Interview Transcript

Can you provide some context to how the online luxury market has evolved over the last decade?

A lot has happened in the last decade. Digital is a super fast-moving space and the area which we work in, soft luxury, has probably been later to the online space than a lot of other categories. I think around the mid-noughties is when things kicked off with Natalie Massenet, well-known for having pioneered luxury retail at a time when, I think it would be fair to say, that a lot of the established bricks and mortar stores were quite skeptical about the possibility of selling luxury online. This was because of the high price point but also, how do you deal with sizing, fabrics and the specifics of ready-to-wear clothing, even if bags, shoes and accessories lend themselves more easily to not having the product right in front of you?

There was a lot of skepticism and she forged ahead and is rightly credited with a lot of the pioneering efforts, but she wasn’t alone. A lot of independent retailers at that time, and up to about ten years ago, saw the opportunity to engage and service their existing customer base better and also, of course, to preach to a much wider audience.

It’s interesting because it was the independent stores like Mytheresa in Munich, Matches Fashion in London, END Clothing in the North East of England, SSENSE in Canada that grabbed the opportunity more than the big, established department stores at an earlier stage. They also had the advantage of owning all of their own stock. They were wholesale partners to the brands. They owned all of the stock that was on their shelves and they were able to present it online. Whereas the department stores had a mixture of wholesale relationships which they could present online if they wished to, but also concession contracts where they sublet space to the brands, so their product mix would have been more patchy versus the independents.

You now have a situation where some stores that were independent ten years ago are now major players in the luxury digital space and stole a march, if you like, on the big, established luxury department stores.

Then I think, probably, the slowest players to join the online race arguably have been the brands themselves. Even to this day, there are brands at this stage, in a proven market, that have really embraced the online space, understand its potential and still there are those which are skeptical and have concerns about brand perception, how it works and how it will impact their existing bricks and mortar business.

But, of course, the brands in some respects could afford to wait and see, could afford to partner with those independent stores and more forward-thinking department stores to see how it evolved and join later, because they own their name and product and would always be able to create at the point that they wanted to experiment more with the online space.

How have you viewed the way brands’ perspective on luxury evolve over time, especially now post-COVID?

COVID has accelerated everything. This has been well reported in the press and I think it’s a well understood fact. Pre-COVID you would read that, by 2025, around 25% of luxury sales would be made online. COVID has taken it already over the 20% mark. I think we will get to that 25% mark much faster now that more customers are engaging with online because they had to. They didn’t have the bricks and mortar option and they’ve become used to it, have been introduced to it. I think COVID has really accelerated what was already happening.

From a brand point of view, again, it varies radically from brand to brand. Some have embraced digital fully and others remain hugely skeptical, as I said earlier. I think brands have got several questions to answer. First of all, how do they perfect and enhance their image online? Over the last 10 to 15 years, every store that they work with and have a wholesale relationship with have had the opportunity to put those goods online. If you were to keyword search any major luxury brand, you would find multiple pages of retailers willing to sell you those products which, of course, paints a very mixed picture in terms of the standard of presentation. It has created difficulties with pricing and in-season discounting which, of course, is not central to a luxury brand’s image, so trying to manage a brand’s image online has become an important topic.

Of course, there’s the opportunity to go further and to enhance. Fashion weeks have not had the opportunity to go ahead this year so brands have been forced to look at digital or mixed digital and physical alternatives and experimented with different ways to use digital to really elevate themselves, to create a much more modern, forward-thinking approach to their marketing.

They’re thinking about the way they can engage with the younger customer because, of course, if you’re not online there’s entire generations of native customers who would not get exposure to if you were not to present online. Skeptical brands, who’ve engaged in the space later, have experienced an ageing of their brand name because customers simply don’t see them in that space.

For a long time, there’s been a lot of conversation around the integration of online and offline, popularly called omnichannel, and that’s now I think very well understood and it’s impossible, at this point, to think about the two separately. Omnichannel really is a dated concept. It really all belongs under the banner of commerce. The modern luxury customer now – this isn’t just the case for the younger customer – researches online, make minimum purchases online often and make the effort to actually visit a bricks and mortar location. These people want more than just access to products. They want an experience. They want to engage more deeply with brands.

