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The war without price is heating up Intelligence, BoF Professional

NEW YORK, United StatesValentinoLost Spring is a boon to Madaluxe Group.

The distributor, which generates most of its revenue by passing the unsold luxury brand products to off-price retailers such as Gilt Groupe and Saks Off Fifth, has a banner summer. Virtually every brand is struggling to unload stock that hasn’t moved during the pre-summer break closings.

It is a very opportunistic time for us.

The luxury distributor has bought more stock in 2020 than in all of 2019, said Adam Freede, the director.

“It is a very opportunistic time for us,” he said. “We are in a major expansion mode.”

These are boom times in the off-price market. This industry chooses and chooses from the surplus stock of other retailers and offers consumers the promise of designer labels at bargain prices. Nowadays those surplus stocks are very high. Where a typical American apparel retailer may have twice as much inventory as in normal times, today, according to Bernstein, that ratio is about 15: 1. With economists predicting a long and slow recovery, stocks are unlikely to decline anytime soon.

Even before the pandemic, out-of-price sales rose 30 percent between 2014 and 2019, to $ 56 billion, according to Euromonitor. As companies continue to reopen in the US, it is the off-price stores like Ross and TJ Maxx that are the few players to see positive foot traffic since March. In a June report examining saturation outside the price, Bernstein analyst Jamie Merriman found that there is enough white market space in the sector for 900 additional low-cost stores in the US.

madaluxevault.com

A large number of new and old players compete for those dollars, as well as the online opportunities. Support posts such as TJ Maxx, Ross and Nordstrom Rack now competes with resale platforms like The RealReal and Poshmark and newer companies like Otrium and Madaluxe Vault – which Freede launched in recent years to sell surplus designer items directly to consumers – who put their own spin on the off-price model.

“The landscape is extremely competitive,” said Assaf Azani, vice president of 260 Sample Sale, a company that organizes sample sales for labels such as Oscar de la Renta and Sandro. “Even the outlets need their own outlets.”

Off-price retailers may bombard consumers with promotions, but the real battle is behind the scenes. Discounters know they need to build a lasting relationship with brands to secure access to the best castoffs once current overconfidence begins to wane. After the 2009 recession, startups such as Gilt Groupe and Rue La La flourished, but ran into difficulties as the supply of unsold merchandise dried up, making it more difficult to offer hot deals to well-known brands that initially attracted customers. At one point, Gilt Groupe was valued at $ 1 billion. But when it was sold to Saks owner Hudson’s Bay Company, the ticket price had shrunk to $ 250 million – even less than the $ 280 million it raised from investors. In 2018, Rue bought La La Gilt to form a single flash sales entity called Rue Gilt Groupe.

The surviving survivors will be the ones with the best relationships with their suppliers.

While the market share opportunities in the off-price channel are plentiful today, due to the abundance of stock created by the pandemic and the ongoing recession, competition is fierce. Traditional off-price players like TJX, which owns TJMaxx and Marshalls in the US and TK Maxx in the UK, have an outsized advantage in their scale and established relationships with brands, analysts say. Resale, meanwhile, is emerging as an intriguing new draw for brands looking to discreetly unload their last season’s products without appearing in a bargain bin.

“We have always seen people come and go in this space,” said BlueFin analyst Rebecca Duval. “The stock [overload] will be the right size in the first or second quarter of next year. Once that happens, the non-price survivors will be the ones with the best relationships with their suppliers. ”

Speed ​​versus margins

Brands have an interest in selling their unsold goods to the highest bidder. Some will spread their offer across a number of distributors instead of dumping everything into one channel. But players like Madaluxe have long-standing relationships with high-end brands, who deserve their confidence to do the heavy lifting themselves: buy the bulk of their excess inventory and then divide the sales down some off-price roads, from Rue La La to Nordstrom Rack. Off-price retailers can also purchase inventory from outside sellers, rather than directly from brands and their distributors, in what is known as the gray market. The supply chain can be very blurry, Freede said, and it could be multi-handed goods.

Buyers like TJ Maxx buy goods in bulk, but brands accept less money if it means getting cash quickly and throwing away their excess inventory immediately, which can be costly to store.

