An Earthquake in the Fashion Industry

What Happens to Luxury E-Commerce?

An earthquake is going on in the fashion industry, invisible to most. It’s about luxury e-commerce. Specifically, Farfetch, which was about to collapse.

The platform represents the e-tailer everyone talked about. For mainstream fashion shoppers, dazzled by the lights plus an excessive selection, being absent from it meant not belonging to the right circle. For retailers, it was a possibility to make a lot of money. However, the supermarket setting did not intrigue niche fashion enthusiasts at all.

What is Farfetch?

Farfetch is a marketplace that connects brick-and-mortar fashion boutiques. Therefore, people from anywhere in the world can buy their favourite items from a boutique on the other side of the globe and get them delivered to their doorstep. Afterwards, since focusing on the luxury segment, they have started offering services directly to fashion brands. Also, they bought the London boutique Browns.

Who’s behind the group?
Investors gather the Chinese Alibaba; Artemis, the holding company of the Pinault family, owners of Kering; and the Swiss luxury group Richemont.

How does the business work for Farfetch?

They take a 30% cut from all the retailers as they can connect to a worldwide audience. However, born in 2007, the company became profitable in 2014. But, they could hardly maintain the profit. The company shares, valued at about 20 billion dollars at its peak, lost about a third of their value, dropping to a record low of 60 cents. Now, the firm has a market value of $250 million. In fact, the platform was close to bankruptcy.

What happened?

In 2019, Farfetch acquired the Italian New Guards Group, license-owner of Off White and others, reporting unexpected losses of about 2 billion dollars. In other words, by abandoning its inventory-free marketplace strategy, Farfetch lost its original, cost-effective pattern. Yet, their business peaked during the pandemic. But, as the company pursued growth, costs increased simultaneously.
Indeed, the New Guards acquisition reported a 40% drop in sales.

Two more factors contributed to the downfall: brands wanted more control over their products and the discount policy. Moreover, a slowdown in the luxury market had an impact on sales.

Farfetch was supposed to buy a 47.5% stake in Yoox-Net-a-Porter Group, but perhaps we won’t see this deal.
After the share price plummeted, a white knight came to save the e.tailer: the Korean group Coupang, Inc.

What to expect from this earthquake in the fashion industry

For those who see fashion as creative expression and not a giant supermarket, Farfetch isn’t fascinating. Indeed, many call it the ‘Amazon of fashion’ – a destination thriving on relentless discounts.
A few freethinkers might wonder where on earth those exaggerated quantities of garments would be sold. Though it is good to witness brands talking about sustainability while partnering with a company that made overproduction in the fashion industry its business model!

Eventually, an invisible earthquake is happening in the fashion industry, which may result in a tsunami. All the brick-and-mortar retailers connected to the platform have lost their lucrative toy. But, planning to sell through Farfetch, they still have ordered immense quantities of fashion garments. Since local customers were just a tiny percentage of their business, where would they sell their huge stock? Where will they sell the unrealistic budgets pushed by the marketplace?

Now, what should we expect? Will brick-and-mortar ‘Farfetchers’ survive? Or will they fall under the tsunami?

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The retail impasse

Fashion business: the therapeutic obstinacy for an almost-dead patient

The retail impasse and the problems emerging in fashion these days revolve around two main topics: late deliveries and markdown strategies. 

However, both issues are indicators of a fashion system that is basically dead, but everyone pretends not to see it. Or they refuse to accept it. So every operator in the field is on a kind of therapeutic obstinacy for a patient that is almost gone. And which, by the way, has a huge impact on the planet.

Two main points of the retail impasse

One: many stores have received a small percentage of the Spring-Summer pieces, which makes it complicated to assemble outfits. Why does this happen? Top brands monopolise good manufacturers. So smaller brands get materials late (for the same reason) and consequently are left as the last link of the chain. Therefore, they cannot deliver on time.

