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Will tomorrow's profits ever come for Farfetch?

Luxury ecommerce site Farfetch has soaring revenues, and its retail technology has attracted high-profile clients such as Harrods. But can it keep investing and growing without turning a profit?

When Farfetch founder José Neves (above) described its 2018 financial year as “by all measures, a blockbuster”, some in the industry were incredulous. How can a year in which losses grew from $112.3m (£84.8m) in 2017 to $155.5m (£117.5m) be awarded such a superlative?

However, to judge its results by traditional fashion industry standards is to label Farfetch as a retailer or brand. It is neither. Neves has a fashion retail background and the platform sells clothing and footwear, but Farfetch is more akin to a tech company.

What is more important than the loss this year is what Farfetch has spent the money on

Arthur Cheung, Practicology

Unlike traditional fashion retailers, Farfetch uses gross merchandise value (GMV) as a key metric. It provides the total value of the product purchased through the site, rather than the revenue generated by the business from each transaction. GMV is commonly used to measure growth by online retailers such as Tmall,, Amazon and Zalando, because it is a better indicator of the scale of the business.  

And although its losses grew, Farfetch’s GMV rocketed by 55% to $1.4bn (£1.05bn) in 2018. Its revenue soared by 56% to $602m (£454m).

A Farfetch spokesman explains that, in the ecommerce world, size matters: “Increasing scale enables the leveraging of efficiencies, which enhances long-term shareholder value.” The company expects platform GMV to grow by a further 40% in the first quarter of 2019.

Independent network

Farfetch was founded in 2008 as a marketplace that offered luxury independents a ready-made digital platform. It has come a long way since: more than 600 retailers now use its platform and it has 2 million registered customers.

In 2015, it acquired luxury London retailer Browns, and launched Farfetch Black & White Services, which provides operational tools that allow luxury brands to trade directly on its website or through their own transactional sites. Harrods is the latest retailer to sign up to the service.

Farfetch also bought sneaker and streetwear marketplace Stadium Goods for $250m (£198m) in December to allow it to expand its offer in the premium sportswear market – estimated to be worth $70bn (£55.4bn) in 2017. Last September, Farfetch floated on the New York Stock Exchange at a value of $5.8bn (£4.47bn).

Aw18 image courtesy farfetch 25

Farfetch autumn 18

Observers argue that, to operate at the level Farfetch does – and to constantly innovate – requires heavy up-front investment.

“It is quite normal for technology companies to take some time to make a profit,” says Arthur Cheung, general manager for Greater China at ecommerce consultancy Practicology. “In this sense, it is more appropriate to compare it to the financial journey of a business such as Ocado, which also took time to achieve EBITDA profitability, than a traditional luxury retailer.

“What is more important than the loss this year is what Farfetch has spent the money on. Its infrastructure and marketing investments must be well placed to generate a future profitable revenue stream.”

“From the perspective of an independent, Farfetch is not far short of a miracle,” says Giulio Cinque, owner of Cambridge-based men’s and women’s wear independent Giulio, which has been on the Farfetch marketplace almost from the beginning. “It saved our businesses. They’re building a global empire, and the transformation has been phenomenal. That costs money.”

Daily fed

Farfetch’s innovation across all departments is continuous. Last week, it announced the launch of “Farfetch Communities” – offering daily editorial content, as opposed to weekly – as part of its drive to boost customer engagement and sales. The content will be produced by Farfetch’s in-house team of creatives, as well as industry icons, boutique owners and stylists. To celebrate the launch, actress Chloë Sevigny, British actor, rapper and activist Riz Ahmed, model and activist Adwoa Aboah, and artist Blondey McCoy will create their own shopping edits from Farfetch’s product range.

While most businesses are reactive, they’re gearing up for the future.

Luxury independent director

People capital

The business is also investing in its people.

“They employ scientists,” says the director of one luxury independent on its marketplace. “José’s not arrogant enough to say he can do everything: he’s not showy, he’s a sensible businessman. So, he’ll look at his business and ask: ‘Who’s good at this?’ And then hire [Net-a-Porter founder Dame] Natalie Massenet or [former president of the Outnet] Stephanie Phair.

“What [Farfetch is] doing is tracking market growth and lining themselves up to it. They’re looking at how people will shop in five or 10 years’ time. While most businesses are reactive, they’re gearing up for the future.”

Neves confirms this: “Over the next 10 years, the luxury industry is expected to grow to an estimated $500bn (£385bn), and online sales will potentially grow to represent an incremental $100bn (£77bn) opportunity. Farfetch is uniquely positioned to capture the lion’s share of this.”

Expansion in China will be key to this strategy. Farfetch this month announced it had agreed to buy Chinese ecommerce giant’s luxury site, Toplife, and will integrate it into its own Chinese platform. invested $397m (£305.6m) in Farfetch in 2017

“Chinese luxury consumers are some of the most demanding and technically advanced in the world, so, with the acquisition, Farfetch should learn lessons from Chinese consumers that it can bring to its other markets,” says Practicology’s Cheung. “The strategy has been about omnichannel growth for a long time, from when Farfetch first introduced click and collect, to its acquisition of Browns and the development of its omnichannel retail technology solution. Toplife adds to this because its focus is on offline as well as online for a relatively small number of high-profile luxury brands.”

Farfetch must continually demonstrate that it is doing a better job than the brands or retailers could do themselves

Arthur Cheung, Practicology

Bringing online and offline together is the role of Farfetch’s Store of the Future project, launched in April 2017. It aims to give retailers visibility on what is actually happening in stores by using a suite of technologies, and to provide bricks-and-mortar retailers with the level of customer information – and thus ability to personalise the offer – that is available online. When it launched, chief strategy officer Stephanie Phair told Drapers at the time Farfetch was asking: “How do we join up the dots, so we know customers as much offline as we do online?”

At the time, Neves said: “Physical retail accounts for 93% of sales today. Even with online growing at a fast speed, it will account for 80% by 2025.”

Not that it will be plain sailing for Farfetch. Cheung says that the scale of its Black & White business, for example, allows Farfetch to invest in research and development, but it cannot afford to rest on its laurels: “In the long term, other marketplaces and platforms have struggled to hold on to brands they created white-label sites for.

“Remember, Marks & Spencer’s site ran on Amazon technology back in the day, and Yoox created mono-brand ecommerce sites for fashion brands from the mid-2000s. Farfetch must continually demonstrate that it is doing a better job than the brands or retailers could do themselves – and that is a threat as well as an opportunity.”

The Drapers Verdict

Farfetch may serve the luxury fashion industry, but it is not built on the same model as a retailer, etailer or brand. It does not own stock, for a start. If there was ever a business to be branded unique in the fashion industry, then Farfetch would come very close. Because of its vision and advances in technology, it is better compared to Ocado or Amazon – both of which took years to make a profit.

Farfetch’s strategy is to scale itself up to be in a position to take “the lion’s share”, as Neves puts it, of a growing luxury market, thus making shareholders happy. As such, it could benefit from a host of growth opportunities, from platform acquisitions to growing its white-label business. 

Readers' comments (1)

  • One issue Farfetch will have is some brands are or already have banned their retail partners from selling on third party platforms, although the evidence is that it is not consistently applied.

    This could be a legal grey area. Farfetch are seen as a Premium site that is not accessible to most retailers, whereas Amazon - as an example - is generally accessible to all and viewed as mainstream, though that view is subjective. A brand favouring one over the other could be considered anti competitive and restrictive practise.

    As some brands are arguably using this to continue their DTC strategy, it may be worth taking legal advice for any party that may be significantly affected.

    Unsuitable or offensive? Report this comment

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