Right Brain, Left Brain | Learning from Luxup

LONDON, United Kingdom -- I first met the Luxup team early last year, as their idea for a start-up focused on fast-growing emerging markets was just taking shape. We had several interesting discussions and the team assembled was impressive, including editorial director Harriet Quick, formerly of British Vogue, commercial director Averyl Oates, formerly of Harvey Nichols, and creative director Phil Poynter, a highly respected photographer and art director. I was also impressed with James Corsellis, Luxup's affable co-founder and joint chief executive, already a successful entrepreneur in his own right, having exited several other businesses, albeit ones outside the luxury sector.

But it was not to be. In an announcement last week, Luxup said it would cease trading to evaluate its strategic options. Many of the employees, including some of the top management, have reportedly lost their jobs. This was a rapid turn of events for a company that had first taken its idea to market last May.

In a press release to coincide with the company's launch, Luxup was billed as "a unique invitation-only club for international travellers with a love of shopping for luxury brands." It went on to aptly point out that "tourist spend is one of the key sources of growth in the UK luxury goods market, currently accounting for more than 25 percent of spending, with forecasts predicting travel spend to contribute 75 percent of luxury growth in Europe by 2015," primarily from tourists coming from the China and the Asia-Pacific region.

There was just one problem. It was hard to understand what Luxup's core business proposition was. So, when the news that Luxup had ceased trading began to circulate amongst the fashion community in Paris late last week, a common observation was that Luxup's concept was unclear. Even if the market opportunity it was going after was buoyant, and the team that was building the company was highly-qualified, nobody outside the company really seemed to understand how it would all work.

Was Luxup a digital coupon business that gave high-net-worth tourists access to in-store discounts at luxury stores? Was it a club to inform and educate emerging market consumers about luxury shopping on their travels to Europe and North America?  Was it an e-commerce play for brands to connect with high-net-worth consumers? All of the above? Nobody was really quite sure.

There may have been other challenges, as well. Senior Chinese luxury executives said to me that the business model was culturally flawed. The Chinese, they said, would be unwilling to make payments in advance for products that they had yet to see, as was required by Luxup's business model. Sure they would like luxury discounts and access to exclusive products, but according to these experts, it would be almost impossible to get Chinese consumers to lay out their cash in advance, no matter what you offered them in return, especially if they weren't sure they were going to find anything in the store to buy.

Finally, Luxup seemed to take on a very significant cost base, very quickly. Offices were opened in London, Hong Kong and New York. Reportedly more than fifty people were hired as employees or advisors. The technology platform and products were developed without really testing the market. As such, the burn rate of the business was apparently too high for the management to find time to pivot to a workable strategy within the current funding base.

The official comment from Luxup last week was that the company is "restructuring the operations of the organisation and reviewing strategic options." The company's "website luxup.com will not be transactional during this period of refinement," the company said.

Lessons learned?

First, if you can't summarise your business concept in a way that all of your constituencies can understand easily, in one sentence, then go back to the drawing board and distill further. Second, ensure your business model fits with the cultural norms of your target market. And third, test your product and proposition as much as possible, before investing heavily in people and technology. Once those investments are made, there ain't no going back.

Reached in London today, Mark Watts, co-founder and joint chief-executive of Luxup said he was limited in what he could say about Luxup's plans for the future due to regulatory requirements and a desire not to scupper the on-going restructuring process. But Mr Watts asserted "that the service and profile of the business has been well accepted by brand partners and consumers," while acknowledging that Luxup "will have to fast-forward on [its] ability to acquire customers."

As to whether the underlying business proposition is viable, Mr Watts said that "as a start-up you need to refine the proposition as you go along, and certainly our proposition has not been static up until now," apparently leaving room for a business pivot for Luxup in the months to come.