Is Farfetch really worth it and how good is the quality?

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I get feedback on the case studies from the e-commerce book very often . Due to the lack of space, the content is often greatly shortened and deliberately simplified. At this point I would like to take up the template and bring existing and new case studies up for discussion. In this series I have looked at Bonobos, ULTA , Zappos and Stitchfix . Today I would like to take a closer look at Farfetch, a company that will soon go public with 5 billion + valuation and has set out to revolutionize trading. Without taking the tension out of the article, a lot at Farfetch reminds me of and they briefly had little praise in their peak phase (“ The bubble“) To be expected from checkout zone. The material for the analysis is provided by eTribes – one of the leading digital consultancies in Germany. Many of you already know eTribes from the many Knut Digital studies .

What exactly does Farfetch do?

From the perspective of many stakeholders (Farfetch team, journalists, investors, boutiques), Farfetch is today the poster child for e-commerce innovation in the high fashion industry. As an online marketplace for designer fashion, the model connects high fashion boutiques from all over the world with the end customer. Without own inventory, the marketplace only uses the items that are available in the cooperating boutiques. So basically the omichannel model par excellence. Just as Net-A-Porter managed to attract 350 designer brands for online retailing, Farfetch has won 300 boutiques for its model, with over 1000 brands. Almost all Farfetch reports sound bigger, faster, better. Of course, this has its price and the company is making itself heard annually with a new round of financing

The founding story has already experienced one or two PR checks and sounds almost too good:

The founder José Neves combines the fashion and tech world particularly effectively in the media: grandson of a shoe factory owner in Portugal, fashion-conscious, smart, passionate coder since the age of 8 . As the founder of a designer shoe brand in London, Neves had his eye-opening moment, as he describes it himself , and the idea for Farfetch was born:

“Why do you have Forty Five Ten, one of the most beautiful stores in the world, in Dallas? The inventory that was picked with so much love and attention is just sitting there, and put to work for only 10 hours a day for such a limited geography, when it’s relevant to the whole world. That was my “aha!” moment.“

The idea: boutiques like Forty Five Ten in Dallas could offer their inventory in his online shop and thus reach customers all over the world. In 2008 he went online with the first 35 boutiques. He was initially unable to attract investors and initially funded the idea himself from private assets and his fashion companies. He was able to collect the first external financing round two years later and has since been in permanent fundraising, where one round is chasing the next . So far, approximately $ 700 million has been raised and the latest rumors speak of an IPO with a $ 5 billion valuation. Farfetch used the money to buy a boutique that would like to upgrade it technically. OMG!


Other facts:

  • 2014: $ 300 million GMV – approximately $ 75 million internal sales
  • 2015: $ 500 million GMV – approximately $ 125 million internal sales
  • 2016: $ 800 million GMV – approximately $ 200 million in internal sales
  • Not profitable to date
  • 1000 employees in 9 locations
  • 300 boutiques, 1000 brands
  • According to Similarweb , customers are very distributed, with about 20% traffic from the USA, 10% from Russia

What makes the business model special?

The PR story is quite clear: Farfetch makes the inventory of high-quality boutiques accessible on a platform and earns money without being able to bear the inventory risk. A win-win situation on paper , where Farfetch collects 25% commission on sales. (No minimum sales, no setup fee) The average order is probably $ 700.

We’re like OpenTable for boutiques – they know every empty table, we know every shoe that is sitting on every shelf unsold. We know how much offline is moving and how much online is moving. And just by making your physical inventory available 24-7 to a global audience, you massively boost your economics. […] Once we connect a boutique to the platform, we account for about 45 percent of sales.

