In a high-stakes meeting in early November, tensions ran high as top managers from luxury group Kering and British online retailer Farfetch gathered in Paris. The meeting, led by Farfetch founder José Neves, was intended to showcase the retailer’s strategy as a partner to the new executive team at Kering, the owner of luxury brands such as Gucci and Saint Laurent.
However, beneath the surface, concerns about Farfetch’s financial health were mounting. The company was facing increasing losses and burning through cash. Instead of addressing these operational issues, Neves attempted to impress the executives with a multimillion-dollar Super Bowl advertising campaign proposal, according to sources familiar with the situation. The proposal was swiftly rejected, leading to a sour end to the meeting.
Just three weeks later, Farfetch shocked the industry by abruptly cancelling its third-quarter earnings report as news surfaced that Neves was seeking a “white knight” investor to take the company private and avoid insolvency. Farfetch was eventually acquired by Korean ecommerce group Coupang at a reduced price in mid-December, marking a significant downfall for a company that was once valued at $24.9 billion.
In a similar turn of events, UK-based competitor Matchesfashion was sold to Mike Ashley’s Frasers Group for £52 million, resulting in substantial losses for its private equity owner Apax Partners. Frasers Group later placed Matches in administration, leading to the dismissal of half its staff and the vacating of its offices in London’s Shard building.
The crises at Farfetch and Matchesfashion reflect a broader reckoning for the luxury ecommerce sector, which had thrived on trends such as easy money, a surge in luxury goods sales, and the shift to online shopping during the Covid-19 pandemic. However, the allure of online luxury shopping has waned post-pandemic, with many consumers preferring to try on expensive items before making a purchase.
As luxury ecommerce platforms struggle to turn a profit in a high-margin industry, companies such as Farfetch, Matchesfashion, and Yoox-Net-a-Porter are facing significant challenges. The sector-wide slowdown in luxury sales, coupled with increased competition and shifting consumer preferences, has left these once-promising businesses in a precarious position.
The implosions at Farfetch and Matchesfashion serve as a cautionary tale for the luxury ecommerce sector, highlighting the inherent challenges of operating in a high-end market where brand control, pricing, and profitability are paramount. As the industry grapples with these issues, the future of luxury ecommerce remains uncertain.