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What Coupang hopes to get out of its Farfetch acquisition

 

Published December 20, 2023

By Jessica Xing

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South Korean online retailer Coupang announced Monday it will acquire luxury e-commerce platform Farfetch Monday for just $500 million – a massive fall in value during the company’s pandemic peak in 2021 at $23 billion

Farfetch will operate as a private company under Coupang, and Farfetch founder José Neves will stay at the company until the acquisition. 

“Farfetch will rededicate itself to providing the most elevated experience for the world’s most exclusive brands, while pursuing steady and thoughtful growth as a private company,” said Bom Kim, CEO of Coupang, in a statement. “We also see tremendous opportunities to redefine the customer experience for luxury clients everywhere.”

Farfetch and Coupang both benefited from a huge pandemic boom — the South Korean e-commerce platform went public in 2021 at a $50 billion valuation, while Farfetch was able to disrupt the luxury market by selling high-end brands online, gaining high-profile investors like Chinese e-commerce giants Alibaba and Swiss billionaire holding company Artemis. 

Coupang became a dominant force in South Korean e-commerce, boasting fast delivery speeds and wide availability and reporting $6 billion in third-qaurter sales in November. 

Farfetch, on the other hand, got bogged down in high overhead costs, a slowing luxury goods market, and a number of high-risk investments, such as the company’s massive $1 billion deal to buy online retailer Yoox Net-A-Porter, and $900 million acquisition of luxury brands like New Guards Group and Stadium Goods. 

“That in itself, even though those might have been appropriate acquisitions at the time, was too many plates,” Jane Hali & Associates senior research analyst Jessica Ramirez said. 

With Farfetch ailing, Coupang saw an opportunity. With an inexpensive $500 million acquisition, Coupang seems to be targeting South Korea’s booming luxury market to further cement itself as the go-to e-commerce platform in its core market. This strategic move could be crucial given that Coupang is starting to feel competition from Chinese online retailers like Temu, which is pushing into South Korea. 

An ailing business

When Farfetch first launched, it boasted something most luxury brands had yet to invest in: e-commerce. Farfetch, at its height, partnered and carried Thom Browne, Ferragamo and Balenciaga on its platform. But, since then, many luxury brands have also started strengthening their e-commerce presences as well as competing e-commerce platforms like Ssense, according to Ramirez. 

“In recent years luxury brands have actually become more digitally savvy on their own. During the pandemic, it seems like they woke up in offense,” Ramirez said. 

Additionally, demand for luxury has slowed down significantly. Yoox Net-a-Porter, which Farfetch planned to acquire for $1 billion, saw sales drop by 10% over the six months in September, and Farfetch’s market cap has fallen more than 82% in the last year

Enter: Coupang

Coupang’s selling point is its ubiquity — the company can fulfill orders within 24 hours, speeds that beat out U.S. retailer Amazon. And, similar to Amazon, the brand relies on a membership system, and the firm has now expanded into food delivery, video streaming, apparel and electronics, with the firm previously acquiring Singaporean streaming platform Hooq Digital to form its streaming service Coupang Play.

Farfetch still boasts 4 million customers. For $500 million is an inexpensive way to establish itself in the luxury market, an area Coupang has little experience in, but draws huge interest from Coupang’s core market in South Korea, according to Retail Geek analyst Jason Goldberg. Total spending on luxury goods in South Korea totaled to $16.8 billion at the start of 2023, according to Morgan Stanley. 

“Korea is a very good luxury market. And so I think there’s a very reasonable hypothesis that like Coupang could move up market,” Goldberg said. “If they had, you know, a luxury offering in Korea. I think this is an acquisition of opportunity. I think Farfetch needed a lifeline and there was an inexpensive asset.” 

What’s more, Coupang can offer something in Korea that other platforms can’t: extremely fast delivery. Indeed, Farfetch hinted at these abilities when it announced the Farfetch acquisition.

“Coupang’s proven track record and deep experience in revolutionizing commerce will enable us to deliver exceptional service for our brand and boutique partners, as well as for our millions of customers around the world,” founder Neves said in the press release. 

A focus on South Korean markets 

While this move may look like a way for a Korean e-commerce platform to better enter Western markets, Goldberg doesn’t believe that a push into Western markets is Coupang’s main goal with the Farfetch acquisition. Several Asian e-commerce platforms have acquired U.S. and European companies – famously Chinese retailer Shein announced a partnership with minority stake in Forever 21 owner Sparc. 

However, Coupang’s acquisition of Farfetch seems more like an attempt to strengthen its platform in South Korea, rather than a way to expand into U.S. and European markets, Goldberg said. 

Other analysts agreed that a platform like Farfetch isn’t the best way to enter into in U.S. and European markets. If Coupang were to expand into U.S. markets, it would not do it through a luxury vehicle, according to analyst Juozas Kaziukenas from Marketpulse. 

“If Coupang was to go after Western markets in the same way PDD did with Temu or Alibaba with Miravia, I’m not sure if having Farfetch accelerates that at all. I expect the most likely outcome is Coupang will continue to operate Farfetch as-is,” Kaziukenas wrote in an email. 

The story has been updated to clarify that Ssense is a multi-brand platform, not a brand.

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