Farfetch Still Dreams of Luxury Dominance Under New Owner Coupang

Farfetch is still chasing the dream of being the global luxury platform.

But under the auspices of Coupang — which rescued the company from bankruptcy last month — Farfetch has also become something of a side hustle at a larger organization focused first and foremost on building its e-commerce businesses in South Korea and Taiwan.

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Bom Kim, founder and chief executive officer of Coupang, laid out something of his vision for the luxury platform on a conference call with analysts that also covered the Coupang’s fourth-quarter earnings update.

“While we weren’t seeking an acquisition, we came across a rare opportunity to buy a sector leading service with $4 billion in [gross merchandise value] for a $500 million investment,” Kim said. “We hope in a few years we’ll be having the conversation about how Coupang turned Farfetch into a business that transformed the customer experience around luxury fashion while also providing strategic value for Coupang. It’s too early for that conversation today. Even if that full potential is not fully realized, we’re highly confident that this will prove to be a prudent financial decision.  We’re already executing on a plan to make Farfetch self-funding with no additional investment beyond the announced capital commitment. And we see many paths to making this a worthwhile investment for shareholders.”

“We remain focused on our biggest priority,” he said. “We have a very small share of the retail markets in Korea and Taiwan. Each of those opportunities are massive, and capturing them remains by far our greatest prospect and priority.”

Adapting to life as part of Coupang is just the latest change for Farfetch, which has been caught up in a whirlwind.

On the outside, at least, it began in August, when Farfetch wound down its ambitious move into the beauty sector. While the company said then that it would have $800 million in cash on hand by the end of the year, CEO and founder José Neves was instead looking for a financial lifeline and to find Coupang.

Neves stepped down earlier this month and Farfetch’s luxury dream has now passed on to Kim.

Analysts griped over the years that Neves was distracted away from Farfetch’s core luxury marketplace business by a number of acquisitions and growth initiatives.

Now Kim is facing some of the same doubts and is making it clear that he knows where Coupang’s real focus is.

It helped that investors liked what they saw in the firm’s financial results, trading shares of the e-commerce company up 10.4 percent to $18.65 in after-hours trading on Wall Street.

For all of 2023, Coupang’s net income tallied $1.4 billion, with the bottom line benefiting from an $895 million non-cash boost from adjustments to tax reserves.

Revenues increased 18 percent to $24.4 billion, with $21.2 billion of that coming from retail sales.

How Coupang fares with Farfetch remains to be seen.

Bokyung Suh, an analyst at Bernstein, analyzed the Farfetch deal in a research note before Coupang released its results and suggested that it would be hard for the South Korean e-commerce company to bring in the best luxury names.

“Despite Coupang’s aspirations, there are significant challenges ahead. The adoption of a ‘vertical’ strategy by Coupang in crucial markets is essentially akin to pursuing a ‘mini Amazon’ approach,” the analyst said. “Luxury brands, including Tier 2 and Tier 3, are hesitant to engage with Amazon due to the potential cannibalization of their lower-cost direct distribution channels by higher-cost third-party distribution. This is precisely why prominent companies like Kering have made the decision to halt their inventory supply to Farfetch.”

Clearly, Farfetch’s season of change is going to continue for some time. But the analyst said that it all could conceivably lead to another turn in the spotlight for the luxury platform.

“If Coupang can significantly address Farfetch’s inefficiencies — e.g., through a 50 percent reduction in workforce, a 30 percent reduction in marketing expenses, spinning off underperforming business units, etc. — we estimate that Farfetch could achieve break-even [earnings before interest and taxes] by 2026,” the analyst said, speculating on the business’ future. “This could potentially lead to a relisting on the [New York Stock Exchange]. This mirrors the story of Naver’s acquisition of Poshmark, where acquiring a struggling company may initially concern short-term traders but can prove to be a favorable deal for turnaround specialists.”

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