If you spend time shopping for high-end fashion online, you may have already purchased something from Farfetch, which bills itself as the world’s largest digital luxury marketplace. The site offers clothing from a huge library of brands – more than 3,500, he says – including big names like Gucci, Prada and Saint Laurent, and niche designers like Budapest-based Nanushka.
As large as this market is, it is only part of Farfetch’s ambition. As founder and CEO José Neves told analysts on an earnings conference call in February, the company’s goal is to be “an operating system and a digital tool for all of us. the global luxury industry ”.
What is Farfetch?
Neves, a Portuguese entrepreneur, started Farfetch in 2008 to allow small fashion boutiques around the world to put their products online without having to create and manage their own e-commerce sites. Farfetch’s valuable accessory was that it would do the job for them: a small boutique in Antwerp could buy items from a designer brand, then Farfetch would photograph the clothes and list them in their market. When a sale occurred, the store shipped directly to the customer and Farfetch received a commission, thus avoiding the risks associated with the inventory itself. The concept worked, catching Farfetch a valuation of $ 1 billion by 2015.
Since then, the company has set itself increasingly ambitious goals: not only to sell more products to global buyers, but also to add companies to its portfolio, provide more services to fashion companies and work directly with big brands. . Farfetch now offers what it calls Farfetch Platform Solutions (FPS), a suite of products that allow businesses to run their own branded websites, iOS apps, and even stores on WeChat, the huge Chinese messaging network, using Farfetch’s infrastructure. It also provides in-store technology, including tracking what a buyer collects.
“For generations, brands have really focused on bringing customers to their own fabulous boutiques, the multi-brand retailers and boutiques that exist in the industry or in department stores,” says Elliot Jordan, CFO of Farfetch. “They never really embraced the idea of being able to sell products online or being able to connect the industry through some kind of platform technology so that they could serve the needs of a tech-savvy customer.”
According to Jordan, FPS currently accounts for less than 10% of merchandise sales through Farfetch, but he believes it will increase significantly in the years to come. Companies using FPS or Farfetch’s in-store products already include Chanel, Burberry, Zegna and Harrods department stores. More than 570 brands, including the aforementioned Gucci and Prada, now sell directly on Farfetch through an electronic concession model where they, and not other retailers, list and control the items for sale.
Meanwhile, in recent years, Farfetch has acquired Browns, a well-known London boutique; Stadium Goods, a sneaker resale market; and New Guards Group, specializing in the launch and development of new fashion brands (hence the interest of Farfetch), which is also the exclusive licensee of popular streetwear brands like Off-White and Ambush.
These varied activities and, up to recently, Farfetch’s lack of profitability has at times baffled investors since the company’s IPO in 2018. But Farfetch continues to grow and attract partners to its corner. Last year, he announced a deal with Alibaba, the Chinese e-commerce giant, and Richemont, the Swiss luxury group, to put Farfetch fashion on Alibaba’s Tmall and “accelerate the digitization of the global luxury industry. “As part of the transaction, Artémis, the holding company controlled by François-Henri Pinault, CEO of the luxury group Kering, increased its stake in Farfetch.
Jordan describes it as a group focused on bringing together all the different touchpoints consumers encounter in luxury, both online and offline, into one seamless experience.
Farfetch recipes and other figures
$ 3.2 billion: Total value of goods sold on Farfetch platforms in 2020.
$ 1.7 billion: Farfetch’s income from these sales.
$ 3.3 billion: Farfetch loss after tax in 2020.
3.3 million: Customers who made a purchase on any of Farfetch’s platforms in the 12 months prior to March 31.
$ 618: Average sales order value on Farfetch in Q1 2021.
190: Countries and territories served by Farfetch.
$ 11.30: Farfetch share price on January 3, 2020.
$ 49.76: Farfetch closing price on July 7, 2021.
Farfetch sales continue to gain height
Farfetch merchandise sales – and the company’s revenue from those sales – have increased since its IPO in 2018. Even the pandemic has supported Farfetch, as it has resulted in more sales of luxury goods online.
Farfetch has a number of competitors in digital luxury, including more traditional retailers such as the Yoox Net-a-Porter group. But a major challenge the company faces comes from the growing control that big fashion brands have over their own sales.
While luxury has historically relied heavily on a wholesale model, more and more companies are focusing on selling direct to buyers through their stores and ecommerce sites – which the insider types call “brand.com”. This way, they control their entire relationship with the customer and don’t hand power over to any gatekeepers. In addition, the margins are better. Buyers, on the other hand, connect directly with the brand and don’t have to worry about issues like fakes.
However, the multi-brand retail model is not expected to go away anytime soon. The Boston Consulting Group estimates that multi-brand platforms will increase their share of luxury sales from around 6% in 2019 to around 14% by 2023. Brand.com, meanwhile, will account for 11% of luxury sales by 2023, compared to 5% in 2023. 2019, he says.
Farfetch, meanwhile, hedges its bets by letting brands sell directly on its platform. Jordan says the arrangement allows Farfetch to also offer a much wider selection of products from these brands. A retailer may only purchase a handful of styles from a single brand, so they only have that handful to list on Farfetch. But the brand itself has the ability to make any style available if it wants to.
How Farfetch’s Revenue Breaks Down
Most of Farfetch’s income still comes from the commissions and fees it collects from sellers in its marketplace, but that’s just one way to make money at this point. Here is an overview of its activity in 2020:
The digital future of luxury fashion
Although luxury fashion has been slow to embrace e-commerce, shoppers moving online have left luxury sellers with no choice but to follow. The pandemic has accelerated this change. By 2025, online sales of personal luxury items are expected to reach 115 billion euros ($ 136 billion), up from 33 billion euros in 2019, according to a report by Bain & Company, a consultancy firm. in management, in association with Altagamma, an organization of Italian luxury companies. This means that nearly a third of personal luxury goods sales will be done digitally, according to the projection.
Does Farfetch sell fakes?
Farfetch expects products in its market to come from authorized retailers or sometimes from the brands themselves, but in regulatory files it has acknowledged the risks of counterfeit products creeping onto its site. “Although we have invested heavily in our authentication processes and refuse any merchandise that we believe to be counterfeit, we cannot be certain to identify every counterfeit item that is delivered or returned to us,” he said. stated in a press release. recent filing (pdf) with the United States Securities and Exchange Commission. This is a challenge that any company managing a marketplace must face.