Christian Dior has been mired in controversy since debuting a minute long video to promote its “Sauvage” fragrance. Against the sweeping background of red rocks in Utah’s Arches National Park and Potash Boneyard, actor Johnny Depp pulls out a guitar, while a Sioux warrior performs a “Fancy Dance” (i.e., a war dance). Almost immediately, the Paris-based couture house faced intense backlash over the advert promoting its $77-plus cologne. In fact, the backlash was so intense that Dior pulled the video from its social media accounts. The inevitably-expensive-to-make ad was live for mere hours before being wiped from the web.

The public relations backlash that followed from the ad campaign comes as Dior has been making headlines for something else entirely: its position among only 5 other brands in the fashion industry, all of which bring in more than €5 billion ($5.52 billion) in annual revenue. According to a recent report from Morgan Stanley, as of last year, Dior has “entered the realm of mega brands, becoming luxury’s sixth player to attain sales in excess of €5 billion, joining the ranks of Louis Vuitton, Chanel, Gucci, Cartier and Hermès.”

While Dior lags behind Chanel, for instance, which brings in 3 times greater profit, Morgan Stanley’s Edouard Aubin and Elena Mariani assert that they “see no structural reason for Dior’s profit contribution not to get close to that of Chanel’s today.” As for revenues, they expect Dior’s to grow by 18.7 percent this year, alone, to €6.3 billion ($6.96 billion), led largely by explosive growth in China and Dior’s ties to high-powered influencers, such as Angelababy.

The Morgan Stanley report states that both Dior and Chanel have managed to report double-digit growth in recent years, “not by increasing third-party distribution,” but instead, as a result of their ability to “build up desirability via massive communications spend,” including boosting the “frequency and magnitude” of their runway shows, sponsoring of exhibitions — and a whole lot of celebrity and influencer marketing efforts, including by way of steady seasonal gifting practices.

A particularly interesting excerpt from the report: the estimated 35 percent of Dior’s sales that are derived exclusively from cosmetics, compared to the slightly higher 38 percent of revenues in 2018 for Chanel that came from the sale of cosmetics. The report did not set out what percentage of the brands’ sales came from handbags and other leather goods, or from clothing, the latter of which is generally found to contribute very little to luxury brands’ bottom lines. In fact, as Bloomberg reported a couple of years ago, for Dior’s sister brand Louis Vuitton, which is similarly owned by Paris-based conglomerate LVMH, “producing collections and staging ever more glamorous shows tends to wipe out profit for pricey clothing.”

LVMH does not break out revenues for each individual brand that falls under its ownership umbrella, such as Louis Vuitton, Dior, Fendi, Givenchy, Loewe, and Marc Jacobs, just to name a few brands, it reported that for 2018, as a whole, its combined Fashion & Leather Goods division accounted for nearly 40 percent of its total $53.5 billion in annual revenue. Despite refusing to break out figures by individual brand, it’s understood that Louis Vuitton is its top-grossing fashion company.

As for Chanel, which only began releasing revenue reports in June 2018 in furtherance of an effort to cut down on what its CEO Philippe Blondiaux called “the circulation of false or misleading information” about Chanel’s financials and position on the luxury totem pole, it brought in $11.12 billion in sales in ready-to-wear, accessories, and cosmetics in 2018, up 10.5 percent from the year prior. That figure is significant, the New York Times’ Elizabeth Paton reported in 2018, as it means that Chanel just might be “the largest single fashion brand by sales” in the world, “outpacing rivals like Louis Vuitton and Gucci.”

Victoria’s Secret’s parent company is facing legal action – not for the bra and underwear designs it is being called out for swiping from ex-employee Jennifer Zuccarini’s label Fleur du Mal – but instead, for allegedly violating federal securities laws by making “materially false and misleading statements and/or failing to disclose adverse information regarding L Brands’ business and prospects,” thereby, causing investors to pay “artificially inflated prices for L Brands common stock,” only to have stock prices fall late last year, and throughout this year, as well.

According to the proposed class action lawsuit that L Brands shareholder Rickey Walker filed on behalf of himself and similarly situated shareholders in a federal court in Ohio last month, L Brands, its founder and chairman Leslie Wexner, and Chief Financial Officer Stuart Burgdoerfer have engaged in a “fraudulent scheme … [that has] deceived the investing public regarding L Brands’ business … and [its] present and future business prospects,” as well as “the intrinsic value of L Brands common stock.” As a result of such alleged wrongdoing, the defendants caused Walker “and the class to purchase L Brands publicly-traded common stock at artificially inflated prices.”

