The luxury e-comm crisis was self-made
Tariffs have been blamed for SSENSE’s bankruptcy. But many buyers in the industry knew the platform had set itself up for failure, just like the ones before it.
By Ryan White
The turn of the millennium was a seismic moment for the fashion industry. Admittedly, it was a seismic moment for a lot of industries, given the rapid pace at which the internet was reshaping all lines of communication, entertainment, and commerce. And the luxury fashion sector, steeped in tradition, exclusivity, and a general distrust of anything tech, wasn’t leading the charge.
Still, Jennifer Lopez wore a Versace dress on the red carpet so powerful that it birthed the Google Image search function. Victoria’s Secret began live-streaming their shows, crashing servers and laying the groundwork for a future where industry trade events would (unfortunately) give way to vast celebrity spectacles. And, most pertinently to this piece, Net-a-Porter and Yoox – the first ever e-comm platforms selling designer clothes – came into existence.
Naturally, the idea of enabling wider access to luxury fashion was met with skepticism at first, but, by 2015, the year the British and Italian platforms merged as one, many brands had embraced e-comm and Yoox Net-a-Porter’s combined valuation exceeded two billion pounds. Similar competitors had also secured a seat at the table (or a pew on the runway) next to buyers from the oldest, most respected department stores. Like digital media, co-working spaces, and streaming services, e-comm’s growth felt unstoppable. Until, of course, it stopped.
Some blame the usual suspects, Covid, Brexit, China’s slowdown, the war in Ukraine, young people’s love of experiences over products, and, as of this year, Trump’s tariffs. But, according to a number of different buyers, designers, showroomers, and industry insiders we’ve spoken with, what’s become of Matches, Net-a-Porter, Farfetch, Luisa via Roma, and, now, SSENSE, was written on the wall long before the luxury slowdown began to metastasise.
The biggest problem that underpinned most e-comm sites was the shaky financial foundations they were built on. Back in the early 2010s – when many of these platforms sought expansion and investment – interest rates were near zero, so investors were willing to fund growth over profit models. For context, in 2015, the same year of the merger, Net-a-Porter declared small profit after years of losses. And this prosperity didn’t last long. As one anonymous CEO told New York Magazine at the time, “Everyone loves Net-a-Porter. They are great at everything. Except making money.”
Victor Juul, co-founder of Heliot Emil, a brand currently stocked by SSENSE and Farfetch, puts it bluntly: “For 10 years, the platforms were fuelled by cheap money and a sole focus on top-line growth, so no one was worried about if that model made sense.” So, in 2021, when interest rates increased (and continued to rise in 2022-23), and debt servicing costs skyrocketed, refinancing their existing loans became significantly more expensive.
Pretty much everyone we speak with feels a sense of frustration at what was an inevitable and preventable disaster. Manuel Marelli, the ex-head of buying at Macondo, the Italian concept store, describes “reckless” behaviour and policies “driven solely by the desire to inflate numbers, with no real reflection, leading to a complete disconnect from the actual contemporary market.” Marelli has been in the industry for many years, and he's seen the positives e-comm has brought to the business of buying clothes, “easier and faster remote sourcing,” for instance, and the “discovery of many more brands at a much quicker pace,” but at the cost of “constant and relentless expectation for promotions and lower prices,” triggering “a toxic and cutthroat price war.”
Plus, it isn’t just their own graves e-comm dug. “It has led to the closure or forced transformation of many historic local businesses, which found themselves overwhelmed by the pace of change.” And then there’s the independent designers left in the lurch – ones who were thrust into a wholesale model before they were ready. But how much blame these sites, particularly SSENSE, should shoulder here is worth debating. More on this later.
“In a store, you're kind of limited by your rail space, right? But with e-comm, there's no limit to how much stock you can have,” one anonymous buyer puts it. So, from the ground up, the strategy for these big online players was “more, more, more.” As Costanza Lombardi, an ex-buyer for Browns, 247 Showroom, and 10 Corso Como, puts it: “Quantity prevailed over quality and we are witnessing the consequences.”
Laura Larbalestier has worked in buying for over 20 years, at a mix of different stores and e-comm sites, most recently as fashion director at Harvey Nichols, before moving into tech. As a result, she’s seen a shift in priorities. “Where I started, Selfridges, had a really specific kind of training, which is very sell-through driven. It's very profit-targeted. Then, working in e-comm with Browns, then Farfetch, it was really just about sales growth. I think that it just becomes really challenging, because even with some of the most successful e-commerce sites, if you're not getting really, really high sell-throughs and you still have a lot of stock to clear, it's a challenge.”
So, the model broke and the money ran dry, but another aspect we’re keen to understand is how these platforms have changed perceptions of luxury. After all, designer clothes have always been available in department stores at seasonal sale prices, and, though these may have been more intimidating spaces – think Julia Roberts in Pretty Woman and the trope of a snobby sales assistant – anyone off the street could walk in.
“Yes, markdown culture had been happening for a long time before, particularly with the big US department stores,” the anonymous buyer says. “But, when it’s online, it becomes much more visible. So, if you continue to do that, you train your customer only to shop when there's a promotion or a markdown, and that devalues the brands, devalues the platform.” To put it bluntly, “SSENSE started to feel like fast fashion with a higher price point,” they say. “It’s very impersonal; you may as well have been buying on Amazon. You could be buying a £5,000 bag from The Row, and you would get it in a brown cardboard box wrapped in brown paper.”
When you have a brand like Prada, who’s charging upwards of £600 for a plain black T-shirt – not because those are the tight margins they’re working with, but because they can, and in order to maintain their status as a true luxury brand, they will – the way a product is priced, packaged and shipped is important to sustain the fantasy. “The price of luxury has gone up, and that's not necessarily because the price of production has gone up,” the buyer says. “It's because the price of everything else has gone up.”
But even if the customer isn’t precious about this decline in quality, the brands are. For SSENSE, it lost them Prada and Loewe, which, despite the vast selection of other designers they stock, undoubtedly will have hurt both their top lines and, harder to reconcile, their reputation. After all, those are the brands that have budgets in the hundreds of thousands, if not millions of dollars. “Once one goes, everyone in the industry talks about it,” one anonymous buyer puts it. “A lot of the luxury brands are owned by the same group, so it can be a bit of a domino effect.”