Farfetch wanted to be luxury’s tech backbone. What now?

After cancelling its earnings call last Wednesday amid rumours about CEO José Neves’s plans to delist the company, Farfetch is in a precarious position.

Shareholders are wondering whether or not the Richemont deal will happen at all, and analysts are speculating over whether it’s too soon to run out of cash.

 

A lot is up in the air — including Farfetch’s position as a tech provider for the luxury industry. Its white-label tech offering, Farfetch Platform Solutions (FPS), offers e-commerce services for brands like Ferragamo, Balenciaga and Harrods. If Farfetch were to collapse or significantly rein in its business model, the fabric of luxury’s tech operations could change, marking a shift in how the industry approaches such partnerships in the future.

 

Last week, Richemont said in a statement that it “has no financial obligations towards Farfetch and notes that it does not envisage lending or investing into Farfetch”. This spells bad news, according to Seeking Alpha contributor Welbeck Ash Research: “With its key partner Richemont potentially retreating, we fear Farfetch has lost its final option,” read a 1 December note. “With debt markets restricted due to the macro environment, we are very concerned.” Neves is reportedly exploring other potential investors — as yet, to no avail. Farfetch declined to comment.

 

It’s not just the future of the YNAP deal that’s up for debate. Farfetch’s current predicament is a sign of the company’s inability to innovate as it once did, experts say. At launch, Farfetch was a standout in a relatively nascent online luxury retail space. “José Neves recognised that luxury needed to move towards digital sales solutions and, in effect, converge with the rest of the retail market,” says Bryce Quillin, founder of brand strategy agency It’s A Working Title. “José was trying to disrupt the luxury business — and he did that,” Jessica Ramírez, senior analyst at research firm Jane Hali & Associates, adds.

 

Since then, the industry has moved very quickly into digital commerce. The pandemic accelerated this adoption, driving brands into the digital sphere, Quillin says. “Today, the luxury market has a very different relationship with digital commerce,” he says. “They have evolved from laggards to leaders.”

 

As players like Mytheresa and Ssense push ahead in the increasingly crowded luxury e-commerce space, Farfetch is feeling the heat. “Farfetch has always had a pretty high cost base, and when this coincided with a slowdown in the luxury market, the results have not been pretty,” says Neil Saunders, managing director and retail analyst at analytics firm Globaldata. Since its 2018 IPO, the company has lost over 90 per cent of its value (the company was valued at $6.3 billion at the time).

 

Earnings have fluctuated. Last quarter, Farfetch reported a 1.3 per cent decline year-on-year to $572 million. The quarter prior was up 8 per cent, the one before that down 5 per cent. This ambivalence reflects a trying period for Farfetch, during which the company also let go of 11 per cent of its headcount as part of cost-cutting measures that were, Neves said, the most significant in Farfetch’s history. These were to facilitate its “non-negotiable” growth priorities: profitability and cash generation.

 

Farfetch has consistently billed itself as the global tech platform for the luxury industry. With the company’s future up in the air, where does this leave its affiliated brands and retailers — especially its many smaller players? And is it a sign that they should be future-proofing by investing inwards?

Luxury without FPS: Who will feel the impact most?

Farfetch is deeply entrenched in many brands and retailers’ strategies. Through its FPS white-label offering, Farfetch offers brands end-to-end e-commerce solutions. It’s also backed by Richemont and Chinese retail giant Alibaba. (In 2020, both backers invested $300 million in the main Farfetch business and $250 million in its Chinese business.)

 

FPS currently has 43 luxury partners, including Harrods and Saint Laurent. Farfetch also offers over 700 independent boutiques a means of selling online and, in turn, accessing a far wider audience. Almost 3,000 independent designers host showrooms on the site. A collapse would be disruptive, given the amount of brands that are currently reliant on Farfetch, Saunders says. Farfetch’s position — whether it shutters or re-shuffles — spells trouble, especially for these smaller vendors.

 

“The largest impact of a collapsed or impaired Farfetch will be felt by smaller and independent brands who do not have the resources to easily replace [them],” Quillin says. “Farfetch not only provides a sales platform but, for an additional fee, will also manage other logistical functions like delivery and returns. There are other options in the marketplace, but none quite so comprehensive as Farfetch.” Luxury brands are likely to feel less impact, Quillin says, because they have the resources to rebound and re-platform.

 

The biggest question, Quillin says, is how these smaller brands — who are heavily reliant on Farfetch — will adapt. “This moment may present an opportunity for new commercial platform options and new content strategy solutions to emerge,” he says.

 

Spreading out

 

Farfetch’s woes put the problems of dependence on external vendors for tech solutions into sharp relief. Quillin hopes that this will indicate to brands the importance of content and commerce strategies that are not fully dependent on any one platform. Similar to the fallout of an overreliance on Facebook and Instagram in marketing strategies, one-stop solutions for operations can make brands vulnerable. More often, brands with the means to do so are building their own technology and data teams — particularly in the wake of the pandemic that proved how crucial online fluency is for modern retailers.

 

The tides have already begun to shift, Quillin says. “We have already seen this type of momentum for the past couple of years from bigger luxury brands, and this moment may well increase the urgency of investing in their own platforms and content strategies.”

 

Ami (which has used FPS) is aiming to reduce its reliance on pure players by developing its own points of sale, e-commerce and shop-in-shops. It’s also diversifying its platform partners. “We are on Farfetch, but we’re also on Tmall, Wechat, Douyin and other platforms,” CEO Nicolas Santi-Weil recently told Vogue Business.

 

This is a smart move for smaller retailers, for whom developing and investing in their own tech isn’t a viable option. “Reliance on external partners is understandable as it can save on costs and improve speed to market when running e-commerce. It also saves a brand the hassle of having to stay up-to-date on all of the new technology required,” Saunders says. “However, the issue is that brands become very reliant on a third party, so when change is needed, it is painful to make.” So it’s worth brands spreading out their presence.

 

Farfetch’s troubles mark a likely turning point for the industry, experts agree — irrespective of the company’s immediate future. Quillin says: “Even if Farfetch doesn’t collapse, we expect that this period of financial stress at the platform will exacerbate the momentum for brands to invest in their own digital content platforms.”

 

Correction: Bally does not currently use FPS as previously reported