Luxury items 

Richemont-YNAP deal brings Farfetch closer to global luxury platform

The past week has been a whirlwind for Farfetch
FTCH
and investors. First, Farfecth announced an agreement to acquire 47.5% of online fashion group YOOX Net-A-Porter (YNAP) from Richemont as well as revamping most of the Richemont Maisons including Cartier, Van Cleef & Arpels and Piaget, under Farfetch Platform Solution (FPS). Then a day later he reported second quarter results.

It will take time for Farfetch to execute on its long-term plan to become the global luxury platform. The Richemont-YNAP agreement takes it a giant step towards this objective.

Likewise, it will take time for investors to understand what this will mean for the luxury industry in the long run. However, in a week where the Dow, S&P 500 and Nasdaq Composite fell about 4% in total, Farfetch shares rose more than 50%, closing the week at $12.03 after opening Monday at $7.77.

Latest results

In the quarter ending June 30, Farfetch said gross merchandise value grew 1.3% year-over-year, or 7.6% at constant currency, to 1. billion dollars. However, GMV on its flagship digital platform fell 3.3% (+1.6% at constant currency) to $883.1 million. Its brand platform (New Guards et. al.) and in-store revenue (Browns and New Guards et. al.) drove overall GMV, up 47.3% to $107.1 million and 38 .8% to $30.2 million respectively.

Despite this, its revenue grew 10.7% (20.7% in constant currency) to $579.3 million, and in the first six months of the year, revenue grew 8.5 % to reach $1.1 billion.

As part of the YNAP acquisition and earnings call, CEO José Neves outlined the company’s mission and his vision for the luxury market as part of the online market. $300 billion personal luxury goods market continues to grow from its current SOM of 22%, behind single-brand stores alone at 32%.

“Our mission is to be the global luxury platform,” he said. “Our vision of the evolution of luxury is one where the boundaries between the different modes of shopping [online, offline, monobrand and multibrand] have been completely dissolved, revolutionizing the shopping experience for consumers around the world and elevating the human connection between creators, curators and luxury consumers. We call this vision “Luxury New Retail (LNR)”.

Neves’ “North Star” is the “seamless convergence of luxury shopping” and he envisions Farfetch as the way to make it possible. It’s a grand vision – some might say awe-inspiring – that bears a remarkable resemblance to Jeff Bezos’ for Amazon
AMZN
in 1997, when the company’s initial foray into selling books turned into “Everything Store” and much more.

Reflecting on Amazon’s explosive success, Bezos explained, “We had three big ideas at Amazon that we hung on to for 18 years, and that’s the reason we succeeded: Putting the customer first. Invent. And be patient.

Neves is deploying these three strategies to make Farfetch the virtual “everything store” for luxury, and the Richemont-YNAP deal has taken him a big step forward in realizing his vision.

The customer first

Through the acquisition of YNAP, Farfetch has more than doubled its presence in the closets and wallets of luxury consumers. While there is undoubtedly an overlap between Farfetch’s 3.7 million active customers and YNAP’s 4.1 million, they are characterized as markedly different.

“Farfetch’s customers are digital natives, having grown up with two-sided marketplaces [online and offline] as an integral part of their lives,” Neves said. “Net-A-Porter and Mr Porter customers are older, having started their luxury shopping with glossy magazines and the department store. This customer then slowly discovered and migrated to an online mode of purchase, but maintained a need for support and [they] depend on the authoritative voice of an editor who facilitates their discovery.

More than two-thirds of Farfetch’s customer base are between the ages of 18 and 35, and about the same percentage of YNAP’s flagship customers, Net-A-Porter and Mr Porter, are over 35, with its Outnet and YOOX platform still more represented among the over 35s. YNAP’s flagship products generate about 60% of revenue compared to 40% for Outnet and YOOX.

Farfetch customers also spend more on average, $612 compared to $583 for YNAP’s flagship. YNAP’s off-season Outnet and YOOX customers spend significantly less, $247. But these Outnet and YOOX customers are seen as attractive to Farfetch’s potential long-term strategy.

“The off-season customer often overlaps with used and resale customers. They are willing to compromise on newness, but not on quality of design and craftsmanship. This is a very interesting part of the industry, which accounts for a significant portion of the $300 billion total addressable market that, until now, has been largely untapped by Farfetch.

