By Mimosa Spencer and Abigail Summerville
PARIS (Reuters) – The end of the post-pandemic spending spree is hitting European luxury companies from LVMH to Kering, but none more so than e-commerce pioneer Farfetch.
Founded in 2007, Farfetch is one of the few global online retailers of high-end products from a range of brands, such as a $5,690 Saint Laurent wool coat and a white gold De Beers diamond necklace at $5,900.
Lately, Farfetch has been touting discounts of up to 45% on clothing and accessories from a number of smaller brands, including Diesel, Balmain, Lanvin and Balenciaga.
Its shares plunged more than 50% on Nov. 28 after the company postponed its quarterly earnings report, saying past financial forecasts should no longer be relied upon.
On Tuesday, Moody’s lowered the company’s credit rating further into “junk” territory and put it on watch for further downgrade, citing its deteriorating financial situation.
Farfetch’s woes don’t just reflect the economic headwinds that are dampening demand for new fashions from aspirational shoppers.
Its long-term challenge lies in brands seeking greater control over their products, usually in their own retail stores – a strategy aimed at avoiding the discounts that third-party retailers like Farfetch rely on to attract shoppers .
Major brands Chanel, Hermès, as well as LVMH’s Louis Vuitton and Dior have taken the lead in controlling all aspects of selling their products, while Burberry is reducing the number of third-party retailers carrying its products and modernizing its stores. It opened 33 stores, including in Los Angeles, Tokyo and London, in the first half.
Kering, owner of Gucci, Saint Laurent and Balenciaga, has also recently opened stores in these cities.
“It’s a trend where brands prefer to control their own distribution,” said Caroline Reyl of Pictet, a Swiss multinational private banking and financial services company that owns shares in Richemont and LVMH, but not Farfetch.
By strengthening their grip, including through shop-in-shop agreements at department stores, “they control everything, basically,” including prices, buyer data and brand positioning, Reyl said about premium brands.
Farfetch declined to comment when asked by email about the change in retail trends.
The London-based company, listed in the United States, is working with JPMorgan and Evercore to explore options, including a sale, two sources familiar with the matter said.
Farfetch founder Jose Neves is considering taking the company private, according to the Daily Telegraph newspaper.
Farfetch and JP Morgan declined to comment. Evercore did not immediately respond to requests for comment.
DIVERSIFICATION AND COMPLICATIONS
Richemont, facing similar challenges to its YNAP online business, which includes Net-a-Porter, has reached a deal in 2022 for Farfetch to eventually take control of YNAP – a deal involving the transfer of Richemont labels to the Farfetch technology.
Farfetch is not just an online marketplace. It is also a technology company that powers the e-commerce of high-end British department store Harrods and Italian fashion house Ferragamo, and is in the process of doing the same for American department store Bergdorf Goodman.
Richemont on November 10 expressed confidence in Farfetch technology, but said it would not inject cash into the company.
Farfetch and Net-a-Porter are also looking to lure customers with exclusive brand deals, with Farfetch recently offering early access to pre-spring looks, like a floral print dress for 1,950 euros ($2,105) from Dolce & Gabbana and Net-a-Porter. a €1,700 limited-edition wool skirt from Gucci, complete with a horsebit, ahead of its official release this month.
But discounts, which labels fear degrading their image, remain a major attraction for buyers of online markets.
“Large brands will be reluctant to engage as they strive to implement high price discipline and stay away from promotions, while weaker brands will play along,” Bernstein predicted in a note addressed to customers in 2019.
That year, Farfetch embarked on a diversification strategy by purchasing brands and licenses to distribute them, such as the streetwear brand Off White, via the acquisition of New Guards Group.
In 2022, the company added a licensing deal to distribute Reebok products and expanded into the beauty sector with the purchase of Violet Grey, taking control of the products to potentially drive shoppers to its site – although She has since retired from beauty and said in August that she was considering options. for Violet Gray.
But slowing demand for luxury goods in China and the United States has complicated its efforts to turn a profit, while critics say the business has become too complicated.
Olivier Abtan, consultant at Alix Partners, said that when a retailer is under heavy commercial pressure, coupled with profitability concerns, it might be tempted to increase discount levels – but this can become a vicious cycle.
“In my experience, when a business is not doing well, peak seasons do not help it improve, but rather tend to exacerbate the decline,” Abtan said.
($1 = 0.9264 euros)
(Reporting by Mimosa Spencer and Abigail Summerville; editing by Mark Potter)
