Exclusive interview: José Neves, founder and CEO of Farfetch

Fashion exists because of two very human needs,” states José Neves – the founder, co-chairman and CEO of luxury e-commerce website Farfetch – when we meet at the company’s offices in Dubai Design District.

“One is the need to belong, and the other is to be unique. We want to be accepted by the community we live in, but then we also want to have those cool sneakers or handbag that will make us stand out. Fashion, therefore, is a part of human culture itself,” he explains.

And fashion is something the Portuguese national and British resident knows a thing or two about. Having started Farfetch in 2008, Neves has grown the online fashion platform to astronomic heights – boasting figures of 40 million unique visitors and 1.5 million active consumers across 150 countries.

The popularity and success of the website was put into stark relief when he listed the company on the New York Stock Exchange last year, selling 44.2 million shares, raising $885m, and enjoying a value of around $5.8bn – rising to $6.4bn when including employee share options. When the IPO took place in September, shares in Farfech surged by 53 per cent.

Neves’ positioning of fashion not as superfluous consumerism but something far more inextricable as a part of human culture itself, is clearly an idea that is winning.

Where it all began

Neves was born in Porto, Portugal, in 1974, and started programming computers when he was eight years old. The early 80s, as he explains, saw the rise of personal computers, and the epic battles between Steve Jobs and Bill Gates made a huge impression on him. He was certain he wanted to build his own tech business, but just what that tech business would entail wouldn’t become clear until much later.

“I only really discovered fashion at the age of 19 when I was in university and began designing software for the fashion industry,” he says. “I started travelling and seeing fashion shows – that’s when I fell in love with fashion for the first time.”

Three years later, in 1996, he started Platforme, a software firm for small fashion brands. That same year, having ticked the first goal of setting up a tech company, he launched his own shoe brand called SWEAR.

“At the age of 22, you think you can do anything and you will be successful at everything. I was absolutely convinced that I could programme computers and design shoes too,” he recalls.

By 2001, still brimming with ambition, Neves started the B Store boutique in London’s Savile Row to champion emerging designers. “At B Store, I learnt the importance of the experiential element of physical retail. A boutique isn’t just a space to buy clothes but it is also about the interior decoration, the smell of the store, the curation of the products and also how that merchandise has been stocked – even the storytelling from the sales assistants.”

As a boutique owner, Neves would often come across little-known brands tucked away in obscurity that didn’t have a way to market themselves to the world. That was the genesis of the idea behind Farfetch.

“I always thought how can I create a platform to actually lift and empower these amazing brands, the designers and boutiques,” he says. “I always had a respect for them, because I was one of them. At our core, we wanted to be a positive force for fashion, an enabler for this beautiful industry.”

The birth of Farfetch

Farfetch was launched during Paris Fashion Week in October 2008 at a party co-hosted with legendary boutique owner, influencer and industry legend Maria Luisa.

“From day one we had 25 boutiques on the platform, with 300 designers and 3-4,000 products on the website,” says Neves.

The founder’s early goal wasn’t to chase sales, but install a more long-sighted strategy: to create a community that fed the machine.

“The boutiques and larger department stores and retailers are the real curators of fashion, whereas the small designers or the large brands are the creators of fashion. And then there are the consumers,” he explains.

“My idea was always how can I build a technology and logistics platform that is going to empower the global fashion community consisting of these three Cs – the curators, creators and consumers of fashion.”

While Neves was focusing on community building, darker financial forces were at play in 2008 that threatened to destroy start-ups. Two weeks before the Farfetch party in Paris, Lehman Brothers collapsed.

“I used all the money I had, I took loans from my shoe business and lent it to Farfetch. If Farfetch hadn’t worked, I would have been bankrupt. The other business would have also been bankrupt and Farfetch would have obviously failed.

“But 2008 was good for us because luxury brands were open to new channels. Boutiques thought that the world is going to end anyway so we might as well try this crazy Portuguese guy and let’s see what happens.”

A year later, in 2009, venture capitalists began contacting Neves, and in 2010, Farfetch went for its first round of funding.

“It was a guy who is still on our board of directors. His name was Frederic Court – he’s French, based in London, and he was leading a fund called Advent. They were one of the first ones to pick up the phones and call us. It worked out well for them too.”

