What to Watch: Luxury E-commerce Players Face a Whole New Reality
LONDON — What will become of Europe’s luxury e-commerce first movers, Yoox Net-a-porter, Matches, and Farfetch? Will they die out like the Dodo, or regenerate like the mythical phoenix?
Those once-mighty tech platforms, born at the dawn of the 21st century, changed forever the way customers shopped; raised the bar on service, and helped fashion names large and small to enter new, far-flung markets with the click of a button.
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But over the past few years macro — and micro — forces have rumbled the luxury e-commerce landscape, and in December it changed forever.
The three players have lost much of their value, and power, undone by myriad market forces and by the brands themselves, many of which built their own websites or launched direct-to-consumer propositions. The multibrand e-tailers, all of a sudden, didn’t seem so relevant anymore.
In the space of a week last December, Farfetch and Matches were sold at knockdown prices, while the future of YNAP remains unclear as its owner, Compagnie Financière Richemont, had tried to sell it to Farfetch before that company imploded.
“The world has changed significantly in terms of who has the access and capability to be an e-commerce player today,” said Sojin Lee, founder of Toshi, a digital business-to-business company that works with luxury brands to bring in-store experiences to customers’ homes.
Lee was also one of the first employees of Net-a-porter in the early 2000s, heading up retail and buying, overseeing brand partnerships, merchandising, customer service and warehousing.
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At the time, she said, “the multibrand retailer was the king. They were the distribution.” But with the rise of Shopify, social media selling, and companies’ determination to control their own online distribution, the power of the multibrand retailer began to wane.
Lee admits that while it’s a challenging moment for the first movers, they still have value.
“The multibrand is not gone. It’s just that the competition, the lay of the land, the consumer behavior, and the access to software has changed so fast over the last five years that unless you are as agile or can come up with a different model, it’s difficult to keep up.
“Now the mono brand’s time has shown up, but I would never discount the role of the multibrand retailer. Like most tech businesses they have been caught up in the wave of the bull market, and now they have to reconfigure to find their place and decide what their true role is,” said Lee.
“I still think they’re valuable” in terms of curation, convenience and trust. “I just think the point now is to figure out what role they play,” Lee added.
Michael Kliger, chief executive officer of Mytheresa, knows precisely what that role is.
Mytheresa, which went public on the New York Stock Exchange in 2021, was always smaller than its European competitors, although it has not been immune to the shocks that have devastated tech companies across all sectors as the great bull market came to an end.
The company’s share price has declined considerably since its stock market debut although, unlike its competitors, Mytheresa has been consistent in terms of growth and profitability, with a few quarterly exceptions.
“There are now significant challenges for all participants in this market. As an industry we need to get through this phase of normalization, but I think the fundamental trends that drive online and luxury are fully in place. And for me, as a retailer, the basic principles have never changed,” said Kliger.
“We are in a consumer era, and you need to speak, engage and work with a clear customer. If you don’t have a customer proposition, having great technology, or having deep aisles of merchandise won’t help you,” said Kliger.
The role of the luxury multibrand retailer, he believes, is service, curation and offering money-can’t-buy experiences. “This is how we win consumers’ minds and hearts. You need the curation, you need the service, and you need the activations,” he said.
Kliger is also taking the long view. Although Mytheresa’s 2023-24 fiscal year has gotten off to a bumpy start, Kliger told analysts in November that he’s anticipating a stronger performance in the second half of fiscal 2024, which runs from January to June.
Beyond that, things will only get better, according to Kliger, who believes the aspirational customer could return in 2024, as soon as they see proof of an improved economic outlook.
He also pointed to the forecasts published by Bain and Altagamma that online and monobrand e-commerce channels are expected to account for two-thirds of the entire luxury market by 2030.
The report, published in November, said brands will have to focus on “providing differentiation and meaningful experiences across the whole customer journey, regardless of the touchpoint of interaction,” and “leading on sustainability and embracing tech will be key.”
Some are not as optimistic about the future of the online multibrand stores, however.
Jonathan Siboni, founder and CEO of Luxurynsight, which provides luxury, fashion and beauty brands with data-driven insights, believes the era of the luxury multibrand online retailer is fast coming to an end, felled by the rise of monobrand luxury stores and the sheer expense of attracting customers online.
Siboni believes the online specialty stores could eventually give way to big, ambitious retailers such as eBay, Tmall, and JD.com which already drive high traffic, and which could make space for luxury on their sites.
“The only companies that can survive in the online business are the big [commercial] platforms — not the luxury ones. These companies, which have other businesses [and other demographics], can make room for luxury stores in their portfolio, because they already have the traffic.”
Siboni said that eBay could potentially dangle 2 percent of its 135 million customer base in front of the eyes of luxury brands.
“It could create an ‘eBay luxury store’ and offer the brands logistics, infrastructure, traffic — and ultimately — profitability. It could build stores for the brands, and allow them to customize their offers,” he said.
The opportunity is there, he believes, but it will be up to the big e-commerce players to align closely with the luxury brands, and make it work. “They question is this: How much energy, ambition and resources do they have to do something like that?”
In the meantime, it remains to be seen what white knights Coupang and Frasers Group will do with their respective acquisitions, Farfetch and Matches, and how Richemont will handle YNAP now that it’s back inside the luxury giant’s stable.
Lee believes the future is bright. The crashes in valuation at Farfetch and Matches, she argued, were happening across all sectors of the tech business as part of a wider economic cycle.
“There is no bad guy in this,” said Lee, who said that Matches and Farfetch were both pushing hard for growth in the bull market years, and doing exactly what their investors were expecting of them.
“Then a lot of things just caught up and changed very quickly. It was a perfect storm, and it’s been hard. These companies [and their founders] will move forward and what they do next will define them. They’ll be thought of as superheroes one day.”
In the meantime, Farfetch and Matches will be used as vehicles to help their owners move upmarket.
Coupang, which rescued Farfetch in December with an injection of $500 million, is already one of the largest online marketplaces in South Korea. It is expected to leverage Farfetch’s existing tech prowess to onboard more luxury brands and retailers amid South Korea’s intensifying luxury e-commerce competition.
According to Bernstein, the investment adviser and brokerage, Coupang will “highly likely use Farfetch to source tier two, tier three, and lower-tiered fashion and luxury brands to add a ‘vertical’ in South Korea.”
Frasers Group, which acquired Matches for 52 million pounds — a fraction of what Apax Partners is thought to have paid for it in 2017 — will use the retailer to fulfill its luxury ambitions.
Frasers described the Matches acquisition as an opportunity to develop its own elevation strategy, and develop its luxury offering.
Michael Murray, CEO of Frasers, hopes that Matches will help to “deepen” Frasers’ relationships with fashion’s big players and “accelerate our mission to provide consumers with access to the world’s best brands.”
YNAP is a different story. It already has a luxury owner in Richemont, which had planned to sell it to the tech-savvy Farfetch.
Richemont called off the deal after Farfetch was sold. Now it plans to “reevaluate options for YNAP to best harness its strengths and potential under new stewardship,” meaning the e-commerce landscape will continue to shape shift in the coming year.
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