Even as many other channels of the retail world have slowed down or even receded, luxury has been the one that has held up best. Big, higher-end brands like LVMH and Ralph Lauren have continued to report strong results, especially when compared to the overall market.
But two recent collapses of big online-centric companies that specialized in the luxury business have created concerns that maybe luxury is about to join the general retail malaise. Farfetch and MatchesFashion both are on the verge of going out of business though each is reportedly in negotiations to continue operating. Both brands focused on e-commerce marketplaces for upscale brands, primarily in the fashion sector but also accessories and even some home.
According to a New York Times report on the sector, a third brand, Yoox Net-a-Porter, is also in jeopardy after its owner Richemont said its deal with Farfetch to buy it had fallen through. The Times said Richemont has “listed Net-a-Porter under ‘discontinued operations’ in its most recent earnings report and has taken billions of euros in write-downs on the company, has said it is looking for a buyer and will not invest further cash.” Richemont, Farfetch and MatchesFashion all declined to comment for the Times report.
MatchesFashion is in administration – the British term for bankruptcy – placed there by its owner Frasers Group which had bought the brand just this past December. The purchase price was about $66 million, a far cry from the $1 billion value it had only a few years ago.
While these are all prominent names in luxury direct-to-consumer e-commerce, their downfalls may have more to do with the online model than anything broader for the overall luxury market. Many upmarket brands are increasingly choosing to sell their products online themselves rather than go through third-party marketplace sites.
“Lots of consumers came to these sites because they wanted a quick and clever edit of pieces and instant access,” said Fiona Harkin, the director of foresight at the Future Laboratory consultancy. “In the end, and especially with the advent of mobile commerce, dozens upon dozens of pages of product that could probably be found elsewhere would turn into an unfulfilling fashion doom scroll.”
The Times also reported some of the blame lay with these online players themselves. “In the end, what cannot stand will fall, and online players need to have lower and more practical ambitions,” Luca Solca, a luxury analyst at Bernstein, is quoted as saying. “Matches is bankrupt, Farfetch spent money like there was no tomorrow on debatable acquisitions, and Net-a-Porter is obsolete. Any dreams of becoming an Uber for luxury distribution has turned into a nightmare and has proved impossible to realize.”
“We are about to see a major evolution in luxury e-commerce — or perhaps a better word would be correction,” luxury consultant Robert Burke told the Times. “Overall, online sales for luxury fashion went up last year. This isn’t a shrinking market. What is changing is who is getting slices of the pie.”