Speculation around Farfetch’s future continues to grow as its share price falls and multiple rumours emerge about what it does and doesn’t plan to do.
The share price dropped to just $1.16 on Tuesday, giving the luxury e-tail giant a market value of only $440 million. The share price had peaked at over $73 in February 2021 and was over $20 when it first listed in the US in 2018, putting its value into the billions.
The key thing to point out is that much of the news around Farfetch at present is speculation with no confirmation from the firm and few connected to it saying anything.
But when a stock exchange-listed company cancels its scheduled earnings report and gives no clue as to when it might release the figures (as happened last week), it’s no surprise if the rumour mill got into overdrive.
The latest concrete development is that Standard & Poor’s has downgraded its rating on the firm’s debt to a CCC rating. It said this comes because of an “escalating risk of a liquidity crisis or an insolvency event, including debt restructuring, or if we are unable to obtain information indicating a level of liquidity and earnings generation sufficient to alleviate our concerns”. It also said it expects the group’s operating performance will have been weaker than expected in the second half and sees little prospect for an improvement into 2024.
A downgrade can mean any money a company raises as debt would be at a higher interest rate because of the higher risk to the lender.
Other — largely unconfirmed — stories around Farfetch include a report that it’s considering a sale of its Browns unit (WWD); that it faces a lawsuit for having allegedly misled investors (thefashionlaw.com); and that it’s looking for a ‘white knight’ to stave off a collapse (BoF).
The stories follow some poorly received results reports on the part of the company, doubts over its strategy and a report last week in The Telegraph that founder José Neves is in talks to take the business private again. Neves controls 71% of the firm.
So let’s look at the timeline and how the company went from being one of the leading lights of the online luxury retail revolution to its current situation. We also need to bear in mind that it’s not the only luxury fashion retailer with issues at the moment, as Richemont’s desire to offload Net-a-Porter, reports that Matches is looking to raise more funding, and Mytheresa’s losses show.
Early days
2007/08: José Neves founded and then launched Farfetch as as an e-commerce marketplace for luxury boutiques around the world at the same time as the luxury sector was realising that the e-tail channel it had shunned could be a goldmine for high-end fashion.
2010s: The company grew steadily and attracted investment based on its growth trajectory. For instance, in 2016 Eurazeo paid $20 million for a minority stake, which added to a larger amount from international investors such as IDG Capital and Temasek that had raised a total of $110 million.
Expansion and investment
2015: Its primary focus was online retail, but mid-decade it acquired Browns and set about relaunching it, while its core business continued to grow and investment continued too.
2016: Farfetch served its millionth customer. In the same year, Stephanie Phair, founder and former President of The Outnet, joined as Chief Strategy Officer. And it ramped up its collabs and exclusives with key labels.
2017: Farfetch was named as the UK’s fastest-growing retailer in an OC&C Strategy Consultants and Financo retail growth index that showed it shooting to the top after 70% growth the previous year. Its results continued to underline that growth, despite profits being elusive. Chinese e-commerce mega-giant JD.com made a $397 million investment in the firm and Browns opened a store in London’s Shoreditch.
February 2018: Chanel took a minority stake as part of a tie-up to develop digital services such as chats to connect the label’s clients with store assistants.
May 2018: Farfetch continued to expand and launched in the Middle East with its Arabic language site debuting via a joint venture deal with Chalhoub Group.
The big time
August 2018: Farfetch confirmed it would launch a New York IPO after months of rumours.
September 2018: It priced its shares above its targeted range in a New York float that valued it at $5.8 billion+ and underscored how big a bet web sales had become for high-end brands.
December 2018: The firm bought sneaker and streetwear marketplace Stadium Goods for an enterprise value of $250m.
February 2019: Harrods chose the growing white label business Farfetch Platform Solutions (FPS) as its e-tail partner and it extended its strategic partnership with JD.com (one of its biggest shareholders at the time) to “build the premier luxury gateway to China”.
August 2019: Farfetch acquired Off-White owner New Guards Group, it’s biggest move into brand ownership and physical retail so far. But there were early signs of dissatisfaction as investors questioned the strategy of owning labels directly and operating stores, rather than being an online marketplace, which is what had helped to make its IPO so successful.
Pandemic boom
2019/2020: A succession of results showed losses continuing but revenues surging and the share price rose as a result too, with investors willing to overlook any strategy diversions for now. It was helped by the pandemic, which boosted online retailers across the price and category spectrum.
April 2020: The company’s expansion required a lot of cash and it was adding to its debt levels. In April, for instance, it raised $350 million in debt via Convertible Senior Notes that would accrue interest at a rate of 3.75% a year.
August 2020: Still loss-making like many early stage tech firms, it rode the online wave generated by the pandemic and its latest results talked of “strong momentum” driven by the acceleration of online adoption, helping it to make “significant” market share gains and connect to record numbers of new customers.
November 2020: As the pandemic raged, the next set of results included Neves talking of “a paradigm shift in favour of online luxury” with Farfetch being a driver of that shift. That month Eurazeo exited its stake, making a big profit on its original investment. Alibaba Group Holding Ltd and Swiss group Richemont also said they would invest $1.1 billion in Farfetch and its new Chinese marketplace, as online demand for luxury goods boomed there.
