Farfetch Delivers Impressive Q3 Sales Growth, but a Partnership With Alibaba Is What Excites Investors

By Mariliana Fotopoulou Friday, November 13, 2020

Farfetch, an online luxury fashion retail platform, recorded a sales growth of 71% in the third quarter to send its shares trading 12% higher in the pre-market session. Moreover, the company’s partnership with Alibaba and Richemont has pushed investors toward elevating the stock price to record highs.

Impressive Q3 Beat

Farfetch delivered an impressive set of quarterly figures today. The luxury fashion platform reported a loss of $537 million, which is lower than what the market’s analysts expected. The business soared in Q3 to deliver a record gross merchandise volume (GMV) of $798 million.

“We believe we're witnessing a paradigm shift in the way people buy luxury. From day one, Farfetch set out the differentiated vision to enable the luxury industry by building a full suite of capabilities to connect the creators, curators, and consumers, who are the lifeblood of the luxury industry,” Jose Neves, the Founder, Co-Chairman & Chief Executive Officer of Farfetch, said during a call with analysts.

“This has not only positioned Farfetch to capture the accelerating online demand resulting from increased consumer adoption in light of the continuing global pandemic, but we are actually helping drive this paradigm shift for consumers, as well as brands.”

Credit Suisse analyst Stephen Juefore raised the price target on Farfetch to $43 per share from prior $35 to further support the price action. Shares of the company are up over 300% since the beginning of the year.

New Multi-Billion Partnership in China Presented

Farfetch, Alibaba Group, and Richemont announced their partnership on November 12 to create a “Luxury New Retail” that will provide opulent brands with broader access to the Chinese market and step up the digitization of the luxury sector.

Farfetch plans to roll out luxury shopping channels on Alibaba’s Tmall Luxury Pavilion, Luxury Soho, and China's largest cross-border B2C online marketplace Tmall Global, that will offer shoppers a new kind of luxury retail experience.

“This highly complementary partnership brings together some of the world’s leading luxury retail and technology platforms, representing another milestone in Alibaba’s strategy to meet the rapidly growing demand for luxury products in China,” said Daniel Zhang, Alibaba Group Chairman and Chief Executive.

“The Chinese luxury market — which is expected to account for half of global luxury sales by 2025 — consists of hundreds of millions of young, digitally-native consumers. By partnering with Farfetch and expanding our existing relationship with Richemont, we will accelerate the digitization of the global luxury retail industry and transform the luxury shopping experience for consumers.”

The new deal will provide Farfetch with access to 757 million active users of Alibaba and offer luxury companies a multi-brand solution. This will allow luxury companies to increase brand recognition, while luxury shoppers will be able to buy products from their favorite brands via the Farfetch integration or NET-A-PORTER’s popular integration on the Tmall Luxury Pavilion.

The deal will also reinforce the already-common partnership between Alibaba and Richemont, which was created in 2018 when the two companies established a joint venture to introduce luxury Swiss products to the Chinese market. Back then, Alibaba and Richemont introduced their application and online store on the Tmall Luxury Pavilion.

Two companies will each inject $300 million in private convertible debt issued by Farfetch. Furthermore, Alibaba and Richemont will also inject $250 million each to purchase a combined 25% stake in Farfetch China, a joint project that includes Farfetch's marketplace business in China.

Both companies will also gain an option to buy an additional 24% combined stake in Farfetch China, three years after its launch, according to the terms of the agreement presented in the joint statement. On the other hand, the French holding company Groupe Artemis will also invest $50 million to elevate its stake in Farfetch.

Johann Rupert, the Chairman of Richemont, said the developments of the joint venture between his company and Alibaba “represent a further meaningful acceleration of our journey toward Luxury New Retail.

Both companies said they would consider additional options to collaborate with Farfetch and introduce new services to luxury labels.

Summary

The Chinese ecommerce giant and Swiss luxury group Richemont have teamed up with fashion retail platform Farfetch to meet the rapidly-rising online demand for luxury brands in China and speed up the luxury sector’s digitization in the country. Moreover, Farfetch delivered an impressive set of financial figures for its third quarter, showing a surge in sales of 71%.

About the Author


Headshot for author Mariliana Fotopoulou

Mariliana has an MSC in consumer analytics and business strategy. She has a special interest in fast-moving industries and big data.

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