THE RISE OF E-CONCESSIONS

e-Concession Model is growing among Mega Brands

Luxury brands need to control product distribution. This is key to mantain product value, reduce discounting, and, obviously, keep the largest slice of profits in-house.

This is not unseen. Until 2019 the strategy was offline. Brands were expanting their store networks opening stores.

Maketplaces like Farfetch (NYSE:FTCH) spotted this opportunity and offered Brands the direct access to all their traffic. 

Farfetch e-concessions

It starts slow, but in the key brands

Today, in sheer number of SKUs, the percentage is still small (approx 18%) as marketplaces are capable of collecting a very large number of products, their nets are cast very wide.

But if we look at the distribution of what kind of brands are part of this, we get a Pareto-like separation of the brands: The 7% of the brands that show a for of direct e-concession are the same brands that are responsible for almost 49% of the products, when we look at Farfetch.

Farfetch e-concessions

Larger brands go further

The larger the stakes, the faster this move. It's a win-win for Brands and marketplace: They need each other to grow margins (the first) and traffic (the latter).

This is less the case when it comes to multibrand retailers, that traditionally were doing business in a wholesale model, because they were already selling the top brands, and all is asked them today is to reduce their fees drastically (moving from a near 70% margin to a 30%-ish take rate) and in exchange they get a CAPEX reduction, as they are no longer purchasing the inventory (still they are asked to store it and handle shipping, which Farfetch cleverly didn't onboard).

Farfetch e-concessions

Expansion of the model

We expect the e-concession model to exand to more retailers. The question is if the retailers wills tay retailers of switch to marketplaces.