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Madaluxe records record results as it proves “trust is the new luxe”

Madaluxe

Madaluxe was created by Adam Freede and Sandy Sholl (pictured above) in 1990 and has grown to become one of the largest distributors of luxury eyewear, handbags, watches and footwear in the United States. Mr Freede took the helm as president of the company in 2010 and, under his leadership, the group has become the Americas’ largest distributor of luxury fashion and accessories. 2020 ought to have been a massive celebration of its 30th anniversary until Covid struck, but the business has not only survived the crisis, it has rapidly adapted and is on course for a record financial year.  How has the company done it? Rob Corder spoke to Mr Freede to find out.

While Madaluxe describes itself as the largest wholesaler of luxury goods in the Americas, that might depend on your definition of a wholesaler, because global giants like LVMH, Kering and Richemont run their own vast distribution operations, but Madaluxe also works with each of these groups, and many others, across categories including eyewear, handbags, watches and footwear.

For some clients, the group handles distribution of off-price merchandise — fashion lines that are a season or two old selling into the likes of Saks off Fifth and Nordstrom Rack — for others it is current collections selling at full price.

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Madaluxe Group headquarters in Los Angeles.

For its watches business, Madaluxe Time, is the exclusive distributor of new collections for Timex Luxury Group brands Versace, Salvatore Ferragamo, CT Scuderia, Teslar, Versus Versace and, from October, Missoni. It is also the licensee for watches for LVMH’s Fendi brand.

The group is also diversified globally, with customers in every continent, and has its own direct to consumer retail operation in the United States. “We are a well-diversified, multi-faceted, luxury distribution platform. Our two greatest strategic advantages are the depth of our supply and the breadth of our distribution. Behind that is the strategic know how and the tactical knowledge to execute, but these two pillars are what we build the success of the company around,” Adam Freede, Madaluxe Group CEO tells WatchPro.

“We have been building our retailer and supplier network for a long time and, fortunately, we have built a great team of leaders across the company. And we have continued to build our platform across different categories and with a wide range of maisons and brands across the globe. Our distribution is across brick and mortar, digital, wholesale, retail, domestic and international, which gives us great diversity at times like this year,” he adds.

When retailers across the world were forced to close their doors during the covid quarter, Madaluxe was able to weather the storm by increasing its direct to consumer ecommerce sales and offering drop shipments to retail partners that were also looking to turbocharge digital sales.

Adam Freede.

Its own ecommerce sales increased by 500% at the height of the Covid-19 pandemic from March to July. “We immediately turned more attention to and honed in on our e-commerce site, MadaLuxeVault.com, at the start of the pandemic, when luxury consumers first began to shift online in large numbers. We moved very quickly to accommodate our customers with the same level of service online that they were used to receiving in-store, and our efforts have proven successful. Not only have our net sales increased by five times, but the number of sessions, new users and order volume on our ecommerce site have risen every month since March,” Mr Freede describes. “Our business has doubled in size from 2018 to this year, despite the pandemic,” he adds.

Not that navigating the covid crisis was plain sailing. “The first thing we faced, like any company, was uncertainty,” Mr Freede recalls when asked about the very early days of the pandemic. “None of us had any experience or history to fall back on in this situation. In one way our size worked to our advantage. We are not a multi-billion dollar firm, so we had the flexibility and agility to survive and repositioning ourselves to emerge from the pandemic even stronger.”

Madaluxe’s diversity became a major asset during the economic slump of Q2, in part because it is an expert in both buying and selling stock with its retail partners. “We have a unique business model where a couple of our divisions are focused on opportunistic plays where we buy excess inventories and global stock. Because we are a global company, we had the ability to purchase from around the world. We have been going through a unique time. This was not just a recession in the US and Europe, this was a forced shutdown for 90 to 120 days across retail. That opened up a lot of opportunity for us,” Mr Freede describes.

Buying excess stock at a time when nobody knew how long the shutdown would last is not for the faint-hearted, but fortune favors the brave, and Madaluxe saw opportunity as stores were shuttered and global supply chains froze. The group was prepared for a downturn, its team was ready to support partners looking to liquidate stock, and it had the cash.

“Heading into the pandemic, we were financially strong. We had a nice balance sheet and strong cash position, and we had already been getting into position strategically for the next recession in America. We felt that coming because there had already been a long period of consecutive quarters of growth. Sooner or later that would end and out positioning in preparation put us in a strong position coming into the pandemic,” Mr Freede explains. “The way our business is set up, we do great in recessions and in boom times. It is only stagnant times that we don’t like.”

Call it luck or good judgement, Mr Freede and his team were ready for a land grab while everybody around them were in retreat.

“After the first 30 days, which was miserable for every CEO, we started to see more certainty of what the new world would look like and we got aggressive quickly. While other companies were gun-shy or shutting down divisions, we did not shut down anything, we didn’t make a single person redundant and we did not furlough anybody or cut any salaries. In fact, we have been hiring,” he reveals. “I would have to say that it has been the proudest achievement as a CEO in my career to-date that we were able to keep our team together in that way. It is a great feeling, especially when you love the people you work with like I do,” he adds.

