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.

Rothy’s – the footwear startup that sold more than 1 million of its signature ballet flats last year – has “placed a cloud over Steve Madden’s rights to continue producing and selling its [own] ballet flats,” and the New York-based giant is not going down without a fight. On the heels of settling a suit centering on the design of Cult Gaia’s popular Ark bag, Steve Madden is taking on Rothy’s after receiving a cease and desist letter from the brand in connection with lookalike footwear that it is offering for sale.

According to the complaint that it filed in a Delaware federal court on Monday, Steve Madden claims that on August 2, legal counsel for Rothy’s sent it a cease and desist letter, threatening legal action over Madden’s alleged “acts of patent infringement, federal trade dress infringement, dilution and misappropriation,” just as Rothy’s has done to “multiple other companies” in the past.

In at least two of those prior instances, Madden claims that Rothy’s proceeded by filing suit against  other companies “for virtually the same alleged patent and trademark infringement as Rothy’s has alleged against Steve Madden,” thereby, giving rise to “a reasonable apprehension of litigation” in the situation at hand.

With that in mind, Madden has asked the U.S. District Court for the District of Delaware to clear up any uncertainty and declare that it is not infringing Rothy’s rights by way of its Rosy Flat, which Rothy’s calls “a slavish copy” of its “The Point” ballet flat, and asserts that “an ordinary observer would be deceived into believing that [Madden’s Rosy flats] are the same as Rothy’s The Point design.”

 Rote’s The Point flat (left) & Steve Madden’s Rosy flat (right) Rote’s The Point flat (left) & Steve Madden’s Rosy flat (right)

More than that, Steve Madden wants the court to determine that the trade dress that Rothy’s referenced in its cease and desist letter is invalid because “all elements of the trade dress asserted by Rothy’s are functional,” which is a bar to trademark protection, and that the trade dress “is not distinctive and has not acquired secondary meaning.” In fact, Madden argues that Rothy’s asserted trade dress – a subset of trademark law that provides protection for the appearance of a product – is strikingly similar to numerous other ballet flats that have long been sold in the marketplace,” meaning that it will be difficult, if not impossible, for consumers to link the design to a single source as required for trademark protection.

Since it was launched in 2016 by gallerist Roth Martin and investment banker Stephen Hawthornthwaite, San Francisco-based Rothy’s has amassed what CNBC calls “an almost cult-like following” in connection with its shoes, which range in price from $125 to $165 and are made entirely from used materials like recycled water bottles. Produced using a “proprietary 3D knitting process,” Rothy’s and its ballet flats, loafers, and casual sneakers have caught the eyes of venture funds and Goldman Sachs, the latter of which poured $35 million into the burgeoning young brand last year, bringing its total funding to $42 million over the past few years.

In 2018, alone, Rothy’s sold more than 1 million pairs of shoes, and generated annual revenue of more than $140 million, but not without its fair share of copycats. “Somewhat ironically, one of the biggest threats to Rothy’s ongoing rise — other than fickle shoppers — is companies that are beginning to copy Rothy’s [relatively simple] designs,” TechCrunch noted last year.

Rothy’s President and COO Kerry Cooper told TFL in a statement on Tuesday, “We can’t comment on pending legal matters, but we are and will continue to vigorously defend Rothy’s intellectual property. Rothy’s currently holds 42 patents, with 39 patents still pending.”

*The case is Steven Madden LTD. v. Rothy’s, Inc., 1:19-CV-01509 (D. Del.). 

LVMH Moët Hennessy Louis Vuitton posted boosted second quarter revenue results this week, with its total sales for the latest 3-month period “lifted by accelerating momentum in its fashion and handbag division, including from its standout Louis Vuitton and Christian Dior mega-brands,” as well as its roughly 70 other brands, which range from fashion and cosmetics brands to spirits companies and real estate ventures.

Second quarter sales for the Bernard Arnault-chaired luxury goods conglomerate, which is the largest in the world, rose 15 percent to $13.93 billion, 5 percent greater than analysts’ expectations for the period. The Fashion & Leather Goods group, in particular, recorded organic revenue growth of 18 percent, with “Louis Vuitton achieving remarkable growth in all its businesses and in all regions,” according to a statement from LVMH. It also noted that “Louis Vuitton’s profitability remains at an exceptional level, while continuing its robust investment policy.”

LVMH’s Financial Director Jean-Jacques Guiony, pointed to the group’s marquee brand’s “temporary pop-up stores [as helping to boost] consumer interest.” Guiony also name-checked DJ-slash-designer Virgil Abloh, who has courted young consumers’ attention, and helped Louis Vuitton grow its menswear lines.

Meanwhile, its Christian Dior brand, which Reuters estimates is less than a third of Vuitton’s size, was one of the standouts of the second quarter, with sales growth exceeding the 20 percent of the broader fashion and leather goods unit.

The publication noted that LVMH owes much of its “momentum to attempts to attract young shoppers with novel marketing techniques, investments in e-commerce and a shake-up in their products and designs.” This is compounded by what Guiony calls “a noticeable improvement between the first quarter and the second quarter” in terms of Chinese demand.

The group also pointed to “rapid progress of LVMH’s perfumes and cosmetics flagship brands,” the latter of which includes its Fenty Beauty joint venture with music mega-star Rihanna. Specifically addressing the star’s venture, which “will intensify its efforts to gain market share in Asia,” LVMH asserted that it “reaped the benefits of a very extensive innovation plan, reaffirmed its success in new categories, including a lineup of concealers available in 50 different shades, bronzers, setting powders and lip glosses, and continued its strong social media campaign.”

Given the ever-growing beauty market, particularly amongst millennial and Gen-Z consumers, LVMH-owned multi-bread beauty retailer “Sephora’s strong revenue growth in stores and online” was also of note.

For the first fiscal half of the year as a whole, a period that ended on June 30, the group saw sales of $28.01 billion.