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Can Amazon upend the luxury sector?

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When Amazon expanded into US groceries and healthcare, the established players in the sector feared the arrival of a rich, tech-savvy disrupter. But when the ecommerce giant unveiled its long-awaited foray into luxury goods last month, the response was a collective shrug. 

Amazon opened its Luxury Stores as a separate space on its mobile app, which is available only in the US “by invitation” to subscribers to its Prime loyalty scheme. Instead of its usual utilitarian look, the app tries to conjure up a luxury ethos with a gold logo against a cream-coloured background. It was launched with an ad featuring British actress Cara Delevingne. 

But while industry executives were publicly polite, privately many mocked the launch for being late to the game and going live with only a single brand: dressmaker Oscar de la Renta.

Frederic Court, whose venture capital fund Felix Capital was an early backer of online fashion marketplace Farfetch, said Amazon would struggle to break into luxury’s exclusive club. 

“If they decide to have a real go, they may get somewhere given they have so much talent, capital, and logistics and delivery expertise,” said Mr Court. “But if you don’t have Gucci, Saint Laurent, Prada and Dior, then it’s hard to be a real destination for luxury shoppers. You need the brands you can find on Avenue Montaigne in Paris.” 

Luxury’s biggest groups LVMH, Kering and Hermès remain prominent refuseniks. Referring to online-only players, LVMH’s Bernard Arnault said at its annual results conference in January: “We’ve been asked several times to participate in these businesses, and I’ve always said no.” He said that his reservations are partly because of concerns counterfeiters use sites such as Amazon to sell fakes.

‘If you don’t have Gucci, Saint Laurent, Prada and Dior, then it’s hard to be a real destination for luxury shoppers,’ said Frederic Court of Felix Capital, an early backer of online fashion marketplace Farfetch © Bloomberg

Bruno Pavlovsky, the president of Chanel’s fashion division, told the Financial Times this week that the French luxury group “will not sell any fashion products” on Amazon, but did not rule out using it to sell beauty products as it does in China with Alibaba.

Since last month’s launch, Amazon has added more brands, including Joseph Altuzarra, a New York-based ready-to-wear designer, lingerie from La Perla, designer clothing from London’s Roland Mouret, and high-end beauty products from Clé de Peau. A spokesperson said more were on the way.

The question now is whether high-spending luxury customers will follow. Globally, Amazon has 150m Prime customers, who are accustomed to fast delivery of everything from cat food to shoes. Luxury Stores may get traction if it can attract even some of them.

Amazon’s move into luxury comes at an opportune moment: the Covid-19 pandemic has accelerated the transition to online shopping, even for €10,000 handbags.

With luxury sales expected to take three years to recover to pre-pandemic levels, big brands are more open than ever to selling online and many are seeking new ways to woo clients via messaging apps or email. While the lavish in-store experience will always be central to luxury, a period of online experimentation is afoot.

Luxury industry market dynamics

Meanwhile, after years of declining sales, the fallout from the coronavirus pandemic has finally killed off several US-based department stores, such as Lord & Taylor and Neiman Marcus. This has deprived independent fashion brands of their main distribution channel and some are scrambling for alternatives, including selling more via their own websites and online stores. Critics said Amazon’s Luxury Stores may face a reverse selection bias, where it is most likely to attract accessibly priced or struggling brands.

Ecommerce has momentum: by 2025, consultancy Bain & Company estimates that roughly one-third of luxury’s annual sales will be made online, up from 12 per cent of total sales of €281bn in 2019. The shift is being driven by millennials and customers in China — both the world’s most advanced ecommerce market and the fastest-growing market for luxury goods.

Amazon is entering luxury after years of expanding in mid-market fashion via acquisitions of online shoe seller Zappos and clothing outlet Shopbop. 

So far, it has given few details on its ambitions for Luxury Stores and declined an interview request. “Fashion is a priority for our customers and therefore a priority for us worldwide,” it said in an emailed statement. “We’re just at the beginning of what we expect to accomplish.”

Amazon’s pitch to brands is that it can help them create “innovative, content-driven tools” to engage with shoppers, such as its View in 360 button that allows people to visualise how a garment will look on various body types. 

Bar chart of % of items sold showing Markdowns on various luxury e-retailer websites

In an attempt to allay fears about eroding the exclusivity of the online experience, the store will be walled off from the broader website. And most importantly, participating brands will control the design of their shop within the app, as well as being able to select what items are sold on there and at what price. This is known in the industry as a concession or marketplace model, and was adopted by Farfetch and Alibaba’s Tmall Luxury Pavilion.

It contrasts with the so-called wholesale model used by online retailers, department stores, and rival online seller Yoox Net-a- Porter. Those companies buy inventory from fashion brands, store it in their warehouses, and then can offer discounts if it does not sell at full price.

Luxury brands tend to prefer the concession model because it offers more control, less discounting, and ability to move inventory. But their ideal model is to sell directly on their own-branded websites where they do not have to give away any commission and do not dilute their brand equity, industry executives said. Customers can be drawn in by Instagram or TikTok posts from brands, or with well-placed links on Google searches for products. 