The $4.5m that Farfetch raised through that single-investor Series A round was a proof of concept for the team, and soon it was time to scale, with European investors including Index, Felix and Vitruvian backing the company. From the relatively humble $4.5m funding round in 2010, Farfetch had come a long way by 2017 when, months before its IPO, China’s JD invested a whopping $397m that would give Farfetch an inroad into the world’s second-largest luxury market. Farfetch now has a 300-strong team in China.

“In China alone, there are 30 million customers that shop for luxury regularly,” says Neves. “Our average customer age is China is 29 which is younger than our average global customer.”

Advantage Farfetch

There are several factors that have given Farfetch a distinct advantage over the competition.

Neves explains that there are “3,000 designers represented on Farfetch, while our closest competitor has less than 1,000,” and that there are “600,000 products on Farfetch – 10 times our closest competitors”.

But the sheer volume explains only half its success. The real secret potion is Farfetch’s highly curated selection of merchandise. “I always compare Farfetch to Apple,” says Neves. “Every single developer on the App Store needs to go through a vetting process to make sure that the app is of a very high standard and will add value to you as a consumer.

“Our vetting process is very grueling too. We make sure that every seller on the community is contributing to the community. We visit every single store, such as the brand in Mexico which we just signed called Caravana in Tulum that is 100 per cent made in Mexico by Mayan artisans. We go there and spend a few days with them to make sure that working conditions, the ethics, the way they treat and service our customers and the aesthetic elements are all at a very high level.

“It doesn’t matter if the sellers are big or small. It does not have to be only the Guccis or Pradas of the world – of course, we want those as well – but it is really all about the curation and whether they bring something new to the platform.”

Another area that Farfetch has doubled down on is its technology infrastructure. Apart from building websites in 15 languages and implementing dozens of payment systems, it has also spread local cloud servers around the world.

“We have data centres around the world including China, on the other side of the firewall,” says Neves. “They’re all connected so it’s not that the China infrastructure is completely separate. Very few Western companies have an infrastructure in China, and out of those very few have an infrastructure connected in real time with one single platform. Maybe two or three companies in the world have this type of infrastructure.”

That physical infrastructure, Neves says, will allow the company to immediately capitalise on emerging technologies such as 5G and blockchain, which he says can be used to authenticate luxury goods.

Farfetch, by way of its operations, has gathered troves of data that Neves says can be leveraged to enter into a data alliance with luxury brands and retailers around the world. Farfetch has a 1,200-strong tech team comprised of data scientist and data engineers tasked with arming that data.

“Finding out the probability of whether the customer on the internet is a luxury customer is a data science problem. What you’re seeing on Farfetch is personalised to you and the result of your pattern of behaviour even before you reach the website, if we can find you on the internet.”

The obvious question then is whether this data mining can be intrusive and open to abuse, inadvertently or not. Neves cites the example of Netflix. “Netflix is a company that uses data as a huge competitive advantage. The exchange is fair. I give Netflix my data because they are going to respect me and treat it well – they’re not going to sell it and it’s not going to show up on someone else’s servers. They use it in a very specific case which benefits me by recommending the next series or movie, otherwise I would spend hours going through their catalogue and it would be impossible as a user experience.

“Data is everyone’s friend in a situation like that. Tech companies have a responsibility to avoid the other extreme where data is sold to third parties or simply used in ways that are abusive. Of course, we are compliant with Europe’s GDPR legislation and also in China which has its own version of GDPR, but you have to be more than just compliant and constantly ask yourself if you are using the data responsibly and for the benefit of the consumer.”

Farfetch in the Middle East

Farfetch kicked off its Middle East operations last May, partnering with Dubai-based Chalhoub Group – one of the Arab world’s biggest franchiser of luxury brands.

One year on, Neves explains it has good reason to break out the buntings. “We are already by far the number one luxury destination online in the Middle East – but we’re only scratching the surface. The online penetration in luxury in the Middle East is not even 10 per cent – it’s probably around 5 per cent.”

Edward Sabbagh, the managing director for Farfetch in the Middle East, adds that the potential in the region is enormous. “One of the largest online transactions on Farfetch in 2018 occurred in the UAE at $165,000. The luxury fashion e-commerce market in the Middle East was estimated at a little over $300m in 2017.”

Farfetch has localised content and offerings in order to connect with the region’s customers, adding local department stores such as Tryano and Level Shoes, and boutiques like Closet Case to the platform. “We have an Arabic language website, local customer service, and a local private client service which is our VIP customer tier,” says Neves.

