Last fall, as leading luxury e-tailers Farfetch and Matches scrambled to secure additional funding to avoid bankruptcy, the emerging luxury market faced the opposite scenario.
Cult Mia, a platform launched in 2019 that sells an assortment of ultra-feminine clothing by independent designers, saw so much investor interest that it ultimately raised $3.5 million in a seed round in November. USD, nearly doubling its original fundraising goal of $1.8 million.
Investors, including Morgan Stanley, found the company's prospects attractive because of its financial profile. In 2023, Cult Mia generated 70% of his gross profit and had double his sales. The same is expected this year.
In the ongoing reckoning of luxury e-commerce, these numbers seem like a myth. Many of the luxury e-commerce giants once heralded as the future of shopping have lost their edge. Sales and growth declines accelerated as individual brands increased investment in their direct channels and aspirational shoppers refrained from purchasing luxury goods, leading to overstocking and discounting that eroded profits. urged. In the past six months alone, Farfetch sold to South Korean retail giant Coupang in December, Farfetch's planned acquisition of competitor Youx Net-a-Porter ended, and while it is still looking for a buyer, Matches It came under power in 2016 and narrowly avoided bankruptcy. march. Myteresa continues to be a bright spot. Sales rose 17% in the first quarter of the calendar year, driven by exclusive products such as capsule collections from brands such as Loewe and Brunello Cucinelli, and money-can't-buy experiences for big spenders.
While the big players in the space are on the brink, the entire smaller luxury marketplace, including Cult Mia, Wolf & Badger, Garmentory, and Verishop, is finding success with a different approach. Rather than competing with high-income consumers with an assortment full of blockbuster brands, the company is appealing to aspiring shoppers with an exclusive selection of $200 to $600 products from emerging brands. These platforms have grown profitably by refusing to own inventory, selling marketing services to brand and boutique partners, and suppressing discounts.
Moreover, these companies are not directly competing to sell the world's most famous brands. In fact, some companies don't even think about selling those brands at all. Marissa Lepore, a director at investment bank The Sage Group, said maintaining an indie brand's unique and differentiated offering could be exactly what helps them reach heights. .
“I don't think scale and differentiation are mutually exclusive. You can't be something to everyone,” Lepore said. “Customers like to feel like they're in charge of their own lifestyle. There's a pretty broad audience for something like this.”
new value proposition
The high cost of purchasing and storing inventory has proven to be a death sentence for luxury e-commerce giants. But smaller peers aren't afraid to shift operating costs onto their brands.
Cult Mia, Wolf & Badger, and Garmentory all operate on a model where brands are responsible for packing and shipping their own orders, and the platform receives a cut of each sale.
It also avoids covering other logistics costs that can hurt profit margins. Cult Mia requires new brands to submit their own product images. This not only contributes to the platform's high gross margins, but also allows Cult Mia to avoid further investments in designers who have not yet proven their sales performance on the platform.
Recurring revenue sources other than sales commissions also cushion operating costs.
Wolf & Badger is a 14-year-old marketplace that charges brands a $375 monthly fee on top of the commission it earns on every sale. George Graham, the company's co-founder and CEO, said these fees help cover operating costs, including in-house software development and maintenance. Wolf & Badger ended 2023 with his first full-year profit, Graham added.
The goal is to “build an engaging platform on which the entire brand can thrive.” Graham said.
We also offer additional services for a fee. In February, Seattle-based platform Garmentory introduced an Amazon-like marketing service that allows brands to pay to appear higher in customer search results on the site. Sunil Gowda, co-founder and CEO of Garmentory, says that so far, his 20% of brands selling on the platform have used the service.
These marketplaces also have a firmer grip on the continuing discounting challenge of online luxury goods, with smaller players giving brands more autonomy when it comes to pricing and markdowns.
For example, Garmentory lets brands choose whether to participate in the platform's bimonthly promotions, and those that opt in can also decide how much of a discount they want to offer. Garmentory does not provide additional price reductions without the brand's consent, thus maintaining high profit margins for both the brand and the platform. Gowda said Garmentry's EBITDA margin is on track to reach 20% by 2024.
An experience like no other
Similar assortments undermined differentiation between sites such as Farfetch and Net-a-Porter. On the other hand, these marketplaces feature emerging brands, many of which serve as exclusive wholesale partners. This means shoppers are less likely to match prices on competing sites.
Robert Burke, CEO of retail consultancy Robert Burke Associates, said tighter product selection is especially important in a market where emerging brands have become a competitive advantage. Ta.
“For lesser-known brands, it's even more important not to offer too much, as you may end up with a sea of emerging brands that may not resonate,” he added.
The platform regularly rejects brands to maintain a streamlined product range. Cult Mia carries only 15 percent of the 2,000+ brands he has researched since launch. Cult Mia founder and CEO Nina Brians said the company evaluates each brand's quarterly sales and delists labels that aren't performing well.
“We don't want to carry a product that doesn't resonate with our customers,” Bryans said. “When it comes to customer experience, more is not always better, and curation is paramount.”
Another untapped opportunity that stands out online is on-site personalization.
In March, Wolf & Badger introduced a tool that shows individual shoppers a unique homepage based on their purchase and browsing history. We also have existing functionality that automatically filters users' search results based on similar criteria.
“We are building a very powerful retail engine that helps drive conversion and a profitable ordering economy by connecting the right consumers with the right products at the right time. ,” Graham said. The company has increased its total circulation, a measure of sales made through the platform, by 30% year over year, and is on pace to reach more than $100 million in 2024.
With attracting and retaining consumer attention online more difficult than ever, offering customers a curated selection of products with perspective is essential. Cult Mia is more romantic and sophisticated, while Wolf & Badger's assortment is more whimsical and playful. Additionally, independent brands are becoming more popular with consumers tired of big luxury brands, said Brian Ehrig, a partner in the consumer practice at management consulting firm Kearney.
“We all know that the brands at the top end of the luxury market have grown so much that it's now a bit of a cliché to wear them,” Ehrig said. “If you’re a fashionable person, you’re probably going to pay more attention to these indie brands.”
