LONDON — Call it the Farfetch halo effect.
Global Fashion Group, an online retailer that targets emerging markets, may be mulling an initial public offering after seeing its sales jump 3.2 percent at actual exchange rates to 264.6 million euros in the third quarter of fiscal 2018.
The group, set up by Rocket Internet and Kinnevik, the latter of which also has a stake in e-tailer Zalando, operates in 24 countries and over the past year has accumulated an additional 1 million customers for a total of 11 million.
Growth has come from geographic reach, digital strategy and infrastructure. Net merchandise value, which includes all the sales across the platform, rose 9.2 percent to 289.5 million euros in Q3. The company has yet to turn a profit.
The group has neither confirmed nor denied reported plans for an IPO, although Cristoph Barchewitz, co-ceo of Global Fashion Group, said in an interview that a public listing could be on the cards. In response to a question from WWD, he said: “We are always looking to secure further funding for the business and in that context we have also said that an IPO could be one of the options among many. It is something that we are thinking about.”
In September Farfetch, a platform for high-end brands and retailers, hit Wall Street with a blockbuster IPO and remains closely watched by investors despite a steady decline in share value. In the third quarter of fiscal 2018, its revenues expanded 52 percent while active consumers increased 42 percent to 1.2 million.
The Farfetch IPO telegraphed the growing opportunity for digital fashion and the buoyancy of e-commerce marketplace models. José Neves, cofounder and chief executive officer of Farfetch, is nothing less than bullish about the future. He said that in the luxury sector alone, “25 percent of sales are expected to happen online in the next 10 years.”
While Farfetch may be dominant in mature fashion markets such as Europe, the U.K. and the U.S., Global Fashion Group focuses on still-underdeveloped, high-growth fashion markets and operates four e-commerce sites across these regions. Those sites are Dafiti in Latin America, Lamoda in Russia and the CIS region, The Iconic in Australasia, and Zalora in Southeast Asia, selling high-street and mid-priced fashion.
“The development of how much people spend online and how many people are buying online is actually where the U.K. and the U.S. were 10 years ago,” said Barchewitz. “Although these markets have skipped the desktop and have gone straight to mobile.” He added that 70 percent of traffic across the four sites comes from mobile.
For Barchewitz, the untapped potential is huge. In the regions where Global Fashion Group operates, there are a billion consumers who are spending a total of 350 billion euros, which is forecast to rise to 700 billion euros in the next 10 years.
To reach this potential, the group has employed a digital strategy that targets the potential barriers consumers might face in adopting e-commerce, such as delivery and payment options.
Across its sites, GFG offers 35 different payment options, including cash on delivery, to complement its varied delivery services. In Russia, customers can choose a concierge service which means that orders will be delivered to their doors. Customers are then allocated a 15-minute window to try things on, choose what they want to keep and pay for those selected items.
“Delivery is very important, we offer next-day delivery in many of our markets and we have also innovated in ways like having drop-off points, because in some markets going to the post office is highly inconvenient. We want to have as little friction for the customer as possible,” said Barchewitz.
GFG’s infrastructure is expansive. It has warehouses and fulfillment centers in the four regions in order to provide delivery capabilities for the 8,000 brands it works with, and the 400,000 stockkeeping units it sells online. It’s a two-pronged approach, where the business operates on a traditional wholesale model as well as a marketplace model.
Choosing which business model to implement varies by brand. “Wholesale works really well when the product we know is going to sell really well. If our buyers aren’t as convinced, a marketplace is a great way for us not to take that risk,” he added.
The 8,000 brands include international and local labels, such as Topshop, Adidas, Superdry, Mango and Banana Republic. Selling from GFG’s platform is very straightforward, according to Barchewitz.
“These brands are accessing a billion consumers in markets that have a limited offline structure; they may have stores, but not in a density you would see in the U.K. or the U.S., and their digital presence may be very limited. We are at a scale that permits these brands to reach 150 million visitors every month. When we launch a new brand in any market, they immediately get pretty significant attention.
“One of the most powerful things for the brands is the amount of market insight and consumer insight we can give them. The key is we are super local in terms of our people and our teams,” he added.
To cater to these local markets, and boost their margins, GFG also produces its own labels. Despite carrying a vast number of brands, the group has found gaps in their offer, such as modest wear. Their own label, Zalia, sells an assortment of traditional wear for the festive season, and has been created specifically for Malaysian consumers.
GFG is also pouring its resources and making investments into technology. Recently, the company rolled out a visual search tool, whereby the consumer takes a picture of an item of clothing they’ve seen and the tool will trawl through GFG’s catalogue to find the closest match.
The company is not afraid to borrow from the best. On its mobile app, customers are able to follow brands they like. “Essentially, it’s like Spotify or Instagram where the customer is saying that if they like these 10 brands and these 10 products, they are effectively creating their own ‘playlist,’” said Patrick Schmidt, co-ceo of Global Fashion Group.
Other features the retailer is working on include streamlining the product recommendation tool. Instead of clicking into the product and seeing a list of recommendations on the bottom, GFG’s sites enable the user to click a prompt on the category page, and other similar products will appear, in the hope that the customer “will find the perfect A-line red dress, or whatever specifications they are shopping for,” Schmidt added.
Like so many other e-tailers, the company is trying to solve the fit issue, which it is testing on a select number of products. “The tool will take your past purchases, past returns, measurements of the garment you are looking at, and then try to guess which size fits you best,” Schmidt said, adding the tool is far from perfect but is a step in the right direction.
Schmidt is eager to continue pouring resources into personalizing the e-commerce experience. “For us, we have hundreds of thousands of products and throwing all of that to the customer is not useful. We’re working on taking our understanding of what the customer wants and personalizing the hell out of it,” he added.