Rosh Mahtani, founder of jewelery brand Alighieri, celebrates 10 years in business this year. Her handcrafted gold-plated pieces, inspired by Dante's Divine Comedy, won the Queen Elizabeth II Award at the British Design Awards and made her a mainstay of luxury e-commerce vendors.
During Paris Fashion Week last month, buyers, including major multi-brand fashion retailer Matches Fashion, which is responsible for about half a million pounds (about $630,000) of Alighieri's expected revenue, were in her showroom to select next season's inventory. visited. But there was a problem.
“They owed me £70,000.” [about $88,000] I have unpaid bills since October and was seeking discounts on those bills,” Mahtani said last week. She became concerned, even though such negotiations are increasingly common for independent brands like hers. Still, she says, she wasn't shaking in her boots.
“The team made the selections and discussed the summer capsule collection,” she said. “I don't think any of us had any idea what was going to happen next.”
A few days later, MatchesFashion was placed into administration (British term for bankruptcy). Owner Frasers Group, which bought the company in December for about 52 million pounds (about $66 million), said the business was not commercially viable. The company, which was valued at $1 billion when it was sold to Apax Partners in 2017, laid off nearly half its employees overnight. Currently, 200 brands are in debt and unable to access unsold inventory, sparking outrage among customers online. Access or Return Your Order.
MatchesFashion's collapse is the latest embarrassment for companies that sell luxury goods online. Once the darlings of investors, many of them are financially ruined. In December, Farfetch, once a leading e-commerce company for independent boutiques and beloved by the luxury brand giants whose websites it operated, was announced in the 11th hour by South Korean e-commerce group Coupang. and a $500 million bridge loan saved it from bankruptcy. (Farfetch was valued at $40 billion in 2021.)
Farfetch founder Jose Neves resigned as CEO in February amid a series of lawsuits from shareholders. The future of Youkes Net-a-Porter is also in doubt after a deal between its parent group Richemont and Farfetch fell through last year. Richemont, which listed Net-a-Porter as a “discontinued operation” in its latest financial report and recorded writedowns of nearly billions of euros, said it was looking for a buyer and had no intention of investing any more cash. Richemont, Farfetch and Matches Fashion all declined to comment for this article.
For much of the past decade, luxury e-commerce has emerged as a smart way to shop, offering hyped brands, exclusive products, free returns, and 90-minute delivery services at the swipe of a button. Physical stores will definitely go out of business. Whether it's fashion priced at $50 or $50,000, the future lies in clicking “Add to Basket.”
During the first years of the pandemic, consumers splurged through such websites. Questionable business choices, global economic instability, soaring luxury goods prices and big brands investing heavily in their digital operations have left retailers struggling to make profits. They were restricted from being able to stand out in a competitive market, let alone raise their prices.
“Eventually what can't hold up will fade. Online players need to have more realistic ambitions,” said Luca Sorca, a luxury goods analyst at Bernstein. “Matches is bankrupt, Farfetch is spending money on controversial acquisitions like there's no tomorrow, and Net-a-Porter is obsolete. The dream of becoming the Uber of luxury goods distribution turns into a nightmare and then becomes a reality. proved impossible.”
Scroll of fashion ruin
Multi-brand e-commerce emerged at a time when the global luxury goods market was being transformed by a shift from exclusivity to ubiquity. The novelty and excitement of being able to browse and purchase beautiful things delivered right to your door appealed to consumers accustomed to the instant gratification of the internet age.
But what's interesting about online luxury e-commerce is that many players have adopted a broken model, mirroring the well-known woes of U.S. department stores. After the pandemic boom, many people became overstocked, leaving behind mountains of unsold inventory. Then they resorted to aggressive promotions and discounts. This has led big brands to seek greater control over e-commerce and distribution. As competition increased, multi-brand vendors tried to spend more and find a difference.
More brands and more products in more geographic regions. Further sales. Beyond the eye-watering expense required to build the infrastructure to ship all those orders and process all those free returns, it's a lot of what made it attractive to consumers in the first place. It was a model that ruined everything.