In the complaint, counsel for Walker asserts that in light of “deteriorating operating performance at [its] flagship Victoria’s Secret and PINK, businesses, as well as L Brands decreasing operating cash flows and rising debt levels,” on multiple occasions, Burgdoerfer “misled investors by stating that L Brands had sufficient cash flow and cash on hand to sustain its dividends,” (i.e., the distribution of a portion of a company’s earnings to holders of its stock), and that L Brands “in its history, has never reduced the dividend.”

Just weeks after Burgdoerfer issued public statements in May, June, and August 2018, saying that L Brands was “comfortable” with its current dividends, “L Brands announced that it was cutting its dividend in half so that it could pay down existing debt,” prompting L Brands stock price to drop 18 percent “from $34.55 per share on November 19, 2018 to $28.43 per share on November 20, 2018.”

While Retail Dive’s Ben Unglesbee states that “reducing the dividend may have been the financially sound move [for L Brands], the lawsuit argues that executives should have known about the cut and revealed earlier that it would likely be necessary.”

More than that, though, Walker asserts that on or after May 31, 2018, L Brands further injured investors by way of filings with the Securities and Exchange Commission, in which it “failed to disclose material risks associated with its cash requirements, liquidity and/or capital resources that made an investment in the company risky.”

By certifying those filings, Wexner and Burgdoerfer – who have a legally-mandated “responsibility to investors for establishing and maintaining controls to ensure that material information about L Brands is made known to them and that the company’s disclosure related controls were operating effectively” – “knew or recklessly ignored facts related to the core operations of L Brands.”

Walker asserts that had he known “that the market prices had been artificially and falsely inflated [as a result of the defendants’] misleading statements,” he – and the class of other shareholders – “would not have purchased L Brands common stock at the prices they paid, or at all.” Because they did, and “as a direct and proximate result of the defendants’ wrongful conduct,” Walker and his fellow plaintiffs claim that they “have suffered damages in connection with their purchases of L Brands common stock.”

In addition to seeking court-certification of his proposed class action suit to enable other L Brands shareholders to take part, Walker has asked the court to award him and  the other members of the class “damages together with interest,” their costs and expenses of this litigation, including reasonable attorneys’ fees, and any further relief that the court deems reasonable.

UPDATE (October 16, 2020): In an opinion and order, Judge Sarah D. Morrison granted the defendants’ motion to dismiss, holding that while “Victoria’s Secret and PINK began experiencing significant decline in financial performance due to the popularity of new lingerie brand” in the years leading up to the class action period and by “February 2018, L Brands’ credit ratings were equivalent to that of junk bonds,” the plaintiff’s claims that Wexner and co. ran afoul of federal securities laws by “falsely and misleading reassured investors the Company’s dividend amount was sustainable” are not actionable.

According to the court, in order to prevail on a securities fraud claim, a plaintiff must satisfy the heightened pleading standards, including that the plaintiff “specify each statement alleged to have been misleading, [and] the reason or reasons why the statement is misleading” and “state with particularity facts giving rise to a strong inference that the defendant acted with the required state of mind,” and Walker failed to do so for a number of reasons, including by alleging that certain opinion-based statements were misleading.

*The case is Rickey R. Walker v. L Brands, Leslie H. Wexner, and Stuart B. Burgdoerfer, 2:19-cv-03186 (S.D. Ohio).

The fast fashion concept is backed by two such fundamentally attractive ideas – frequent novelty and sheer affordability – that it has enabled the brands that abide by the model to wreak havoc upon the traditional retail model. It has helped stalwart fast fashion companies like Zara and H&M to build big businesses; Spanish giant Zara brought in more than $18 billion in revenue last year, while its Swedish rival welcomed $21 billion in sales. All the while, newer names, such as Fashion Nova, have been garnering eye-popping digital impressions – the California-based brand was the most Googled brand on 2018 – and revenue figures to go with it.

The rise in awareness about the role that apparel manufacturing and consumption plays in light of a sweeping global climate crisis has certainly not put an end to the model that is fast fashion; it is difficult, after all, to get consumers to drastically shift their shopping habits away from prioritizing low prices and inherently trendy garments and accessories. This is particularly true given the larger consumer culture, which values novelty, particularly in the Instagram era, where consumers are photographed on a must more frequent and regular basis than generations prior. The shift away from fast fashion also proves difficult given that more “sustainably” made options tend to come with higher price tags, and as many size inclusive journalists have noted, less expansive sizing options.

