{"id":760,"date":"2024-06-30T02:48:40","date_gmt":"2024-06-30T02:48:40","guid":{"rendered":"https:\/\/www.yellowfalconmedia.com\/blog\/2024\/06\/30\/the-start-ups-defying-the-luxury-e-commerce-slump-the-business-of-fashion\/"},"modified":"2024-06-30T02:48:40","modified_gmt":"2024-06-30T02:48:40","slug":"the-start-ups-defying-the-luxury-e-commerce-slump-the-business-of-fashion","status":"publish","type":"post","link":"https:\/\/www.yellowfalconmedia.com\/blog\/2024\/06\/30\/the-start-ups-defying-the-luxury-e-commerce-slump-the-business-of-fashion\/","title":{"rendered":"The Start-Ups Defying the Luxury E-Commerce Slump – The Business of Fashion"},"content":{"rendered":"

Agenda-setting intelligence, analysis and advice for the global fashion community.
Last autumn, as marquee luxury e-tailers Farfetch and Matches scrambled to secure additional funding in order to avoid bankruptcy, a newer luxury marketplace was facing the opposite scenario.
Cult Mia \u2014 a platform that launched in 2019 selling an assortment of hyper-feminine garments from independent designers \u2014 had so much investor interest, it ended up raising a $3.5 million seed round in November, nearly doubling its initial financing target of $1.8 million.
The reason investors \u2014 including Morgan Stanley \u2014 found the company an appealing prospect is because of its financials. In 2023, Cult Mia generated 70 percent gross margins and doubled its sales; it anticipates it will do the same this year.
Those numbers seem mythical amid the ongoing luxury e-commerce reckoning. Once heralded as the future of shopping, many of the major luxury e-commerce players have lost their edge. Sales and growth declines have mounted as individual brands invest more heavily in their direct channels and aspirational shoppers have pulled back on luxury purchases, leading to an inventory glut that prompted profit-dampening discounts. In the past six months alone, Farfetch narrowly avoided collapse by selling to South Korean retail giant Coupang in December, ending plans for Farfetch to acquire competitor Yoox Net-a-Porter, which is still seeking a buyer, while Matches was put into administration in March. Mytheresa remains a bright spot: Its sales grew 17 percent in the first quarter of the calendar year, propelled by exclusive offerings, such as capsule collections from brands like Loewe and Brunello Cucinelli and money-can\u2019t-buy experiences for top spenders.
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While the sector\u2019s biggest names teeter on the edge, an entire cohort of smaller luxury marketplaces \u2014 including Cult Mia, Wolf & Badger, Garmentory and Verishop \u2014 have found success with a different approach. Instead of competing for high-income consumers with a product assortment full of blockbuster brand names, they\u2019re appealing to aspirational shoppers with exclusive selections of $200-600 items from emerging brands. These platforms have grown profitably by refusing to own any inventory, selling marketing services to their brands and boutique partners and keeping a lid on discounting.
What\u2019s more, they aren\u2019t directly competing with each other to sell the world\u2019s most recognisable brands \u2014 in fact, some of them aren\u2019t looking to sell those brands at all. Maintaining a unique, differentiated offering of indie brands could be exactly what helps them reach lofty heights, said Marissa Lepor, director at investment bank The Sage Group.
\u201cI don\u2019t think scale and differentiation are mutually exclusive. You can\u2019t be something for everyone,\u201d Lepor said. \u201cCustomers like to feel like they\u2019re curating their own lifestyles. There\u2019s quite a wide audience for something like that.\u201d
The high costs of buying and storing inventory proved to be a death knell for major luxury e-commerce players \u2014 but their smaller-scale counterparts are not afraid to pass their operating costs onto the brands they stock.
Cult Mia, Wolf & Badger and Garmentory all run on a model where brands are responsible for packing and shipping their own orders and the platform takes a cut of each sale.
They also avoid covering other logistical expenses that can eat away at profit margins. Cult Mia requires new brands to submit their own product images. This not only contributes to the platform\u2019s high gross margins, it also allows Cult Mia to avoid further investment in designers that haven\u2019t yet proven their sales track record on its platform.
Recurring revenue streams \u2014 outside of sale commissions \u2014 have also provided a cushion for operating costs.
Wolf & Badger, a 14-year-old marketplace, charges brands a $375 monthly fee on top of the commission it makes on each sale. Those fees help pay for the company\u2019s operational expenses, including the development and maintenance of its in-house software, said George Graham, the company\u2019s co-founder and chief executive. Wolf & Badger finished 2023 as its first profitable full year, Graham added.
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The goal is to \u201cbuild a compelling platform for the brands altogether to be able to succeed.\u201d Graham said.
They also offer additional services for a fee. In February, Seattle-based platform Garmentory introduced an Amazon-like marketing service, where brands can pay to appear higher in customers\u2019 search results on the site. So far, 20 percent of the brands that sell on the platform have used the service, said Sunil Gowda, Garmentory\u2019s co-founder and chief executive.
