Humility is never the first word that emerges in conversations about tech start-ups, especially first-movers with valuations of $1 billion just seven years after launch. But Farfetch.com is an unusual creature.
Every Friday, Farfetch asks staff to thank colleagues who’ve helped them over the past week, and José Neves, the founder and chief executive officer, has a refreshingly ironic take on the origins of the business, a digital marketplace for high-end fashion retailers around the world.
Neves started his career as a teenage software developer (he began coding at eight years old when he frustratingly discovered the ZX Spectrum home computer his parents gave him for Christmas didn’t come with games), creating programs for fashion companies that were based in northwestern Portugal and Spain.
Around the same time, the Portuguese entrepreneur, now 42, decided he wanted to design shoes and came up with a hybrid sneaker brand called Swear, whose sporty lace-ups were eventually picked up and popularized by bands including White Stripes and The Strokes.
“I thought if I can code computers I can design shoes. It’s one of those crazy moves that you do when you’re 22,” says Neves, who was born in Porto in northwest Portugal, an industrial powerhouse of a region known for its fashion, footwear manufacturing and port wine.
“I always say, I was never a good shoe designer and I was never a great computer programmer, but you very rarely find both in the same person, so I thought I had a competitive advantage,” he says good-naturedly during an interview from his corner office at The Bower, a slick new development in London’s Shoreditch tech hub.
Neves moved to London with Swear in 2001, which is when he also launched B Store, a multibrand fashion boutique that stocked mostly young, directional designers. The store scooped a British Fashion Award in 2006, and now exists online only.
By then, the serial entrepreneur and retailer was onto his new project, in his head at least. “I was thinking about the industry and online and what was the next big thing. That’s when I realized there was no platform for luxury fashion, no marketplace model.”
Neves says he felt at the time — and still feels — that the DNA of marketplaces like eBay and Amazon is not aligned with luxury.
“They’re fantastic companies, but they’re all about convenience and everything under one roof,” he said. “My idea was to create a platform where I could offer a global e-commerce infrastructure to boutiques and designers.”
He also wanted “an amazing consumer proposition,” ideally offering a journey through the streets of Milan, Paris, New York, L.A. “and around the world of fashion, with the most amazing curators and creators.”
With that in mind, Neves launched Farfetch in 2008 with 25 boutiques, just as the global financial crisis was gaining momentum in Europe. It was a time when myriad independent retailers — many of them mom-and-pop operations and institutions in their respective cities — were wondering if, when and how they could bolt e-commerce onto their businesses.
Farfetch took the pain — and expense — out of those stores’ decisions. The site does not hold stock and takes a commission of about 20 to 25 percent on every sale it makes, although the company would not confirm an exact figure.
Since then, Farfetch has seen nothing but growth. Today, about 500 retailers are present on the site, with an additional 150 stand-alone designers and brands. Farfetch is notching 10 million monthly visits, with an average transaction value of $700 an order. The site operates in nine languages, offering product — men’s and women’s ready-to-wear, beauty and children’s wear — from more than 1,500 brands.
On top of that, it has hit unicorn status. In May, Farfetch secured a series F round of investment totaling $110 million, led by new investors Temasek, IDG Capital Partners and Eurazeo with an existing investor, Vitruvian Partners, also participating in the round. Other Farfetch investors include Advent Venture Partners, Index Ventures and Condé Nast International. The latest round of investment helped to value the company at more than $1 billion.
All of which is why Farfetch is the recipient of this year’s WWD Honor for Best Performing Company — Small Market Cap.
In 2015, total gross transactional value on the site grew more than 70 percent to upward of $500 million, while the 2016 figure is set to hit $800 million. According to Companies House, the official register of U.K. businesses, revenue in the 12 months to Dec. 31, 2015 was up 65 percent to 87.1 million pounds, or $133.3 million. Figures have been converted at average exchange rates for the period.
Operating losses in the 12 months, according to Companies House, swelled sixfold to 26.5 million pounds, or $40.5 million.
The Companies House figures only provide a partial picture, as Farfetch does not consolidate all of its worldwide sales into the U.K. accounts. And industry observers say investors look at a company’s potential, rather than earnings, when valuing an investment.
“Farfetch is the leader in the category and you always pay a premium for a market leader,” says Ludovic Grandchamp, partner at the boutique M&A firm Savigny Partners. “Businesses like these are so hot, and growth is strong and quick.
“When you are valuing a business like that, what you are valuing is potential,” said Grandchamp, adding “the universe of stores that Farfetch could potentially tap into is enormous.”
It would be an obvious move to scale up the number of retailers he carries — but that’s not for Neves, who says he relishes the community feel of the “creators and curators” who are already on the platform.
“Farfetch is evolving, but it’s also about creating that human bond, that community feel that we don’t want to lose. As we grow as a business it’s very easy to let that go. The fashion industry is essentially a big community of creators and curators of fashion — and we are a platform for both — so how can we keep that community spirit alive?” he asks.
Instead, Neves is bent on reshaping his business model — looking at the union of bricks and clicks in a fresh way and deepening relationships with the retailers already on the site.