Nonetheless, a handful of companies say that they are part of an emerging economy that poses a direct threat to the at-times-explosive growth of fast fashion, a segment of the market that catapulted figures, such Amancio Ortega, the founder of Zara’s parent company Inditex, to the upper echelons of both Forbes and Bloomberg’s “world’s richest” lists. (He current sits in the number 6 position).

The RealReal, for instance, stated in its annual Resale Report that sustainability played a large role in consumers’ motivations while shopping this year. To be exact, the San Francisco-based luxury consignment company revealed that 32 percent of its consumers said that they shop on its site (or in one of its three retail outposts) as a replacement for buying trendy, fast fashion garments and accessories. A whopping 78 percent of customers surveyed said that The RealReal has changed the way that they shop, including being “savvier about how they invest and the impact what they’re buying has on the planet.”  

The 8-year old reseller is not alone. Online resale company thredUP released a report of its own this spring. One of the hardest-hitting takeaways centered on it’s the battle between pre-owned fashion and fast fashion. According to the report from San Francisco-based thredUp, as of 2018, the secondhand market apparel was worth $28 billion, compared to the estimated $35 billion fast fashion market.

More striking: the resale market has grown faster – 21 times faster – than the traditional apparel market over the past three years, and is expected to fully outpace fast fashion within the next ten years. Still yet, by thredUp’s calculations, the secondhand market is projected to grow to nearly 1.5 times the size of fast fashion by 2028. In other words, the value of the secondhand apparel market is expected to nearly triple by then, reaching $64 billion, while fast fashion is expected to only rise to $44 billion.

Analysts have echoed these predictions, with Cowen, for instance, projecting that online resale will grow “as much as 10 to 15 times faster than fast fashion stores such as Zara, department stores such as Macy’s, and traditional off-price chains like T.J. Maxx.” Speaking specifically about pre-owned luxury, Boston Consulting Group claims that used goods will account for 9 percent of the global luxury market by 2021, up from 7 percent last year, with more growth in sight, which explains why companies like Farfetch (which bought Stadium Goods) and Swiss conglomerate Richemont (which acquired second-hand watch-selling platform Watchfinder last year) are making moves in this arena.

The nearly-uniform expectations of sizable growth across the board for resale coincides with a greater level of consumer enthusiasm for pre-owned products, ones that were once relegated to brick-and-mortar consignment stores and dusty giants like Goodwill and the Salvation Army. That is hardly the case now, with the likes of The RealReal, Rebag, Vestiaire, and Fashionphile offering consumers the highly-curated and user-friendly to chance to buy everything from Hermès bags to Rolex Daytona watches all with the click of a button, and StockX and Stadium Goods pushing some of the buzziest and hardest-to-get streetwear finds.

This is all part of a larger cultural movement. Oliver Chen, a retail analyst for the American multinational independent investment bank and financial services company, told the Wall Street Journal that on the heels of the Great Recession, “There was a mind-set shift when it came to acquiring used goods. Now, it’s considered a smart bargain. Being fashionable is about getting value for your dollar.”

The American economy is said to be nearing another financial downturn, and shopping for secondhand apparel and accessories is more convenient that ever — or as the WSJ put it, it’s “as easy as hailing an Uber or renting a room through Airbnb.” Pair that with the fact that millennial and Gen-Z consumers, “kicking against fast fashion’s homogenised style for the masses, want something different and they’re flocking to [secondhand sites like] Depop in search of vintage one-offs and handmade pieces,” according to Dazed Fashion.

But these companies are not just proving particularly compelling for the young generation, one that The Cut described as “one with sustainability and individuality on the brain, hunts out the perfect, must-have, no-one-else-has-got-it piece.” They are of growing interest to investors, as well – with the resale segment being one of the most exciting to one in terms of investments and acquisitions. With all of this in mind, there appears to be no end in sight for the players in this space, save for maybe their largescale inability to achieve profitability.

As a whole, Sarah Willersdorf, a Boston Consulting Group partner, told the WSJ, “This is a trend that is not going away.”

