Luxury Brand Distribution Over Time


Isabel Giordano: Good morning Gianni, thank you for taking the time to be part of this interview today. I’m going to ask you a series of questions regarding the luxury industry, and I’d just like to get your point of view and see where that takes us. The first question is: “How is the Internet changing the luxury brands distribution?”


Gianni Serazzi: Very relevant question, especially these days. Let’s look at what happened in Luxury distribution online from a historical point of view, and then try to project the changes that have occurred up until today, and then what will happen in the future.

 Many brands have always seen the Internet as a place where it’s very simple to make a price comparison, a place which is easily accessible for consumers, but it’s very hard to convey the depth of a luxury brand through an online experience. This was the original point of view. There were a few interviews of CEOs and owners of top brands in which they said, even in 2010, that they do not intend to sell their brands online.

Now, this proved to be myopic. The consumer, even the luxury consumer, wanted to have access to the brand wherever and whenever, including on the Internet, so the brands that didn’t transition fast enough on the Internet world, paid the consequences. They were left out and they lost market share in both the online and offline world.

The gap was filled, even for the brands that didn’t want to sell online, by some players, some wholesalers, that started selling online, such as Matches Fashion, Net a Porter, Farfetch. They started providing the goods in an online world, when the brands were not doing it, or were not doing it well enough.


I.G: Would you say that they made luxury more accessible to consumers then?


G.S: Well, yeah. They brought it into this realm where there were already some brands, but they weren’t utilizing this tool in a meaningful way.

This was very early on. Then pretty much all the brands went online, and they started trying to limit it, the depth of the assortment, and the number of products that were sold to these other online wholesalers, just because they wanted the consumers to go to their own website. The problem is, intrinsically, a lot of the demand is multi-brand.

If I’m shopping for a look, I need the whole look, I don’t need a specific item from a specific brand. There will always be this ideal space for online wholesalers. The brands quickly realized that they could not capture the attention of the consumers simply by just not giving a product to the online wholesaler, and assuming that the customer would go to their own website.


I.G: How did they tackle this problem?


G.S: Well, I mean, firstly they just kept providing a better service, these online wholesalers.

Number two is the brands did start monitoring and collaborating with them more, monitoring pricing wise.

Most of the brands had set up small teams that tracked the prices of their goods on a worldwide basis, and 24/7, because there had been dynamic pricing. As you know, when the headquarters of the brands were closed, there was discounted pricing on the websites of some of these wholesalers.


I.G: So they worked with each other?


G.S: They tried to work with each other, it wasn’t really a collaboration, but they knew that they had to try at this point. So what happened? This brings us closer to the situation nowadays.

At this point, the luxury brands are all online. They all have their own website, and collaborate with online wholesalers. Then COVID hit, and a lot of consumers transitioned their demand to the online world. This was a great year for online sales.

In the early days, the online channel for luxury was growing fifteen-twenty percent a year. Then it went back to like ten-fifteen percent. Before a « quality bracket » was around the eight percent range, depending on the category. Now we’re looking at the world with COVID here, and it has brought over a twenty percent growth, so it’s been a gain, a quick acceleration of a trend.

What’s happening now is you have an online world where it’s much easier to keep a lot of products on sale. You don’t have any storage constraints. So, for example, in a shop, if I was bringing in a spring-summer collection, I would have to take out all the old winter collection. I just wouldn’t have enough space to keep the clothes in my store. I don’t have this problem in an online world. So what’s happening is that a collection instead of being on sale, and I don’t mean discounted, I mean accessible to consumers, for three months, four months, six months, is now able to stay there from eight to ten months.

This has a big impact in an online world, because when I keep these sales ongoing for such a long time, my sell through rates are going to increase significantly. I can afford to have wider collections without thinking « oh, my gosh, what’s going to happen to the products at the end of the season ? »

This is a big plus, but there is a big risk that a lot of luxury brands are not seeing today : the fact that in an online world, when you have players like Farfetch, the problem is now you have seventy, eighty percent of the products being sold discounted, even in season ones; Maybe it’s a ten percent discount, maybe it’s a fifteen percent discount, maybe it’s a twenty percent discount, but it’s all discounted. There are very few brands that are able to avoid this, just by not giving their product to wholesalers. It’s only the Hèrmes of the world. Everybody else is really playing with fire, because they get the benefit of the online distribution and they have a channel which is increasing its weight in overall sales.

A good online brand used to have like ten percent of the total sales done online, then fifteen, twenty, then twenty-five; Now it is no longer under your control, because as we said, there’s a lot of these wholesalers, online retailers that are doing most of the online sales.

The issue that you have here is : What happens to your brand when you’re selling the vast majority of your product in an online world, so with high visibility, and discounted?

This is a big issue because if you project it five years down the road, seven years down the road, ten years down the road, you’re going to have the Farfetch of the world, which is going to have a lot more bargaining power, and you will no longer be able to afford to sell, because they’re going to be too big, and take up a big percentage of your sales.


I.G: So they have more reach?


G.S: Well, right now, let’s say that Farfetch makes two percent of your sales, so you still have the power, but what happens when it’s five percent of your sales, when more wholesalers are selling your products and taking a percentage? They are going to have a lot more bargaining power, and they’re not going to use it to squeeze out discounts from you. They’re going to use it to control the prices even more.

They are already using the pricing level to sell at a small discount, maybe it’s 10 percent, 15 percent, but they’re already selling your product, in-season ones, and discounted.

And so what happens five years down the road? What happens ten years down the road? And what’s the impact on your brand? This is a big threat to most of the luxury brands.