First it lured Natalie Massenet, the queen of online luxury, then it teamed up with fashion bible Vogue, and now it has won a multi-million pound investment from China’s biggest retailer: London-based fashion website Farfetch has rapidly gone from edgy outsider to hot ticket.
Farfetch is the Deliveroo of luxury fashion, linking together more than 700 exclusive boutiques and 200 brands in 40 countries and offering a delivery service for upmarket fashion shoppers worldwide.
Now the company is rumoured to be plotting a $5bn (£4bn) public listing, just 10 years after it was born, making it one of the UK’s most valuable internet businesses.
On Thursday, Farfetch announced plans to expand into the massive Chinese market after selling a minority stake, for $397m, to JD.com, the country’s biggest retailer.
Richard Liu, JD.com’s founder and chief executive, will now join Farfetch’s increasingly star-studded board of directors, alongside Massenet and Jonathan Newhouse, chairman and chief executive of Condé Nast, the publisher of Vogue and GQ.
The website has just signed a deal with Condé Nast, which will mean GQ and Vogue sending shoppers to Farfetch via direct links from their websites in the next few months.
Farfetch was founded by Portuguese fashion entrepreneur José Neves in 2008 with the idea of creating a single online marketplace for luxury independent boutiques that could compete with the biggest and best online retailers.
Neves started his first business, a software firm, while still studying economics at university in the 1990s. After helping out small fashion firms with technology, he moved into a business where he had a family heritage – his grandfather owned a shoe factory. Neves built a footwear design and wholesale business called SIX London, and then came bstore, an edgy fashion store on London’s Savile Row. Both still exist as part of Neves’ Six London holding company.
Farfetch, funded with money from his footwear business and developed partly with the skills of software engineers based back home in Porto, brought Neves’ two worlds together. The meteoric rise of the company was completed in February, when Massenet, the founder of Net-a-Porter, joined as co-chair of the business.
Massenet – now Dame Natalie as a result of Net-a-Porter’s global success – once described the luxury online business as her baby. But she jumped ship when it was taken over by the Yoox designer sales site in late 2015, apparently offended when Yoox boss, Federico Marchetti, insisted that he alone would be the head of the combined business. She is now said to be on a personal mission to foster Farfetch into a business that will overshadow her first creation.
Announcing her move to Farfetch on Instagram, Massenet wrote: “In 1999, when I first thought about selling fashion online, the world was just waking up to the possibility. Today we expect access to everything, any time, anywhere … If I were starting an e-commerce company today, I would do it very differently.”
She believes Farfetch’s business model – it doesn’t own any of the stock, vans or warehouses that allow fabulous frocks and designer bags to be dispatched to fashionistas everywhere – now has the edge over Net-a-Porter’s more traditional approach.
While Net-a-Porter runs its own logistics and has warehouses full of clothing that its in-house buyers have selected, Farfetch makes its money by taking a 25%-30% cut of the sales it generates for its partner boutiques and brands. It is a model makes it easier for Farfetch to adapt to a fast-changing fashion market and allows it to tap into trends that a central buying team might not have registered. With no stock on its books, it also has less risk.
Massenet is not the only one to have switched allegiance to this upstart rival to her first creation. Venezuelan fashion entrepreneur Carmen Busquets, an early backer of Net-a-Porter, is also now an investor in Farfetch, while a number of senior Net-a-Porter staff have also jumped ship.
Farfetch increased sales by more than 60% last year, and Luca Solca, an analyst at Exane BNP Paribas, reckons the platform is on course to overtake Net-a-Porter within the next two years. Analysts believe there are as many as 2,000 boutiques that could eventually join up with Farfetch, while it is also aiming to strengthen and extend its direct relationships with brands and offer a broader array of services.
The site’s growth is being helped by a general rise in online luxury shopping as big-spending fashion fans embrace ordering from home like never before. Within five years, some 14% of luxury sales are expected to be completed online – double today’s level.
That brings huge opportunity, but there is also increasing competition. The market once dominated by Net-a-Porter is now in the sights of London-based Matches.com, Munich’s Mytheresa, department store groups and the brands themselves. LVMH, owner of Louis Vuitton and Givenchy, recently launched its own multi-brand retail site, 24 Sèvres.
While Farfetch’s model is fleet of foot, it also risks setting up tension between the brand owners and boutiques on the site and the ambition of Farfetch to build its own international brand. Recently, the company has removed from its website all mention of the boutiques it works with, so Farfetch appears more like a conventional online department store.
But the lack of visibility for the boutiques can make it confusing for shoppers who may receive items ordered together at different times in different packaging. One product may also be listed several times at different price points, with no indication why.
Stephanie Phair, a former Net-a-Porter executive who is now Farfetch’s chief strategy officer, says only a “tiny percentage” of items are listed at multiple prices, and Farfetch is “working hard through technology to fix it”.
Meanwhile, the company has been trying to deal with more luxury labels directly. Industry insiders say this is partly because brands have expressed concerns about pricing – a sensitive issue when labels can sell at wildly different prices in different parts of the world.
Farfetch is trying to tempt them in with new ideas, such as a 90-minute delivery service for Gucci fashions in 10 cities around the world. Phair says there is a “long list of brands” waiting to sign up.
Neves has said that he expects that even by 2020, three-quarters of luxury sales will remain on high streets, and he believes the way forward is “augmented retail” – working closely with physical stores.
Dealing increasingly with brands directly and wiping boutique names from the Farfetch website may not help keep stores onside. But Phair says that Farfetch is already working on ways to give the boutiques more air. “We think the best approach is editorial. We will give the boutiques a lot more prominence on social media and via local community initiatives,” she said. “There is an amazing opportunity where we can really be a global business with a local flavour.”
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