International Journal of Retail & Distribution Management

(1) a product innovation especially oriented to the reduction of brand number, from 27 of 2007 to 5 of 2010; (2) a supply chain innovation, oriented to re-design the whole SC (inbound, internal, and outbound) and the PD process in relation to the characteristics of each brand; and (3) an organizational innovation, aiming at realizing a coherent re-organization of the internal structure, roles, and responsibilities. Dynamic capability Description Vision and strategy (Markides, 1998) A successful innovation requires a clear balance between vision, strategy, and innovation, obtainable through the articulation of a common vision that should be the expression of the strategic direction Harnessing the competence base (Burgelman and Maidique, 1988) A successful innovation requires redirecting the resources where they are required, through an efficient and effective resource management, the adoption of a variety of funding channels, and the necessary adoption of e-business solutions Organizational intelligence (Glynn, 1996) A successful innovation requires the coherent use of ideas and resources with the purpose of reducing uncertainty and natural ambiguity of innovation. An intelligence activity – oriented to learn from both customers and competitors – is helpful Creativity and idea management (Lawson and Samson, 2001) A successful innovation requires the effective utilization of creative ideas inside the organization; for this reason, organizations should encourage creativity and new idea development through the acquisition of divergent thinking resources Structure and systems (Burgelman and Maidique, 1988) A successful innovation requires an optimal business structure in terms of organizational structure and reward systems Culture and climate (e.g. Saleh and Wang, 1993; Coyne, 1996) A successful innovation requires an appropriate and innovative culture and climate inside the organization. Phenomena as tolerance of ambiguity, empowerment of the employees, communication within both the company and the network, and dedicated time to creativity could be rewarding and required to assure a high level of innovation Management of technology (e.g. Bessant, 1994; Coombs, 1994) A successful innovation requires a coherent integration among business strategy, innovation strategy, and technology Table II. Dynamic capabilities Fashion-luxury supply chain innovation 949

The first change has been a product innovation, oriented to reduce the number of brands and subsequently revise the product positioning on the market. The company has reduced the number of brands from 27 of 2007 to 5 of 2010, aiming at assuring to the customer a clearer presentation of the company and at reducing the internal variety. The reduction of the number of brands has implied a strategic re-allocation of the brands along the different levels of luxury. Whereas in the past all of the five brands were treated as high luxury brands, the company decided to reclassify the five brands, by splitting them as high luxury (brand 1 and brand 2), accessible luxury (brand 4 and brand 5) and an intermediate situation that includes both high luxury (20 per cent of collection items) and accessible products (80 per cent of collection items) (brand 3); the grouping is consistent with the classification of Alle´re`s (1997) that grades luxury products in high luxury, aspirational luxury, and accessible luxury. The reduction of the number of brands has implied a reduction of the number of new products realized each year, thereby avoiding the waste of resources devoted to the seasonal collection development. The revision of the brands – and consequently of the product range on the market – has required a SCI, oriented to re-design the whole SC (inbound, internal, and outbound) and the PD process in relation to the characteristics of each brand. The next table recaps the main changes implemented inside the company for each process, describing for the different groups of brands both the as-is and the to-be situation (Table III). Finally, the company has been required to put in place also an organisational innovation, aiming at realizing a coherent re-organisation of the internal structure, roles, and responsibilities. New people has been introduced for new roles into the company (e.g. COO, Production planning director and internal consultant) yet other roles have been eliminated (e.g. production director); furthermore a modification of internal structures and roles has been performed, for example by increasing the relevance and the responsibilities of merchandising into the company. The three changes are strongly interdependent because the reduction of the number of brands assures also a more efficient management of the whole SC; moreover, the organisation change is purposeful for the effective implementation of the other two points. 5.3 The dynamic capabilities The interviews have been useful to identify also the roadmap followed by the company to introduce the changes mentioned above. Actually the managers have pointed out the contribution of dynamic capabilities, which have led to the successful implementation of the new model, according to the indications of Ulusoy (2003) and Teece (2007). The next table summarises the main enabling factors identified through the interviews (on the left) and shows the correspondence with the dynamic capabilities considered in the conceptual framework (on the right) (Table IV). The interviews have not highlighted the relevance of the capabilities “creativity and idea management” and “management of technology” in the instance analysed, not confirming the insights of the literature in this case. 6. Result discussion 6.1 The validation of the conceptual framework The application of the conceptual framework to the case study has explored the applicability of the conceptual framework to a real situation of fashion-luxury IJRDM 41,11/12 950

Process AS IS To be – high luxury brands To be – accessible luxury brands Make Internalization of production activities for all brands Outsourcing of few activities to small Italian laboratories Make-to-order Fac¸onnier (i.e. suppliers in charge of producing for the company without buying or owning the raw materials, handled by the company) Italian and European suppliers Small size suppliers Use of own plant for the highest products Make-to-order only for highest products Full outsourcing Suppliers located in different countries Large size suppliers Sales forecasts Source High number of suppliers Suppliers selected by the stylists according to the personal supply list of the pattern maker Only suppliers located in Europe Reduction of the number of suppliers The stylist could require exception from the supply base Information sharing with suppliers Raw materials suppliers located in the best countries Reduction of the number of suppliers Exceptions are forbidden Information sharing with suppliers Auctions for supplier selection The company does not buy raw materials directly Raw material suppliers located worldwide PD Total freedom to the stylists No product could be sold for more than one season The stylists could define the seasonal collection without communicating with other departments All the phases of the PD process are performed internally for all the brands Definition of common rules for the stylists No product could be sold for more than one season Communication with internal and outbound SC for the definition of the seasonal collection All the phases of the PD process are performed internally, except for the sample development and the prototyping in case of necessity Definition of common rules for the stylists Introduction of carry over products Communication with internal and outbound SC for the definition of the seasonal collection Only the concept development is realized internally; for brand 4 and 5 all the other activities are outsourced, for brand 3 the material selection and the preliminary specifications are given to the suppliers Deliver Strong use of multi-brand stores, concurrently to mono-brand ones Dedicated management of logistic activities for each brand Use of dedicated mono-brand stores Economies of scale for logistic activities Contribution of the retailers to PD and SC processes Use of dedicated mono-brand stores Use of department stores Economies of scale for logistic activities Contribution of the retailers to PD and SC processes Table III. SC restructuring Fashion-luxury supply chain innovation 951

industry. In particular, the conceptual framework appears general enough to gather the main drivers of innovation for the company (i.e. business domain and market domain) (Bello et al., 2004; Lin et al., 2010) as well as the main dynamic capabilities (e.g. vision and strategy; harnessing the competence base; organisational intelligence; structure and systems; culture and climate) (Lawson and Samson, 2001). Through these considerations we were able to confirm existing literature mentioning the link between innovation and dynamic capabilities (e.g. Eisenhardt and Martin, 2000; Lawson and Samson, 2001; Zahra and George, 2002; Salunke et al., 2011), thereby extending the concept to supply chain innovation as well. According to these insights, the following propositions have been formulated: P1. Innovation in fashion-luxury companies is driven by a combination of market, business, and external domains. P2. Given a certain configuration of innovation drivers, innovation in fashion-luxury companies is enabled by a coherent management of internal dynamic capabilities. Moreover, the case has also highlighted the effective relevance of the three main types of innovation included in the conceptual framework, consistently with the suggestions of Ulusoy (2003). In fact the company has concurrently introduced the three kinds of innovation (i.e. the reduction of the number of brands, the re-design of the SC, and the organizational innovation) in order to return competitive. The validation of the conceptual framework in a real case study allows us to bridge the gaps of the literature about the absence of a conceptual models for implementation of supply chain innovation, thereby identifying the main variables to take into account, specifically for fashion-luxury companies. Enabling factor Dynamic capability Revision of the product and brand strategy Vision and strategy Alignment between commercial and SC strategy Conservation of the company tradition inside the company, through the preservation of employees with several years of experience Harnessing the competence base Learning about customers in order to understand which are their needs and requirements in terms of products Organizational intelligence Attention to the reward systems: identification of a KPI system oriented to compensate internal employees Structure and systems Attention to “stretching” the goals for innovation along the whole organization Leadership oriented to communication Culture and climate Empowered employees: recruitment of new employees to introduce breakthrough ideas inside the innovation process Table IV. Dynamic capabilities inside the company IJRDM 41,11/12 952

6.2 The extension of the conceptual framework The application of the conceptual framework to a real fashion-luxury company led us to detail the conceptual framework, by overwhelming the insights provided by the existing literature. First of all, we were able to better specify the main features of SCI, because the case study addressed three paramount elements to assure a worthy SCI. By the way, the findings presented in the previous section highlight the relevance of all the processes of the SC, not just of PD or deliver as generally recognised in the literature (e.g. Cappetta et al., 2006; Kincade et al., 2007; Tyler et al., 2006). PD and deliver maintain a strategic importance in the company, but they are not sufficient anymore. Actually the company should restructure the whole SC using a coherent strategy, mainly focusing on make and source processes, as also suggested by Luzzini and Ronchi (2010). The source process in particular is assuming a crucial position in fashion-luxury companies, given the high contribution of the suppliers to the company success, in terms of raw materials, components, final products tailoring and innovative capabilities. This result is consistent with previous literature about SCM for luxury companies (Brun et al., 2008). According to this consideration, the first critical element to consider is that SC must be viewed as a “value chain”, i.e. all the supply chain processes as well as PD contribute in assuring the success of innovation. Moreover, the case study hinted that there is no one single best way to manage the SC, as also suggested by Brun and Castelli (2008). The results have demonstrated that a company could in fact adopt different SC strategies, not only for different products, for different positioning (luxury versus mass market), as suggested by previous studies in SCM literature (Brun and Castelli, 2008), but also in case of the same products with small differences in the positioning: the objective is to extract the maximum benefit from each brand. As a matter of fact, a considerably different subset of practices has been put in place for managing the high luxury respect to the accessible luxury products. Indeed, two completely different approaches have been identified, looking at all the processes analysed, by adding something to the existing literature. Consistently with this example, the second critical element to consider assuring the success of the innovation is the “segmented SC”. Then, empirical evidence has addressed the relevance of the suppliers and partners (e.g. retailers) in assuring the success of the company. In order to introduce product innovations, different policies with suppliers have been adopted; in particular, for accessible brands several activities (e.g. the whole production of the products, the selection of the raw material suppliers, the realisation of the PD activities after the concept) have been outsourced to a stable network of suppliers. This new approach has required the company to be able to orchestrate the activities across a plethora of actors. This result is consistent with previous literature about purchasing and supply management for luxury companies (Luzzini and Ronchi, 2010), as well as about literature that addresses in general the contributions of external partners (e.g. Wagner, 2010). The detailing of the concept of SCI, through the identification of main issues to consider for fashion-luxury companies, is an extension of the existing literature about SCI, that was mainly focus on a definition of the concept (e.g. Bello et al., 2004) rather than an explanation. According to this consideration, the third critical element to consider assuring the success of the innovation is the “extended SC”. According to this insight, the third proposition was formulated: Fashion-luxury supply chain innovation 953

P3. For fashion-luxury companies, SCI means considering SC with a value chain perspective, being able to cope with segmented SC and managing the SC in an extended way. 6.3 The linkages of the new variables of the conceptual framework The application of the conceptual framework to a real case has also provided insights about the linkages among the three types of innovation, for fashion-luxury companies, another issue not previously mentioned in existing literature. Indeed most of the literature about SCI has investigated the problem with a conceptual approach, without any application through empirical data. The company has in fact focused on product innovation as first point of its strategy, consistently with the insights of literature related to this industry (e.g. Cappetta et al., 2006): the changes in the brand and product strategy have been perceived indispensable to return competitive. This approach is coherent with the characteristics of the fashion-luxury industry, where the pressures towards the introduction of new products as well as the reduction of the time-to-market are key imperatives (Christopher et al., 2004). The decisions taken at the product level have been implemented thanks to a coherent and inevitable innovation at the SC level, by considering all of the three perspectives mentioned above, consistently with the indication of not industry specific literature (e.g. Pero et al., 2010). According to this insight, the fourth proposition was formulated: P4. For fashion-luxury companies, product innovation is predominant but should require a coherent SC, by considering SC as value chain, segmented SC, extended SC. Finally, the interviews have highlighted that the organizational change is fundamental to make operative the changes at the product and SC level; but they have to be realized just after the clear identification of the other two elements, given that the organization structure as well as the practices and the roles must be consistent with the innovation at the product and SC level, as suggested by Caniato et al. (2013). In this perspective, the case has highlighted that the three types of innovation are not static, indeed a dynamic cycle among them is observable, consistently with literature about dynamic capabilities and differently from what introduced in literature about SCI. For example, issues in the implementation of the new internal roles or of the new SC can require the revision of the product innovation, in terms of market positioning; moreover, the rejection of the internal roles of the new SC structure could require a partial revision of the SCI. The introduction of a dynamic view is something new in the existing literature, and potentially valuable for future research as well. According to these insights, the fifth proposition was formulated: P5. For fashion-luxury companies, organization innovation follows product innovation and SCI and can foster a dynamic cycle among the three types of innovations. The combination of all of these elements has let us to slightly revise the conceptual framework, according to the practical insights collected through the case study (see Figure 3). 7. Conclusions and future developments The theoretical starting point of this research was the lack of studies about SCI as well as about the linkage between SCI and dynamic capabilities, specifically in the IJRDM 41,11/12 954

fashion-luxury industry. Although the literature has already highlighted the link between innovation and dynamic capabilities (e.g. Salunke et al., 2011), the same link by considering SCI has been not investigated yet. Fashion-luxury industry has been considered an interesting area to analyse the relevance of innovation, due to the high level of volatility and the intrinsic speed of change. According to this consideration, we have used a thorough literature review about innovation and dynamic capabilities to develop our conceptual framework. Then, the framework has been applied to a preeminent Italian fashion-luxury company, to explore its applicability in contexts as well to refine it. The case has been helpful to obtain insights about the relationship among the different kinds of innovations and about the real relevance of dynamic capabilities to enable purposeful innovations, thereby raising new concepts respect to literature insights. We think to have obtained valuable results for both academics and practitioners. For the former, this study starts bridging the literature gaps about SCI, identifying the main features of SCI and giving insights about the importance of having dynamic capabilities to enhance it. Besides, the paper is one of the first studies based on empirical analysis in this area and we were able to start developing some propositions, which might be confirmed or rejected in further research. Furthermore, the paper is one of the first attempts aiming at putting dynamic capabilities into practice inside innovation literature and aiming at addressing the relevance of dynamic capabilities not only for innovation in general but also for supply chain innovation. For the latter, the paper provides suggestions about the key elements to take into account by implementing SCI, thereby getting useful insights for managers that are coping with these issues; moreover, the framework hints suggestions about the path of implementation of innovations, at the SC level but also at the product and Figure 3. The revised conceptual framework Fashion-luxury supply chain innovation 955

