Boutiques or brands? Farfetch says it’s not an either-or proposition.
Farfetch, which bowed in 2008 as a marketplace and platform for independent boutiques around the world, nurtured the small retailers for almost eight years before developing in 2015 two vertical businesses, Black & White and Store of the Future, to offer new technology and business solutions to brands. At around the same time, Farfetch acquired Browns in London, which is best known for launching the collections of Alexander McQueen and John Galliano, among others.
“Black & White and Store of the Future are more like B2Bs and Farfetch is consumer-facing,” said Jeffery Fowler, president of North America, in a conversation with WWD men’s managing editor Jean E. Palmieri. “Basically, we power the digital flagships of a number of brands. We built a front end that taps into the back end of Farfetch’s API platform.
“I actually used to use Farfetch to discover new boutiques in other countries before I traveled there, and I noticed you took off the ability to see the boutique until you get to checkout,” said a member of the audience during the question-and-answer session.
“Up until 2015, on the product description page, it would show the boutique that was the source of the product,” Fowler said. “Timing-wise, 2015 was when we started to bring brands on board. We made a decision to be a little more agnostic about the source of the product. Also, the romantic idea of seeing a boutique across the world acted as a bit of a conversion depressant. Some people would think, ‘Is this a real boutique? Where is that country on the map.’ We’d see a small degradation. It was the analytics. When people could shop by boutiques, they did it very infrequently.”
Still, Fowler said Farfetch remains committed to the almost 550 boutiques it’s partnered with, while acknowledging the difficulty of dealing with so many far-flung small retailers. “Because we don’t fulfill product ourselves, but want a luxury customer experience, we have an incredibly difficult job to ensure that the effort is done seamlessly across a fragmented group of partners,” he said, noting that slow shipping speed and percent of no-stocks have been issues.
Another company probably wouldn’t have stuck with them, Fowler said. “These are the boutique owners, creative directors and curators that got us to where we are today,” he added. “They have a perspective and point of view. Another company might have one creative director making all of the decisions globally, but instead we have 800-plus creative directors that work for us. A boutique might go to a market and just buy a perspective on a brand. We want to be able to surface that perspective.”
Fowler said Farfetch founder and chief executive officer José Neves, whom he described as a sort of benevolent genius who started writing computer code when he was eight years old and launched his first software company when he was 19, has a soft spot for boutiques.
“When José was traveling around and signing on the original boutiques in those early days, he would say, ‘It was a shame that a boutique in Dallas would have bought this beautiful collection, but at 5 p.m. the lights would be turned down and the doors would be locked and nobody would be able to see that.'”
Recently, the company has begun working more closely with major brands. Fowler said Farfetch is working with Thom Browne. “We announced a multiyear partnership with Chanel,” he said. “We’ll work with Chanel on tech solutions to evolve the in-store experience for consumers.”
Last month, technology developed by an outside company — Burberry — was integrated for the first time into the operating system of Farfetch’s API platform, allowing the brand’s entire global inventory to be available through an e-commerce platform.
“We have a Store of the Future installation at Browns,” Fowler said. “We’ve done a ton of research into what consumers want. Store is our comprehensive solution to all of these problems. Some people are trying to attack one or two of these problems, but no one is bringing them all together in one solution. Technology can empower and help fashion survive in the future. As a marketplace company by nature, we have a lot more of it due to the depth and breadth and range of products we have.
“Because of our unique proposition in the marketplace, we offer the broadest range of products,” he added. “Probably our closest digitally native pure online competitor offers 40,000 products. We offer 300,000. If you’re searching for products on Google, we have at the moment, 5,000 unique sku’s of Gucci. Gucci’s own web site, by example, has less than 2,000.”
Farfetch doesn’t buy or own the products listed on its site. It doesn’t hold inventory, nor does it fulfill orders. Fowler compared Farfetch to technology companies such as Uber and Airbnb that don’t own the cars or rooms that are necessary for providing the service.
“We’re growing to become the largest online fashion destination and we own no stock,” he said. “The only way we’re able to create sales is to create experiences and connect people to the products they love from the brands they love through partnerships with boutiques and brands.”
