Farfetch’s Slow But Steady Road to Profitability

Farfetch, the global platform for luxury retail, made headlines this year when it announced it had reached profitability after 12 years. As unprecedented changes continue to impact the ecommerce industry around the globe, Josh Greenblatt explores the platform’s slow but steady success, speaking with Farfetch CFO Elliot Jordan to learn how they did it.

A year ago, I purchased a pair of straight-leg trousers from a store in Toronto that quickly became my favorite—not least because they were impossible to find anywhere else, even online. The brand, Danton, is a cult French label that’s been engineering the precise workwear pieces you hunt for in cool, curated boutiques and thrift stores alike since 1931.

Last week, I was desperate to find another pair in a light wash time for the warm weather. After my usual ecommerce haunts and clever search wizardry failed to yield results, one website seemed to carry my pants: Farfetch, the innovative e-tailer that reached profitability after 12 years in February.

Farfetch's London headquarters.

What Farfetch does is connect consumers with more than 800 boutiques worldwide, relying on quick turnover and high margins, while providing a global platform for smaller, independent retailers who may not have the means to set up their own ecommerce sites. This also means that unlike some competitors, the company doesn’t own any inventory.

“E-tailers have a completely different supply chain and IT setup—as brands dump wholesale for concessions, they struggle to adjust their operations and systems,” says luxury goods analyst Luca Solca.

E-concessions, as they’re known in the digital space, are “the preferred mode of operation for brands with multi-brand channels,” says Farfetch CFO Elliot Jordan. “Brands no longer see online as a ‘nice to have’ but their #1 priority. And looking across the landscape, Farfetch is uniquely positioned to be their strategic partner.”

Farfetch CFO Elliot Jordan.

“Brands no longer see online as a ‘nice to have’ but their #1 priority. Farfetch is uniquely positioned to be their strategic partner.”

Farfetch allows indie retailers to reach new customers while maintaining control over price and presentation. This offers global visibility and allows the little guys to compete with massive retailers. “Not only are we the only global luxury platform offering e-concessions but we are continuing to offer revolutionary innovation by advancing Luxury New Retail (LNR), which is what brands need right now,” Elliot says.

Its tech-driven business model is also what helped propel its success during the pandemic. As lockdowns hit, brands and retailers shuttered, leaving the bricks-and-mortar business floundering without foot traffic.

From a business perspective, Farfetch was uniquely positioned to weather the storm of this last year better than others. “The pandemic has boosted digital luxury and Farfetch was ideally positioned to make the most of it,” Luca says. “There was more than a silver lining for Farfetch from the pandemic—Farfetch has won the lottery with it: stores were closed, consumers moved online in droves, brands and boutiques were eager to find demand on Farfetch, competitors were off.”

“Not only are we the only global luxury platform offering e-concessions but we are continuing to offer revolutionary innovation by advancing Luxury New Retail.”

Farfetch acquired New Guards Group for $675 million in 2019 to expand its capabilities into production, design and brand development.

Citing a report from retail research firm Jane Hali & Associates, Vogue Business notes that investing in logistics and new customer services, including same-day and 90-minute delivery in key cities, and improved technology to help better understand sizing (a key barrier to online shopping) helped position Farfetch as a leading online luxury e-tailer.

But a digital-first approach is only the foundation to Farfetch’s road to profitability. In 2019, the platform acquired New Guards Group for $675 million, the Milan-based company that produces and distributes nine brands including Off-White, Heron Preston and Ambush, to expand its capabilities into production, design and brand development.

Last November, Farfetch expanded into China with a new joint venture with Chinese e-commerce giant Alibaba called Farfetch China with massive investment from Richemont and Alibaba. Farfetch hopes the partnership will help it reach Alibaba’s 779 million consumers to become the largest global online luxury marketplace.

”We think as tech businesses, we’re not retailers,” said Farfetch founder José Neves on a Business of Fashion podcast. “We’re at the service of the best brands, the best retailers and we’re here to enable the industry…and this is open to everyone.”

Credit Suisse analyst Stephen Ju predicts that Chinese growth could help Farfetch hit 30 million shoppers within five years.

Farfetch’s innovative business strategy is clearly working: In 2020, the platform grew transaction value by 42% year-on-year in a world where overall luxury sales dipped drastically from the previous year. But complicated business jargon and financial analysis aside, Luca boils down Farfetch’s recipe for success to a few key factors: “Best-in-class assortment depth, a vast array of stock locations, the ability to adjust the business model to shifting conditions.”

As a consummate shopper, the irony of discovering cult brands on a global mega-marketplace is not lost on me. What’s more, this marketplace is supporting independent brands and retailers in a climate when keeping your business afloat is increasingly difficult.

Farfetch is the rare example of an e-commerce platform that has mastered technology, logistics, and customer experience to provide one of the most seamless and exciting shopping experiences on the internet. And now, from anywhere.

Farfetch is not the Uber of fashion—it’s the Farfetch of fashion.