The decline of multi-brand e-tailers

Translated by

Nicola Mira


November 20, 2023

Physical stores have never been as thriving as they are now. After the end of the pandemic, luxury consumers have once again enthusiastically embraced in-person shopping, to the detriment of online shopping and, especially, multi-brand e-commerce, currently in free fall. Luxury e-tailers have also been abandoned by brands, and their evident decline, more or less pronounced depending on the case, is due to various reasons.

The online luxury shopping frenzy has calmed down – Shutterstock

Altagamma, the association of Italy’s leading luxury brands, constantly notes that the gap between wholesale and retail channels in the sector is narrowing, threatening in particular the position of multi-brand fashion e-tailers, which only two years ago had become the new front of the market. runners. Multi-brand brick-and-mortar store revenue is forecast to remain flat in 2024, while multi-brand e-tailers are expected to fall 1%. In contrast, direct email sales for luxury brands will continue to grow, at approximately 4.5%, a lackluster performance compared to the recent past. On the contrary, analysts interviewed by Altagamma expect a 7.5% increase in sales of luxury goods through single-brand physical stores.

Sales in physical and online stores of luxury brands increased significantly in 2022, growing by 26% and 20% respectively. In 2023, the former continue to grow, between 9 and 13%, but the latter decrease by 5%. At the same time, sales in department stores, whose value increased by 20% last year, will fall between 8 and 12% in 2023, according to a study by the consulting firm Bain & Co., carried out with Altagamma.

The pandemic and the lockdowns that accompanied it boosted the e-commerce channel in 2020 and 2021, notably favoring multi-brand platforms, but now that the pandemic is over, there is “a natural acceleration in the performance of single-brand physical stores, driven by a renewed socialization and tourism.” , and the decline of digital channels, which are stagnating,” said Federica Levato, partner at Bain & Co. and one of the authors of the firm’s luxury market report.

E-commerce as a digital service?

“The approach now is different. The stores have been transformed, they are becoming a destination, experiential spaces of cultural mediation. Since 2019, luxury brands have opened 40 to 45% fewer new stores. “They would prefer to expand the existing ones and exploit them more fully,” Levato added. In this context, e-commerce is primarily used as a digital service that supports physical stores, with online and offline solutions increasingly integrated throughout the customer journey.

The renewed enthusiasm for physical stores is especially evident among younger consumers, according to Pier Francesco Nervini, chief operating officer for central and northern Europe at duty-free specialist Global Blue. “This year, the duty-free luxury goods market is driven by Millennials and younger consumers. But this is a physical retail phenomenon. “We are seeing a growing inclination to shop in physical stores,” he said.

Luxury goods market revenue breakdown by distribution channel since 2019 – Bain & Company

In this regard, there are contrasting attitudes between different age groups of the younger generations. “While more mature individuals, baby boomers, Generation 20% of the global luxury market, but which will represent – up to 30% by 2030 – have become the most influential group, although their purchasing power is weakening. And, above all, they like experiential shopping,” says Levato. This is why in-store shopping is overtaking online shopping.

“The problem is the profitability of e-tailers. Luxury brands prefer to push their own e-stores and have stopped doing business with multi-brand e-tailers. [Luxury labels] They are also undermining the discount resale market, which was often featured on multi-brand platforms, and are gradually reducing promotion channels. Suddenly, while some sites’ sales continue to grow, their profitability is plummeting,” said Claudia D’Arpizio, a partner at Bain & Co. and co-author of the company’s report.

Tighter cost control

Pure players are bearing the brunt of the renewed enthusiasm for in-person shopping, while at the same time the luxury goods market plummets. “E-tailers are struggling to increase their revenue and gross merchandise value. Not only because of the decline in online shopping, but also because many brands are moving away from this type of wholesale business, or are about to do so. Online fashion retailers are struggling because brands want to control prices and manage business relationships directly through electronic concessions,” Bernstein analyst Luca Solca told He noted that even with e-concessions, as in the case of Farfetch, “the problem of attracting customers still remains.”

Solca identified another factor that explains the decline of e-tailers. In the past, the costs of promotional initiatives fell on traditional retailers. Discounts are now funded by e-tailers. Suddenly, “running a profitable business is becoming increasingly expensive for [e-tailers].” Farfetch, which is about to acquire a 47.5% stake in rival YNAP, owned by Richemont, reported a drop in revenue and a loss in the second quarter. In the last two years, its market capitalization has plummeted. However, some smaller e-tailers, for example Germany-based MyTheresa, are managing to remain buoyant, with increasing sales and higher gross margin levels.

Pure players will need to review their business models to thrive again in the luxury market, better controlling their costs and focusing less on promotion-hungry clientele and more on increasingly flexible purchasing solutions, such as those offered by digital tools. .

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