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Luxury e-commerce stares down consolidation

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Dec 26, 2023
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Illustration: Annelise Capossela/Axios

The slowdown in luxury spending is hitting e-commerce players in the space hard, as cash-strapped companies reorient from the pandemic era that once boosted it.

Why it matters: The deceleration has already prompted some consolidation for online players, with more likely to follow.

Driving the news: Online luxury retailer Farfetch agreed to a $500 million rescue by e-commerce company Coupang and U.S. investment firm Greenoaks.

  • The company saw that luxury was an underpenetrated market online and wanted to act as a gateway for the industry and e-commerce, Wedbush analyst Tom Nikic says in a note.
  • "But the company showed a frustrating lack of focus on this exciting TAM opportunity by making ancillary acquisitions," Nikic says.
  • That includes sneaker resale platform Stadium Goods, beauty company Violet Grey and rival Yoox-Net-a-Porter.
  • "They took what should have been an extremely simple business model and bogged it down with unnecessary complexity."

Yes, but: Coupang is viewed as seeing the deal as more about expansion than disposition, as Axios previously reported.

The big picture: The era of low-cost capital and chasing growth is past, and there's more of an emphasis on building a sustainable business model, says Nicolas Llinas, a partner in Boston Consulting Group's luxury, fashion and beauty practice.

  • These e-commerce businesses have struggled attracting and cultivating the coveted high-end spender, which requires a level of personalization — something that's much easier to do in stores, Llinas says.
  • "A lot of sites have not quite figured out their buying yet and that ends up in a lot of inventory discounts, which sometimes may alienate some of the brands because they don't want to be exposed to discounts," he adds.
  • Moreover, "it could also just mean that consumers get used to bargain hunting," he says.

Meanwhile, legacy fashion names are seeking greater control over their product and image with their own online capabilities, creating some tension with e-commerce players that have struggled to keep their names on their platforms.

State of play: Just days after Farfetch's rescue deal, U.K.-based Frasers Group agreed to buy Apax Partners-backed online luxury clothing retailer Matchesfashion for about £52 million ($66 million), inclusive of shares and senior and junior debt.

  • HBC, the parent of Canadian department store Hudson's Bay and Saks, this month was reported to be exploring a tie-up with Neiman Marcus, though the sides can't seem to meet in the middle in terms of valuation.

What's next: "There will be more consolidation driven by the pressures of profitability, more so than anything else," Llinas says.

  • He expects to see some bankruptcy filings or companies looking for a "white knight" to help them rightsize their business model.
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