Farfetch’s business model gains the trust of fashion brands

Several top luxury fashion brands continue to prefer selling directly to customers, but an increasing number are also choosing to distribute and trade via online fashion marketplace Farfetch, which now has China in its sights. 

Context

Despite the pandemic’s huge impact on economies around the world, Farfetch, founded by Portuguese entrepreneur José Neves, recently secured $1.1bn investment from rivals Alibaba and Richemont, the Swiss watch and jewellery group, as well as €50m personal investment from François-Henri Pinault, the billionaire founder of luxury group Kering.  Farfetch and its new financial backers intend to expand in China, the world’s second-largest and fastest-growing luxury market, according to the Financial Times which interviewed Neves.

Key reasons for Farfetch’s business success

• Neves’s choice of a business model differs from other online retailers, such as Net-a-Porter, insofar that Farfetch does not buy inventory and therefore takes less risk on fleeting trends.
• Instead, it acts as a marketplace that connects consumers with brands, earning a commission of about 30% on each sale, and has a sophisticated distribution system whose technology can match supply with demand.
• Under a system that Neves calls ‘direct e-concessions’, brands decide what they sell on the Farfetch platform and set their own prices to avoid discounting that could damage their high-end image.
• He also believes that the blurring of online and physical store shopping is such a big opportunity for the fashion industry, especially in China, that there will be room for both models.

Key quote

“Alibaba and Farfetch share a vision of how luxury will evolve in the next five or ten years, and we think we can build something amazing with them” – José Neves, founder of Farfetch.

Sourced from Financial Times