The luxury market, which enjoyed remarkable growth fueled by the explosive 'revenge spending' following COVID-19, has been hit hard by the economic slowdown.
The American daily The Wall Street Journal (WSJ) reported on the 8th (local time) that high-end brands are struggling with overflowing inventory. It also noted signs of attempts to resume discount sales, which had been avoided until now.
The global luxury market soared with growth rates of 31.8% in 2021 and 20.3% in 2022. However, this year’s growth rate is expected to plunge to 3.7%.
The European online luxury shopping mall 'Mytheresa' stated that it is experiencing the "worst market conditions since 2008 (global financial crisis)" and that inventory increased sharply by 44% compared to a year ago as of the end of the third quarter. For example, Burberry is reportedly buying back unsold inventory from department stores. Due to the nature of luxury brands needing to maintain a premium image, they have been reluctant to offer discounts.
High-end brands have recently made strenuous efforts to eradicate discount sales. They not only refuse to supply products to online shopping malls focused on discount sales but also crack down on department store discount sales. However, as inventory accumulates day by day, some brands are turning their eyes back to discounts.
As luxury inventory piles up, the stock prices of U.S. e-commerce companies are also showing sluggish performance. Farfetch’s stock price surged about 272% from its listing at the end of 2018 until February 2021, but amid weakening demand and expanding losses, it has now fallen more than 90% compared to the time of listing. The parent company of another firm, Mytheresa, has seen its stock price continuously decline since its 2021 listing and is currently down more than 90%. Farfetch surpassed its break-even point in early 2021 but returned to losses a few quarters later, while Mytheresa posted profits for the first few quarters after listing but has since fallen into losses. Farfetch’s founder is considering delisting, but this could make mergers?considered a way to reduce losses?more difficult. Farfetch agreed last year to merge with another high-end brand e-commerce company, Yoox Net-a-Porter, but negotiations have not yet been finalized.
Given this situation, WSJ reported that in recent months there have been signs that unofficial resellers have been directly offered inventory sales by luxury brands.
In the past, high-end brands sometimes chose to burn inventory rather than sell it at discounted prices. In fact, the British fashion brand Burberry was criticized by environmental groups in 2018 for burning clothes, accessories, perfumes, and other items worth ?28.6 million. However, this method has become difficult as European Union (EU) member countries have legally banned the incineration of fashion products this year.
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