👉 Background: Cettire was founded back in 2017 in Australia and positions itself a luxury online fashion retailer. In fact, Cettire stocks more than 500,000 products a year from more than 2,500 luxury brands. We're talking Gucci loafers, Saint Laurent clutches and lots more luxury. It grew its business by offering luxury goods at low(er) prices operating in the grey market - in other words, it sources luxury products from outside traditional brand channels.

‍👉 What happened: Now, Cettire has reported a real ugly quarter after its sales landed at $260 million - basically unchanged from last year. But the biggest hit was to Cettire's profit (or lack thereof). In fact, it suffered its first loss in three years and copped $4.7 million loss for the March quarter.

‍👉 What else: At its peak, Cettire, which is listed on the ASX, was valued at almost $2 billion. But now, its share price has lost more than 90% of that value, sitting at less than $200 million — a big fall from the glory years. The main reason for the fall? Cettire is copping margin compression everywhere.

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‍What's the key learning?

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‍💡Margin compression is what happens when a business's costs rise faster than its revenues. For Cettire, it’s the worst of both retail worlds: costs are up, revenues are flat, and discounts are hurting its profits.

💡On the costs side, Cettire has suffered from increased tariffs, foreign exchange losses and higher logistics costs. And on the revenue side, Cettire has been forced to aggressively discount to move its luxury goods. That means even when Cettire do make a sale, they’re earning less profit from it.

💡Margin compression is a major red flag for investors because it shows that the business is either losing its pricing power or can't control its costs. And, in retail post-COVID, it’s not about growth at all costs, it’s about sustainable profits. So it’s no surprise Cettire share price copped a 25% drop last week.