Pandemic-Fueled Trends Promise Sustainable Growth For Online Luxury Fashion Retailers, Like Farfetch
When life as we know it came to a stop due to the pandemic, fashion retail, which was already challenged before the pandemic, became one of the hardest hit sectors.
Many people didn’t have to report to work, so buying new clothes was put on hold, except for casual comfort wear suited to a stay-at-home lifestyle. And with fashion retail stores shuttered for months on end, they couldn’t draw in window-shopping customers.
Overall U.S. consumer spending on clothing and footwear dropped 9% from 2019, from $398.2 billion in 2019 to $362.4 billion in 2020, retreating to 2014 levels, according to the Bureau of Economic Analysis.
Sales in clothing and clothing accessories stores did even worse, dropping 24% from $268.7 billion in 2019 to $204.2 billion, a level not seen since 2009, according to the Census’ Monthly Retail Trade Report.
Early on experts like Boston Consulting Group were predicting a similar fate for luxury brands at the top of the fashion food chain, which were doing well in the runup to the pandemic, unlike their more mass-market competitors.
But luxury fashion consumers surprised everyone as their preferred place to shop turned online and their willingness to spend extravagantly didn’t miss a beat.
While global luxury brands suffered a quarter or two of weak sales, overall they came out of the pandemic stronger than ever. And a new study from Dataweave, a retail data and pricing analytics firm, predicts that the changes forced on the luxury fashion market by the Covid pandemic are going to result in a stronger, more resilient luxury market in the future.
In crunching the pre-pandemic, during and post-pandemic data from a wide range of online luxury retailers, including Neiman Marcus, Nordstrom JWN +0.5%, Bloomingdale’s, Saks, Matchesfashion, Net-a-Porter and FarFetch, Dataweave CEO Karthik Bettadapura says its findings were in many ways counterintuitive.
“We expected a slowdown among our retailers, but we found the contrary: demand increased,” he shares. “We also expected more discounting, but the opposite happened. There were fewer discounts as compared to what was happening before the pandemic.”
For example, in pre-pandemic November 2019 some 11% of luxury handbags were marked down, with the share of markdowns increasing dramatically to nearly 20% by April 2020. But then it quickly reversed, so that by August 2020, only 7% of luxury handbags were discounted while 10% showed a markup in price.
Even highly-regarded Louis Vuitton didn’t escape the markdown pressure, with one-third of its bags discounted in the July-December 2020 period on Farfetch Marketplace. But by the first half of 2021, Dataweave found no discounted Louis Vuitton bags.
“As supply struggles to keep up with demand, the clamor for Louis Vuitton products is so high that consumer often agree to be put on waiting lists,” he reflects.
Pricing power has returned for luxury brands as the natural economic law of supply and demand dictates. And given how strong demand is today and is expected to grow even stronger as more people return to work, it gives brands confidence that even higher prices will take hold.
“As consumers have returned to school or the office, more have invested in timeless fashion pieces (like handbags) as status symbols, indicating that consumption habits are shifting from essentials to desires,” Bettadapura says.
Fine jewelry, another status symbol, has also gained pricing leverage coming out of the pandemic. The average price for jewelry sold on luxury retail websites more than doubled from October 2019 to May 2021, up from $986 to $1,981.
E-commerce is a destination of choice
Prior to the pandemic, luxury brands were not convinced their customers really wanted to buy luxury goods online. Brands knew they needed to be online, but more for marketing reasons than as an essential channel of distribution.
If there was any doubt before, those doubts have been dispelled. Luxury consumers have eagerly adopted e-commerce for fashion.
In 2020 nearly one-fourth of luxury goods purchases were made online, according to Bain and e-commerce’s share of the market has doubled since pre-pandemic 2019. Further, another 40% to 50% of purchases in 2021 were digitally enabled.
E-commerce’s market share and dominance as a channel of influence for luxury consumers will continue to accelerate, especially as the appetite for luxury among digitally-native younger consumers continues to grow. By 2025, millennials will account for roughly half of luxury sales, according to Boston Consulting Group and Altagamma.
And for one leading luxury e-commerce retailer, Farfetch Marketplace, they and the younger GenZ cohort make up two-thirds of its shoppers. Farfetch also reports from a recent survey among its newer customers, some 45% plan to continue to do more of their shopping online.
Farfetch is sitting in the catbird’s seat
When it comes to luxury fashion through e-commerce, Farfetch Marketplace is killing it. In its second quarter, April through June 2021, Farfetch moved over $1 billion in merchandise including its brand platform ($72.2 million in the quarter) and its digital Marketplace platform ($913.4 million), representing fashion from 1,400 sellers, including partner brands, boutiques and department stores.
With its gross merchandise value up 40% over same period last year, it grew consolidated revenues by 44%, reaching $523.3 million as compared with $364.7 million last year. Profitability grew an equal measure, from $159.4 million to $230.1 million.
As its customer reach has exceeded 3.4 million active customers, Farfetch Marketplace is able to get hold of the most in-demand merchandise. Available stock keeping units (SKUs) reached nearly 400,000 in the quarter and its top ten third-party concession partners expanded their available SKUs by more than 70%, all the while doubling their sales.
By answering growing demand with the most in-demand products, Farfetch was able to grow full-price sales. It claimed 90% of its year-over-year growth in the quarter was attributed to full-price sales.
The Dataweave analysis shows that the average selling price as of May 2021 on Farfetch Marketplace for clothing was $653 and $521 for shoes. Even more remarkable is the average selling price for accessories climbed from $456 in February 2020 to $633 in May 2021.
Farfetch founder and CEO José Neves said, “I am truly impressed with the resilience of the luxury industry, which after an unprecedented period, is already back to growth with even stronger fundamentals.” To which the broader Dataweave analysis testifies.
Next on the agenda for Farfetch is the launch of its private label brand “There Was One” developed by Milan-based New Guards Group, which Farfetch acquired in 2019. By tapping into the data of what’s selling by its third-party partners, There Was One is filling the gaps for investment pieces that will last and be “Planet Conscious”-ly made with a percentage including organic materials and upcycled materials.
The initial collection will include some 70 styles and Business of Fashion reports more brands are planned with the New Guards Group.