For the brands, because they came a little bit later, there’s a real learning curve in terms of how they drive online sales and how they allocate stock to that channel versus their bricks and mortar.

Can we lay out the different online business models we have today between the wholesale inventory-based model versus the Farfetch marketplace. How do you compare the two?

There are two main models as you say. The marketplace model, with Farfetch being the biggest operator in that area, from a luxury point of view, whereby the marketplace is a way for third-party retailers to present their stock online and to benefit from higher volume of traffic to that marketplace than they would get to their own much smaller.com, without significant expense of search engine advertising. The second option is the retailer that buys the inventory directly and presents the goods on their own site and there are pros and cons to both.

The advantage of the retail model as Mytheresa, where we buy the stock and present the goods directly, means that we ship directly to the customer. We can control the level of service, speed of service. We can control the edit of products on the site. We can have a perspective in terms of the way we edit and present to customers. Ultimately, we own the close relationship with that customer and we can service their customer so that they come back time after time. We look at it from the perspective of the lifetime value of any given customer, not one single sale.
Marketplace, by contrast, tends to be more promotionally driven. There’s less loyalty from individual customers who are often brought in through promotions and search. They can’t guarantee service levels to the same degree because the fulfilment could come from multiple places, from any of the retailers that have their products on that site. There is a customer relationship, of course, but there isn’t the same longevity or same point of view and they can’t guarantee the same level of service. It’s much more difficult to do that with a marketplace.

More conceptually, with a luxury marketplace, do you think there’s a limitation to the scale of it because, by definition, luxury wants to limit supply to drive demand. How do you look at the marketplace model conceptually?

It’s a fair comment. Luxury is not about commodity. Luxury needs scarcity. There is a lighter touch and feel to presenting luxury goods so it can’t be handled in a pure marketplace manner, like Amazon handles commodity goods in the way that they can produce their own label for products for bestselling lines or indeed stock high levels of volume on bestsellers in their network of warehouses or distribution centers.

Marketplaces in luxury can be scaled, of course. The digital channel is growing and will continue to grow for at least the next five years and beyond. So there is high growth potential even by just retaining a similar level of market share, but they are limited in their ability to bring enough of the right products from the right brands to the marketplace. Because they’re not purchasing directly, there are relationships between marketplaces and brands but they’re not direct purchases. They can’t fully control the level of inventory available and in luxury, like any business, there are perhaps only 30 to 50 very important brands in the market. In order to scale properly you need to be working with those 30 to 50 and you need those brands to be on board with the way you operate.

They need to be convinced about the additional value that you bring to them, as a brand. If you can do those things then you can scale your supply, but in the absence of those relationships and the absence of that belief, a lot of marketplaces look at a wider assortment of brands and products which is not scaling in the way you’re describing. That is finding more stock and variety but, in the end, there are a few brands and styles that really drive the core of any business and that’s true of luxury and many industries.

Why do the brands prefer selling directly to ecommerce retailers versus the marketplaces?

Fundamentally, relationships and relationships in the luxury sector are incredibly important. Good quality relationships are based on how retailers can add value. If a retailer can’t add value to what the brand already does, there really isn’t a reason for being. In our case, firstly, it’s the edit and curation. I think it’s extremely important that brands believe that retailers have their own point of view, that they can come to their showroom, see the collection in full and focus on styles, edited styles and the curation, and putting together those styles in a way that, perhaps, brings a new perspective, a different light onto that collection that wouldn’t be presented, necessarily, even in their own stores, where perhaps there’s even a bigger assortment.

Secondly, in terms of the way we communicate through many channels, through social media, email, on sites and so on, that curation allows for retailers to develop a tone of voice and to communicate that point of view and a point of view that customers identify with. Many customers in the luxury space are very time poor. They don’t want to see every single option available from all of the major brands. They want to see the most important styles or indeed the styles that we think are most important to them. We often say that the customer searches at the red stop light, which means that you’ve only got her or his attention for a very limited period and need to get the right products in front of them as quickly as possible. Tone of voice and the way the communicate is extremely important and that requires control over the product.

