The future of luxury retail lies with young people and marketplaces

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There is going to be a boom in luxury goods sales, driven by younger customers, and serviced through the marketplace model. So says online marketplace Farfetch, as it prepares to float on the New York Stock Exchange.

Farfetch operates in the personal luxury goods market valued at $307 billion in 2017 in a Bain & Co report, Luxury Goods Worldwide Market Study (Fall-Winter 2017 and the Spring 2018 update), which goes to value it at $446 billion by 2025.

Farfetch’s drive is to tap into that buy putting an increasing number of younger shoppers searching for luxury and unique brands in touch with those retailers – and the marketplace model is the ideal method for that.

According to Bain & Co figures, millennial and Generation Z online shoppers accounted for about 85% of growth in luxury fashion sales in 2017. By 2025, it says, these customers are expected to make 45% of luxury fashion purchases at a time when it expects demand from emerging markets including China, the Middle East, Latin America and Eastern Europe, to significantly drive growth.

At the moment, Farfetch says, larger luxury brands reach those customers through their own stores and through department stores, while emerging brands typically have no route to the global market, with distribution limited to wholesale distribution to independent fashion boutiques.

“As a result,” Farfetch says in its filing, “luxury fashion inventory, from both larger and smaller brands, is distributed across a highly fragmented network of luxury sellers” and tends to sell less online.

Farftch cites Bain figures that suggest 9% of luxury retail sales took place online in 2017, a figure that it expects to reach 25% by 2025.

There is also the slow but worrying decline of the department store putting pressure on all luxury brands.

The growth of luxury sales and the apparent match with marketplaces to carry those sales has not been lost of Chinese marketplace Tmall. Its Luxury Pavillion was launched last August to target millennials in China with luxury goods and now boasts 70 retailers – the latest being Tiffany & Co.

In China the luxury market for millennials (born between 1985 and 1995) and Generation Z (born after 1995) is booming. A recent White Paper from Secoo, Asia’s largest high-end e-commerce platform, and Tencent, the largest data company in China, concluded that these two ‘generations’ already accounted for 34% of discretionary disposable income in China in 2015 and that this is forecast to rise to 50% by 2025.

“Millennials and the younger Generation Z look set to change the balance of power in Chinese luxury consumption over the coming years and how brands respond to them will be important to their future success. While it is critical to engage digitally and through omni-channel services, these younger customers also want experiences that excite and speak to them as individuals, their social values and growing appetite for exclusive experiences.”
– Eric Chan, CEO, Secoo


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