In a little under one year, Farfetch has gone from also-ran to luxury e-commerce Wunderkind. The online platform’s share price performance speaks for itself. In March 2020, Farfetch was seen as internet small fry whose accounts struggled under the weight of investments in marketing and technology. Shares hit a low of $7, considerably less than the initial public offering price in September 2018. As consumption faltered at the height of the first wave of Covid-19, Farfetch seemed incapable of lifting itself out of the red. But that was before two game-changers.

The ideal Trojan horse

The first - the explosion of online retail last year - shed an entirely new light on Farfetch’s business model. Following a year-on-year increase of 50%, Bain & Co reported that online luxury purchases would rise to €49 billion in 2020 and that digital shopping accounted for 23% of the market. In this game of online poker, Farfetch had dealt itself four aces. Demand from Chinese consumers had also snapped back faster and stronger than expected, which made Farfetch the ideal Trojan horse for anyone looking to “go East, young man”. Hence Richemont and Alibaba, partners since 2018, and Artémis, the Pinault family (Kering) holding company, decided to invest $1.1 billion in Farfetch as a way to further expand into China. On the day the deal was announced, Farfetch shares jumped 8% and have continued to rise ever since. At close on February 18, the company’s stock was valued at $69, a gain of almost 450% in one year!

Who would have imagined that these once competitors would be sitting down at the same table? Richemont, via Yoox-Net-A-Porter (YNAP), operates on the same market as Farfetch; Alibaba already has its Tmall Luxury Pavilion and Kering is developing its own online solutions. But the Chinese “cake”, not to mention tasty morsels in Korea, Singapore and Japan, are sufficiently appetising to warrant some unusual strategies. Johann Rupert, Richemont’s chairman and controlling shareholder, had already tried, a few years previously, to form a coalition of luxury companies in readiness for the digital explosion of China’s luxury consumption. Both LVMH and Kering turned a deaf ear. Now everyone agrees the future of luxury lies with China and its e-commerce; a point of view confirmed by watch export figures. In January, when the Swiss watch industry saw exports fall 11% overall, China was the only market to report growth. And what growth, with shipments leaping 58%.

Brand incubator

Ahead of the release, February 25, of the company’s fourth quarter 2020 financial results, analysts already forecast a 60% jump in sales to $1.65 billion. Even better news, Farfetch should pull out of the red sooner than expected, in 2021. Its business model is bearing fruit. Unlike the majority of its rivals, including YNAP, the company is set up as a marketplace connecting consumers with brands, meaning it carries no inventory. Instead, it charges a 30% commission to help brands position their products online while handling the complex logistics required for transport, customs clearance, payment and delivery in 190 countries. A €4,000 Balenciaga coat can be dispatched from France to a customer in China in less than four days. To achieve this, Farfetch has invested heavily in technology, going as far as to create a business, in 2015, to provide brands such as Thom Browne and department stores such as Harrods with the technology, software and services to run their e-commerce operations, as reported in the Financial Times.

When in 2019 it bought New Guards Group for $675 million, Farfetch became the owner of licences for several hugely popular streetwear brands, including Off-White. This was a new move for the company: like Netflix’s transition from streaming platform to content producer, Farfetch can now incubate brands for its marketplace. How successful this will be has yet to be seen. For the moment, though, in investors’ eyes, Farfetch can do no wrong.