Twenty sixteen is officially in the books and it will surely go down as one of gloomier years of recent memory. From the US to the UK, Turkey to Berlin, there seemed to be a series of troubling news, and a persistent sense of global anxiety. Tourism was down. Terrorism up. Politics loomed like a dark cloud. Most would simply like to forget 2016 altogether as if it never happened, yet the gravity of the events will make that impossible to do. Unquestionably, we’re all hoping for a much brighter, more optimistic 2017.
Tumult did come to define 2016, but there were certainly bright moments for the modern luxury market and neighboring industries. Phlur made a big splash in the summer, introducing an innovative take on fragrance and a considerable PR push that put it on many shoppers’ maps from June to December. Farfetch’s $110 million Series F drew audible gasps of the good kind. Away’s $8.5 million Series A allowed it to ramp up its retail footprint globally, and its claimed early returns after just a year in business — $10 million — were impressive. Ditto for Outdoor Voices which brought in a $7 million Series A from the likes of APC’s Jean Touitou, among several others.
In Vancouver, Herschel Supply’s burgeoning empire became an exciting topic of discussion after acquiring Seattle-based boutique Totokaelo in September. A short hop south to San Francisco, Bevel continued its unstoppable momentum, launching the Bevel Blade to much fanfare, landing an exclusive deal with Target, and making its shaving products available for purchase a la carte (rather than as a complete system). On the East Coast, Ledbury and Proper Cloth both moved into bright, swanky new showrooms, and Atlanta-based Sid Mashburn expanded his growing southern empire to Santa Monica. Everlane, not one to be left out, also opened up its first permanent space in San Francisco after years of scoffing at the very thought.
Closing out the year, news of Rapha’s possible acquisition by LVMH grabbed our attention, so too did Glossier’s $24 million Series B and first permanent location in NYC. Throughout all of this, Forerunner Venture’s Kirsten Green, frequently mentioned by us, seemed to be everywhere. From the good — Dollar Shave Club’s $1 billion exit to Unilever, and Away’s and Outdoor Voice’s raises — to the bad — Trunk Club’s valuation slash by current owners Nordstrom (Forerunner was an early investor) — there was the sense that Kirsten and the Forerunner team were connected to much of the year’s modern luxury news in some way or another. (The same could certainly be said about the less visible, but every bit as influential, 14W, a Silicon Alley firm whose stakes in Glossier, Outdoor Voices, Tracksmith, Everlane, and Lyst should not go unnoticed.)
Taking stock of the carryover from 2016, we’ve stepped back, looked around, and determined that things certainly could get interesting over the next twelve months for modern luxury. From IPOs to new stores, brands on the rise (and those in need of a big recovery), we’ve come up with the Lean Luxe 2017 Modern Luxury Forecast. Here’s to a great year, and continued good business!
Money on our mind
Fundraises, IPOs, and M&As
1 – The Warby Parker IPO
The rumors have been swirling for quite some time. A recent chat with Bloomberg Market’s Scarlet Fu just before Christmas put Neil Blumenthal on the hot seat. When asked various questions about Warby’s potential IPO plans, he delivered a reasonable, if diplomatic, response about an IPO that may or may not be happening soon: “We’ve built Warby Parker to last, not as something to scale and immediately flip.” Ms. Fu followed up by asking whether he views an IPO as “flipping the business.” He said, essentially, “Eh, not really.” Interesting. Warby Parker has now raised a total of $215 million across five rounds. Its most recent raise, a $100 million Series D in April 2015, valued the company at $1.3 billion. Now in its seventh year of operation in 2017 and with this much venture capital behind it, an exit of some sort will be expected soon. This could be the year where things get set in motion.
2 – Farfetch’s end-of-year IPO
Because it’s coming. At this point it’s an open secret. Chatter on Farfetch’s pending IPO increased significantly towards the tail end of 2016, with rumors of Natalie Massenet potentially coming aboard only helping to fuel the fire. Reports claim Jose Neves and the board are targeting an IPO sometime in the fall. Makes perfect sense. They’ve raised $304 million over six rounds, are valued at over $1.5 billion at this point, and in its ninth year of operation now, its investors are likely salivating at the thought of a payout. One to closely monitor.
3 – Rocket Internet makes a more aggressive push for MLCs
We’re hearing that Berlin-based Rocket Internet, by way of its venture fund, Global Founder’s Capital, is actively looking for modern luxury companies (MLCs) to invest in. Those rumors bore fruit in 2016 with Away’s Series A, which they led. We understand that they’ve made overtures to other early-stage brands as well, and 2017 could be the year where they really start to accelerate things. More on this soon.
