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Farfetch in Focus

How the e-commerce giant is revolutionizing the online luxury shopping landscape.

A recent Farfetch ad campaign. Credit: Harper's Bazaar.

At the start of the pandemic, the fashion industry faced one of its toughest conundrums to date: the failure of the traditional brick and mortar department store model coupled with a lack of viable e-commerce alternatives. With iconic luxury retailers like Neiman Marcus, Saks Fifth Avenue, and Bergdorf Goodman forced to shutter their museum-like storefronts, the future of the department store model became grave. This led consumers and analysts alike to question how department stores would survive, and, perhaps more realistically, what would fill the gap in the market that their fate would inevitably create.

Enter: Farfetch.

Though relatively little known except to savvy luxury shoppers and international consumers until a few years ago, the online luxury retailer has since become one of the fastest growing and most prominent luxury e-commerce platforms in the world. With hundreds of new items added every day from an enviable list of iconic luxury brands and smaller, burgeoning labels alike, Farfetch boasts an impressive selection that rivals, if not exceeds those of other luxury department stores like Nordstrom or Neiman Marcus. However, it isn’t Farfetch’s selection that makes it so formidable, but the way in which the e-commerce giant is using technology and massive investments to revolutionize the dying department store model.

In Q4 2019, Farfetch posted its best numbers to date since it went public in the Fall of 2018. With a GMV of $740 million, revenues of $382 million, a loss of only $110 million, and a technology spend of $42 million—only 12% of the company’s adjusted revenue, compared to 22% in Q4 2018—Farfetch projected that its Q4 2020 GMV would exceed those of Q4 2019 by nearly four times. Unfortunately for the rapidly-rising e-tailer, those numbers didn’t come to fruition due to the pandemic. However, the company more than exceeded those numbers by Q4 2021, rebounding to post a GMV of $3.678 billion—more than $650,000 over its Q4 2020 projections. Furthermore, the company’s revenues rose to an unprecedented $666 million, erasing its previous $110 million loss in Q4 2020 and replacing it with a net gain of $97 million. And, despite its exponential growth, the e-commerce platform managed to curtail its technology spending, bringing it down 80 bps to 11% of its adjusted revenue—a 1% decrease from 2019.

Most striking on the company’s Q4 2021 balance sheet was the addition of a new business category: “in-store,” which raked in a gross profit of $45 million. With the unprecedented success of its online platform, Farfetch appears to be pioneering the future of the department store model: an online-heavy approach with boutique-like pop-ups that act as a form of experiential retail to lure customers in. Not only that, but the company also added a new category to its site: beauty. From Charlotte Tilbury, to Aesop, to Augustinus Bader, Farfetch’s newly-curated beauty selection boasts a number of difficult-to-find luxury skincare, makeup, and fragrance brands, yet again emulating department stores, but succeeding their collections.

One of Farfetch's concept retail stores. Credit: WWD.

On its crusade toward reinventing the department store model, Farfetch is also betting big on its formerly-great brick and mortar rivals, announcing just last month that it planned to invest up to $200 million in Dallas-based Neiman Marcus Group (NMG), which owns department stores Neiman Marcus and Bergdorf Goodman. With plans to take over the group’s e-commerce and elevate the North America-exclusive retailers’ wares to an international stage, Farfetch’s investment will bring much-needed technological savvy and a modernized digital approach to the iconic retailers.

Farfetch CEO José Neves & NMG CEO Geoffrey van Raemdonck. Credit: WWD.

Farfetch has also received outside investments from some of the most prominent fashion conglomerates. Just last year, Richemont and Alibaba announced a joint investment of up to $1 billion to be put toward expanding Farfetch within China. Though the deal has not been finalized, nor has there been any activity since the announcement, garnering joint support from one of the most prestigious luxury conglomerates and Amazon’s closest rival is a feat in and of itself. Not only does this signal Farfetch’s rise to the upper echelons of the luxury e-commerce space, but it bodes well for continued investment both from stockholders and major conglomerates alike.

Despite still being in its infancy as a company, I believe Farfetch’s impressive numbers and aggressive investments are only the beginning of what will be an ever-expanding, increasingly profitable “e-luxury” shopping model. If Farfetch’s deal with the Neiman Marcus Group is successful, it is likely that the company will continue acquiring and overhauling the e-commerce platforms of other antiquated department stores and boutiques. Ultimately, Farfetch has positioned itself as the future of the department store model. With a wide selection that supersedes that of Saks Fifth Avenue and can be shopped from the comfort of your couch, Farfetch has breathed new life into a dying industry and demonstrated just how successful a “digital department store” can be in the post-pandemic world of retail.

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