Luxury retailer going public as demand rises

LONDON — Farfetch offers the latest Gucci items delivered to your door in 90 minutes, has distribution deals with brands like Nike and TAG Heuer, and recently started an Arabic-language site to cater to the tastes of wealthy Middle Eastern shoppers.

Now the company is turning its attention to the appetites of a new client: Wall Street.

The London online luxury marketplace formally revealed plans last week for an initial public offering on the New York Stock Exchange, the latest sign of growth in a booming global fashion ecommerce space flooded with cash and sky-high valuations.

A platform for 500 independent luxury boutiques and 200 brands, Farfetch was founded by Jose Neves in 2007 and is now one of a small handful of technology companies in Europe with a valuation of more than $1 billion.

The move by Farfetch to go public has been long anticipated, underscoring shifting shopping trends as high-end e-commerce continues to rise. That stands in contrast to a wider retail industry outlook worldwide, shaped by the shuttering of long-established chains, changing consumer habits and the ever-present threat of Amazon.

Shoppers who are moneyrich but time-poor have been increasingly looking to buy from online fashion players rather than traditional brickand-mortar boutiques. As a result, Farfetch and rivals like Yoox Net-a-Porter — which owns and operates internet retailers like Net-a-Porter, Mr Porter and the Outnet — have been growing, and both companies have been spending large amounts of cash to rapidly expand their operations. Yoox Net-a-Porter, for example, recently ramped up its offerings of $15,000 Chopard and Piaget watches, and expects to generate about $114 million in revenue from highend jewelry and watches by 2020.

Luckily for them, many investors have jostled to get in on the act.

After a fierce bidding war in September, private equity firm Apax Partners spent about $1 billion to take a majority stake in Matchesfashion.com, a British luxury e-commerce group. Later in 2017, Moda Operandi, a New York high fashion ecommerce site, announced that it had secured $165 million in its latest round of funding. And this year, Yoox Net-a-Porter was taken private by a Swiss luxury goods group.

Farfetch has come a long way in the 11 years since its founding. It was initially built by Neves, a former shoe store owner in Portugal, to help smaller stores enter the digital world. He took a commission on each purchase, freeing himself of the need to build up major inventories or build up the capital requirements of a traditional retailer.

Backed by Chinese e-commerce giant JD.com, which will maintain its stake after the listing, Farfetch now has almost a billion active consumers, can ship to 190 countries and has created an infrastructure platform that luxury brands can use to develop their own e-commerce businesses.

“What makes us different is that everyone else is operating on a retail model, but we are a platform, not a shop, an enabler not a competitor, and are reaping all the advantages that such a position entails,” Neves said in December. “We believe we are the only global luxury platform at scale.”

But while a push to grow has prompted a hunt for new revenue streams, and drove sales growth of 59 percent last year to $386 million, the company has not turned a profit since its creation. As investments and costs have increased, losses grew to $68 million in the first half of 2018, compared with $29 million in the same period in 2017. Farfetch said in the filing to announce the public offering that the losses were a result of the costs of entering new markets, as well as adding new brands and partnerships.

Those pressures are far from unique. Stitchfix, a popular San Francisco personalized clothing subscription service, has had a bumpy first nine months as a public company. High-profile flops like that of Style.com, a shuttered e-commerce venture backed by the media company Condé Nast, have also served as stark reminders that things can easily go wrong.

There are, however, positive trends. For one, demand for trend-driven apparel and accessories does not appear to be going anywhere. The global personal luxury goods market is poised to grow by 6 to 8 percent this year, according to a recent report from Bain & Co., and is expected to reach $446 billion by 2025.

Farfetch filed registration documents with the Securities and Exchange Commission saying it wanted to raise $100 million, a placeholder figure that will likely change. Although the company did not specify a date for its initial public offering, it is expected to be this year.