As the landscape for luxury e-commerce becomes more competitive, we discuss what it takes to build a luxury multi-brand platform for the future, and why it can be more of a challenge than many in the industry expect.
There is no better time than now to sell luxury online. With the rapid acceleration of e-commerce adoption amongst consumers and a new landscape that has embraced the changes brought on by the global COVID-19 pandemic, the online luxury space is booming and everyone, it seems, wants a part of the action.
Earlier this month, the announcement that Sequoia Capital China had bought a minority stake in Ssense – valuing the Canadian multi-brand luxury e-tailer at more than $4 billion – added to the growing momentum that has been building up over the past few years resulting in a recent explosion of interest and activity in the luxury e-commerce space.
As recently as May, Gap sold Intermix, a multi-brand contemporary fashion retailer to Altamont Capital Partners for an undisclosed sum, and in January, shares in MyTheresa jumped more than 37 percent when German online luxury fashion retailer made its stock market debut, valuing the company at more than $3 billion. And let us not forget that Farfetch only listed on the New York Stock Exchange in September 2018, nearly three years ago, which gave the company a valuation of $5.8 billion at its debut.
It comes as little surprise then that online is expected to become the leading channel for luxury purchases by 2025, according to Bain and Co and Altagamma, and in 2020 online sales accounted for €49 billion, up from €33 billion in 2019, with the share of purchases made online nearly doubling from 12 percent to 23 percent. Bain also estimates that more than 85 percent of luxury purchases were digital influenced in 2021.
But where others succeed, there are also those that have floundered. LVMH’s own attempt at a luxury multi-brand platform, 24S, has yet to take off the ground or gain significant traction despite the luxury conglomerate’s efforts. Meanwhile industry pioneer Net-a-Porter is struggling to find its feet in a more crowded and competitive space, and Matchesfashion has yet to get back into its stride after years of slowing growth and overspending related to expansion and marketing.
But what are the challenges that these companies face in building a luxury platform that appeals to their consumers and why it is so hard to get right?
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The first point to consider is how companies try to differentiate the experience of purchasing luxury online. When price is the differential that platforms attempt to compete on, it becomes very difficult for those selling luxury goods not to be compared to their competitors, especially when a comparison can be achieved by a simple click, says Robert Burke, chairman and CEO of consultancy Robert Burke Associates.
“What you have is a more competitive landscape than ever,” said Burke. “There are more players than there were five years ago or certainly 10 years ago. Today, more than ever, the customer is very savvy about comparing prices, and if you just focus on selling product and it just becomes about price, then if a particular item is $100 or $200 less on slightly unknown site compared to a 24S, Matches or MyTheresa, they will happily buy it from them.”
For platforms, where the added value for their customers lie, is in the curation and storytelling. “If you’re able to inject editorial storytelling, and focus on connecting and communicating with the customer, then the customer relies on you, and the focus of a particularly a well-edited site is really convenient for the customer if they feel that that site, speaks for them,” said Burke.
Indeed, one of the problems that 24S has faced, despite the backing of the world’s largest luxury conglomerate behind it, is seemingly the absence of a strong point of view. “Regardless of the investment you need to have a clear point of view,” said Burke. “It’s really thinking about how you fit into the white space in the market and there’s so much white space in the online market today.”
For Mario Ortelli, managing partner at Ortelli&Co, a strategy and M&A advisory company specialised in the luxury goods industry, 24S represents LVMH’s experimentation with e-commerce in trying to understand how to better sell online in a multi-brand environment. “It was not launched to be the answer, but an experimentation to learn the themes that are used to support e-commerce,” he said.
What represents an even more significant consideration is the type of model that these platforms choose to operate with. Those who follow a more traditional wholesale model – one that requires platform to buy and hold inventory – are often left with having to manage the associated costs like shipping and returns, customer acquisition as well as competing directly with the brands they stock who have their own direct-to-consumer sites.
“What is emerging and becoming clearer, is that the marketplace model is becoming more relevant and successful,” said Ortelli. “However, when you don’t hold inventory, it can be more difficult to offer a curated point of view to the consumer.”
And while marketplace models may find it more difficult to offer a curated view on products, platforms like Farfetch demonstrate that with their proprietary technology, that they are able to offer customised stores for consumers. “This is how I see the future of these multi-brand retail sites,” he added. “From one hand, the marketplace model gives brands the opportunity of creating their store online and manage their concessions and on the other side, the platform is potentially able to give the customer a one-to-one approach with a personalised curation.”
What seems to also be another deciding factor in determining the success of luxury multi-brand platforms is scale. Contrary to belief, attempting to build up more of a presence in this segment of the market appears to be one of the issues that hinders platforms rather than helps.
“To create a successful multi brand luxury platform, the thing that is the most important is how to reach scale in a fast and compelling way,” said Ortelli. “How to reach scale can be a bit of a chicken and egg situation, because in order to achieve this, it usually involves having outstanding product selection, service and convenience, in order to be able to attract the brands and the boutiques.”
However, too much scale could result in the opposite desired effect as seen with Net-a-Porter and Matchesfashion, both of which lost the more personalised sense of their points of view and curation in their quest to expand their business rapidly.
“There’s room for really good players,” said Burke. “And I think they can be big. How big, I'm not sure because traditionally being really big means you need to add more and more brands, and you do that you start to lose who you’re speaking to and it's hard, it’s almost the same issue of the department store.”
Another significant issue is that multi-brand platforms are now competing directly with luxury brands themselves, who are seeking more control of how their product is sold to customers and the insights and data associated with the people who purchase their goods as a way of better understanding their customer.
“The relationship between platforms and brands will be the determining factor of success to see who are the winners in this market,” said Ortelli. “Those wishing to create a strong relationship with a brand must guarantee them access to consumer data, pricing integrity and an environment that matches its brand positioning.”
And while there doesn’t appear to be an easy fix-all solution or formula for companies to follow, what a lot of these platforms must remember is how to attract and maintain a sense of loyalty with the luxury consumer. “It’s really no different than physical retail,” said Burke. “Everyone likes to think that physical retail and digital are different, but the reality is it is exactly the same customer, now more so than ever before. It's the same customer.”
“So, it’s really about the product assortment and the brands you put on and doing special, unique collaboration with those brands,” he added. “And then it’s about communicating with the customer and really good customer service.”
