Rosh Mahtani, founder of jewelry brand Alighieri, celebrates his 10th anniversary this year. Her handcrafted, gold-plated creations, inspired by Dante's “Divine Comedy,” made her a Queen Elizabeth II Award winner for British design and a mainstay of luxury e-commerce businesses.
Buyers, including leading multibrand fashion retailer MatchesFashion, which accounted for about 500,000 pounds ($630,000) of Alighieri's expected profits during Paris Fashion Week last month, are selecting pieces for the upcoming season. I visited her showroom to do so. But there was a problem.
“They owe me £70,000. [about $88,000] We have been requesting discounts on unpaid bills since last October,” Mr. Mahtani said last week. Even though such negotiations are becoming increasingly common for independent brands like hers, she became uneasy. Still, she said, she doesn't shiver in her boots.
“The team made the choice and we talked about a capsule collection for the summer,” she said. “I don’t think any of us had any idea what was going to happen next.”
A few days later, MatchesFashion went into administration (the British term for bankruptcy). Owner Frasers Group, which bought the company last December for about 52 million pounds, or $66 million, said the business is now not commercially viable. The company, which was valued at $1 billion when it was sold to Apax Partners in 2017, laid off nearly half its staff overnight. Now 200 brands are in debt and unable to access unsold stock, leaving an angry customer base fuming online. Access or return your order.
The collapse of MatchesFashion was the latest confusing reckoning for companies selling luxury goods online. Many people who were once the darlings of investors are in financial freefall. Farfetch, once an e-commerce powerhouse for independent boutiques and a darling of the luxury heavyweights that run its websites, avoided bankruptcy in December thanks to an 11th-hour acquisition by South Korean e-commerce group Coupang and a $500 million bridge loan. (In 2021, Farfetch was worth $40 billion.)
Farfetch founder José Neves stepped down as CEO in February following a slew of lawsuits filed by shareholders. Yoox Net-a-Porter's future is also in jeopardy following the failure of a deal between parent groups Richemont and Farfetch last year. Richemont, which classified Net-a-Porter as 'discontinued operations' in its most recent earnings report and took a writedown of nearly billions of euros on the company, said it was looking for a buyer and would not invest any more cash. Richemont, Farfetch and MatchesFashion all declined to comment for this article.
Over the past decade, luxury e-commerce has become known as a smart way to shop, offering popular brands, exclusive products, free returns, and 90-minute delivery at the touch of a button. Brick-and-mortar stores will definitely collapse. The future is clicking add to cart for fashion with a price tag of $50 or $50,000.
During the first year of the pandemic, consumers splurged on such websites. In recent years, questionable management choices, a volatile global economy, soaring luxury prices, and large brands investing heavily in their own digital operations have limited retailers' ability to generate revenue and stand out in a highly competitive marketplace.
“Eventually what cannot hold up will collapse and online players will have to have lower, more pragmatic ambitions,” said Luca Solca, luxury analyst at Bernstein. “Matches went bankrupt, Farfetch spent money like there was no tomorrow on controversial acquisitions, and Net-a-Porter is worthless. All dreams of becoming the Uber of luxury retail turned into nightmares and proved unfeasible.”
fashion doom scroll
Multibrand e-commerce has emerged at a time when the global luxury market is being upended by a shift from exclusivity to ubiquity. The novelty and excitement of being able to browse and purchase beautiful items that would soon arrive at your doorstep appealed to consumers accustomed to the instant gratification of the Internet age.
But what was interesting about online luxury e-commerce was how many players adopted a broken model, which was reflected in the widely publicized problems of American department stores. After the pandemic boom, many people were overstocked, leaving behind mountains of unsold inventory. Afterwards, they implemented aggressive promotions and discounts. This has led big brands to seek more control over e-commerce and distribution. As competition becomes more intense, multibrand suppliers spend more to find the difference.
More brands and more products in more locations. More sales. In addition to the massive expenditures required to build the infrastructure to ship every order and process every free return, it was a model that undermined much of what had initially captured consumers' attention.