organisational ones. Finally, the paper illustrates some examples of innovations for fashion-luxury companies, in terms of supply chain design and product configuration: some possible SCI, aligned with the features of the industry under investigation, might be the design of the supply and production network, the identification of multiple supply chains inside the company (according to the main features of the specific either brand or product), a deeper support and collaboration with the retail network, etc. As every work, this study presents some limitations. The strongest limitation as well as value of the present study concerns the adoption of one single case study, which allows us just to formulate propositions and not to validate or reject them. The adoption of a single case study will give to us the opportunity of developing further research to either increase the sample dimension or develop an action research methodology for validating the framework in depth. Furthermore, the model could be applied in companies with different contingent variables (e.g. product positioning or size), which might potentially be meaningful variables in explaining the adoption of innovation. Finally, the SCI is considered under the viewpoints of supply chain business processes and supply chain network structure, without taking into account the supply chain technology perspective, as suggested by Arlbjorn et al. (2011): this additional element could be included in the model as well in the next future. References Aktuglu, Z. (2001), “A detailed study calculating the cost of preparing a collection”, Journal of Fashion Marketing and Management, Vol. 5 No. 2, pp. 145-153. Arlbjorn, J.S., de Haas, H. and Munksgaard, K.B. (2011), “Exploring supply chain innovation”, Logistics Research, Vol. 3 No. 1, pp. 3-18. Atwal, G. and Williams, A. (2009), “Luxury brand marketing – the experience is everything!”, Journal of Brand Management, Vol. 16 Nos 5/6, pp. 338-346. Baregheh, A., Rowley, J. and Sambrook, S. (2009), “Towards a multidisciplinary definition of innovation”, Management Decision, Vol. 47 No. 8, pp. 1323-1333. Bartlett, P.A., Julien, D.M. and Baines, T.S. (2007), “Improving supply chain performance through improved visibility”, The International Journal of Logistics Management, Vol. 18 No. 2, pp. 294-313. Bello, D., Ritu Lohtia, R. and Sangtani, V. (2004), “An institutional analysis of supply chain innovations in global marketing channels”, Industrial Marketing Management, Vol. 33 No. 1, pp. 57-64. Benbasat, I., Goldstein, D.K. and Mead, M. (1987), “The case research strategy in studies of information systems”, MIS Quarterly, Vol. 11 No. 3, pp. 368-386. Berghman, L., Matthyssens, P., Streukens, S. and Vandenbempt, K. (2013), “Deliberate learning mechanisms for stimulating strategic innovation capacity”, Long Range Planning, Vol. 46 Nos 1-2, pp. 39-71. Bessant, J. (1994), “Innovation and manufacturing strategy”, in Dodgson, M. and Rothwell, R. (Eds), The Handbook of Industrial Innovation, Edward Elgar, Cheltenham. Brun, A., Caniato, F., Caridi, M., Castelli, C., Miragliotta, G., Ronchi, S., Sianesi, A. and Spina, G. (2008), “Logistics and supply chain management in luxury fashion retail: an empirical investigation of Italian firms”, International Journal of Production Economics, Vol. 114 No. 2, pp. 554-570. IJRDM 41,11/12 956

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Zahra, S. and George, G. (2002), “The net-enabled business innovation cycle and the evolution of dynamic capabilities”, Information Systems Research, Vol. 13 No. 2, pp. 147-150. Zhu, Q., Sarkis, J. and Lai, K.-H. (2011), “Green supply chain management innovation diffusion and its relationship to organizational improvement: an ecological modernization perspective”, Journal of Engineering and Technology Management, Vol. 29 No. 1, pp. 168-185. Appendix About the authors Federico Caniato earned a Master and a PhD degree in Management, Economics and Industrial Engineering from Politecnico di Milano, Italy, and he currently works there as Associate Professor. His research interests are in the fields of supply chain management, purchasing management, and operations strategy. He published several papers in international journals and conferences. He coordinates the IMSS – International Manufacturing Strategy Survey research network and is one of the founders of the IPS – International Purchasing Survey. Maria Caridi is Associate Professor at the Department of Management, Economics and Industrial Engineering of Politecnico di Milano, Italy. She received her PhD in Industrial Plants and Production Systems from the University of Parma. Her main research interests are in the fields of operations and supply chain management. She is author of more than 80 publications about these topics. Antonella Moretto is a PhD candidate at Politecnico di Milano. She graduated in Management, Economics and Industrial Engineering at the Politecnico di Milano discussing a thesis about the development of a value assessment model to quantify the e-procurement benefits. Her research interests are in the fields of supply chain management and supply chain collaboration for the internationalisation in emerging markets. Antonella Moretto is the corresponding author and can be contacted at: [email protected] Process Interviewee role Type of interview Firm Internal consultant Face-to-face Organization director Face-to-face IT Director Face-to-face Change manager Face-to-face Internal SC COO Face-to-face Production director (during the change process) Face-to-face Purchasing manager Face-to-face Production planning director Face-to-face Outbound SC Sales and distribution director Face-to-face Retail manager Face-to-face Wholesale manager Italy Face-to-face Wholesale manager foreign markets Phone Merchandiser Phone Table AI. Detail of the conducted interviews IJRDM 41,11/12 960 To purchase reprints of this article please e-mail: [email protected] Or visit our web site for further details: www.emeraldinsight.com/reprints

Hong Kong, a gateway for mainland China? Examining the impact of luxury fashion retailers’ ownership structures on expansion strategies Huifeng Bai Liverpool Business School, Liverpool John Moores University, Liverpool, UK Julie McColl Department of Business Management, Glasgow Caledonian University, Glasgow, UK, and Christopher Moore Glasgow Caledonian University, Glasgow, UK Abstract Purpose – The purpose of this paper is to examine luxury fashion retailers’ ownership structures at their internationalisation strategies in Hong Kong and mainland China. Design/methodology/approach – This study adopts a pragmatic mixed methods approach, comprising a quantitative mail survey and ten qualitative executive interviews. Findings – This study found that group-owned luxury fashion retailers usually encounter fewer difficulties when internationalising into mainland China than their individually owned counterparts because of parenting advantage, particularly functional and service support. However, the success of some individually owned brands has demonstrated that branding strategies, management culture, international experience, financial power and local partners’ know-how are as important as parent company support and although the luxury market in mainland China has become developed, many foreign luxury fashion retailers still enter Hong Kong prior to mainland China. However, in relation to post-entry management and expansion strategies, the importance of Hong Kong has weakened because the emergence of capital cities, the growth of the middle class and fewer political restrictions. Research limitations/implications – The research findings are generated in the context of Hong Kong and mainland China, they are therefore limited in explaining luxury fashion retailers’ internationalisation strategies in other markets. Despite the challenge of the sample size, 63 out of 130 survey respondents (48.5 per cent response rate) and ten interview participants are felt to be sufficient to represent the market. Practical implications – This research can be used by practitioners when assessing appropriate entry strategies to the Chinese luxury fashion market. Originality/value – This is a pioneering study of the Chinese luxury market from the perspective of international retail strategies. It differentiates between Greater China (including Hong Kong, Macau and Taiwan) and mainland China, and examines the impact of luxury fashion retailers’ ownership structures on their internationalisation strategies. Keywords Hong Kong, Internationalisation strategies, Luxury brand management, Mainland China, Parenting advantage, Post-entry expansions Paper type Research paper 1. Introduction The landscape of the international luxury fashion market has changed dramatically in recent years because of the rapid growth of emerging markets, particularly China (Shukla et al., 2015). Compared with the saturation and stagnation of many traditional key markets, such as Japan, Northern America and Western Europe, Greater China and particularly mainland China, has been one of the few luxury fashion markets to have International Journal of Retail & Distribution Management Vol. 46 No. 9, 2018 pp. 850-869 © Emerald Publishing Limited 0959-0552 DOI 10.1108/IJRDM-03-2018-0048 Received 8 March 2018 Revised 29 March 2018 27 June 2018 Accepted 7 August 2018 The current issue and full text archive of this journal is available on Emerald Insight at: www.emeraldinsight.com/0959-0552.htm 850 IJRDM 46,9

experienced significant growth during the global economic recession (Zhan and He, 2012). Indeed, the consumption of luxury fashion products in mainland China increased sharply until 2014 (Bai, 2016). Although there has been a slowdown since 2015, the majority of foreign luxury fashion retailers remain optimistic, and believe it is a transition period, evidenced by the retailers’ continuous expansion into mainland China and their increasingly sophisticated consumer base (He and Wang, 2017). In terms of ownership structure, luxury fashion retailers can be classified as being either owned by luxury conglomerates (as parenting companies) or individually owned (Kapferer et al., 2017). In the contemporary international luxury fashion market, the effect of ownership structure is increasingly important, because increasingly luxury fashion brands are being acquired by luxury conglomerates, for example, LVMH, Kering Group (previously known as PPR Gucci Group), Richemont Group, Prada Group, Tod’s Group, PVH Group and emerging Chinese luxury fashion conglomerates such as Shandong Ruyi Group (Donze, 2017). These luxury conglomerates support their subsidiaries with various resources, and provide them with a high degree of autonomy in decision making (Moore and Birtwistle, 2005). Nevertheless, the rapid growth of luxury conglomerates has not limited the strong performance of individually owned luxury fashion retailers because of their growing international experience and financial capacity, especially in the context of international markets, for instance, Hermes, Burberry and Giorgio Armani (Chevalier and Gutsatz, 2012). Although luxury fashion retailers have achieved enormous success in mainland China, to date, only a limited number of studies focus on the Chinese luxury fashion market, from the perspective of international retailing (Liu et al., 2016). Most prior empirical studies of luxury brands in mainland China have focused on consumer behaviour (Lu, 2011) and brand management (Bonetti et al., 2016). “Daigou” (also known as foreign procurement services) and the overseas purchase of luxury fashion products have also attracted academic research interest because of the fast growth of new technology and increasing level of overseas travel (Liu, 2014). On the other hand, in the context of mainland China, the majority of studies in international retailing have focused on the experience of generic retailers, particularly large-scale multinational supermarket chains rather than luxury fashion retailers (Siebers, 2011). Most current studies and reports do not differentiate between Greater China and mainland China, for instance, Bain & Co (2013) and McKinsey & Co (2012) claimed that China (actually Greater China including Hong Kong, Macau and Taiwan) has surpassed Japan as the second largest luxury market in the world in 2011. Lu (2012) argued that foreign luxury fashion retailers should regard Hong Kong as the springboard of mainland China, and individually owned brands should enter into Hong Kong prior to mainland China because of the lack of parenting advantage. Moreover, there are significant differences exist between Greater China (including Hong Kong, Macau and Taiwan) and Mainland China in terms of policy, economy, culture, society and retail market infrastructure (Bai et al., 2017). Therefore, in view of the gap in the current literature, the aim of this research is to evaluate the importance of Hong Kong as a springboard for foreign luxury fashion retailers’ entering mainland China and to examine the impact of parenting advantage on both entry and operational strategies. 2. Theoretical frameworks 2.1 Defining luxury fashion retailers The philosophy of “Luxury” that indicates extravagant living and the indulgence of sense, regardless of cost, was originally adopted by ancient aristocrats to build up a timeless, exclusive image and to create and recreate hierarchies in a society by using methods such as Sumptuary Laws, which were set by ancient monarchs to limit the consumption of the commonalty (Kapferer and Bastien, 2012). Despite luxury strategies existing many business sectors, scholars have not yet developed a universally accepted definition of the “Luxury Brand”, which identifies the value and value-creation processes of luxury, and differentiates the luxury brand from other 851 Luxury fashion retailers’ ownership structures

types of brand (Rigaud-Lacresse and Pini, 2017). Chevalier and Mazzalovo (2012) argued that the luxury brand is difficult to define because of subjectivity, cultural and social influences, and the dynamic dimensions involved. For instance, a luxury brand would no longer be perceived as luxury if there were changes to crucial parameters, such as dilution of brand image, over stretching of the brand and/or product, or changes in place of production (Kapferer et al., 2017). Because of its global success, researchers have paid considerable attention to luxury fashion retailing from the early 1990s onwards, particularly from a marketing perspective (Shukla et al., 2016). For example, the nature and definitions of luxury brands (Kapferer and Valette-Florence, 2016), brand extension strategies (Dall’ Olmo Riley et al., 2015), comparisons between traditional luxury brands and masstige luxury brands (Parguel et al., 2016), consumer behaviour (Shukla et al., 2015), the threat of counterfeiting to luxury brand image (Chen et al., 2015), e-marketing (Okonkwo, 2010) and marketing strategies in emerging markets (Liu et al., 2016). Fionda and Moore (2009) drew on previous studies to conduct an empirical study of multiple luxury fashion retailers, identifying nine critical factors of luxury fashion brands: heritage, exclusivity, premium price, design signature, product integrity, marketing communication, clear brand identity, culture, environment and service. They argued that these components are co-dependent and interrelated, and therefore must be consistently managed when creating and maintaining a luxury fashion brand’s market position. Moreover, this study adopts an international retailing perspective. Luxury fashion retailers are therefore defined as those who: […] distribute clothing, accessories and other lifestyle products which are: exclusively designed and/or manufactured by/or for the retailer; exclusively branded with a recognised insignia, design handwriting or some other identifying device; perceived to be of a superior design, quality and craftsmanship; priced significantly higher than the market norm; sold within prestigious retail settings (Moore and Doherty, 2007, p. 278). In terms of ownership structure, luxury fashion retailers can be classified as either group-owned subsidiaries or individual brands (Rigaud-Lacresse and Pini, 2017). The following section discusses the ownership structure of luxury fashion retailers. 2.2 Ownership structure of luxury fashion retailers From the 1970s, fast growing luxury conglomerates have been playing an increasingly important role in the international luxury fashion market (Seo et al., 2015). In addition to a number of small- and/or medium-sized luxury fashion groups, there are four dominant luxury conglomerates worldwide, LVMH (Moët Hennessy • Louis Vuitton), Kering Group, Richemont Group and Prada Group (Donze, 2017). Each of them comprises a multinational brand portfolio and has a different focused market, for instance, luxury ready-to-wear fashion from the Kering Group, luxury leather accessories from the Prada Group, and high-end jewellery and watches from the Richemont Group (Chevalier and Gutsatz, 2012). However, these companies are constantly expanding into new territory, for example, the Richemnont Group’s expansion into fashion through the acquisition of the British brand Alfred Dunhill and e-commerce expansion through the acquisition of the Yoox Net-a-Porter Group (Business of Fashion, 2018). As shown in Table I, one of the most important differences between the two types of luxury fashion retailer is parenting advantage. Through parenting advantage, companies support their subsidiaries with various resources, creating economies of scale, knowledge transfer and therefore greater efficiencies within the subsidiary company (Goold et al., 1998). Building on the work of Goold et al. (1994), Moore and Birtwistle (2005) identified four parenting advantage approaches for luxury conglomerates to adopt in order to create value for subsidiaries: • stand-alone influence – conglomerates influence the strategies and performance of subsidiaries by respecting each as a stand-alone profit unit in its own right; 852 IJRDM 46,9

