Friday, Nov 12th 2021

Farfetch's next big trick

Investor Update

Farfetch (FTCH) shares were surging on Friday after the company confirmed discussions with luxury conglomerate Richemont about the creation of a neutral luxury e-commerce platform. As of 2:00 p.m. ET on November 12, shares were up more than 17%.

The potential deal would see FTCH invest in Richemont’s YOOX NET-A-PORTER (YNAP) platform, Richemont use FTCH’s technology to build its e-commerce offerings, and the companies establish YNAP as a neutral platform to accelerate the luxury industry’s e-concession model.

We believe that the e-concession model will become the preferred distribution channel for brands in the relatively near future. The e-concession model allows brands to sell directly to consumers online through a multi-brand platform (e.g., FTCH), without giving up control over pricing or inventory, allowing luxury brands greater control over their customer experience and brand image compared to existing distribution channels today. Additionally, this model also offers a significantly better margin profile — 45% margins via e-concessions vs. 30% margins via wholesale — than traditional e-commerce agreements.

And as outlined in the initiation of our investment in FTCH, it is our view that the e-concession model will further accelerate the luxury industry’s shift online, a welcome tailwind for FTCH, the leading online luxury marketplace.

In our view, this agreement may fundamentally change the income profile of FTCH, establishing the company as a leading technology provider for the entire luxury industry’s shift towards an online future.

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