Just before market close on Thursday, the online fashion platform announced the $675 million purchase of the streetwear-centered firm, which holds exclusive licenses for buzzy labels including Off-White, Palm Angels and Heron Preston.
Investors expressed worries over the wider-than-expected losses due to high acquisition costs and spending on its tech infrastructure, sending Farfetch’s stock down more than 40% during yesterday’s extended trading session.
During a conference call, CEO and co-chair Jose Neves attempted to calm Wall Street’s nerves, describing the New Guards purchase as the latest addition to a portfolio of what the company calls “brands of the future.” By skewing more direct-to-consumer, Neves said he expects higher organic traffic and stronger brand adjacency — a strategy that experts say have proven to work for luxury platforms.
Additionally, the exec singled out Off-White as one of the company’s top 10 brands over the last eight consecutive quarters and revealed plans to take Virgil Abloh’s label from majority wholesale to direct-to-consumer.
“This September marks one year since our IPO, and we said then that it was our strategy to be the platform for the global luxury industry, connecting curators, creators and consumers,” Neves said. “Our acquisition of New Guards also fits squarely within this strategy as it enables us to further elevate our brands, boost full-price mix, reduce promotional activity and offer original and exclusive content.”
The transaction is expected to close in the third quarter.
It’s been just under a year since Farfetch filed its IPO, bringing more attention to the intersection of luxury and technology amid competition from high-end marketplace retailers like Net-a-Porter and MatchesFashion.com.
But the online fashion platform has changed dramatically since its public offering in September, particularly with the New Guards acquisition — adding to its roster of sneaker-first platforms Browns and Stadium Goods.
The latter, which was acquired in December through a $250 million deal, gave Farfetch a portal into the swiftly growing luxury streetwear market — a sector worth an estimated $70 billion in 2017 and that continues to grow 5% year over year, according to management consulting company Bain & Co.
“The lines between high-end fashion and streetwear continue to blur,” added Matt Powell, senior industry advisor of sports at The NPD Group Inc. “The principle of scarcity — [where there is] limited access or low supply and high demand — drives both sectors.”
As of Friday afternoon, Farfetch’s stock was in the red 45% to $9.94.
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