The rise of online retail and e-commerce has pushed tried and true methods of the wholesale model onto the hot seat. Luxury brands and their retail partners are questioning whether or not wholesale remains the optimal supply chain channel to effectively distribute fashion products to their consumers.
When the pandemic shocked the world in 2020, the complex structure of the wholesale model collapsed and created devastating results for luxury brands and their retailers. Delayed shipments, excess inventory, and massive retail markdowns tarnished their images, which are still recovering their reputability.
As a result, proponents across the luxury fashion sector began to ask themselves - Does the sheer volume of wholesale fashion products sold through physical and online retailers enhance brand awareness and consumer sales? Or is there a stronger, more practical, and more suitable model available to mitigate the supply chain risks associated with wholesaling, that still markets and delivers fashion products to the consumer just as efficiently?
The integration of a direct-to-consumer (D2C) model known as concessions and its online counterpart, e-concessions, may be the panacea that luxury has been seeking. But, are concessions and e-concessions the best route for luxury to take? Does this newly rising distribution channel provide brands and retailers with significant advantages over the use of wholesalers? If so, how can they be integrated?
The Standard Fashion Wholesale Model
By exploring the structure of the wholesale model, we can identify the starting point of the concessions model in fashion and ultimately, the craze surrounding e-concessions in luxury today.
Wholesalers are considered the intermediary in the fashion supply chain. They connect fashion brands to the retailers who will sell their products. They typically buy fashion in bulk amounts at the manufacturer price and markup the sale price to the retailer, pocketing the difference. The wholesale price is considered favorable for the retailer, who will then resell smaller quantities of the manufacturer’s product at an even higher price to consumers, to reflect the overall cost of doing business.
For fashion brands, integrating wholesalers into the supply chain gained popularity for a variety of reasons including:
- Scaled Distribution – Wholesalers identify relevant retail opportunities for brands to sell their goods. This opens a brand to a wide variety of physical and online retail options where their products can sell to consumers worldwide.
- Reduced Risk – When a retailer purchases a brand’s products via a wholesaler, they assume all the risk that comes with selling the goods directly to consumers. The brand simply collects a commission fee for each product transaction and continues to provide inventory to the retailer’s wholesaler as needed.
- Enhanced Brand Awareness – Selling fashion wholesale to retailers provides brand exposure to all kinds of fashion consumers shopping in-store and online. A consumer shopping for a particular garment could stumble into a luxury garment of the same variety and opt to explore what that luxury brand has to offer instead. It’s like attending a concert; an audience member is there to see the headlining band, but ends up purchasing merchandise for the opening act. The opening act gets the exposure from performing with the headliner and the audience member gains awareness of the opening act’s music.
Unfortunately, wholesale has a catch. Fashion brands have little to no say in how their products will be priced, marketed, and sold from wholesalers to retailers and retailers to consumers. This typically ends up fueling comparison shopping for consumers. At the bottom of this chain, the retailer ultimately assumes the most risk and responsibility for establishing the brand’s online and retail presence at their respective locations. As you might imagine, this can become problematic.
The Rise of Garment Concessions and E-Concessions
Luxury fashion brands have a reputation that must be upheld by their wholesalers and retailers. They expect their partners to display the high-quality standards of their brand when conducting business. Any deviation, whether it be significant price markdowns in retail or poor inventory management and delayed shipping by wholesalers, can affect their images and most importantly, their profit margins.
To combat these issues, luxury brands began migrating to a concessions model for their supply chains, which subsequently evolved into e-concessions to keep up with the rising popularity of e-commerce in fashion. While widely integrated across Europe and Asia, concessions and e-concessions are still catching on in the US.
The structure of the concessions model has a few distinct differences that have lured luxury brands away from their fruitful relationships with wholesalers:
- Concessions is a B2B relationship between brands and retailers. – Rather than relying on a wholesaler to fill the role of middleman transporting fashion products from brand to retailer, the concessions model adopts a written agreement between brand and retailer that allows the brand to set up shop and sell their own products within a retailer’s space. They share the rent with the retailer and assume a larger portion of the financial risk that would otherwise shift to the retailer in the wholesale model.
- The brand oversees business operations. – Brands using a concessions model are responsible for managing all aspects of their operation within the retailer’s space and sell directly to the consumer (D2C). They design their designated areas to reflect their brand image, hire associates who are experts on their products, determine price markups and markdowns, and manage seasonal inventory.
- Using concessions increases profit margins for brands – By paying out a commission to the retailer for each transaction conducted between the brand and its consumer within the retailer’s space, luxury brands have the potential to pocket between 65 percent to 90 percent of the sale. Traditionally in the wholesale model, they take home between 40 percent and 50 percent of the retail price.
E-concessions operate similarly using these same key principles, except from an online, e-commerce perspective. Brands establish partnerships with online retailers who will designate a section of their website dedicated to them and their fashion products. They are responsible for all business operations and how their products display on the retailer’s website. However, brands are also obligated to handle the shipping and handling process since they are not located in-store.
Compared to concessions, e-concessions give brands greater flexibility in their inventory management. They can swap fashion products out immediately to match current fashion trends rather than getting stuck in-store where the risk of markdowns linger.
Should Your Apparel Brand Integrate Concessions and E-Concessions?
Concessions and e-concessions will benefit luxury brands looking to have more control over their supply chains and how their apparel products are marketed and sold. They cut out the hassle that comes with maintaining wholesale relationships and create direct lines of communication with the consumer. But, before jumping into the integration concessions and e-concessions, it is vital to understand these key components:
- Concessions and e-concessions agreements must abide by antitrust and competition laws.
- Brands are financially responsible for their operations and therefore, assume greater risk.
- Agreements between brands, retailers, and online retailers must clearly define their roles and strategically lay out how concessions and e-concessions will roll out and integrate.
Consider these elements when deciding if migrating from wholesalers to concessions and e-concessions is right for your luxury brand. At the end of the day, concessions and e-concessions are a tool, but not a necessity to remain competitive in luxury fashion’s evolving landscape. How you choose to integrate them solely relies on your brand, its goals, and whether or not you believe these growing models will help you better meet the demands of today’s changing fashion climate.