Fashion, apparel and luxury brands have long been an ‘enigma’ for online marketplaces and a ‘winning business model’ still remains to be uncovered for many pure players, including Amazon, one of the leading worldwide marketplaces.
Often tainted by negative connotations, marketplaces are still seen as the go-to-destination for mass consumers and reflect the abundance of choice at the most convenient and affordable price. Two concepts that oppose what luxury brands stand for: rareness; exclusivity; selective distribution and high prices.
However, with Covid-19 accelerating the growth of global ecommerce, expected to grow at a 10% CAGR in the next 4 years and with marketplaces expected to account for 60% of ecommerce globally, there is an opportunity for both luxury brands and marketplaces to work together more closely and tap into existing and new audiences.
In fact, the number of unique online shoppers in 2020 increased by 40% globally and more consumers now see ecommerce as their most convenient and preferred shopping method in a world affected by regular and recurring lockdowns.
Mixing luxury and marketplaces may not be such an unusual concept in Asia, where the markets have grown their ecommerce businesses through marketplaces in the first place and where advancements in technology were fully adopted by the younger generations who can afford more exclusive and sophisticated goods.
Joint Business Plans and Alliances
The recent partnership between Farfetch, Alibaba and Richemont to improve luxury brands’ access to the Chinese market and to their latest omnichannel technology is an important step in ‘socializing’ luxury brands online. Although brands with their own direct-to-consumer transactional stores didn’t suffer as much as those without during the pandemic, luxury brands reliant on third-party retail partners took a hit due to disruptions in fulfilment centres and supply chains.
This ‘Luxury New Retail’ (LNR) partnership is looking to leverage omnichannel retail technologies from Farfetch and Alibaba to help luxury brands run their D2C websites and apps as part of their broader omnichannel strategy. Specifically, brands will be able to connect to the new Farfetch shopping channel on Tmall’s luxury pavilion through a single integration and directly access the vast online market.
Amazon also launched Luxury Stores last September; its latest attempt at offering a luxury destination section on its platform. This new dedicated experience is only available through mobile app and accessible by invitation to Prime members. In this respect, it carries a component of exclusivity and content curation, which is demanded by luxury brands. Additionally, brands can freely decide which products they want to sell and at which prices without needing to worry about third-party sellers competing with them.
However, responses from companies in the industry have been mixed, with brands like Oscar De La Renta immediately tapping into this new opportunity, identifying a chance to increase their digital sales and brands like LVMH worrying about their association with the Amazon brand. Specifically, brands are still worried that Amazon is not doing enough to fight counterfeiting, but they’re also worried that the slow adoption of Luxury Stores would give them little relevant exposure and access to low quality traffic.
Brands like LVMH and Gucci have increasingly invested in their own ecommerce capabilities instead and multiple luxury brands started cutting back on their inventory sold by other luxury marketplaces such as Farfetch and Net-a-Porter. This is a clear signal for wanting to take back control of their ecommerce businesses and their online experience, while owning their own distribution channels and supply chain capabilities.
Luxury Stores remains once more a ‘test & learn’ approach to connect with new audiences and evaluate overall impact in a safer and more controlled environment than the more widely exposed Amazon retail experience.
Market Maturity
Market maturity remains a critical factor in the adoption of and in the consumer response towards new digital channels for luxury brands. More mature markets like the US and Western Europe have been used to purchasing luxury goods online on dedicated and now well-established destinations such as Yoox Net-a-Porter, Farfetch, MyTheresa. However, newest economies and emerging markets like Asia, Brazil, India started adopting technology at a stage where it was already advanced and where online shopping was already highly reliant on marketplaces.
Differences in consumer segments are also a key differentiating factor across regions. In an age of new and fast changing trends, Luxury brands have started to keep an eye on a new emerging consumer class that will become increasingly important: the HENRYs (High-Earners-Not-Rich-Yet). Additionally, companies are increasingly committing to address and stimulate the younger consumer segments like Millennials and Gen Z. Since these segments are tech savvy, they look for personalised, engaging relationships with brands and this is where digital marketing becomes paramount for luxury brands willing to acquire these new high potential segments.
Brands need to adopt an omni-personal approach and rely on new digital technologies such as AI, VR and Big Data.
HENRYs, who are aged on average 43, with an income of more than US$100,000 and investable assets of less than US$1 million, are digital savvy, love online shopping and are big spenders, in particular the Millennial HENRYs.
Luxury brands have initiated and will need to sustain a longstanding relationship with this segment by leveraging contextual commerce and new digital channels such as social media, online marketplaces and D2C sites.
These emerging consumer segments are particularly prominent in rising economies such as China and India, thus making these markets very attractive destinations for luxury brands where online marketplaces are broadly accepted and often the only route-to-market.