• linkage influence – conglomerates create internal synergies in terms of intra-group supply and resource utilisation; • functional and services influence – conglomerates centrally support subsidiaries in the areas of communication, image, finance and infrastructure facilities; and • corporate development activities – conglomerates can change the number of businesses in its portfolio by buying or selling own brands. Therefore, group-owned luxury fashion retailers can benefit from parenting advantage in several ways. First, luxury conglomerates support subsidiaries with various resources, such as finance, information, management talent, economies of scale in management and operation, and standardised supply chain, a benefit which is particularly important for emerging brands (Rigaud-Lacresse and Pini, 2017). Therefore, individually owned counterparts are more likely to seek local partnerships because of the lack of financial capacity and/or international experiences. Second, group-owned luxury fashion retailers can achieve the economies of scale by reducing costs and perceived risk through the parenting companies’ standardised management and operational processes, which may have a significant economic impact in international markets (Hutchinson and Quinn, 2011). This is one of the most significant disadvantages of individual ownership. Third, subsidiary companies can also benefit from intra-group supply and resource utilisation, for instance, Gucci and Sergio Rossi supply leather accessories and footwear for (Yves) Saint Laurent (Moore and Birtwistle, 2005). Finally, conglomerates create product and/or brand portfolios through multiple brand strategies, in order to avoid diluting the exclusive brand image of a single brand, due to over extension, which is another significant disadvantage of individual ownership (Ijaouane and Kapferer, 2012). Nevertheless, because the portfolio of products that they offer is presented under multiple brands, the conglomerates cannot always achieve intra-brand synergies, and intra-conflict is therefore highly likely (Magnoni and Roux, 2012). When compared with individually owned counterparts, the autonomy of subsidiaries is relatively restricted. They are controlled by the need to generate profit for their parent groups and by the pressure from stock markets/investors, for example, Helmet Lang and Jil Sander were sold because they were not able to generate satisfactory profits for Prada Group (Moore and Doyle, 2010). Furthermore, the value of subsidiaries risks being destroyed because of divergence from their core products in order to follow the strategies of the conglomerates (Ijaouane and Kapferer, 2012). Consequently, inevitable risks are associated with Advantages Disadvantages Group-owned subsidiaries Benefit from parenting advantages Stand-alone influence Linkage influence Functional and services influences Corporate development activities Difficulty to achieve internal intra-brand synergies Relatively low degree of autonomy Pressure to generate profits for stakeholders Danger to dilute brand image by divergence from core products Individual brands Relatively high degree of autonomy in brand management and business practices Lack of economies of scales More likely to seek local partnership Danger to dilute brand image by over extension of products/sub-brands Strong financial capacity and solid international experiences required during international (and post-entry) expansions Table I. Advantages and disadvantages of two types of ownership structures 853 Luxury fashion retailers’ ownership structures

group-owned ownership, and group-owned ownership is not absolutely better than individual ownership (Kapferer et al., 2017). The following section will develop the research propositions of this study based upon the effect of luxury fashion retailers’ ownership structure towards their international expansion strategies in mainland China. 2.3 The development of research proportions Because of geographic location, a high degree of urbanisation, relaxed foreign investment policies, cultural proximity, a developed economy and an advanced market infrastructure, Hong Kong has long been regarded as one of the most important international markets for multinational companies’ internationalisation strategies, particularly financial service providers and fashion retailers (Tse and Wright, 2014). According to prior empirical studies, as the gateway for mainland China, Hong Kong is important for luxury fashion retailers’ internationalisation strategies in mainland China in six aspects. First, Hong Kong has been the most important cross-border shopping destination for the Chinese customers for many years (Zhang and Wang, 2010). As well as geographical proximity, lower prices and a larger choice of products and brands, Chinese customers’ cross-border shopping in Hong Kong is also driven by “Mianzi” and the consumption of status, particularly prior to 1997 when travelling to Hong Kong was not as common as it is today (Liu, 2014). The abolition of visa restrictions after July 1997, when the Chinese Government regained Hong Kong, further accelerated the scale of Chinese mainland customers’ tourism and cross-border shopping there (Lu, 2011). Chinese mainland consumers’ consumption of electronic devices, baby food and luxury fashion products is still strong even though there is still conflict between Hong Kong and China because of legal restrictions imposed by China (Zeng et al., 2017). Therefore, the first research proposition is: P1. Hong Kong is a significant destination for Chinese customers’ cross-border shopping for luxury products. Second, the retail market infrastructure in Hong Kong is as developed as that of western markets (Lu, 2012). As well as luxury malls, the department stores are well established, particularly high-end department stores such as Lane Crawford and Harvey Nichols. They provide opportunities for luxury brands, particularly smaller luxury brands, to test the market using relatively low cost methods while they are at the early stages of internationalisation, methods such as exporting, concessions, wholesaling and franchising (Bai et al., 2017). Moreover, prior to entering to the Chinese mainland market, most foreign luxury fashion retailers had expanded their operations into Hong Kong as early as the 1970s and 1980s, when foreign investment was not yet allowed in mainland China (Fetscherin et al., 2010). Thereafter, the experience gained from Hong Kong encouraged luxury fashion retailers to expand into the Chinese market because their past involvement had helped them to understand Chinese consumers (Nordman and Tolstoy, 2014). Therefore, the second research proposition is: P2. The experience gained from Hong Kong helps to build understanding of mainland consumers. Third, international sourcing is one of the most important dimensions of retailer internationalisation (Siebers, 2011). As the second largest export market for textile and clothing in the world in 2001, Hong Kong is vital for the international sourcing of products and raw materials for many fashion retailers and luxury fashion retailers (Bai, 2016). Moore and Burt (2007) acknowledged that many international fashion brands have established buying offices or buying networks in Hong Kong in order to source products 854 IJRDM 46,9

directly or indirectly, not only for the Chinese market but also for global markets (Chevalier and Lu, 2009). Therefore, the third research proposition is: P3. Hong Kong is an important intermediate market for international sourcing. Fourth, Chadha and Husband (2007) suggested that Hong Kong can be regarded as a bridge in terms of culture, connecting the western world to China and the eastern world, because of its history as a colony of the UK. From the perspective of the theory of psychic distance, companies are willing to internationalise into the markets which are psychically close to their home country prior to psychically distant markets (Ojala, 2015). Although empirical studies argued that luxury fashion retailers encounter fewer difficulties in terms of culture, it is evidenced that many luxury fashion retailers initially expand into the markets which are either psychically and/or geographically close markets (Bai et al., 2017). Therefore, the fourth research proposition is: P4. Hong Kong is a cultural connection between luxury brands and mainland China. Fifth, in order to observe the “One Country, Two Systems” policy designed by the Chinese Government when in the process of regaining the territory, the Chinese Government did not interfere in the politics of Hong Kong or change its favourable taxation system or investment benefits after regaining Hong Kong in 1997 (Chevalier and Lu, 2009). Consequently, the relaxed foreign investment policies encouraged foreign fashion retailers and luxury fashion retailers to enter into Hong Kong prior to entering mainland China, giving them the opportunity to establish subsidiaries or dispatched senior management to the region at an early stage (Lu, 2012). These Hong Kong-based subsidiaries and/or senior management do not only manage the businesses in Hong Kong but also the operations and strategies in mainland China (Liu et al., 2016). Therefore, the fifth research proposition is: P5. Hong Kong is important for luxury fashion retailers’ internationalisation strategies in mainland China. Finally, in order to reduce the risks associated with direct entry into the Chinese mainland market, Lu (2012) suggested that luxury brands (especially emerging small-scale luxury fashion retailers who do not have strong international experience and financial capacity) should seek local partnerships based in Hong Kong. These reputable local partners, such as Bluebell, Dickson Concept and the Trinity Group (previously named Li & Feng Group), are professional and experienced because they have successfully franchised many foreign luxury brands in Hong Kong and mainland China. They are therefore capable of providing in-depth local knowledge and operational know-how, and searching for appropriate local partners in the Chinese mainland market (Chevalier and Lu, 2009). Therefore, the sixth research proposition is: P6. Hong Kong-based local partners help to reduce the risk involved with direct control in mainland China. The next section will discuss the details of research design according to the above six research propositions. 3. Methodology The research philosophy adopted by this study is pragmatism, as it advocates that there is no pre-determined theory or framework to shape knowledge and understanding in the social world (Creswell, 2014). Pragmatic researchers look at the “what” and “how” in research, and believe in both the external world independent of the mind and that lodged in the mind 855 Luxury fashion retailers’ ownership structures

(Silverman, 2015). Therefore, the researcher is free to choose research methods considered most appropriate to understanding the questions. This study employed a two-stage mixed methods research approach, which is the most appropriate way to focus on research questions and to reveal rich details that cannot be achieved through either a quantitative research or a qualitative study alone (Plano Clark and Ivankova, 2015). Creswell (2014) suggested that researchers need to consider timing, weighting, mixing and theorising when adopting a mixed methods approach. In this study, quantitative research in the form of a mail survey from a macro perspective was carried out first, achieving a comprehensive understanding of attitudes towards the importance of Hong Kong as a gateway for mainland China for different types of luxury fashion retailers. Because this study aims to examine luxury fashion retailers’ ownership structures and the impact of parenting advantage in their internationalisation strategies, priority was given to qualitative research and qualitative data. Then, the data collected from stage 1 were used to identify (connecting) the research questions and the participants for qualitative data collection in stage 2. Both quantitative and qualitative data collected in stage 1 were integrated with the qualitative data collected in stage 2 (integrating). Finally, there was no single, explicit theoretical perspective guiding the entire research design; however, the theory of parenting advantage identified in the literature review (Goold et al., 1994; Moore and Birtwistle, 2005) was used to underpin the research. The first research stage was conducted through a quantitative mail survey with a selfcompletion postal questionnaire (Appendix 1). Because this study’s research topic has not been addressed previously and no database of luxury fashion retailers with a presence in the Chinese market has been established to date, the authors had to develop the database. There were two criteria for the target retailers: originating from foreign countries, and having operations in both Hong Kong and mainland China for at least two years, which because of their experience, would allow them to provide valid information. Based upon such criteria, the database was developed from three major sources. First, lists of members of reputable luxury committees were employed, including Comite Colbert (France), Fondazione Altagamma (Italy), the Walpole and the British Council of Fashion (UK) and the Council of Fashion Designers of America (USA). Second, as well as directories of the top ten luxury malls in mainland China, the directory of Peninsula Hotel Beijing was employed, since the hotel is widely regarded as the most popular location for many luxury fashion retailers’ first stores in mainland China (Chevalier and Lu, 2009). Third, marketing reports from established professional organisations were evaluated, including Bain & Co (2013), McKinsey & Co (2012), Mintel (2013) and KPMG (2013). Thereafter, 130 foreign luxury fashion retailers were identified and selected for the sample. The questionnaire was designed by using a five-point Likert scale with space for additional comments, and the length was limited to two pages of A4 paper. Questionnaires were sent to the 130 target retailers’ head offices (within home countries) and subsidiaries, regional office and/or local partners (in Hong Kong, Beijing and Shanghai). In order to encourage the response rate, the questionnaire was sent with a covering letter which explained the purpose of the survey and assured respondents of their confidentiality and anonymity. In order to obtain greater depth of understanding about participants attitudes towards Hong Kong as a gateway for mainland China, because of the different ownership structures, and in particular parenting advantage, the second research stage employed qualitative research using executive interviews. The ten interviewees were those who had shown willingness to participate during the mail survey. In order to fulfil confidentiality agreements, all participating retailers’ and interviewees’ names were coded. All interviews lasted between 45 min and 1 h. The interview questions (Appendix 2) were sent to all 856 IJRDM 46,9

interviewees prior to the interviews, so that they could prepare in advance. A profile of the participating interviewees is provided in Table II. The interviewees outlined above were senior executives who are able to supply the necessary information on decision making about strategic direction, policy making and strategic implementation. The participating retailers were established, operating stores in Hong Kong and mainland China, thus having sufficiency of strategic and operational experience. The quantitative data were analysed through independent samples t-tests in SPSS 22 in order to compare two kinds of respondents in terms of ownership structures. Subsequently, the qualitative data were analysed by thematic analysis in NVIVO 10. NVIVO 10 allowed for the development of codes and references that were retained in an index system, so that the data could be carefully identified and explored. The findings will be presented in the following section. 4. Findings and discussions 4.1 General information of the survey respondents As discussed previously, in terms of ownership structure, luxury fashion retailers can be classified as either individually owned brands or group-owned subsidiaries. In this research, Table III shows that 34 out of 72 surveyed individually owned luxury fashion retailers Country of origin Ownership structure Retail format Interviewee’s position Location Entry time (Hong Kong) Entry time (mainland China) A UK Independent Design house Managing director London 1987 1997 B France Group owned Design house Vice president London 1986 1992 C US Group owned Design house Executive vice president in Asia Pacific London 1992 1997 D Spain Group owned Design house Regional retail manager Hong Kong 1998 2001 E Italy Group owned Design house President in China Shanghai 1998 2007 F US Independent Leather accessories Regional manager in China Beijing 1996 2000 G Italy Independent Leather accessories General manager in greater China Beijing 1992 1998 H France Independent Design house Managing director in Asia Pacific Hong Kong 1992 1996 I Germany Group owned Leather accessories Managing director in Asia Pacific Shanghai 1989 1996 J Italy Independent Design house Retail operation director Beijing 1991 1996 Table II. Profile of executive interviews Ownership structure Number within overall population Number of respondent Response rate (%) Individually owned (I) 72 34 47.2 Group owned (G) 58 29 50.0 Total 130 63 48.5 Table III. Profile of responding luxury fashion retailers by ownership structure 857 Luxury fashion retailers’ ownership structures