Did Farfetch make untrue statements or fail to set out material information in its filings with the U.S. Securities and Exchange Commission (“SEC”) ahead of its blockbuster initial public offering on the New York Stock Exchange in September 2018? That is the question being asked by at least nine national law firms that are currently taking a close look at London-based e-commerce giant.

Almost a year after its IPO, Seattle-based Hagens Berman LLP revealed in a release on Wednesday that it is investigating “possible disclosure violations” by Farfetch concerning “the veracity of [its] statements about the company’s business model, particularly related to [its] growth and profitability.” Such representations, the firm asserts, “allowed Farfetch to go public” in September 2018 and raise over $880 million, thereby valuing the company at roughly $6.2 billion.

The mounting scrutiny of Farfetch – which Ann M. Lipton, a business law professor at Tulane University Law School, says appears to center on potential violations of federal securities laws that prohibit making misleading statements with respect to the sale of securities – comes after the company released a string of poor financials over the past several months. For instance, as Hagens Berman asserts in connection with its investigation, “Farfetch released disappointing Q1 2019 results [on May 16, 2019], disclosing accelerating losses.”

In response to its such results, Hagens claims that Farfetch “CEO José Neves attempted to allay investor concerns by highlighting the company’s ‘excellent growth.’”

Fast forward to early this month and the firm claims that 12-year old Farfetch – which has proven appealing to investors thanks to its inventory-less model of connecting consumers to retailers, while taking a cut of the sale, “plus its links to high-fashion brands including Chanel, Gucci and Balenciaga” – “delivered another disastrous quarter.”

To be exact, the group “reported wider-than-expected losses, including from [its] recent $675 million acquisition of New Guards Group,” per Hagens, which resulted in a 40 percent drop in Farfetch’s stock price, and prompted analysts to question the value of Farfetch’s stock.

“Taking a step back, it’s clear that the story has changed meaningfully since the IPO, and Farfetch shares are headed to the ‘penalty box’ (we doubt investors will be clamoring to buy the expected weakness in the shares),” wrote analysts led by Wells Fargo’s Ike Boruchow – as highlighted in Hagens’ release. However, as MarketWatch stated this week, some analysts remain “bullish based on the ‘huge opportunity’ for online luxury goods” given the under-penetration nature of the market in the digital sphere.

As for Hagens Berman, which prides itself as a class-action and complex litigation law firm with sweeping success at taking on corporations, partner Reed Kathrein says that they are “focused on investors’ losses and whether Farfetch misled investors about the company’s growth and profitability outlook.” In issuing a release, the firm is aiming “to solicit information about any potential fraud from insiders, and, potentially, seeking to act as counsel to a whistleblower if a whistleblower emerges and wishes to contact the SEC,” George S. Georgiev, a law professor at Emory University with expertise in securities regulation, told TFL.

And Hagens is not the only firm paying attention. On Thursday, San Diego-based shareholder rights firm Johnson Fistel, LLP stated that it is also working to determine whether Farfetch’s IPO filings with the SEC and “subsequent investor communications contained untrue statements of material facts or omitted to state other facts necessary to make the statements made therein not misleading concerning [its] business, and operations.”

Bronstein, Gewirtz & Grossman, LLC revealed that it is investigating “concerns about whether Farfetch and certain of its officers and/or directors have violated federal securities laws” in connection with Farfetch’s announcement of “poor second quarter results and the resignation of its COO in 2020.” Glancy Prongay & Murray LLP stated that it is “continuing” its investigation of the company, citing “larger-than-expected losses” for Q2. Still yet, Bragar Eagel & Squire, P.C., Holzer & Holzer, Kirby Mcinnerney LLP, The Schall Law Firm, and the Law Offices of Howard G. Smith are similarly investigating on behalf of Farfetch shareholders.

Such investigations and subsequent “lawsuits against companies that have recently gone public are fairly routine when the stock price drops after the IPO, as it has done in this case,” according to Georgiev. However, the investigations at hand are “noteworthy in the sense that because of the drop in its stock price and Farfetch’s earnings announcement, [the company] is, in fact, vulnerable to securities law liability.”

In practice, Georgiev says this might mean that Farfetch “may need to pay to settle a lawsuit if one is filed and assuming it survives a motion to dismiss.”

It is worth noting that one point that has not been raised in the aforementioned firms’ releases is the fact that a month before Farfetch revealed its Q2 financials and shortly thereafter, announced its New Guards Group acquisition, Condé Nast, one of Farfetch’s early investors, pulled its nearly $300 million stake in the company in July “amid concerns over how the luxury marketplace is being managed,” according to the London Times.

