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Fashion Marketplaces in Europe: Challenges and Opportunities Ahead

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During the COVID-19 pandemic, apparel and footwear e-commerce witnessed a strong boost in sales, as customers were forced to turn to online shopping owing to restrictions and store closures. Indeed, during this time, penetration of online sales jumped from 20% in 2019 to 32% in 2021. Yet, since the easing of restrictions, in-store shopping has bounced back and, with it, the share of online sales dropped to below 29% by the end of 2023. This has left many luxury online players struggling under the pressure of either slowing or declining sales. These pressures have been exacerbated further by the cost-of-living crisis, which has seen many consumers limit their discretionary spending, as well as operating costs and high interest rates which have been mounting, which together have led to low financial support as investors have shunned these platforms due to lack of confidence in their future survival and potential profitability.Chart showing Apparel and Footwear Offline and E-commerce Y-o-Y Sales Growth in Western Europe  2017-2028

Leading luxury e-commerce players crumble on the back of sluggish sales and increased losses

At the height of the pandemic, leading players such as Farfetch and Matchesfashion were showing remarkable growth and, for some of them, the first profitable quarters, sparking a lot of enthusiasm that finally these e-commerce platforms had managed to crack the online luxury business. As a result, these companies reached unprecedented valuations, with Farfetch being valued at USD23 billion in early 2021 while Matchesfashion was acquired by Apax Partners for a reported USD1 billion in 2017. Fast forward to 2023, and the conditions could not be more different, with the former needing to be saved by Coupang, with the deal including a USD500 million bridging loan to Farfetch to avoid bankruptcy, and the latter being acquired by Frasers Group for just USD63 million, only to be put into administration shortly after.

The reality is that the unique conditions brought forth by the pandemic, namely the immense growth of online sales, only served to mask what were huge weaknesses in these players’ business models. Once consumers returned to physical stores and overall consumption was affected by inflationary pressures and high interest rates, these e-commerce players were faced with mounting losses.Chart showing Leading Luxury E-commerce Platforms Y-o-Y Online Sales Growth in Western Europe

Growing competition from omnichannel strategies and second-hand sales

Luxury e-commerce players also face an increasingly competitive landscape, from both brands and store-based retailers’ omnichannel strategies. Indeed, as luxury consumers return to in-store shopping while also continuing to enjoy the convenience of e-commerce, brands have been investing to create a seamless bridge between consumers’ online shopping experience and in-store customer service, embracing a true omnichannel model and adopting a more customer-centric and personalised approach. In this context, brands are increasing the focus on their direct-to-consumer (DTC) strategies at the expense of third party wholesalers – online and offline – to gain greater control over their image and pricing power.

Fashion companies are simultaneously encountering heightened competition from the thriving second-hand market, also bolstered by leasing platforms such as TheRealReal and Vinted, catering to both budget-conscious and eco-conscious consumers.

This trend is underscored by survey findings, revealing a 25% increase in the proportion of respondents purchasing second-hand items at least every few months between 2019 and 2024, reaching over 37%

Source: Euromonitor Voice of the Consumer: Lifestyles Survey, fielded January to February 2024

Despite the gloomy outlook, multiple avenues for progress remain in place

While the exact balance between online and offline sales is still evolving, the industry remains uncertain about consumer preferences. The recent administration of Matchesfashion, shortly after its acquisition by Frasers Group, highlights the challenges in navigating this landscape. Frasers Group attributes the decision to a more demanding and resource-intensive turnaround than anticipated. Similarly, Richemont's YOOX Net-A-Porter is still awaiting a buyer, amidst the backdrop of Farfetch's debacle. Meanwhile, major players like Amazon, which have contemplated the idea of entering luxury e-commerce, have remained surprisingly cautious. These developments suggest that hopes for luxury marketplace companies may be dwindling, and that the efforts required to revive them may outweigh the potential benefits.

Chart showing Global Growth in Wealthy Adult Populations by Wealth Segment 2009-2025

Nevertheless, amidst the uncertainties, there are a number of potential pathways forward, one of which is exemplified by Mytheresa, whose financial performance has remained robust. Despite the challenging environment, the German luxury e-commerce platform has managed to thrive by maintaining a keen focus on its most affluent clientele. During the company’s second-quarter presentation in February 2024, CEO Michael Kliger underlined that “top customers”, defined by the company as customers that spend close to or above six figures annually, which are 3.8% of their total customers, accounted for approximately 40% of the company's sales. Mytheresa achieves this through highly targeted marketing efforts, including unique in-person experiences offered to their high-spending customers such as exclusive events often held in collaboration with luxury brands, including the likes of Valentino and Dolce & Gabbana.

Conversely, as luxury brands like Gucci and Hermès intensify their focus on top-tier customers through strategies like exclusivity and price increases, there emerges an opportunity to engage more with aspirational consumers who, squeezed by inflationary pressures, have been turning to more accessible brands and price points. Under this scope, luxury e-tailers should work closely with the latter, especially upcoming ones, and may be more inclined to enter luxury e-commerce platforms to expand their presence and elevate their brand positioning.

Additionally, there's a noticeable shift towards second-hand sales, driven partly by cost-saving motives while still desiring brand prestige and quality. Collaborating with second-hand platforms presents an opportunity for e-commerce players to tap into this trend while enhancing customer retention. For instance, in June 2023, fashion e-tailer partnered with Vestiaire Collective, enabling customers to trade in items from 50 select brands. As part of the collaboration, users can provide item details, receive a price offer, and exchange their items for a store voucher through showing Giglio’s partnership with Vestiaire Collective

Luxury e-commerce platforms will likely continue to work, but in order to thrive they will need to review their business models and re-strategise in order to meet the changing needs of the post-pandemic consumer while also competing with brands’ evolving DTC omnichannel strategies.

Learn more about the new opportunities industry players can tap into for their omnichannel and e-commerce strategies in our report, Shifting Channels in Luxury and Fashion.

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