Luxury conglomerate LVMH is in discussions with TikTok and its parent company ByteDance Ltd. on a plan for limiting counterfeit products sold on the popular video-sharing app.

The aim is to work together to achieve an “elevated shopping experience” as TikTok expands its marketplace globally, said Toto Haba, senior vice president of global omni-marketing for Benefit Cosmetics, a beauty brand owned by LVMH, Europe’s largest luxury company.

The parent group also includes 74 other brands such as Louis Vuitton, Christian Dior, Givenchy, Tiffany & Co. and TAG Heuer. The luxury group has an agreement in place with Alibaba Group Holding Ltd. to fight fake goods on its online Tmall marketplace, Haba said.

The deal could be a major move to help TikTok Shop’s reputation among brands and shoppers in key new markets. The company fully launched shopping in the US last year and already has ambitious targets, aiming to increase the size of its American e-commerce business 10-fold to as much as $17.5 billion in 2024, Bloomberg has reported, according to people familiar with the matter.

A TikTok spokesperson declined to comment.

Online marketplaces like Amazon.com Inc., JD.com and Alibaba’s Tmall have long seen sellers hawking counterfeit products at very low prices, combating them with varying degrees of success. Such products deceive customers into paying for something inauthentic and deter brands from selling on the platform that hosts them because it can erode the value of the real product.

“It’s important for us to guard our IP” on TikTok Shop, Haba said. The company is already flagging suspicious-looking Benefit-branded products to the company. “TikTok and ByteDance seem much more willing to talk with us on that and set the right guardrails.”

In the US, TikTok Shop works as an integrated part of the social media app’s video feed — with select users and brands able to tag and sell products through their videos — and in a designated tab that looks more like a typical e-commerce site. In the first holiday shopping season for the effort, 150,000 merchants and creators posted videos during the month, including Black Friday and Cyber Monday, TikTok has said, leading to more than 5 million new customers.

There are a number of large brands like Benefit or fashion retailer Revolve that have been quick to sell on the app in the US, but many others have been slower to join the commerce operation.

Third-party sellers can list items that they don’t personally produce, sometimes at discount prices that can raise questions about whether the product is real, Bloomberg reported in September.

Pre-owned items are also sold. Take Louis Vuitton: The LVMH brand has a verified TikTok account and posts videos, but doesn’t list its own products. However, products labeled as Louis Vuitton still appear on the marketplace for US users. A search for the correct spelling of the brand name surfaces only one wallet that bears the brand name in the item description and a slew of non-branded handbags and other products. If you misspell the brand, using “Luis” instead, dozens of bags described as pre-owned appear on the TikTok Shop.

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Why Luxury’s Counterfeit Problem Is Getting Worse

It’s easier than ever for consumers to buy fakes online. But the spike in counterfeit sales may also have something to do with how brands themselves are pricing and marketing their products.

For fashion’s long-suffering start-ups, 2024 may be the year the money starts flowing again.

Menswear brand True Classic, for instance, has hired investment bank Moelis to prepare a pitch deck to present to potential acquirers — including private equity firms and retailers like Amazon — this summer, True Classic’s co-founder and chief executive Ryan Bartlett told BoF. The company, which ended 2023 with a 40 percent year-over-year sales increase to $207 million, is aiming for a $1 billion valuation.

True Classic’s plan is an optimistic departure from the uncertain economic climate and high inflation that brought forth a reckoning for buzzy but unprofitable e-commerce companies last year. Brands and retailers struggled to raise new funding to paper over losses as interest rates reached their highest point in over two decades.

Some ran out of cash. Gen-Z intimates brand Parade sold in an August deal that wiped out equity for its shareholders. Luxury e-tailer Farfetch found itself in a similar situation when it received a $500 million bailout loan from South Korean e-commerce giant Coupang in December, while that same month, Farfetch competitor Matches narrowly escaped bankruptcy, selling to UK retail company Frasers Group. Loungewear maker Lunya wasn’t so lucky, filing for Chapter 11 bankruptcy in June, while children’s apparel label Zulily announced it would shut down in December. Strategics sold off once-prized DTC assets rather than throw good money after bad, with Unilever disposing of Dollar Shave Club, which it purchased for $1 billion in 2016, while Walmart offloaded menswear label Bonobos and plus-sized fashion brand Eloquii in April.

Investors expect to see more fire sales and bankruptcies in 2024. Activewear retailer Bandier said in December it is looking for a buyer to avoid bankruptcy. The Wall Street Journal reported that apparel holding company IHL Group is in talks to purchase influencer Arielle Charnas’ clothing line Something Navy for just $1.

But the beleaguered category might be turning a corner. The economy is improving: retail sales rose 4 percent in November, and consumer sentiment increased 14 percent month over month in December, according to data from the University of Michigan. The Federal Reserve is expected to cut interest rates this year, which lowers borrowing costs and sends encouraging signals to venture capital funds that have largely steered clear of risky fashion investments since 2022. A few of the sector’s biggest names, including Shein, Skims and Vuori, are reportedly planning initial public offerings.

