspirations of the younger generation, and you have a potent market. “Our customers fall into two categories: those in their late 30s and early 40s who have established a certain lifestyle and are maintaining it and those in their upper 20s and early 30s who aspire to that lifestyle,” says Jody Owen, president and CEO of Bestselections.com. “We try to have the breadth and depth that will appeal to both those groups.”

While many sites list extremely high-priced items, the market, Bereck believes, is not really about $30,000 pieces of jewelry and $200,000 works of art. “Most upscale luxury retailers are not selling $10,000 items and neither are we,” he says. Rather, the luxury shopper is typically someone who needs “that black cashmere sweater and doesn’t feel like making a day of buying it.” In fact, the average ticket at Ashford.com is $500. But while that may not be all that high priced, it is still far above the average web purchase of $28.

That high average ticket demands thorough follow-through, luxury retailers believe. Sticking the product in a plastic bag and dropping it in a box, which apparel retailers can get away with, won’t work with luxury goods. “We feel that how the purchase is packaged for delivery is important,” says Mary Lou Kelley, vice president of marketing at Ashford.com. Ashford also offers free gift packaging and free overnight shipping.

Ashford and others have clearly demonstrated that a market for high-priced goods exists. But even though that market may exist, Bereck contends that the economics don’t exist to make those sites sustainable. Thus the deals with manufacturers.

Under those deals, fashion500 operates and maintains the sites, installs the technology upgrades as they become available, and assists with developing a strategy. In return, fashion500 gets a commission on all sales. The sites will all piggyback on the marketing efforts of the manufacturers who are already marketing their products and need only insert their sites’ URLs into their ads.

Up the brand ladder

With manufacturers and fashion500 both selling direct to consumers on web sites, Bereck believes that fashion500 not only does not compete with the manufacturers’ sites, it complements them. For one thing, “Consumers like to shop both ways,” he says. For another, he sees fashion500 as the entry point for consumers. “People looking at the brands at fashion500 are the ones who don’t know the brands,” Bereck says. “Fashion500 is the funnel for young people building their way up the brand ladder.” That experience is similar to what happens in the real world. Most will start buying a certain manufacturers’ products in a department store, “then eventually they like to go to flagship store,” Bereck says. Finally, fashion500 includes a store locator button for manufacturers.

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