The off-price market is all about buying low and selling high, and the pandemic certainly created huge opportunities to buy excess inventories with unprecedented potential profit margins. However, Madaluxe was not just cashing-in on other people’s misery, it was also helping its retail partners ramp up their own ecommerce operations.

Plus, its full price timepiece business was booming because the brands it represents are hugely valued household names and their watches offered a cathartic hit of luxury during the darkest days of the pandemic.

Versace Watches.

“Part of our business is not in distressed stock. We are a traditional luxury distributor as well. What is shocking, even in our timepiece business, which is full price, is that we are going to hit the 2020 forecast we signed off before the pandemic and we are up from 2019 on the full price side. Candidly, I will tell you that is the single-greatest surprise across our business,” Mr Freede reveals.

It should not be too much of a surprise that Madaluxe was able to help its retail partners rapidly ramp up their ecommerce operations, because the hard work of establishing systems with those partners was already done. This allowed stores to offer watches from the likes of Fendi, Versace, Salvatore Ferragamo without having to tie up any cash in buying stock.

Drop shipping became a lifeline for both the retailers and for Madaluxe. The retailer would market and sell a $1,000 watch online, the order would alert Madaluxe, which picked and shipped the item directly to the customer from its own hub. Since customers were unable to shop in physical stores, they kept spending online, often with their local jewelers, and this helped them sell through stock that they had bought and paid for.

Salvatore Ferragamo’s Evolution watch.

“Drop-shipping meant our sales increased significantly during lock down, and then retailers started fulfilling orders from their own stores, so they cleaned up all their inventory as well and we restocked them,” Mr Freede says. “Because we are so integrated with these retailers, our sales grew by 40, 50, 60% with our retail partners while they were simultaneously purging all their inventory from their stores. We came out of Covid with all of our retailers reporting the leanest inventory levels for some time. Now they are restocking ahead of the holiday season so we are in a very healthy place,” he smiles.

Now that stores are open in the vast majority of US states, business is starting to settle into a new normal. From the vantage point of Madaluxe, it is clear that consumer spending habits have changed, perhaps forever. Conversion rates are through the roof, Mr Freede says, referring to the ratio between people who visit a store and those that actually buy something, and they are generally spending more.

“Traffic to stores is down, but people who are going to shop are going with much greater intent,” he tells WatchPro in September. “Conversion is way up and, when people go into stores, they want to buy something that makes them feel good. If they need a new pair of socks, they are going to buy that online at Amazon. But when they go to stores, they want it to count by spending on luxuries like timepieces, handbags and footwear. That is great for our business.”

There is also strong anecdotal evidence that households were hoarding cash that would have been spent on holidays or other experiences during normal times, and splurged it on treats for themselves as they emerge blinking into the light. “I would say there are people out there with a lot more spare cash than they might have had if they were still eating out three times per week. In a situation like we have in Southern California where we are still not allowed to eat indoors at restaurants, disposable income for other treats is going up,” Mr Freede agrees.

“Buying expensive watches, particularly for men, is probably one of the most experiential shopping experiences of any category. It is one of the few expensive things we wear that we really care about, so that sort of in-store shopping is going to hold up,” he predicts.

Although economic and social activity is increasing, we are still far from business as usual in the United States, but there are some fundamentals that have not only survived the pandemic, they have been reinforced. One of those is the importance of long term relationships and professionalism between individuals and companies. “I believe that trust is the new luxury. Trust in your friends around you, your family. That extends to relationships between brands and consumers. Luxury brands do that better than any other brands on the planet. They have heritage, quality and trust with their consumers. I see that getting even stronger,” Mr Freede suggests.

And what does the new normal look like for Madaluxe?

“I see massive opportunities in the next 18 months to buy companies and expand. We are seeing a lot of companies going out of business, but the pie is not shrinking overall. Just the amount of people sharing the pie is getting smaller. The strong on the wholesale and retail side will increase market share, they will be creative and entrepreneurial, and these are the companies that will expand, acquire and forge ahead,” Mr Freede predicts, and Madaluxe is proving to be among the strongest.

Madaluxe on a mission with Missoni

Timex Luxury Group has started making watches under license from Italian fashion house Missoni, and Madaluxe Time will be handling distribution for the brand, and will be presenting them to retailers this month.

Timex Luxury makes its watches in Switzerland, and the company’s president and chief executive Paolo Marai told WatchPro in May that Missoni watches will sell in a range of $540 to $2,395.

There will be men’s and ladies’ models, mechanical watches and quartz, and the range will pick up on the heritage and design DNA of Missoni.

The first watches unveiled are the Missoni M331 collection, a range of versatile pieces which embody Missoni’s vision for luxury, contemporary sportswear.

Featuring either a comfortable natural rubber strap with the Missoni lettering or the iconic Wave bracelet, these creations have the indefinable duality of tapping into that particular holiday sensibility of Italian island life and chic city living.

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Rob Corder

The author Rob Corder