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Luxury goods company Richemont has partnered with Alibaba with Farfetch. In this way, the vision of a global platform for the entire luxury goods industry is taking shape. Kering is also on the boat.
Richemont and Alibaba invest in the luxury goods e-commerce company Farfetch.
E-commerce with luxury goods was a wallflower for a long time. On the one hand, in view of the high-priced items, there was a lack of confidence in the distributors; on the other hand, customers were on average older and more reluctant to buy online than younger ones.
But for some time now, Internet business has accelerated. This is due to the strong affinity of the Chinese people for the Internet and the attractive e-commerce ecosystems of the Chinese Internet giants, as well as the increasing demand from the younger generations. And recently, of course, the corona pandemic, acting as a digitization turbo due to global store closures.
$ 1.15 billion for Farfetch
Swiss luxury goods group Richemont and its subsidiary Yoox Net-a-Porter (YNAP) have been at the forefront of the online luxury business for years. Two other big players are Farfetch and Alibaba. And it is precisely these three companies that announced a global strategic partnership late Thursday night “to give luxury brands better access to the Chinese market and accelerate the digitization of the global luxury industry,” as it is called. in a joint statement.
Farfetch wants industry leadership
Alibaba and Richemont will invest a total of $ 1.1 billion in Farfetch. Farfetch’s business model differs from other online retailers in that the website functions as a pure virtual marketplace. While Net-A-Porter owns the products that are being sold, Farfetch does not have its own inventory. His expertise lies in delivering the products of the luxury boutiques represented on the platform, which can be in stock anywhere in the world, to customers within a few days.
For the founder of the company, José Neves, the cooperation with Alibaba and Richemont is an important step on the way towards his great goal of making Farfetch the most important global platform for the luxury goods industry.
José Neves recorded at the London headquarters.
Neves repeatedly emphasized this claim to analysts on Friday, and observers attest to him that he was a natural seller. The 46-year-old does not see his company as a retailer, but as a technology company. Both are certainly in his blood: in the 1990s, the Portuguese native founded a software company for fashion brands and also founded his own footwear company, for which he created the designs. Neves opened a store in London’s Covent Garden district, one of the best locations for exclusive retail.
However, Neves was quickly convinced that the future is on the Internet. In the end, the crises helped him. He founded Farfetch in 2007, just before the global financial crisis. In the recession that followed, elite luxury buyers first thought about buying expensive items online. Neve’s idea of bringing the range of small boutiques and labels to the world through a digital marketplace, regardless of opening hours, gained popularity. In fiscal 2019, the company surpassed the billion dollar revenue mark.
Then came the crisis of the crown, for Farfetch it was a blessing from the crown. Shortly before, Asian customers had become almost as important as European customers to the London-based company. The company has been present in China since 2015. Chinese clientele in particular liked to buy luxury goods in physical stores and on trips abroad. The pandemic locks them at home and has moved commerce to the Internet. Between April and June, Farfetch sales grew almost 75%; more than 500,000 new customers flocked to the platform. Neves spoke of a paradigm shift in the luxury segment. The industry is now making the structural change it envisioned with Farfetch.
This confirmation must have worked well, because the previous months had not been easy. Neves launched Farfetch on the New York Stock Exchange in 2018, but the price took a severe hit in mid-2019. After a surprise purchase from a fashion manufacturer, investors doubted the business model and raised the question of whether Farfetch wanted be a luxury producer and not just an agent that charges commissions for the use of your market. So it was helpful that Chinese internet giant Tencent stepped in with a capital aid earlier this year. Tencent joins the Chinese trading platform JD.com, which has been involved since 2017.
The Chinese believe in Farfetch, as the Alibaba entry shows. It’s unclear when Farfetch will break even. Operationally, the company stands out for its high costs. Despite likely significant growth in sales, experts still anticipate losses for next year. Investors, on the other hand, have gained new confidence and are not deterred by the complicated cooperation Neves has now established. Since speculation about the deal emerged earlier this week, Farfetch shares have soared about 50%. But Richemont investors are also pleased: Shares in the luxury goods company rose more than 9% on Friday.
Farfetch will now launch luxury shopping channels on Alibaba, Tmall Luxury Pavilion and Luxury Soho platforms, as well as Alibaba’s cross-border marketplace, Tmall Global. At the Tmall Luxury Pavilion, Farfetch becomes a competitor to Net-a-Porter, because the Richemont subsidiary has also been active there for a good year, albeit with a slightly different business model, as mentioned. Farfetch, on the other hand, will pull out with its virtual stores in JD, a competitor to Alibaba, although JD.com is also a big investor.
Kering is there too
The $ 1.1 billion that Richemont and Alibaba intend to invest is split into $ 600 million ($ 300 million each), which will flow directly to Farfetch, and $ 500 million ($ 250 million each). for a new joint venture in China that will encompass Farfetch’s market activities in the China region. Control remains with Neves in both cases. Under the current agreements, Alibaba and Richemont will also hold a maximum of 49% in the joint venture.
Artemis, the parent company of luxury goods group Kering (formerly PPR), which is investing another $ 50 million, will also expand its engagement with Farfetch. The head of Kering, François-Henri Pinault, will also form a committee together with Johann Rupert, the head of Farfetch, Neves and Alibaba, who is concerned to even better harmonize the needs of the luxury goods industry with technological possibilities.
The Alibaba and Richemont investments and the formation of the joint venture are expected to be completed in the first half of calendar year 2021, provided the relevant closing conditions are met, it is said.