replied to the survey, with a response rate of 47.2 per cent. In total, 29 of 58 surveyed group-owned subsidiaries returned valid feedback, with a response rate of 50.0 per cent. In total, 63 out of 130 target luxury fashion retailers replied to the questionnaire survey and provided valid feedback, with a total response rate of 48.5 per cent. Of the 63 survey respondents, 60 luxury fashion retailers (95.2 per cent) had entered into Hong Kong before entering mainland China. Only three survey respondents (4.8 per cent) had entered into mainland China at the same time as entering into Hong Kong, and all three are group-owned subsidiaries. Therefore, it would appear that the majority of foreign luxury fashion retailers make the decision to internationalise into Hong Kong prior to mainland China (Lu, 2012; Liu et al., 2016). The next section will examine the findings of the six research propositions through comparing two groups of respondents by their ownership structure. 4.2 The importance of Hong Kong as a gateway to mainland China by ownership structure Figure 1 demonstrates the important advantages for luxury fashion retailers’ using Hong Kong as a springboard when internationalising into mainland China. Based upon the six research propositions, the descriptive statistics data in Table IV (first six columns) indicate the respondents’ attitude towards the importance of Hong Kong as a gateway for mainland China from a macro perspective. In addition, an independent samples t-test was conducted in order to compare the importance of Hong Kong to luxury fashion retailers according to their ownership structure. As discussed previously, there are no pre-determined assumptions that presume group-owned ownership with parent advantage is more effective than individual ownership. The statistically significant differences shown in Table IV (last three columns) were designed as two-tailed rather than one-tailed. Four statistically significant differences between the two groups of respondents have been identified. First, customers’ cross-border shopping activities in geographically proximate markets are one of the most significant dimensions of retailer internationalisation Hong Kong Local partnerships Managerial strategies in a mainland Chinaa/b Experience gained-Landing market for mainland Chinaa/b An important intermediate market Cultural connections-reducing psychic distanceb Chinese mainland customers’ cross-border shopping hubb An important overseas market in international business Notes: a Means this factor has been reduced by the growth of the Chinese mainland market; bmeans the importance is different between two kinds of luxury fashion retailers by their ownership structure Importance in a global context -------------- Importance for China only Figure 1. The importance of Hong Kong as a gateway for mainland China 858 IJRDM 46,9

(Zentes et al., 2016). Hong Kong has long been regarded as the most important market for Chinese customers’ cross-border shopping with respect to luxury fashion goods and baby food, particularly after 1997 when the immigration policies between Hong Kong and mainland China were relaxed (Li and Hu, 2011). According to Table IV, over 95 per cent of the survey respondents regarded Hong Kong as the most important destination for Chinese customers’ cross-border shopping for luxury fashion products, and the mean value was as high at 4.24. Nevertheless, Table IV shows that the first statistically significant difference is related to the most popular destination for Chinese consumers’ cross-border shopping, in the scores for I (mean ¼ 4.28, SD ¼ 0.649) and G (mean ¼ 4.21, SD ¼ 1.122; t(61) ¼ −0.296, p ¼ 0.05, two-tailed). The magnitude of the difference in the means (mean difference ¼ 0.07, 95% Cl: lower −0.543 to upper 0.403) was very small (0.001). According to the mean difference and the findings from the second research stage, it is known that the importance of Hong Kong as the most important cross-border shopping market is slightly more significant for individually owned brands than their group-owned counterparts because of the lack of parenting advantage. For instance, participant retailer H (an individually owned French design house), who entered into mainland China in 1996, stressed the importance of Hong Kong as the most important cross-border shopping market for Chinese tourists: Chinese clients’ consumption in Hong Kong is extremely important for us. We can build customers’ profiles according to their consumption records and provide better services in their home cities […] More importantly, we can identify the potential market in mainland China and bring our store there. On the other hand, participant retailer E (a group-owned Italian design house), who entered into mainland China in 2007, regarded mainland China as a separate market because they were supported by their parent group to expand as a stand-alone brand. The interviewee explained: We pay more attention to Chinese customers’ home cities rather than tourism hotspots […] Our parent company regards our management and expansion strategy as a stand-alone brand, I (N ¼ 34) G (N ¼ 29) The importance of Hong Kong 1 (%) 2 (%) 3 (%) 4 (%) 5 (%) Mean Mean SD Mean SD Significance (two-tailed) Significant cross-border shopping destination 3.2 1.6 9.5 39.7 46.0 4.24 4.28* 0.649 4.21 1.122 0.05* The experience helps to understand the Chinese customers 6.3 12.7 23.8 44.4 12.7 3.44 3.55* 0.827 3.35 1.252 0.022* Important intermediate market for international sourcing 69.8 20.6 9.5 – – 1.40 1.35 0.597 1.45* 0.736 0.178 Cultural connection between luxury fashion retailers and mainland China 7.9 12.7 17.5 44.4 17.5 3.51 3.59* 0.867 3.44 1.375 0.006* Strategically important for luxury fashion retailers’ internationalisation in mainland China 4.8 9.5 38.1 25.4 22.2 3.51 3.41 1.258 3.62* 0.862 0.032* Local partners help to reduce the risk involved with direct control in China 58.7 7.9 7.9 19.0 6.3 2.06 2.15* 1.438 1.97 1.426 0.545 Table IV. The importance of Hong Kong as a gateway of mainland China by respondents’ ownership structure 859 Luxury fashion retailers’ ownership structures

and supported us a lot in finance, management talent, and supply chain […] It is relatively easier to gain a good (store) location, because we usually compete (for good store location) as a brand portfolio (within the same group). Second, because of the importance of Hong Kong as the most significant market for mainland Chinese customers’ cross-border luxury goods shopping, it is clear that the experience gained from Hong Kong is vital to understanding Chinese customers, who are largely different from their counterparts in the traditional developed markets in terms of cultural influence, consumer behaviour and demographic factors such as gender and age (Chen et al., 2015). This was confirmed in the results where 81 per cent of the respondents believe that the experience gained from Hong Kong had helped them to understand Chinese customers and encouraged their internationalisation into the Chinese mainland market (mean ¼ 3.44). As shown in Table IV, a second significant difference was found in relation to the experience gained from Hong Kong and the understanding of Chinese customers, in the scores for I (mean ¼ 3.55, SD ¼ 0.827) and G (mean ¼ 3.35, SD ¼ 1.252; t(61)¼ −0.729, p¼ 0.022, two-tailed). The magnitude of the difference in the means (mean difference ¼ 0.2, 95% Cl: lower −0.431 to upper 0.241) was moderate (0.004). The importance of experience gained from Hong Kong is more significant for individually owned brands than their group-owned counterparts because of the lack of parenting advantage. For instance, participant retailer F (an individually owned American leather accessories specialist), which entered into mainland China in 2000, explained the importance of the experience gained from Hong Kong: The operation in Hong Kong was really helpful for our preparation to expand into mainland China […] We have a very good customer relationship management system which records the customers’ purchases in any store […] so that we can do even better in their home cities. Similarly, participant retailer A (an individually owned British design house), which entered Hong Kong in 1987 and opened their first store in mainland China (in the capital, Beijing) in 1997, believed that expansion into mainland China was a natural direction of growth after gaining experience from Hong Kong. The interviewee confirmed: The experience gained in Hong Kong is vital […] Expansion into mainland China is an inevitable step after 10 years’ business in Hong Kong because of the potential profit to be made in that market. However, participant retailer B (a group-owned French design house), who entered into mainland China in 1992, believed that support provided by the parent group in terms of finance, supply chain and local knowledge is more important than the experience gained in Hong Kong: We entered into mainland China in 1992, when not many people knew what luxury was about, so I’d say Hong Kong was not really helpful for our expansion into the market […] I do believe our parenting company gave us very solid support to overcome the difficulties in policies and local knowledge. Third, because of its history as a colony of the UK and the existence of a western lifestyle, Hong Kong has long been recognised as a cultural connection between the western world and the eastern world, especially in mainland China (Lu, 2012). Nearly 80 per cent of the respondents regarded Hong Kong as a market which reduced psychic distance between their companies and mainland China (mean ¼ 3.51). Table IV indicates that the third significant difference was found in cultural connection, in the scores for I (mean ¼ 3.59, SD ¼ 0.867) and G (mean ¼ 3.44, SD ¼ 1.375; t(61) ¼ −0.491, p ¼ 0.006, two-tailed), the magnitude of the difference in the means (mean difference ¼ 0.15, 95% Cl: lower −0.736 to upper 0.446) was moderate (0.004). It had been confirmed from interviewee evidence in the second research stage, that group-owned subsidiaries encounter fewer cultural barriers than their individually owned counterparts due to parenting advantage in functional, service and corporate development activities, 860 IJRDM 46,9

for example, through the strength that the parent company gave them in being able to recruit higher quality managers with a strong local knowledge (Evans et al., 2008). Participating retailer I (a group-owned German leather accessories specialist), who entered mainland China in 1996, confirmed: We did not have to encounter some of the difficulties that individually owned brands have had to deal with by themselves […] the (parenting) group has supported us very efficiently, especially in terms of local knowledge, cultural issues, management talent and some operational support such as centralised finance and logistics. Conversely, the role of Hong Kong as a cultural connection is vital for many individually owned foreign luxury fashion retailers, especially those who do not have international experience or the reputation to recruit management expertise. Therefore, Hong Kong does help them to reduce perceived psychic distance and the risks associated with direct entry into mainland China. For instance, participating retailer G (an individually owned Italian leather accessories specialist), who entered Mainland China in 1998, proposed: Hong Kong is definitely a cultural buffer zone for us […] Hong Kong helped us to understand local conditions and culture, which is the key to be succeed in China such as the importance of gift giving which influences our product portfolio. Fourth, because of its geographic location, open policies of foreign investment and taxation, its developed economy and advanced market infrastructure, Hong Kong has attracted the attention of foreign luxury fashion retailers’ not just as a gateway to mainland China but also as a gateway to the surrounding Asia Pacific areas (Kapferer, 2015). Increasing numbers of foreign luxury fashion retailers have set up regional head offices, subsidiaries and/or have dispatched senior management into Hong Kong to operate and explore these markets (Bai, 2016). Indeed, 85 per cent of the respondents believed that Hong Kong is strategically important to the expansion of their international businesses (mean ¼ 3.51). As shown in Table IV, the last significant difference was found in terms of the strategic role of Hong Kong. In the scores for I (mean ¼ 3.41, SD ¼ 1.258) and G (mean ¼ 3.62, SD ¼ 0.862; t(61) ¼ −0.755, p ¼ 0.032, two-tailed), the magnitude of the difference in the means (mean difference ¼ 0.21, 95% Cl: lower −0.762 to upper 0.344) was moderate (0.009). This study identifies therefore that the importance of Hong Kong in relation to the success of luxury fashion retailers’ international businesses not only relates to greater China, but also relates to the wider Asia Pacific region and the wider world markets. This is evidenced by the established regional head offices which are as important as headquarters in their home markets. For example, participating retailer C (a group-owned American design house), entered Mainland China in 1997, said: Our headquarters in Hong Kong controls all business in Asia Pacific region, and it is as important as the head office in New York. For example, our Honk Kong office is in charge of financial management for the entire company and therefore has a good deal of control over company operations. For group-owned luxury fashion retailers, the choice of location for their wholly owned overseas subsidiary or their regional head office reflects their direct entry internationalisation strategy and the importance of that foreign market. Participating retailer I (a German group-owned leather accessories specialist) acknowledged the importance of Hong Kong to their international business, because the proximity had allowed them to prioritise the Asia Pacific and Greater China areas as their most important overseas markets. The interviewee commented that: Hong Kong is extremely important for our international business in whole Asia Pacific region and even for the whole world. Hong Kong was our first overseas subsidiary set up in 1989, earlier than the first operation in North America, thus giving us early market entry advantage and considerable profit over the years. 861 Luxury fashion retailers’ ownership structures

As shown in Figure 2, Hong Kong is also important to luxury fashion retailers’ post-entry managerial strategies in mainland China. The luxury fashion retailers who adopted standardised managerial strategies, particularly group-owned subsidiaries, have set up wholly owned subsidiaries or regional head offices in Hong Kong, where they can make decisions centrally and control retailers’ post-entry strategies and operations in mainland China. For instance, participating retailer D (a group-owned Spanish design house), entered mainland China in 2001, confirmed: Every decision about the operation and further expansion in mainland China was made by the head office in Hong Kong because at that time there was no senior management team in mainland China only operational managers. We needed the expertise from the Hong Kong office. Similarly, others who adopt localised managerial strategies in mainland China also set up senior management structures in Hong Kong, with these senior managers playing a vital role in the retailers’ strategic planning. This decision exists due to visa restrictions for individual managers and a more attractive western lifestyle that exists in Hong Kong. For instance, participating retailer J (an individually owned Italian design house), who entered mainland China in 1996, confirmed: We have a management team in (mainland) China, and they can make decision in most situations. However, we also have a president based in Hong Kong, who is in charge of issues about strategies or new store opening plans. Nevertheless, this study also found that the importance of Hong Kong in terms of managerial strategies has been gradually weakened by the emerging metropolises in mainland China, most notably Beijing and Shanghai. Increasing numbers of foreign luxury fashion retailers now focus on the Chinese mainland market to gain more local knowledge. For example, participating retailer D (a group-owned Spanish design house), entered mainland China in 2001, confirmed that: We set up our head office in Hong Kong in 2000 […] It is still controlling all operations in Greater China area and Asia Pacific area, but the management team for China moved to Shanghai in 2010 when mainland China became a more mature market. Head Office (Home countries) Subsidiaries/ Regional head office (Hong Kong, wholly owned) Operations in Mainland China Subsidiaries/ Head Office (Mainland China, full control) Figure 2. Luxury fashion retailers’ management strategies in Hong Kong and mainland China 862 IJRDM 46,9

