Monday, September 26, 2022

Farfetch beat out YNAP. But next, it will have to take on Amazon

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When Richemont announced it would be selling its majority stake in the luxury fashion business Yoox Netaporter Group to Farfetch, a rival platform for designer goods, the move was seismic news for the fashion industry.

Following the deal, Farfetch will sit comfortably as the leader in luxury e-commerce. MyTheresa, another publicly-listed luxury platform and to a lesser extent Ssense and Matchesfashion, have been floated as other competitors, but with this sale, it’s now clear that the two main players in the race to dominate luxury fashion online are Farfetch and Amazon Luxury.

While a decade ago YNAP and Farfetch went head to head, under Richemont, YNAP has floundered and with the sale to Farfetch, Richemont will write down $2.7 billion. YNAP had gone from a trend-setting online fashion pioneer to the odd child in a family of companies that specialize in hard luxury like jewelry and watches. The deal also represents a big win for the asset-light model of online luxury. YNAP’s flagship brand Netaporter essentially functioned like a digital department store. It buys inventory from brands, warehouses and ships to customers in contrast to Farfetch’s model, which aggregates boutiques from all over the world but doesn’t keep inventory.

Luxury’s uneasy relationship with ecommerceAlthough the luxury fashion market is huge, valued at some $110 billion worldwide, it remains one of the last remaining categories not fully penetrated by e-commerce. Clothing is difficult to capture online and fashion purchases tend to have a high return rate.

Video and livestreaming can help some, but the in-person shopping experience is hard to replicate. It’s no coincidence that e-commerce started out with items with little variability like books and electronics before spreading to other categories. When the first inroads to style online arrived, it was things like shoes, which are less complicated for fit. For example, the shoe seller Zappos, now owned by Amazon, was an early adopter of e-commerce.

Cosmetics can also be challenging to sell via e-commerce but given that luxury beauty is still much more affordable compared to luxury apparel, shoppers don’t mind as much taking a gamble. If the product doesn’t end up quite as they expected, they’re out $70 not $7,000.

It isn’t just that customers are hesitant either. Brands are also reluctant to give up control over the customer experience. Clicking a few buttons and having a cardboard box arrive at the doorstep a few days later ultimately lacks that special something. Luxury houses take great pains to ensure there’s a high level of customer service, and offline some have even created invite-only ultra luxury boutiques to distinguish themselves to VIPs.

Enter AmazonAmazon Luxury, now two years old in the US, is the world’s largest retailer’s attempt at designer fashion. Although the number of brands on the platform is still small, it expanded to the European market in June and Amazon’s huge customer base and technological capabilities make it a force to be reckoned with.

Whereas Farfetch may be able to infer from customer data that a person prefers YSL to Dior or has a penchant for A-line skirts, Amazon, with its sprawling empire, is able to see a customer’s taste in groceries, books, and furniture, and parse through data about the shows they watch and music they listen to, creating an in-depth customer profile and AI-driven predictions that few can rival.

Amazon Luxury’s pitch to brands capitalizes on their desire for control of the shopping experience, allowing them to manage inventory, selection, and pricing while offering up an enormous consumer base. If YNAP created a department store online, then Amazon is trying to create a luxury mall, with lots of digital shopfronts all managed by the brands themselves.

In the end, luxury fashion e-commerce has room for more than one player. Farfetch brings deep fashion credibility in a sector that’s known to be finicky but it needs to keep innovating its technical capabilities. The challenge for Amazon goes the other way—to overcome its image as an uncurated retailer to create a refined portal that big spending shoppers will want to buy the latest designer wares.

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