VOGUE BUSINESS | MAGHAN MCDOWELL

Alibaba and Richemont’s joint billion-dollar investment in Farfetch will create some industry winners and losers, while underscoring the importance of digital technology for luxury fashion.

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The pandemic has demonstrated that luxury fashion needs digital know-how and the Chinese consumer to survive. The Farfetch mega-deal, announced last week, shows the 13-year-old luxury e-commerce platform investment may be a signal of more to come.

In a multi-part announcement on 5 November, Farfetch confirmed that it had received a combined $1.15 billion from Chinese e-commerce giant Alibaba, Swiss luxury conglomerate Richemont, owner of Yoox Net-a-Porter, and rival Kering’s controlling shareholder, Artémis, to form a global partnership investing in Farfetch and a newly formed Farfetch China joint venture. The deal means Farfetch will launch on Alibaba-owned Tmall Luxury Pavilion, its outlet platform Luxury Soho and Tmall Global, the cross-border marketplace connecting Chinese consumers with international brands online. A new initiative called Luxury New Retail will also make it easy for brands to sell directly to customers in China through access to both Farfetch and Alibaba's Tmall Luxury Pavilion.

The Farfetch investments highlight just how important digital has become for the luxury sector amid Covid-19 store closures, as well as the importance of China, a consumer whose interest in luxury has become even more pronounced as they return to spending during the pandemic. The combination of both rival tech firms Alibaba and Farfetch, alongside rival luxury conglomerates Richemont and Kering are evidence of this, and signal further consolidation and interest in partnering with tech platforms and luxury, analysts and investors suggest.

“People are making strategic investments and becoming very close,” says Michele Romanow, co-founder and president of Clearbanc, billed as the world’s largest e-commerce investor. “If you have a combination of brand and audience, you can become very valuable.”

“This is probably one of the biggest partnerships or collaborations that has happened in many years. A lot of big players are leveraging expertise and knowledge for the online market,” adds luxury industry consultant Robert Burke.

These are unlikely bedfellows: Richemont owns Farfetch competitor Yoox Net-a-Porter, which also offers a concession model to luxury brands and itself entered a “global strategic partnership” with Alibaba almost two years ago. Meanwhile, Alibaba competitor JD.com invested in Farfetch in 2017, and Richemont and Kering are two of the major competing luxury conglomerates.

José Neves, CEO of Farfetch, said during an analyst call on Friday, he is not ruling out a merger between YNAP in the future, adding that until now, it did not have a relationship with parent-company Richemont at all. “We partner with luxury brands in so many different ways, and to look at what we can do for the maisons and how we can work in a more close manner is very exciting. I’m very excited about the opening of doors that this deal enables.”

There is also the question if Kering, which last year separated from a joint venture with YNAP and instead brought all of its e-commerce and omnichannel operations in house, would eventually turn to Farfetch for this technology. While there is “nothing to announce” to that end, he points out that Kering is already utilising the Farfetch technology in multiple ways. “As with all the other groups, we continue the conversation,” he said.

This partnership is a testament to the importance of China, Burke says: it’s an incredibly complex market but also one of the most lucrative.

Richemont sales were down 47 per cent between April and June, but in China, sales grew 49 per cent. China is Farfetch’s second-largest market after the US, and Chinese customers are anticipated to account for 50 per cent of all global spending on high-end brands this year according to McKinsey & Co. In a statement, Alibaba chairman and CEO Daniel Zhang pointed out that the Chinese luxury market is made up of “hundreds of millions of young, digitally native consumers”.

A consolidation of this nature is an industry-wide acknowledgement that shared tech infrastructure is more likely to succeed than competing strategies. “[In 2013,] I made an appeal to the other luxury goods companies to join us… I wasn’t sure that any single luxury goods company, no matter how big, could do [it] on their own and appealed to the other groups that we would form a platform and really do it like Spotify has now done with the content providers… Everybody acted in their own best interest,” Richemont chairman Johann Rupert told analysts on a call Friday. He later bought a majority stake in Yoox Net-a-Porter for scale. This deal appears to be closer to the hybrid model he previously envisaged, especially given Rupert said he was approached by Farfetch and didn’t initiate the conversation.

Farfetch, for its part, reached $1 billion in revenue in 2019, but is not yet profitable, having invested heavily in its tech, operations and marketing. The company, which has 2.5 million active customers, expects to hit profitability in 2021.

“We are a tech business. We created Farfetch to partner with the best luxury brands and retailers. If a company is a luxury brand or retailer, they are a potential partner.” Farfetch’s most significant competition is marketplaces, Neves says, especially Amazon’s Luxury Stores.

“Amazon is formidable competition and an incredible company, but Amazon stands for convenience. It is a value-driven platform, and that is the antithesis of luxury,” Neves told Vogue Business. “Luxury is driven by emotion. That is our biggest competitive mode and advantage and why many brands have second thoughts about joining Amazon.”

In early talks with Kering CEO François-Henri Pinault, Rupert and Zhang, Neves says there was a “shared sense of urgency” in light of the pandemic, which forced many retail stores across the world to close. “In a post-Covid-19 world, extending omnichannel to China will be vital for all luxury brands and retailers.”