Farfetch sales soared as online shopping took off during lockdowns | News and analysis, BoF Professional
NEW YORK, United States – According to Farfetch’s latest financial results, luxury shoppers logged in online to purchase large numbers while locked.
The company saw the total value of the products sold on its platforms up 48 percent year-over-year to $ 721 million in the second quarter, translating to $ 365 million in revenue for the company. The growth was driven by 500,000 new customers, the company said, driving site traffic up 60 percent year over year.
The results show that Farfetch benefits from some of the same forces that hurt many of the brands offered on its site. The pandemic has proven to be an extremely challenging period for the luxury fashion business, which Bain & Company projects will shrink by as much as 35 percent this year.
“What we are witnessing is a real paradigm shift, and I think this paradigm shift is happening on both the demand side and the supply side,” said Farfetch Founder and CEO José Neves analysts told an earnings call on Thursday.
Farfetch plans to ride the wave to profitability. The fashion market went public in 2018 and has been criticized by analysts in recent years for its high customer acquisition costs, changing business model and acquisitions.
But analysts are optimistic about the current outlook. The company’s share price has more than doubled this year, while Kering and LVMH have yet to recover from the sharp declines at the start of the pandemic.
Farfetch still expects to stick to its pre-pandemic timeline of break-even by 2021, despite ongoing uncertainty about consumer behavior until a vaccine is widely distributed.
In the second quarter, Adjusted EBITA contracted more than half to a loss of $ 25 million, from $ 56 million in the previous quarter and $ 38 million in the same quarter last year. Neves and Chief Financial Officer Elliot Jordan have attributed multiple factors to this cut, including lower customer acquisition costs, which are down 30 percent year-on-year, and more higher-margin services, such as the platform solutions that operate corporate e-commerce sites. also for the London department store Harrods.
Farfetch also spent less money on promotions such as free shipping offers to attract buyers, and saved money on paid marketing spend such as search engine advertising because of a less competitive environment with challenged peers.
The company expects the rally to continue. Jordan expected an adjusted EBITDA loss of between $ 20 and $ 25 million in the third quarter, as well as 40 to 45 percent growth in gross trading volume in the Farfetch market.
The longer the pandemic continues and makes in-store shopping less attractive to luxury shoppers around the world, the greater the benefit to Farfetch, Bernstein analyst Luca Solca wrote in a recent note.
What we are witnessing is a real paradigm shift.
The abundance of inventories in the market due to low sales at many brands could also be beneficial to Farfetch. The company’s marketplace stocks items sold by wholesale boutiques – such as the newly signed Printemps department store in Paris – that needs the platform to help unload unsold goods. And some of Farfetch’s competitors, notably Yoox Net-a-Porter, have had warehouse issues that also make Farfetch’s service more reliable for shoppers, Solca’s note said.
But there are still serious challenges on the horizon for Farfetch. The platform offers greater discounts than its online rivals, according to data from Bernstein, and the more it attracts shoppers looking for deals, the more difficult it can be to keep those customers for the long haul.
Jordan told analysts on Thursday that the platform is already seeing evidence of new shoppers staying with Farfetch and that the average order value, which fell 18 percent year-over-year to $ 493, is already recovering and is expected to decline. year with only low single digits in the third quarter.
While the weaknesses in the wholesale market may make boutiques work with Farfetch, the decline of the multi-brand channel will shift more power to the individual luxury brands. Farfetch relies on big name products such as Gucci and Saint Laurent to drive traffic to the site, according to data from Bernstein. But in recent years, luxury brands have become more resilient to the challenges of the wholesale market and their distribution has been significantly scaled back, to just 10 percent for Prada in the first half of 2020.
“We’re a direct-to-consumer channel for brands and if they move away from wholesale, they actually double on Farfetch,” Neves told BoF on Thursday, adding that the company is also “very keen to support brands” in its own right. e-commerce sites through its business service offering, which enables websites for brands.
Neves said the top 20 brands operating e-concessions directly through Farfetch saw their sales double in the most recent quarter. He also highlighted exclusive collections with Gucci, Burberry, Fenty and other luxury brands as offerings that set Farfetch apart from its competitors.
But Solca’s comment said that the increased focus of luxury brands on direct ecommerce could mean Farfetch’s relationship could be less lucrative to the market and contribute less to the promotions Farfetch typically uses to drive customers to the site. .
Another question lies in the future of Off-White, the leading brand in the New Guards Group portfolio, which is driving Farfetch’s significant profitability and serving as an important low-cost traffic driver for the company.
The division of the New Guards Group saw sales fall 6 percent in the third quarter, better than many peers who see sales declines of more than 30 percent. With a 41.8 percent profit margin, the division continues to drive profitable growth for Farfetch, and Neves highlighted an Off-White Jordan sneaker launch in July that yielded “800 million hits” in online traffic with no paid marketing.
The brand, founded by Virgil Abloh and manufactured by New Guards through a licensing agreement, offers deeper discounts than many other luxury brands in the market, according to Bernstein, which could indicate a decline in demand for the brand. But the company reports that the brand’s sneakers continue to arouse significant consumer interest.
Farfetch also announced significant changes to its board of directors, which Neves said were part of the natural shift following the IPO. Natalie Massenet (founder of Net-a-Porter), Jon Kamaluddin (partner at Felix Capital, chairman of the board of Klarna), Jon Jianwen Liao (Chief Strategy Officer of JD.com), Danny Rimer (Partner at Index Ventures) and Mike Risman (Managing Partner at Vitruvian Partners) will step down. They will be replaced by Stephanie Horton (director of marketing for Google Shopping), Diane Irvine (former CEO of Blue Nile), Victor Luís (former CEO of Tapestry) and Gillian Tans (Chairman of Booking.com).
Disclosure: Index Ventures is part of a group of investors who together have a minority stake in The Business of Fashion. All investors have signed the shareholder documentation, which guarantees the full editorial independence of BoF.
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