“Many consumers come to these sites because they want to quickly and intelligently edit their work and have immediate access to it,” said Fiona Harkin, director of Foresight at consulting firm Future Laboratory. “The end result, especially with the advent of mobile commerce, is an unsatisfying scroll of fashion doom, with dozens of pages of products that could probably be found elsewhere.”
These challenges coincide with an overall softening in the luxury market, with many e-tailers seeing their discretionary spending constrained by inflation and soaring luxury prices. consistent with exposure to middle-class consumers. Solka estimated that the top 5% of luxury goods customers, including luxury e-tailers, will account for more than 40% of sales in 2023. In other words, even more fickle and demanding customers are in court.
Some players have tried to expand their business strategies through expensive acquisitions. Farfetch owns British luxury store Browns. New Guards Group, the Italian incubator that holds the licenses for Off-White and beauty retailer Violet Gray, is currently in talks to sell these assets. With the advent of resale, customers began buying used items not long after they were sold at list price.
“The costs of successful digital marketing and customer acquisition have become increasingly expensive, and investors have become less and less willing to bear the costs,” said luxury goods consultant Robert Burke. He noted that some companies, like MyTheresa, are doing better than others. But he warned that there had been a long and painful reset in the past three months.
“We're about to see a major evolution in luxury e-commerce, orthodontics might be a better word,” Burke said. “Overall, online sales of luxury fashion increased last year. This is not a shrinking market. What's changing is who gets a piece of the pie.”
On the brink of bankruptcy
For JJ Martin, founder of lifestyle label La Double J, the inspiration for getting into the ready-to-wear business was thanks to Ruth Chapman, founder of MatchesFashion, which started stocking La Double J in 2016.
“In those days, everyone was looking at matches and wondering what to buy, because Ruth had the best eyes, nose and ears on earth,” Martin said last week. “When she came to pick me up, that was a big opportunity for me. They didn't have all the brands, they just had the coolest ones. This is the same one he had 7 It was the biggest asset of these sites before we started stocking two variations.”
Martin is owed money for the resort collection, which he shipped last fall, but declined to say how much. Dozens of brands contacted by The New York Times for this article, many of which had already shipped their spring 2024 collections, remained similarly silent. Anissa's Kamish, beloved by fashion mavens for its jewelry and homewares as well as its ceramic “Love Her Handle” vases in the shape of women's hips and buttocks, was more straightforward. She had a £50,000 ($63,000) difference in her inventory, which was delivered after Christmas.
“There's no hope that we'll ever get this money back,” Karmish said. “That’s a lot of money, but other companies have even more debt and are on the verge of bankruptcy.”
Poppy Sexton Wainwright, who runs the beachwear and loungewear line Asceno, is less worried about the “considerable” amount of money she is owed than the loss of revenue she expected to make this year from MatchesFashion. He emphasized that there is. Several brands said they have moved as much money as possible to their direct-to-consumer websites. This is a blessing in disguise, given reports that buyers at some online stores, including Ssense, a Canadian company still known for its focus on emerging and independent brands, have reduced the number of brands they buy from. is.
Other companies, including Net-a-Porter, are asking some brands to change their payment terms from 60 to 90 days, further upsetting an already turbulent industry. The future of the once-star brand is uncertain, as Farfetch looks for a buyer for the Browns, Richemont looks for a buyer for his Net-a-Porter, and administrators look for a white knight for his MatchesFashion. (It has been noted that Frasers Group planned its acquisition of Match in such a way that it could be bought debt-free even out of bankruptcy.)
“Designers used to want prestige elements to be multi-branded because they had meaning,” said Alighieri's Mahtani. Now they're not such an important piece of the puzzle. Mahtani stopped doing business with Farfetch 18 months ago, but Matches remained the cornerstone of her market. This week she headed to the company's warehouse in Greater London to retrieve some of her stock. (London's Sunday Times estimates that the company is still trading under the guidance of administrators and has around £100m of unsold goods.) Ms Mahtani was not successful. However, she obtained contact details directly from the company. For administrators, this felt like a step in the right direction.
“I had to do something,” she said. “It was outrageous to see stocks that I knew I hadn’t paid for still being sold on a website. No company will suffer a loss.”
