A DEEP DIVE INTO THE LUXURY INVENTORY APOCALYPSE

Much has been discussed about the future of retail, abbreviated in some industry circles as BC and AC: Before Covid and After Covid, yet the train left the proverbial station years ago. Sure, a global pandemic and economic slowdown ushered in the inevitable, but truth be told, retail couldn’t sustain itself on its centuries-old business model.

Every brand that opened independent boutiques, whether it be on Fifth Avenue or other high-profile address, was motivated by ego – a feather in a cap to have bragging rights for a prestigious locale. It’s a flawed model that was bound to fail. While brands need personal presence, storefronts won’t ever be profitable, a reality that has never been under the spotlight more than in 2020 with the tsunami of brand and department store closures and Chapter 11 filings. Retailers that were in debt and heading for trouble were going to crash anyway; Covid merely pushed the inevitable ahead six to 12 months. Rather than affecting consumers, however, it was the vendors left holding the bag – or bags – of merchandise. Neiman Marcus may still be in business, to the detriment of its luxury vendors. At this moment, every luxury retailer has unsold goods; everyone is stuck with an inventory excess. The only way through this is for brands to be flexible with retailers to reclaim their merchandise, sell it through trusted ecommerce channels and relieve the retailer of a massive burden they cannot sustain. In exchange, the retailer agrees to a “stock balance,” to buy three times the value of the merchandise in the future. It’s a win-win for both retailer and brand to protect their equity and sustain the brand’s image.

While retail was stagnant in March (LVMH profits are down 84 percent year-to-date), some ecommerce platforms like ours saw upwards of 30 percent growth. In what I call Zoom Season, home-office consumers needing a feel-good endorphin boost while grappling with the inability to parade new office attire turn to accessory purchases — principally earrings and necklaces at the forefront on Zoom calls. Professionals working from home likely have taken pay cuts, still desire luxury and want a deal on luxury purchases. Concurrently, retailers wanting to get in front of these consumers are seeking alternative methods of moving stagnant merchandise while protecting their name and brand equity. Ecommerce sites give the retailer control with where and how their items are being sold. Instead of destroying unsold merchandise – an unsavory practice that’s leaked into the mainstream spotlight – retailers seek ways to breathe new life into new, last-season merchandise without having it carried on the brand’s balance sheet to be written off for years. This is a retailer’s final option – either destroy the goods, store them in vaults or move them out and protect their brand.

Any independent retailer living through this pandemic should be building a community of online clients, even if their store is open. We have initiated “Inside the Vault,” bringing the showroom into people’s living rooms to establish a conversation with, and this is important — a mechanism to ask questions about the items. If it’s not a question that can be answered immediately, the brand manager responds with a private video experience. Any brand can set aside one to two hours a week to do a virtual runway show, and right now, it’s imperative to exercise that creativity to bring the in-store experience into people’s homes, offices or wherever they may be.

To accomplish that, businesses can – often for the first time – capitalize on the tremendous talent in the market now to create a robust online presence. In the past few months, we’ve hired the person who ran Google Hong Kong for a decade, the ex-VP of Neiman Marcus, a stylist who worked in the music industry with Bose and Sony. This kind of talent would never be accessible under normal circumstances, but for any company looking to create or enhance its ecommerce platform, there are dream teams of people out there who have unfinished business to complete in their professional lives and can be a company’s best asset.

The big question is, “Has this pandemic ushered in a seismic historic shift in the luxury retail business model?” and to this I say no, it was already happening with or without Covid. It took a pandemic to force retailers into replacing archaic business models with new initiatives that must serve a dual purpose: protect brand value and move spring merchandise that has been stuck in shuttered boutiques. Though high-net worth individuals will always value the experience of being waited on in a luxury setting with a glass of champagne, brands recognize the importance of perfecting their online presence. The challenge is to marry both now that retailers have merchandise languishing on shelves for the last four-plus months. It’s at the point where most brands will not announce new products this year. If that merchandise is seasonal, the inventory problem is now magnified even further. TJ Maxx, long the final depot for last-season’s wares, has full warehouses with no plans to purchase more goods.
As to what the future holds, I believe we’re entering an era of showrooms – places where people will see, touch and feel luxury products, but where money changes hands online. It won’t happen immediately – but seven to 10 years down the line I’m convinced this will be the reality of luxury shopping.