Equity analysts at Wells Fargo, Cowen and Deutsche Bank all kicked off their coverage of Farfetch with ratings of “outperform” or “buy.”
Shares of the luxury platform jumped 8.5 percent to $24.96 Tuesday, which turned out to be a big day for investors. The Dow Jones Industrial Average surged 547.87 points, or 2.2 percent, to close 25,798.42.
Farfetch’s stock has been of particular interest on Wall Street since it represents a new way for U.S. stock investors to bet on high-end fashion.
“There’s no other online platform built for fashion apparel, or fashion in general,” said Ike Boruchow, managing director of Wells Fargo.
When Farfetch first hit the New York Stock Exchange in September, its stock surged above $30, well ahead of the $20 per share the company scored in its initial public offering.
Wall Street liked the London-based company’s global reach — its platform caters to 980 luxury sellers in about 190 countries and reached more than 2.3 million consumers, as of June 30. And its mix of high-end offerings, its average order tops $600, means investors can cash in on luxury premiums. In 2017, 1.9 million orders were placed through the platform. In the first half of 2018 alone, there were more than 1.3 million orders. The total dollar value of all orders processed on Farfetch was nearly $910 million last year, up from about $585 million in 2016, according to the company.
Consumers were happy too since the platform offers a curated selection of what’s fresh and cool.
“When you go to a web site, you have to know what you want,” Boruchow said. “The shoppability on other web sites, like Amazon, is not as easy. If you don’t know what you want, it doesn’t lead you in the right direction.”
Even so, Farfetch’s stock fell after Chinese officials renewed their efforts this month to crack down on daigou shoppers bringing back goods from abroad for resale during the Golden Week holiday. Investors feared a slowdown in spending among Chinese consumers, which are hugely important to luxury’s growth.
“There is growing concern around Asia and China in respect to the luxury space,” Boruchow said. There’s more trepidation on margins. That had a negative impact on how [Farfetch] was traded.”
But longer term, the luxury sector is expected to continue to grow.
“Farfetch, like whatever department store dotcom, like whatever dotcom, is bound to see growth that outperforms the brick-and-mortar simply because the luxury sector, notably in Asia, is driven by 20 year olds who are browsing all day and appreciate the comfort of ordering online rather than having to go to stores,” said Erwan Rambourg, global co-head of consumer and retail research at HSBC Global Research.
Currently, e-commerce only taps into about 9 percent of the luxury market. That rate will likely jump to as much as 25 percent in the next seven to eight years as more luxury moves online, Wells Fargo’s Boruchow said.
“That’s a big change of pace,” Boruchow said. “The number-one thing that really matters is distribution. Luxury brands manage distribution very tightly. They don’t like inventory in random channels.”