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Exclusive: Farfetch founder José Neves on the exponential growth of luxury fashion e-commerce

Exclusive: Farfetch founder José Neves on the exponential growth of luxury fashion e-commerce

José Neves talks about the rationale behind smart acquisitions, building white-label digital infrastructure for companies, and why the Middle East region is vital to its business

Jose Neves Farfetch

When the share price of a much-touted New York Stock Exchange-listed company falls off a cliff edge within a year of its debut, there are legitimate questions raised about its future. On August 8, 2019, luxury fashion e-commerce major Farfetch announced that it was acquiring New Guards Group (NGG) – the parent company of Off-White, Heron Preston and Palm Angels – for $675m. The market responded by forcing its shares down 40 per cent. It would take far more than that to unnerve the now 46-year-old founder, chairman and CEO of Farfetch, José Neves.

A year on, he stands vindicated. “The two biggest days ever on Farfetch were not Black Friday, Cyber Monday or Single’s Day. They were the two Nike Off-White launches we’ve done on the platform since the acquisition. The last one got 800 million hits on our platform,” says Neves, adding that the acquisition of NGG quickly met its objective of driving free and organic traffic towards the platform.

But rather than just being a win for Farfetch, NGG too reaped a rich harvest on its digital profile post the acquisition. “NGG was only 2 per cent direct to consumer online when we acquired them. And in Q2 [2020], it was already 20 per cent of their business. So we multiplied tenfold their direct to consumer digital channels. And we think it will be 50 per cent of their business in the next few years.”

The success of NGG has encouraged others like Carol Lim and Humberto Leon (former creative directors at Kenzo) to bring their Opening Ceremony brand onto Farfetch. Likewise, Verbal and Yoon too recently brought their edgy Tokyo-based brand to Farfetch.

To see the 12-year-old Farfetch as merely a magnet for luxury fashion brands would be a limiting exercise. “We’re not a retailer and we’re not even just a marketplace,” says Neves. “We’re a tech enabler to an entire industry.”

You don’t have to take that at face value. Consider that Farfetch spends $200m on technology alone every year. Its Farfetch Platform Solutions division is a tech-driven department that builds white-label digital infrastructure for companies. Neves compares it to services offered, for example, by Amazon Web Services.

Earlier this year, iconic British department store Harrods tapped Farfetch to build for it a new website and online distribution channels. Farfetch delivered with not only a ground-up designed and optimised website, but one that was meshed with complex payment systems.

Harrods gained immense global digital reach almost overnight. “From day one, they could ship to the Middle East, for example, which is a major customer base for them. They could ship to China, Russia, and accept local payment systems too. Everything that we’ve built at a global scale is something that they inherited from day one and this is what makes it [Farfetch Platform Solutions] much more powerful than other solutions that are out there in the market.”

Farfetch’s own reach into the Middle East has been an extensive one. It entered into the region by partnering with Dubai-headquartered Chalhoub Group in 2018 and moved quickly towards building local teams and customising content including developing Arabic content for the region and onboarding homegrown brands.

Neves says that Farfetch has been gaining new customers not just in the UAE, but also in the neighbouring markets of Saudi Arabia and Kuwait. While he does not break down the individual market share of these countries, he confirms that the region has been growing at a faster pace than the global average.

“We have an extremely successful partnership with Chalhoub Group and they’ve given us incredible know-how and insights. We’ve launched a local team to support the VIP department which only has private clients – our highest tier of customers. We’ve launched a service called fashion concierge, where we can cater for any fashion desire that you may have. Even if it’s not on the Farfetch catalogue, we’ll hunt it down. We’ve had some of the biggest sales for private clients coming from the Middle East.”

Farfetch has had a breakout year in 2020, irrespective of the metric you choose to focus on. Its Q2 2020 revenue skyrocketed 74 per cent year-on-year to $365m, it recorded a 48 per cent leap in its gross merchandise value to $721.3m, the number of third-party retailers crossed 1,300, and its gross profit margin rose 44 per cent.

But the numbers that Neves is most excited about? The fact that the platform gained a whopping 500,000 new customers in Q2 2020 alone, on top of the two million it had going into that quarter.

He says that it is the quality – “prime luxury customers” as he refers to them – of the new fans which is the real headline for Farfetch. The other big deal for his brand is the growth in app downloads over Q2. “[We’ve seen] 100 per cent growth in the in app downloads. App customers are much more resilient and sticky than web customers. If they have the app on their phone, you can send them notifications and communicate with the customer in a much more powerful way.”

