Can Coupang’s $500 Million Lifeline Save Farfetch From Falling Out of Fashion?

Can Coupang’s $500M Lifeline Save Farfetch?

After a roller coaster year of surprises, including a November decision to withhold its earnings results for the third quarter of 2023 and the cancellation of its planned conference call, Farfetch has been acquired by South Korean eCommerce giant Coupang.

Will it be enough to save the struggling luxury retailer from going out of style?

The acquisition agreement gives Farfetch $500 million to sustain its operations and provides Coupang with expanded entry into the personal luxury goods sector in South Korea, a market recognized for having the world’s highest per-capita spending on such items. Global investment firm Greenoaks was Coupang’s investment partner in the deal.

“Farfetch is a landmark of the luxury landscape and has been a transformative force in demonstrating that online luxury is the future of luxury retail,” said Coupang founder and CEO Bom Kim in a Monday (Dec. 18) statement. “Farfetch will rededicate itself to providing the most elevated experience for the world’s most exclusive brands while pursuing steady and thoughtful growth as a private company.”

South Korea Leads Global Luxury Goods Spending

South Korean citizens spend $325 per capita annually on luxury items, according to January figures from Morgan Stanley. This surpasses America’s $280 and China’s $55. Additionally, South Korea’s expenditure on luxury goods reached $16.8 billion in 2022, marking a 24% increase from the previous year.

PYMNTS research indicated in August 2022 that South Korea has witnessed growth in both the luxury and eCommerce markets. The expansion can be attributed to the country’s status as a global economic powerhouse and its position at the forefront of technology, finance, automotive and retail.

Where Farfetch Has Been

At the beginning of the year, Farfetch had issues with inventory and the overall economy, similar to other companies in the industry. Despite these challenges, the company said it was committed to making more deals and becoming the ultimate choice for luxury shoppers around the world.

“Our Q4 results reflect higher-than-expected [gross merchandise value (GMV)] from the marketplace, which was supported by strong supply growth from our luxury sellers,” Farfetch founder José Neves said during the company’s Q4 2022 earnings call in February.

He discussed changes happening within the platform to boost growth in 2023 and said the company’s goal was to reach $10 billion in GMV within about 24 months. At the time, the platform had nearly doubled its GMV since the beginning of the pandemic in 2020.

Farfetch turned its attention to artificial intelligence later in the year and made a turnaround, the company said in May during its first-quarter 2023 earnings report.

The company saw 8% year-over-year revenue growth due to better inventory management, which led to higher sales and partnerships with brands like Reebok.

At the time, Neves said the company aimed to keep cutting costs, form more partnerships, and establish Farfetch as a leader in AI.

In August, Farfetch confirmed it was ending the sale of beauty products a year after entering the market. The company acquired high-end beauty retailer Violet Grey in January 2022, and within three months, it introduced various beauty brands on its platform. Despite stopping online beauty sales, Farfetch retained control of Violet Grey as an independent entity within the Farfetch Group.

However, the decision highlighted a challenge facing retailers: how to establish a presence in the face of competition from beauty industry giants like Sephora and Ulta. Ninety-five percent of Ulta’s sales came from its dedicated members, for example.

In November, Neves considered taking Farfetch private. The company’s stock had fallen 64% for the year by that time but gained 20% after news of Neves’ efforts was published. It was reported that major backers like Chinese eCommerce firm Alibaba and Cartier owner Richemont gave their tentative backing to Neves’ move. However, the next day, Richemont announced it had no intention of investing in the luxury retailer.

Then came the news that Farfetch would not disclose its Q3 financial results.

“The company expects to provide a market update in due course,” Farfetch said in a Nov. 28 statement. “The company will not be providing any forecasts or guidance at this time, and any prior forecasts or guidance should no longer be relied upon.”

Can Coupang Save Farfetch?

Coupang is South Korea’s biggest eCommerce player. It also operates in Taiwan, Singapore and India and offers services like grocery, payment and video streaming.

“Coupang’s proven track record and deep experience in revolutionizing commerce will enable us to deliver exceptional service for our brand and boutique partners, as well as for our millions of customers around the world,” Neves said in a Monday statement. “We are thrilled to be partnering with such a respected Fortune 200 company that is committed to investing in innovations that transform all aspects of the customer experience with Farfetch.”

Time and consumers will tell if the $500 million lifeline is enough to save the struggling retailer.

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