Looking for GROWTH past $SHOP $SE $AMZN $BABA

Here is a marketplace for luxury FASHION

Growing 74% YoY with Yearly Sales of $1.4B

It is going BIG on China with $JD $TCHEY investments

AND it now OWNS “Off-White”

Here is an EASY thread

Farftech $FTCH is a online luxury platform that connects consumers with over 1.200 luxury boutiques across the world

It takes a commission (25% - 33%) on each sale (with 8% more if $FTCH handles fulfilment) And it doesn’t own inventory

It was founded in 2007 by Jose Neves A fashion entrepreneur also known for launching SWEAR and SIX London

SIX London develops and manufactures footwear for leading luxury brands such as Comme des Garcons, JW Anderson, Hood By Air…

It then distributes and sells these to over 600 luxury boutiques worldwide

Clients include Nordstrom, Bloomingdales, Hudson Bay, Galleries Lafayette, Harvey Nichols, United Arrows

This valuable experience were key for $FTCH as Jose Neves wanted to offer a single portal for luxury buyers to shop from independent luxury boutiques across the world

Jose Neves is not the only fashion veteran behind $FTCH Nathalie Massenet joined ranks as well

She is the founder of Net-A-Porter which now does $ 1.4B in sales as part of the YOOX Net-A-Porter group

So here we have 2 industry veterans with a solid background in both fashion and technology working on a luxury #eCommerce player

How did that turn out? Here are some key milestones

Jose Neves officially launched $FTCH on the 9th of October 2008 with just 5 employees

By 2011, it already had over 100 retailers on its platform

In 2013 it had over 240k marketplace customers and that number grew to 1 million by 2016

In 2017, $JD invested $ 397m in $FTCH This stake now represents 16.5% of the company

By the time of its IPO in September 2018 $FTCH sales stood at $ 267m for the first half of the year

But Do they STILL manage to GROW?

For Q2 ’20, revenue stood at $ 364m, coming from $ 209m a year earlier (74% YoY growth)

YoY revenue growth for Q1 ’20 stood at 90% , Q4 ’19 at 96% and Q3 ’19 at 90%

Fair to say They manage to keep up their growth!

Are customers loyal?

$FTCH “ACCESS” loyalty program counts 2m members in Q2 ’20 (1.4m in Q1 ’20 and 1m in Q4 ’19)

$FTCH active consumers reached 2.5m in Q2 ’20 (2.1m in Q1 ’20 and 1.4m in Q4 ’19)

App installs more than DOUBLED YoY - Potentially locking in customers LT

$FTCH takes its growth from the GLOBAL shift to online sales

Share of online luxury sales (% of total luxury sales) should reach 30% by 2025 - From 12% today and 9% in 2017

This is an upward revision that takes into account the effect of the pandemic (prior est. at 25%)

According to Bain & Co. the market for personal luxury goods (fashion, watches, shoes, accessories) was worth $ 260B in 2019 and is growing by 6% YoY

All in all, $FTCH is boosted by the natural shift to online sales which is further supported by 2 factors

Growing appetite for luxury goods in China Sales growing by 20% in 2019

According to McKinsey, Chinese spending on luxury goods will grow from $ 115B in 2018 (32% of total market) to $ 184B in 2025 (40% of total market)

The global pandemic has shifted sales online #eCommerce adoption rates are now well above 25% in US and EU. Here is what Bain & Co has to say on this

“Accelerated shift to digital shopping: When safe, consumers will return to physical stores (possibly with a...

...renewed passion for in-real-life experiences), but some digital shopping habits built during the outbreak will stick—especially if brands raise their game in online assortment, user experience and digital marketing.”

Ok, so the luxury sales are growing and shifting online What are $FTCH other activities?

Seller Tools Logistical intelligence and key stats for shops listed on its website

Store Of The Future Stores filled with technology (RFID-enabled clothing racks...

...digital mirrors, connection to $FTCH platform) to improve retail productivity by capturing consumer data

Farfetch Black & White Solutions eCommerce management, operations support, international logistics support and technical support for luxury brands - $SHOP for luxury

On this last solution, Jose Neves says the following

“By using our API, the brands, even on their own websites, can offer inventory from their physical stores”

“If a brand wants to sell on WeChat in China, they just need to use our API code and integrate their operations”

And that brings us to China!

