Is luxury's favorite e-tailer about to go bankrupt?


For more than a decade, Farfetch has been a global retail powerhouse, selling billions of dollars worth of coats, shoes, bags and other luxury goods.

But in recent months, the online platform, which was valued at more than $20 billion at its peak in 2021, it has been fighting for its survival. Its share price has plummeted, rumors have circulated that its founder is attempting to take the company private, and reports suggest it will need a lifeline. at least 500 million dollars before the end of the year to prevent it from going bankrupt.

Farfetch has several big-name investors, including Alibaba, the Chinese tech giant; Artemis, the holding company of the billionaire Pinault family, owner of Kering; and Richemont, the Swiss luxury group. The company's shares lost about a third of their value this week, falling at one point to a record low of just 60 cents, giving the company a market value of about $250 million.

Farfetch declined to comment for this article.

How did Farfetch fall so far and so fast? Who could intervene and save him? And who will be affected if he collapses?

Farfetch was born in 2007 as an e-commerce marketplace for traditional fashion boutiques. This meant that a shopper in London could buy boots at an independent store in Paris, or a customer in Beijing could get a bag that was not available locally at a store almost 5,000 miles away, in Venice. Today it works with more than 550 fashion boutiques in 190 countries.

As consumers' appetite for purchasing luxury goods online began to grow, the company also began working directly with fashion brands to build their websites and back-end operations. Through Farfetch Platform Solutions, the company now offers a range of e-commerce services to brands, such as Burberry and Ferragamo, and department stores, such as Harrods and Bergdorf Goodman.

In 2015, it bought Browns, the London fashion boutique, and in 2018 the company, then described as “the Amazon of fashion,” went public on the New York Stock Exchange.

José Neves, 49, is a Portuguese businessman whose first foray into the fashion business came in 1996 with a shoe brand called Swear. For years, the fashion industry viewed him as an innovative guru who could guide brands toward successful digital strategies, and as a result, he amassed a personal fortune estimated at $2.5 billion.

Farfetch is a public company, but Neves still owns a 15 percent stake and 77 percent of the voting rights through a dual-class share structure.

Farfetch takes a cut of more than 30 per cent of sales for making a retailer's stock available to almost a million active customers. The company first reached profitability in 2021, but has since struggled to maintain it.

The luxury retailer's risk appetite began to become evident in 2019, when more than $2 billion disappeared from its market value in a single day after it surprised investors with its $675 million acquisition of the Italian holding company. New Guards Group, owner of the license. for the fashion brand Off White and brands such as Palm Angels, and recorded larger than expected losses.

Neves defended the acquisition, saying Farfetch was still in growth mode, but critics felt it was a costly departure from Farfetch's original logistics-focused, inventory-free strategy. It also owns a $200 million stake in US department store Neiman Marcus.

Still, several of fashion's biggest players kept the faith. Alibaba and Richemont backed Farfetch through complex partnership in which they invested $300 million each in the company, and another $250 million each for a 25 percent stake in its Chinese subsidiary. Its market value peaked at $23 billion in early 2021, as luxury purchases surged during the pandemic.

Since then, there have been major headaches. Overhead costs skyrocketed as the company continued to grow. This year, in Farfetch's second-quarter results, the New Guards division reported a 40 percent drop in sales, despite a much-celebrated partnership with Reebok that was unveiled earlier in the year. Farfetch also reported $1.15 billion in debt for its fiscal quarter ending in June.

There have also been seismic shifts in the broader fashion landscape. Many larger brands are pushing for greater control over their distribution and e-commerce operations, in part to avoid discounts from external partners like Farfetch. There has also been a slowdown in the global luxury market, especially in key markets such as the United States and China.

Last month, investor confidence was shattered after Farfetch said it was postponing the release of its latest quarterly results, saying it “would not be providing any forecast or guidance at this time, and that any forecast should no longer be relied upon.” or previous orientation”.

The announcement sent Farfetch shares tumbling, and this week, two years after Farfetch's peak valuation, its market value fell to less than $238 million, with its shares losing more than 97 percent of their value since its initial public offering.

A complex deal announced in August 2022, in which Farfetch planned to buy a 47.5 percent stake in Richemont rival Yoox Net-a-Porter, is likely to be renegotiated given the crisis engulfing Farfetch. The deal could even fail.

Neves has been taking steps to improve the company's fortunes. This year, Farfetch closed its beauty business and laid off 11 percent of its employees as part of what Neves described in an earnings call as the most significant cost-cutting measures in the company's history. It is also rumored in the industry that it is looking to sell Browns and beauty retailer Violet Grey.

But the share price has continued to fall and large investors such as Richemont have said they will not provide fresh capital. This month, J. Michael Evans, chairman of Alibaba, resigned from Farfetch's board.

Now the British business media report that Mr. Neves is looking for a white knight investor to help take the company private again. Those reportedly in talks with Farfetch include Apollo Management and an original private investor, Carmen Busquets.

The company is also facing lawsuitsand law firms are encouraging investors to sue Farfetch for providing what they say is misleading information to shareholders about the state of its business.

The company will be forced to declare bankruptcy or be liquidated.

Farfetch's survival could affect the way consumers buy fashion. This is due to the number of big-name brands it counts as e-commerce customers, although most of them could probably turn to a rival. That change would be more complex for the 700 smaller boutiques and thousands of independent designers who rely on Farfetch. Consumers are comfortable making luxury purchases with the click of a button. Other players exist in space. But if Farfetch doesn't exist to enable many of those sales, the digital experience of luxury shopping could change significantly as brands and retailers scramble to find a new way of doing business online.

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