What the Farfetch Mega Deal with Richemont and Alibaba means for Luxury Ecommerce
Luxury goods companies have been rushing to take steps and explore how to shape the future of the luxury retail sector.
The recent COVID-19 pandemic proved that the growth of luxury fashion is highly dependent on Chinese consumers and on digital know-how.
In a move aimed at capitalizing on China’s rising luxury goods demand, Chinese e-commerce giant Alibaba and Swiss luxury group Richemont invested a combined $1.15 billion dollars in the UK-based online luxury retailer Farfetch.
Richemont and Alibaba’s joint billion-dollar investment in Farftech highlights the importance of digital technology in the fashion luxury industry.
The Farfetch investment underlines the importance of digital presence for the luxury sector amidst Covid-19 store closures and the anticipated shifts in consumer sentiment and behavior with an urge to return to spending during the pandemic.
In that context, on the 5th of November 2020, Farfetch announced that it had received $1.15 billion in investment from Richemont and Alibaba. The investment aims to form a new Farfetch China joint venture and expand the fast-growing luxury goods market in China.
Further to the partnership, Farfetch will support upmarket and fashion brands launch their online stores on Alibaba’s Tmall Luxury Pavilion and Tmall Global. These platforms already appeal to many Chinese shoppers and luxury brands.
Luxury brands are now investigating ways to target younger Chinese customers who prefer to shop using their smartphones rather than buying products from physical stores. This is driven by the fact that Chinese consumers, who contribute to three-quarters of the luxury sector’s shop, cannot travel and shop in the US and Europe due to the pandemic.
“We are bringing the fashion and luxury that Chinese used to shop for in Europe into their favorite app,” said Farfetch’s chief executive José Neves in an interview with the Financial Times. “Covid-19 is spurring the repatriation of sales to China, and we believe that online will take a huge share of that,” he continues.
Richemont and Alibaba placed $300m each into Farfetch and $250m each into a new joint venture called Farfetch China, which handles the marketplace’s operations in China. They will possess 25% of the Chinese entity and will be able to buy another 24% in three years if they want to. Meanwhile, Artemis- the holding company of Pinault who controls the Kering group-, plans to surge its stake in Farfetch by buying $50m in shares.
Farfetch now has the backing and support of two giants in the luxury sector: Kering and Richemont, aside from the Chinese tech giants: Alibaba and earlier shareholder Tencent.
E-commerce and alliance
This deal plays a significant role -beyond the focus on China- in adopting e-commerce by high luxury and fashion brands and represents a durable consolidation of players in the fashion industry’s upper echelon.
Farfetch, the London based company founded by entrepreneur José Neves in 2007, differs from other online retailers because it doesn’t take ownership of any inventory or record of the brands present on its site. Instead, Farfetch functions as a platform for specific boutiques. This deal constitutes the newest in a line of luxury-level partnerships and possible consolidations.
This new partnership between Alibaba, Richemont, and Farfetch gives an upsurge to possible consolidations. It could be introducing Richemont to merge Farfetch with Yoox Net-a-Porter (which they acquire full ownership of) or vending it to Alibaba. One thing is for sure: the deal is forming ties between the most prominent players in the luxury sector.
Richemont is now closer with Bottega Veneta, Gucci, Saint Laurent, and most importantly, Kering group, an essential investor in Farfetch. There might also be a link between Chanel and Richemont because the fashion brand upholds a marginal stake in Farfetch.
The deal also plays a role in the “larger fortification-but-consolidation trend underway” of big groups like LVMH, Richemont, and Kering, which are all acquiring smaller players.
Farfetch acquired the Milan-based New Guards group as well.
- Conclusion
This partnership is proof of China’s strategic importance in the industry sector as a complex market, yet one of the most rewarding.
Richemont confirms its intention to control the luxury fashion e-commerce before Amazon could do it by partnering with Alibaba to focus on China as a potential market.
Amazon is considered a tough competition for accessibility and convenience, driven by the value that opposes luxury concepts, which is why luxury brands develop second opinions and thoughts regarding joining Amazon.
All eyes will remain on Amazon to determine whether this deal will be a dead point for Amazon in acquiring luxury brands.