Finally, Table IV shows that there is no statistically significant difference between two kinds of luxury fashion retailers in international sourcing and local partnerships. The mail survey showed that Hong Kong is important for a very limited number of the responding luxury fashion retailers’ in terms of international sourcing (less than 10 per cent). The value of the mean was low at 1.40. However, it has been identified through the in-depth executive interviews that Hong Kong may be regarded as an important intermediate market for luxury fashion retailers who are maintaining a lifestyle brand image and extending products. For instance: As a lifestyle luxury fashion brand, we cannot produce everything that we are selling […] In order to maintain our brand image and craftsmanship, we only source non-key products from Hong Kong for cost saving. These are items such as standardised small accessories (Participating retailer C). Sourcing from Hong Kong is important for our business in China, those products are only sold in China and not sold in our home market. We have different product portfolio in China because of localised product strategies which responding to local demand. For example, the polo shirt and chinos are still very popular in China but are not required by consumers in our home country (Participating retailer A). Most respondents in the mail survey did not think that local partnerships were important to their internationalisation strategies in mainland China (less than one third). The value of the mean was as low as 2.06, which is lower than the moderate rate (3). However, for some businesses, local knowledge, business know-how and the financial support of Hong Kong-based local partners are key reasons for their success in Hong Kong and mainland China. Participating retailer G (an individually owned Italian leather accessories specialist) confirmed that: We are happy to have partners from our initial entry into Hong Kong and China. They are very experienced and professional, and can provide us with strong local knowledge and financial support […] It would have been impossible to expand the business so quickly by ourselves. Nevertheless, because of the desire to control their business in China and gain greater profit, increasing numbers of foreign luxury fashion retailers who entered China through local partnerships have started to increase their equity share and/or withdrawn from their local partnerships, particularly where they have gained both experience and stronger financial capacity (Bai et al., 2017). Therefore, the importance of Hong Kong in terms of local partnership has been weakened in parallel to retailer expansion in the Chinese mainland market. Participating retailer C stressed that: We are still in a joint venture with a Hong Kong-based partner, but we have started to raise our equity share, and I believe we eventually will directly control our business in mainland China. Therefore, from the findings outlined above, the most important part of parenting advantage is that of functional and services support such as finance, management experience and knowledge, and standardised supply chains. 5. Conclusion This study examines the importance of Hong Kong as a gateway to mainland China from the perspective of international luxury fashion retailers’ in terms of ownership structure and the influence of parenting advantage to their internationalisation strategies into the Chinese market. Generally, group-owned luxury fashion retailers encounter fewer difficulties than their individually owned counterparts when entering into mainland China because of parenting advantage. This parenting advantage is reflected in stand-alone influence, linkage influence and functional and services influence, including financial support, management talent, standardised supply chain and the benefit of obtaining good 863 Luxury fashion retailers’ ownership structures

store locations for the brand portfolio. Therefore, the importance of Hong Kong is not same for the two kinds of luxury fashion retailers, group-owned subsidiaries and individual brands, in the following aspects: cross-border shopping market, experience (landing market for mainland China) and in offering a cultural buffer zone. Moreover, there are still considerable challenges for many emerging and/or small-scaled individually owned brands that do not have a strong financial capacity, solid local knowledge and international experience. Hong Kong is still important in terms of its cultural connection to mainland China. It is the most popular destination for Chinese customers’ cross-border shopping for luxury fashion products and luxury fashion retailers are able to gain understanding of their potential customers through their operations in Hong Kong prior to entering into the mainland market. Therefore, for these emerging and/or smallscaled individually owned brands, Hong Kong can still be regarded as the gateway for mainland China. Furthermore, because of different available resources and internationalisation strategies, group-owned subsidiaries are willing to set up wholly owned subsidiaries in Hong Kong, which are important for the business not only in greater China but also in Asia Pacific and across the world. In addition, some individually owned brands are keen to employ senior management in Hong Kong because of the advantages that it offers in terms of lifestyle and Chinese visa restrictions. However, according to the findings, in recent years the importance of Hong Kong for luxury fashion retailers has somewhat weakened because of the rapid growth in demand for luxury brands, the emergence of a burgeoning middle class and relaxed visa policies in mainland China. This has led to an increase in the number of group-owned subsidiaries who have moved their head offices to the emerging metropolis in mainland China, and in particular, Beijing and Shanghai. As an intermediate market for product sourcing, the importance of Hong Kong has not been widely recognised. However, sourcing from Hong Kong is still important for some luxury fashion retailers who are developing a lifestyle brand image and providing a wide range of products, and for those who are adopting localised strategies in China. Finally, although Hong Kong-based local partners are important for many foreign luxury fashion retailers, particularly emerging brands, the importance of these local partners has been weakened for post-entry expansion into the Chinese market. This is evidenced by more wholly owned entry strategies and increasing numbers of withdraws from local partnerships (Bai et al., 2017). Although the mixed methods research approach using the triangulation of methodologies and data has strengthened the reliability and validity, the limitations of this study involve four aspects. This research is concentrated on luxury fashion retailers’ internationalisation strategies in Hong Kong and mainland China and the findings are thus probably of limited value in explaining different sectors and/or different markets. However, this study supports in-depth understanding of the interrelation between luxury fashion retailers’ internationalisation strategies and their ownership structure, which had not examined by prior empirical studies. The number of respondents and interviewees is challengeable; however, 63 survey respondents and 10 interviewees, across a wide range of retailing formats, country of origin and ownership structures was considered to be strong enough to represent actuality in the market. In addition, the self-completion postal questionnaire was designed in English with the questions using a five-point Likert scale. Misunderstanding caused by language barriers is inevitable; however, there was space for additional comments, and 48.5 per cent response rate showed that language was not a major barrier. Finally, the ten executive interviews were conducted in English and Mandarin. The researcher is bilingual in both, and is capable of dealing with ambiguity. Transcripts of interviews were provided to check understanding. 864 IJRDM 46,9

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Appendix 1. Luxury fashion retailers’ ownership structure and internationalisation in Hong Kong and mainland China The importance of Hong Kong 1234 5 Hong Kong is the significant destination for Chinese customers’ cross-border shopping of luxury products The experience gained from Hong Kong helps to build understanding of mainland consumers Hong Kong is an important intermediate market for international sourcing Hong Kong is a cultural connection between luxury brands and mainland China Hong Kong is important for luxury fashion retailers’ internationalisation strategies in mainland China Hong Kong based local partners help to reduce the risk involved with direct control in mainland China Section I This section aims to collect general information of your company. Please choose an appropriate option for each question. Q1. What is your company’s ownership structure? Owned by a group Individually owned Q2. Did your company enter into Hong Kong prior to mainland China? Yes No Section II This section exams the importance of Hong Kong for your company’s international expansion strategies in mainland China. Questions are answered by choosing on a scale of 1-5,where: 1=of the least important 2=of slightly important 3=of moderately important 4=of highly important 5=of the most important Q3. The importance of Hong Kong as a gateway of mainland China Could you please make any additional comment Many thanks for your kind participation of this research. Your help is very much appreciated. Wish you all the successes in Great China! Further research is planned, and it is proposed that short informal interviews will take place with a number of luxury fashion retailers. If you or your company would be willing to grant some time for this important and confidential research, please tick the box. Name________________________________________________________ Address______________________________________________________ 868 IJRDM 46,9

Appendix 2. Interview questions Q1. (In terms of your company’s ownership structure) Do you think mainland Chinese consumers’ cross-border shopping in Hong Kong is an important encouragement for your company’s expansion in mainland China? With following up question: why, if yes, or why, if no Q2. (In terms of your company’s ownership structure) Do you believe the experiences and knowledge gained from Hong Kong are encouraging your company’s expansion in mainland China? With following up question: why, if yes, or why, if no Q3. (In terms of your company’s ownership structure) According to your opinion and your company’s experiences, is Hong Kong an important intermediate market for your company’s (overseas) product sourcing strategies? With following up question: why, if yes, or why, if no Q4. (In terms of your company’s ownership structure) Do you believe Hong Kong is important to reduce risks and difficulties in terms of cultural issues? With following up question: why, if yes, or why, if no Q5. (In terms of your company’s ownership structure) Is Hong Kong important for your company’s internationalisation/entry strategies to mainland China? With following up question: why, if yes, or why, if no Q6. (In terms of your company’s ownership structure) Are Hong Kong-based luxury fashion franchising companies/ holding companies helpful in your company’s internationalisation/entry strategies to mainland China? With following up question: why, if yes, or why, if no Corresponding author Huifeng Bai can be contacted at: [email protected] For instructions on how to order reprints of this article, please visit our website: www.emeraldgrouppublishing.com/licensing/reprints.htm Or contact us for further details: [email protected] 869 Luxury fashion retailers’ ownership structures

Imperative challenge for luxury brands Generation Y consumers’ perceptions of luxury fashion brands’ e-commerce sites Jung-Hwan Kim Department of Retailing, University of South Carolina, Columbia, South Carolina, USA Abstract Purpose – The purpose of this paper is to examine whether any differences exist between high- and low/ middle-income Generation Y luxury consumers in terms of their service quality perceptions on luxury fashion brands’ own official e-commerce sites. Design/methodology/approach – This study focused on actual luxury consumers who purchased luxury fashion items from luxury fashion brands’ e-commerce sites. An online survey asked participants to evaluate their perceptions of e-service attributes available on luxury fashion brands’ own official e-commerce sites based on their experience with the site. A total of 123 usable respondents obtained. Findings – Of the nine e-service quality dimensions identified, efficiency and web appearance were significant dimensions affecting high-income Generation Y luxury fashion consumers’ overall e-satisfaction. For low/middle-income Generation Y luxury fashion consumers, order/delivery management, personalization and trust were crucial factors that affected overall e-satisfaction. Originality/value – Despite the growth of luxury e-commerce sales and the increasing interest in luxury consumption by consumers from a variety of demographic groups, little research has focused on how luxury consumers perceive luxury brands’ own official e-commerce site and how luxury fashion brands develop their own e-commerce sites to meet demographically dissimilar customers’ necessities. The findings of the study provide valuable practical implications to luxury fashion brands by proving that luxury consumers are unalike and that their perceptions on e-service quality are dissimilar based on different income levels. Keywords Income, E-commerce, Generation Y, Luxury brands Paper type Research paper Introduction In today’s digital-centric era, the internet has become an imperative commerce transaction platform for businesses. Luxury brands are no exception and need to comply with the emerging direction of business trends. However, quite a few luxury brands still do not employ the internet as an active transaction channel. From a retailer’s view, the untransferable in-store experience and luxurious atmospherics of brick-and-mortar stores are considered the main reason that makes luxury brands hesitant to go online. However, with this hesitation luxury brands may overlook opportunities that the digital platform can bring in terms of financial strength and brand awareness. According to Okonkwo (2010), the integration of an online retail environment can provide synergies to luxury brands by helping boost overall sales performance and by guiding non-luxury consumers to discover a luxury brand online resulting in leading them to shop in offline physical stores. From a consumer’ view, the uncertainty of product authenticity is a critical issue that prevents consumers from purchasing luxury goods online (Liu et al., 2013). By selling luxury goods on luxury brands’ authorized own official e-commerce sites, luxury brands can help luxury consumers reduce perceived risks of online shopping and thus increase sales. According to Kluge and Fassnacht (2015), online accessibility of luxury goods does not negatively affect consumers’ brand desirability. Instead, online accessibility positively impacts consumer perceptions of convenience and willingness to buy. International Journal of Retail & Distribution Management Vol. 47 No. 2, 2019 pp. 220-244 © Emerald Publishing Limited 0959-0552 DOI 10.1108/IJRDM-06-2017-0128 Received 8 June 2017 Revised 26 November 2018 Accepted 18 January 2019 The current issue and full text archive of this journal is available on Emerald Insight at: www.emeraldinsight.com/0959-0552.htm 220 IJRDM 47,2

Today, the scope of luxury consumers is getting broader. The term luxury, previously a privilege of the rich, does not seem to solely belong to that segment of the population any longer (Bilge, 2015). Other less affluent classes are becoming a significant and growing segment of the luxury market (Brun and Castelli, 2013). Due to the rising desire for luxury goods by less affluent consumers, sales of online luxury goods are consistently increasing. The global luxury goods industry, which includes fashion, handbags, jewellery, cosmetics and other accessories such as watches and luggage, has experienced strong growth for many years (Statista, 2018). As the luxury market has rapidly grown globally and constantly, it has grabbed researchers’ attentions and various luxury related studies have published. However, there remains a lack of understanding of online luxury consumer behavior (Liu et al., 2013). Most extant luxury studies approach the psychological and/or motivational behaviors of in-store luxury shoppers and treat them as a single identical unit. Little research distinguishes luxury consumers differently based on certain demographic criteria such as income. Furthermore, despite the growth of luxury e-commerce sales and the rising number of luxury brands that sell goods on their own online sites, little empirical research has focused on luxury brands’ e-performance and consumers’ perceptions of luxury brands’ own official e-commerce sites. With the expansion of e-commerce, the format of the luxury market and consumers’ buying preferences of luxury goods have changed dramatically. The conventional idea of only purchasing luxury goods at exclusive physical stores is no longer applicable to the current luxury market. As luxury consumers become younger and technology savvy and shop digitally more and more ( Jain and Schultz, 2016), e-service quality has become an important feature that affects luxury brands’ financial productivity. E-service quality is a fundamental determinant that affects a firm’s long-term success (e.g. Bressolles et al., 2015; Carlson and O’Cass, 2011). McKinsey and Company (2015) addressed well-designed websites and superior customer experience as the main factors of luxury brands’ possible e-business success. In the current multi-channel world, embracing the internet as an additional selling channel is inevitable for luxury brands (Kluge and Fassnacht, 2015). In light of the industry shift, as they expand into an online presence luxury brands need to carefully consider if all of their luxury consumers, regardless of income level, perceive the brand’s website e-service quality in the same way. Luxury brands should determine if any differences in perception exist across different income levels in terms of key e-service components that affect overall satisfaction and eventually e-loyalty. Generation Y luxury consumers are the generational cohort focused upon in this study. Generation Y consumers are the largest global consumer segment (Kim et al., 2010), the first high-tech generation (Eastman and Liu, 2012), and remarkably brand conscious and willing to spend on luxury products for higher levels of quality and taste (Fernandez, 2009; Soh et al., 2017). Therefore, they are an attractive segment of the luxury market in today’s digital age. Also, previous e-tailing related research indicates the effect of income on consumers’ online shopping behavior (e.g. Lissitsa and Kol, 2016; Punj, 2012) and online purchase preferences (e.g. Korgaonkar et al., 2014). In a study on Generation Y, Yarimoglu (2017) found a significant difference between income and perceived value of online shopping experience. Thus, the purpose of the current study is to examine whether differences exist between high- and low/middle-income groups of Generation Y luxury consumers in terms of their perceptions of luxury brands’ own official sites’ service quality. To evaluate high- and llow/middle-income Generation Y luxury consumers’ perceptions on luxury brands’ own official e-commerce sites, this study employed e-service attributes available on actual luxury fashion brands’ websites. Thus with this focus, the current study will contribute to the current luxury literature by fully examining Generation Y luxury consumers’ views toward current luxury fashion brands’ e-presence by identifying vital dimensions of e-service quality across different income levels. In addition, the findings of the present 221 Imperative challenge for luxury brands

