Explainer: Is wholesale getting too risky for fashion brands?

“Although Frasers Group successfully steered luxury retailer Flannels back to profit after acquiring it in 2017, Matches’ online specialism would have presented Frasers with unfamiliar challenges that it would have lacked the expertise or capacity to easily resolve, due to most of its portfolio being multichannel,” Price explained.

“Supplier relations had also begun to sour under Frasers’ ownership, with the fashion giant reportedly seeking sizeable discounts, while some brands reported overdue payments, resorting to termination of contracts.”

UK newspaper The Standard reported that The Vampire’s Wife was owed £32,250 ($41,203) from Matches, and the retailer’s collapse is likely to have created a deficit in expected future orders.

Is wholesale a bigger risk for smaller fashion brands?

GlobalData retail analyst Neil Saunders said problems in wholesale is a particular issue for small brands that rely on these channels to boost their volumes and sales.

“Unfortunately, a lot of these wholesale channels are in a weak place as demand moderates. Some luxury marketplaces have collapsed and selling to other retailers via wholesale is more difficult as there is caution over how much inventory to commit to and what brands to buy. This dynamic has a big impact on a small brand like The Vampire’s Wife,” he told Just Style.

The wider economic environment is also proving tricky for many premium fashion brands. Price said luxury marketplaces are currently impacted by a wider slowdown in luxury demand, especially in Europe and the US, as aspirational shoppers reign in spend amid the cost-of-living crisis.

“Designer brands have also begun reducing their reliance on wholesale partners, instead investing in their direct-to-consumer businesses to garner greater control over their brand images and uphold their exclusive allure,” Price explained. “This has caused marketplaces to suffer dwindling customer acquisition, with Matches resorting to discounting to entice sales, which in turn impacted its margins as well as consumer perceptions.”

Yoox Net-a-Porter, which owns the online luxury retailers Yoox, Net-a-Porter and Mr Porter, reported a €541m loss in the year to March 2023. UK-based retailer Farfetch has also experienced turbulence in recent months, with The Telegraph claiming it faced a winding up petition prior to a rescue deal in January 2024.

Price explained: “This turn of fortune is the culmination of several factors, including consumers’ shift back to stores after Covid, luxury players reducing their reliance on wholesale to prioritise investment in their direct-to-consumer channels and the slowdown of the wider luxury market.”

She added that an increased focus on direct-to-consumer sales has amplified this trend. “After the pandemic drove luxury players to place greater investment in their own digital propositions, with many previously having very low online penetrations, this focus has also now continued, diverting spend away from marketplaces as shoppers buy directly through luxury brands’ websites,” she added.

These factors may have made smaller brands more vulnerable in the luxury market.

“While The Vampire’s Wife will have been making some direct sales to celebrities and other high-profile clients, it needs accompanying wholesale revenue to make the business model work,” Saunders explained.

He pointed out that attempting to replace lost revenue from wholesale revenue by trying to grow its direct business could have proven too expensive and time-consuming for the brand

“A bigger brand with more reach and firepower might be able to accomplish this, but it’s not so easy for a niche label,” he added.

The impact of wholesale weakness on larger fashion brands

It is not just niche, small or luxury brands that are being impacted by a weak wholesale market.

Earlier this month (May) US apparel conglomerate VF Corp, which owns shoe brands Vans, Dickies and Timberland as well as performance apparel brand The North Face revealed the Americas remained its “worst performing region” in FY24. GlobalData apparel analyst Louise Deglise-Favre explained its revenue dropped 18% to $5.5bn, which was the second consecutive year of decline in the region.

She highlighted this was due in part to its heavy reliance on wholesale partners which “cut back on their orders amid slowing demand”.

UK fashion brand Superdry recently announced its expanded restructure plan as well as store closures to avoid insolvency, but admitted it hopes the plan will simplify its wholesale business to focus on key partners that can deliver cost-effective routes to market.

In April UK footwear brand Dr. Martens said it was expecting at least £15m ($19.16m) in costs on the back of increased inventory storage facilities resulting from wholesale weakness in its US business.

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