Intro

Welcome to issue 04. I'm periodically reminding myself that this newsletter is an ongoing commitment, and I need to show up weekly. First, a brief build-in-public update.

My Luxury Watch Sector Report, initially planned for April, has been delayed indefinitely. I had envisioned a process of researching, writing, and publicly briefing the report, then placing it behind a paywall for industry professionals. I planned to repeat this approach for subsequent sectors. However, I realised that creating a repeatable process and conducting customer development would be beneficial before moving forward.

It seems very obvious, but sometimes the quickest way to get started is to simply begin, even if it means "building the plane while flying," as they say. I mostly subscribe to this approach, but I also recognise the value of establishing a good process to ensure repeatability. This leads me to another point: many advise going narrow and deep, or focusing on a single vertical, and I can see the benefits of this approach in this case.

Lastly, all of this takes time. I've started identifying interested people and exploring unique insights, but I've realised I won't realistically be able to complete everything on time. So I'm working to iron out the kinks, while also being drawn to testing shorter-form insights, as the production time is faster. Stay tuned for more.

The Rise and Fall of Online Luxury Platforms

This week, I've been pondering whether online luxury platforms should have prioritised circularity and developed the necessary technology. If you're familiar with the luxury market, you may have come across reports on the financial difficulties faced by once-innovative platforms like YOOX NET-A-PORTER (YNAP), MATCHES and FARFETCH. If not, I've included some graphics to help provide context on some of the activities.

The summarised version being:

YNAP, the luxury ecommerce platform, was poised to be acquired by Farfetch. YNAP is owned by Richemont, the Swiss luxury conglomerate.

However, Farfetch filed for administration, and Coupang expressed interest in rescuing the platform. In response, Richemont withdrew its agreement to sell YNAP.

Adding to the upheaval, Matches was acquired by Frasers Group and subsequently closed down just a few months later.

Different, how?

Establishing a clear point of difference is crucial for every business. However, when comparing luxury ecommerce platforms to luxury retailers with their own online presence, I find it difficult to discern significant distinctions between them.

Given the lack of distinction I am in some ways not surpirised with the results for a few reasons:

the luxury market has been reported to be softening
the differentiation between the luxury ecommerce platforms was diminishing
the platforms have been around for sometime- every product has a lifecycle
the physical retailers now have rivalling ecommerce websites

Lifecycles and Innovation

Products and industries have life cycles, and as they progress through growth and maturity phases, it's crucial to consider the landscape and understand the threats and opportunities.

Examining the evolution of Farfetch, we can see that the company adapted its business model, expanding from a luxury platform to powering the ecommerce operations of brands selling on its platform. Farfetch also acquired Browns Fashion gaining unique insights into the needs of boutique clients. Additionally, the company created the New Guards Group, a luxury brand platform, and acquired brands like Off-White , Palm Angels and more. They championed open innovation through Dream Assembly their tech accelerator and launched a store of the future in Browns.

Launching an innovative product to disrupt a market does not guarantee the product will remain innovative over time. However, in retrospect, Farfetch did demonstrate an awareness of its product lifecycle. The company diversified its business, recognised the challenging landscape it was operating in, and continued to innovate. While the financial results were not as strong, the focus of this article is not on those numbers.

Circularity as a Platform for Innovation

I believe circularity should be a fundamental component of any business strategy, and its absence would be a significant oversight. Companies should take responsibility for their products from cradle to grave. The World Economic Forum (WEF) estimates that transitioning to a circular economy will generate $4.5 trillion in additional economic output by 2030, a statistic that fascinates me and warrants a deeper exploration in the future.

There is strong connection between sustainability and innovation though I don't always see this embedded in some organisations. This can take the form of partner ecosystems that deliver enhanced value to consumers (see Net a Porter graphic below), incubators and accelerators to create and develop alternative materials and technology (Farfetch Dream Assembly), codeveloping solutions (Net a Porter and Good On You transparency platform) or new business models and new ways to generate value and revenue beyond the traditional linear systems.

It's noteworthy that luxury ecommerce platforms are opting for a partner ecosystem approach rather than developing their own proprietary technologies. These platforms are integrating new-generation circularity services into their offerings. From a customer perspective, this potentially reduces friction by providing a one-stop-shop experience. Additionally, it allows the platforms to reach the market faster and learn from their partners. For example NET-A-PORTER has partnered with Reflaunt for resale, HURR and By Rotation for rental and The Seam for repairs. Successful partnerships can even lead to acquisitions, as seen with Farfetch's acquisition of LUXCLUSIF to establish its own resale platform.

Luxury Retailer and Ecommerce Circularity Offers

The key question is whether luxury retailers and ecommerce platforms are stepping up their efforts in the circularity space. I've grouped them together since, from a customer's perspective, their online offerings are now largely on par in terms of basic features (acknowledging that product, user experience, and technology stacks are separate considerations).

I evaluated the circularity offerings of luxury retailers and ecommerce platforms across five key services: resale, rental, repair, refill, and recycle.

Recycle: I believe that some luxury retailers may have done take back schemes especially in the beauty space but they haven't been particularly effective in promoting or publicising these initiatives..

Refill: Selfridges appears to be the sole retailer offering a refill service through its innovative Reselfridges concept.

Repair: Net a Porter and Selfridges are the only (r)etailers offering repair services. While Harrods provides an alteration service, which could be perceived as an attempt to offer repairs and is worded as such, alterations can potentially generate waste, making them distinct from true repair services.

Rental: The majority of luxury retailers and platforms offer rental services, with Harvey Nichols being a notable exception.

Resale: Most luxury retailers and platforms, with the exception of Flannels and Harrods, provide resale services.

Surprisingly some of the links to these services are not easy to locate, which gives the impression this is not the preferred revenue source.

Reselfridges the poster child of luxury circularity

Given the significant potential value of the circular economy ($4.5 trillion, according to the World Economic Forum), the question arises: why hasn't there been a more widespread rush to embrace it? In this context, it makes sense to analyse Selfridges' approach, as they are leading the transition and have publicly committed to deriving 50% of their transactions from resale, refill, repairs, and rental by 2030. An in-depth examination of their numbers and progress could provide valuable insights.

As the first graph illustrates, Selfridges has experienced steady growth in its circular transaction revenue. The projected surge in 2023 serves to illustrate what region half of transactions for the 2030 goal would be compared to where they are now (Revenue in 2023 was £843.7m).

The second graph provides a deeper dive into the breakdown of Selfridges' circular services. Resale emerges as the most significant contributor, accounting for 68% of the brand's circular transaction revenue. This underscores the growing consumer demand for pre-owned luxury goods and Selfridges' ability to cater to this market. Rental was the lowest at 3% but would be interested to see if this is now increasing.

The third graph sheds light on the volume of items within each circular service category. Refill and Repairs have the highest number of items, highlighting the convenience and accessibility of these services for Selfridges' customers.

Selfridges' commitment to circularity extends beyond just the numbers. The brand has dedicated Reselfrdges destinations in all four of its stores, providing a seamless shopping experience for customers interested in pre-owned, repaired, or rented luxury items.Selfridges has demonstrated its ability to adapt and lead the way in sustainable practices. By leveraging its physical retail spaces, the brand has an advantage in offering services, that once-innovative luxury marketplaces are not offering. Their offering is supported by SOJO (repairs) and HURR (rental).

It's clear their target is ambitious but this is a step in the right direction. I will update this when I cast my eyes on the 2023 numbers.

This post was first published on LinkedIn.

Circularity: Online Luxury Marketplaces