However, the biggest customer prize is Net-A-Porter and Mr. Porter’s “Extremely Important Person” customer base. EIP customers represent only about 3% of its active customers but account for more than 40% of its revenue.

These discerning customers will add to Farfetch’s rapidly growing private customer base. Private clients spend an average of $1,100 and have demonstrated a strong appetite for luxury timepieces and jewelry that many Maisons Richemont can satisfy.

With Net-A-Porter and Mr Porter excelling in the selection of high net worth clients, Farfetch will benefit from this expertise while significantly expanding its client selection across a wider range of personal luxury offerings.

Invent

Like Amazon, which entered the early days of e-commerce on the Internet, Farfetch was an early pioneer of e-commerce in the luxury world. And also like Amazon, it has introduced technology solutions in physical retail and cloud through its platform technology.

“[Luxury] brands and boutiques have increased their online presence, but technology has lagged behind creating the shopping experience,” Neves said. “Farfetch has invested in developing a seamless, best-of-breed technology solution for luxury shopping.”

He continued, “This allows for a completely seamless journey between the four buying modes, so that customers’ buying modes match brands and vendors. It offers online, offline, multi-brand and single-brand experience globally and merged into one connected experience. »

In 2015, Farfetch acquired Browns, a luxury fashion and luxury boutique in London, in an effort to better understand the luxury fashion ecosystem the company and its technology serve. Browns is essentially its R&D lab where Farfetch can test suites of tech products in a real environment.

Browns is considered the luxury “store of the future” and has since expanded to a second location. Success after success, its revenues should be multiplied by 20 in 2022 since its acquisition.

Farfetch has further expanded the vision of convergent technology in brick-and-mortar retail with Chanel, a brand that limits e-commerce to its beauty offerings only. Farfetch technology powers Chanel’s flagship rue Cambon in Paris and benefits from both partnership and investment from Chanel. And it has formed a partnership with Gucci for same-day delivery of products from stores to customers in ten cities around the world.

As its credibility grew, Farfetch was selected by Harrods to replatform its online store with its FPS and partnered with Tmall, Alibaba and Kering in China. And more recently, it has partnered with Neiman Marcus Group in the US market and Salvatore Ferragamo globally.

Today it has more than 20 luxury brands using FPS, some 600 are customers under Farfetch’s direct luxury e-concessions, as well as its Marketplace partners.

“Because all of these elements share a common platform, we’re well positioned to deliver a much higher customer experience across multiple channels,” Neves said, pointing to the Farfetch app, which is now integrated with retail at the physical retail of its partners allowing their customers to find stores and products nearby.

Now that some 18 Richemont brands are converting to the Farfetch platform, entering its electronic commissions market and YNAP becoming part of Farfetch, however YNAP will not be fully consolidated into Farfetch at this “initial stage”, Neves is in well on the way to achieving Farfetch’s ultimate. mission to become the global luxury platform.

Patience

Jeff Bezos’ 1997 letter to shareholders explained that decisions made by the company from day one and every day after were driven by a long-term orientation at the expense of short-term profitability. Neves said almost the same thing.

“While our vision is vast and requires significant investment and unwavering long-term effort, we are delighted to have continuously progressed towards our mission for Farfetch to be the single global luxury platform in its ambition to offer a revolution in luxury shopping.

But a lot of work needs to be done to complete the mission. The initial Richemont-YNAP deal is subject to regulatory review and other completion conditions, so patience during this process is required. The company anticipates that the initial phase of the deal will not be finalized until 2023. Then a new YNAP CEO will be appointed and the real work will begin.

It is expected that the GMV and revenue generation of the early stages of the deal will begin to be measured from YNAP’s replatform and the arrival of the Richemont Maisons and Richemont brands on the Farfetch Marketplace by the end of 2023. /early 2024.

The final stage of buying all remaining YNAP shares could be completed within three to five years of the end of the initial stage. The potential to connect Richemont’s more than 1,250 outlets to the Farfetch LNR network is also on the table.

And while all of this is happening, Farfetch must also implement its Neiman Marcus and Ferragamo initiatives in an effort to begin realizing GMV and revenue gains in 2023.

In the 15 years since its inception in 2007, Farfetch has taken some big risks that have finally paid off and decided to enlist the support of luxury leaders. With the Richemont-YNAP announcement, Neves can say with authority, “This transformational partnership is an inflection point to move the Farfetch mission forward.”

Related posts