What's going on?
British online luxury marketplace Farfetch filed paperwork to “go public” on Monday – a.k.a. complete an initial public offering (IPO). The New York listing could value the company at up to $5 billion.
What does this mean?
At Farfetch, consumers can buy luxury clothes and accessories from nearly 1,000 brands and boutiques, ranging from Gucci to Givenchy. The company’s ten years old and yet to make any profit – last year it managed to grow its revenue to almost $400 million, but it grew its losses, too.
The online luxury world is one kingdom Amazon hasn’t yet conquered, perhaps because luxury companies may not trust Amazon to maintain their brand’s integrity (after all, some have spent hundreds of years building their name). Amazon’s absence leaves an opportunity – the market for personal luxury goods worldwide was worth an estimated $307 billion in 2017 and is slated to grow to $446 billion by 2025.
Why should I care?
The bigger picture: Time will tell who wore it better.
Farfetch doesn’t call itself a fashion company. Instead, it says it’s a tech company (and a unicorn, for that matter). That’s because, unlike typical retailers (fashion companies included), it doesn’t own the goods it sells – it simply connects sellers and buyers. In contrast, Farfetch’s main rival, Yoox Net-A-Porter (YNAP), is an online fashion retailer for the most part – it buys its luxury wares and sells them online. The two business models are quite different: Farfetch mitigates risk by not having to invest money in inventory and store it like YNAP does, but Farfetch is more susceptible to the whims, price movements, and distribution of its sellers – unlike YNAP, which has total control over all its offerings.
For markets: Tech gets the Benjamins.
Tech companies are usually valued higher than traditional retailers, so the potential for a $5 billion Farfetch valuation isn’t that… farfetched. Twitter’s IPO back in 2013 valued it at $14.2 billion and it didn’t make any money until this year.