Then finally, I think the service itself, the ease of navigation, the ease of checkout, the on-site experience, most importantly the speed of delivery and after purchase care, the follow-up service on a very individual basis. One of the biggest challenges and one of the biggest areas of focus for any retailer is to be able to scale but also treat your customers as individuals and this is something which certainly separates retailers from marketplaces.

Can we just walk through how a brand will look at a retailer and marketplace option? Let’s say I’m X brand.com and I can sell via an online retailer where I get this highly curated, more ownership, better service supposedly model; or I can go to someone like Farfetch and have that e-concession model and integrate with their platform and link up my site with theirs for them to fulfil my products. How do I look at making that decision?

It’s not necessarily an either/or. Like any industry, there isn’t any one way to get to a final desired outcome or, in this case, to reach the luxury consumer. There’s a place for both. I think the approach on the marketplace for brands is interesting in the sense that, initially, Farfetch and other marketplaces began as a platform for other retailers to advertise the stock that they had. But that led to a huge variety on price points, quality of pictures and presentation of products and this doesn’t service luxury well. It’s fine for commodity items but for luxury, these brands are investing huge money in store networks and some are investing hugely in their own dot com. Then to have, alongside that, substandard presentation on marketplaces runs the risk of dilution or erosion of the quality of their presentation. There needs to be some coordination with their third-party retailers that are also using the site.

The other side is the opportunity for the brands themselves to have their own inventory on those platforms. There’s a lot of traffic coming through those platforms. In many cases, it’s traffic which is driven by promotions, which is something that luxury brands don’t necessarily want to be involved with because they’re not competing on price. Nobody needs a luxury product. If you want a pair of shoes or a bag or any item of clothing, there are many less expensive options on the market that you can choose. It so happens that luxury brands create the most desired bags, the most desired shoes, some of the most innovative clothing. Price isn’t the key point for them to compete on. There needs to be coordination and then, of course, they have the opportunity to present their own stock directly where they can set the price, they can decide whether they promote or not promote and can control their image.

What they can’t do, which a retailer can, by contrast, is mix products together from other brands: mix, style and curate them in a way that creates new, interesting angles and images with like-minded brands. It’s that sense of discovery that a retailer that owns their own stock can also provide. A customer may arrive looking for one brand or having an idea of an item that they want to purchase and, along the route to looking at that brand, finds another brand or product which they hadn’t considered and then become a customer of that brand.

That means that the brand has to trust the retailer – their point of view, quality of their execution etc. It’s only really the best quality retailers that will be able to survive, long term, in this space.

Doesn’t the end consumer just want the most selection in luxury or is it different from other products?

No, and our customers tell us quite clearly otherwise. Many are time poor, as I said earlier, and they want to see either what our buyers consider to be the most interesting, exciting or best items from that designer; or they want us to show the most relevant items for them, individually. We’re putting a lot of work into on-site search so that we can offer items based on purchase history that are going to resonate, because they want to save time. If she’s going to a summer event and they want a dress, she wants to see the most relevant dresses for that occasion for her, not every dress that’s ever been produced for a summer party. Curation is extremely important

If you know precisely what you want – I want this bag from this designer in this size – marketplaces are a good place to start because you’ll likely find it in stock from somewhere, but even then, you need to be prepared to potentially wait longer in some cases. If the retailer isn’t close to you, you rely on the speed of their shipping which may or may not be quick, so you get variable service standards as well.

I think from some of the dynamics we’ve seen in other marketplaces, there’s been benefits of scale; more demand, more suppliers and so on, to get a flywheel that builds the marketplace. Do you not think this will work in luxury where as Farfetch gain demand and scale, the other brands will get attracted to the platform because of the scale of the business?

There’s two things there. One is the way in which that traffic is attracted to the site. Search is becoming increasingly expensive and it’s increasingly competitive. Promotion and discounting, which is a major draw for marketplaces; buying this product cheaper on our site. As we discussed, price isn’t the first and most important quality of a luxury product. It’s already expensive and therefore isn’t the way that good quality traffic should be gained.

