Farfetch: A model business for the digital era
A small cheer echoed around the halls of Qubit HQ on September 17, 2018, when Farfetch, a high-end marketplace for luxury fashion goods, IPO’d.
The results were good, with an opening at $27 and an intraday high of $30.60.
We’ve had the pleasure of working with Farfetch for over 6 years, seeing the company go from strength to strength. In this blog, I’m going to take the opportunity to reflect five ingredients that makes Farfetch not only a Unicorn, but a company valued at $6.2 billion.
Bringing high end fashion online through technology
Farfetch was founded in 2008 to address a specific problem: many high end boutique retailers don’t have the reach or the resources to effectively manage an online store. From the consumer perspective, an equally pressing problem exists: Can there be just one place to discover and buy all your high-end luxury fashion items?
Addressing these goals is captured nicely in their mission: “Farfetch exists for the love of fashion. We believe in empowering individuality. Our mission is to be the global technology platform for luxury fashion, connecting creators, curators and consumers.”
A key word here is technology. To paint a picture of why Farfetch deems themselves a technology company, consider the logistics of serving over 700 brands and boutiques, all over the world, through a single checkout, and then shipping those products back all over the world!
This isn’t a challenge for the faint hearted, and justifies why José Neves, Farfetch Founder, has a background in software engineering.
Tapping into a growth demographic
According to Bain&Co. data cited in the Farfetch investment prospectus, the global market for personal luxury goods was estimated to be worth $307 billion in 2017 and is predicted to rise to $446 billion by 2025.
But rewind 10 years and some people in the luxury industry questioned whether the internet was the right place to sell fashion items costing over $1000 a pop.
Yet to the Farfetch audience, 66% female, aged 34, this is not a barrier. In an CNBC interview with Jose, he states that despite offline sales accounting for 91% of total sales, digital is growing 25% year on year, in part due to millenials, who have a ‘digital first’ mindset.
Brand conscious acquisition
One of the barriers to a luxury brand’s adoption of online is the potential loss of identity. In a Reuters interview, Jose states that, “it is an industry that, rightly so, chooses their path and their channels very carefully.”
It only takes a second on the Farfetch homepage to see that the principles of ‘brand’ are held to the highest levels. Custom creatives and rich content are elegantly placed on the page, and its clear to see that a lot of attention has been paid to tone of voice.
Qubit see this attention to detail a lot in luxury. We work very carefully with luxury brands to maintain brand image and the high-end aesthetic. In the acquisition phase, many of the personalizations we deliver focus on serving unique experiences to first time users that highlight unique selling points, service offerings and concierge benefits. Oftentime these offers are both customer and location-specific, taking into account which country, language and timezone a person may live in.
Here’s a video from the Qubit archives of how our journey began with Farfetch.
Focusing on loyalty and retention
Retention is something that Farfetch has got right. For starters, their service promise is exemplary, promising speedy shipping, response times, round the clock support and free returns.
Once that relationship is forged, it’s sticks. In the CNBC interview, Daniel McCarthy at Theta Equity, states, “typically over time, customers peter out. Here, it’s almost like in this business, after they get customers they become something of an annuity. It’s more like what you would see in a software or service firm than a luxury apparel company.”
As with many luxury brands, including Qubit clients Mr. Porter and Net-a-Porter, there are levels of service that a customer can expect based on their spending habits. These are all factored in to how Farfetch serve their most loyal customers, in an approach that rewards the smaller percentage of shoppers who make up the lion’s share of revenue.
Of course for a marketplace, loyalty has to work both ways. Of the retailers Farfetch works with, 98 percent of have an exclusive relationship with the brand. This ensures that the products a shopper sees on Farfetch are unlikely to appear elsewhere on the web.
Using technology to push boundaries
As well as building a world class commerce platform, Farfetch have been smart with their technology adoption. It’s only in this year, 2018, that personalization has been recognized by Gartner as mature enough for a Magic Quadrant. However, Farfetch have been using Qubit for over 6 years, serving 100s of personalized experiences during that time.
Another innovation was in 2015, when they bought London fashion boutique Browns to increase their brick and mortar footprint. This acquisition has allowed them to test new technology, such as touch-screen-enhanced mirrors and stock sensitive clothing racks. For Farfetch, the ‘store of the future’ isn’t a thought experiment, it’s a reality.
Farfetch may be leading the way, but others are in hot pursuit. For all the reasons outlined in this story, digital is an area to watch for these brands.
For added insight, I’m happy to direct you to Qubit’s, Personalization in Luxury guide, which explores loyalty, VIP strategies and multichannel in depth.