This story is part of Glossy’s week-long look at the state of luxury, exploring what consumers and brands are deeming worthy of investment in 2024. To see all the stories in the series, click here.
In luxury e-commerce, brands are the new retailers.
As luxury shoppers have become increasingly discerning, multi-brand e-tailers’ once-winning formula of curation and personalization is no longer up to snuff. Forced by the pandemic and retail partners’ price-based competition, high-end brands have become digital-savvy, offering consumers a comparatively more desirable offering that includes their full product assortment, an inspiring experience, unique omnichannel convenience and, for top spenders, an array of exclusive, covetable perks.
As described by Dr. Daniel Langer, executive professor of luxury strategy at Pepperdine Graziadio Business School, brands are now directly offering clients across channels “extreme value,” which is the new retail standard set by luxury consumers and more than most multi-brand players can boast.
“A [luxury] retailer has to go beyond putting products on a website,” he said. “They’re now competing with companies that are doing an incredible job catering to wealthy clients. They have to offer an experience clients can’t get somewhere else.”
The digital luxury landscape has greatly evolved since 2000 when Net-a-Porter launched and challenged the notion that people won’t buy high-cost fashion online. For starters, it’s become increasingly fragmented and competitive, with resale platforms entering the equation and specialists in categories from watches to sustainable fashion sprouting up. Many platform launches came pre-pandemic when the draw was the opportunity to operate like a tech company — without costly stores and even inventory, depending on the business model. At the time, customer acquisition costs were not yet crippling.
“Fifteen years ago, there was this exciting white space for curated platforms because brands weren’t selling online — they didn’t have in-house capabilities or were hesitant to go there,” said an investor in a luxury fashion marketplace speaking off the record. “But during Covid, a lot of brands saw the need to change how they worked, … and everything shifted online. [At first] platforms saw an amazing run-up in public markets, but we knew there was going to be a limit to that growth. And the pendulum swung back faster and more substantially than most players expected.”
As for the brands, many introduced slick, multi-media e-commerce sites with features complementing their brick-and-mortar stores in both appearance and functionality.
In late 2023, luxury fashion marketplace Farfetch, which went public on the New York Stock Exchange in 2018 and reached a $23 billion valuation in 2021, was sold to South Korea’s largest e-commerce company, Coupang, for $500 million. Also in December, British luxury e-tailer Matchesfashion, which was scooped up by Apax Partners in 2017 for $1 billion, sold to Fraser Group for $63 million. In the nine months since then, 5-year-old luxury consignment platform Dora Maar has shuttered, and sustainable luxury fashion-focused Maison de Mode has gone dark while seeking investment.
“Growth and expansion costs a lot of capital, and in the end, we don’t need all these platforms,” said Achim Berg, fashion and luxury industry advisor and McKinsey & Company alum. “When interest rates went up due to inflation, a lot of the investors that had pushed [e-commerce] platforms to focus on growth realized their [discounted cash flow] models don’t work with higher interest rates. The valuations for the businesses came down massively, and they were forced to be profitable.”
In step, e-tailers’ content and personalization efforts became increasingly overshadowed. As Berg said, “Most of the inspiration people get today is actually from social media.” In addition, in the Eastern World, the algorithms of mega-platforms including WeChat, used for functions from banking to booking travel, are enabling next-level ad targeting, while also offering delivery of ordered products in an hour, Dr. Langer said. He also noted the competition of malls in Hong Kong and Shanghai that serve wealthy loyalty members with personal shoppers and exclusive spaces that read like “airline lounges on steroids.”
“Digital platforms will do tons of A/B testing — they’re all about optimizing efficiencies,” Dr. Langer said. “But they should instead be focused on inspiring, nurturing and igniting a spark in [customers], and building an ecosystem around them that gives them a choice in how they buy.”
One multi-brand retailer that has bucked luxury’s downward trend is Munich-based Mytheresa, which launched e-commerce in 2006. In its full-year 2024 earnings, reported in September, the company reported an annual sales increase of 10% to $927 million and $29 million in earnings before interests, taxes, depreciation and amortization. A dedication to customer satisfaction has been key to its ongoing success, said Heather Kaminetsky, president of Mytheresa North America.
“We have a sharp focus on servicing the customer,” she said. “We’re constantly looking at our NPS scores, talking to customer care [about customer feedback], and reevaluating our customer communications, operations [to improve convenience] and product curation based on sell-through. … We’re an e-commerce platform, but building our customer community of luxury enthusiasts is largely done offsite.”
Globally, Mytheresa hosts at least 50 events per year, Kaminetsky said. For example, every year, after introducing an exclusive collection of Dolce & Gabbana styles featuring a print based on a new Italian location, it hosts an event at that spot. “Top Customers,” who reportedly spend at least $40,000 per year, are invited. In the company’s fiscal 2024, Top Customers drove 39% of its sales. Turning these customers into brand ambassadors who spread awareness in their social circles and on their social channels is a goal.
“Understanding your customer group, and then curating your brands and products accordingly, should serve as an [e-tailer’s] means of differentiating,” Berg said. “And [investments in fueling] customer loyalty pay off. If someone spends three days with the Mytheresa team at an amazing event in Venice, they’re probably going to be more bonded to that company.”
Because top brands want full control of their sales channels — Chanel doesn’t sell its fashion range via e-commerce, and Louis Vuitton only does direct-to-consumer — platforms often end up selling the same thing: affordable luxury brands. Their go-to strategy for differentiating is often lowering prices, and — as called out by all the sources for this story — brands don’t like that.
At the same time, the practice is not sustainable. “When you’re playing the mass market game by offering 30% off, you get the bargain hunter. And I don’t know any luxury company that has survived on bargain hunters,” Dr. Langer said. “Discounts destroy the value and ‘the dream,’ in the eyes of the luxury customer.”
For its part, Mytheresa — which sells luxury brands including Alaïa, Saint Laurent and The Row — only does seasonal markdowns. “We’re a full-price business,” Kaminetsky said, adding, “I worked at Barneys in 2008, and I feel like I have PTSD from the discounting situation. I learned then that it’s a slippery slope.”
Physical retail remains hugely important in luxury — e-commerce currently accounts for just 20% of the market and is expected to increase to 30% over time, Berg said.
“In an online channel, it’s difficult to replicate the in-store experience, [including] the welcome, the treatment, the glass of champagne, and the touch and feel,” he said.
But, because people are busy and often know exactly what they want, and smaller brands need them for visibility, multi-brand platforms will stick around.
“We’ll see a bigger share of direct-to-consumer sales, more brands moving to direct-to-consumer [sales] only, and other brands offering just an appetizer [of products] on platforms, forcing customers to go to the brand website for the full experience,” Berg said. “Everything that is too price-driven will lose out, and we will have a much more limited, differentiated multi-brand luxury landscape.”
