There’s nothing like kicking somebody when they’re down. Multi-brand etailer, Farfetch, a digital star that burned big and bright, looks like it is running out of gas quickly. It was the standout name amongst the crop of multi-brand etailers who rode the online wave during the 2010s.
Farfetch’s value plummeted from $23 billion at its pandemic peak to $250 million by the autumn of last year. In December 2023, Farfetch received $500 million in capital funding from Coupang to keep the lights on.
Following its rescue by the South Korean retail giant, luxury group Kering announced it would end its contract with Farfetch. This means it will no longer supply brands like Gucci, Balenciaga and Saint Laurent directly to the platform.
There was more bad news. Shareholders and employees are planning to sue Farfetch after the ‘opaque’ rescue deal wiped out their stakes, plus the luxury Neiman Marcus Group said it was ending its commercial partnership, re-platforming the department store Bergdorf Goodman’s website and app onto Farfetch Platform Solutions software.
Coupang needs to turn things around and start with a clean sheet. It has asked Farfetch founder and CEO José Neves to step down, with the news revealed today. Neves’ reputation is damaged and it is so entwined with Farfetch’s, that it couldn’t move forward with his name attached.
Farfetch founder José Neves
Farfetch will still stock many of the same brands indirectly and word has it that Farfetch is trying to access brands such as Loewe, Givenchy and The Row by working with a wider range of third-party boutiques to upload their inventory to Farfetch in exchange for “complete anonymity” to avoid repercussions from luxury brands.
This makes Farfetch look like Russia, who, no longer directly supplied by brands, is still seemingly able to get all the luxury goods it wants. Reports suggest wealthy Russians continue to import Western luxury items into Russia, including cars, electronics, and other luxury goods.
The New York Times reported in 2023 Russian department stores like Tsum still selling brands like Gucci, Prada and Saint Laurent. In 2023, Bloomberg Intelligence (BI) found that the Russia-Ukraine war has had a limited direct effect on the luxury-goods market, with light asset-impairment write downs and little lost revenue. In 2021, Russia ranked 12th globally in the sale of personal luxury goods.
Farfetch can only hope it fares as well.
In terms of mega fashion brands, the only Dior, Chanel and Louis Vuitton that Farfetch stocks is pre-owned. Other brands will be made available at the whims of the buyers from the boutiques held on the platform. However, those boutiques won’t want to upset the apple cart knowing how the luxury brands are feeling about wholesale and will be wary of what they make available. And in any case how many independent boutiques are still on Farfetch? Times are very different from 2007 when Farfetch started, and many of these smaller retailers had no online presence and Farfetch was a door to a whole new world.
Farfetch was once an ingenious way of selling luxury clothes without it having to take on the risk of having to deal with product. It got too big and diversified into too many areas (including owning brands itself via the acquisition of New Guards Group) when we all knew online sales couldn’t sustain the growth it had experienced. The IPO valuation of £6.3 billion was also questioned at the time.
Relying on independent boutiques to supply big brands takes Farfetch back to its origins, but it will be more difficult for them and relies on other people and adds extra costs. It will be almost impossible to do the volumes it was doing before with the same margins.
Some luxury brands have decided they no longer need Farfetch. Luxury brands have been pulling away from wholesale and third-party retailers for a while. They want direct sales and the increased margins that gives them. Farfetch is reported to take a hefty 30% commission from each sale made on its platform.
The ball was once in Farfetch’s court, but brands have developed direct sales through online and consumers have returned to stores. They no longer need to play ball. The downturn and squeeze in luxury will have had the accountants looking at maximising current sales, and 30% commission is juicy.
If consumers can’t get what they want, they’ll go elsewhere. It could be a quick downward spiral from hereon in, unless Coupang can pull off the “steady and thoughtful”growth strategy for Farfetch that it has been promising.
Credit: Source link