Orchard Mile upends luxury retail with new model

Dive Brief:

Orchard Mile is tweaking the luxury e-commerce model with a different approach to curation. Rather than pulling certain must-have items or new releases, the startup allows customers to select their favorite brands.
Checkout, however, isn’t brand-specific; customers can pile their carts with finds from any of their chosen virtual storefronts. Shipping is free, as are most returns, according to the company’s website. You can browse, search, and explore items from all over the web, yet have the ease of checking out once.
The site’s monthly sales are growing 26.9% per month, with the average purchase amount at $350, according to Fast Company magazine.

Dive Insight:

Orchard Mile’s approach, unlike that of Net-A-Porter/Yoox or Farfetched, allows customers themselves to hand-pick their stream of designers, which allows them access to those brands’ entire collections. That upends one of the web’s most prominent points of differentiation, especially in luxury, which must find a way to replicate the high-touch level of customer service that high-spending shoppers find in stores. To do that, Farfetch, Yoox, and others have turned to style influencers and technology to smooth communications with their customers.

Orchard Mile hasn't left its customers completely on their own: The site features a slew of content with fashion news, highlights on trends, stories of global locales and plenty of advice to spark discovery beyond users' comfort zones. In practice, the site appears to resemble a virtual department store. It’s not clear, however, how comprehensive the options are. While Prada Beauty is listed as an option on the Orchard Mile site, clothing, leather goods and footwear for the Italian luxury fashion house are not featured.

Luxury retail has the advantage of courting to consumers with the most room in their budgets, and that is helping to protect them. Global luxury retailers' earnings growth could nearly double this year to 7% from 4% last year, though it's unlikely to reach the double-digit levels the sector enjoyed between 2010 and 2013, according to a June report from Moody's Investors Service.

Luxury companies are adapting their operations amid high competition and rising fashion risk, with some changes bolstering credit and others constraining it, Moody’s said. Analysts expect the credit quality of most luxury goods companies to strengthen in the next year or so, along with earnings growth acceleration. Still, rising competition and department store struggles are pushing many luxury brands to boost their efficiencies, including closing their own stores as well as exiting department stores, Moody’s said in the report. But it's a tricky business, as consumer preferences and willingness to spend have changed in recent years.

"Limited earnings growth prospects are exacerbating competition and companies must increasingly fight for market share," according to Moody’s report. "Companies must find the right creative directors while allocating their resources more efficiently. An added challenge for U.S. companies such as Ralph Lauren is to reduce their reliance on department stores where footfall is declining and promotional discounting weakens brand value."

While Fast Company hailed Orchard Mile’s impressive monthly sales growth, it’s not clear whether that’s translating to profits. Free shipping both ways is likely eating at margins, especially considering the extra-complicated logistics for luxury retail online.

Upscale brands have security concerns when it comes to shipping because of the high-dollar value of their goods and often have much less inventory of any one release, with smaller inventories scattered at stores or warehouses worldwide. In addition to the need for heightened security, luxury customers expect their items to arrive in premium, carefully prepared packages, further complicating logistics.