Investors say such conditions could clear the way for a wave of funding, acquisitions and IPOs. Few are predicting a return to the sky-high valuations of 2021, but on balance, the news is likely to be less grim in 2024, particularly for start-ups that are already profitable. For example, in 2023, True Classic’s EBITDA profits ballooned to $19 million, from $4.5 million a year earlier.

“There’s a lot of great brands out there that have not wanted to pursue a [deal],” said Brandon Yoshimura, a director at investment bank Solomon Partners. “They … are probably well positioned to test the market once things are better.”

The New Rules of Fundraising

Venture capitalists soured on money-losing DTC brands in 2023, but in 2024, investors are prepared to start writing cheques once again — only this time, they’ll be focussing on brands with a clear path to profitability, such as those investing in retail partnerships.

The fragrance brand Snif, which launched in 2020, was able to secure an undisclosed sum in early 2023, when funding had all but dried-up for consumer brands, because it went to its existing investors with a plan to launch into Ulta Beauty. That partnership helped Snif double sales in 2023 to over $10 million. The higher sales volume also reduced operating costs like packaging supplies, which improved gross margins. This year, the brand expects to double sales again and has its sights on becoming cash flow positive by the end of the year.

To help reach these goals, Snif plans to raise a Series A round to fund new marketing strategies within its existing retail partners, such as a sampling program in Ulta. The brand also wants to enter more retailers and launch new categories, like scented hand and body creams. In preparation for the upcoming raise, Snif began conversations with like-minded venture firms last year, sending them quarterly business updates for the last eight months.

Ultimately, Bryan Edwards, Snif’s co-founder and co-chief executive, hopes the Series A will be its final fundraise, with future growth funded by its own cash generation. The expectation is that profit generation with the least amount of investment capital will set the tone for a favourable exit down the line.

“There is a next generation of digital businesses that have been built upon the learnings of the first generation,” Yoshimura said. “They’ve learned from that cohort in terms of outcomes, exits, successes and failures, and the businesses that are being built now look completely different.”

Negotiating Power

For more mature start-ups seeking an exit, the landscape is likely to be friendlier in 2024 than it was in 2023 — as long as they have the numbers needed.

Accessories brand Dagne Dover, which currently has a revenue run rate around $100 million, EBITDA profit margins just below 10 percent and more than 70 percent of its sales are done at full-price, held conversations with acquirers and bankers in 2023 to establish relationships, according to co-founder and chief executive Melissa Mash.

Dagne Dover expects a valuation as much as seven times its revenue based on exits at similarly-sized beauty brands, and plans to resume talks this summer.

Some companies are exploring options beyond an outright sale. Digitally native made-to-measure apparel brand Knot Standard, which generates around $15 million in annual sales and broke even for the first time in 2023, for example, is exploring strategic partnerships, such as joining forces with a similarly sized brand that will maximise profits for both companies, according to a person with direct knowledge of the matter.

But companies that have the necessary financials to make these moves also have the ability to be more selective. Dagne Dover, for instance, wants an acquirer that can help it grow sales tenfold, but it doesn’t want to ink a deal that would disrupt its company’s culture. It also isn’t banking on securing an exit this year.

“We’re not looking to ever sell this company and then have the founders leave and move on to something else,” said Deepa Gandhi, Dagne Dover’s co-founder and chief operating officer. The company would look for “a partner that can help truly expedite and find a lot of synergies to take us to a billion dollar brand.”

True Classic is also prepared to postpone its exit plans if it is unable to secure its preferred valuation and desired terms, such as keeping its existing team on board.

“We’re not in a rush,” Bartlett said. “It’s really got to be the right partner. It’s not just about the right check.”

Maybe the American consumer isn’t done shopping after all.

Earlier this week, mall chains Abercrombie & Fitch and American Eagle Outfitters lifted their fourth-quarter sales guidance based on early indication of strong demand for their winter assortment.

The upgrades upended conventional wisdom that a post-pandemic spending boom was coming to an end, as rising levels of credit card debt and higher prices left less to spend at the mall. Instead, Abercrombie, which also owns the teen brand Hollister, said it expects fourth-quarter sales to grow in the high teens from a year earlier, while American Eagle said revenue in the period rose about 8 percent. Lululemon also recently raised its forecast for holiday results.

Those companies are outliers in some ways: sales at clothing and accessories stores fell by 0.4 percent in December from the previous month, data from the National Retail Federation shows. Nike, Levi’s and Coach-owner Tapestry are among retailers that slashed their sales estimates this year.

The success of Abercrombie and American Eagle in navigating a tricky holiday season is proof that even during a spending pullback, the right merchandise – in this case, baggy pants, activewear and, for Abercrombie, a viral sweatshirt – can still draw shoppers. Just as critically, the two retailers have built nimble supply chains that ensure the right products are in stock when they’re hot, with little left over once fickle teen shoppers move on to the next trend.

“We’re in a period where some [retailers] are doing well and others aren’t,” said Dylan Carden, retail analyst at William Blair, adding that retailers like Abercrombie are doing well “because they’ve gotten the product right.”

Big Pants Energy

If there’s a singular style that young consumers can’t get enough of, it’d be baggy pants, according to Rebecca Duval, retail analyst at BlueFin Research.

