José and Geoffroy are teaming up — and taking on the world’s largest luxury market with a bricks-and-clicks approach to the U.S. aimed at catering to the retail expectations of the next generation.
Farfetch, led by founder, chairman and chief executive officer José Neves, plans to make an up to $200 million minority investment in Neiman Marcus Group, where CEO Geoffroy van Raemdonck is looking to supercharge the retailer’s digital and omnichannel evolution.
The arrangement will start with the “replatforming” of NMG’s Bergdorf Goodman website and app, using Farfetch’s technology to update and expand the New York retailer’s global reach. At home, the Bergdorf Goodman Fifth Avenue flagship will get Farfetch’s New Luxury Retail treatment, bringing a greater connectivity to the experience of physical retail.
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For Farfetch, the focus is on the U.S., which Neves said is at a “pivotal” moment after the COVID-19 pandemic reoriented consumers to the web, accelerating e-commerce penetration.
“It was a paradigm shift,” Neves told WWD in a joint interview with van Raemdonck. “Many consumers that equated luxury with going to a physical store on Rodeo Drive or Fifth Avenue, during the past two years, they have really discovered the advantages and the pleasure of online shopping. Now that they’ve returned to stores, there’s really an elevated expectation of the user journey.”
Farfetch has been working on improving and digitally connecting the customer experience around the world and with mega partners. The platform — which connects boutiques, brands and big retailers with shoppers — has already linked with Alibaba and Tencent in Asia, the Chalhoub Group in the Middle East and Compagnie Financière Richemont and others in Europe. (Neves confirmed that he is still working on a potential deeper partnership with Richemont that could see Farfetch make an investment in the Yoox Net-a-porter business while forging other connections as well).
The deal raises certain questions, first whether Farfetch has the inside track on investing further in the NMG business and possibly one day taking it over. One financial source suggested “a series of step transactions” over time.
“This is a strategic investment so Neiman’s can’t be sold to anyone else. They can’t sell themselves to Nordstrom or Saks,” the source claimed.
But Neves told WWD, ”We are not considering any form of M&A here. This is really about a strategic minority investment and developing a vision. We are very excited about the transformational nature of this deal for the companies involved and the customer.”
Farfetch and Neiman Marcus are looking to the next five, 10 and 15 years to building for the future. But while the tech company is joining with Neiman Marcus’ other owners — including Pimco, Davidson Kempner Capital Management, and Sixth Street — Neves said the plan is to build this partnership, not eventually stage a buyout.
The investment, Neves said, “aligns the interest on both sides and it allows Farfetch to benefit from the creation of value that we already think is happening with Neiman Marcus Group’s incredible execution.”
For Neiman Marcus Group, the deal represents the luxury company’s biggest opportunity yet in technology and digital capabilities. NMG has been somewhat active in the tech sector, including having developed its proprietary Connect system, purchasing Stylize, and taking a minority stake in Fashionphile.
Another source questioned whether NMG’s efforts to bolster its digital presence would come at the expense of the stores. However, van Raemdonck reiterated what he’s said before, that NMG “firmly believes” luxury must be multichannel, with digital, brick-and-mortar and remote selling by associates.
He also nixed the idea of splitting NMG’s digital and brick-and-mortar businesses into separate companies, which is what Saks Fifth Avenue did last year and other retailers have contemplated or have been under activist shareholder pressure to do so. “We believe that separating the assets is not in the best interests of the customer experience,” van Raemdonck said. “Today we are not anticipating the separation of assets.”
The partnership with Farfetch, according to van Raemdonck, will sustain NMG’s growth. “We have had 12 months of positive growth compared to 2019. It is accelerating this spring and it’s a better performance in terms of margin rate or EBITDA rate than pre-COVID[-19]. This [deal] is about looking at how do we accelerate that growth further, and leveraging the best technology available. We have $1.2 billion in available liquidity. With the investment, we have even more funds for growth, innovation and digital. Customers are expecting more digital engagement.”
NMG generates more than a third of its total annual volume online, though van Raemdonck added that the split between digital and brick-and-mortar sales “is very difficult to really assess because our sales associates are doing remote selling and that’s accounted for in the stores. We believe digital sales are bigger than the number I quoted, but if you look at what’s sold on our dot-com properties, it’s more than a third of our business.”
Asked how the Bergdorf’s website will change with Farfetch as a partner, van Raemdonck said: “The customer is going to continue to experience the BG curated assortment and the BG branded experience. But when you are on a technology platform that is much more agile and you can plug in different services, you can scale globally overnight with that turnkey solution. We currently only serve the U.S. customer, but we are going to new markets because Farfetch has the ability to translate — it has call centers, logistics and the knowledge of marketing in other geographies, so overnight we can bring this unique [B]) experience, globally.”
He said the replatforming of the BG website is “a matter of months, not years…We acquired Stylize, which is a machine-learning styling company that helps make recommendations so sometimes we acquire small companies, and sometimes we develop tools like Connect. But by being in this [new] relationship, we are always going to turn to Farfetch as the preferred solution and provider of technology. Once you are on the platform, you can access all their services.”
Connect is a digital tool for associates to personalize their communications with customers and communicate the way customers want, through either email, phone calls, or texting. Associates can also send photos depicting items and outfits and set up in-person appointments all through the Connect clienteling tool.
Van Raemdonck said the brand messaging and the experience provided by the Bergdorf website and app are “very strong, but being on the Farfetch platform will give us the ability to have more flexibility to make changes faster. The look and feel as it exists today doesn’t change, but the ability to evolve that look and feel will be much better on the platform.”
He also said the Bergdorf Goodman flagship in Manhattan “gets an increased role. We have always had the store as our flagship, now it becomes a global flagship and expression of the brand.” He also said that by connecting better with customers digitally, when they do come to the store, associates are better prepared to know what the shopper wants and needs. Van Raemdonck has stated that one of his goals for Bergdorf’s, once the parent NMG emerged from bankruptcy which it did last year, was to turn Bergdorf’s into the premiere luxury fashion retailer in the U.S. though with a global reach based on e-commerce. The Farfetch deal should give him a boost toward achieving that goal.
Asked if the Neiman Marcus division would benefit from Farfetch’s investment, van Raemdonck replied, “The partnership starts with the replatforming of bg.com. This is a multiyear partnership, for decades, but we need to do things sequentially, though ultimately we are going to look at any of their services that could be relevant to Neiman Marcus.”
Neves said the U.S. is the only major market Farfetch hadn’t tackled with the partnership approach that has the company striving to be a kind of “operating system” for the global luxury business.
“The U.S. is still the largest luxury market in the world,” Neves said. “China is number two, some say China will be number one, but it doesn’t matter. They will always be the top two markets in the world.”
And Neves said younger consumers are proving to be a surprisingly strong component of the “very mature” market in the U.S.
“These new generations are driving a majority of the growth,” he said. “These are generations that grew up hailing an Uber as opposed to hailing a taxi. This is a digital-first customer that is fueling the growth of online.”
The trick for fashion companies seems to be showing up for that consumer in a compelling and connected way both online and IRL.
“We believe that physical stores are here to stay,” said Neves, who bought London boutique Browns in 2015 and has been using it as a proving ground for new high-tech approaches to retail. “We believe that the experience in department stores has to be reinvented and really augmented by digital technologies.”
Now Neiman Marcus, and particularly its Bergdorf Goodman business, is going to start to bear the stamp of the Farfetch vision.
“Department stores are going to have to digitize themselves very very quickly with best-in-class digital user journeys,” Neves said. “And players like us are going to have to be bold and do partnerships that are far-reaching in terms of visions and that are long term.”
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