$FTCH unlocked the Chinese market through 2 investments

$JD invested $ 397m into Farfetch in 2017 and brought $JD CEO and founder to $FTCH board

“As part of this relationship, Farfetch leverages $JD local logistics network, consumer payment solutions, technology capabilities, and its marketing resources, including its WeChat partnership. [...] will give us valuable insight into the Chinese market [...]”

The two companies now merged their operations in China as $FTCH bought $JD Toplife luxury platform for $ 50m

This will enable $FTCH to compete with $BABA Tmall Luxury Pavilion which now has 80 brands on its platform

$TCHEY Tencent and Dragoneer invested (in convertible senior notes) $ 250m in order to supplement $FTCH liquidity position

$FTCH currently powers more than 80 luxury brands on WeChat including Moncler, Balenciaga, Saint Laurent, Armani and Ralph Lauren

$FTCH is also a partner to these brands for new developments and launches on WeChat using Key Opinion Leaders as a strategy

It also introduces games on WeChat through which players can win rewards and get to know $FTCH

$FTCH is playing a very smart game in China by getting investments from $JD and $TCHEY

By levering the WeChat platform (1B users) it is fully exploiting the power of sales through mobile phones in China and playing right at the heart of changing consumer habits

Here is what Jose Neves has to say on WeChat

“We have a WeChat account and a WeChat store where you can purchase all the products available on Farfetch, via WeChat. We will also launch a Mini Program very soon. So we’re fully integrated with WeChat”

Read all the interview right here https://www.europastar.com/time-business/1004090145-farfetch-the-online-retail-giant-targets-china.html

Last stop VERTICAL INTEGRATION

In August 2019, $FTCH purchased News Guard Group (NGG), Off-White’s parent company

It paid $ 675m, equally divided in cash & shares

At first, the world stood in shock and the shares plunged 40%

Is it all that bad?

What first scared investors was the apparent lack of rationale for this acquisition and the pile up in debt

$FTCH is an asset-light platform It should focus on its high-margins activities

On top of that, selling its own brand could put it in direct competition with brands retailing on the platform

Well, there is another side of the equation GQ, the magazine, compared this acquisition to $NFLX producing its own shows

“Stranger Things is to Netflix what whatever the next Off-White is to Farfetch.”

By the time of the acquisition NGG was growing by 59% YoY with Gross Margins of 55%

In the 6 months following the acquisition Off-White sales on $FTCH had increased by 80% YoY

It released the Air Jordan 4 x Off-White ‘Sail’ in July and sold out the same day This generated 800 million hits on the Farfetch platform within the first hour

$FTCH has built a considerable MOAT

“THE” luxury platform (taking a 25 to 33% commission) on a global scale and locking in the luxury market in China

Quietly becoming the $SHOP of luxury, providing operations, logistical and development help to brands globally

Uses the knowledge built with previous points to boost its in-house brands

In the end it all makes sense

A quick look at their financials

For Q2 ’20, revenue stood at $364m, coming from $209m a year earlier (74% YoY growth)

Gross margins have stayed consistent at around 40% - 45%

The company currently has over $1.1B in current assets and $530m in current liabilities

Operating expenses are high (82% of sales in Q2 ’20) but trending downwards as percent of sales (86% a year earlier)

The Bottom Line

$FTCH is positioned in a sector that had a solid rebound after the pandemic ($LVMUY $KER.PA)

$FTCH is quietly building its flywheel Combining a platform, retail technology, vertical integration and a global reach

With investments from $JD and $TCHEY it is smartly playing in China through WeChat and $JD’s luxury shop

We have a medium stake in $FTCH

$DDOG is on our watchlist To Be Reviewed SOON

Please note that this is not a recommendation to buy - You are responsible for conducting your own research

Here is a review for $VRM - would love to hear your take on the matter
@john__rosevear
@Ryan_Burgio
@TMFJaguar
@TMFBowman

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Disclaimer - This is not investment advice in any form and investors are responsible for conducting their own research before investing.

Sources

✑ Investor presentation

✑ Company website

✑ Financial Times

✑ Forbes

✑ Business Of Fashion

✑ Retail Dive

✑ Bloomberg

✑ Europa Star

✑ GQ

✑ BCG, Bain & Company, McKinsey

✑ Jing Daily

✑ Felix Capital on Medium

✑ Fashion Network