How does the pricing work then? Let’s take promotional discounts on Farfetch. How does that typically work with the brand and how does the brand look at that?

The attitude from the brand side varies considerably. Some brands will be very open to acquiring customers through promotion but, in general, the most highly perceived and most luxurious brands, by definition, don’t want to be involved in a lot of promotional activity. They’ve invested heavily in developing their image through their stores, through their runways, through their marketing activities, through the ways in which they engage with an audience culturally. The whole idea of luxury products is that that desire justifies the price tag. Also the scarcity, in some cases the difficulty, to acquire those items and the craftsmanship that goes into producing them justifies that price tag.

Promoting a site and promoting particular brands or particular products through discounting isn’t a model which attracts the best customers, meaning customers who will shop multiple times per year. It’s more likely to attract an aspirational customer. It doesn’t create loyalty.

Farfetch, for example, will offer discount to me as a customer. I can go on and pretty much buy most products at a discount and then hopefully Farfetch expect me to go back and purchase more or is it only discount on some products?

Typically, it would be on some products. Any promotion can be set up in multiple ways of course, but any advertised discount is likely to be only applied to a selection of products, rather than every product on site.

Do those brands care though? If they’re not discounting themselves and they say we’re going on your platform, but this is a fixed take rate for Farfetch, this is the price, it does not move. Is that not a good deal for them or do they just not want to be involved in the marketplace offering?

It’s a complex business because no brand or retailer can dictate a price. Every retailer is entirely free to set their own prices. They own the product, they bought it wholesale and they can sell it at any price they like. That brings about the complication that if luxury brand X presents their own stock on a marketplace and then there are other stores that present the same product on that marketplace but at a cheaper price, who’s going to win the sale and, more importantly, is that customer coming back for those products if they’re not discounted?

If the primary reason for the customer arriving on site is to find that product at a discount, they’re only likely to shop again if they also get a discount and that’s not a customer that most luxurious brands would be interested in acquiring, because they tend to be of lower long term value.

Talking about selection on the supplier side, firstly, how do you view differences in the highly curated supply of Mytheresa or some of the other retailers in the luxury worlds versus Farfetch’s marketplace?

We put a lot of effort into this. It’s curation from a product and brand point of view. Our perspective is that to say you are truly curated, you also have to have a relatively limited number of designers on site. If you present every designer that shows during Fashion Week, that is not curation.

That’s the first thing. On Mytheresa, on average, half the brands that are presented are on most of our major competitors’ sites. That’s also a way in which we scale effectively. We would rather be supportive of the designers we really believe in and we think have an interesting story to tell, who have the most exciting products in luxury, rather than spread our dollars thin and make a presentation of many brands which, in the space of a season or year, we wouldn’t be able to talk about, to introduce our customers to because there is only so much time and so much attention that you can gain.

We continually review which designers we carry. We continually review the number of options and styles we carry within each category. It’s the job of our buying team and buying director that that selection of products represents a unique point of view for us because that keeps customers coming back. That builds a relationship and trust over time.

Again, that’s not something a marketplace can do because they’re bringing products from so many different places that there really isn’t a selection or perspective. They can group together products within an email communication or social media marketing campaign, but that only represents a very small part of what they’re actually presenting on site.

Does the brand list different SKUs or inventory in different channels? For example, they might go with a certain product range or design with Mytheresa but then list overstock or other stuff on Farfetch and have a completely different selection on brand.com. How do you see them mixing and matching inventory?

By and large, so far as brand and wholesale partners go, there’s a very natural delineation between the big online retailers. Between ourselves and Net-A-Porter and Matches Fashion and SSENSE and others, one of the reasons those businesses have been successful and have scale and have grown is because they all have a unique point of view and we monitor quite carefully how that stacks up once the deliveries have come in and we have our products on site and understand whether we are truly differentiated, which we certainly are.

That tends to happen naturally. We also develop products with the brands. We create capsule collections. We launch products, exclusively, that are important to the brand. We tell stories which they really want to tell if we feel that they’re relevant to our customers, which also creates an even higher degree of separation from competitors.