study will provide a practical and successful management strategy to luxury fashion brands for fully understanding different income levels of Generation Y luxury consumers’ demands in the context of an online setting so that the luxury fashion brands can create effective websites that meet the needs and expectations of different income groups of Generation Y consumers. Review of literature Luxury fashion brands There is no universally accepted definition of a luxury brand. In general, a luxury brand is defined in terms of its characteristics (e.g. Fionda and Moore, 2009; Heine, 2011). For instance, Hagtvedt and Patrick (2009) defined a luxury brand as the brand that offers premium products, provides pleasure as a central benefit, and connects with consumers emotionally. Heine (2012) defined a luxury brand as a high level of price, quality, aesthetics, rarity, extraordinariness and a high degree of non-functional associations. Vigneron and Johnson (2004) indicated six characteristics of a luxury brand: perceived conspicuousness, perceived uniqueness, perceived extended self, perceived hedonism and perceived quality. According to Phau and Prendergast (2000), recognized brand identity, quality, exclusivity and customer awareness are key fundamentals of a luxury brand. From a more extensive view, Beverland (2004) encompassed external endorsement, corporate culture, brand/ corporate heritage and product integrity as additional vital attributes of luxury brands. With regards to luxury fashion brands, Okonkwo (2007) indicated ten core characteristics of a successful luxury brand: a distinctive brand identity, a global reputation, emotional appeal, innovative unique appealing products, premium quality, heritage of craftsmanship, premium price, exclusivity, high visibility and tightly controlled distribution. Notwithstanding the numerous characteristics proposed by various researchers to define a luxury brand (see Table I for more details), there are several core elements that are commonly included in the definition. From a product/brand perceptive, a luxury brand is frequently defined in association with a high level of quality, premium price, exclusivity and craftsmanship (e.g. Fionda and Moore, 2009). From a customer experience perceptive, a luxury brand is consistently defined in relation to its hedonic, emotional and symbolic value (Chandon et al., 2016). Although a wide variety of definitions of a luxury brand exist and consistencies among characteristics of a luxury brand are few, definitions provided in the literature reflect both product-approach and consumer-approach aspects. In general, the categories of luxury are quite broad. They cover products from soft luxury (e.g. fashion and apparel) and hard luxury (watches, jewellery) to alcohol, food, travel, hotel, technology and car (Bellaiche et al., 2010). According to Fionda and Moore (2009), luxury fashion goods account for the largest proportion of luxury goods. In this study, the focus of luxury is on soft luxury, specifically luxury fashion brands that carry items such as apparel, shoes and handbags. Luxury brands’ e-commerce sites In the past most luxury brands sold their products exclusively in well-featured physical stores. Only a few sold their goods online through affiliated multi-brand retailers with a limited product range (Dauriz et al., 2014). However, luxury brands are slowly gearing their attention toward e-commerce and the development of their own websites that feature most of their products for sale online (Catena et al., 2015). Still luxury e-commerce sales comprise a small portion of overall luxury sales, the sales increase is four times faster than offline sales between 2009 and 2014 (Kansara, 2016). E-luxury sales in 2013 increased by 20 percent in comparison to a 2 percent increase of overall luxury goods sales (Castillan et al., 2017). In this study, luxury e-commerce sites are defined as luxury brands’ own transactional e-commerce sites. 222 IJRDM 47,2

According to eMarketer (2016), a website presence helps luxury brands better succeed in today’s competitive global market by reaching out to more diverse and broader consumers on a more cost-efficient basis compared to physical stores. CNBC (2013) indicated that luxury brands’ e-commerce have a better opportunity to thrive by satisfying luxury customers’ needs and by building an emotional link with consumers even before they see the products. Okonkwo (2010) provide similar views as CNBC’s which emphasizes the emotional connection with customers. According to Okonkwo (2010), most luxury brands have dedicated their vigor simply to developing a web-presence without deep consideration of its values and benefits. However, the main fundamental reason of creating a website should not be mere existence of a website. It should be the experience the luxury brand provides on its website. That is, the success of luxury brands’ e-business strategy relies on how they effectively integrate multifaceted elements that enhance customers’ mood, desire, and emotion such as e-experience, e-branding, e-CRM, e-communication, e-customization and website design (Okonkwo, 2010). With new emerging technologies, luxury brands can provide exceptional experiences on their digital platforms and build strong interactions with customers. For instance, 3D content and AR can help consumers visualize better with closer viewings of products, and customer data collected through e-CRM will help luxury brands provide seamless customer Authors Characteristics Hagtvedt and Patrick (2009) Has premium products; provides pleasure as a central benefit; connects with consumers on an emotional level Heine (2012) A high level of price, quality, aesthetics, rarity, extraordinariness and a high degree of non-functional associations Kapferer (1998) Top seven identifiers of luxury brands: the beauty of products; product excellence; its magic (beyond functional quality); its uniqueness; its great creativity; its sensuality; feeling of exclusiveness Keller (2009) Maintaining a premium image; creation of intangible brand association; aligned with quality; logos, symbols, packaging are drivers of brand equity; secondary associations from linked personalities, events, countries, and other entities; controlled distribution; premium pricing strategy; carefully managed brand architecture; broadly defined competition; legal protection of trademarks Ko et al. (2017) Be high quality; offer authentic value via desired benefits, whether functional or emotional; have a prestigious image within the market built on qualities such as artisanship, craftsmanship, or service quality; be worthy of commanding a premium price; be capable of inspiring a deep connection or resonance with the consumer Nueno and Quelch (1998) Consistent delivery of premium quality across all products in the line; a heritage of craftsmanship; a recognizable style or design; a limited production run of any item to ensure exclusivity and possibly generate a customer waiting list; a marketing program that supports, through limited distribution and premium pricing, a market position that combines emotional appeal with product excellence; a global reputation; association with a country of origin; an element of uniqueness to each product; an ability to time design sifts when the category is fashion-intensive; the personality and values of its creator Phau and Prendergast (2000) Well-known brand identity; quality; evoke exclusivity; increase brand awareness Tynan et al. (2010) High quality, expensive and non-essential products and services that appear to be rate, exclusive, prestigious, and authentic and offer high levels of symbolic and emotional/hedonic values through customer experiences Vigneron and Johnson (2004) Perceived conspicuousness; perceived uniqueness; perceived extended self; perceived hedonism; perceived quality Wiedmann et al. (2009) highest level of prestigious brands encompassing several physical and psychological values Table I. Characteristics of luxury brands 223 Imperative challenge for luxury brands

service in their virtual world. Also, with visually appealing, intuitive user interface design of a website by reflecting their brand image, luxury brands can enhance user experience and evoke positive emotions in consumers (Lee and Lin, 2005) which will eventually impact consumers’ trust toward the site and e-loyalty (Bilgihan, 2016). Despite all these values and benefits a virtual setting of a luxury brand can provide, many luxury fashion brands still hesitate to launch an e-commerce store (Berridge, 2018). The conventional belief regarding luxury consumers’ store-based shopping preference is changing (Dauriz et al., 2014). Today’s luxury consumers are digital savvy ( Jain and Schultz, 2016) and inclined to purchase luxury goods online (Dauriz et al., 2014). According to Kluge and Fassnacht (2015), consumers do not perceive offering luxury goods online as a significant negative determinant of brand scarcity or that it negatively dilutes brand desirability (Kluge and Fassnacht, 2015). Rather, they value online accessibility for the convenience, and this purpose positively affects their willingness to buy. New concepts of luxury and the changing behaviors of luxury consumers Traditionally luxury was connected to uniqueness, rarity and exclusivity to the affluent elite (Kastanakis and Balabanis, 2012). This conventional concept of luxury had been fairly stable, uncomplicated and predictable (Roper et al., 2013). However, with the growing income of middle-class households in the developed luxury markets such as Europe and the USA and low-income consumers’ rising eagerness for a status experience, luxury is becoming more attractive to less affluent consumers (Brun and Castelli, 2013). Accordingly, luxury brands are progressively expanding their brand boundaries to encompass less affluent consumers in order to increase brand awareness and to enhance market share and sales revenues (Kastanakis and Balabanis, 2012). Hence, the concept of luxury is changing and undefined (Kapferer and Bastien, 2012). In the past consumers mainly purchased expensive luxury goods to conspicuously signal their desired social status through visible logos or labels affixed to the product (Yang and Mattila, 2014). However, the traditional approach has changed and more and more consumers are involved in luxury consumption as a self-indulgent hedonistic experience (Danziger, 2005; Nwankwo et al., 2014). This shift somewhat contributes to the current changing trend in the luxury market. Another noticeable change in luxury consumers’ shopping behaviors is a propensity for online shopping. Luxury consumers have considerable disposable income but have limited time for shopping (Clark, 2014). Thus, more and more the internet is playing an important role in luxury consumers’ purchasing decisions (Dauriz et al., 2014). According to Okonkwo (2010), luxury consumers are no longer confined to old fashioned ways. Their attitude and behaviors have changed and now they are active users of the internet, even the wealthy segment of luxury consumers. However, luxury e-commerce is still at its infancy and luxury brands underestimate the influence of the internet on their future business success (Okonkwo, 2010). With the whole retail industry adopting a multi-channel strategy and with consumers’ shifting buying behaviors toward e-luxury, it is imperative for luxury brands to understand all levels of consumers’ perceptions of luxury brand websites. The core success of e-business is dependent on how consumers perceive the brand’s site during and after their visit (Okonkwo, 2010). Since the wealthy elite is no longer the exclusive group in the luxury goods market, luxury brands need to comprehend luxury consumers’ perceptions of eservice quality in connection with diverse income levels. Generation Y luxury consumers Generation Y, born between 1977 and 1994 (Esmaeilpour, 2015; Levy and Weitz, 2001; Noble et al., 2009; Ruane and Wallace, 2013), is the second-largest generation group in the USA 224 IJRDM 47,2

(Giovannini et al., 2015). According to the US Bureau of Labor Statistics, approximately 75 percent of the US workforce will be comprised of Generation Y by 2030 (Business Insider, 2014). Generation Y consumers are high brand conscious (Fernandez, 2009), obsessed with fashion (Valaei and Nikhashemi, 2017) and spend two-thirds of their money on clothing (Ruane and Wallace, 2013). They are technology savvy, consumption-oriented, interested in status products (Eastman and Liu, 2012) and materialistic (Aruna and Santhi, 2015). Due to their high level of spending power and great concern about fashion and status consumption, Generation Y is becoming an essential segment for the luxury market (Eastman and Liu, 2012; Giovannini et al., 2015). Over 85 percent of luxury market sales growth was generated by Generation Y and younger consumers (Bain and Company, 2017). The luxury market is no longer the territory dominated by wealthy older consumers (Giovannini et al., 2015). As a central generational cohort in the luxury market, understanding Generation Y consumers’ perceptions of luxury brands’ e-performance is vital. Key dimensions of e-service quality Fassnacht and Koese (2006) define e-service quality as “the degree to which an electronic service is able to effectively and efficiently fulfill relevant customer needs” (p. 25). Sabiote et al. (2012) defined e-service as “added value above and beyond the exchange of information made possible by the internet” (p. 158). Measuring and monitoring consumers’ evaluations of e-service quality is considered critical as consumers’ perceptions of quality influence e-retailers’ market share and profitability (Rolland and Freeman, 2010). As e-service quality becomes an essential factor for determining e-business success (Zehir and Narcikara, 2016), various e-service quality scales have been developed. For instance, Zeithaml et al. (2000) developed e-SERVQUAL including 11 dimensions (access, ease of navigation, efficiency, flexibility, reliability, personalization, responsiveness, security/privacy, assurance/trust, price knowledge and site aesthetics). Yoo and Donthu (2001) proposed SITEQUAL that includes four dimensions (ease of use, processing speed, security and aesthetic design). Wolfinbarger and Gily (2003) developed eTailQ that includes four dimensions (reliability, customer service, website design and privacy/security). Parasuraman et al. (2005) developed e-SQ which is comprised of four dimensions of E-S-QUAL (efficiency, system availability, fulfilment and privacy) and three dimensions of E-Rec-QUAL (responsiveness, compensation and contact). Just like the various scales proposed, quite a few e-service quality key dimensions have been identified. For example, Collier and Bienstock (2006) identified functionality, information accuracy, design and ease of use as vital perception determinants to measure service quality in e-retailing. Within the same context, Rolland and Freeman (2010) identified ease of use, information content, security/privacy, fulfilment reliability and postpurchase customer service as key dimensions of e-service quality. In online apparel retail settings, Kim et al. (2011) indicated convenience, customization, security/privacy, website appearance and entertainment value as key dimensions of service quality. Table II summarizes main dimensions used to assess e-service quality in the context of e-retailing. Overall, efficiency that helps consumers find information with ease and minimal effort, security/privacy which is related to a site’s safety and customer information protection, customer service which helps consumers solve their needs promptly, order fulfilment/ management that is associated with the site’s reliable processing and delivering of customer order and website design linked to visual appearance of an e-retailing site are repeatedly emphasized as key service quality dimensions in general e-retailing service quality literature. In the context of online luxury goods retailing, Tűrk et al. (2012) identified efficiency, fulfilment, site design and product information as crucial factors that affect service quality by utilizing a survey from consumers who bought an item from German 225 Imperative challenge for luxury brands

