This year has presented formidable challenges for the luxury e-commerce sector, yet several nimble marketplaces are defying expectations. Their strategy? A sharp focus on emerging accessible luxury brands coupled with prudent fiscal management.
As traditional giants in the luxury e-commerce space falter, experiencing slumps in both sales and growth, a cohort of burgeoning marketplaces is choosing a different path. They have strategically opted out of holding inventory, instead earning through marketing services offered to their brands and boutiques while maintaining strict controls on discounting. This approach is proving fruitful amidst the industry’s broader struggles.
Amidst financial turmoil last autumn that saw established players like Farfetch and MatchesFashion seeking urgent capital injections, Cult Mia, a fresh face on the luxury marketplace scene founded in 2019, was in a decidedly more favourable position. The platform, which specialises in hyper-feminine fashion from independent designers, successfully secured a $3.5 million seed round in November, vastly surpassing its initial goal of $1.8 million. This was due in part to the impressive financial performance of the company, which boasted a 70 percent gross margin and a doubling of sales in 2023, with expectations to maintain this growth trajectory.
Despite the sector’s downturn, companies such as Cult Mia, Wolf & Badger, Garmentory, and Verishop have thrived by targeting aspirational consumers with unique products ranging from $200 to $600. These platforms have avoided direct competition by not featuring the most recognisable luxury brands, instead offering exclusive and often unique items that are not readily available elsewhere.
Marissa Lepor, a director at The Sage Group, emphasises the effectiveness of this strategy, noting, “Customers enjoy the sense of curating their own lifestyles, and there is a broad audience for this approach.”
A New Value Proposition in Luxury E-Commerce
These marketplaces mitigate high operating costs by transferring responsibilities such as packaging and shipping directly to the brands. This model not only enhances their gross margins but also allows them to sidestep significant logistical expenditures. For example, Cult Mia encourages new brands to provide their own product imagery, a policy that aligns with its low investment strategy in untested brands.
Additional revenue streams, beyond sale commissions, bolster their financial stability. Wolf & Badger, for instance, charges brands a $375 monthly fee plus sales commissions, covering a substantial portion of the company’s operational costs. George Graham, co-founder and CEO of Wolf & Badger, revealed that 2023 marked the company’s first profitable full year, highlighting the efficacy of their business model.
Innovation in marketing has also played a crucial role in these platforms’ success. Garmentory, a Seattle-based marketplace, introduced a service akin to Amazon’s, where brands can pay for enhanced visibility in search results—a strategy that has been embraced by 20% of the brands on their platform, according to Sunil Gowda, co-founder and CEO.
Challenging the traditional bridal landscape, Velo Bianco are making waves in the luxury wedding sector. Their innovative and sustainable approach to fittings and alterations, which traditionally happens in a physical store, has been adapted to an online market. Founder and Designer Aleks Pakulniewicz tells The Executive Magazine: “Persuading brides to switch to the online retail model has been a challenge, but with our innovations and technology led approach, we’re proving that the future of bridal retail is online.”
These platforms have managed to navigate the luxury e-commerce sector’s prevalent discounting issues adeptly. For instance, Garmentory allows brands the autonomy to decide their participation in bi-monthly promotions, and how steep their discounts should be, without imposing further reductions. This practice has been instrumental in maintaining high profit margins, with Garmentory’s EBITDA expected to reach up to 20 percent in 2024.
An Experience Beyond Comparison
The differentiation strategy extends beyond just product assortment. Unlike larger competitors like Farfetch and Net-a-Porter, these marketplaces offer a selection of emerging brands, for many of which they are the exclusive wholesale partner. This exclusivity discourages price comparisons across platforms, fostering a more curated shopping experience.
Robert Burke, CEO of Robert Burke Associates, underscores the importance of a tightly curated product range for platforms focusing on lesser-known brands, stating, “It’s crucial not to offer too much, as it could dilute the impact of these emerging brands.”
These platforms also excel in personalisation; for example, in March, Wolf & Badger rolled out a feature that tailors the homepage and search results for each shopper based on their purchase and browsing history. George Graham notes, “This has significantly aided our ability to connect the right consumers with the right products at the right time,” contributing to a projected 30 percent increase in gross merchandise volume over the previous year.
The curated product selection, which varies from the romantic and sleek offerings at Cult Mia to the more eccentric and playful assortment at Wolf & Badger, plays a pivotal role in engaging consumers in a market where attention is hard to capture. Brian Ehrig, a partner at Kearney, reflects on this shift, “With the over saturation of major luxury labels, fashion-forward individuals are increasingly turning towards indie brands.”
In summary, as the luxury e-commerce landscape evolves, these nimble startups are not just surviving but thriving by rewriting the rules of engagement through innovative business models, strategic brand partnerships, and a keen understanding of consumer desires for uniqueness and personalisation.