As with any good e-commerce of the early 2000s, the omnichannel glasses have been put on Farfetch and promise smooth shopping across all channels. That should be quite expensive fun for Farfetch and unfortunately you don’t find out how many customers use it. (Editor’s note: probably almost none)

[We…] deploy services like ‚click and collect,‘ which allows customers to buy items from any Farfetch boutique and pick them up, try them on and return them over the counter at any store in the network. […] From day one, we were in stores with software that synchronized inventory and allowed us to manage online orders. But how do you extend that? Multi-channel CRM, point of sale, in-store analytics, payments … Then there’s some gimmick-y stuff, which I’m not a big fan of, but maybe one day we’ll make it work, like digital mirrors and stuff like that. […] We want to become the world’s omnichannel platform

In 2016, another business area was added to the online marketplace, which positions Farfetch even more as a platform and digital leader in high fashion influencers: Farfetch Black & White is a kind of white label solution for own designer brands‘ web shops. Vogue describes the whole thing as follows:

“The collaboration is the first online destination to be created by Farfetch’s new Farfetch Black and White business, a new arm of the brand that was set up late last year to give the e-tailer the capacity to support monobrand online platforms. In doing so it can offer luxury brands access to its technological advances (such as customer support, click and collect, international payments and return in-store options) within an independent environment. ”

The model is obvious because, in my view, working with the brands has more future prospects than the one with the pressurized boutiques, but it leads to violent conflicting goals. When asked about this, Farfetch can only read evasive, bullshitbingo answers .

On whether adding mono-brand stores to the Farfetch marketplace would eat into sales at boutique partners, Neves said: “What brands make available for wholesale is often different from what brands have at retail. But if both [channels] have the same product in the same size, we’ve developed an algorithm that is very balanced [and will determine how the sale is allocated]. We exposed this algorithm to our boutiques two months ago to give them a chance to comment and, obviously, we’ve negotiated with the brands as well. ”

Regardless of this conflict of goals, I also wonder what Farfetch wants to do better than Yoox in this part of the business model. Yoox is significantly larger than Farfetch, but due to its stock exchange listing, it steers the company towards profitability .

One of the most exciting developments for Farfetch is certainly the investment from the Chinese JD, which has invested around $ 400 million in the company to get the luxury brands on its own platform.

2017 China ambitions Inc (JD.O), China’s No.2 e-commerce firm, said it would invest $ 397 million in fashion retailer Farfetch UK Ltd to expand its luxury offerings, amid fierce competition with Alibaba Group (BABA.N ) for China’s high-end retail market. […] The deal comes as JD is looking to broaden its offering of luxury and branded consumer goods, heating up the competition with its largest domestic rival Alibaba that has expanded heavily into branded goods with its online marketplace Tmall.

How is all this to be rated now?

Above all, the platform argument is repeated in the relevant media. A kind of Amazon for luxury brands.

# 1 Farfetch is a tech company rather than a retailer, says the founder. Incidentally, this is the same argument as you could hear from just before the collapse and the number of developers is a very, very shaky KPI.

We have a hundred engineers. We will have 200 by the end of this year. It’s a huge investment. No brand can convince the CEO to hire 200 engineers. If you’re on the $ 1 billion mark, you can do it, but it takes commitment and many of these companies are publicly traded. How will the market react when they say they will have two quarters of negative results because they plan to invest heavily online?

# 2 Fast Company speaks of Farfetch as a partner of the brands and sees significant network effects. Honestly, many brands do indeed have a lot of catching up to do with digitization, but even now the last CEO has understood that the topic cannot be outsourced to a partner like Farfetch.

Though department stores and digital-native outlets throw cash into search engine optimization and digital marketing, most independent retailers will never match the big players in that realm. For the boutique owner, therefore, Farfetch offers a way to crack the Internet.

# 3 Econsultancy  looks at the platform model and choice up front:

What is Farfetch’s USP in relation to other luxury retailers like Net-a-Porter and It’s mainly breadth and selection, because we have over 500 boutiques around the world contributing to the site as well as over 200 brands. We have more product, sometimes even more than a brand own website, and we have more variety of product. For example, you’ll have a buyer in Toyko, a buyer in Paris and a buyer in New York – all from the same brand – so instead of having maybe six or seven selections, you might have 30 or 40. For a consumer it is amazing because they can actually shop and style a certain brand or designer, rather than having a limited number of pieces.