Technology
Affluent consumers within new economies, specifically China, have become highly sophisticated and their ‘digital native’ nature means there are now significant digital footprints left by this consumer group for brands to leverage. The global pandemic has accelerated the need for new technologies to further optimize online experiences, to capture new online consumers and to retain newly acquired ones.
AI, in particular, has become more relevant and extensive in the fashion sector. Fueled by big data and processed by algorithms, AI becomes important to predict future trends; to optimize content marketing and to improve online-offline traffic. Online marketplaces are often the key customers of new technologies because of their significant investment capital available and because of their large consumer base, thus making them attractive in emerging economies where tech innovation is key.
JD.com, Secoo and Farfetch are currently leveraging AI technologies to support image shopping, styling recommendations, personalized shopping experiences which all ultimately increase conversion rates and customer unit prices.
Yoox launched their own private label brand a few years back, 8 by Yoox, which is leveraging AI to predict and analyse trends, ultimately guiding the creative process for the collections’ designs.
Additionally, AI can also simplify inventory management, thus reducing labor costs and improving stock management efficiency.
Several firms in China have now specialised in AI technologies for the fashion industry, working closely with online marketplaces:
- AI Fashion: this company has independently developed industry-leading fashion apparel identification, analysis, and retrieval tools that are based on the long-term accumulation of massive industry data and algorithms
- Chain of Demand: this company uses AI and big data to track and predict sales demand for fashion brands, which minimizes inventory waste and increases overall cash flow in the long term.
- Cosmose AI: this company aims to integrate offline retail with online advertising. By tapping into mobile-user profiles and precise location data, the company has strengthened luxury and beauty powerhouses such as LVMH, Richemont, and L’Oreal.
Through these new technological advancements, marketplaces will become more attractive to luxury brands as they’ll provide more personalised, engaging, sophisticated online experiences to prospective customers.
New Values
Consumers are looking for more purpose, sustainability and meaningful connections with brands. Because of this, companies’ missions and visions are becoming more important than ever. Consumers value authentic communication and want to buy from companies who have a strong and clear mission. In the fashion industry, the key differentiators are storytelling, meaning and purpose. These are concepts on which luxury and fashion companies are focusing more and more to engage with and retain their customers. One of the challenges is to create that meaningful connection when selling through marketplaces and third-party channels, rather than selling through dedicated branded ecommerce sites with a clear purpose and vision.
This is likely one of the reasons why luxury groups are investing more and more in the recommerce market, to associate themselves with the concept of sustainability and control resales of their own products in a way to further prevent counterfeiting.
Rather than focusing on distributing their products through major mass online marketplaces, luxury brands can maintain full control on their investments by identifying strategic partners that fully align with their consumers’ values.
Groupe Artemis recently invested in the GOAT Group, a sneaker resale site, stating that “GOAT has established a rapidly growing, distinctive brand with tens of millions of younger luxury consumers, and our investment reflects our belief in their business model and the power of their technology and platform to tell the story of our brands”.
Gucci also partnered with The RealReal to promote pre-owned Gucci products through a circular economy model.
The flourishing of resale activities by some of the fashion and luxury goods’ industries’ major players is largely driven by a generation of young consumers that strongly believe in sustainability and cost-consciousness. These business models are aligned to what the newest generation of consumers are looking for, while allowing luxury brands to exercise more control over the resale market of their pre-owned goods.
Concluding Thoughts
Despite the challenges to engage with luxury brands still faced by marketplaces in more established markets, the opportunity for luxury and fashion brands in emerging markets, and specifically China, is evident. In a market where ecommerce has been founded on the marketplace model, offering access to huge technological advancements and a large customer base that covers the younger high spenders, the Chinese marketplace model is attractive and leads by example.
Luxury and Fashion companies are also investing more and more in their own D2C ecommerce capabilities, leveraging new technologies and regaining control over their product supply. Challenges led by the pandemic as seen on marketplaces’ logistics and fulfilment were key drivers for brands to regain control over their own digital channels, while improving their overall ecommerce capabilities.
However, as still very much observed, the ‘branding’ factor is a critical one, with high-end brands struggling to associate themselves with names like Amazon, where the concept of rarity and exclusivity remains a foreign one and where counterfeiting is a live battle that is hard to fight.
Rather, luxury brands prefer to be selective and invest in digital channels that are closely aligned with customers’ values such as the resale market where they can control resales of their products, but where they can also promote sustainability and circular economies.
Market maturity and customer behavior remain critical factors in determining opportunities and successes for the marketplace model with luxury brands. However, newest economies where this online model has fully established itself as a trail blazer, remain the perfect destinations for luxury brands to build a presence on online marketplaces.