February 2021: It said 2020 revenues rose but it remained loss-making (although both revenues and profitability continued to improve throughout 2021).
April 2021: Browns closed its long-term home on South Molton Street and moved to a new flagship on Brook Street, underlining the investments that Farfetch will still putting into its physical operations.
August 2021: Q2 results looked good. Full-price sales surged and it swung to a net profit.
October 2021: Farfetch launched women’s ready-to-wear, called There Was One (TWO) in partnership with New Guards Group.
November 2021: The shares plunged as a not-too-bad quarterly results report nonetheless undershot lofty expectations, highlighting the fact that listed companies are expected to deliver and shareholders can be impatient.
December 2021: It bought resale platform Luxclusif to allow it to “significantly accelerate its resale capabilities.
January 2022: Still investing heavily, Farfetch acquired US-based luxury beauty retailer, Violet Grey, for an undisclosed sum. And it flagged the launch of the Beauty category on the Farfetch Marketplace scheduled for later in the year.
February 2022: The company said revenues and GMV soared and it swung to a profit in Q4 and 2021. Its shares jumped on the news. Authentic Brands Group also announced that New Guards would be the “core operating partner for Reebok across Europe”.
April 2022: Farfetch made its big move in beauty with the online retail giant launching the super-category on its e-tail marketplace and via Browns and New Guards. It also announced a link-up with Neiman Marcus Group for FPS to re-platform and power the website and mobile app of its Bergdorf Goodman brand. Farfetch said it would also make a minority investment in NMG of “up to $200 million” to support digital growth and innovation initiatives.
August 2022: Latest results showed losses but rising sales. But the big news was Richemont saying Farfetch and Alabbar would acquire 47.5% and 3.2% stakes, respectively, in Yoox Net-A-Porter, “making YNAP a neutral platform with no controlling shareholder”. Farfetch also had the option to take full control of YNAP and would see Farfetch powering Richemont’s brands’ webstores and those labels opening concessions on Farfetch. In retrospect, this appeared to mark the high point for the e-tailer.
Losing lustre
September 2022: Browns’ Shoreditch store closed.
December 2022: Farfetch shares fell more than a quarter to $5.70. The company had held a capital markets day and the cost of its ambitious plans didn’t seem to please its investors. It said its growth-focused link-ups with big names such as Richemont would cost it around $170 million. But it also spoke of a return to sales growth the next year following a Q3 sales decline as the pandemic boom came to an end. It said GMV could rise 22% to almost $5 billion by the end of 2023 and it could double by 2025.
January 2023: It made key changes to its leadership as Chief Brand Officer Holli Rogers and Chief Growth Officer Martin Avetisyan left “to pursue other opportunities”. Seasoned online luxury exec Elizabeth von der Goltz joined as Chief Fashion and Merchandising Officer and CEO of Browns.
February 2023: Q4 results showed lower revenue and a loss.
May 2023: Farfetch announced that the Europe partnership with Reebok had launched commercially and was on time and on budget.
June 2023: It named new management at New Guards Group and NGG’s founders exited.
August 2023: The latest quarterly results talked of progress but revenue fell and it made a loss. And we learned it was exiting the beauty business a little more than a year after entering it.
October 2023: Farfetch and Richemont announced EU approval of the YNAP deal.
November 9 2023: A Bloomberg article said Farfetch had spent $1 billion building its business since its stock exchange listing and had $1.6 billion of total debt. It also said it needed to close the deal with Richemont and potentially sell some of its assets. Its overall conclusion was that the business needed to be simplified.
November 28 2023: The UK’s Telegraph newspaper said Neves was believed to be in talks with “bankers and top shareholders, who include Cartier-owner Richemont, about a deal that would bring an abrupt end to its short but calamitous stint on the New York Stock Exchange”. Its shares rose as a result even though the company cancelled its scheduled results announcement and withdrew its guidance.
November 29 2023: There was speculation Richemont might bail out Farfetch but the Swiss luxury giant said: “Richemont would like to remind its shareholders that it has no financial obligations towards Farfetch and notes that it does not envisage lending or investing into Farfetch. Richemont is carefully monitoring the situation, including reviewing its options in respect of its arrangements with Farfetch announced on 24 August 2022, which remain subject to certain terms and outstanding conditions. Neither Richemont Maisons nor YNAP have currently adopted Farfetch Platform Solutions and they continue to operate on their own platforms. Richemont will make a further announcement if and when appropriate.” Many concluded that the YNAP deal wouldn’t go ahead.
December 2023: Speculation mounted that Farfetch would sell off assets such as New Guards Group and Browns, with Frasers Group suggested as a potential buyer for the latter. It also emerged that investment fund Baillie Gifford UK Growth Trust, which had been Farfetch’s biggest outside investor earlier this year via a 13%+ stake, had exited and said it had been overly patient with an investment that it admitted was a mistake.
Copyright © 2023 FashionNetwork.com All rights reserved.