Luxury goods and e-commerce have always had a complicated relationship.
When Nathalie Massenet launched Net-a-Porter in 2000, most luxury brands still had some level of distrust of online shopping. It wasn't clear how a small digital image could convey what makes a high-touch item of luxury fashion valuable and worth the splurge. In this case, technology seemed to be adding barriers between products and consumers, rather than removing them.
But even if they weren't ready to launch e-commerce themselves, many brands were eager to join Massenet's idea of making Net-a-Porter the first major shopping site for online luxury goods. Ta. Of course, Massenet was proven right. Consumers were willing to buy luxury goods online.
Over time, brands emerged and became retailers' biggest competitors, contributing to the serious challenges retailers face today. In the US, for example, data compiled by Earnest Analytics for the BoF shows that consumer spending at online luxury retailers will continue to decline through 2023, with Earnest forecasting a double-digit decline in 11 out of 12 months. recorded a decline. Net-a-Porter, Farfetch, Matches are among the retailers included in this category.
This struggle is not new. Multi-brand luxury goods retailers have been under pressure for some time. But the situation seems only to get worse.
The question is whether this model itself is broken. This is partly because brands that once shied away from selling online are now fully embracing it.
Last year was a particularly tough year for players in luxury e-commerce. Farfetch was on the brink of bankruptcy until South Korean e-commerce giant Coupang bought it at the last minute with $500 million in emergency funding. Frasers Group acquired Match in a deal that left the previous owner, private equity firm Apax Partners, with a significant loss. Richemont said Ukes Net-a-Porter's sales fell 10% in the six months from April to September. His privately held company, Ssense, does not report on financials, but 2023 begins with layoffs, suggesting the company itself is struggling.
But not all online luxury goods were similarly affected. Overall luxury e-commerce is actually growing, growing at a slightly faster pace than the overall luxury goods market, which slowed in 2023, according to data from Coresight Research. Coresight expects continued growth, with another report released in January. Consulting firm Bain & Company predicts that online luxury goods sales will account for 33 percent of sales by 2030, up from about 20 percent of the market today. Shoppers continue to purchase fashion, including luxury goods, online.
But in many cases, brands are selling through their own e-commerce channels rather than through multi-brand retailers, said Sunny Zheng, senior analyst at Coresight. There are various reasons, including product assortment. Brands often dedicate their best-selling products to their own channels, leaving leftover products with third-party retailers. She pointed out that you'll never see Louis Vuitton's Neverfull handbags for sale on Farfetch unless they're second-hand. But there are other factors as well.
“[Comparing] “The experience, the authentication, and the trust in the brand…there's no appeal for consumers to go to Farfetch or Ssense,” Zheng said.
Challenges of luxury e-commerce
The problem of multi-brand online luxury goods sellers is not an easy one to solve. Bernstein analysts explored the “consumer of the future” and the impact on various industries in a November client note. Fashion aggregators, large multi-brand retailers, face many challenges. Consumers create an emotional connection with brands above all else, giving them most of the power. Consumers are already overwhelmed with choice, and aggregators add to the problem. And when it comes to their shopping journey, consumers are now turning to social media for the inspiration and product discovery aggregators they once provided.
More successful luxury e-commerce sellers, such as Mytheresa, differentiate themselves through offerings such as exclusive products and experiences that continue to attract high-spending customers. The company's sales rose 12% in the quarter ended Sept. 30 despite the challenging environment, including a 29% increase in the U.S., although the normally profitable business A loss was recorded.
Other companies may also compete on price. Ssense has built a reputation for extensive discounting, as documented in an article examining its impact on the fashion ecosystem in fashion newsletter Blackbird Spyplane. Zheng pointed out that Farfetch became popular 10 years ago because it offered a large number of discounted products and was sold all over the world.
At the same time, these companies can incur significant operating costs to maintain their logistics and technology platforms, and the price of customer acquisition on social media has risen over the years. It only makes it harder for them to grow and make a profit.
However, in Zheng's view, this business model is not going away. Wholesaling is still important to brands, especially small brands but also big brands, and being a multi-brand online luxury goods retailer still works. But these companies need to have a great product selection and work closely with brands on pricing strategy.
Without rethinking their approach, many luxury e-commerce companies will find themselves becoming less relevant as brands increase their direct-to-consumer sales. Bernstein speculated in the report that consumers will continue to use fashion aggregators, but primarily to access smaller brands and shop in smaller markets.
“Without compelling personalization and differentiated customer propositions, aggregators end up becoming low-margin distribution businesses, facing consumer apathy, and ending up like department stores. “There is a risk that the