Hugo Boss e-site. Of the four factors, efficiency and site design were the most vital dimensions of e-service quality. Except for this one empirical research study, there is no scholarly data that investigated luxury fashion brands’ e-service performance. Due to the lack of e-service quality literature in the luxury fashion e-commerce setting, it is uncertain whether the key dimensions identified in the general e-service quality literature are applicable to the luxury e-commerce context. Even in the research of Tűrk et al. (2012), certain key factors that may affect overall e-service quality such as personalization, trust, and entertainment value were not included and no detailed information on the sample was provided. Therefore, the findings of the study do not provide thorough understanding of what luxury consumers value in the virtual setting of a luxury brand and how diverse income groups of luxury consumers contribute to the (dis)similarity of consumer e-service quality perception. Service quality, satisfaction and loyalty Numerous research studies examined the relationship between e-service quality and customer satisfaction (e.g. Lee and Lin, 2005; Zeithaml et al., 2002; Zhang and Prybutok, 2005). Positive relationships among service quality, customer satisfaction, and loyalty are well addressed in much of the service quality literature (e.g. Caruana, 2002; Zhang and Prybutok, 2005). In a luxury retailing context, Hennigs et al. (2015) addressed the importance of consumer satisfaction and loyalty in connection with luxury brand management and luxury retail business. In the current study, e-service quality dimensions of luxury brands’ e-commerce sites and key dimensions that affect customer satisfaction will be identified based on previous online luxury perception literature and luxury consumer survey (see the method section and Figure 1). Author(s) Dimensions Bauer et al. (2006) Functionality/design, enjoyment, process, reliability, responsiveness Collier and Bienstock (2006) Process dimension ( functionality, information accuracy, design, privacy, ease of use); outcome dimension (order accuracy, order condition, timeliness); recovery dimension (interactive fairness, procedural fairness, outcome fairness) Ghosh (2018) Efficiency; system availability; fulfilment; privacy Francis (2007) Website transaction; delivery; customer service; security Kim et al. (2011) Convenience; customization; security/privacy; website appearance; entertainment value Loiacono et al. (2002) Informational fit-to-task; interactivity; trust; response time; ease of understanding; intuitive operations; visual appeal/ innovativeness; flow/ emotional appeal/ consistent image; online completeness; relative advantage Madu and Madu (2002) Website performance; features; structure; esthetics; reliability; storage capability; serviceability; security; trust; responsiveness; product differentiation; product customization; policies reputation; assurance; empathy Mummalaneni et al. (2016) Efficiency; system availability; fulfilment; privacy Parasuraman et al. (2005) Efficiency; system availability; fulfillment; privacy; responsiveness; compensation; contact Piercy (2014) Trust; company interface; service fulfilment Prateek (2017) Security/privacy; website design; reliability; responsiveness; information Swaid and Wigand (2009) information quality; website usability; reliability; responsiveness; assurance; personalization Wolfinbarger and Gilly (2003) Website design; fulfillment/reliability; privacy/security; customer service Yoo and Donthu (2001) Ease of use; aesthetic design; processing speed; security Zeithaml et al. (2000) Access; ease of navigation; efficiency; flexibility; reliability; personalization; security/privacy; responsiveness; assurance/trust; site aesthetics; price knowledge Zhang et al. (2015) Convenience; Information accuracy; security; functionality Table II. Key dimensions of e-service quality 226 IJRDM 47,2

Methodology This study examined Generation Y luxury consumers’ perceptions of luxury fashion brands’ own official e-commerce sites. Previous research studies indicate that generational cohort is a more effective way to segment markets compared to age (e.g. Eastman and Liu, 2012; Gardiner et al., 2013; Yang and Lau, 2015) since generational cohorts experience similar social, cultural and economic events (Yang and Lau, 2015). Due to the particular sampling frame of this study which considers only Generation Y luxury consumers who have purchased luxury fashion items online, homogeneous purposive sampling method was employed as a sampling strategy. Compare to the fact that most quantitative luxury related studies heavily rely on student samples, this study utilized actual consumers who have visited and purchased luxury items from luxury fashion brand’s websites. Respondents chosen for the study were all between 29 and 41 years old (born between 1977 and 1994) and passed screening questions that asked their online luxury fashion item purchasing experience. Sample The sample consisted of actual luxury consumers who purchased luxury fashion items at least once from luxury fashion brands’ own websites during the last six months. An online survey company (www. Surveymonkey.com) was utilized to collect data. Surveymonkey. com is a secure data collecting site that Fortune 100 companies use to conduct their market research (Zhang and Kim, 2013). Using homogeneous purposive sampling method, to meet the study requirements that the respondents participating in the survey were luxury fashion consumers and that they had actual experience with purchasing luxury fashion items online, three questions were utilized at the beginning of the survey: How frequently do you purchase luxury fashion goods; name of the luxury fashion brand’s e-commerce site you shopped most often in the past six months; and how often do you shop for luxury fashion items at the website. The respondents who had not purchased luxury fashion goods online were categorized as unqualified and their participation was terminated at this stage. To further enhance data saturation, respondents’ frequencies of purchasing luxury fashion Efficiency Order/delivery management Customer service Personalization Trust Product description Product presentation Entertainment value Web appearance E-satisfaction E-loyalty Income Figure 1. Conceptual model 227 Imperative challenge for luxury brands

items both online and offline were added at the end of the survey. With regards to the name of the luxury fashion brands’ e-commerce site, the names provided by respondents were evaluated after collecting data and those who provided unqualified brand names were not included in the main data analysis. Survey procedure Following three initial screening questions, the main survey questionnaire was comprised of three sections. In the first section, respondents were asked to evaluate their perceptions of e-service attributes based on their experience with the luxury fashion brand’s own website that they have shopped most often in the past six months. In the second section, respondents were asked to evaluate their e-satisfaction and e-loyalty with the site. In the third section, respondents were asked to provide general demographic information including their ethnic background, education level and annual household income. To ensure that all the respondents included in the study were luxury consumers purchasing luxury fashion items online, overall online luxury shopping frequencies were added in this section. The survey questionnaire utilized for this study is provided in the Appendix. Measures To measure luxury consumers’ perceptions of e-service attributes, the list of the e-service attributes developed in Kim and Kim’s (2016) research was adopted. The list, which identifies 107 e-service attributes, was formed through a systematical and thorough content analysis of 131 luxury fashion brands that sell luxury fashion goods online using a list of luxury brands provided by Internet Retailer (2014), directories of upscale luxury goods department stores, and Google searches. All the brands included in the study sell clothing, shoes and/or handbags with other accessories such as jewelry. Of the 131 luxury fashion brands included in the content analysis, 10 brands most frequently provided by respondents are listed in the following list. Examples of luxury fashion brands included in the study. Brand name (web address): • Armani (www.armani.com). • Balenciaga (www.balenciaga.com). • Bottega Veneta (www.bottegaveneta.com). • Burberry (https://us.burberry.com). • Christian Louboutin (http://us.christianlouboutin.com). • Dolce & Gabbana (https://us.dolcegabbana.com). • Gucci (www.gucci.com). • Louis Vuitton (https://us.louisvuitton.com). • Prada (www.prada.com). • Salvatore Ferragamo (www.ferragamo.com). This study focuses on luxury fashion brands that operate B2C commercial transactions over their own official electronic network. Those luxury retailers that sell a wide range of luxury fashion brands online such as Net-a-Porter, Farfetch and YOOX, therefore, were excluded. Thus, the e-service attribute scale utilized for the current study is extremely practical to measure luxury consumers’ perceptions on e-service quality of luxury fashion brands’ own official e-commerce sites. E-satisfaction was measured with three items developed by Yang et al. (2004), and e-loyalty was measured using seven items developed by 228 IJRDM 47,2

Srinivasan et al. (2002). Both studies reported high-reliability coefficients, 0.86 and 0.92. All of the items were measured using a five-point Likert scale (1 ¼ strongly disagree, 2 ¼ disagree, 3 ¼ neutral, 4 ¼ agree, 5 ¼ strongly agree). Demographic information related questions are from previous luxury and consumer behavior studies (Carpenter and Brosdahl, 2011; Kim and Zhang 2015). In total, 4 faculties who are experts on e-service quality reviewed the perception survey questionnaire for face validity. Analyses and results Sample description A total of 194 respondents completed the survey. Of the respondents, 71 respondents who passed the initial three screening questions but marked “never” in relation to their online luxury fashion item purchase behavior question at the end of the main survey questionnaire and/or did not provide an appropriate luxury brand name (e.g. moderate specialty stores such as Gap and online auction site such as eBay) were eliminated. As a result, 123 usable respondents were included in the data analysis. Approximately 57.7 percent were women (n ¼ 71) and 42.3 percent men (n ¼ 52). Over 53 percent of the respondents purchase luxury fashion items (e.g. apparel, shoes, and handbags) at least once a month and approximately 30 percent purchase luxury fashion items several times per year, which indicates that the majority of the respondents are frequent online shoppers of luxury fashion goods. Detailed demographic characteristics of the respondents are provided in Table III. Exploratory factor analysis To identify underlying key dimensions of the e-service quality attribute items, a principal component factor analysis with a varimax rotation was conducted. A total of 107 attributes were factor analyzed and the minimum eigenvalue of 1.0 criterion was used for factor extraction consideration. After eliminating 25 items that were cross-loadings, nine dimensions were generated, explaining 64 percent of the total explained variance. Options % Gender Female 57.7 Male 42.3 Ethnic background White American 61.8 African American 10.6 Hispanic 6.5 Asian 21.1 Education High school or less 5.7 Some college 15.4 College graduate 48.0 Graduate school 30.9 Annual household income Under $25,000 0.8 $25,000–49,000 2.4 $50,000–74,999 17.9 $75,000–99,999 31.7 $100,000–149,999 23.6 $150,000–199,999 16.3 $200,000 or over 7.3 Frequency of purchasing luxury fashion items online At least once a week 4.9 Once a month 27.6 Several times per month 21.1 Once a year 16.3 Several times per year 30.1 Table III. Demographical characteristics of respondents 229 Imperative challenge for luxury brands

The nine dimensions were efficiency, order/delivery management, customer service, personalization, trust, product description, product presentation, entertainment value and web appearance. The efficiency dimension included 17 e-service attributes that help consumers find necessary information quickly with ease such as advanced search engine, browsing options, well-organized contents, no dead links, site map and FAQs. The order/delivery management dimension consisted of 13 attributes that consumers need in order to make a purchase and obtain goods such as shipping options, payment methods, shipping and handling information and return process. The customer service dimension contained ten service attributes related to customer service essential for customer needs such as satisfaction guarantee and prompt responds to customer inquiries via live help and/or e-mail. The personalization dimension, which is related to customer-driven tailored service such as international shipping and customized alterations and a retailer blog, included 11 attributes. The trust dimension consisted of seven items associated with a company’s information, security and privacy policies. The product description dimension included seven attributes comprised of product-related information such as general sizing, care instructions, product dimensions and customer reviews. The product presentation dimension contained eight attributes relevant to product presentation related features such as back view, side view and zoom function. The entertainment value dimension included five entertainment-related features such as background music and audio and video presentation. The web appearance dimension including four attributes related to various graphic characteristics such as retailers’ logos, background colors and graphics (see Table IV). Confirmatory factor analysis A confirmatory factor analysis (CFA) using LISREL 8.80 was conducted to test construct validity of the nine dimensions. The measurement model provided an adequate fit to the data (NFI ¼ 0.96; CFI ¼ 0.98; IFI ¼ 0.98; RFI ¼ 0.96; RMSEA ¼ 0.062). All factor loadings were greater than 0.60 and were statistically significant (Barclay et al., 1995). All composite reliabilities exceeded the 0.70 threshold (Nunnally and Bernstein, 1994), and the average variance extracted (AVE) exceeded 0.50 (Fornell and Larcker, 1981) (see Table V). Discriminant validity was confirmed by examining that the square root of AVE for each construct is larger than the squared correlations between constructs (Gefen and Straub, 2003). Cronbach’s α coefficients for all nine dimensions were above 0.70 (see Table V). Based on EFA and CFA, a conceptual model for the current study is developed (see Figure 1). Hypothesis testing Based on the respondents’ reported annual household income distribution measured using seven categories (1¼ under $25,000; 2¼ $25,000–49,999; 3 ¼ $50,000–74,999; 4¼ $75,000–99,999; 5 ¼ $100,000–149,999; 6 ¼ $150,000–199,999; 7 ¼ $200,000 and over), a median split criterion was utilized to examine their perceptions on e-service quality. Determining the household income category between $75,000 and 99,000 as the median, two different income groups were identified. The respondents who selected an annual household income under $99,000 (52.8 percent) were labeled as low/middle-income luxury consumers, and the respondents who chose an annual household income over $100,000 (47.2 percent) were labeled high-income luxury consumers. Johnson and Lamdin (2015) employed $100,000+ income as a cut-off value for the high-income group. In a similar way, AEI (2016) categorized a household income of $100,000 and over as upper-income households. In accordance with these reports, the two income groups identified for the current study are applicable for comparison. Owing to the inadequate sample size at the group level, composite scores were calculated for all dimensions and a path using LISREL 8.72 was conducted to examine key dimensions that affect overall e-satisfaction across two income groups. The path analysis for each group 230 IJRDM 47,2

