What the Farfetch-Alibaba-Richemont Tie Up Means for the Future of Online Luxury | News & Analysis, BoF Professional
NEW YORK, United States — Some of the luxury market’s biggest competitors are teaming up in a bid to dominate China’s booming online market for high-end watches, jewellery and apparel.
On Thursday, Farfetch announced that it will form a new joint venture in China with tech-giant Alibaba. As part of the deal, Alibaba and Swiss luxury group Richemont have invested $300 million each, plus $250 million each in a new joint venture, Farfetch China. They’ll own a combined 25 percent stake in the unit, with the option to acquire another 24 percent. The Pinault family, owner of French luxury conglomerate Kering, has also upped its current stake in Farfetch by an additional $50 million.
The deal is a major sign of support for Farfetch, cementing the marketplace’s status as the leading player in the online luxury market. It also could mark the start of a long-awaited consolidation in the space, where numerous small and mid-sized websites compete for the same pool of wealthy consumers. The biggest loser in the deal is Yoox Net-a-Porter Group, which has seen its owner (Richemont) and Chinese partner (Alibaba) invest in its biggest rival.
Farfetch has seen sales soar during the pandemic, reporting $721 million in sales in the second quarter, a 48 percent increase from the same period last year (the marketplace takes a cut of sales).
Farfetch stock hit an all-time high this week after media reports about the impending investment on Monday, as investors interpreted the deal as a vote of confidence in the platform, which has yet to turn a profit. Founder and Chief Executive José Neves has previously said Farfetch expects to break even next year.
“This is without a doubt excellent news for Farfetch,” Bernstein analyst Luca Solca wrote in a note, highlighting that Farfetch now has the backing of two Chinese internet giants, Alibaba and Tencent, and two luxury giants, the Pinaults’ Artemis and Richemont.
As part of the new investment, Farfetch will open shops on Alibaba’s luxury platform Tmall Luxury Pavilion, its luxury outlet platform Luxury Soho and its cross-border marketplace Tmall Global — quickly expanding its reach in Asia, the world’s fastest-growing luxury market. Farfetch previously gained inroads with Alibaba rivals Tencent and JD.com, an early investor.
In addition to a major leg up in China, Farfetch will also benefit from a closer partnership with Richemont and Kering (via Artemis) as luxury brands continue to invest more in mono-brand e-commerce to better control their client relationships and brand equity. It also sets Farfetch up as the go-to technology provider for luxury brands, a role Yoox previously held. Kering formed a joint venture with Yoox in 2013, and the company, which later merged with Net-a-Porter, operated its mono-brand websites until that partnership ended in 2018. Moncler also exited a similar deal in July.
The investment also brings together two luxury rivals, Richemont Chairman Johann Rupert and Kering Chairman and Chief Executive François-Henri Pinault, who will join Neves and Alibaba as representatives on a committee that will aim to “[lead] the digitisation of the global luxury retail industry,” according to a release from Farfetch, and explore new ways to incorporate digital into luxury retail.
Both Richemont and Kering are substantial in size but nowhere near the level of LVMH. Analysts have speculated about the advantages of closer ties – or even a merger – for years. While Kering has seen exceptional growth in recent years through Gucci and Saint Laurent, the group has also been on the hunt for new growth opportunities.
Richemont has underperformed Kering and LVMH. The company’s stock has dropped 15 percent over the last five years, while shares of LVMH and Kering have increased by 197 percent and 260 percent, respectively. The Swiss company’s problems stem from both YNAP and its fashion brand portfolio.
Its stable of hard luxury brands, including Cartier and Van Cleef & Arpels, represent 51 percent of revenue but drive the vast majority of its profit. That category dominance is now being threatened by LVMH, which has seen success with its 2011 Bulgari acquisition and will further establish its expertise in the space with its pending acquisition of Tiffany.
Richemont and Kering’s shared interest in Farfetch’s new initiative could indicate a sign of more conversations to come between the two rivals.
Richemont’s investment in a direct competitor of YNAP also calls into question its strategy for that business, which competes with Farfetch for customers. The business models are different, however: YNAP is a majority wholesale business known for its edit of products, while Farfetch acts as a middleman between luxury brands, boutiques and customers.
Alibaba and Richemont first formed a joint venture to expand YNAP’s reach in China in 2018, the same year Richemont fully acquired the luxury e-tailer. Since then, YNAP has struggled with botched technology investments, high customer acquisition costs and excess inventory. The challenges grew in 2020 when YNAP was forced to temporarily close some of its warehouses due to the pandemic. Losses in Richemont’s online distributors group in the year ending March 2020 were €241 million ($285 million).
After a long string of upper management exits, YNAP Chief Executive Federico Marchetti announced his departure in March, but a replacement has yet to be named.
Back in 2015, Net-a-Porter Founder and then-Chief Executive Natalie Massanet proposed a merger with Farfetch to Richemont, according to sources familiar with the discussions, but Richemont partnered with Yoox without first seeking Massanet’s approval. The deal resulted in the exit of Massanet, who later joined Farfetch as a co-chairman in 2017. She stepped down from that role in August.
Could a strategic partnership between Farfetch, with its modern model, and Net-a-Porter, with its strong brand identity, be another step in the industry’s consolidation?
“It would be an ideal way out for all parties concerned,” said Solca in an email to BoF.
Related Articles:
French Investor Eurazeo Sells Farfetch Stake
Are Online Marketplaces the New Department Stores?
Source link
