For 15 years, José Neves has been on what he calls “a single-minded pursuit of the vision which we call Luxury New Retail”.
As founder and CEO of luxury retail platform Farfetch, that pursuit has been remarkably successful to date, particularly when it’s taken into account that for many years it was the luxury end of the retail market that was often deemed to be the hold-out on the e-commerce revolution.
No more, it seems. Ironically as brands lower down the scale see their e-commerce numbers decline as real-world retail re-opens its doors, Farfetch continues to demonstrate growth, albeit with the dark shadow of the Russian war in Ukraine looming. But Neves is unremittingly upbeat:
Luxury is an amazing industry, cemented in the pillars of creativity, craftsmanship and culture, and from a financial point of view, very profitable and resilient, even in very adverse macro environment. We always believed this $300 billion industry needed its own tech platform, tailored with specific needs and revolutionizing the luxury shopping experience both online and offline. And we built Farfetch over 15 years to be that platform.
Earlier this month, the firm signed a long-term partnership with Richemont, which Neves pitches as a major step in Farfetch’s mission to become the global platform for luxury. It’s certainly a big deal - Farfetch has agreed to acquire 47.5% of Richemont’s YOOX Net-A-Porter (YNAP) online fashion group and will replatform many of Richemont’s Maisons, including Cartier, Van Cleef & Arpels and Piaget.
It’s an inflection point, Neves argues:
We believe this validates, especially when seen together with all the partnerships over the past years, not only that luxury needs the tech platform, but also that Farfetch is perfectly positioned to answer that goal.
We are thrilled with the myriad possibilities this still opens to expand YNAP’s reach to our attractive marketplace audience, bring their curated supply to enhance Farfetch consumers experience and enable their brand partners to leverage our e-concession integrations to transition away from wholesale distribution among many, many other possibilities. We plan to work closely with Cartier and other Richemont Maisons to innovate their already incredible luxury experience, both online and in their 1,250 retail stores worldwide.
We are excited by the transformation we can enable at YNAP, a group which includes the pioneers of luxury online retail, NET-A-PORTER and YOOX, which, as brands themselves are very complementary to Farfetch, all of those serving different modes of shopping, customer profiles and geographic focuses. In years to come and upon YNAP’s successful transformation, which we expect will return the business to profitability, we are excited about the possibility of consolidating them under the Farfetch Group, as a portfolio of different marketplaces, benefiting both sellers and customers globally, offering more choice, better experiences and more innovation.
All of that is going to take time to deliver, of course - such is the scale of the deal that regulatory approval will be needed from certain quarters - but it’s a natural extension of the vision that Neves has been chasing all these years:
Fifteen years ago, I founded Farfetch for the level of fashion, with the dream of creating a global tech platform for an industry that previously never had one. The vision of connecting creators, curators and consumers of fashion worldwide to one single Digital Platform tailored for the very specific needs of the luxury industry was and still is at the core of Farfetch.
The industry very much needed a platform. We believe that what was needed was a revolutionary platform that attended to the unique features of luxury, whilst always thinking 10 years ahead and building line of clothes after line of clothes year after year, an advanced set of capabilities that allows us to seamless converge the various modes of shopping, online, offline, mono-brand and multi-brand globally. And that’s what we’ve built with herculean effort and patience year after year.
Over the years, that’s meant partnering and acquiring many brands, such as 50-year-old iconic boutique Browns in 2015, when it was a circa $25 million turnover family business; today it’s a business that is expected to turn in $0.5 billion this year. In 2017, Farfetch integrated its site with 10 global Gucci flagship stores, which was followed by an investment from Chanel and an exclusive collaboration that re-invented the Chanel retail experience. Another celebrated partnership was with Harrods, the most iconic luxury department store in the world, while this year saw a tie-up and investment with Neiman Marcus Group in the US.
