By Marco Passoni
The recent H1 financial results of luxury brands have been the talk of the market recently, especially with the apparent slowdown in the sector around the world. However, it’s important to approach these discussions with a clear understanding of the nuances involved. Brand image and perception are paramount in the luxury sector, so it makes sense that comparing results, and ranking brands, might seem like a valuable exercise – but it can be incredibly misleading.
One of the key reasons for this is we are often tempted to compare brands which operate with fundamentally different business models, such as direct-to-consumer (DTC) and wholesale. Both of these models have their merits for brands in particular situations, but comparing results from these two distinct approaches is like comparing apples and oranges – it is an exercise that risks leading to inaccurate and misleading conclusions.
To go direct? Or to not go direct?
The primary difference between the two models is whether product shipped by the brand is actually purchased by a consumer. Since the direct-to-consumer model allows brands to sell directly to consumers, bypassing intermediaries, there sales results directly reflect sell-out (or the number of products actually purchased by end consumers). As a result, this model offers a transparent view of a brand’s performance, based on real sales, thereby providing an accurate picture of market demand and consumer response to the brand’s marketing and pricing strategies.
On the other hand, the wholesale model relies on selling large volumes of products to retailers, who then offer them to the end consumers. In this case, sales results are tied to the quantity of goods a brand manages to sell to retailers. Therefore, this figure doesn’t necessarily reflect actual sales to the end consumer as merchandise could remain on shelves or in warehouses for extended periods.
This is why directly comparing the results of brands using different models can lead to distorted interpretations. Where DTC sales figures are shaped by real-time shopper demand, wholesale is reflected through retailers’ perception and anticipation of shopper demand, and this creates a discrepancy between reported sales and actual shopper demand in the wholesale model.
Misunderstanding this comparison can result in overestimating the performance of a wholesale brand relative to a DTC brand, especially if factors like unsold inventory or returns are not taken into account. The risk is drawing incorrect conclusions about a brand’s ability to meet market needs based on data that doesn’t tell the whole story.
How to get it right
To accurately assess the performance of a luxury brand, it’s essential to consider the business model it operates within. Each model has its unique characteristics and success indicators. Rather than attempting to equate results between different models, it is more appropriate to analyse each brand within the context of its operational model and its ability to adapt to market dynamics.
The truth is that simply comparing the results of luxury brands that adopt different business models is not only a futile exercise but can also lead to misleading interpretations. Like comparing apples and oranges, each business model has its specificities, and trying to compare them without considering these differences means losing sight of the reality of their performances.
To truly understand a brand’s success, it is crucial to evaluate the results within the context of the adopted business model, recognising that the data can tell very different stories depending on the perspective from which they are viewed.