Net-a-Porter’s ‘The Sporty Jacket’ campaign © AP

As one sector executive put it: “For fashion brands, wholesale is heroin and Farfetch is methadone. Everyone wants to get clean and sell directly.” 

Amazon may be betting that it can replicate the success that Alibaba’s Tmall has had in China. Initially, luxury brands mistrusted Alibaba as down-market and rife with counterfeits. But once it moved to a concession model with a separate safe space for luxury brands, many were won over. They now see Tmall as a key online gateway to Chinese customers. 

Amazon’s Luxury Store is entering a crowded field of multi-brand online retailers, and will compete with established companies such as Farfetch, Yoox Net-a-Porter, MatchesFashion and MyTheresa. Such sites have supplanted the roles once played by department stores and fashion magazines — namely discovering new designers, tracking what is in style, and giving inspiration about what to wear. 

Few of them have cracked profitability despite growing user bases, so they may eventually be forced to consolidate, said Claudia D’Arpizio, a consultant to the luxury industry at Bain. “Amazon can pose a real challenge to these etailers, as well as take share from physical department stores, which are already struggling,” she said.

Farfetch sales are growing but losses are widening

José Neves, the founder and chief executive of Farfetch, said his company had a “strong competitive moat” against Amazon, namely its relationships with the biggest luxury brands honed over more than a decade. Farfetch sells some 3,500 brands on its site and 500 of them operate on the concession model to sell directly to customers.

“Luxury is an industry of relationships. Most true luxury brands are European and family run. For them the protection of brand equity is paramount,” said Mr Neves. “From the conversations we’ve had with them about Amazon, having another multi-brand store is not of strategic importance, and it could even be a losing proposition if it cannibalises existing channels.” 

For Amazon, the plan is that more brands follow Oscar de la Renta, which sees its partnership with the ecommerce giant as a good way to reach more customers and glean additional insights into their desires. “It’s a super challenging time right now with the pandemic,” said Alex Bolen, the chief executive of Oscar de la Renta. “It is all about learning. Amazon is going to help us become a better merchant.”

Additional reporting by Lauren Indvik in London



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'It’s more than sport – every day we are fighting for our rights to be equal’

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French pro basketball player and podcaster Diandra Tchatchouang on her role beyond the court



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Emily Dean on how allyship amplifies the female experience on film

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When I was six years old, I decided to be an artist. When I was 12, I decided to be a filmmaker. And instead of saying no, you can’t do that, or it’s not possible, my mum bought me a video camera.

After several years of working in the industry, I’m working with a female director for the first time. And it’s been such a gratifying experience. Women express leadership in different ways. Maybe you don’t have to be the loudest person in the room. But you can have great ideas.

And the best thing about being mentored by women and being a mentor to women is that make friends with women.

There’s something so powerful the women coming alongside other women, especially in a group setting. Because it means that you can and back each other up. You can support each other’s decisions, and you can amplify each other’s voices.

It’s about seeing yourself in your work. Seeing some part of yourself reflected is really gratifying. It’s also important that we speak up for female characters. I want to see girls and women on screen who have the whole cacophony of experience of what it’s like to be female.

I want to see their flaws. I want to feel their struggles. I want to see their joy. That is so important to making a character feel real. And it took me a little while to settle into myself and realise, if the characters I like to come up with are not your everyday run of the mill characters you see in animation, that’s fine. Because this is who I am.

When you walk into a story room, when you’re working on a film, you have to leave your ego at the door. I think that can be interpreted like keep your ego out of the work. But I’d also say for women who are maybe more shy that leaving your ego at the door means you walk in. And your job is to focus on what’s best for the story and for the film.

The story needs you. The film needs you, and it needs your best ideas. It won’t thrive unless you speak up.



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Crimea ‘water war’ opens new front in Russia-Ukraine conflict

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When a cyclone drenched Crimea in rainfall last month, rivers burst their banks and thousands of people in the Russia-annexed peninsula had to be evacuated from the floods.

The silver lining to the deluge was that the rains also filled Crimea’s depleted reservoirs, temporarily alleviating a crisis brought on by an extended drought and a Ukrainian blockade of the Soviet-built canal that previously provided up to 85 per cent of the peninsula’s water supplies.

Moscow’s struggle to supply Crimea’s 2.4m residents with fresh water has become a flashpoint in an undeclared war, seven years after Russian troops seized Crimea from Ukraine. An even longer conflict between Kyiv and Russian-backed separatists in eastern Ukraine has claimed more than 14,000 lives.

Russia has accused Ukraine of “genocide” over the building of a concrete dam across the North Crimean Canal, in addition to the existing sandbag and earth dam that was built in 2014. Kyiv fears that Moscow is plotting a military incursion to secure water flows from the nearby Dnipro river.

Coupled with surging food prices and international isolation because of western sanctions, the water shortages threaten to undermine President Vladimir Putin’s promise of a better life for Crimeans under Russian rule.

Though state-run pollsters claim Putin remains more popular in Crimea than on average across Russia, the patriotic fervour that sent his approval ratings to record levels after the 2014 annexation has long since subsided.