These marketplaces also have a firmer grip on online luxury\u2019s ongoing discounting conundrum, smaller players give brands autonomy around pricing and markdowns.
Garmentory, for example, lets brands choose if they want to participate in the platform\u2019s bi-monthly promotions, plus, those that opt in get to decide how much of a discount they\u2019re willing to offer. Garmentory doesn\u2019t add additional markdowns without the brands\u2019 consent, which keeps profits margins high for both the brand and the platform. Garmentory\u2019s EBITDA profit margins are on pace to reach as much as 20 percent in 2024, Gowda said.
Similar assortments eroded the differentiation between sites like Farfetch and Net-a-Porter. These marketplaces, on the other hand, carry emerging brands, many of which they serve as the exclusive wholesale partner for. That means their shoppers are less inclined to price match on competing sites.
A tighter product selection is especially crucial for marketplaces whose competitive edge is carrying emerging brands, said Robert Burke, chief executive of retail consultancy Robert Burke Associates.
\u201cIf it\u2019s for the slightly undiscovered brands, it\u2019s even more important to not offer too much as it could become a sea of emerging brands that maybe don\u2019t resonate,\u201d he added.
Platforms routinely reject brands to maintain a streamlined range of products. Cult Mia only carries 15 percent of the more than 2,000 brands it\u2019s looked at since launching. The company assesses quarterly sales for each brand and delists whichever labels are not performing well, said Nina Briance, Cult Mia\u2019s founder and chief executive.
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\u201cWe don\u2019t believe in carrying a product that isn\u2019t resonating with our customers,\u201d Briance said. \u201cMore is not more when it comes to customer experience, and curation is king.\u201d
Another often untapped opportunity to stand out online is on-site personalisation.
In March, Wolf & Badger introduced a tool that shows individual shoppers a unique homepage based on their purchase and browsing history. It also has an existing feature that automatically filters search results for users based on similar criteria.
\u201cWe\u2019ve been able to build a really powerful retail engine that does help us convert well and drive profitable order economics by connecting the right consumers with the right products at the right time,\u201d Graham said. The company is on pace to grow its gross merchandise volume \u2014 a measure of sales done through the platform \u2014 by 30 percent year over year to more than $100 million in 2024.
Giving customers a curated product selection with a point-of-view \u2014 Cult Mia is more romantic and sleek, whereas Wolf & Badger\u2019s assortment feels more eccentric and playful \u2014 is essential when it\u2019s harder than ever to get and retain consumers\u2019 attention online. Plus, indie labels are increasingly in vogue for consumers burned out on major luxury labels, said Brian Ehrig, a partner in the consumer practice of management consulting firm Kearney.
\u201cThere\u2019s been so much growth in the top end of the luxury market with the brands that everybody knows that it\u2019s now become a little clich\u00e9 to wear some of those brands,\u201d Ehrig saId. \u201cIf you\u2019re a fashionable person, perhaps you\u2019re going to be looking more towards these indie brands.\u201d
The futures of multi-brand luxury heavyweights Yoox Net-a-Porter and Neiman Marcus may be decided in the coming days.
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.
Reports of financial strain at Farfetch amid a stalled deal with YNAP has driven confidence in multi-brand e-commerce to all-time lows. With value propositions eroding and investment drying up, a way forward remains unclear.
Malique Morris is Direct-to-Consumer Correspondent at The Business of Fashion. He is based in New York and covers digital-native brands and shifts in the online shopping industry.
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Agenda-setting intelligence, analysis and advice for the global fashion community.Last autumn, as marquee luxury e-tailers Farfetch and Matches scrambled to secure additional funding in order to avoid bankruptcy, a newer luxury marketplace was facing the opposite scenario.Cult Mia \u2014 a platform that launched in 2019 selling an assortment of hyper-feminine…<\/p>\n","protected":false},"author":2,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"om_disable_all_campaigns":false,"_monsterinsights_skip_tracking":false,"_uf_show_specific_survey":0,"_uf_disable_surveys":false,"footnotes":""},"categories":[1],"tags":[],"class_list":["post-760","post","type-post","status-publish","format-standard","hentry","category-uncategorized"],"aioseo_notices":[],"_links":{"self":[{"href":"https:\/\/www.yellowfalconmedia.com\/blog\/wp-json\/wp\/v2\/posts\/760","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.yellowfalconmedia.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.yellowfalconmedia.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.yellowfalconmedia.com\/blog\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.yellowfalconmedia.com\/blog\/wp-json\/wp\/v2\/comments?post=760"}],"version-history":[{"count":0,"href":"https:\/\/www.yellowfalconmedia.com\/blog\/wp-json\/wp\/v2\/posts\/760\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.yellowfalconmedia.com\/blog\/wp-json\/wp\/v2\/media?parent=760"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.yellowfalconmedia.com\/blog\/wp-json\/wp\/v2\/categories?post=760"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.yellowfalconmedia.com\/blog\/wp-json\/wp\/v2\/tags?post=760"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}