{"id":682,"date":"2024-06-28T11:34:47","date_gmt":"2024-06-28T11:34:47","guid":{"rendered":"https:\/\/www.yellowfalconmedia.com\/blog\/2024\/06\/28\/luxury-e-commerce-whos-surviving-and-why-the-business-of-fashion\/"},"modified":"2024-06-28T11:34:47","modified_gmt":"2024-06-28T11:34:47","slug":"luxury-e-commerce-whos-surviving-and-why-the-business-of-fashion","status":"publish","type":"post","link":"https:\/\/www.yellowfalconmedia.com\/blog\/2024\/06\/28\/luxury-e-commerce-whos-surviving-and-why-the-business-of-fashion\/","title":{"rendered":"Luxury E-Commerce: Who's Surviving and Why – The Business of Fashion"},"content":{"rendered":"

Agenda-setting intelligence, analysis and advice for the global fashion community.
Last November, while much of the luxury e-commerce sector was in free fall, Mytheresa\u2019s chief executive, Michael Kliger, seemed sanguine.
In the quarter ended Sept. 30, 2023, the high-end e-tailer achieved another quarter of net sales growth, preserving the streak it had maintained since its IPO in 2021. It was faring better than its competitors: The same day, Farfetch abruptly announced it would not provide its usual quarterly results, all but confirming the company\u2019s dire situation that eventually led to its fire sale to South Korean retailer Coupang<\/a> weeks later.
Asked on a call with investors and analysts how Mytheresa could future-proof itself as conditions deteriorated, Kliger said it would do what it had always done: Focus on its top-end clients, which it kept happy with events they couldn\u2019t experience anywhere else, and exclusive products.
\u201cAll of these efforts … allow us to compete not on price, not on discount, but to compete on newness, on exclusivity and combine that with superior service for our best customers,\u201d Kliger said. \u201cThat is the approach that has allowed us to grow in a market where most people shrank.\u201d
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Mytheresa is one of a handful of multi-brand luxury e-commerce retailers, including Moda Operandi and Ssense, marching ahead despite the upheaval roiling their sector<\/a>. Beyond Farfetch\u2019s woes, in December, the ailing Matchesfashion sold to Frasers Group, which shut it down<\/a> just months later. Yoox-Net-a-Porter remains up for sale by owner Richemont, whose deal to offload the loss-making company to Farfetch fell through.
Survivors haven\u2019t gone unscathed. Ssense, known for its lengthy sales, slashed its workforce<\/a> at the start of 2023 due to slower growth; from January to May, sales declined 17 percent from the year prior, according to Earnest Analytics, which analyses credit card data. Moda Operandi said in a statement to BoF that it did not see year-over-year growth in 2023 as it experienced flattening demand.
Still, the companies do appear to be on firmer footing than their peers. Mytheresa continues to report solid sales<\/a>. Ssense and Moda Operandi are privately held, meaning they don\u2019t have to disclose their financials. Ssense nonetheless claims to be profitable on its site, but would not confirm profitability to BoF. Moda Operandi said its sales to-date in 2024 are running at positive comparisons to last year and 2022, and that its resort and spring 2024 inventory had the highest full-priced sell through in its history. While it\u2019s not yet profitable, it expects to be so \u201cin the very near future,\u201d CEO Jim Gold said in an emailed statement.
Experts say these multi-brand players are doing a number of things right: speaking to a specific customer and curating their assortment for them, as well as executing on the basics of retail, including customer service and managing costs and margins.
E-tailers have historically been forced to compete on price, which leads to a cycle of discounting. In an effort to differentiate their offers, Ssense, Mytheresa and Moda Operandi have prioritised curation and honing in on a particular customer: Gen-Z for Ssense, top spenders for Mytheresa and runway watchers for Moda Operandi.
Moda Operandi\u2019s virtual trunk shows \u2014 which gave shoppers first dibs on Chemena Kamali\u2019s debut collection for Chloe through pre-order, for example \u2014 attract a shopper presumably similar to the site\u2019s founder, New York-based socialite Lauren Santo Domingo. That appealed to The Frankie Shop, an influencer-favourite<\/a> basics brand, which collaborated with the retailer on a capsule and pop-up shop in May.
\u201cThe woman they cater to, she\u2019s confident. Why? She pre-orders,\u201d said Frankie Shop founder Ga\u00eblle Drevet.
Mytheresa churns out exclusive capsules tailored to its wealthy shoppers\u2019 lifestyles \u2014 past partners include Valentino, Dolce and Gabbana and Brunello Cucinelli. Ssense, meanwhile, sees itself as the place for emerging designers.
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\u201cOur number one goal is, if [our shopper] already knows about a cool brand, they know we will have it first,\u201d said Brigitte Chartrand, Ssense\u2019s vice president of womenswear buying and Ssense\u2019s everything else category, which includes home, beauty and kids. \u201c\u2018Of course Ssense has it\u2019 is essential to what we do.\u201d
The e-tailers use content and events to pull shoppers to the site and keep them there \u2014 which is increasingly expensive as advertising costs rise, and notoriously difficult because switching tabs is so easy.