In addition to the London headquarters, Farfetch has offices in 11 cities, including São Paulo, Shanghai, Hong Kong and Moscow, and photography studios in California, Portugal and Hong Kong, catering to the different regions.
The site ships to more than 190 countries and has 1,300 employees. The retailers it works with include Browns in London (which Farfetch purchased last year as part of an overarching omnichannel strategy); L’Eclaireur in Paris; H. Lorenzo in Los Angeles; Kirna Zabête in New York, and Excelsior in Milan. Independents in small cities like Arezzo, Italy, or Capitol in Charlotte, N.C., are now doing an international business — often while they sleep — and without having to deal with the nuts and bolts of setting up their own e-commerce sites.
Kate Kutchins-Prueher, e-commerce manager for Tootsies, which has stores in Texas and Georgia, said the business with Farfetch has grown “exponentially” over the last few years. “We have been able to reach a consumer base that we wouldn’t be able to otherwise. We now have customers worldwide, and while the 25 percent commission rate is quite high….Farfetch is a great way to keep our inventory turnover high, and it allows us to sell those items that perhaps don’t resonate with our in-store clients.”
Beth Buccini, owner of Kirna Zabête, says her business with Farfetch has grown 88 percent this year compared to last and that Farfetch is a true strategic partner, working with her on strengthening or deepening her buy with certain vendors, but also encouraging her to follow her eye.
Since its launch, Neves has broadened the reach of Farfetch, launching a white label business unit known as Black and White that builds and operates online flagships for brands including Christopher Kane, Manolo Blahnik and AmiParis.
Neves has also invited stand-alone, branded stores to partner with him on the site. They include Roksanda, J.W. Anderson, Dion Lee and Nina Ricci.
Manolo Blahnik was one of the launch brands for the Black and White business unit. “It was a unique opportunity for us to be able to support our own flagships using the marketplace concept that Farfetch have curated so brilliantly,” says Kristina Blahnik, the company’s ceo. “It also gave us the opportunity to properly display the breadth and depth of Manolo’s creativity in one place, for the first time in a digital space, and the site has exceeded our expectations in performance.”
Being a serial entrepreneur, Neves was never going to rest on the laurels of his increasingly slick, editorial-style site and watch the retailers and brands just grow. That wouldn’t be interesting, or remotely boundary-breaking. Instead, in spring 2015 he bought one of Farfetch’s longstanding retailers — Browns — for an undisclosed sum, with the aim of pursuing his “Store of the Future” project.
He named Holli Rogers, former fashion director of Net-a-porter.com, to be Browns’ ceo and Sandrine Deveaux, a veteran of Harvey Nichols, Matchesfashion.com, AOL and Bloomberg Media, to head up a new business unit called Store of the Future.
Deveaux, whose title is managing director, is developing innovations in retail technology and omnichannel and testing them at Browns before rolling them out to the other boutiques on the Farfetch site.
“Our question is: ‘What is the retail experience of the future online or off-line?’” asks Neves. “The company is willing to test and try — and fail fast — and iterate through what is going to be a ton of experimental stuff. It will take years and continuous development.”
Neves believes the steady migration of business from physical stores and off-line to online is the single biggest trend in the fashion industry, hence his ambitions to improve the quality and speed of service in the bricks-meet-clicks space and to create a seamless experience for consumers.
“We are big believers in physical retail. We don’t think it’s going to disappear. From Day One, we were linking physical inventories and stores to digital platforms and the next big step will be how can we create the retail experience of the future, which is both digital and physical.”
Deveaux says she joined Farfetch because of Neves’ vision and personality as well as the Store of the Future project. “It was just so new. Nobody else had done it before.”
Rogers says that, despite her heavy e-commerce background, she shares Neves’ vision that “the future of shopping is the seamless merger of the fantastic physical experience with the speed, range and convenience of online retailing — and maximizing the power of each.”
While the future may be about growth and new ideas, it’s also about keeping the current business well under control.
Neves says future growth will come from bigger international sales: Farfetch has 25 people in Moscow and the same number in Tokyo, 80 in São Paulo, and more than 150 in the U.S., outposts crucial to the future of the company’s revenues.
Investment in those offices, he says, is paying off in spades: China now represents 12 percent of all sales while APAC is 26 percent, with both growing very fast. “To provide absolutely world-class customer and VIP services, you need to be on the ground in these places,” he says, not to mention being able to understand the fashion needs of the local audience.
Asked whether growth could also come via an initial public offering, Neves says it may well.
“In the long term, it is theoretically something we will contemplate. There’s no timing for it, we still have a lot of work to do. We have investors and actually that’s the best way of continuing with our work, with a very clear culture, vision, values and fantastic thing that we have.
“Many people think that an IPO makes a company less independent — actually it’s the opposite,” Neves argues. “If done well, like in the cases of Facebook and Apple, the IPOs have not killed the culture of those businesses. On the contrary, they are the best way to ensure the founders stay on the team for many years, revolutionizing their industries.”