Post-coronavirus, the future of luxury is online and Farfetch is at the hub of this emerging luxury ecosystem says Pamela N Danziger, President, Unity Marketing
In the first quarter 2020 when luxury retail sales were decimated by worldwide COVID-19 shutdowns, Farfetch just announced its revenue increased 90% year-over-year to reach $331 million across its four reporting segments. Farfetch, the global technology platform for the luxury fashion industry, also saw in its first quarter gross merchandise value rising by 46% year-over-year to $494.9 million, though its April 2019 acquisition of New Guards, famous for its Off-White brand, added $107.5 million new GMV to the total. Eliminating that, GMV rose a sprightly 19%.
This follows full-year 2019 revenue growth of 69% that topped $1 billion in sales and gross merchandise value that advanced 52% year-over-year to reach over $2 billion.
While profitability still eludes Farfetch, it just got closer. Going into the quarter, the company expected adjusted EBITDA losses between $30 million to $35 million. It came out of it with only a loss of $22 million, putting it solidly on track to achieved profitability in 2021. In a statement released in its year-end 2019 financials, Farfetch founder, CEO and co-chair José Neves said, “As we move into 2020, we remain uniquely positioned to capture the lion’s share of the $100 billion incremental opportunity in online luxury.”
That estimate was based on Bain’s then expectation that online luxury would grow from its current 12% market share to 25% by 2025. But, after this year’s first quarter, that incremental opportunity in online luxury just got even bigger. Now Bain expects online’s share to reach 30% by 2025, as COVID-19 has introduced the convenience of online luxury shopping to new customers across the world. Frankly, when Bain wraps its 2020 industry assessment, I would not be surprised to see its prediction of online’s penetration revised upwards again.
Positioned in the centre of the online luxury digital revolution sits Farfetch, masterminded by the visionary Neves, who I described as the Jeff Bezos of fashion. “I’ve been embedded in this industry for 25 years, 12 with Farfetch,” Neves told me. “This is an industry in urgent need of transformation. We had this vision for many years and this COVID-19 pandemic has accelerated it and put it at the top of the agenda for everyone. The industry needs to be reinvented and revolutionised,” he continues.
What illuminated Neves’ vision is the recognition that luxury is not just a market to sell high-priced goods, but an interdependent ecosystem whose joint success depends on the individual success of each moving part. “We are working to preserve the entire luxury ecosystem,” he continues. “I call it a system because it is an industry where everyone depends on the other; the large depend on the small and the small depend on the large, but hardly anyone notices it.” To underscore the industry’s interdependency, he points to the small designer brands as being the place where major luxury brands will find the next generation of creative talent. “Small brands create the talent. Virgil Abloh started in a single boutique in Italy, now he is the artistic director of Louis Vuitton menswear. By supporting the small designers and giving them access to a global market, we are supporting the big brands’ future. This is where they will find the next Alexander McQueen or Virgil Abloh,” he shares. Thanks to Neves vision and his company’s technology prowess, Farfetch has developed effectively a central support organisation that will help all industry participants power their future.
Digital platform supports direct-to-consumer e-commerce for brands and boutiques
Farfetch is most visible as an online destination for its 2.1 million customers in 190 countries to discover and buy fashion from 3,500 luxury brands, including offerings from 500 major luxury fashion houses, like Gucci, Prada, Valentino, and Burberry, as well nearly 3,000 small independent designers who may operate a showroom and a boutique on the side.
It does all this without holding inventory under an e-concession business model. “We are the world’s leading online luxury destination for in-season fashion,” Neves reveals. “We’ve been able to help our partners weather the storm with a geo-distributed supply and logistic network so that we all come out of this stronger together than before the crisis.” Already being a curator of all-things luxury fashion, Farfetch also enlists a legion of independent fashion boutiques that bring their own curatorial perspective to Farfetch customers. Some 700+ independent fashion boutiques list their offerings on the platform.
During the shutdowns, Farfetch has been a lifeline for these independents, as well as their brand partners that supply them. “Coronavirus has disrupted the entire wholesale business,with department stores canceling orders, delaying payments, and some filing Chapter 11,” he shares. “Brands absolutely depend on the boutiques, and if the boutiques stop working, then the whole industry is going to be weakened by the lack of creativity. It’s part of the culture that needs to be protected," he said.
In support of independent designers and boutiques, Farfetch launched a #SupportBoutiques social initiative to remind people about the importance of small independent boutiques. “We’ve seen our influencer and customer communities respond with much more engagement on social media to this campaign,” he shares. “People really care about small businesses and small curators of fashion. This will continue to be our focus throughout the crisis, to support the small boutiques and designers.”
But that direct-to-consumer e-commerce side of Farfetch’s business, which it describes as its digital platform, is just the tip of the iceberg. Sitting underneath is a robust technology platform which it makes available to luxury brands and retailers to support their own digital operations.
Brand platform puts Farfetch robust technology to power brand’s own e-commerce
Its white label service powers e-commerce websites and apps for some 20 luxury brands, including three LVMH brands, and most recently, it brought London’s Harrods department store website online. While the company doesn’t separately report revenues generated by its white-label brand platform, its order contribution margin would be higher, since Farfetch incurs no expense to drive traffic to its brand platform partners’ websites.
What differentiates Farfetch’s brand platform from the many other available e-commerce solutions is that Neve’s team understands the unique requirements of showcasing high-end fashion and interacting digitally with luxury consumers. Selling a $3,000 dress online takes more finesse than selling a $30 one. “Luxury needs something very specific online, including a global perspective to interact with customers in China, the Middle East, and Russia,” Neves says.
“Most of the available e-commerce solutions were essentially developed for the U.S. and European markets and for less specialized products than luxury. They don’t respond to the strategic demands of a luxury company. Our’s does,” he continues. This is what brought Harrods to Farfetch’s door. Harrods Managing Director, Michael Ward, said in a statement: “Harrods has been providing customers with the highest levels of service for over 170 years, and has invested relentlessly in delivering this service-level across every touch point of the business. Partnering with Farfetch allows Harrods to work with the market-leader in e-commerce technology to deliver a seamless service online, which will continue to feel instantly and unmistakably Harrods. Our shared objective is to ensure that Harrods digital customers receive the same exemplary service as those who visit us in-store.”
Tying in-store and digital into a Store of the Future augmented retail strategy
In a long-tail initiative, Farfetch is working on developing a “Store of the Future” in partnership with Chanel that ties all the moving parts of the omnichannel luxury journey together into what is envisioned as an augmented retail strategy. Now the company is adapting some of the Store of the Future solutions launched with Chanel in 2019 to more seamlessly integrate digital into the brick-and-mortar operations of the store. Neves sees the need for this augmented in-store service offering to grow rapidly in the post-coronavirus environment. “We believe this digitisation of physical retail was a distant innovation for many luxury brands and retailers that may now be promoted from nice-to-have to must-have status,” he shares. “This is a vision we have believed in for many years and one that we are uniquely positioned to develop for the global luxury industry.”
In conclusion, since going public in September 2018, Farfetch has but scratched the surface of its potential as not just a digital solution for the luxury industry, but as the epicentre for the transformation that the luxury industry needs to reach a global market of increasing complexity and nuance. With Neves’ view of luxury as an ecosystem, not just a market to buy and sell things, he and his Farfetch team are designing a platform to support each separate component in that ecosystem to create a future luxury industry that is greater than the sum of the individual parts.