Map showing Ukraine and the North Crimean Canal, Crimea

“The water reserves and fields have dried up,” said Viktor, 47, a Crimean who regularly travels to Ukraine for work. “Each year it’s getting worse and worse. We didn’t have this problem before annexation,” he said, adding that most Crimeans blamed Ukraine for the crisis.

A $3.7bn bridge across the Kerch Strait linking Crimea with mainland Russia has become a conduit for trucks ferrying water for locals to take away in plastic containers. Popular Black Sea tourist resorts can turn on their taps for just a few hours a day during peak droughts, while the canal has filled with grass and weeds.

Crimea’s agricultural output has fallen owing to a lack of irrigation, making it all but impossible to grow water-intensive crops such as rice.

Construction of the canal began in 1957 after the Soviet Union transferred the arid peninsula to the Ukrainian Soviet Socialist Republic to manage rebuilding after the second world war. The waterway allowed for the cultivation of arable land and helped transform Crimea into a haven for tourists.

“The canal symbolises the stupidity of the Kremlin in occupying Crimea. They didn’t weigh the consequences at a moment of electoral euphoria that was fed by their own propaganda,” said Oleksiy Reznikov, Ukraine’s deputy prime minister in charge of reintegration policies for the occupied territories.

“Why didn’t you think about water?” he asked.

The North Crimean Canal is seen with a low level of water
The severely depleted North Crimean Canal previously provided up to 85% of the peninsula’s water supplies © Pierre Crom/Getty

Workers collect potatoes on the North Crimean Canal
Workers collect potatoes on the North Crimean Canal. Ukraine blocked the irrigation channel after Russia’s 2014 annexation of Crimea © Pierre Crom/Getty

Russia, while pressing Ukraine to reopen the waterway, has launched a Rbs50bn ($680m) programme to bolster Crimea’s supplies, repairing crumbling infrastructure, drilling wells, adding storage and desalination capacity.

Russian prosecutors last week filed a lawsuit in the European Court of Human Rights accusing Ukraine of “flagrant violations” over the issue. Crimea’s governor plans to file a separate complaint demanding up to Rbs1.5tn in compensation.

“Kyiv has essentially used Crimea’s infrastructure dependence on Ukraine, which came about in the Soviet era, as a weapon of mass destruction against all Crimeans. The water blockade is an act of state terrorism and ecocide, but the international community is failing to notice the Kyiv regime’s crimes,” Sergei Aksyonov, the peninsula’s governor, said in written comments to the Financial Times.

Reznikov said Russia, as the occupation force, was responsible under the Geneva Conventions for securing water and other basic needs for local the population. Ukraine has filed its own multi-billion-dollar claims against Russia, citing losses caused by what it describes as an illegal land grab.

With tensions rising, Russia deployed tens of thousands of troops and advanced weapons to Crimea this spring, as well as to the border of the two breakaway eastern regions where Moscow-backed separatists have battled government troops into an eighth year.

Col Kyrylo Budanov, chief of Ukraine’s army intelligence unit, said Russia was looking to seize the canal as well as adjacent territory to connect Crimea with the breakaway regions. Russian troops could advance on Nova Kakhovka, the Dnipro river town where the canal begins.

Some Crimean Tatars, an indigenous ethnic group whose members largely opposed Russia’s annexation, have set up a makeshift camp near the dams to make sure the water flow does not resume.

A Crimean Tatar activist on the North Crimean Canal
A Crimean Tatar activist enters his base on the North Crimean Canal. Tatars have set up camp to make sure the water flow does not resume © Pierre Crom/Getty

A Ukraine military vehicle drives past a Soviet monument marking the entrance to Brylivka
A Ukraine military vehicle drives past a Soviet monument marking the entrance to Brylivka, a village on the North Crimean Canal © Pierre Crom/Getty

“It will be a full-scale war,” said a 55-year-old activist who gave his name as Alibaba. He said he and his fellow activists were willing to take up arms to defend the blockaded canal. “There will be nowhere to hide in these fields. Let them try,” he added.

At the Kalanchak border crossing near the new dam, Russian and Ukrainian troops have dug trench positions a few hundred meters apart.

Tensions have also flared in the Black Sea, not just with Ukraine but also with western navies. Russia fired warning shots in the path of a British destroyer sailing through contested waters off Crimea last month. Sevastopol, Crimea’s largest city, is home to Russia’s Black Sea fleet.

Moscow has insisted it would not go to war over Crimea’s water supplies, even as it conceded that Ukraine was unlikely to restore them. “All these hysterical statements from Ukrainian politicians are completely baseless — they’re just stupid, aggressive propaganda aimed at inciting hatred between the Russian and Ukrainian people. There won’t be any ‘water war’,” Crimea governor Aksyonov said.

Reznikov, the Ukrainian minister, said Kyiv was ready to provide Crimea with humanitarian assistance, including drinking water, which it already does for the separatist-run eastern territories, but no request had been made.

“For Russia to admit they’re weak is very difficult . . . it would amount to an admission that they made the wrong decision,” he said.



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