In a significant move reshaping the luxury retail landscape, South Korean e-commerce giant Coupang has stepped in to rescue the floundering Farfetch with a substantial investment. This strategic alliance, involving a 47.5% stake acquisition and a $500 million injection, marks a pivotal shift for Farfetch, transforming it into a private entity and impacting stakeholders’ investments, including founder José Neves.
Coupang Rises as Unexpected White Knight for Farfetch in Major E-commerce Shake-Up
Following this deal, Farfetch is set to transition into a privately-held entity. Unfortunately, This change will result in many losing investments, including its founder and CEO, José Neves.
The market reacted swiftly to this news, with Farfetch’s stock plummeting by 38% in pre-market trading immediately after the announcement. This decline is a more significant trend for the company, whose shares have fallen by 68% since late November. This drop coincided with the cancellation of their earnings results and rumors that Neves was considering taking the company private. Currently, Farfetch’s shares are valued at less than $1, a stark contrast to their February 2021 peak when the market cap was $26 billion.
The Amazon of Asia, Savior for Farfetch
Coupang, often compared to Amazon for its dominance in Asia, was not initially seen as the likely savior for Farfetch. Speculation last week had pointed towards Apollo Global Management, an alternative asset management firm, as a potential investor. However, Coupang, in partnership with investment firm Greenoaks (known for its recent investment in Skims), emerged as the unexpected rescuer.
This partnership seems logical when examined closely. Coupang, a Fortune 200 company headquartered in South Korea and Seattle, has been on the New York Stock Exchange since March 2021. The company is a major player in several Asian markets, but its presence in the US market is relatively small. By acquiring Farfetch, which has a strong foothold in the UK and serves a substantial US customer base, Coupang aims to expand its influence in the United States. The specifics of the deal, however, have yet to be disclosed.
Bright Future for Farfetch?
According to industry experts, Coupang, which is recognized for its impressive logistics capabilities, aligns well with Farfetch’s needs. Coupang has dedicated billions to developing a comprehensive fulfillment and logistics framework, leveraging advanced technologies like AI and custom robotics. By 2022, the company held 1,362 patents in technological innovations across various markets, including South Korea, the United States, and Taiwan.
José Neves, CEO of Farfetch, expressed optimism about the partnership. In a statement, he highlighted Coupang’s formidable track record in transforming commerce, which he believes will significantly enhance service quality for Farfetch’s brand partners, boutiques, and millions of global customers.
Coupang’s approach mirrors Amazon’s in prioritizing customer experience. This focus is evident in their delivery offerings, which include same-day and “dawn” (next-morning) services. As stated on their website, an impressive 99% of Coupang’s deliveries are completed on the same day. Further paralleling Amazon, Coupang also operates a grocery service, Rocket Fresh, and an entertainment division, Coupang Play.
Jessica Ramirez, a senior analyst at Jane Hali & Associates, sees the union of Coupang and Farfetch as a strategic move, especially from an e-commerce and logistics perspective. She points out that Farfetch’s foundation is in its Platform Solutions, a white-label service offering e-commerce capabilities to high-profile brands. This technological and logistical focus initially set Farfetch apart as an industry disruptor. According to Ramirez, Farfetch should intensify its focus on these core areas, and Coupang appears well-equipped to assist in this endeavor.
“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. We also see tremendous opportunities to redefine the customer experience for luxury clients everywhere.”
Coupang founder and CEO Bom Kim.
Can Coupang Restructure Farfetch’s Operations for Long-Term Sustainability?
However, Coupang, known for its logistical strengths, may need more experience in the luxury sector to be a disadvantage in managing Farfetch’s luxury-oriented business. Nevertheless, Quillin observes that non-luxury entities have successfully invested in luxury brands, suggesting that Coupang might leverage Farfetch’s luxury market knowledge. According to Quillin, the primary issue is whether Coupang can restructure Farfetch’s operations for long-term sustainability.
Neil Saunders, a retail analyst and managing partner at Globaldata, mentions that Coupang needs to assure the luxury brands using Farfetch’s platform of its commitment to their interests.
The future of Farfetch’s luxury holdings, including Browns, New Guards Group, Stadium Goods, Neiman Marcus stake, and Platform Solutions, remains uncertain. Ramirez believes that most of these assets do not align with Coupang’s core competencies, except for the e-commerce and solutions aspects.
Analysts generally view the emphasis on logistics positively. Ramirez reflects on Farfetch’s strategy, which focused on rapid expansion in the luxury market but lost sight of its core strengths, leading to disfavor among investors. She suggests that while the solutions segment is promising, it requires more focused management.
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