The appeal of working with Farfetch is clear, according to newly-appointed Group President, Stephanie Phair, who points to a global customer base that is three-quarters Millennial and Gen Z with a 70-30 female male ratio. She also highlights the firm’s media solutions capabilities as a significant asset, citing a recently-announced global strategic partnership with Salvatore Ferragamo as a case in point:
Ferragamo has a rich heritage of creativity and craftsmanship. And with the recent appointment of Marco Gobbetti as CEO, we’re excited about his visionary approach to revive this iconic brand by looking to Farfetch as the strategic partner to accelerate Ferragamo’s digital capabilities and create new engaging shopping experiences.
Ferragamo has been an e-concession partner for many years, but this partnership expands the brand’s participation on the marketplace, leveraging Farfetch’s global audience to appeal to a more millennial and Gen Z luxury customer globally. As part of the partnership, Farfetch will power Ferragamo’s e-commerce site using Farfetch Platform Solutions, and Ferragamo will begin to invest this year in Farfetch’s media solutions while also exploring future retail innovations. Ferragamo’s endorsement and embarking on an integrated partnership of this scale marks a critical evolution point in our Farfetch platform proposition journey, further cementing Farfetch as the -platform of choice for the luxury fashion industry.
The way ahead
So, all’s good, yes? Well, yes, up to a point. The Vaccine Economy is taking shape, but there’s still no clear worldview on the wider impact on retail, other than the only certainties are uncertain in the main. For her part, Phair says:
We’re not seeing any data necessarily tending one way or another. I think what we go back to is just the fact that there is a structural shift to online. We know that that will be 30% in 2025. I will take you back to survey we ran, I believe, in 2021, where our customers were saying sort of post-COVID environment, they would be shopping more online than they did before. And so, we are seeing that our retention metrics remain strong and actually are in line with 2019 numbers. We continue to see new customers coming to us quarter after quarter.
So certainly, we knew that there would be a normalization of behavior online, offline. We are big believers of that omni-channel approach. And in many ways, we are an online and offline business because we think about our connected retail approach and the way our partners work and we benefit from offline behavior as well. We really are at that platform that spans both. So it is certainly a bit of a normalization,but the structural shifts continue to be online.
And then there’s the loss of the lucrative Russian market, a significant part of the Farfetch business. That said, Neves is bullish towards the opportunities presented by China:
We think this is an incredible market. It will be the largest luxury goods market in the world by 2025. We have an incredible position there as the only Western player that has for many years invested in that market, creating incredible capabilities there. And I think that we will be able to seize the strong demand for luxury products, especially online where penetration is still very low in that market. So, we remain very bullish in the medium to long term in terms of China, and we’ll continue to invest in that market.
Even so there are complications ahead there too:
The situation in China continues to be impacted by COVID-19 restrictions, especially for our cross-border businesses, as we’re having a long lead time to deliver to customers. There’s still quarantine process procedure for parcels, crossing the barter and in certain gateways, disinfection procedures for parcels, which we’re confident that probably there will be more comfort around cross-border logistics and packages, et cetera, given clearly the World Health Organization has said that there’s no risk of contagion from parcels. That was relaxed in the West very, very quickly and China is taking a little longer. But I think that once we are able to service our customers, there is very strong engagement on the platform. The demand is there. The conversion rate obviously is affected by these longer lead times, but I think this is transitory, and there’s huge potential and pent-up demand in fact in that market that we will be able to seize.
But in conclusion, it’s full steam ahead, he says:
There is a lot to be done and still a lot to prove, and we are energized by that. This endeavor never ends because with each milestone, our horizons expand further. Despite the growth and synergies this still brings, the combined groups would represent only three percent of this vast global industry. There is plenty of growth to go for, and strong cycle of tailwinds that we aim to continue to capitalize on. What is pretty clear in my view is that Farfetch has positioned itself to be the preeminent Digital Platform for luxury. And the responsibility is now ours to continue to execute and deliver on this shared vision.
A remarkable e-commerce success story to date. If the Richemont deal is indeed an inflection point, the question now is what next? A company to watch in the development of the omni-channel retail sector of the Vaccine Economy.