Diesel debuts online store

(Fortune) -- Diesel has cultivated an edgy image by selling pricey jeans and other apparel to urban hipsters, but when it came to the web, the company, like so many fashion brands, was behind the curve.

The Milan-based company takes a giant step forward on Monday with the official opening of its online store, allowing customers for the first time to purchase its $200 jeans and $150 tops with the click of a mouse.

Diesel is the latest fashion company to make its products available online, in a move that is increasingly melding high fashion with high tech. For years designers preferred to sell their goods through a tightly controlled network of luxury department stores and their own boutiques, fearing the web would tarnish their image of exclusivity.

But with advancements in technology, fashion houses from Yves Saint Laurent to Louis Vuitton are finding they can recreate much of the sophistication of their real world stores online.

Diesel spent a year developing its online store. To give the site a high-gloss feel, it hired several film industry executives, who helped the company tailor technology that was first used in movies like "The Matrix." The result is three-dimensional looking models who appear as if they are floating, dancing and flying through space. The company rented a film studio in Germany and constructed a special digital camera to shoot images in slow motion. "We wanted to convey the Diesel experience online," said Chief Executive Renzo Rosso.

Assisting Diesel was Yoox Group, a Bologna-based company that creates and manages virtual stores for designers. Yoox got its start in 2000 as an online retailer of designer overruns, providing fashion houses with a reliable way to clear last season's merchandise.

Last year, Yoox used its relationships with designers as a springboard to start a new division, one that runs their online stores. For clients like Diesel, Giorgio Armani and Italian knitwear brand Marni, Yoox handles everything from the development of technology to shipping and customer service.

"Designers were smart to wait until broadband speeds got faster and the technology got more sophisticated before launching online stores," said Yoox founder Federico Marchetti, a former luxury-goods analyst. "You can't sell luxury brands the way Amazon (Charts, Fortune 500) sells books."

Though growing fast, online purchases of luxury apparel, footwear and accessories is still a relatively small category, accounting for just $1 billion of the $18 billion of all such items purchased on the Internet last year, according to Forrester Research.

Analyst Sucharita Mulpuru expects online sales of apparel, footwear and accessories to grow more than 20 percent this year, with the luxury end "growing at least as fast if not faster."

The burgeoning market has attracted companies like Net-A-Porter a Yoox competitor based in London and GSI Commerce, of King of Prussia, Pa. outfit, which hosts web sites for Polo Ralph Lauren and Estee Lauder, as well as players like Saks Fifth Avenue (Charts) and Neiman Marcus, both of which have seen their online sales soar in recent years.

Despite a perception that $8,000 cocktail dresses and $600 stiletto sandals are better sold in fancy boutiques, with the help of knowledgeable sales clerks and plush surroundings, high-end apparel and shoes are selling better than ever online.

Fashion firms are also increasingly using the web to create a community for their customers. Diesel, for instance, has a section on its web site called The Cult, which provides reviews of hot new independent albums, offbeat art exhibits and other topics likely to interest Diesel shoppers. The content has helped Diesel.com attract 45,000 viewers a day, according to Rosso.

But selling expensive merchandise over the Internet is not without challenges. The return rate for these goods can run as high as 50 percent, almost double that of more moderately priced items, Mulpuru, the analyst said. That is why some designers have restricted online sales to accessories like handbags and wallets that don't need to be tried on.

Like many luxury retailers, Yoox not only provides free returns, but also saves its customers the hassle of a trip to the post office. By dialing a toll free number, shoppers can arrange for the unwanted goods to be picked up from their home or office. Yoox foots the bill with a small contribution from its suppliers. "Along with shipping, returns are one of our biggest costs," Marchetti said.

And while the technology has improved, there are still dozens of luxury brands, from Prada to Cartier, continue to offer no more than photo galleries of their latest collections online.