This week, we take a look at the difficulties facing luxury online retailers like Farfetch and Net-a-Porter, and what’s to come for luxury e-commerce. Scroll down to use Glossy+ Comments, giving the Glossy+ community the opportunity to join discussions around industry topics.
Luxury e-commerce is in a strange place. Farfetch, which has long billed itself as the “Amazon of luxury,” was sold for pennies on the dollar to Coupang in December. As of this week, its founder and CEO, Jose Neves, is reportedly stepping down from the company.
Meanwhile, its competitors aren’t doing so great, either. Net-a-Porter was set to be purchased by Farfetch but now finds its fate uncertain. Matches Fashion was also sold off to Frasers Group for about $65 million in December, and Ssense laid off 7% of its workforce last year. Amazon’s attempt at a luxury marketplace, Luxury Stores, still hasn’t taken off in the way that the company hoped it would and has failed to attract many major brands.
It’s clear that large multi-brand online retailers focusing on luxury are struggling. But where does that leave the future of luxury e-commerce? While there are still a few luxury online retailers that are doing well enough to stay afloat, namely MyTheresa and Moda Operandi, the most likely scenario is that luxury brands will continue to build out their own e-commerce stores while partnering with software-as-a-service companies like Shopify and Commerce Layer to handle the operations behind-the-scenes.
The problem with multi-brand marketplaces like Farfetch, according to Cian Wright, vp of strategy and growth at retail tech company Swap, is that luxury brands expect a degree of control over how their products are presented that doesn’t jive well with the uniform approach taken by such online retailers. If the brands are being asked to give up both control of their brand image and a cut of their profit margins to sell at a retailer like Matches Fashion, they need to either be guaranteed enough scale and revenue to make the partnership worth it or see it as a valuable brand positioning opportunity to be carried by that retailer. The latter is more likely to be true of partners that are brick-and-mortar department stores, like Saks Fifth Avenue or Harrods, as they can provide a presence in a valuable geographic market like New York City or London. Online retailers don’t carry the same prestige, Wright said.
“It’s hard to point to a thriving online luxury multi-brand retailer right now,” Wright said. “They’re struggling, and if they’re struggling, why would a luxury brand want to give up their margins to work with them?”
Some luxury online retailers have tried to remedy this by offering brands personalized sections of the site, like the ones offered by Amazon through Luxury Stores or on Tmall’s Luxury Pavilion. Personalized stores on marketplaces like Amazon, where brands can list their products directly, can be more effective for a luxury brand, compared to their presence on wholesale-based platforms like Net-a-Porter. While Amazon and Farfetch are marketplaces whose luxury sales are tepid, Tmall is one of the few marketplaces that’s continued to grow and bring in new partners, like Tom Ford just this week.
Instead, Wright suggests we’ll see more luxury brands building upon their own e-commerce stores with the help of companies like Shopify.
“Luxury tends to be really daring and adventurous on the creative side, but it is much more conservative operationally,” he said, pointing to brands like Chanel and Maison Goyard which still barely engage with e-commerce at all.
“But the big conglomerates do know that e-commerce is important,” Wright said. “The younger brands in LVMH’s [investment] portfolio like Aimé Leon Dore and Gabriela Hearst are all working with Shopify already.”
Other e-commerce SAAS companies like Salesforce have recently brought in more luxury partners. Richemont has expanded its ongoing partnership with Salesforce, which began in 2019, bringing all 20 of its brands’ e-commerce platforms into Salesforce’s ecosystem by the end of 2021. It planned to move all of its brands over to using Farfetch’s e-commerce technology, FPS, but that plan was scrapped last year when the Net-a-Porter deal fell apart.
Shopify’s most recent earnings report, on February 14, showed a company that was growing, with revenue up to $2.14 billion for the quarter ending on December 31. The company has continued to make overtures toward luxury fashion and beauty brands, striking partnerships with companies like Glossier and Lanvin over the last two years. In January, Shopify president Harley Finkelstein told Glossy that he thinks the future will see more brands, particularly in luxury, taking e-commerce into their own hands by working with companies like Shopify. He also said he hopes to bring some of fashion’s top brands, including Gucci, Prada and Miu Miu, to Shopify this year.
“Brand loyalty has accelerated throughout the pandemic,” Finkelstein said. “People want to buy straight from the brand. And if you’re a retailer and you’re going to sell someone else’s products, you better have an advantage that the customer can’t get from buying straight from the brand, or you’re not adding anything.”
But there are multi-brand online luxury retailers that are thriving. The aforementioned Tmall Luxury Pavilion helped push Tmall’s revenue to over $3 billion last year. And MyTheresa, the German online luxury retailer, is currently seeing a bounceback in spending. As reported on Thursday morning, the company saw an 8.3% growth in revenue over the last quarter, including 17.4% growth in the U.S. This comes at the same time that many luxury brands are struggling with reduced spending at retailers like Neiman Marcus.
In September, CEO Michael Kliger told Glossy that the company’s continued growth is thanks to its focus on the highest-spending customers. MyTheresa reported 47% growth in spending over the last quarter among its top percentile customers.
“One of my mantras is: It’s hard to make a customer buy more, so acquire a customer who buys a lot,” Kliger said. “It’s easier to get someone to buy their 13th pair of shoes from you than their second. So we put a lot of emphasis on performance marketing, focusing on acquiring customers with high lifetime value.”
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