But it hasn’t been an entirely slam-dunk quarter for Farfetch with the Covid-19 pandemic raging globally. Many of the around 800 boutiques listed on it were immensely pressurised due to the lockdowns.

In February, Neves says, the company had an entire campaign including shoots and editorial themed – ironically – around travel that was ready to go live.

But during an earnings call on February 27, shortly after Italy had gone into lockdown, he realised that that campaign would be tone-deaf and irrelevant and hence decided to launch a new SupportBoutiques campaign instead.

SupportBoutiques involved Farfetch batting in the corner of these small-scale enterprises, many of which faced the prospect of shutting down entirely.

It leveraged its advanced algorithms to rank these listings prominently and assisted with marketing and visibility across its social media channels, homepage, and app too. As Neves adds, the objective was always to “help the small guy.”

China remains the golden goose for luxury brands, but it has also been a notoriously difficult market to penetrate. In 2017, China’s JD invested $397m into Farfetch, and Farfetch has since then invested by building data centres inside China and customising its technology, content and delivery platforms specifically for that market.

But the gorilla in China’s market, and the clear leader there, remains Alibaba. “China is still the second-largest market for us. There are only two games in town in China – Alibaba and Farfetch – and that looks pretty good to me. If you tell me that there’s a $120bn market where there are only two companies that have a chance to win, I think that’s an extraordinary position to be in.”

The market where Farfetch isn’t ready to play second best is one of its most important – the US. Last month, Amazon decided to enter the luxury e-commerce space and launched Luxury Stores, a move that Neves views as shortsighted.

“They’re trying to solve a problem that brands don’t have. Brands have plenty of exposure in the West, through their own websites, through Farfetch, all our competitors, wholesale businesses such as Matches, Net-a-Porter and department stores such as Neiman Marcus, Bergdorf, all of which operate very good websites. If anything, the brands are over distributed in the US.

“Also, a luxury brand needs to have luxury positioning. When I’m asked [if I am concerned about] brands going to Amazon, my question is why didn’t they ever go to Walmart? Walmart has had a more powerful position than Amazon actually. They never touched luxury, because luxury, independent of the power of the retailer, cannot be seen in those environments. It completely erodes the luxury value. And so for the same reason, they [luxury brands] do not at the moment want to be part of Amazon.”

Farfetch has been pushing forward with its ‘Store of the Future’ concept. The concept which uses augmented reality and RFID-enabled clothing racks, among other features, merges seamless shopping between physical stores and online.

In Q4 of this year, Farfetch will be relaunching the Browns boutique at a new location in Mayfair and will roll out a version two of its ‘Store of the Future’.

Farfetch acquired Browns boutique in 2015 and Stadium Goods (which along with Christie’s auctioned the world’s most expensive sneakers, a $615,000 Nike Air Jordan 1 Highs from Michael Jordan a few weeks ago) for $250m in 2018. Neves confirms that while Farfetch is happy to excel in retail, distribution and technology, it has no intention of becoming a manufacturer. That’s where the NGG deal also plays a major role. NGG doesn’t own manufacturing factories of its own, but is closely involved with the manufacturing side of its business. This allows Farfetch to potentially offer designers the option to not just retail their brand, but to help coordinate their manufacturing too.

Read: Exclusive interview: José Neves, founder and CEO of Farfetch

Last month, Farfetch undertook a brand redesign across its website and app. It also unveiled an Open Doors fashion campaign alongside the newly updated brand identity.

Read: Farfetch updates brand identity; launches new ‘Open Doors’ digital campaign

“Farfetch is a bigger business than we are a brand. If you ask consumers, we still have very low brand awareness. For me, the glass is half full. Brand (awareness) is probably our biggest opportunity.” To build on that, it is experimenting with targeted TV advertising for the first time – the decision to do so was made by the newly-appointed chief marketing officer Gareth Jones who joined Farfetch from eBay earlier this year.

Listing on the exchange has ultimately given the Portuguese billionaire and signee of The Giving Pledge sufficient liquidity to recently launch The José Neves Foundation which will offer scholarships to postgraduate students in Portugal. It will also include an open database insight platform that uses 200 million data points to offer real-time updates about potential careers to university graduates before they decide which fields and companies to pursue.

The current crisis meanwhile has allowed Neves to reflect on his own company and the culture that he perpetuates within it. “If you build a company around a strong culture, and the right values, people will respond effectively to a crisis no matter what you throw at them.” For a brand that just hit its highest-ever stock price in August, it’s as much a validation that Neves needs to know that he’s headed in the right direction.

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