As far as brand.com goes or as far as their bricks and mortar stores go, most brands do reserve some products for their own retail network. Often, as a major partner, we also get access. But some brands, particularly within mainstay pillars of their collection, like bags or shoes, do differentiate or at least limit the amount of those products which are sold to partners.

I think that’s important. There isn’t any point at all in having even two stores which present precisely the same product mix online. In the bricks and mortar world, two different stores which have a similar mix in two very different locations, there’s sense to that. But online, where everybody can access anything globally in our case, there would be no reason for being if we showed precisely the same thing as everybody else.

Do you think this game is all about getting the best access to supply?

It’s one aspect but it is only one aspect. It’s a very important part. At the end of the day, everything we do is about product and having the best suppliers, working with the most important brands. Having access to the most exciting products and having the opportunity to present them is where it all begins. But also, it’s crucial that we communicate in the right way, that we are genuinely informative, that we’re not pushing an agenda that isn’t interesting to customers. So marketing and communication is crucial.

The way customers are serviced, again we’re scaling pretty rapidly but, as we scale, we put a great deal of emphasis on continuing to service customers in an individual fashion. Particularly customers that visit us several times a year, that give us a very high share of their wallets, of their annual spend, deserve to be treated to the after sales and pre-sales service that they require.

The brands that you’re working with, not in an entirely exclusive relationship but at least a very tight knit relationship, do you see them also using Farfetch and listing different SKUs and stock there, as well, or is it mainly exclusive relationships?

No. We have few exclusive relationships. I think if a luxury brand is desirable enough, it is going to be on more than one site. I think it’s clear that no one owns the customer, the customer owns their own wallet and, at this point, online understands the variety of retailers that are available and understands where the legitimate products come from and who does a great job. I think what we compete for, in reality, is the share of wallet, the share of his or her attention span and spending power.

Customers that shop with us also shop with other retailers and shop on Farfetch. The question is, who’s servicing them in the best way and who’s inspiring them the most often?

How do you look at the e-concession model proposition and how that could evolve?

That’s yet to be seen and I think, as we said at the beginning, things have changed a huge amount in the last ten years and they will continue to accelerate and change over the next five years. Our model of marketplaces will change in the coming years and it’s possible that concessions, of some description, will become part of the new thinking. That doesn’t exist on our site today. That’s not to say it couldn’t exist in the future. The concession model for a marketplace is clear: the brand has the opportunity to present their own products but they can’t be mixed with other brands, at least not easily at this stage, and there is the variety of presentation across multiple retailers presenting the same product.

Likewise, concessions for bricks and mortar for department stores are a well understood concept. The department store, in many respects, stopped becoming a retailer at that point albeit they do pull the traffic through the door and into the concessions, as well as their own wholesale spaces. They really become a landlord to sublet space to a brand and the brand becomes the retailer. For our model, that wouldn’t make sense. We would need to always retain our position as the retailer. We would need to own the relationship with the customer and continue to provide, at a minimum, the current high level of service if not even better.

The curation is something that brands routinely tell us is important to them; showing their products and their brands in a different light and having that tone of voice. If you don’t have a tone of voice and a perspective, you’re not a retailer anymore. So we wouldn’t entertain something which pushes us closer to being a marketplace. We would have to find ways of working and partnering with brands which still satisfy those fundamental tenets of what we do and how we add value.

How does the way that the retailer like a Harrod’s looks at distribution online versus a Gucci, for example? Gucci.com is linked up with Farfetch so they use the same warehouses. If I buy online at Farfetch, I’m pretty much buying from the inventory at Gucci. How do you look at the differences in the relationship between the retailer and the brand with the likes of Farfetch?

Every retailer has a different point of view on this. I think what most retailers now understand is the level of investment needed to do a great job online. If you go back far enough, you’ll find a lot of retailers that thought it was about shooting a picture, uploading it online and coming to some arrangement with Google and other search engines to draw the traffic and telling your customers your products are available online. There’s an awful lot more to it than that. It’s just as detailed and as complex as running a successful department store.