indicated an acceptable model fit (high-income group: NFI ¼ 0.98; CFI ¼ 0.99; IFI ¼ 0.99; RMSEA ¼ 0.067, low/middle-income group: NFI ¼ 0.98; CFI ¼ 0.99; IFI ¼ 0.99; RMSEA ¼ 0.081). Figure 2 shows the results of the path analyses. For the high-income group, efficiency (β ¼ 0.49, t ¼ 2.35, p o 0.05) and graphic styles (β ¼ 0.45, t ¼ 2.50, p o 0.05) Factor loading t-value Factor loading t-value Efficiency (EFF) PER3 0.73 10.39 EFF1 0.77 –a PER4 0.76 10.70 EFF2 0.68 12.10 PER5 0.82 11.25 EFF3 0.67 11.96 PER6 0.75 10.54 EFF4 0.74 13.34 PER7 0.83 11.31 EFF5 0.81 14.98 PER8 0.70 10.06 EFF6 0.79 14.48 PER9 0.76 10.70 EFF7 0.76 13.77 PER10 0.69 9.94 EFF8 0.70 12.57 PER11 0.65 9.52 EFF9 0.70 12.48 Trust (TRU) EFF10 0.60 10.46 TRU1 0.75 – EFF11 0.60 10.43 TRU2 0.81 14.20 EFF12 0.66 11.62 TRU3 0.75 13.12 EFF13 0.72 12.94 TRU4 0.76 13.28 EFF14 0.64 11.34 TRU5 0.75 13.03 EFF15 0.68 12.09 TRU6 0.76 13.32 EFF16 0.71 12.85 TRU7 0.76 13.32 EFF17 0.74 13.35 Product description (PRD) Order/delivery management (ODM) PRD1 0.74 – ODM1 0.71 – PRD2 0.77 13.37 ODM2 0.72 12.00 PRD3 0.77 13.30 ODM3 0.71 11.81 PRD4 0.73 12.55 ODM4 0.74 12.24 PRD5 0.76 13.13 ODM5 0.68 11.35 PRD6 0.71 12.15 ODM6 0.72 11.92 PRD7 0.67 11.52 ODM7 0.79 13.04 Product presentation (PRP) ODM8 0.78 12.94 PRP1 0.74 – ODM9 0.77 12.68 PRP2 0.82 14.40 ODM10 0.76 12.52 PRP3 0.74 12.82 ODM11 0.76 12.62 PRP4 0.75 13.10 ODM12 0.74 12.27 PRP5 0.83 14.57 ODM13 0.68 11.23 PRP6 0.78 13.71 Customer service (CUS) PRP7 CUS1 0.69 – PRP8 0.65 11.12 CUS2 0.70 11.19 Entertainment value (ENV) CUS3 0.72 11.54 ENV1 0.82 – CUS4 0.72 11.55 ENV2 0.83 16.40 CUS5 0.74 11.88 ENV3 0.79 15.28 CUS6 0.79 12.62 ENV4 0.70 13.08 CUS7 0.76 12.20 ENV5 0.80 15.61 CUS8 0.77 12.30 Web appearance (WEA) CUS9 0.66 10.66 WEA1 0.78 – CUS10 0.70 11.21 WEA2 0.83 14.79 Personalization (PER) WEA3 0.82 14.58 PER1 0.61 – WEA4 0.76 13.50 PER2 0.73 10.33 Note: a Set to 1 therefore no t-values are given Table IV. 9 Dimensions and items employed 231 Imperative challenge for luxury brands

were statistically significant dimensions in affecting e-satisfaction. For the low/middle-income group, the significant dimensions that affected overall e-satisfaction were order/delivery management (β ¼ 0.51, t ¼ 2.43, p o 0.05), personalization (β ¼ − 0.51, t ¼ −2.68, p o 0.01) and trust (β ¼ 0.44, t ¼ 2.20, p o 0.05). The relationship between e-satisfaction and e-loyalty was statistically significant in both groups (see Figure 2). Discussion and implications With the steady growth of the luxury market and the increasing interest in luxury consumption by consumers from a variety of demographic groups, the topic of luxury has attracted academics’ attention for many years. However, most of the extant luxury research focuses on consumers’ motivational/psychological aspects of luxury consumption in physical retail settings. In the current global digital era, almost all retail except luxury are Cronbach’s α CR AVE Efficiency 0.94 0.94 0.50 Order/delivery management 0.93 0.94 0.54 Customer service 0.91 0.92 0.53 Personalization 0.92 0.93 0.54 Trust 0.90 0.91 0.58 Product descriptions 0.88 0.89 0.54 Product presentation 0.90 0.92 0.59 Entertainment value 0.89 0.89 0.62 Web appearance 0.87 0.87 0.63 Table V. Reliability and convergent validity Efficiency Web appearance E-satisfaction E-loyalty 0.49 (2.35) 0.81 (9.67) 0.45 (2.50) High-income group Order/delivery management Trust E-satisfaction E-loyalty 0.73 (7.97) Low/middle-income group Personalization 0.51 (2.43) 0.44 (2.20) –0.51 (–2.68) Notes: Showing significant paths only. 2 (18)=21.88; RMSEA=0.067; CFI=0.99; NFI=0.98; IFI=0.99. Showing significant paths only. 2 (18)=24.48; RMSEA=0.081; CFI=0.99; NFI=0.98; IFI=0.99 Figure 2. Path analysis results 232 IJRDM 47,2

heavily embracing multi-channel systems by selling products across different channels. The luxury industry is in its infancy stage in accommodating digital platforms. Compared to traditional physical stores, the virtual environment can provide incredible values and benefits to luxury brands by opening up a whole new world of opportunities. However, to date, little research has given attention to luxury brands’ digital presence, particularly in relation to how luxury brands are performing in a virtual context and how luxury consumers perceive luxury brands’ virtual performance. Thus, to fill this gap in the literature, the current study examined the service quality of luxury fashion brands’ own official e-commerce sites and what luxury customers value the most. That is, based on the service attributes available on actual luxury fashion brands’ e-commerce sites, the current study investigated the vital dimensions that affect luxury consumers’ perceptions of e-service quality in relation to overall e-satisfaction and e-loyalty in connection with different income groups of Generation Y luxury consumers. Generation Y is the focus of this study due to the market size and large spending power of this segment. Based on a list of e-service attributes indicated from a content analysis of 131 luxury fashion brands’ own official e-commerce sites, the current study identified nine e-service quality dimensions: efficiency, order/delivery management, customer service, personalization, trust, product description, product presentation, entertainment value and web appearance. The nine dimensions encompass all the service attributes available on luxury fashion brands’ own official e-commerce sites. Thus, the key dimensions identified in this study can be used as critical indicators in understanding Generation Y consumers’ perceptions of luxury fashion brands’ e-commerce sites across different income levels. For the low/middle-income group of Generation Y, three dimensions (order/delivery management, personalization and trust) were identified as significant dimensions influencing overall e-satisfaction. Since luxury goods are much more costly than general products, this consumer group would need to be ensured through detailed information about shipping and handling methods, payment options, return instructions and online account management for tracking orders and making payment. Providing sufficient service attributes regarding order and delivery would be vital to enhance customer satisfaction and retention rate. Offering free shipping and returns would also be a good strategy to reduce any uncertainty this group of customers may encounter regarding goods ordered. The importance of the trust dimension for the low/middle-income group is not surprising since those consumers may spend more than they can afford to get luxury fashion items. Therefore, trust-related features such as general company info and security and privacy policies would be crucial when they purchase luxury fashion items online. Previous research addressed the importance of website appearance in impacting consumers’ website quality judgment (e.g. Collier and Bienstock, 2006) and security/privacy issues (Wolfinbarger and Gilly, 2003). A well-designed e-commerce site might also be a way to reduce low/middle Generation Y luxury consumers’ safety concerns. Unexpectedly, personalization had a significant negative impact on the low/middleincome group’s overall e-satisfaction. There might be two possible explanations to interpret this finding. First, the Generation Y low/middle-income consumer group might be goaloriented luxury consumers who look for items based on their particular needs only. The significant impact of only utilitarian quality related dimensions (i.e. order/delivery management and trust) on their overall satisfaction supports this explanation. Thus, personalization related service attributes available on luxury brands’ sites might be superfluous for this consumer group and might distract them from achieving their shopping goals. Another potential interpretation of this negative result would be a conflict between their high expectation toward luxury brands’ e-commerce sites and the unsatisfactory level of personalization related service attributes available on the sites. The issue of personalization needs to be further addressed in future research. 233 Imperative challenge for luxury brands

For the high-income consumer group of Generation Y, efficiency and web appearance were significant dimensions that affected their overall e-satisfaction. This result is consistent with the findings in Tűrk et al. (2012). According to Liu et al. (2013), luxury consumers prefer to purchase luxury goods online due to convenience, no need to drive to the physical store. Compared to in-store shopping, online shopping provides greater convenience to consumers since they are free to control the time and place of their shopping (Kluge and Fassnacht, 2015). Thus, in the brand’s virtual site, efficiency related attributes which help consumers quickly find the information they need with ease such as (advanced) search engine, browsing options, and sort/filter options seem to be crucial. Also, providing interactive shopping aids such as 24/ 7 live chat support service would enhance site efficiency since site visitors can solve their needs with instant access to the site’s support staff. Website appearance was also a critical dimension that affected the high-income group’s overall e-satisfaction. In a physical store, emotional appeal and design aspects connected to the brand are frequently empathized for luxury brands (Brun and Castelli, 2013; Liu et al., 2013). This interpretation still applies to the online setting when Generation Y high-income consumers shop for luxury fashion goods in luxury brands’ e-commerce sites. A luxury brand’s website design reflects the brand identity (Okonkwo, 2010). Thus, the website appearance of a luxury brand plays an important role in evoking positive feelings about the brand and the products. According to Rosen and Purinton (2004), the visual appearance of a website impacts intention to revisit the site as well as consumers’ impression of the site. Hence, the enjoyable experience generated from a visually appealing website atmosphere seems to create strong brand intimacy which eventually makes customer loyal to the site. Much of the current luxury literature identifies luxury consumers as a homogeneous group and explores their shopping behavior and other aspects as a whole unit. In contrast, the findings of the current study demonstrate that luxury consumers are substantially distinct across different demographic groups by proving that the key dimensions of e-service quality that the respondents perceived are dissimilar depending on their income levels. According to CNBC (2014), luxury brands lose half of their top customers every year owing to inaccurately identifying their customers and by not providing tailored shopping experience accordingly. The current study provides a clear practical implication to the luxury fashion brands as to what dimensions luxury consumers value most in relation to different income levels. Compared to low/middle-income Generation Y luxury consumers who value goal-oriented service attributes more than experiential, high-income Generation Y luxury consumers showed the opposite. Based on the results of the current study, luxury brands need to develop an effective website reflecting these variances initiated by different income levels to satisfy all of their consumers. As more and more luxury consumers become digitally oriented, the leading concern luxury brands need to consider no longer involves whether or not to embrace e-commerce. Having an e-commerce base is already an imperative requirement for luxury brands. How to provide a high level of exceptional customer experience in their own e-commerce sites to enhance customer loyalty by satisfying customer needs should be their top concern. Unlike the homogenous cluster that was frequently assumed in previous luxury literature, luxury consumers are actually heterogeneous groups. Depending on their distinct demographics, the various groups perceive differently. Thus, luxury brands should thoroughly examine who their main target customers are in terms of various age/income levels and manage/ develop their online websites accordingly. In today’s digital era, the conventional characteristics related to luxury such as superior craftsmanship, exclusive in-store service and exquisite store atmosphere may not be solely related to brand reputation and successful business. Soon luxury brands’ high performance of e-service quality will be a critical determinant of financial success. Through state-of-the art technologies, luxury brands can foster their website appearance and website content by embedding advanced features. 234 IJRDM 47,2

Luxury brands need to think outside the box and evaluate new emerging trends from their customers’ perspective and develop a powerful business strategy so that they can maintain long-term relationships with their existing and potential customers. This study does not imply that luxury brands’ official e-commerce site quality is the highest indicator of luxury brands’ business success and that luxury brands’ offline environment is no longer critical to contribute to luxury brands’ success or failure in today’s digital world. As addressed in the literature review section, luxury brands are defined in terms of various characteristics. Luxury brands need to pay close attention to all of those key characteristics to maintain their brand image. Also, they need to build strong offline brand awareness through iconic coveted products, incomparable offline store environment, and excellent customer service (Fionda and Moore, 2009). In addition to all of these vital elements, luxury brands should incorporate their own e-commerce sites as a necessary commercial transaction platform, maintain high e-service quality, and provide cutting-edge customer experience to stay ahead of their competition in today’s environment. This study has several limitations. First, the respondents recruited for the current study are US Generation Y luxury consumers who have experiences with online shopping for luxury fashion goods. Therefore, the results of the study may not be generalizable to other populations and product categories. Further research needs to be conducted with different samples from various countries and other luxury product categories. Second, scholars and practitioners may have different opinions about the median split criterion utilized in the current study to divide respondents into the two income levels. Future research may apply different criterion to divide respondents into different income groups. However, the split method employed for the study is not the vital question. The bottom line is the need to address the fact that luxury consumers are unlike and that their perceptions on e-service quality are dissimilar based on different income levels. Thus future luxury research needs to recognize that all luxury consumers are not the same and income is an important factor that should be considered. References AEI (2016), “Census data on income distribution reveal evidence of rising income levels for a rising share of American households”, available at: www.aei.org/publication/census-data-on-incomedistribution-reveal-evidence-of-rising-income-levels-for-a-rising-share-of-american-households/ (accessed April 6, 2017). Aruna, S. and Santhi, P. (2015), “Impulse purchase behavior among Generation Y”, The IUP Journal of Marketing Management, Vol. 14 No. 1, pp. 21-38. Bain and Company (2017), “Luxury goods worldwide market study, Fall–Winter 2017”, available at: www.bain.com/insights/luxury-goods-worldwide-market-study-fall-winter-2017/ (accessed September 30, 2018). Barclay, D.W., Higgins, C.A. and Thompson, R. (1995), “The partial least squares approach to causal modeling: personal computer adoption and use as illustration”, Technology Studies, Vol. 2 No. 2, pp. 285-309. Bauer, H.H., Falk, T. and Hammerschmidt, M. (2006), “eTransQual: a transaction process-based approach for capturing service quality in online shopping”, Journal of Business Research, Vol. 59 No. 1, pp. 866-875. Bellaiche, J.-M., Mei-Pochtler, A. and Hanisch, D. (2010), The New World of Luxury: Caught between Growing Momentum and Lasting Change, The Boston Consulting Group, Boston, MA, available at: www.bcg.com/documents/file67444.pdf (accessed September 21, 2018). Berridge, H.S. (2018), “A practical look at the challenges luxury fashion brands face in the wake of digitalization: is it time that luxury fashion brands learn to love e-commerce platforms?”, Journal of Intellectual Property Law & Practice, Vol. 13 No. 11, pp. 901-908. 235 Imperative challenge for luxury brands

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