VOGUE BUSINESS | MAGHAN MCDOWELL

Farfetch Platform Solutions is now profitable, but can it become luxury e-commerce’s go-to technology? As talks with Richemont’s YNAP progress, Farfetch CEO José Neves talks strategy to Vogue Business.

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Farfetch’s white label tech offering, Farfetch Platform Solutions (FPS), hasn’t had as much recognition as CEO José Neves might’ve liked. However, this is changing, thanks to last week’s confirmation that Richemont is considering using FPS’s e-commerce software for its brands and for Yoox Net-a-Porter (YNAP), which has for years been positioned as Farfetch’s dominant rival. As part of the potential deal, Richemont’s brands would join the Farfetch marketplace and Farfetch would make a minority investment in YNAP.

“It’s an area of our business that hasn’t been counted much, if I’m honest, but I think it will get further visibility as we progress on that mission,” Neves said during the company’s third quarter earnings call on 18 November, when he revealed that FPS is now profitable.

FPS is being primed to strengthen Farfetch’s position in the tech race among luxury e-tailers, offering profitability far beyond its marketplace. This is because clients who pay for software as a service need more software as their businesses grow — and in-house technology is a very expensive investment. The more successful competitors become, the more they would likely spend on Farfetch Platform Solutions — creating a similar model to Amazon Web Services, Neves points out.

In an interview with Vogue Business following the earnings call, Neves declined to answer questions about the status of the negotiations, what it would take to get the deal signed, or even why the companies revealed the discussions before agreements were finalised. He did reiterate that there was no guarantee the deal would be completed. “Richemont has announced it. We haven't announced anything — we simply confirmed the negotiations are ongoing,” he said. He also declined to comment on whether Richemont’s announcement came as a surprise.


His vision is for Farfetch’s technology to power major luxury players’ e-commerce sites, including but not limited to YNAP. Curation, which Net-a-Porter could bring to the table, would then allow competing multi-brand retailers to remain unique. “We will offer our technology. They then have a curation and they have a customer and they have a brand ethos, which is different from ours,” Neves explains. “I don't think in luxury fashion you can be all things to all people. And, therefore, this will always be an industry of community and partnerships. It will never be ‘winner takes all.’”

FPS is based on technology that Farfetch developed for its own marketplace, providing services including running brands’ websites, global payments, cross-border fulfilment, China-based services, “concessions as a service” for multi-brand ecommerce sites, in-store apps and other “connected retail” services. Its clients include Thom Browne, Chanel, Burberry, Harrods and others.

Neves said FPS has a pipeline that is “getting brands, retailers and e-tailers excited”, with details to be announced when contracts have been signed. He reiterated his eagerness to use FPS to power would-be competitors, even though the Farfetch marketplace itself still accounts for 80 per cent of Farfetch revenue, according to the company. Gross merchandise volume (GMV) for the marketplace was $828 million in the third quarter of this year; Farfetch Group, which includes New Guards Group and Stadium Goods, reported total GMV of more than $1 billion.

While these figures are more than double pre-pandemic levels, Farfetch’s stock price took a hit last week when the marketplace reported revenues of $583 million, short of analyst expectations, due to additional marketing and shipping costs and weaker-than-expected September sales. This ultimately cancelled out a surge in the share price after negotiations with Richemont were confirmed. Late last week, a Massachusetts law firm announced it was seeking investors interested in pursuing legal action against Farfetch for the fall in the company’s share price. (Lawsuits of this nature have become increasingly common. The law firm has an established record of litigating securities cases in the US on behalf of investors. Farfetch declined to comment.)

Neves says sales rebounded in October and the company is on track to achieve profitability for the full year. So far, the signs are that investors support the concept of the consolidation of Farfetch, Richemont and YNAP. “The market for personal global luxury products is in the midst of a structural shift to online, and we view Farfetch as best positioned to capitalise on the multi-year transition,” wrote Oliver Chen, MD of financial services company Cowen in a research note following the earnings call.

Chen says that a partnership could help improve profitability and growth for both Farfetch and Richemont. Farfetch would gain access to a substantial customer and revenue base, new brands and supply, curation and brand equity capabilities. Richemont would gain coveted digital talent, advanced supply chain, artificial intelligence and return on ad spend capabilities, he wrote. “When and if the partnership is forged, this could act as a positive catalyst for the stock.”

While it’s not typical for companies to announce pending deals of this size before they are finalised, Richemont and Farfetch could be hoping to gauge investor sentiment because it is so significant, says luxury consultant Robert Burke.

FPS and the technology race

The profile of online luxury e-commerce has been elevated during the pandemic, with Germany’s Mytheresa going public in the US; niche sites such as Ssense gaining traction; and Style Capital investing $130 million into Luisaviaroma with plans to IPO.

Securing Yoox Net-a-Porter as a client would be a coup for Farfetch, experts say. Both parties offer a suite of omnichannel services, including running e-commerce sites and fulfilment, for luxury fashion brands. Before they came together, Yoox and Net-a-Porter were considered early adopters and leaders in fashion-technology, attracting outside brands to pay for “omnistock” technology.

However, in late 2018, luxury giant Kering announced an end to its partnership with YNAP (originally launched in 2012 with just Yoox — Yoox and Net-a-Porter merged in 2015 to form YNAP), to be concluded by early 2020. Kering had decided to manage online sales in-house. The loss of Kering was significant, although YNAP still had brands such as Valentino, Moncler and The Row as white label clients. In 2019, Yoox founder and then YNAP CEO Federico Marchetti (who is now chairman), compared YNAP to a Lamborghini going very fast, watching competitors in the rearview mirror.

Farfetch, meanwhile, has a different business model to Net-a-Porter and other multi-brand e-commerce sites. Neves says that its original marketplace model, which didn’t hold inventory or curate the assortment, was a way for Farfetch to give potential clients a taste of Farfetch technology, which ultimately attracts FPS clients.

Neves points to the example of Harrods and Printemps: after Harrods joined the marketplace, it became an FPS client using some of the same technologies on its own website. Later, Printemps (like Harrods, owned by the Qatar sovereign wealth fund) signed up with FPS to use its connected retail technology. “Having a marketplace and then having the ability to platformise that marketplace is a tremendous opportunity,” Neves says. “It's what Amazon did with AWS, right? We've made very, very heavy investments in the technology platform and our logistics platform, and these investments are paying off.”

Farfetch also plans to expand its advertising technology business in 2022. In the third quarter of this year, it produced campaigns for Prada, Margiela, Balenciaga and Marni. Neves points to Farfetch’s advantage with its focus on luxury fashion consumers and a young audience of 3.6 million active shoppers with an average order value of $600. A recent project created a virtual Mount Olympus for Burberry’s Olympia bag.

“This is absolutely spot-on the type of consumer the brands want to attract,” he says, adding that Farfetch’s media solutions are designed to not look and feel like traditional ads. “This is something we've been doing for a couple of years and it's working well. And I think it's fantastic actually, you haven't noticed because it means that we're doing it in a very clean way, right? It's not the banners that we see on either side or ugly blue links that you see at the bottom of the Amazon pages. It's much more elevated.” If the YNAP deal finalises, this could potentially bring more brands — and more potential advertising clients — to Farfetch.

Despite seeing inspiration in Amazon, Neves isn’t worried about the potential for Farfetch’s far-reaching tech and ad offerings to result in a monopolistic mega platform for luxury fashion. “That’s not what we want to do,” Neves says. “What we want to do is be the platform that people can build upon so that people don't have to reinvent the wheel. We want to be part of the building blocks of the future of this industry. But this is not one single block. It's thousands of building blocks.”