But some stores have gone down the marketplace route. They’ve said, we don’t have the capacity to invest in our own site to that level or the in-house expertise or the ability to do that and therefore a marketplace is a good option. It’s not exactly plug and play but it’s the quickest route to be online for sure, with the advantages and disadvantages we’ve discussed. Whereas I believe the most successful retailers who have really developed some loyalty and have really developed a significant customer base for their digital channel, are those that have invested heavily relatively early on.

Farfetch mention how now, 50% of their supply is actually directly from brands, which has grown over the years and which insinuates the trend away from wholesale to concession models for the industry. Take those top 50 brands, do you think they’re going to move over to this concession model and just let Farfetch do that demand generation and fulfilment for them?

If Farfetch can bring them the right quality of customer, there’s no reason they shouldn’t be on there. There is the question of whether the commissions that Farfetch receive, in order to host those brands on their site, are sufficient and allow the business to succeed long term, but I don’t think there is any one perfect model. I’m a big believer in our model otherwise I wouldn’t be working for Mytheresa. I believe in all of the aspects that we’ve talked about first and foremost, but that’s not to suggest that the retailer model is the only and perfect situation. It also comes with its own specific issues which need to be addressed.

Much like in the bricks and mortar world, there is a place for a concession approach and there is a place for retail and the most successful format will be the one that is best placed to present the brands in the way that they want to be presented online that reflects their luxury status. Or, more importantly, is able to service high wealth, high net worth luxury customers to their very high expectations.

Do you think this is a case of Farfetch driving demand from the Middle East and China and brands could be using that as a different channel to get access to those markets?

They can certainly use Farfetch for that kind of exposure and, in many cases, maybe then using the platform to drive traffic to their own dot com. Through their own dot com, they can form a direct relationship with the customer, there is no commission to be paid so they benefit from full product margin.

So customer acquisition through marketplace is interesting and is something that brands are and should be experimenting with. Again, it really depends on the quality of customers they acquire through that route and whether the loyal, frequent customers are actually looking at marketplaces or whether they’re attracted by other things.

Typically, in other markets, we see marketplaces vertically integrate and typically own supply or look to own the value chain. How attractive do you think it is for luxury online marketplaces to end up owning more supply?

It’s a complicated issue to address within luxury. If you look at the Amazon model, the biggest retail marketplace, they have the opportunity to take bestselling products that third-party retailers have initially advertised on their marketplace and then start to buy those products themselves directly and house them in their warehouse. That then allows the Prime customers to receive those products very quickly and at full margin to Amazon.

They can also produce own label version of those products, further boosting their margin and buying direct from manufacturers. That doesn’t exist in luxury. You’re not going to find a credible luxury brand that’s willing to sell you their highest volume products alone. Luxury is about the theatre of the presentation. It’s about the stories that are told. It’s about the emotion and the engagement and the excitement of new ideas and innovation. All of that, of course, does drive volume of certain products but it’s not only about those products. It’s about the window dressing that goes around them and how that stimulates a customer to take interest in that particular brand. It’s the cultural connection which ultimately engages people.

If you attempt to reduce luxury to pure commodity, it is no longer luxury. If a marketplace tries to take that single step, in terms of stocking only those items, it will devalue the brand and what it stands for, so one step is impossible. If they take two or three steps, then they’re becoming a retailer, not a marketplace.

There’s this paradox where 5% to 10% of the brands probably drive 80% to 90% of the market revenue. There is a much more consolidated supply side, therefore much more power at the brand level. The brands own the customer, the emotion, so it’s paradoxical that you can have a marketplace that could serve that. But the power of scale and a global audience that can serve Harrod’s in the UK or an Italian brand Chinese and Middle Eastern customers is powerful. It’s hard to get your head around.

That paradox is a very fine line. I think the brands that are most successful are those that can walk that fine line between, on the one hand, maximizing their exposure in creating that emotion and engagement, but also maintaining a level of scarcity on the other side, not fulfilling every single order and not treating the brands and the product as pure commodity.

It’s harder to quantify, but for the customers that couldn’t get hold of that products because they weren’t available even if they were very desirable, it also creates demand. It creates word of mouth marketing. It creates desire and so over-fulfilment is a problem for luxury which is another way in which it doesn’t behave as a commodity.

