Back in 2007, José Neves saw online e-commerce was the inevitable future of the luxury market. He set out to make the most of it and founded Farfetch as a global marketplace for brick-and-mortar fashion boutiques to expand in the nascent e-commerce channel.
At the time, the powers that be in luxury were not convinced, believing that customers would always want the physical luxury shopping experience. The prevailing view was only a handful of luxury shoppers were going to gravitate online and there were already established players in that space – YOOX and Net-A-Porter both established in 2000.
As its name implied, Farfetch was a far-fetched dream of an industry outsider trying to break into a market that was already sewn up.
Slowly and relentlessly, Neves carried his digital vision for the luxury market forward, expanding from Farfetch’s marketplace roots by offering its white-label technology platform to luxury fashion brands as their e-commerce solution.
The beauty of its marketplace business model was it didn’t hold any stock and its partners fulfilled orders. It was a technology-first company, offering customers access to luxury fashion – and brands access to those customers and its proven digital tools.
Reaching critical mass
By 2018 it had reached critical mass and went public. At that time, online had only a 10% share of the personal luxury goods market. It was also around the same time that its chief competitor YOOX Net-A-Porter (YNAP), which had merged three years earlier, was acquired by Richemont Group, one of the big three in the luxury market, along with LVMH and Kering.
Since then, YNAP, which operates under a traditional e-commerce model, but like Farfetch, it offers its technology platform to support other brands’ e-commerce, has been barely treading water. Sales peaked in 2020 at $2.6 billion but declined by nearly 10% to $2.4 billion in 2021.
By contrast, Farfetch has been scoring win after win in the luxury market. Its gross merchandise value (GMV) has advanced from $1.2 billion in 2018 to $4.2 billion in 2021, which was up over 33% year over year. It also turned the corner on profitability last year.
Farfetch now has its hands in some 6% of the total $68 billion online personal luxury goods market. Overall the online share of the personal luxury goods market reached 22% in 2021, second only to mono-brand stores, and is predicted to become the largest single distribution channel by 2025, with between 28% to 30% share.
Neves understood where the luxury market was heading and if he didn’t get there first, he got out there with a better business model and technology solutions for luxury brands and retailers.
Ironically, Richemont, alongside Alibaba, invested $300 million each in Farfetch Limited in 2020 and $250 million each in Farfetch China, its “luxury gateway to China.” At the same time, Francois-Henri Pinault, CEO of Kering, increased its investment in Farfetch by $50 million through his family’s Artemis investment company.
They put their money behind Farfetch’s Luxury New Retail initiative driven by Neves’ vision to become the undisputed “global platform for luxury.”
Where Neiman Marcus fits
Now instead of being on the receiving end, Farfetch is going in the other direction by investing $200 million in Neiman Marcus Group (NMG), which will use the proceeds to enhance its omnichannel performance. With this new partnership, Farfetch raises its status in multi-brand retail after a year of supporting Harrods’ e-commerce strategies.
Commenting on the partnership with NMG, Neves said in a statement, “This partnership is about revolutionizing the luxury landscape globally, both online and offline, by combining NMG’s iconic presence in the U.S. and Farfetch’s Luxury New Retail vision and technology.”
Initially, NMG will apply Farfetch’s Platform Solutions (FPS) to its Bergdorf Goodman brand, re-platforming its website and mobile application and expanding its digital presence globally.
In addition, both Bergdorf Goodman and Neiman Marcus will join the Farfetch global marketplace. Neiman Marcus also plans to use select FPS modules in its business, initially to extend its global reach.
“We are thrilled to be partnering with Farfetch to accelerate our e-commerce strategy, creating a seamless customer experience,” said Geoffroy van Raemdonck, NMG’s CEO, in a statement.
“José and the entire Farfetch team have built a best-in-class technology platform,” he continued. “We look forward to partnering with Farfetch to continue revolutionizing the luxury customer experience and delivering value to all our stakeholders.”
In-store innovation on the horizon
In both statements, Neves and van Raemdonck suggest other things are on the horizon, not just online but in the stores. Farfetch’s tech-enhanced London-based Browns flagship boutique provides a hint of what may be ahead for both Neiman Marcus and Bergdorf Goodman stores.
Browns’ consumer app puts the entire power of the luxury shopping experience into the customers’ hands. Besides booking virtual or physical appointments with stylists, virtual try-on opportunities and conducting visual searches, customers can connect with sales associates via a personal QR code, find wish list items in the store and engage with location-specific merchandise.
Sales associates have their own instore app to access customer profiles, view global inventory, send product recommendations to shoppers, manage payments and support other instore operations.
Connected touch-screen mirrors are installed in fitting rooms that provide product storytelling, offer multiple outfit views, availability of selections by size and further product recommendations. And every product item has a Farfetch smart tag that acts like an “offline cookie” to track customer interactions with products and help optimize store layouts and merchandising.
While Neves and Farfetch initially set out to conquer the online luxury market, the technology embedded into the Browns’ store shows the way to bring a truly integrated omnichannel shopping experience to luxury customers both online and offline.
More to come
What Amazon is to mass-market retail, Farfetch is poised to become in the luxury retail market, especially as it will expand from fashion into beauty this year.
Neves and Farfetch have entered luxury’s inner circle and are ready to make good on the promise of continued market share growth and profitability.
“The accelerated digitization of the luxury industry highlights the opportunity to leverage the unique capabilities of the Farfetch platform, to extend our track record of capturing market share while delivering further profitability,” he said.