The luxury market is seeing a shift in consumer behavior, with physical stores experiencing a resurgence while multi-brand e-tailers are facing a decline. This change can be attributed to several factors. In the past, multi-brand e-tailers were on the rise in the luxury market, but now they are struggling to maintain their position.
According to Altagamma, the association of Italy’s top luxury labels, there is a narrowing gap between wholesale and retail channels in the luxury sector. This poses a threat to multi-brand fashion e-tailers, who are predicted to see a decline of 1% in their revenue in the coming years. On the other hand, physical multi-brand stores are expected to remain stable, and luxury labels’ direct e-tail sales are projected to grow by around 4.5%.
In 2022, sales in luxury labels’ brick-and-mortar and online stores increased significantly, with growth rates of 26% and 20% respectively. However, in 2023, while physical stores continue to grow (between 9% and 13%), online sales have declined by 5%. Department stores, which saw a 20% increase in value last year, are also expected to experience a decline of 8% to 12% in 2023.
The initial boost in e-tail channel during the pandemic and lockdowns, especially for multi-brand platforms, is diminishing now that the pandemic is over. Instead, there has been a natural acceleration in the performance of physical mono-brand stores. This is driven by a resurgence in socialization and tourism, as well as the decline of digital channels, which are reaching a plateau.
Luxury labels are now shifting their focus from opening new stores to expanding and maximizing the potential of existing ones. Physical stores are transforming into experiential venues for cultural mediation, becoming destinations in their own right. In this context, e-tail is primarily utilized as a digital service that supports physical stores, with online and offline solutions increasingly integrated throughout the customer journey.
Younger consumers, especially Millennials and Generation Z, are showing a renewed enthusiasm for physical stores. Generation Z consumers, in particular, are becoming the most influential group in the luxury market, despite their weakening purchasing power. They are drawn to experiential shopping, which is why in-store shopping is gaining traction over online purchases.
Luxury labels are also exerting greater control over their e-tail operations, favoring their own e-shops and reducing their reliance on multi-brand e-tailers. This shift is affecting the profitability of multi-brand platforms that previously relied on luxury labels for business. Luxury labels are also cutting down on promotional channels and reducing the presence of discounted resale items on multi-brand platforms.
The decline of multi-brand e-tailers can also be linked to the increasing costs of running a profitable business. In the past, traditional retailers covered the costs of promotional initiatives, but now e-tailers are financing discounts. This has made it more challenging for e-tailers to maintain profitability. Larger e-tailers like Farfetch have recorded revenue slumps and losses, while smaller players like MyTheresa have managed to remain resilient.
To thrive again in the luxury market, e-tailers will need to reevaluate their business models. This includes better cost control, focusing on flexible purchasing solutions, and reducing reliance on promotion-driven customers. The integration of digital tools can also help e-tailers adapt to changing consumer behaviors and preferences.
In conclusion, multi-brand e-tailers in the luxury market are facing a decline as physical stores gain popularity once again. Luxury labels are increasingly favoring their own e-shops and reducing their dependence on multi-brand platforms. E-tailers will need to adapt their business models to remain competitive and profitable in the ever-changing luxury market.
Useful links:
1. The Future of Luxury E-commerce in a Post-Pandemic World
2. How to Win in the Age of AF
