What Happens to Luxury E-Commerce?
An earthquake is going on in the fashion industry, invisible to most. It’s about luxury e-commerce. Specifically, Farfetch, which was about to collapse.
The platform represents the e-tailer everyone talked about. For mainstream fashion shoppers, dazzled by the lights plus an excessive selection, being absent from it meant not belonging to the right circle. For retailers, it was a possibility to make a lot of money. However, the supermarket setting did not intrigue niche fashion enthusiasts at all.
What is Farfetch?
Farfetch is a marketplace that connects brick-and-mortar fashion boutiques. Therefore, people from anywhere in the world can buy their favourite items from a boutique on the other side of the globe and get them delivered to their doorstep. Afterwards, since focusing on the luxury segment, they have started offering services directly to fashion brands. Also, they bought the London boutique Browns.
Who’s behind the group?
Investors gather the Chinese Alibaba; Artemis, the holding company of the Pinault family, owners of Kering; and the Swiss luxury group Richemont.
How does the business work for Farfetch?
They take a 30% cut from all the retailers as they can connect to a worldwide audience. However, born in 2007, the company became profitable in 2014. But, they could hardly maintain the profit. The company shares, valued at about 20 billion dollars at its peak, lost about a third of their value, dropping to a record low of 60 cents. Now, the firm has a market value of $250 million. In fact, the platform was close to bankruptcy.
What happened?
In 2019, Farfetch acquired the Italian New Guards Group, license-owner of Off White and others, reporting unexpected losses of about 2 billion dollars. In other words, by abandoning its inventory-free marketplace strategy, Farfetch lost its original, cost-effective pattern. Yet, their business peaked during the pandemic. But, as the company pursued growth, costs increased simultaneously.
Indeed, the New Guards acquisition reported a 40% drop in sales.
Two more factors contributed to the downfall: brands wanted more control over their products and the discount policy. Moreover, a slowdown in the luxury market had an impact on sales.
Farfetch was supposed to buy a 47.5% stake in Yoox-Net-a-Porter Group, but perhaps we won’t see this deal.
After the share price plummeted, a white knight came to save the e.tailer: the Korean group Coupang, Inc.
What to expect from this earthquake in the fashion industry
For those who see fashion as creative expression and not a giant supermarket, Farfetch isn’t fascinating. Indeed, many call it the ‘Amazon of fashion’ – a destination thriving on relentless discounts.
A few freethinkers might wonder where on earth those exaggerated quantities of garments would be sold. Though it is good to witness brands talking about sustainability while partnering with a company that made overproduction in the fashion industry its business model!
Eventually, an invisible earthquake is happening in the fashion industry, which may result in a tsunami. All the brick-and-mortar retailers connected to the platform have lost their lucrative toy. But, planning to sell through Farfetch, they still have ordered immense quantities of fashion garments. Since local customers were just a tiny percentage of their business, where would they sell their huge stock? Where will they sell the unrealistic budgets pushed by the marketplace?
Now, what should we expect? Will brick-and-mortar ‘Farfetchers’ survive? Or will they fall under the tsunami?