It was delivering on the story of soaring – and profitable – growth as cashed-up pandemic consumers grew comfortable buying luxury fashion online. But its Cinderella story contrasted starkly with failing rivals such as FarFetch in a sector surviving on low profit margins. The success story came under significant pressure early this year when reports started questioning how Cettire was actually making money.
Cettire's reclusive founder, Dean Mintz is buying shares again, but at a fraction of the prices he recently sold. Duty arbitrage was nominated as a culprit for its success. Selling online – and mostly outside the European Union – means Cettire can exploit loopholes in trade regulations that would otherwise require it to pay value-added tax (VAT) in the EU, or duty on goods delivered to the US, which is its largest source of business.
But controversy raged over reported discrepancies in what duties it charged customers and how much of this was actually paid to the authorities – especially in the US, its major market. Was Cettire making money by charging customers duties that were then pocketed? In its response to the allegations, Cettire said: "All applicable duties and other import charges are paid to the relevant authorities at the point of customs clearance." It denied it was overcharging customers.
But Cettire made a key change in no longer separating out what it charged customers for duties. A shock downgrade in June, which halved Cettire's share price, confirmed that the retailer was no longer defying gravity in a market flooded with discounting by the group's rivals on one side – and softening consumer demand on the other. It didn't help that this coincided with scrutiny of its duty payments, raising doubts as to which was to blame.
Then came last month's financial results. Its shares plunged back to multi-year lows after it failed to get its financial accounts audited due to revenue recognition issues. It barely made money for the June quarter and.
.. Colin Kruger.
