Farfetch’s financial troubles

Farfetch, a well-known online platform for luxury product sales, finds itself in a delicate position. By October 20, the European Union's antitrust authorities are set to rule on a stake in its rival, Yoox Net-à-Porter (YNAP), from Richemont.

The obstacles are linked to the financial difficulties faced by Farfetch. Despite a significant increase in overall business volume and a record 4.1 million online customers in the second quarter of 2023, Farfetch's revenue has decreased, dropping from 531 to 525 million euros. Both online and in-store sales have declined, with the latter being penalized by a drop of over 15%. While the company was one of the first in the American market to offer a new commercial channel for luxury brands, relying on innovative marketing strategies, Farfetch now appears to be gradually losing its appeal. This is due to the impact of inflation affecting the U.S. economy and the slowdown in the Chinese market post-pandemic. Promotions are less enticing, and American retailers are more cautious in their orders.

The impact on the stock market is very telling: between 2022 and 2023, Farfetch's shares have lost 90% of their value. The most significant drop was observed last August due to concerns about the U.S. economic situation. Today, according to Bernstein, Richemont is questioning the mixed results of Farfetch because the YNAP agreement involves transferring the Swiss group's online business to technology managed by Farfetch. If Farfetch's stock performance continues to disappoint, it could potentially impact Richemont's shares. Therefore, the European Union's antitrust authorities can approve the acquisition by deciding on corrections and adjustments to the terms of the agreement or suspend the financial operation and open an investigation into its feasibility, which could last several months. To recall, the agreement reached by Richemont involved selling a 47.5% stake in the deficit-ridden YNAP in exchange for more than 50 million Farfetch shares and was revealed in August 2022.

According to Bernstein, Farfetch's difficulties could have repercussions beyond the agreement with Richemont. The entire luxury online sales sector could be affected because major players like the London department store Harrods rely on the technology developed by Farfetch, and numerous Italian retailers depend on the platform.