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“Farfetch never was, and never ever will be, a luxury brand. Never!
The luxury marketplace concept is a business model that ultimately will never be profitable, burns a lot of cash and doesn’t bring in the right luxury consumers,” said Milton Pedraza, Luxury Institute.
Coupang Gives Farfetch A Lifeline, Throwing Good Money After Bad
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Farfetch Holdings, the online luxury marketplace and technology platform, reached the precipice of insolvency late last year. A last-minute $500 million bridge loan from the $21 billion South Korea’s Coupang gave the company a lifeline. Currently, Farfetch has a market value of $258.4 million.
Since going public in 2018, Farfetch has proven to be a black hole undone by grand ambitions without the discipline to achieve them, if that is even possible. Now Coupang is caught in its vortex and is destined to become its next victim.
Under terms of the agreement, Farfetch will operate as a private company with Farfetch founder and CEO José Neves at the helm until the end of an exclusionary period expiring April 30, 2024. At that time, Farfetch will become a subsidiary of Coupang; otherwise, it must pay back the loan with 12.5% per annum interest.
Coupang is counting on the deal to go through. Farfetch makes an appealing acquisition since it opens the door to the $362 billion personal luxury goods market.
The company claims its home base of South Korea has the world’s highest per capita spending on luxury. Yet South Korea is an also-ran behind North America and China, which account for about half of the world’s luxury consumer spending.
Coupang, as an e-commerce marketplace platform with enhanced service offerings such as same-day and next-day delivery, believes its operations and logistical capabilities can turn the tide in Farfetch’s business.
“We see tremendous opportunities to redefine the customer experience for luxury clients everywhere,” said Born Kim, Coupang founder and CEO, in a statement, adding that Coupang is “uniquely positioned to unlock Farfetch’s tremendous value.”
It assumes Farfetch’s “leading role in the luxury ecosystem” is a game-changer and that “online luxury is the future of luxury retail.” Both of those assumptions have yet to be proven.
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This study is a collaborative effort between Unity Marketing, The Affluent Consumer Research Company, Luxury Roundtable and The Home Trust International to help luxury companies better prepare for 2024, which, by all accounts, will be a challenging year in the luxury market.
Planning Luxury Strategies For 2024? Take This Survey And Get Insider Information That Will Help
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The New Year is almost upon us. This is a time to reflect on the past year and plan for what’s ahead in 2024.
Taking a few minutes to answer the questions in this State of Luxury 2024 survey will give you a structured way to think about your company’s performance in 2023, and the results will help you develop plans to be more successful in the coming year.
As a thank you for your help, we’ll share the State of Luxury 2024 report, including the complete results and analysis.
And for immediate gratification, you’ll get the LEADERSHIP chapters from my latest book, The Corporateneur Plan, co-authored with Ken Rohl. These chapters will help you be a more inspiring business leader.
The objectives of the survey are:
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Identify industry trends: Assess the key trends affecting businesses in the luxury industry or that provide services to the luxury industry such as advertising, media, branding or consulting
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Peer-to-peer sharing: Provide a forum to share insights and cross-pollinate ideas across and between different sectors and players in the luxury business
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Inspiration and education: By seeing how others in the luxury business think about the market, we gain new perspectives to drive innovative ideas and business practices.
This study is a collaborative effort between Unity Marketing, The Affluent Consumer Research Company, Luxury Roundtable and The Home Trust International to help luxury companies better prepare for 2024, which, by all accounts, will be a challenging year in the luxury market.
By collaborating with us in completing the survey, you will benefit from our collaboration. We look forward to your participation – all responses will be strictly confidential – and delivering the final report to you with exclusive insights and actionable strategies to make for greater success in 2024.
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“There is always this paradox of growth for the luxury industry because some of these brands are double-digit billion dollar businesses and need to grow by expanding the customer base. But what is happening this year is that the core customer base is not growing, so brands must focus on their top spenders and key customers,” said Federica Levato, Bain.
How Resilient Is the Luxury Market? It Will Be Tested In 2024
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Against a backdrop where the global luxury market will grow between 8% and 10% across all categories, the personal luxury segment’s growth is more muted, projected to advance by only 4% in 2023 at current exchange rates, according to the latest Bain-Altagamma luxury market study.