4 – How will the full Paddle 8 – Auctionata merger unfold?
Rumor has it that Paddle8 was just weeks away from insolvency before co-founder (now chairman) Alexander Gilkes guided the online art auction house into the arms of Berlin-based competitor Auctionata. Whether that’s true or not, we can’t immediately confirm. What we can confirm, however, is that the merger is a smart one. Paddle8 has a large US presence and specializes in contemporary art at an accessible price range; Auctionata is well-respected in Europe and specializes in vintage goods auctions. It’s a strong pairing that positions them well against the blue hair firms, Sotheby’s, Christie’s, and Philips, as all three begin to make a heavier online push. The deal officially closed last May, but it’s only now that we should start to see the true results of this potentially potent partnership in action.
Ones to watch
These upstarts could be poised for a big year
1- Appear Here (pop-ups)
The London-based pop-up marketplace, what we refer to as the Airbnb of pop-ups, is now in its fourth year, and is ramping up its international footprint after opening a Paris location in the spring and a New York office last month. As more brands begin to use pop-ups as a test run for different cities before committing to permanent locations, demand should remain steady (and even increase) over the next several years. Appear Here has been hosting some impressive intimate events and gatherings too at different pop-up locations in London. Their last panel included an outstanding discussion on branding and modern luxury business with the likes Rapha and Tracksmith co-founder Luke Scheybeler; Julien Callede, co-founder of MADE; and Kelsey Pearson, head of product for ADAY all offering strong insights.
2 – John Sterner (high-end knitwear)
Having conquered the rainwear game with namesake brand Stutterheim Raincoats, Stockholm’s Alexander Stutterheim is onto something a little fluffier, a little warmer. Enter John Sterner, a high-end knitwear firm specializing in sweaters, which, though teased via Instagram and Twitter over the last twelve months, is only now due to launch (officially) in Paris later this month. The similarities between Stutterheim raincoats and John Sterner are uncanny: both emphasize Swedish handmade tradition, both have made-to-order offerings, both arise from a sentimental place in Alexander’s heart — memories of his grandfather. As if that weren’t enough, John Sterner’s source of wool is its own flock of 50 sheep. If Stutterheim’s success is anything to go by, Alexander’s new project should make some justifiable noise this year.
3 – Argent (women’s workwear)
Not only will women’s workwear start to heat up this year, but we predict that Argent will be neck and neck with MM.LaFleur, which has a few years on them (Argent launched just last year). After a smart WeWork collaboration in San Francisco in the fall, and a DC pop-up inside a Shinola store lasting from this month to the middle of February, Argent is moving fast — and putting some real pressure on the ladies at MM.LaFleur in the process. At this pace, they may end up becoming a modern luxury women’s workwear forerunner this year. We’ll certainly be keeping track of their progress.
4 – Linjer (accessories)
You would never guess it, but Linjer is based in Florence, Italy — not San Francisco as its branding and tone might suggest. Being off the startup grid, however, hasn’t hindered them. Now entering their third year of operation, they’ve got two successful products in the bag (hah!), as it were — the first a leather briefcase, and the second a simple quartz watch that brought in a cool $1 million for them last year. So far they’ve turned down taking on investors, choosing to remain self-funded and turning to Kickstarter for launching new products. They’re smart, forward-thinking, and quietly on the ascendency, with a rigorous dedication to (and deep knowledge of) their product categories. After working through some early inventory growing pains, they’ll look to improve on their $3.5 million in revenues last year. Big year ahead.
5 – Naadam (mid-price knitwear)
Naadam had a game-changing 2016, and founder Matt Scanlan ended the year on a tear. The question is, can he maintain the momentum — and carve out a bigger slice of the mid-priced knitwear pie, surrounded by the likes of Everlane and Kit and Ace? As a cashmere knitwear specialist that’s built its own cashmere supply chain from scratch, we’re betting he just might.
Getting (sector) specific
The categories we’ll be paying close attention to
1 – Cycling the next big market?
Rapha has been on our radar for quite some time, but the cycling market certain held our attention more at the end of the year as LVMH purchased a majority stake in Pinarello, and after its overtures towards Rapha were announced. All is mum on that front at the moment, which leads us to believe Rapha’s in due diligence phase right now. Across the cycling landscape, however, there’s a lot to love — check out Australia’s MCCA, and Kirschner in Brazil, for instance — and fits well with the active lifestyle and wellness trends of today. Plus there’s the notion that cycling has crept up on golf as the preferred deal-making sport of the professional set.
