Mapping Farfetch’s path to profitability
Despite posting USD 255.5m in revenue in Q3 2019, the company’s loss after tax increased by 10.6% YoY to USD 85.5m.1https://s22.q4cdn.com/426100162/files/doc_financials/2019/q3/v2/20191114-Farfetch-Q319_vF.pdf The company may have the broadest online fashion offering in the world, but the sustainability of its revenue sharing business model could be challenged in the medium term, the former C-level executive at Yoox Net-A-Porter Group SpA told Third Bridge Forum.
Farfetch serves multi-brand retailers and brands with “fairly distinct pricing policies”. The former pay in the region of 35% in terms of e-commerce operating costs and the latter 20-25%, sometimes lower. Excluding first-party merchandise sales, Farfetch has a take rate of around 30%. The specialist suggested this is cutting it fine in terms of profitability and anticipated a future decline in the company’s average take rate.
All else being equal, additional investments will be needed to acquire more customers, while digital production costs are likely to rise as consumers expect a higher level of service, such as personal shopping and online chat interactions. Farfetch is struggling to reach the standard of customer experience that a traditional retailer is able to manage, particularly with expanding inventories and the complexity of keeping track of global delivery times.
Farfetch also has a suite of white-label solutions as part of its Black & White offering, which is “not too badly priced” and provides a “decent level of omni-channel integration”. However, one of the challenges with the model is that it operates on the assumption that technology is a tough area for brands, which is increasingly not the case. Once a brand becomes big enough to fulfill its own technology ambitions, the Black & White format is often no longer the right solution.
The Interview covered Farfetch’s path to profitability, including how the Harrods partnership starting next year could boost profits, whether the partnerships model is scalable, and the company’s plan to move away from discounting.
To access all the human insights from Third Bridge’s Farfetch – Growth Sustainability Interview, click below to view the full transcript.
The information used in compiling this document has been obtained by Third Bridge from experts participating in Forum Interviews. Third Bridge does not warrant the accuracy of the information and has not independently verified it. It should not be regarded as a trade recommendation or form the basis of any investment decision.
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