Fresh from a new £56m funding round and a $1bn (£652m) valuation for his seven-year old firm, the founder of Farfetch explains his aggressive international expansion plans and why the platform helps indies take risks that benefit both their online and offline businesses.
There is a palpable buzz at the Farfetch head office in Clerkenwell, east London, as recent investment and the imminent move to a bigger location near Old Street roundabout at the end of the year increases the feeling that this business is going places.
The independent etail platform’s 150-strong UK team is currently split between the Clerkenwell HQ on Goswell Road, and a second office on Basinghall Street near Liverpool Street station. The Old Street base will be six times larger than the Clerkenwell office to accommodate the ever-increasing head count.
“We won’t quite double in head count this year but we will grow significantly,” says José Neves, Farfetch’s charismatic Portuguese chief executive.
When not in the UK, where he stays in an apartment in Clerkenwell, Neves splits his time between Farfetch’s other offices in New York and LA in the US, Porto and Guimarães in Portugal (where Neves’s wife and four children live), São Paulo in Brazil and Tokyo. He also travels around the world visiting independent retailers and exploring new markets.
The company employs about 600 people across all its offices, and is recruiting for about 50 roles in the UK and more than double that overseas in Porto and LA as it ramps up international expansion.
We are trying to provide department store-level merchandising services to independent boutiques
The growth plans come after Farfetch received $86m (£56m) investment in March, led by Russian entrepreneur Yuri Milner’s DST Global investment firm, which is known for previously backing technology companies including Facebook, Twitter, Spotify, Alibaba and Airbnb. This was the company’s fifth funding round and included existing investors Condé Nast International and Vitruvian Partners, bringing the total so far to $195m (£130m).
“It wasn’t so much the money as the quality of the investor,” says Neves. “Every investment [DST Global] has made has been hugely successful and it is very exposed to the US and China - key markets for us.”
The bulk of the funding will be used to up the pace of Farfetch’s global roll-out and same-day delivery plans, rather than implementing a new strategy.
The company is looking to increase its menswear offer for autumn 15. Menswear currently accounts for 30% of the business but has the potential to be significantly more, Neves believes.
Farfetch opened an office in Brazil and launched a Portuguese-language site there in 2010, followed by a New York office in August 2013 to support US customers, who had been shopping via the UK site since Neves founded the business in 2008 (before this he set up footwear distributor Six London and footwear brand Swear London, both in 1996, and directional fashion retailer B Store in 2006). In July last year sites launched in Japan and Russia, with a Chinese site following in September. A German site launched last month, and at the start of this month South Korean and Spanish sites were added. The Spanish site serves Latin America, as well as Spain.
Earlier this year the company launched an iPad edition of its shopping and travel app Farfetch Discover, which offers a fashion insider’s view of cities worldwide, and is rolling out translations to Russian, Korean and Japanese later this year, having already got Chinese and Portuguese versions.
“Our model is a full service proposition [for retailers], rather than just a site translation, with the full spectrum of services [from customer services to logistics] and marketing that goes with it,” says Neves.
In the middle of April, Neves spent a week in Shanghai and Beijing for a series of press events to promote the site in China, and has similar trips planned in other outlined growth markets, including Russia, the Middle East and key US states such as Miami, LA and Chicago, over the course of the year.
Participating boutiques, which are selected by Farfetch on the basis of suitability for the site, pay between 20% and 25% in commission for sales and Farfetch organises everything from photography and writing copy in nine languages, to organising collection and deliveries and providing branded packaging.
Retailers can log into an online system to monitor sales and are allocated an account manager and partner service manager, who work with the store on anything from delivery labels not printing to advice on whether to increase buying budgets.
“We can sit down with a boutique to say you actually have a customer for smaller sizes or for early deliveries of winter pieces,” explains Neves.
The common thread is partners that appreciate design and quality and are avant-garde, but in different ways
Farfetch launched click-and-collect and return-to-store across its international boutique network last October, and will introduce same-day delivery in five cities - London, Paris, Milan, New York and Los Angeles - in the second half of this year. It will quickly be extended to 10 cities, says Neves. Farfetch organises all collections and deliveries, using logistics firms DHL and UPS, and local companies where necessary.
He has nothing but big ambitions for Farfetch, which generated sales of about $350m (£238m) through the site in the year to December 31, 2014, up from $275m (£183m) in 2013. “This year the target [for sales] is over $500m (£340m),” he says.
However, Farfetch is yet to make a profit and Neves will not confirm figures. “It is profitable in the core business – our European supply network, which is how we started in 2008 – and has been for a few months,” he explains. “We want to be a very significant player in all these geographies, which means we need to look at the several-year business plan rather than becoming profitable straight away.”
He points to Japan, where he says less than 2% of luxury fashion sales are online. “It is the same for most markets - it will take time but there is a big upside.”
The US accounts for around 35% of Farfetch sales, followed by the UK at 10%. Greater China, including Hong Kong and Macau, is the third biggest, followed by Australia, Brazil, Japan, South Korea and Russia trickling down to a total of around 180 countries.
Melanie Press, owner of premium womenswear store Press in Primrose Hill, north London, is effusive in her praise for Farfetch. “I like their customers and we are seeing success as it expands into areas like Brazil, Russia and Australia. The click-and-collect offer also brings in people we’d never have met before and we’ve had occasions where they have come in and then bought something, which is great.”
Farfetch is recruiting new boutique partners in Japan, Australia and the Middle East. Neves expects the UK store count to remain at about 30 of the 300 total, but is speaking to a few potential retailers, who he declines to name. He says there is no strict criteria in terms of brands and prices, but the luxury and premium stores are united by a “unique viewpoint”.
“You have Browns [in London’s Mayfair], which is a quintessential avant garde luxury boutique, but then you have Hostem [in east London] which has a dark and directional aesthetic, and they both fit in our marketplace. The common thread is partners that appreciate design and quality, but in different ways.”
Nick Florry, co-owner of luxury womenswear retailer Changing Room in Tunbridge Wells, Kent, says Farfetch accounts for around 30% of its sales and allows him to buy in more depth than he would for the store alone. “We have taken some runway pieces from Chloé and it means we can take more unusual pieces that sell well online. It helps with our offline business because people come in and see all this great product, which makes the store look incredible.”
In recent years, Neves believes indies have been under increasing pressure from the high street, new competition online, rising rents and higher minimum orders from designers, which has led to a tendency to be more conservative when buying.
“If you go [into an indie] and see the same type of buying as in a department store, it defeats the purpose of a boutique,” he says. “What Farfetch enables them to do is what they love, which is scout the world for the best fashion and take risks. And it benefits the stores, making them fantastic retail experiences too.”