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4/12/2024
E-commerce in the apparel and footwear sector experienced a significant surge in sales during the COVID-19 pandemic, driven by widespread restrictions and store closures that compelled consumers to turn to online shopping. The penetration of online sales increased from 20% in 2019 to 32% in 2021 as a result. However, with the gradual relaxation of restrictions, in-store shopping has rebounded, leading to a decline in the share of online sales to below 29% by the end of 2023. This shift has presented challenges for luxury online retailers, who have faced slowing or declining sales. Additionally, the cost-of-living crisis has caused consumers to curtail discretionary spending, while rising operating costs and interest rates have further strained financial resources. Consequently, investors have exhibited reluctance to provide financial support, lacking confidence in the long-term viability and profitability of these platforms.
Major luxury e-commerce leaders falter due to sluggish sales and mounting losses.
At the height of the pandemic, leading players such as Farfetch and Matchesfashion were showing remarkable growth and, for some of them, the first profitable quarters, sparking a lot of enthusiasm that finally these e-commerce platforms had managed to crack the online luxury business. As a result, these companies reached unprecedented valuations, with Farfetch being valued at USD23 billion in early 2021 while Matchesfashion was acquired by Apax Partners for a reported USD1 billion in 2017. Fast forward to 2023, and the conditions could not be more different, with the former needing to be saved by Coupang, with the deal including a USD500 million bridging loan to Farfetch to avoid bankruptcy, and the latter being acquired by Frasers Group for just USD63 million, only to be put into administration shortly after.
The reality is that the unique conditions brought forth by the pandemic, namely the immense growth of online sales, only served to mask what were huge weaknesses in these players’ business models. Once consumers returned to physical stores and overall consumption was affected by inflationary pressures and high interest rates, these e-commerce players were faced with mounting losses.
This trend is highlighted by survey results indicating a 25% rise in the percentage of respondents buying second-hand items every few months between 2019 and 2024, surpassing 37%.
Source: Euromonitor Voice of the Consumer: Lifestyles Survey, fielded January to February 2024
Despite the pessimistic forecast, there are still several avenues for advancement available.
The fashion industry continues to grapple with uncertainty regarding consumer preferences and the optimal balance between online and offline sales channels. The recent challenges faced by Matchesfashion, post its acquisition by Frasers Group, underscore the complexities of navigating this landscape. Frasers Group cited the need for a more extensive and resource-intensive turnaround process than initially anticipated for Matchesfashion's administration. Similarly, YOOX Net-A-Porter, owned by Richemont, is currently awaiting a buyer, against the backdrop of Farfetch's struggles. Additionally, while there have been speculations about e-commerce giant Amazon's interest in entering the luxury market, the company has shown caution in this regard. These developments raise questions about the viability of luxury marketplace companies and suggest that reviving them may require significant efforts that outweigh potential benefits.
Despite the prevailing uncertainties in the luxury e-commerce landscape, there are several potential pathways forward, as demonstrated by Mytheresa's resilient financial performance. The German luxury e-commerce platform has successfully navigated the challenging environment by maintaining a sharp focus on its most affluent clientele. CEO Michael Kliger highlighted during the company’s second-quarter presentation in February 2024 that "top customers," representing around 3.8% of total customers and spending close to or above six figures annually, accounted for roughly 40% of Mytheresa's sales. This achievement is attributed to targeted marketing efforts, including exclusive in-person experiences offered to high-spending customers, often in collaboration with luxury brands like Valentino and Dolce & Gabbana.
Concurrently, as luxury brands such as Gucci and Hermès intensify their focus on top-tier customers through strategies like exclusivity and price increases, there is an opportunity to engage more with aspirational consumers. These consumers, affected by inflationary pressures, have been gravitating towards more accessible brands and price points. Luxury e-tailers should closely engage with this segment, particularly emerging ones, and may consider partnering with luxury e-commerce platforms to enhance their brand presence and positioning.
Moreover, there is a notable trend towards second-hand sales, driven partly by cost-saving motives while maintaining a desire for brand prestige and quality. Collaborating with second-hand platforms presents an opportunity for e-commerce players to capitalize on this trend while improving customer retention. For example, in June 2023, fashion e-tailer Giglio.com partnered with Vestiaire Collective, enabling customers to trade in items from select brands. Through this collaboration, users can provide item details, receive a price offer, and exchange their items for a store voucher through Giglio.com.
Luxury e-commerce platforms are poised to remain relevant, but thriving in the post-pandemic landscape will necessitate a thorough review of their business models and strategic realignment to align with the evolving needs of consumers and compete with brands' dynamic direct-to-consumer (DTC) omnichannel strategies.
To explore further insights and opportunities for industry players to enhance their omnichannel and e-commerce strategies, delve into our comprehensive report,Shifting Channels in Luxury and Fashion.
Source: Euromonitor