Clearly, the biggest risk with retail is that I’m a retailer, I purchased the luxury products, I can’t sell them and I mark them down 50% and end up hurting the luxury brand. How do you think about mark-downs and liquidating stock and the risk to brands via the traditional retail model?

This is an important question. Online retail now is of a scale that this really matters to brands and they’re right in looking at the amount of product in the market. They’re looking at the amount of product which is presented online and when you think about the percentage of that product that is marked down across all of their wholesale partners, it becomes quite substantial.

One of the reasons brands are looking more closely at this space now is not only marketing and reach to younger customers and to customers at large, but it’s also because it’s become such a large scale that it really matters, that there is a danger that if they overexpose themselves to these kind of activities, it will undermine everything they’ve invested in for many, many decades.

You asked about how the models will evolve going forwards. I think closer integration of the best multi-brand retailers, in a way that limits mark-down, will be one aspect that would become quite important, because it’s also not to the retailer’s advantage to sell at mark-down.

How do you do that though?

Through closer integration of data sharing, of understanding who and where the customer is, what sells, replenishing what sells, removing items which don’t sell, which have a very high exposure online. Remember that a single product marked down in a bricks and mortar store has a limited audience. It can still be a substantial audience, but it depends on how many people walk through the door and look at that particular shelf or rail. Online, millions of people can see that product marked down, whether or not they intend to buy it. This needs to be managed quite carefully.

I think another big topic on this front is the sustainability of that oversupply. If a lot of product is going into mark-down, the question has to be asked, why is there so much product available and is there an oversupply from that point of view?

I think these kind of conversations are extremely important and the best retailers will embrace this because they want to partner and enhance and do their part to elevate brand perception online, not to damage the good work that’s been done in establishing that brand’s name in the first place.

Do you think that’s one of the reasons why we’re seeing a shift from the brands, supposedly, to a more concession based model where they can control the price and inventory a bit more versus take the risk with a retailer buying the product and then potentially marking it down, if the market doesn’t see the value in the merchandise?

Again, everyone is free to set prices as they choose. That can’t be imposed in any free market but, for sure, luxury is an unusual situation. If you look at the EU and their trade rules, the assumption is that good competition drives down prices and it’s therefore good for the consumer and that is true in many cases. But again, luxury isn’t a business where price is the foremost consideration. It’s desirability. Yes, discounting and pricing behavior plays into that.

I think it’s less about the brands controlling every single aspect of every product that they’ve produced, but more working with good quality retailers that understand how to service customers well, without having to worry about driving volume through discount, being able to sell at full price, understanding customers’ needs worldwide. There are items which sell worldwide but tastes do vary. Customers see brands and understand products in a different way in different regions of the world. Understanding those sensibilities is also incredibly important.

Looking forward now, online is crucial to the industry and every brand but the brands are not set up to be retailers and that’s obviously why you have these two different models. How difficult would it be for an online retailer to start offering a concession model? Let’s say the brand comes to you and they want to own the price and the inventory. If you have the logistics and infrastructure set up, could you not offer that in a way?

In theory, it sounds attractive if you haven’t already made the significant investments in building the ability to deliver same day or next day, if you haven’t got the teams of customer service people and the rest of the expertise in online marketing to be able to offer that. To simply offer a brand space on your website and handle them separate to everything else you do, would put them at an immediate disadvantage.For retailers who are now coming later to the online space, this may seem attractive again because it saves on capital investment and setup of their site. But in reality, they wouldn’t be able to bring the traffic. They wouldn’t be able to service customers in a very high-quality way and ultimately, wouldn’t add any value to the brand in the first place.

How do you look at the likes of LVMH or Hermès? Do you think, in the long run, they’re just going to have their own brand.com site? How do see that?

They will. Most now already do. There’s different service levels. Not all ship globally. Not all can service customers wherever they are in the world and this is one important aspect. Particularly if you talk about a brand like Hermès or Chanel or Louis Vuitton, I don’t specifically comment on any of those particular businesses, but their best customers move around the world constantly. You don’t ship to any one address. They have homes or places they stay in many parts of the world and you need to be able to service them wherever they are, and you need to be able to service them seamlessly either online, to their home, to their hotel, to a store which is local to them and follow them with relative ease.

