As luxury spending increasingly moves online, online luxury fashion marketplace Farfetch is seeking an IPO. (Photographer: Luke MacGregor/Bloomberg)
Online luxury fashion marketplace Farfetch said Monday that it plans to go public, seeking to capitalize on the fact that the luxury fashion industry is grappling with the same issues also facing its commodity grocery and many other retail industry counterparts: how to respond to consumers’ increased comfort with buying online and their growing demand for instant gratification.
Farfetch is just the most recent example of a business benefiting from the luxury industry's need to crack the code on today's high-end consumers. Just look at Swiss luxury goods giant Compagnie Financière Richemont’s purchase this year of the rest of
Here are five industry trends to take away from London-based Farfetch’s F-1 filing (equivalent to an S-1 filing but for a foreign issuer). Farfetch, seeking to be listed on New York Stock Exchange under the ticker symbol FTCH, is reportedly valued at $5 billion. Its investors include Condé Nast parent Advance Publications and China's e-commerce giant JD.com.
By 2025, luxury fashion e-commerce will have a quarter of the industry's market share. In a storyline familiar across pretty much all the retail sectors, a growing number of luxury consumers are showing they no longer need to be pampered in a physical store or to see and touch a product before they shell out big bucks. For instance, 10-year-old Farfetch’s active consumers, or those who have made a purchase within the past 12 months, rose 44% to nearly 935,800 at the end of 2017 from 2016 and more than doubled from just 416,000 in 2015. The total value of products purchased on its site climbed 55% to $910 million last year.
Industrywide, online’s share of the personal luxury goods market is expected to rise to 25% by 2025 from about 9% last year as the entire market pie will see 45% growth to $446 billion over the same period, from $307 billion last year, Farfetch said in the filing, citing a Bain & Co. study.
Some retailers look to be responding to the trend faster than others. For example, U.S. luxury fashion retailer Nordstrom last week reported a 23% jump in Q2 online sales, catapulting online to 34% of its total business, up from 29% a year earlier.
Yes, credit or (blame) Millennials, and soon Gen Z. Nodding to the importance of Millennial consumers, Farfetch mentioned the word "Millennial" 13 times in the filing and defined it as "a person born in the years 1980 to 1994.” Citing data from Bain, Farfetch said the online spending power of Millennial and Gen Z consumers, or those born between 1995 and 2009, together represented about 85% of the growth in luxury fashion sales last year. By 2025, the two groups combined, mostly led by Millennials, will represent 45% of total luxury spending. That will beat the 40% share expected to be held by Gen Xers, or those born between 1965 to 1979 — currently the biggest luxury-fashion buyers.
Democratization of luxury fashion? Just as traditional CPG giants have been disrupted by upstarts like Dollar Shave Club as direct-to-consumer online sales have leveled the playing field for young brands seeking access to consumers, marketplaces like Farfetch are giving smaller luxury brands and boutiques a bigger opportunity to reach a global consumer base.
While the world’s largest luxury fashion labels typically reach consumers by building “expansive networks of directly operated stores and through department stores, emerging brands typically have no route to the global market, and their distribution is limited by their ability to finance and produce sufficient supply for each local market,” Farfetch said in the filing, adding that smaller brands have largely relied on independent fashion boutiques as their main distribution channel.
On Farfetch’s site, for instance, consumers can shop well-known legacy luxury brands including Tiffany, Burberry and Fendi alongside “new brands to know.” Farfetch said in the filing that it has partnerships with about 375 brands and 614 luxury retailers, including boutiques in cities from Memphis to Atlanta.
Data science is hot. Just as data science and the use of technology came up as a key selling point in personalized styling clothing service Stitch Fix’s IPO last year, Farfetch didn’t forget to mention that 35% of its total headcount at the end of last year came from the technology and product department, which was the biggest part of its workforce and was made up of 802 full-time data scientists, engineers and product employees. The company said it plans to increase its technology headcount, including additional data scientists and engineers, to about 1,500 by the end of this year. In fact, the word "technology" came up a whopping 173 times in the filing.
“We are a technology company at our core,” Farfetch said. “We operate at the intersection of luxury fashion, online commerce and technology.”
What kind of data does it have? Farfetch said it has "real-time inventory data, global behavioral and transactional data and pricing data for over 335,000 SKUs (unique units) from more than 3,200 different brands" on its marketplace at the end of June.
Farfetch isn't the only "technology company" serving the retail industry. It said in the filing that besides competition like luxury sellers, it could face challenges even from "technology enablement companies" like Shopify, which helps merchants set up and operate online stores, or mobile payment company Square.
Growth at the cost of profit may be the new norm. Amazon’s years-long model of investing behind growth before it finally turned a profit looks to be increasingly popular among companies eyeing online growth and seems to be accepted by investors. While Farfetch’s revenue, primarily from commissions it earns from product sales on its site, jumped 60% to $386 million last year, its technology expense alone almost tripled to $32 million. Its loss widened by nearly two-fifths last year to $112 million.
Farfetch said it’s investing in things including augmented reality and is also working with Chanel on projects that will better connect the dots and improve consumer experiences cross-shopping online and in brick-and-mortar stores. In another proof that brick-and-mortar retail will play a key role in increased online spending, Farfetch in 2015 bought British luxury fashion boutique Browns to “understand the luxury fashion ecosystem through the lens of a boutique.”
Meanwhile, just as getting delivery service right has become a high-stakes battleground in the online grocery war, Millennial and Gen Z consumers seeking instant gratification make fast delivery an imperative on the luxury fashion end. Farfetch said it offers same-day delivery in 18 major cities. Through a partnership with Gucci, it can deliver select Gucci goods in 90 minutes to customers in 10 global cities, it said.
High-end or low-end, the competitive differentiators increasingly look the same.
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https://www.forbes.com/sites/andriacheng/2018/08/21/what-farfetchs-ipo-filing-says-about-the-300-billion-luxury-fashion-industry/
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