The Business of Fashion
Agenda-setting intelligence, analysis and advice for the global fashion community.
Agenda-setting intelligence, analysis and advice for the global fashion community.
BEIRUT, Lebanon — Michel Kabbany lives and works less than three kilometres away from the Beirut port where a massive explosion on August 4 killed around 200 people and reduced buildings in nearby neighbourhoods to rubble. Safe, but feeling discouraged, the fashion designer started searching for jobs outside of the city a couple of weeks later.
He found a reason to stay when an order for one of his ornate, peplum-forward dresses landed in his inbox. Kabbany had recently joined independent designer network Not Just a Label's new marketplace, which allows him to sell his clothes direct-to-consumer through a platform that reaches more shoppers than he could ever hope to on his own. Suddenly, the mostly local client base for his three-year-old label became global. Soon after he finished making the first dress, which he sold for around $2,000, another order came through.
“You can’t imagine how much this boosted me,” he said. “This is what’s keeping me going.”
Kabbany’s circumstances are anything but ordinary. But in many ways, he is like many bootstrapping independent designers looking to gain global exposure and sales. It’s no surprise that thousands of designers like him applied to join Not Just a Label’s shop, rolled out in just eight weeks in response to the pandemic-era challenges brands big and small are facing. Since February, multi-brand retailers have repeatedly cancelled orders and extended payment terms, leaving many designers without the cash they need to keep operating their businesses. And yet, these are not new problems. Over the past decade, the wholesale model has broken down due to poor inventory planning and a discount-driven culture, making it harder for both retailers and brands to profit from partnership.
The main alternative to wholesale, direct-to-consumer retail, can increase margins for brands, but customer acquisition online is expensive. Marketplaces – which don't hold inventory, instead taking a clean cut of 20 to 30 percent of any sale made via their platform – represent the middle ground, offering exposure and another channel of distribution without the pains of wholesale.
But how effective are they? What are the rewards — and risks — in signing up to be a part of one or many of these platforms? And can they really replace department stores as the leading model for multi-brand retail?
Not Just a Label Founder Stefan Siegel chose the marketplace model because it was easy to execute and easy for the designers to use.
It's not the only of its kind to launch during the pandemic. The Yes, launched in May and founded by Stitch Fix and Sephora veteran Julie Bornstein, is an app-only service that uses artificial intelligence in the hopes of surfacing more items the customer might actually want, with partner brands as varied as Zara, Balenciaga and Everlane. In August came Behold, founded by former Nordstrom executive Terry Boyle, which also uses AI, but is hyper-focused on outfit assemblage, enlisting celebrity stylists to put together customised looks.
But there was a steady stream of new entrants pre-Covid, too. Last year’s highest-profile launch was Verishop, founded by former Snap exec Imran Khan. Before that, there were many others, most notably Farfetch in 2008.
However, unlike first-mover marketplaces Etsy, eBay and Amazon, these operations also promise to protect brand equity and offer a point of view just like any good retailer would.
Each marketplace also employs industry experts in the hopes that their selection will be as finely curated as any well-regarded multi-brand retailer. The Yes has Taylor Tomasi Hill (of Forty Five Ten and street style fame) and Lisa Green (who used to head up fashion partnerships at Google), while Behold enlisted former Barneys New York fashion directors Julie Gilhart and Tomoko Ogura to manage their assortment. Amazon is now aiming to promise the same with the launch of its "luxury" product, which offers brands more control over the user experience.
They also helped many brands during the pandemic get rid of inventory with which they would have otherwise been stuck. The brand controls the inventory, which means there are no department store “chargebacks” at the end of the season, or risk of not being paid for goods already shipped.
While investors were initially sceptical of first-mover luxury marketplace Farfetch's efforts to scale beyond its original business model to include manufacturing (New Guards Group) and wholesale (Browns), it has fared well during the pandemic, reporting second-quarter 2020 sales of $365 million, up nearly 75 percent from a year earlier. Gross merchandise value — or the cost of goods sold on the site — was up 48 percent, with sales from stores operated by single brands were up 35 percent.
Garmentory, a marketplace for indie brands and boutiques that generates close to $50 million a year in sales, has also seen its single-brand business increase during the pandemic; September is the category’s best-performing month ever in the marketplace’s six year-history.
The reason so many marketplaces launch is because it’s fairly easy to get one off the ground: decent white-label technology is available, and there is no inventory investment. The ones that have raised millions of dollars, including The Yes ($30 million), Verishop ($30 million) and Farfetch (hundreds of millions), have used that money to build a custom platform and acquire customers.
But if a marketplace isn't executed properly, it can easily be ignored by the consumer.
For instance, the app Spring launched in 2014 to great fanfare, unofficially billing itself as the Instagram of Fashion and raising $105 million from the likes of Group Arnault and Fidelity. However, despite strong brand relationships and buy-in from the fashion community, Spring never took off and was acquired in 2018 by shipping service Shopkeeper for a fraction of what it had raised. It is no longer in operation.
“Every year I see five to seven attempts at building a marketplace, and then they fail,” said Garmentory Chief Executive Sunil Gowda. “What they don’t understand is the key ingredient: curation.”
Brands must weigh whether it’s worth the time and money to join a marketplace that might not be around in a few years. Participating can take a lot of work, from additional inventory management to uploading images that meet specific requirements. Brands also typically have to handle logistics; if a platform guarantees free shipping or requires a two-day delivery option, the sellers must obey those rules. (Some brands hire employees specifically to handle these relationships.)
When it comes to inventory, not all brands want to assume the risk of holding it themselves, even if it means no more chargebacks. Some simply don’t have the money to buy inventory. (Verishop is trying to solve this problem by operating a hybrid model. The platform does buy some inventory, offering brands some flexibility.)
There's also the question of data. Like multi-brand retailers, it’s the platforms that are gathering customer data, and they decide what to share with brands. Learning more about your customer is a major reason to sell directly to consumers, and platforms must guarantee the sharing of data in order to make it worthwhile.
What's more, many of these platforms are also still quite small and will not necessarily move the sales needle. And just as being in the wrong department store can erode a brand’s equity, finding marketplaces with the right ethos is crucial.
The challenge is for brands to figure out how many platforms they should play on and which ones are right for them. Factors to consider include the marketplaces’ aesthetic and curation, the amount of time it will take to onboard and then manage the relationship and how much money it will cost to participate. Shan Reddy, a New York-based advisor to small and medium-sized fashion businesses, said that brands might want to limit the amount of inventory they share with these marketplaces so that they are able to drive shoppers back to their own e-commerce.
“It’s important brands be very selective and that they understand the model of each platform,” he said. “If you find one that meets your intention and move forward, I would understand that this is merely to develop marketing and exposure.”
Not so different than a department store, then.