Russia and China are getting in the way of Farfetch’s plans to keep up its dramatic growth this year — but José Neves said the luxury platform is stronger at its core and also driving more full-price sales.
Neves, Farfetch’s founder, chairman and chief executive officer, told WWD: “The industry is moving online. Even after COVID[-19], that continues to be the case and Farfetch leadership is unassailable and the vision of building the global platform for luxury is still absolutely intact.”
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To back that up, he pointed to continued growth in the U.S. as well as the shift to more full-price sales, with some brands moving to zero-markdowns in their e-concessions on the site.
In fact, the impulse for luxury to drive full-price sell-through — something Farfetch has been pushing since 2019 — was so strong that the platform’s gross merchandise volume from markdowns fell 17 percent in the first quarter.
Despite the immediate impact of that drop, Neves said it is the full-price sales that he wants on Farfetch, and that the move higher is going to stick.
“The brands are doing that on their online channels,” the CEO said. “We see brands moving to e-concessions [on Farfetch] particularly because they do not want markdowns online.”
But in the meantime, there’s some pain.
The luxury platform turned in continued top-line gains in the first quarter with overall gross merchandise volume on its digital platform rising 2.5 percent to $809.5 million for the quarter.
That has Farfetch holding on to the 60 percent GMV gain seen a year earlier, but not expanding quite the way the company was anticipating.
The lack of business in Russia, where Farfetch suspended operations in March in the wake of the invasion of Ukraine, and weakness amid COVID-19 lockdowns in China caused the company to cut its outlook for the year.
Farfetch is now looking for annual GMV growth of 5 to 10 percent on its digital platform, a big step down from the 28 to 32 percent projected just in February.
But Neves stressed that Farfetch’s full-price GMV grew by 20 percent in the quarter on top of the 60 percent growth a year earlier.
“This is very different from the so-called pandemic stocks where you see negative growth year-over-year,” Neves said. “We’re seeing strong double-digit growth. That is very encouraging.”
Still, Farfetch is adjusting to a new reality.
“For the rest of the year we will be focusing on further rationalizing the business, adjusting the cost base to this new, lower growth environment,” Neves said. “That will set us up for a super powerful exit from 2022 and in 2023 we start comping over Russia, comping over these COVID[-19] lockdowns in China.
“Russia is what it is,” Neves said, noting it had been the company’s number-three market and was moving up the growth curve.
But China will come back from its lockdowns and consumers will come back first to e-commerce, Neves said.
“There will be tailwinds in China,” he said. “We just don’t know when. People are eventually going to be able to shop again. The impact of China was really due to logistics. Shanghai simply didn’t have last-mile logistics. Once customers are able to start shopping again, I think they will do it online before they do it offline.”
Farfetch’s own revenues for the three months ended March 31 rose 6.1 percent to $514.8 million from $484.1 million a year ago as GMV inched up 1.7 percent to $930.8 million.
Adjusted losses before interest, taxes, depreciation and amortization expanded to $35.8 million from $19.2 million a year ago. (After-tax profits rose to $728.9 million, from $516.7 million, although the result was skewed by a noncash benefit tied to lower share prices on items held at fair value).
As usual, Farfetch has plenty of irons in the fire. During the quarter it launched its beauty marketplace and also inked a global strategic partnership with Neiman Marcus Group.
On a conference call with analysts, Neves confirmed that the company remains “in discussions with Richemont about the potential deal, which includes the leveraging of [Farfetch Platform Solutions] to power Richemont’s Maisons and [Yoox] Net-a-porter, the participation of Richemont’s Maisons Farfetch’s marketplace and a minority investment in YNAP by Farfetch.”
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