The coronavirus pandemic is rattling the fashion industry, but Farfetch founder and CEO José Neves believes his company is better off than other luxury players.
Due to the crisis, the majority of Farfetch employees are working from home, with the e-tailer’s Los Angeles studios and few brick-and-mortar outposts temporarily shut. While some companies have reported issues with supply chain and other operations during the crisis, Farfetch says it had “not seen any material impact” in the initial stages of the outbreak.
Neves credits this to his company’s “very resilient business model from a supply and logistics perspective,” explaining that Farfetch has thousands of inventory points across over 50 countries, with items delivered to shoppers in 190 countries.
“When a consumer sees a product on Farfetch, 85% of the time the product is available from multiple sellers, to be shipped from different locations, often from different countries,” Neves wrote in an April 16 letter to shareholders. “This makes our model more durable than physical retail in the current situation, but it also means we are well prepared to operate in this environment, in contrast to other luxury e-tailers, who are typically reliant on a small number of distribution centers.”
For the first quarter of 2020, the company expects to deliver a gross merchandise value of $105 million for its brand platform. Further, it expects to see strong digital platform GMV growth for Q1, driven by advances in China, where it has seen rapid year on year growth since Feb. 1.
But, despite these gains, Farfetch has yet to become profitable. For the 2019 fiscal year, the e-commerce site recorded a loss of $373.69 million after taxes. For Q1 of 2020, it expects to see post-tax losses in the range of $70 million to $125 million. Despite Neves’ upbeat posturing — with so much uncertainty regarding how the pandemic will progress — Farfetch has decided to suspend its full-year guidance for 2020. It expects its financial outlook to be back on track in 2021.
Overall, analysts forecast the luxury sector will see a 20% dip for the first quarter of 2020, with store closures throughout North America and Europe likely to cause further declines during the second quarter. Neves told investors he believes the industry’s current struggles are driven by two primary factors: More than 80% of luxury shopping is done in brick-and-mortar stores, and prolonged travel bans are leading to declining tourism. Neves referred to the latter as “most disruptive.”
Chinese shoppers purchased about $70 billion worth of luxury goods in 2018 while traveling outside of mainland China, according to a Bain & Co study. As travel patterns change, the online channel will be “crucial,” Neves said, and Farfetch “will become a key structural component of this transformation.”
“We are the only direct-to-consumer platform that can connect physical inventories the brands currently have trapped in their vast store networks across Europe, the United States and Japan, to a global consumer base at scale, together with localized operations in China and key emerging markets,” he said, noting that Farfetch China app downloads have grown exponentially throughout the crisis.
Although the APAC region has seen “consistent demand,” Neves acknowledged that there has been a slowdown in growth in larger markets within Europe and North America amidst lockdowns — and that it’s unknown how “consumer behavior will rebound” when restrictions relax.
“In the long-term, once the world overcomes this extremely painful moment, luxury will reemerge transformed in a variety of ways,” he added. “I believe that Farfetch is structurally positioned to be the digital partner of choice for luxury brands and retailers to build the future of this industry, and this is why we will continue to pursue the same long-term strategy with even stronger confidence in our strategy and our mission.”
Editor’s Note: This story was updated to reflect that Farfetch’s projected $105 million in GMV applies only to the brand platform.
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