Interestingly, Middle East brands have also caught the attention of Farfetch’s investment arm. The day before Farfetch listed on the NYSE, Farfetch announced that it would host Middle East start-up The Modist’s modest wear on its platform. “Modist is run by a female entrepreneur, and for us it is an example of a small company that is going to be a big company led by a visionary woman who is a great curator of fashion that we want on our platform,” explains the CEO.

In March this year, seeing the success of the brand on its platform, Farfetch decided to be a part of the brand’s funding round, and invested in it. As for Chalhoub, it’s a partnership that is reaping rich benefits for Farfetch.

“Chalhoub Group helped us build our team here and allowed us to pick talent from their team – our leader in the Middle East, Edward Sabbagh, came from Chalhoub Group, for example.

“Also, all the insights they have were an advantage – they know the local luxury customers better than anyone else in the region.

“There is great chemistry between Patrick Chalhoub in particular and I, and there is a great culture fit between our companies.”

Enabler, not disruptor

For those then who think that Farfetch’s business model is to destroy physical retail, think again. “This was never the intention and it is not what Farfetch does. The experience of physical retail will always be a part of the magic of fashion,” says Neves.

As such, Farfetch is entering physical retail with its Store of the Future concept that builds on its vision of augmented retail, which Neves describes as the convergence of physical and digital retail.

The Store of the Future concept is similar to what Amazon Go and Alibaba Hema have done with groceries, but Farfetch is the first and only company so far applying it to the luxury industry.

In the Store of the Future, a customer has a universal login that identifies him or her as they step into the physical store. RFID-enabled clothing racks then keep track of the customer as they browse and auto-populate their online wish-list in sizes and colours. A nifty mobile payment system similar to that of the Apple Stores then completes the purchase.

The concept caught the attention of mega luxury fashion house Chanel when Farfetch presented it to industry CEOs in 2017.

“We did a conference where we invited 200 CEOs from all the luxury industries. Chanel was there and that’s how they became our launch partner,” says Neves. “In 2019, we will launch in Paris with Chanel on Rue Cambon and we’re then going to start rolling out the concept to all Chanel stores around the world. After Chanel, we will certainly work with department stores and other brands as well.”

It’s yet another reason why Farfetch’s September IPO was so well received – a listing that not only validated the company’s strategy, but gave it a significant war chest.

In January, it spent $250mn to acquire Stadium Goods, a decision that was in part influenced by the success of the sneaker brand here in the Middle East. “We tested Stadium Goods on the platform before acquiring them, and the Middle East was the second largest market for it outside the US,” says Neves.

The CEO has also put in place a star team of advisors and directors to drive the business forward. One of the most significant additions was Natalie Massenet who joined as co-chairman of Farfetch in 2017. “She started luxury e-commerce when no one believed in it,” says Neves referring to Massenet founding Net-A-Porter in 2000 before stepping away from it 15 years later.

“She was the first to convince the brands that this e-commerce could be an elevated channel that would be brand-building and not brand-destroying.

“She’s much stronger than me on the brand editorial and communication side of things and it’s great to have someone by my side who complements me.”

And for Neves and his team, there are no plans to take things easy any time soon. “We did $1.4bn last year and we’re forecasting just under $2bn this year,” he says. “We are building a technology and logistics platform servicing a $300bn global industry which in 10 years will be $500bn, and online luxury sales will go from $25bn today to over $125bn.”

Counter-intuitively, he believes not in learning from past mistakes, but instead deliberately unlearning from them. “As a businessman and entrepreneur today, you need to abandon what people call ‘pattern recognition’, which used to be a friend but now is an enemy.

“Pattern recognition is ‘I tried to penetrate that market five years ago and it was a disaster, so forget it’. That will be an enemy because maybe that market wasn’t ready for you, and because you had that trauma, that scar tissue, it’s going to prevent you from taking that risk.”

That refusal to be scarred by past mistakes – of which Neves admits he has made many – has meant an extraordinary growth rate. “We’ve been growing 50 per cent-plus year-on-year. Last year’s growth was 50-55 per cent. Now extrapolate even a 40 per cent growth – perfectly possible given that the online luxury industry is growing 25 per cent – which is our forecast for this year over the next 10 years.

“What we will be in 10 years is multiple, multiple times more than what we are today. If we keep doing our job, we are only at chapter one of a very long story.”

If this first chapter is anything to go by, the Farfetch story will be a gripping read for many, many years ahead.