Why Farfetch was acquired by the ‘Amazon of Asia’

South Korean e-commerce giant Coupang is Farfetch’s white knight, agreeing to acquire the struggling luxury marketplace and providing it with $500 million in emergency funding. The latter’s deal to buy a 47.5 per cent stake in Yoox Net-a-Porter (YNAP) from Richemont has been scrapped.

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As expected if a deal were reached, Farfetch will become a private company and shareholders’ investments will be wiped out — including those belonging to founder and CEO José Neves.

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Farfetch shares fell by 38 per cent in pre-market trading following the announcement on Monday. Shares are down 68 per cent since 28 November, when the company cancelled its earnings results amid reports that Neves was in talks to take the struggling company private. (Farfetch’s stock currently trades at less than $1. Its market cap has fallen to $254 million, down from February 2021’s $26 billion peak.)

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Coupang — referred to by some as the ‘Amazon of Asia’ — wasn’t the expected rescuer. Among the speculation, last week, Sky News flagged alternative asset management firm Apollo Global Management as a potential investor. Investment firm Greenoaks, which invested in Skims in October, is Coupang’s investment partner.

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On the surface, the pairing makes sense. A Fortune 200 company headquartered in South Korea and, as of 2022, Seattle, Coupang has been listed on the New York Stock Exchange since March 2021. It operates in markets including South Korea (where it is the largest online marketplace), Taiwan, China, Singapore and India — but its US business remains small. By acquiring Farfetch — which is headquartered in the UK but was listed on the New York Stock Exchange and serves a large US consumer base — Coupang can strengthen its US presence. (Coupang did not disclose terms of the deal.)

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Logistics versus luxury

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Meanwhile, Coupang’s expertise in logistics is a good fit for Farfetch, analysts agree. Coupang has invested billions, it says, into end-to-end fulfilment and logistics infrastructure, including AI and custom robotics. As of 2022, Coupang had 1,362 patents on tech innovations across its markets, including South Korea, the US and Taiwan.

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“Coupang’s proven track record and deep experience in revolutionising 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,” said Neves in a release.

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Not unlike Amazon, Coupang’s focus centres on consumer experience. Offerings include same day and “dawn” (next morning) delivery. According to its website, 99 per cent of Coupang’s deliveries are same day. Also like Amazon, the company has a grocer (Rocket Fresh) and entertainment arm (Coupang Play).

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“From an e-commerce and logistics standpoint, it will be beneficial,” says Jessica Ramirez, senior analyst at research firm Jane Hali & Associates. “Farfetch was built on Platform Solutions [its white label offer, which provides e-commerce services to brands like Ferragamo, Balenciaga and Harrods]. It’s a tech company.” Farfetch’s founding ideals — based on logistics and technology — are what made it a disruptor, she says. It’s this that Farfetch needs to double down on. Coupang, it seems, has the tools to help it do so.

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Coupang founder and CEO Bom Kim’s statement makes it clear that getting Farfetch’s service back up to par will be a focus: “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. We also see tremendous opportunities to redefine the customer experience for luxury clients everywhere.”

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It’s difficult to know the technical and cultural distinctions that will dictate the success of the partnership, says Bryce Quillin, economist and founder of brand strategy agency It’s A Working Title. “There were reasons why Farfetch was in such bad shape and Coupang has not yet communicated how they will address these weaknesses in Farfetch’s operating model.” Farfetch spread itself too thin, experts agree, and was left without a clear focuswhile up against a difficult macroenvironment.

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While Coupang is strong on the logistics side, it lacks luxury expertise, Ramirez flags. This, she says, is a potential downside given Farfetch’s luxury positioning. Others are less concerned about this point of difference. “You see non-luxury investment groups successfully take ownership stakes in luxury groups,” Quillin says. “Coupang can rely on Farfetch for expertise on the luxury market.” The bigger concern is whether Coupang can re-work Farfetch’s operations to get them on more sustainable footing, he says.

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Regardless, Coupang will have to convince the luxury labels utilising Farfetch’s services that it is able to look after their interests, says Neil Saunders, retail analyst and managing partner at Globaldata.

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What will become of Farfetch’s luxury assets — including Browns, New Guards Group, Stadium Goods, Neiman Marcus stake and Platform Solutions — is as yet unclear. Save for the latter, these are out of Coupang’s scope, Ramirez says. “These don’t seem to be within Coupang’s wheelhouse. They don’t seem to fit within its interests like the e-commerce and solutions part of the business does.”

Despite the unknowns, the focus on logistics is a wise move, analysts say. “Farfetch’s strategy was to grow very quickly in all things luxury. It lost sight of its true expertise — and investors didn’t like that,” Ramirez says. “Solutions is a good business. But it needs focus.”

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What it means for Richemont

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The YNAP deal is off the table, Richemont confirmed on Monday. “Richemont has no financial obligations towards Farfetch and does not envisage lending or investing into Farfetch,” the company said in a release.

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Under the terms of the deal, Richemont and its brands, along with YNAP, had planned to adopt Farfetch Platform Solutions (FPS). This will no longer happen, Richemont confirmed in the release: “Richemont maisons continue to operate on their own platforms and have neither adopted FPS nor launched e-concessions on the Farfetch marketplace.”

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The collapse of the deal spells bad news for Richemont, which is left re-assessing the options for loss-making YNAP. “As a result of the termination of the agreements with Farfetch and [investment firm] Symphony Global, Richemont will re-evaluate options for YNAP to best harness its strengths and potential under new stewardship,” it confirmed on Monday.

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The market’s reaction is indicative of the blow to Richemont. Following the news, the conglomerate’s shares are down 50 basis points; about 1.76 per cent. “Richemont will need to go back to the drawing board to figure out how to deal with YNAP on their portfolio,” Quillin says. “Until a plan is put in place, YNAP will continue to be a drag on Richemont, its operations, and its share price.”

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Clarification: Updated to reflect Greenoaks’s role in the transaction