\u201cA curator doesn\u2019t only curate \u2018stuff.\u2019 They curate a venue and make the stuff accessible to an audience,\u201d said Thom Bettridge, Ssense head of creative and content. \u201cWe pick the stuff and have this way of speaking to the audience that brings a certain person there.\u201d
For Ssense, that person knows what minimalist Japanese label Auralee is and is willing to give Rick Owens\u2019 inflatable boots a go. Ssense publishes editorials online \u2014 recently, an ode to life in a Vaquera skirt with pink panties sewn on the outside \u2014 and fills its Instagram with memes to spur comments and shares. The content is meant to engage with its particular audience, rather than attract a wide one, said Bettridge. It\u2019s the same on the merchandising side, said Chartrand: buyers are focused on picking the designers and products who directly appeal to its customers. The retailer also looks to fill gaps in its offering by introducing its own take on categories like bridal.
Mytheresa\u2019s engagement with top customers often happens offline. It hosts special events for top clients \u2014 a trip to the Italian Riviera with Dolce and Gabbana or a private viewing of a New York Ballet rehearsal, for example \u2014 that make them feel like part of an exclusive club. In turn, clients shell out: top shoppers, who typically spend six or more figures on clothes annually, drive nearly 40 percent of the business, the retailer told BoF in January<\/a>.
\u201cHaving two days with a customer brings it to an ultimate relationship, which is an emotional tie. And, as we\u2019re selling luxury, an emotional tie is very valuable,\u201d Isabel May, Mytheresa\u2019s then chief customer experience officer, told BoF in January. (May has since left the company to join LVMH).
Even online, the old principles of retail still apply, like the fact that, at its core, retail is a service business, especially in the case of luxury. Moda Operandi said one factor that has played to its advantage is that it puts more emphasis on personal shopping, exceptional customer service and high-touch relationships than on promotional digital marketing.
One source who spoke on condition of anonymity said companies that have struggled ignored the basic retail principles of curation and customer service, focusing too much on their balance sheets rather than serving shoppers in a way that would keep them happy paying full price.
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Even the numbers they focused on may have been the wrong ones.
\u201cWe all have been falling for the massive trend of growth, because ultimately you follow the money, right? If valuations are a multiple of gross merchandising value, all you want is more [GMV] rather than anything else,\u201d said Stefano Martinetto, CEO and co-founder of Tomorrow, a growth and development platform for brands.
This approach may have worked when money was cheap, investors were throwing cash around and shoppers across the income spectrum were splurging on luxury. But it proved unsustainable as market conditions changed.
Ariel Ohana, founder of investment firm Ohana & Co, which advised on the 2022 sale of beauty retailer Violet Grey to Farfetch, said companies that prioritise unit economics and profit over growth at any cost are the ones likely to prove more resilient.
\u201cThe paradox is that these companies operate in the business of high-end products, but they\u2019re not high-margin companies,\u201d Ohana said. \u201cWhen you\u2019re not in a high-margin business, a lot of the success relies on operational excellence, meaning managing costs.\u201d
Moda Operandi, for one, said it has been cutting unnecessary costs across tech, marketing and distribution as it looks to be more efficient.
Of course, luxury retail is not a cheap business, and high costs are to be expected. But the spending should ideally go to improving the customer experience. Farfetch, by contrast, became enmeshed in numerous costly ventures that didn\u2019t necessarily benefit the customer, like its acquisition of New Guards Group.
Pressure to scale can complicate matters, especially when it comes to maintaining margins and curation.
\u201cMany of the strategies [that make e-tailers early successes] are often in conflict with the notion of scaling the business,\u201d Ohana said. \u201cAs you scale you\u2019ll have more brands and less curation, you\u2019ll have more customers and you\u2019re targeting a broader audience.\u201d
The market has fresh challenges. Luxury sales will likely rise 1 percent to 4 percent in 2024, compared to 8 percent growth in 2023, consultancy Bain & Company forecasts. Big players are taking more of their e-commerce in-house, syphoning sales from multi-brand retailers, who are simultaneously facing higher customer-acquisition costs. To succeed, multi-brand e-tailers need to clearly articulate their value proposition and tailor marketing to the next generation of shoppers, said Federica Levato, senior partner and EMEA leader of fashion and luxury at Bain & Company.
Plus, there\u2019s the still unanswered question of how many retailers the market can sustain \u2014 and how big they can get. Too many, and they could end up cannibalising each other or become trapped in the perpetual race to the bottom on price.
\u201cWe\u2019ve been in situations where a rising tide lifts all boats. Now, when the tide is going out, who\u2019s going to be left floating?\u201d said Brian Ehrig, partner in Kearney\u2019s consumer practice.
It\u2019s been a tough year for luxury e-commerce \u2014 but a crop of smaller marketplaces are beating the odds with a focus on emerging accessible luxury brands and a firmer grip on operating costs.
US consumer spending across online luxury sellers like Farfetch, Matches and Net-a-Porter suffered sustained declines throughout 2023. The question is whether the downturn is simply temporary or the luxury e-commerce model itself is broken.
While cash-strapped e-tailers Farfetch and Matches narrowly avoided collapse this week, both inking sales to new owners, online luxury\u2019s way forward remains unclear.
Marc Bain is Technology Correspondent at The Business of Fashion. He is based in New York and drives BoF\u2019s coverage of technology and innovation, from start-ups to Big Tech.
Joan Kennedy is Editorial Associate at The Business of Fashion. She is based in New York and covers beauty and marketing.
\u00a9 2024 The Business of Fashion. All rights reserved. For more information read our Terms & Conditions
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