# 4 Even Farfetch himself succumbs to the helper syndrome and cares more about the brands than the customers by using a “ stores of the future ” concept. The idea here is not to expand ambitiously offline with your own stores, it is rather a test and showcase environment. The aim is rather to equip boutiques and brands with future-oriented ideas and technologies for a completely digitized stationary strategy . Or, as malicious voices say, accelerated euthanasia.

From fitting rooms equipped with photo booths to mannequins with screens on their foreheads, most in-store technology has been gimmicky stuff that’s more likely to drive short-term PR than actual sales. By contrast, Farfetch’s Store of the Future aims to dramatically improve retail productivity by capturing invaluable customer data and enhancing human interactions between shoppers and sales associates.

# 5 Mareike , my long-time colleague, secret force behind the e-commerce book and analyst on this post says:

Farfetch has shown that high fashion in the right model can work online on both the supplier and customer side. Not an easy task that the brands themselves have shied away from for many years. I first got in touch with Farfetch in 2012 at, which then took part in the Series B round. Back then, although still an underdog, Farfetch was very successful in acquiring boutiques and brands that traditionally stayed away from the digital user experience and, above all, didn’t want to have anything to do with marketplaces. I still find that impressive and nobody has copied it yet. One of the secrets here is, I think, firstly, that the scarcity and exclusivity of the products has been preserved. It was still the exclusive (= rare, scarce) designer dress,that the customer in France specifically ordered from a Hong Kong boutique because it is so exclusive. Secondly, from the very beginning, Farfetch manages to create a high quality in the eyes of the customer through excellent content and very successful communication, to which brands and boutiques feel. In my view, these brand relationships cannot be copied so quickly. I also find the technological and process-related handling of logistics exciting. High-priced items from Estonia to Saudi Arabia with prepaid import duties and then returning them to a completely different boutique in New York. Hats off that it works, even if I can imagine that customer service and goodwill have to intercept a lot here.It remains to be seen how far the platform ambitions in the areas of branded online shops and offline technologies will pay off. But certainly extremely exciting to watch, because the relationship with the boutiques is there and experience has shown that the luxury segment is particularly keen to experiment in order to offer the customer the best, most modern shopping experience.

My conclusion

In my view, models à la Farfetch are a relic of the e-commerce euphoria from 2008-2012. Unlike myfab, and groupon, it is active in a market that, due to its own rules, was able to wait a few years longer for digitization. Many blocks in the Farfetch model are not stable and should come under considerable pressure in the next few years. In the meantime, the top locations are no longer excludedand the boutiques should not have been more than a stirrup holder for building their own platform business. I have not seen a B2C model in recent years that is successful without being 100% focused on the end customer. At Farfetch, brands and boutiques are still in focus. That should take revenge soon. The assessment of the is different for the individual actors.

  • Existing investors : I think the story is good enough to go public and if the holding period of the shares is short enough, all investors could get out of business with a return.
  • Brands : The shift is very, very clear to the luxury brands I am in contact with, and at the moment Farfetch comes in very handy to park the Amazon options. Farfetch’s technical capabilities are far from sufficient to really advance the brands. In this respect, there will certainly be one or the other brand that Farfetch can run its online business until enough competence has been built up itself.
  • Farfetch: Must hope that the stock market believes the story and that the boutiques leave the market more slowly than the own business grows. The existing business model is finite, the service business for the brands is finite and the future store is a PR gag. So there is still a lot of room for improvement.
  • Customers : Farfetch doesn’t care about customers. They obviously only want the corresponding brands and Farfetch currently seems to be able to do this best for some customers.

Overall, I am very skeptical about the model and find many parallels to The question for me is also how well Farfetch can use JD’s investments and whether the company will be able to grow faster. With the silly multichannel projects and hundreds of boutiques, none of this looks like scaling to me. Too many stakeholders are active in the ecosystem, some with conflicting goals. That speaks very clearly against accelerated growth. And I can’t see the future-oriented topics that I would welcome on a platform at Farfetch. But maybe I see it all too black and look forward to your opinion!

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