The total luxury market will reach $1.65 trillion (€1,508 billion) this year, including automobiles, experiences, wines and spirits, home furnishings and art. Personal luxury goods will account for 24% of the market and close the year with about $400 billion (€362 billion) in revenues. This segment includes clothing, fashion accessories, beauty, jewelry and watches.
Summing up the year that almost was, report co-author Claudia D’Arpizio said in a statement, “This is a defining moment for brands, and the winners will separate themselves through resilience, relevance, and renewal—the basics of the new value-centered luxury equation.”
Yet, looking forward to 2024, D’Arpizio signals cautious optimism for the personal luxury goods sector, which may well slow from its 4% rate of growth this year to something less next, noting “fragile consumer confidence, macroeconomic tensions in China and spare signs of recovery in the U.S.”
And along with those headwinds is the possibility of even more from the “disruptive changes in the global sociopolitical situation,” a diplomatic way of saying the world hangs in the balance.
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“For affluent consumers, luxury is a privilege, not a right, and as they look at the challenges they and the world at large face this coming year, they are signaling a willingness to trade off excess spending on luxury. Many plan to batten down the hatches and ride out any potential economic storm, as they did in the Great Recession of 2008 and 2009,” said Chandler Mount, Affluent Consumer Research Co.
Luxury Brands Must Prepare For A Reset:
Here's The How And Why
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Over the last three years, the luxury market has experienced a whirlwind of change. After rising 7 percent in 2019 before the pandemic, it suffered a steep decline in 2020, only to bounce back with spectacular growth through 2021 and 2022.
Bain-Altagamma expects the good times to keep rolling in 2023. “The personal luxury market is projected to see further growth of at least 3-8 percent next year, even given a downturn in global economic conditions,” they predict.
However, since the past is often the best predictor of the future, a different outlook is suggested based on results from the Great Recession of 2008 and 2009. Global personal goods luxury sales dropped 9 percent from 2007 to 2009, disproving the conventional wisdom that the luxury market is immune to economic downturns.
Whether the economy takes a slight tumble or a big fall in 2023, more economists are warning about an economic downfall that will impact the luxury market too. Analysts are warning of a potential " Richcession."
To prepare the Washington, DC-based Affluent Research Company has just published a new study among 2,000+ affluent consumers, called Research The Affluent Luxury Tracker. It provides a forward look at how the affluent will adapt their spending and purchase behavior if the economy falters, which they fully expect it will.
“Affluent luxury consumers are the most highly-educated and well-informed consumers, and some 69 percent see a recession coming within the next six months, if it isn’t already here,” said Chandler Mount, the study’s lead researcher.
“Anticipating the worst, the affluents aren’t waiting for the other shoe to drop. Nearly half (48 percent) surveyed said, ‘Now is a good time to limit my purchasing,’” he continued, noting that the survey sample was skewed heavily toward high-net-worth-individuals (HNWI) with $1+ million net worth (excluding their primary residence), a notoriously difficult consumer segment to survey.
Not unexpectedly, the HENRYs, with less than $1 million net worth, were more inclined to cut back (52 percent). But even 46 percent of the HNWI are lining up to reduce their purchasing. This will pose significant challenges to luxury brands that depend upon the HNWI’s greater spending power if they do pull back.
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“A groundbreaking and truly exceptional instruction manual offering a wealth of marketing insights and information, Meet the HENRYs is impressively well written, organized and presented, making it highly recommended.” writes Midwest Book Review.
Meet the HENRYs: The Millennials that Matter Most for Luxury Brands
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Meet the HENRYs breaks new ground by uncovering a new target consumer--Millennials with money.
It's a segment of the largest generation of Americans with more discretionary income than the rest of the cohort today and poised to acquire more money in the future.
These are the millennials that matter most to brands today and tomorrow
For the foreseeable future, millennial HENRYs (High Earners Not Rich Yet) will be the consumers that every brand manager, marketer and retail executive will need to know well.
This subset of the largest generation of Americans, earns between $100K and $250K–the income cohort that accounts for 40 percent of all household spending. Most important, however, these are the consumers who are on track to become the ultra-affluent ($250K +) of the future.
This forward-looking book examines trends and profiles emerging disruptive brands that millennial HENRYs are drawn to, and explains how many of these innovative brands are setting themselves apart from the traditional top-tier luxury brands.
It takes you on a deep-dive into the steps the smartest of the traditional luxury brands and retailers are taking to keep up with a new generation of consumers who are anything but traditional in their approach to luxury spending.
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