The Luxury E-Commerce Wars Heat Up

The COVID pandemic has proved to the world the importance of e-commerce business for essentials as well as luxury goods. Many industry segments such as music have Spotify, every industry has its leader. But the luxury e-commerce sector doesn’t have a leader yet.

Richmont who owns Cartier and Van Cleef & Arpels and the Chinese technology titan Alibaba announced that they were coming together and investing $1.1 billion in the online retailer, Farfetch. The Pinault family who is the owner of Kering company(owner of other companies like Saint Laurent and Alexander McQueen) also increased its stakes in Farfetch by $50 million.

This unites the two biggest companies in the luxury sector and can now create a dominant winner of the luxury e-commerce platform: Farfetch and Yoox Net-a-Porter, also owned by Richemont.

The pandemic has shone the spotlight on online fashion in a big way as an area for growth, and one will witness a category leader in the next five years.

The Amazon Incursion

Since the last decade, the Western luxury e-commerce landscape has a huge dominance by Farfetch — an inventory-free marketplace platform founded by José Neves in 2007 — and Yoox Net-a-Porter, one of the largest wholesalers, which was created in 2015 after a merger between Yoox and Net-a-Porter.

Luxury brands took a while to embrace e-commerce. When they did, many depended on either Farfetch or Yoox, rejecting the overtures of giants like Amazon. Partly, this was because of Amazon’s reputation as “the everything store,” which clashed with the luxury industry’s emphasis on exclusivity. Cases of third-party sellers offering counterfeit goods on Amazon also were an investing factor. A spokeswoman for the company said that “Amazon strictly prohibits the sale of counterfeit products” and “invests heavily in both funds and company energy to ensure our policy is followed.” She pointed out that the company has pursued cases against counterfeiters in partnership with Valentino, among other brands.

Oscar de la Renta’s 100% customers are from Amazon and a huge percentage of these are Prime members. They were the guinea pig of Amazon’s Luxury Store. For the brand, their main aim lies in getting more mind share with existing customers in addition to getting new customers

Now, other brands such as Roland Mouret and Altuzarra have also joined forces with them and are expected to come on board roughly during the first quarter of 2021. Other platforms such as Farfetch and Luxury Pavilion who are an invite-only platform may see Amazon’s utilitarian interface and lack of selectivity platform as a threat.

A designer, Jonathon Cohen who had joined forces with Amazon said that it did help him with business through the first few days of lockdown but he soon opted out when the special storefront was dissolved in early October (as planned) and the designers who chose to continue became part of the main Amazon platform. According to him, he received various messages from his customers asking why was Amazon selling such expensive products.

LVMH,the biggest luxury group in the present scenarios, had also rejected the idea of seeling on Amazon but even its proprietary solution — the wholesale platform 24 Sèvres, created in 2017, with an exclusive arrangement with Dior and Céline — has not gotten meaningful traction with consumers, and it continues to lose money.

This is where Farfetch comes into place.

Farfetch went public in 2018 and its business model includes an e-commerce platform for brick and mortar luxury brands. It works directly with the brand and its logistics. Within few years, ut has spiralled to success with the value of goods sold reached $798 million in the three months ending Sept. 30, a 62 per cent increase from the same period a year earlier.

Farfetch acknowledges its biggest competitor, Amazon and says it just makes sense, in that case, to team up with its greatest international rival, Alibaba.

The new Richemont-Alibaba interest in Farfetch underscores how Alibaba has had the option to evade a portion of the issues that extravagance brands have with Amazon. Its Tmall Luxury Pavilion has effectively attracted right around 200 top of the line names onto its site by promising an exceptionally polished and controlled client experience and a clampdown on fake items

It additionally comes after new limitations on worldwide travel, which implies that Chinese shoppers — the consulting firm McKinsey and Company predicts they will represent $178 billion in extravagance spending by 2025 — who used to go overboard on extravagance buys abroad are presently getting them at home. Alibaba and Richemont will put $300 million each into Farfetch itself and another $250 million each into another joint endeavour called Farfetch China. They will claim 25 per cent of the Chinese substance and have a choice to purchase another 24 per cent in around three years.

Richemont is in a fairly strange situation in that it additionally possesses Yoox Net-a-Porter when considered Farfetch's greatest adversary. Its online business keeps on working at a misfortune, and Yoox, which has lost a large portion of its white-name customers, has demonstrated a costly resource. Three years back, before the Yoox consolidation, Net-a-Porter's organizers passed on converging with Farfetch. Since Richemont (close by Kering) gives off an impression of being supporting its wagers, a hypothesis has developed around the conceivable making of an extravagance web-based business bunch with minimum amount and binds to both the aggregates and Asia.

The new Richemont-Alibaba investment in Farfetch underscores how Alibaba has been able to circumvent some of the issues that luxury brands have with Amazon. Its Tmall Luxury Pavilion has successfully lured almost 200 high-end names onto its site by promising a highly burnished and controlled customer experience and a clampdown on counterfeit products

It also comes after new restrictions on international travel, which means that Chinese consumers — the consulting firm McKinsey & Company predicts they will account for $178 billion in luxury spending by 2025 — who used to splurge on luxury purchases abroad are now buying them at home. Alibaba and Richemont will put $300 million each into Farfetch itself and another $250 million each into a new joint venture called Farfetch China. They will own 25 percent of the Chinese entity and have an option to buy another 24 percent in about three years.

Richemont is in a somewhat unorthodox position in that it also owns Yoox Net-a-Porter, once deemed Farfetch’s biggest rival. Its online business continues to operate at a loss, and Yoox, which has lost most of its white-label clients, has proved an expensive asset. Three years ago, before the Yoox merger, Net-a-Porter’s founders passed on merging with Farfetch. Now that Richemont (alongside Kering) appears to be hedging its bets, speculation has grown around the possible creation of a luxury e-commerce group with critical mass and ties to both the conglomerates and Asia.