Two: markdown strategies and how to get rid of the stock in excess that stores keep purchasing. Even though retailers are perfectly aware that the number of people entering a store isn’t the same as in the pre-pandemic time, they don’t stop overstocking. Of course, it gets more complicated to sell discounted items! They are available online and offline throughout the year. Markdowns aren’t attractive anymore. And a discount isn’t the only reason people purchase a product.

The excessive stock policy is harmful to the planet and business. So, we must change it.

Can we find solutions to revive the fashion business?

These solutions need to experiment with new ways of operating the fashion business. 

First: a dramatic reduction in consumption! Let’s face reality: if we do not consume less, much less, we can forget to have a future. So, there’s no point in procrastinating the change.

Second: a shift to artisanal garments and made-to-order clothes and accessories, having the chance to reorder during the season. It’s about choosing tailoring over mass-produced garments – quality over quantity.

If we want to overcome the retail impasse, overtreating fashion with more overproduction will take us nowhere. We need a completely different strategy: it’s a matter of reducing the number of pieces while providing a higher value.
Less but better.

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How to change the fashion industry

A few constructive ideas and basic principles

We discussed climate change as a direct effect of humans’ actions and the fact that the fashion industry plays a role in this. Also, that it’s impossible to avoid the impact of humans on the planet.

However, a vision of possibility opens new opportunities. And so, we try to find solutions and be part of them. If we cannot avoid our impact, the challenge is implementing ways to limit it. How can the fashion system reduce its impact on the planet?

Ideas to change the fashion industry

Forget big numbers

The impact that big numbers have on the environment is much higher. Therefore, they aren’t sustainable. Never!
Brands that sell clothing or other products made with sustainable materials but produce huge quantities aren’t sustainable.

Small-scale companies

Small manufacturers, brands, and designers are the future. Handcrafted smaller productions made with sustainable materials would have healthier production chains. Also, designers would make products for different market segments, from affordable to luxury. Small is beautiful, and it gives a long-term solution.

How to change fashion retail

Small-scale retailers offering a more focused and balanced selection can be part of the solution by ordering the number of goods they need and reordering during the season if they need more. Indeed, a made-to-order basis would be the best way to dismantle the overproduction system. A pattern that asks retailers for unrealistic budgets and causes huge unsold stock.

Less quantity, more quality

Less quantity ordered by retailers means higher quality – less but better. And also selling goods during the season. So no heavy discounts and no sales, but a well-balanced system that provides value, not exploitation.

In the end, small businesses can better adapt to change and have a more controlled production chain. And we need to consider these points if we want to shift towards a sustainable industry.

Perhaps top brands will never accept a small-scale system because they wouldn’t maximise profit. Indeed, it makes capital accumulation more difficult. So it will be interesting to see how they will promote sustainability without addressing these crucial factors.

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Who has a voice

Who has a voice in the fashion industry? And who do you think has a say on sustainable matters in fashion?
One of the many problems with sustainable fashion is that those who have a voice in discussing the topic are exactly the same ones who created the toxic environment. Same faces, same brands, and same interests. That is the trick, unfortunately.

They set up a system based on massive overproduction to be disposed of through crazy budgets to retailers. Outlets packed with discounted items. And a parallel market to reach those retailers who wanted to buy certain brands but officially could not.
Therefore, all the Maisons understood they could increase the budget to retailers, knowing that retailers, in turn, were then reselling through a parallel net, feeding that hideous system.
All the operators knew how it worked, but since they were making a lot of money, it was good. No complain! Like it was acceptable to do the worst things in the name of god-money. Now that the industry collapsed, they’ve started questioning it.

Mono brand retail, department stores, parallel market, off-price stores. How many goods those enlightened CEOs and managers did believe people could buy?
Is the fact that they are not making money as they did enough to let us believe in their redemption?
We could invite Hannibal Lecter to the table, but perhaps, serving only vegetables will not be enough to change his tastes in food.

Who has a voice and influence on the sustainability discussion are exactly those who created the problem.
If we believe we can search for the value of sustainability among the same old faces, listening to their voice, we are wrong.

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