“Many consumers have come to these sites because they want to edit their work quickly and cleverly and access it immediately,” said Fiona Harkin, director of forecasting at Future Laboratory consultancy. “Eventually, especially with the advent of mobile commerce, the dozens of pages of products you can find elsewhere will turn into an unsatisfying scroll of fashion ruin.”
These challenges have coincided with a general weakening of the luxury goods market and dovetailed with many e-tailers' exposure to aspirational middle-class consumers who have seen their discretionary spending shrink due to inflation and the upward trajectory of luxury prices. Mr. Solka estimated that by 2023, the top 5% of luxury customers, including luxury e-tailers, would account for more than 40% of sales. That means there are far more temperamental and demanding clients going to court.
Some players have sought to expand their business strategies through expensive acquisitions. Farfetch owns British luxury store Browns. Italian incubator New Guards Group, which holds licenses for Off-White and beauty retailer Violet Grey, is currently in talks to sell its assets. The advent of resale has led customers to purchase used products not long after they have been sold at full price.
“The cost of successful digital marketing and customer acquisition has become increasingly higher, and investors have become less willing to cover the costs,” said luxury consultant Robert Burke. He pointed out that some companies, like MyTheresa, performed better than others. But he warned that the past three months have brought a long-awaited and painful reset.
“We are now going to see a major evolution of luxury e-commerce,” Mr. Burke said. “Perhaps a better word would be to correct.” “Overall, online sales of luxury fashion increased last year. This is not a shrinking market. What’s changing is who gets a piece of the pie.”
on the verge of bankruptcy
JJ Martin, founder of lifestyle brand La Double J, got into the ready-to-wear business thanks to Ruth Chapman, founder of MatchesFashion, who started wearing La Double J in 2016.
“At that time, everyone looked at Matches to see what to buy because Ruth had the best eyes, nose and ears on earth,” Mr. Martin said last week. “When she came to get me it was a big break for me. We don't have all the brands, just the coolest ones. This was their biggest asset before they had to stock seven variations of the same product.”
Mr. Martin said he was owed money for a resort collection he delivered last fall, but declined to disclose the amount. Dozens of brands contacted by The New York Times for this article, many of which have already released spring 2024 collections, were similar. Anissa Kermiche, beloved by fashionistas for her ceramic love handle vases, jewelry and homewares modeled after the shape of women's hips and buttocks, was a bit more candid. She lost £50,000 ($63,000) on inventory delivered after her Christmas.
“I don’t have any hope of ever getting this money back,” Mr. Kermiche said. “That’s a lot, but other people are in much more debt and on the verge of bankruptcy themselves.”
Poppy Sexton-Wainwright, of beach and loungewear line Asceno, stressed she was less worried about the “non-trivial” amount of money she was owed than the loss of income she expected to earn from MatchesFashion this year. Several brands said they have moved as much money as possible to their direct-to-consumer websites. That's good news, as reports suggest shoppers at some online stores, including Ssense, a Canadian company still known for its focus on emerging independent brands, have reduced the number of brands they buy.
Others, including Net-a-Porter, have asked some brands to change their payment terms from 60 days to 90 days, adding further anxiety to an already volatile industry. With Farfetch finding a buyer for the Browns, Richemont finding a buyer for Net-a-Porter, and administrators finding a white knight for MatchesFashion, the future of once-popular names remains uncertain. (Frasers Group reportedly structured its acquisition of Matches in a way that allowed it to buy Matches out of bankruptcy without any debt.)
“Designers wanted multi-brand products because the prestige factor once meant something,” said Mr. Mahtani of Alighieri. Now they are a less important piece of the puzzle. Although Ms. Mahtani stopped working with Farfetch 18 months ago, Matches was a cornerstone of her market. This week she headed to a warehouse in London to retrieve some of her stock. (London's Sunday Times estimates that the company, which still trades under the guidance of administrators, has about 100 million pounds worth of unsold product.) Ms. Mahtani was not successful, but she did obtain direct contact information for the company. She felt like it was a step in the right direction.
“I had to do something,” she said. It was absolutely outrageous to see stocks that were still being sold on the website and yet they hadn't paid me any money. I will be fine. But no company feels like I do and loses money.”