Wemanage Journal: How fashion brands can take advantage of increased interest in marketplaces
As we know, during the first pandemic of 2020, many fashion and luxury brands began to question the wholesale model, beginning to identify possible alternatives (which had already been moving for some time). At the end of that year, Robert Burke, an important luxury industry advisor, described the phenomenon as “the most seismic changes in the retail industry that we’ve seen in decades.” Multi-brand retailers, during that period, have repeatedly canceled orders and extended payment terms, leaving many designers without the cash they need to keep operating their businesses. And it wasn’t just an episode due solely to circumstances: 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. For Burke: “there was already a desire from brands to take more control as concession environments have built up more steam over the years. But the pandemic has given brands a chance to re-evaluate their dependency on multi-brand retailers”.
Now: the main alternative to wholesale, direct-to-consumer retail, can increase margins for brands, but customer acquisition online is expensive. Fortunately, there is an alternative between these two opposites, and it has been growing for some time now: the model represented by marketplaces. More and more users, in fact, directly visit these platforms for their purchases. But how effective are they? What are the rewards and risks?
First off, we will talk about the strategic advantages this model represents. Unlike a multi-brand e-commerce, a marketplace is a solution based on partnerships that sell products on behalf of the fashion brand. It does not buy a stock from the brand, it simply makes the platform and its customer base available, taking a percentage of the sales. So there is no need to dedicate a stock to that channel, eliminating risk of overproduction; secondly, these platforms allow access to different customers, and are therefore an opportunity for fashion brands to get in touch with new users. It is therefore also a way to acquire brand awareness and reputation.
But that’s not all: we are recently witnessing the growth of specialized marketplaces, aimed for specific niches of consumers (such as the artisanal Homeware sector or Made in Italy fashion boutique products), because these platforms meet certain more and more requested features by customers that can only be provided when the product, sold on the marketplace, comes directly from the brand (therefore without physical warehouses). Such as customization of the product. This aspect, if managed with a careful and far-sighted strategy, can bring great benefits in terms of loyalty.
The marketplace model, however, also has disadvantages. Since the risk of the product stock is completely borne by the brand, for example, an emerging brand may not have the strength to face a large production without having the actual certainty of selling on the market channels. Because there is no immediate return on the liquidity invested in production, while the classic multi-brand products actually buy the products. It also does not control the marketing activities, which very often push towards the best performers. The market, by not charging the stock risk, aims to sell the brands that work to marginalise, does not easily charge the communication costs of the brands, having no real risk of unsold.
In short, the truth is that the marketplace model currently has both very positives and some potentially harmful risks. The wholesale system still remains an important framework for the world of fashion and luxury, and it is above all important to keep in mind the characteristics of each platform and to study well the moves to be made on each of them. That depends on the various options and choices of a brand. Marras and Ricagno, for example, have chosen marketplaces such as Artemest, Design Italy and Forzieri; while Casa Cabana and Lisa Corti opted for multi-brand platforms such as Net-a-Porter and Matchesfashion for the b2b strategy. There are also, of course, cases that exploit both channels, such as Amotea, which has chosen marketplaces such as Italist and Atterley for its marketplace strategy, and relies on LuisaViaRoma for a multi-brand approach to distribution.