2 – The home heats up
It’s not all about standard consumer goods. Furniture and homeware upstarts are also firmly in play. The following list speaks for itself. Burrow, Alfred, Snowe, Parachute, Brooklinen, Flaneur, Greycork, Perch, TRNK, BenchMade Modern. Plenty more where that came from. Of course many of the furniture firms resemble one another a great deal — in both aesthetic and business model — so there could end up being a shakeout in the direct-to-consumer furniture category alongside overall marketplace growth.
3 – New brands in unusual categories
The standard luxury goods categories (knitwear, footwear, eyewear, fragrance, men’s and women’s) find themselves stuffed with a dizzying array of MLCs. Our prediction: We might see fewer new brands launching, and current firms will begin to mature more as they grow into their own. The new brands that do debut will most likely be in unusual categories — bike helmets, for instance — as the dust starts to settle in the basic categories.
4 – Fragrance on fire
The past year has been a godsend for modern luxury fragrance upstarts. We already know about Phlur’s huge year, and alongside them Commodity continued to pick up speed, Abbott made an encouraging debut, so too did Hawthorne, and Lyn Harris’ Perfumer H classed things up a great deal out in London. This is a sector that we anticipate big things from this year — and let’s not forget: Estée Lauder has shown itself to be an eager buyer of well-established fragrance firms. Just look at their purchases of Le Labo and Rodin for proof.
Setting up shop
Affairs on the retail front
1 – Venture-backed MLCs really start to ramp up permanent retail
We’ve already seen Glossier, Away, Parachute, and Outdoor Voices, among others use investment funds to open up new stand-alone locations. Even Tracksmith was raring to do so in 2015 — before its lead investor Pentland, suggested they slow down. Smart move, at the time, but could Tracksmith finally open their first location this year? We shall see. What’s certain, generally speaking, is that the direct-to-consumer model is battle tested — but as MLCs progress, they understand that it’s not only about online sales. There’s real value in the monobrand showroom, and people still like to test out clothes in person. Both the brands (and their investors) fully grasp this.
2 – Continued unconventional temporary retail routes
Unconventional temporary retail solutions are nothing new in modern luxury. It began with the Warby Parker school bus, whose influence can be see with J.Hilburn’s Mobile Studio, and True & Co’s Try-on Truck. In 2016, alternative retail routes started to become more of a thing: Argent’s partnership with WeWork, and Equinox’s partnerships with Ten Thousand and Caraa were top of mind for us. Nothing felt forced in any of the instances, no square pegs in round holes here. We could start to see more brands go this route in 2017. Keep an eye out for Away, for one, who’s making a global push this year — and whose relationship with Starwood Hotels (an investor) makes it easy for them to organize a pop-up in, say, a W Hotel in Berlin.
3 – Big city on-demand delivery will become more of a thing
This applies moreso to larger operators and markets like New York, London, and San Francisco. Net-a-Porter, for instance, has been doing this for years in London and NYC. Most recently, Matches Fashion announced they would now offer 90 minute deliveries in London. According to research firm Euromonitor, 55 percent of the total global population will be city-dwellers this year, which is 5 percent more than a decade ago when urbanites outnumbered cow tippers for the first time in human history. Modern luxury shoppers are decidedly urban-dwelling, so this is perfect timing.
Bringing up the rear
Other storylines to watch
1 – How will Kit and Ace recover?
The Kit and Ace train came to a screeching halt in 2016 as it closed stores, scaled back its aggressive global retail expansion, cut 20 percent of its head office staff, and replaced co-founder JJ Wilson with dad Chip. Things, as it turned out, were not going so well in their push to open up 95 stores by 2019 (and take on $300 million in debt to fund the big push). Chip won’t let his money go to waste, so he’s slowing things down a bit, refocusing, and taking things one step at a time. Rome, as we know, wasn’t built in a day — will Kit and Ace be able to rebound in 2017?
2 – Natalie Massenet’s (potentially) big 2017
Will she or won’t she end up at Farfetch ahead of their IPO? And what else could she possibly have in store this year? What’s this Imaginary Ventures thing about? Hm.
3 – MLCs find ways to combat the Amazon threat
Yes, Amazon’s new in-house brands with names like Lark & Ro and Franklin & Freeman mimic MLC naming patterns and branding. They do all seem a bit soulless though, don’t they? Still, the Amazon threat is real for MLCs in the lower price-range segment. Very, very few of them will ever resort to selling their goods through Amazon — they much prefer to have complete control over pricing, branding, and the “unboxing” experience, as it were, to do so. But they’ll need to find ways to protect themselves by offering brand-specific services or personalization options that prevent their products from becoming commodities. Several brands are already making moves in this regard. More soon.