On the other hand, brands can opt for a higher margin arrangement, keeping most of the profit on goods off-price while paying a third party to facilitate sales.

Otrium’s homepage

Otrium, a five-year-old company based in Amsterdam, operates a marketplace where brands can sell their surplus directly to consumers, which it says offers higher margins than the wholesale market. The startup, which has raised nearly $ 33 million, takes a commission on each sale and also handles order processing. So far, the company is active in Europe and plans to expand further.

Otrium co-founder Milan Daniels told BoF that his company offers prices to sellers three times the size of other stock buyers.

Azani’s 260 Sample Sale works through a similar model in major U.S. cities, although it limits sales to a short period to fuel the hype. This year it also started offering online sample sales, with the sale taking place on its own ecommerce platform.

Resale rivals

The resale market has become a competitor to traditional off-price retailers. Prices between the two channels are competitive, and consumers today make little distinction between buying a used item online and shopping at Nordstrom Rack or a trial sale.

“When someone sees something they like on sale, they will check the individual SKU to see if they can get it cheaper, and they don’t care if it is resale,” Azani said.

Resale sites have also quietly started buying shares of brands directly. Some brands, including Philip Lim, use their affiliation with resale sites as a selling point. But many brands choose to sell their unsold stock to The RealReal because it is more discreet; customers can assume that a dress was bought and loved by a real person, not knowing that it actually wasted on a rack before being sold in bulk.

As with conventional off-price retailers, the demand from both brands and consumers is increasing.

“We’ve had more conversations with brands in the past six months than in the past 20 years,” said Sarah Davis, general manager of the online resale store. Fashionphile.

A resale challenge remains: the question of profitability.

“A lot of work is still needed to process and authenticate all of these goods, and at the moment, most of that process is manual,” said Bernstein’s Merriman. “That’s why this one [resale] models have not made any money. “

But once they’ve used technology like machine learning to automate some of this processing, she added that resale will be an even bigger contender for players who don’t have a price.

Value in scale

Off-price chains such as TJ Maxx offer brands a different form of discretion. They rarely advertise having or owning items from Nike Gucci for sale, instead of promising customers, they will find coveted labels as they hunt through the racks. (Designer products are also virtually impossible to find in the online store, which currently accounts for about 2 percent of sales.)

The biggest prize fighters have another important advantage over their newer rivals: their extensive shopping networks. TJX has more than 4,500 locations worldwide and also owns Marshall’s, with approximately 1,000 locations in the United States. Ross has approximately 1,500 stores in the United States, while Burlington has a fleet of approximately 730 stores.

“If you are a brand and you have it, say 10,000 units to sell and [T.J. Maxx] Has 5,000 stores, they can split this offering so that there are only two of that item in each store, “said Merriman. “It goes back to the treasure hunt proposal, instead of looking like you just dumped 10,000 units on the market.”

These major retailers also have relationships with fashion companies going back years or even decades. And while they were forced to close their stores during the lockdowns, off-price retailers bounced back faster. Data from the retail analytics platform Placer.ai shows that the annual pedestrian decline for TJ Maxx fell by about 20 percent in June, while Macy’s fell by an average of more than 40 percent in the same period.

So many discounts are offered that brand loyalty just isn’t as strong as it once was.

Where smaller competitors have an advantage is the product range. While it’s not unheard of for Fendi and Off-White to appear in TJ Maxx, such a high-end product offering for the chain store, whose average order value is in the low two digits, is still rare.

Distributors like Madaluxe, meanwhile, can boast of consistently new offerings from brands like Valentino, Balenciaga and Saint Laurent. Azani from 260 Sample Sale also underlined the importance of an exclusive range.

“There are brands that are constantly selling on many different platforms and there are brands that don’t,” he said. “I’m interested in the brands that don’t.”

Especially in everyday casual wear, Azani added, “there are so many discounts on offer that brand loyalty just isn’t as strong as it once was.”

Ultimately, as with any industry, the bigger the better.

“The biggest players outside of the prize are best positioned,” said Merriman, pointing to TJX. “And given the unprecedented amount of inventory out there, I think they will do very well in this environment.”

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