In its third-quarter earnings call, Abercrombie highlighted its expansion in the bottoms business — specifically non-denim pants. American Eagle Outfitters also noted strong performance in its new bottom styles in the third quarter, which included “twills, cargoes and wider legs,” said Jennifer Foyle, president and executive creative director at the company.

The wide-leg silhouette is hardly new in the fashion cycle. Skinny jeans were first unseated as the reigning top denim style in 2021, while the Y2K trend — which gave rise to cargo pants and low-rise jeans — has influenced mainstream fashion since the late 2010s. However, the popularity of loose bottoms reached new heights last year amid the quiet luxury craze, in which trousers became one of the most coveted styles on TikTok and beyond.

It takes time for new trends to trickle to the mainstream; while early adopters in fashion capitals like New York and Paris may have long donned baggy pants, the bottoms reset has finally reached the masses in recent months. This has been a boon to retailers like Hollsiter and American Eagle, according to Duval.

“The teens are just loving it, and it’s catching fire very quickly,” she said. “On top of that, when you have new bottoms silhouettes, people tend to buy new tops as well. That’s not the case vice versa.”

Both Abercrombie and American Eagle also benefited from their respective entries into the activewear category. American Eagle’s Aerie brand launched its own active sub-brand, Offline, in 2020. Its V-waisted leggings have been a best seller since 2021, while Abercrombie went viral last fall for a camouflage-printed hoodie.

Supply Chain Agility

Both Abercrombie and American Eagle operate vertically, meaning they own their manufacturing process and sell clothes through their own stores, rather than wholesale.

This has allowed them to quickly identify when a product takes off, and then order more. That increases sales while limiting the chances they’ll be stuck with unsold merchandise at the end of a season that must be discounted. Its viral camouflage hoodie, for instance, sold out through multiple drops, according to fans on TikTok. It’s currently available in only one size.

“Abercrombie is almost willing to miss a sale in favour of margins,” said Carden. “Their whole strategy is X’s and O’s — being conservative and yielding focus on inventory. A lot of unsexy stuff.”

In addition to building out an efficient supply chain, Abercrombie & Fitch, which saw its stock more than triple in value in 2023, has been able to grow its customer base and mature alongside its Millennial customers. Hollister, meanwhile, remains firmly rooted in teen fashion.

“When Fran [Horowitz] came in [as CEO] in 2017, one of the first things she did was distinguish the two brands by ageing up Abercrombie,” said Carden. “There’s a broader customer segment here now than [in the past] for Abercrombie.”

Abercrombie has also gained a new audience among Black consumers, a group that used to be alienated by the old Abercrombie brand, according to Duval. In a November earnings call, Horowitz underscored a recent collection with Harlem’s Fashion Row designer Nicole Benefield for resonating with new and existing customers online and on social media.

Walmart Inc. opened up access to a generative artificial intelligence tool that allows shoppers to search for products by specific use cases, rather than look up one item at a time.

The technology is now available for use on the Walmart app on Apple Inc.’s iOS mobile operating system, the world’s largest retailer said in a statement Tuesday at the Consumer Electronics Show in Las Vegas. Walmart previously released the tool as a beta test in November.

The search using generative AI — a technology that allows users to more quickly create text, speech and images — lets a shopper look for a specific theme or idea and returns products and items across a range of relevant categories. Asking for help with a football watch party, for example, could yield recommendations for crisps, wings, drinks and a widescreen TV.

The tool is built using a range of large language models, including Microsoft Corp.’s Azure OpenAI Service. The cloud-based platform offers OpenAI’s models to Microsoft’s commercial customers.

Walmart and other US retailers have been expanding generative-AI tools, seeking to engage better with customers and drive growth.

Walmart’s broader online business has been a growth engine, outpacing those of many other retailers. The Bentonville, Arkansas-based company has been investing in automation at warehouses and revamped its website and app last year, though it cut jobs at e-commerce hubs last year. While the retail giant’s overall sales have been rising, it has been more cautious recently about consumer spending amid high interest rates and declining savings.

The big-box company is exhibiting on the CES showroom floor for the first time with a 7,000-square-foot display. CEO Doug McMillon and other Walmart executives delivered a keynote speech Tuesday on the technology efforts, with Microsoft CEO Satya Nadella joining McMillon for part of the session.

Walmart also touted a global rollout of a generative-AI tool for its workforce. Introduced in August, My Assistant can help Walmart staff to generate document drafts and summarize large documents. The retailer will make the tool available in 11 countries, in the native languages for those markets.

Sam’s Club, Walmart’s membership warehouse chain and rival to Costco Wholesale Corp., demonstrated an AI and computer-vision technology to scan shoppers’ carts as they leave the store. The system compares a cart’s contents against the transaction receipt, eliminating the need for human checks at the door.

Away from AI and software, Walmart is also expanding its technology footprint in the real world. The company is boosting its drone deliveries to 1.8 million additional households in Dallas-Fort Worth. The expanded service, employing tech from drone companies Wing and Zipline, will now cover 75 percent of the metropolitan area and is up from serving just 60,000 homes when it launched in August.

By Ed Ludlow and Jaewon Kang

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