South Korean e-commerce giant Coupang is Farfetch’s savior, agreeing to acquire the troubled luxury market and providing $500 million in emergency funding. Farfetch’s original deal with Richemont to acquire a 47.5% stake in Yoox Net-a-Porter (YNAP) has been cancelled.
As expected, if the deal is reached, Farfetch will become a private company and the investments of shareholders, including founder and CEO José Neves, will be wiped out.
Farfetch’s shares fell 38% in premarket trading following Monday’s announcement. Shares have fallen 68% since the company withdrew its earnings report on Nov. 28 amid reports that Neves was in talks to take the troubled company private. (Farfetch’s stock currently trades for less than $1. Its market capitalization has fallen to $254 million from a peak of $26 billion in February 2021.)
Coupang, which some call “Asia’s Amazon,” was not the rescuer it was expected to be. Amid speculation, Sky News last week raised alternative asset manager Apollo Global Management as a potential investor. Coupang’s investment partner is investment firm Greenoaks, which invested in Skims last October.
On the surface, this pairing makes sense. Coupang is a Fortune 200 company headquartered in South Korea that will move its headquarters to Seattle in 2022 and has been listed on the New York Stock Exchange since March 2021. It operates in markets including South Korea (the country’s largest online market), Taiwan, China, Singapore and India, but its U.S. presence remains smaller. Coupang can strengthen its presence in the U.S. by acquiring Farfetch, which is based in the U.K. but listed on the New York Stock Exchange and serves many U.S. consumers. (Coupang did not disclose terms of the deal.)
Logistics versus luxury Logistics vs luxury goods
Analysts, meanwhile, agree that Coupang’s expertise in logistics is a good fit for Farfetch. Coupang claims to have invested billions of dollars in end-to-end fulfillment and logistics infrastructure, including artificial intelligence and custom bot services. As of 2022, Coupang holds 1,362 technology patents in its markets, including South Korea, the United States, and Taiwan.
“Coupang’s track record and deep experience in transforming commerce will enable us to provide exceptional service to our brand and boutique partners, as well as millions of customers around the world,” Neves said in a press release.
Similar to Amazon, Coupang’s focus is on consumer experience. Its services include same-day and “dawn” (early next morning) delivery. According to its website, 99% of Coupang’s deliveries are same-day. Likewise, the company also has a food retail division (Rocket Fresh) and entertainment division (Coupang Play).
“From an e-commerce and logistics perspective, it will be beneficial,” said Jessica Ramirez, senior analyst at research firm Jane Hali & Associates. “Farfetch is built on platform solutions (its white label services provide e-commerce services for brands such as Ferragamo, Balenciaga and Harrods). It is a technology company.” She said that Farfetch’s founding concept – based on logistics and Technology – is what makes it a disruptor. This is where Farfetch needs to work harder, she believes. Coupang appears to have the tools to help it achieve this
The statement from Coupang founder and CEO Bom Kim clearly shows that it will focus on restoring Farfetch’s services to its best state: “Farfetch will recommit to providing the highest quality experience for the world’s most unique brands, while serving as a private company.” The company has achieved solid and measured growth. We also see tremendous opportunity to redefine the customer experience for luxury customers everywhere.”
Bryce Quillin, an economist and founder of the brand strategy agency It’s A Working Title, said it’s not easy to know the technical and cultural differences that will determine the success of the partnership: “There are reasons why Farfetch is in such a bad state, and Coupang has not yet stated How will they address these weaknesses in Farfetch’s business model?” Experts agree that Farfetch is too fragmented and lacks a clear focus to cope in a difficult macro environment.
While Coupang is strong in logistics, it lacks luxury expertise, Ramirez noted. She believes this could be a potential weakness given Farfetch’s luxury positioning. Others are less concerned about this point of difference. “You can see non-luxury investment groups successfully taking stakes in luxury goods groups,” Quillin said. “Coupang can rely on Farfetch’s expertise in the luxury market.” The bigger question is whether Coupang can realign Farfetch’s operations to make them more sustainable.
However, Coupang will have to convince luxury brands that use Farfetch’s services that it can look after their interests, said Neil Saunders, a retail analyst and managing partner at Globaldata.
As for Farfetch’s luxury assets, which include Browns, New Guards Group, Stadium Goods, stakes in Neiman Marcus and platform solutions, their fate is unclear. Except for the last one, these are beyond the scope of the Coupang, Ramirez said. “These do not appear to be within Coupang’s business scope. They do not appear to be as aligned with its interests as the e-commerce and solutions segments.”
Despite the unknowns, analysts say focusing on logistics is a smart move. “Farfetch’s strategy is to grow rapidly in all luxury areas. It loses sight of its true expertise — and investors don’t like that,” Ramirez said. “Solutions are a good business. But it requires focus.”
What does that mean for Richemont?
Richemont confirmed on Monday that the YNAP deal had been cancelled. “Richemont has no financial responsibility for Farfetch and does not intend to provide loans or investments to Farfetch,” the company said in a press release.
Under the terms of the transaction, Richemont and its brands, together with YNAP, plan to adopt Farfetch Platform Solutions (FPS). However, Richemont confirmed in a press release that this will no longer happen: “Richemont-owned brands continue to operate on their own platforms and are neither adopting FPS nor launching e-franchises on the Farfetch marketplace.”
The collapse of the deal spells bad news for Richemont, who will need to reevaluate their options at YNAP as losses widen. “As a result of the termination of the agreement with Farfetch and [investment firm] Symphony Global, Richemont will re-evaluate YNAP’s options to best leverage its strengths and potential under new management,” the company confirmed on Monday.
The market reaction showed a blow to Richemont. The company’s shares fell 50 basis points, or about 1.76%, on the news. “Richemont will need to rethink how it handles YNAP in its portfolio,” Quillin said. “Until a plan is developed, YNAP will continue to weigh on Richemont, its operations and stock price.”
