Farfetch (IPO 2018) outlook based on alternative data

Farfetch

Overview

Farfetch, the UK based luxury-fashion ecommerce marketplace is planning to go public this year. We analyze here some of its key strengths and threats for brands that are approaching the service: strongest growth among competitors, flexible buying structure, access to a growing panel of emerging and big brands but loose pricing and promotion discipline on the other side.

Catching up on Net-A-Porter

Farfetch main competitor, Net-a-porter (YNAP:IM, MktCap 5Bn EUR) has long led the high-end fashion ecommerce. The 10-year progression of web searches shows how important the consumers interest on Farfetch has grown.

Farfetch and net-a-porter search interest
Farfetch and net-a-porter search interest

The growth in Internet searches was driven by rise in the variety of offering on the new etailer: If we consider last 12 months alone, SKU on shelf have risen by 58% and brands by 23% (compared to a +5% in both cases on net-a-porter).

Farfetch and net-a-porter SKU and brand count
Farfetch and net-a-porter SKU and brand count

… And on Department Stores

The scenario looks similar when we shift the focus from digital competitors to good old luxury department stores. Search interest, once polarized, now looks at reach. There is still a lot of work to be done by department stores to reverse the course of history. Trends are clear.

Farfetch vs Department Stores search interest
Farfetch vs Department Stores search interest

Strengths: rapid intercept of emerging trends

With more than 700 boutiques affiliated to Farfetch, the British etailer can count on all of their buyers (!) that compete for visibility on the platform, continuously searching for emerging trends. In the chart below we can see how Farfetch outrunned other platforms by intercepting the rising street-wear brand Off White in early stages (note: Off White’s hype started august 2017: Farfetch was ready to welcome the mass of customers with their products)

Off-White presence on Farfetch
Off-White presence on Farfetch

Downsides: price and promotion discipline

A potentially infinite availability of products run by a potentially infinite number of sellers (AKA boutiques) doesn’t come without compromises: The strongest lever that pushes brands to a direct partnership with Farfetch is that this could be the only way to control what boutiques are doing with their products. There is a rising issue of pricing discipline (which undermines brands marginality in retail stores due to geo pricing nightmare) and a promotion chaos (literally).
The difference between a disciplined etailer (net-a-porter) and the soon-to-be-listed Farfetch is beyond obvious, if we look at how promotions are handled.

See our analysis on Tods Group for a clearer example of what kind of perils Brands are exposed to.

Mardkdown patterns on Net-A-Porter
Mardkdown patterns on Net-A-Porter
Mardkdown patterns on Farfetch
Mardkdown patterns on Farfetch