Farfetch’s future, following the finalisation of its agreement with Richemont in regards to the acquisition of Yoox Net-a-porter (YNAP), has concerned the market. Will José Neves, founder of Farfetch, be able to bounce back?
The Richemont group can breathe easy. The green light given to the deal at the end of October by the European Commission's Directorate-General for Competition, aimed at sealing the future of Yoox Net-a-Porter (YNAP), will enable the luxury giant to finalise a procedure demanded by investors while redistributing the cards in the e-commerce sector. YNAP was created through the 2015 merger of Richemont Net-a-Porter's digital activities with Italian online retailer Yoox. Yet, the product never really bore fruit. The mixed results of this entity have weighed heavily on the Swiss group's accounts. As such, asset depreciation for the 2022 financial year has risen to 2.7 billion Swiss francs.
Selling YNAP to an expert in the sector therefore seemed the best solution. Farfetch, founded in 2008 by Portuguese visionary José Neves, was seemingly deemed the best choice. The London-headquartered company has in fact revolutionised luxury e-commerce precisely by presenting itself as a ‘relevant’ alternative to its competitors (including Yoox and Net-a-porter, whose spending is colossal), thanks to its e-concession model, cutting-edge technology and multiple payment systems. This model attracted several investors, including Condé Nast International, leading Farfetch to become a unicorn in 2015, three years before it went public with a 6.56 billion euro IPO in 2018.
Renegotiation of the Richemont-Farfetch agreement?
However, the reality is that the opportunities derived from luxury e-commerce have not turned out to be as providential as expected. And the current performance of the company run by Neves has been deemed disappointing. In recent years, Farfetch's shares have failed to appeal to investors burned by the suspension of trade in Russia and the interminable restrictions on trade in China as a result of Covid. Forecast revenues for 2023 have been revised downwards. The CEO cited the slowdown in sales in the US, while experts highlighted the absence of factors that could give hope of an improvement in the macroeconomic outlook. Finally, a number of specialists pointed the finger at a lack of control over spending, citing in particular the 675 million dollar acquisition in 2019 of the Italian company New Guards Group, which owns the Off-White licence, as well as Palm Angels, Unravel Project or Ambush.
Can the crisis that Farfetch is going through jeopardise the deal initiated with Richemont? On the face of it, no. So much so that the Swiss giant's interest lies in clearly expressing the next stage of its digitalisation strategy. However, the deal cannot be done at any price. The first part of the deal approved by the authorities is based on an exchange: the luxury group is to receive ordinary A shares in Farfetch representing 12 to 13 percent of the British company's share capital in exchange for 47.5 percent of its shares in YNAP. It is understandable, given Farfetch's poor performance in recent months, that Richemont has every interest in renegotiating the terms of a deal that has become less financially attractive.
The future challenges of Web3
Beyond the value of the deal, commentators – investors but also fashion professionals watching with interest in the future of young labels such as Jacquemus, Coperni and, of course, Off-White – are wondering about the range of possibilities open to Farfetch. Will this acquisition enable the London-based company to weather the storm? Many doubt it. Yet José Neves' talent could be put to good use, precisely by Richemont, whose chairman Johann Rupert is constantly confirming his faith in online retail, beyond the current turmoil.
Farfetch has precisely the tools to successfully digitalise the distribution channels of the powerful group whose star houses, such as Cartier and Van Cleef & Arpels, are enjoying dazzling growth. Not to mention the technological advances that the London-based company is striving to maintain by providing support, in the form of an organised mentoring programme, to start-ups with ambitions to shape the future of e-commerce. This support focuses in particular on token-based loyalty, and immersive experiences based on augmented reality.
As part of a ready-to-wear virtual try-on (VTO) pilot project, for example, this year Farfetch teamed up with Valentino to carry out a second-generation, highly realistic VTO experience designed exclusively for e-commerce, driven by exclusive algorithms developed by Wanna, a company owned by the London-based firm. By banking on the fundamental challenges of Web3, Farfetch may not have said its last word.