Silicon Valley to Luxury Fashion — Subscriptions Galore!

Disclaimer: The opinions in this article are entirely my own and do not reflect investment recommendations.

Imagine if Chanel started a subscription-based service.

A trend that arose from old-school publication houses physically sending magazines to your home has become the dominant model of delivery for major technology platforms. The joke (in the Finance & Tech communities) is that the fastest way to a $1B unicorn valuation is by starting a subscription service. Why wouldn’t luxury fashion want to get a piece of that?

Now before you start thinking about how many Coco Chanel top handles you can squeeze in your closet with a potential subscription service, let’s think a bit on whether it even makes sense for them. Subscriptions (for the most part) are designed to have a bite-size average sale price. From the company’s perspective, this spurs growth for its average monthly revenue, smooths out any volatility (not including the impact of churn), and hopefully increases the longevity of the customer’s relationship with the company.

But how would that work for Chanel?

Luxury fashion prides itself on the exorbitant price tag, justifying the markup on consumers’ supply and demand. It is all about curating that special personalized experience for you as a consumer. For that reason, the entry price for this subscription would have to be massive. It builds upon the exclusivity of the brand. My guess would be an annual double-digit thousands dollar amount to take part in this “VIP” model. For the people that would be vying for this membership, paying the price of a new entry level car on an annual basis would seem acceptable as long as the value-add from the service is there. That can range from access to unreleased off-runway products, invitations to exclusive events, or even just the ability to cut the line for the Birkin bag you’ve been dying to get your hands on. Even calling yourself a subscription holder of Chanel / Hermes / LVMH would grant you instant access to an inner circle of luxury fashion idealists — and let’s be honest, that is the type of curated experience these brands are trying to build for their customers.

Silicon Valley has become comfortable with the subscription-based business model, and it does not seem like it will be going away anytime soon. But a new issue that has popped up for consumers is subscription fatigue, primarily driven by ordering every new subscription box on the street due to pandemic boredom. Depending on how (or if?) the economy trudges through the next year or two, it would not be surprising to see consumers tightening up their finances and cancelling their least used subscriptions. Depending on how the luxury fashion houses roll out their own subscription models, they may not end up seeing the positive results they expected because people are simply becoming tired of this trend.

Much like all the other industries facing pandemic-focused challenges in 2020, innovative re-imagination was at the core of luxury fashion (especially when you think about the frivolity of a $10k Fendi bag selling out in light of a global pandemic). With in-person fashion shows taking on a new digitized format and some brands adjusting their fashion calendars to fewer seasons, it is now more important than ever to evolve and adapt to a different kind of service that provides the utmost exclusivity to customers and makes them feel truly luxurious.

Shifting to a subscription-based model could be an initial step into transforming the way luxury fashion does business.