A representative for Farfetch told TFL that the company will not be commenting on the investigations.

UPDATE (August 16, 2019): This article was updated to include the names of additional firms that are investigating Farfetch on behalf of shareholders. The number of firms is currently eight, up from four at the time of initial publication.

The RealReal had good news for investors on Tuesday evening when it released its first post-IPO earnings report less than two months after making its NASDAQ debut in late July. The San Francisco-based luxury consignment site revealed that its revenue for the 3 months ending June 30 was up 51 percent to $71 million compared to this time last year, while its net losses were also on the rise, growing to $26.9 million versus the $18.9 million loss tied to last year’s second quarter.

As for the total value of the pre-owned luxury goods that it sold this quarter – from pricey Hermes Birkin bags and Phoebe Philo for Celine-era wares to buzzy streetwear goods from Supreme and Off-White, it grew to $228.5 million, up 40 percent year-over-year. For the year as a whole, The RealReal expects that it will sell goods valued at nearly $1 billion.

One area of concern for the company, which got its start in 2011 under the watch of founder Julie Wainwright, is department stores. It turns out, department stores are not just dragging fashion brands down, they are harming second-hand retailers, such as The RealReal, as well. According to the Wall Street Journal, “Chief Executive Julie Wainwright said department stores started discounting earlier in the year than they historically had,” thereby, reducing the number of used items purchased on its site and brick-and-mortar outposts in the 3-month period.

That shift, Wainwright says, “hit purchases of pre-owned women’s apparel the most,” and while pricing has recovered, “the pressure could intensify again heading into the holiday season if department stores get desperate.”

The company’s Q2 results come after Wall Street analysists issued optimistic forecasts for the resale pioneer. Cowen analyst Oliver Chen stated in a note to investors last month that “the company’s premium specialization yields a bigger and better customer experience,” and stated that the reseller, which is the largest online luxury resale platform, has key advantages that distinguish it from competitors in the multi-billion dollar luxury resale sphere. Chen pointed to the company’s “advanced supply gathering capabilities and reach;  sophisticated logistics and fulfillment infrastructure and authentication; advanced data analytics; and high sales velocity and sell-through rates” as key points of distinction.

However, not all is on the up-and-up in the fashion tech space. As the WSJ noted, “Last week, shares of RealReal fell nearly 17 percent,” a drop that was spurred, at least in part, by “disappointing results from online luxury retailers Revolve Group Inc. and Farfetch Ltd.”

As Yahoo Finance asserted last week, luxury fashion platform “Farfetch’s second-quarter earnings report, released on Aug. 8, featured another loss, a big acquisition, a decision to limit promotional activity, and a mediocre outlook. It also caused the stock to plunge more than 40% in a single day,” and that was after the post-IPO stock price cut in light of mounting “concerns about its slowing growth and widening losses.”

More than that, there are questions about profitability for the London-based site, which acts as a connector between retailers and consumers without ever holding an inventory. Farfetch, which is not yet profitable, “faces stiff competition from larger e-commerce marketplaces with dedicated luxury marketplaces (like Alibaba’s Tmall Luxury Pavilion) and first-party e-commerce sites from luxury giants like LVMH,” per Yahoo. “Those headwinds could prevent Farfetch from ever achieving profitability.”

This month’s massive stock drop is the latest loss for FarFetch, which lost a key investor in July, when early partner Condé Nast dumped its $293 million stake in company amid what the London Times called “concerns over how the luxury marketplace is being managed.”

Revolve, a millennial-focused retailer, has similarly fared poorly as of late. Despite being one of the summer’s hottest IPOs, Revolve Group lost investors’ confidence this month, with its stock plunging a total of 22 percent  – 15 percent on August 9, alone, in response to its first post-IPO earnings report, which revealed that while revenue was up 22 percent to $161.9 million. Of particular note: its net loss for Q2 amounted a total of $28.1 million, more than double the losses for the same 3-month period last year.

So, what gives? Forbes asserted this week that “while many pundits and operators remain focused on rapidly growing e-commerce revenue, the inconvenient truth is that e-commerce profits have been far more elusive.”

The RealReal seems to be faring best, at least from a stock price perspective. The 8-year old company is similarly not profitable, but its shares rebounding, rising as much as 20 percent to $20.42 in late trading on Tuesday.