“What is your commission rate?” Palmieri asked. “I’ve heard it’s as high as 25 percent.”
“It’s true that commission is our main revenue stream,” Fowler said, ticking off the panoply of benefits the site provides. “Photography, production, customer service, account management, operations, logistics, translations, product description, page creation.” In short, everything that goes into operating a global e-commerce site.
“We’re able to invest in incredible customer experiences and services,” Fowler said, including “express delivery to about 200 countries in about three days, same-day delivery in 15 cities and 90-minute delivery in 14 cities. That speaks to the capabilities we’ve been able to develop due to our unique business model.”
Fowler elaborated on the complexity of the specialized e-commerce services that Farfetch creates for global customers.
“We’ve developed a ton of localized sites,” he said. “Each site is personalized for the consumer in that area of the world. If you’re a consumer in Brazil, and you want to pay in installments, you can pay in installments. If you’re a consumer in China, you can pay with Alipay or JD Pay, and if you want to read the site in your local language and be spoken to by a customer service associate in Mandarin Chinese, we power all of that.”
Goosing that power is the $397 million investment in 2017 by JD.com, which became one of Farfetch’s largest shareholders, with Richard Liu, JD.com’s founder and ceo, joining the Farfetch board. JD had been in the midst of attempting a major luxury push when it hooked up with Farfetch, which long had a fascination with China.
Farfetch, which had sales of $200 million in 2016, is reportedly targeting an initial public offering that could give it a valuation of up to $5 billion. “I’m not commenting on an IPO,” Fowler said when asked about the possibility.
Fowler said Farfetch’s business model — “more of a platform and technology company that empowers off-line retail in the online space” — gives it an edge. “For luxury fashion, there really isn’t a competitor. Other marketplaces endeavor to break into the luxury space. By now people know that Amazon is quickly becoming the number-one player within the apparel market, but in luxury it’s irrelevant.
“The reality is, we’re not a competitive company. We don’t operate with zero-sum game behavior,” Fowler said in a thinly veiled reference to Amazon ceo Jeff Bezos. “We’re a partnership-driven company.
“José leads Farfetch with love and emotion and wants to empower individuals,” Fowler said. “It requires partnership and technology to work together for a more sustainable future. We approach it from a win-win position. If any one of our competitors came and said, ‘We want to work with you and expose our products through your marketplace,’ we would actually welcome them as a collaborator.”
“Now that we work directly with brands like Gucci, the brand’s flagships on Fifth Avenue and Rodeo Drive in Beverly Hills supply Farfetch customers from their backup [inventory]. Gucci’s third party retailers, which they supply during market, also fulfill sales on Farfetch. We partner with those brands for a collaborative future and collaborative success.”
About one-third of Farfetch’s consumers are men, “a pretty high ratio if you compare us to another multi-brand retailer,” Fowler said. “We tend to skew quite young, because younger consumers more and more favor online channels. We’ve seen extraordinary growth. In our first eight years, we acquired one million active customers. In 2017 we acquired 650,000 customers, and this year we’ve already topped two million active consumers.”
Farfetch has come a long way since Neves began developing the company. “José in 2007 saw what was happening in the world with e-commerce and technology really disrupting the industry and saw an opportunity for a marketplace business model,” Fowler said. “Two weeks prior to the launch of Farfetch, the world was on the precipice of a global recession.”
The venture capital community was impacted by the recession, financing dried up and Neves ended up funding Farfetch himself. With an initial focus on independent boutiques that didn’t have the resources or know how to connect with a global audience, Neves in October 2008 connected 25 top boutiques into his shoppable platform.
Asked whether Farfetch will develop its own collections, Fowler said, “We call ourselves the platform for the creators, curators and the consumers of fashion. We’re not the creators ourselves. We create great beautiful editorial and images. I don’t think we’ll take the lead role in creating the trend or creating the fashion. Consumers want the choice and want the ability to be inspired across the breadth and range and ease and service level we’re able to provide.”