Fashion brands need to put their foot down and take action to prevent “a race to the bottom” in terms of discounts as they threaten the survival of the whole fashion retail eco-system, Farfetch Chief Executive and Founder José Neves said.
Online and offline retailers are resorting so much to promotions there are only two months in the year during which there aren’t any: September and February.
“So, the system is really crumbling,” Neves said. “The industry needs to think very strategically about how they are going to avoid a race to the bottom in terms of promotions and discounts.”
He recommended that fashion brands turn into concessions those wholesale accounts, both online and offline, that do the most visible and damaging discounts.
He suggested brands follow the example of Chanel, which last week, announced it was going to turn into concessions its wholesale distribution accounts in the United States with department stores such as Bergdorf Goodman, Neiman Marcus, Bloomingdale’s, Saks Fifth Avenue and Nordstrom.
Chanel said the move was intended to better control interaction with its customers.
“The cycle of discounts is getting earlier and earlier,” Neves remarked. “If you speak to the CEO of any brand they will all say the same thing: we don’t let them do that, we shout at them, if you do it next time, we will stop working with you. And guess what, next season it is the same thing again and again, so their threats are useless. This is a preoccupation for the whole industry. People know what is happening. People talk about it and no-one does anything.”
Heavy discounts at department stores started with the 2008-2009 financial crisis and have never really stopped since.
Retailers have a herd mentality: if one discounts, the others follow. And no big department store will stop doing discounts by its own initiative for fear of losing business to rivals.
Neves foresaw that the only way for the industry to get out of this conundrum was for brands to step in and take concrete action.
However, on a brighter note, Neves foresaw solid growth in demand for fashion in the medium to longer term, in part because consumers increasingly feel they need to invest in fashion to differentiate themselves and look good on their social media accounts.
He also predicted consumers would have more disposable income due to changing spending patterns.
“People are not buying cars anymore because they have Uber, they are not buying houses because they were priced out of the property market in most big cities because they need a 40 percent deposit and they will never be able to save that much. They do not buy holiday houses because they have Airbnb, so there is more disposable income to buy fashion,” Neves said.
In September, Farfetch completed an initial public offering in New York that raised its profile and gave it a cash pile of more than $1 billion. Neves said its funds would be used to finance growth, win market share and make acquisitions “on an opportunistic” basis.
Neves said Farfetch would only make acquisitions in areas in which it did not have expertise. In July, Farfetch acquired CuriosityChina, a marketing firm specialized in WeChat, the popular Chinese social media.
In terms of geographic spread, Neves said India and South East Asia were among those regions Farfetch wished to expand into, but for now, the company needed to consolidate its recent expansion efforts which stretch from China, Japan and South Korea to Mexico, Russia, Brazil and the Middle East.
“At the moment, it is a pause in oxygen for strategy,” Neves said. “But eventually, we will be in every major luxury market in the world.”