There is no brand on the planet that can afford not to invest in luxury. Some brands have embraced it fully. I would say particularly Kering Group brands have really invested very early on in online and have gained a much broader audience of younger generations. as well as older generations. LVMH have moved more cautiously, but then even brands within each of those groups are generally free to form a strategy which makes sense for their individual brands, and some LVMH brands are pushing harder than others. Some use it more as a marketing channel to gain attention and drive traffic to the bricks and mortar stores. Others make a very wide availability of their available inventory and collection and are expanding their worldwide service quickly. It’s a very individual, brand-by-brand case scenario.

Looking at how the industry can shake out in the long run, do you think there will be still multiple online retailers: Matches, Mytheresa, Luisaviaroma – all these different online curated product selections for certain customer bases, maybe in some local regions as well? Then you’ll have one marketplace which is Farfetch, which offers the widest selection, all of the brands, any other stock that the brands on the retailers don’t want to list and then potentially the brand.coms as well which, supposedly, are going to be for the big top ten brands.

Yes. I think the brand.coms will become increasingly important. As we said earlier, it’s not true of all but, as a broad generalization, it’s the brands that were slowest to adopt online and most, if not all, are looking at it much more seriously and investing more heavily. So dot coms will, I think, quite quickly start to offer a broader selection of products, will start to ship to more regions of the world, will become better at speed of shipping and brands will invest; they have to, there’s no question on that.

Within luxury marketplaces at the moment, there really is only Farfetch which is making any major inroads into luxury. There are, of course, other very successful retailers who are looking to push into the space but none which have done it at any scale yet. It would be very foolish to write off the continued attempts of Amazon and other marketplaces to penetrate the space. While they haven’t yet developed the light touch, the sensibility, the presentation, the individual customer service that’s needed for luxury, from a delivery and operational service perspective they’re world class. That will be an interesting space to watch.

Then on the retailer side, we went from a place in the mid-noughties at the beginning of our conversation, where there were just a few experimenting which then proliferated into many, many independent stores realizing that they had the opportunity to do the same and then ultimately had the opportunity to also list products on Farfetch. So at some point, that reached maximum capacity where there were, as we said, pages and pages of retailers offering luxury products. That’s going to consolidate; it already is. I think there will be very natural consolidation of the number of multi-brand retailers that can continue to drive meaningful business and do it in a qualitative way and ship globally.

There will be a thinning out. To put it brutally, there will be a survival of the fittest which will spell bad news for some but, I think, good news for the overall health of the industry.

And that will be based on scale and product positioning?

Scale, product position and ability above all else to service customers in a very personal and efficient way.

Farfetch are probably owning that space where they’ll have the long tail of the brands and boutiques, serving mainly the Middle East and China but also eventually globally I assume. Then potentially, the big opportunity for Farfetch, is to integrate more with the Gucci.coms and the bigger brands and start offering that deeper concession model. That is the big risk for the other parts of the industry, where the brands really do take to Farfetch and Farfetch becomes the center of the ecosystem. That is quite paradoxical because the brands should be the center, but I guess that’s the risk for the retailers in that retail landscape.

I think you’re absolutely right to say that becoming a concession space, almost a digital department store, by operating more directly with the brands, is an opportunity for them, there’s no doubt about that. That’s certainly one way to secure growth and to secure supply of goods. Of course, that depends on the commission rates they can achieve and the viability of the business going forwards, so that is a huge opportunity.
It is direct competition to the retailers, but I don’t necessarily see it as an either/or situation. I think there are strengths and weaknesses to both. I’m not being diplomatic in saying it. I think there’s currently a couple of alternative ways to approach this, but that will also change in the future. As we said, models will evolve and who knows, maybe there will even be a hybrid approach which, ten years from now, doesn’t look like a wholesaler-retailer model or a fully-fledged marketplace.

Things happen very quickly, which is why the space is very exciting and I think the only thing we can say with absolute certainty is that things, in five years or ten years from now, won’t look exactly as they do currently.