Of the 20 largest luxury fashion brands by revenue, 19 are headquartered in Europe yet address a global demand. The luxury ecosystem is characterized by family ownership and longstanding relationships, and luxury brands have traditionally maintained strict control over their product, distribution, marketing, and pricing.
More prominent luxury brands access demand by building expansive networks of directly operated stores and through department stores. However, the result is often a mismatch between supply and demand, with either excess or redundant inventory or insufficient supply to match the local market.
Emerging brands typically have no route to the global market, and their distribution is limited by their ability to finance and produce sufficient supply for each local market. They primarily rely on wholesale distribution through a network of independent fashion boutiques.
It is through the boutiques that emerging talent is discovered, new designers can flourish, and new brands emerge. As a result, luxury fashion inventory from both large and smaller brands is distributed across a highly fragmented network of luxury sellers.
The shift to digital is affecting how the luxury industry and consumers interact.
Inspiration and trends have shifted from editorial content on the printed pages of monthly fashion magazines to the real-time social media channels of the world’s leading fashion bloggers, influencers, and celebrities. For luxury sellers, digital is fundamentally changing their marketing route, communications, and engagement with their end consumers.
Farfetch understands these trends and is on a mission to be the global technology platform for luxury fashion, connecting creators, curators, and consumers with a marketplace business model. As strategy enthusiasts, we decided to analyze the business model of Farfetch. We also learned how does Farfetch work and make money. Let’s find out.
What is Farfetch? How does Farfetch work?
Farfetch is a British-Portuguese online luxury fashion retail platform that sells products from over 700 boutiques and brands worldwide. The company was founded in 2007 by the Portuguese entrepreneur José Neves with its headquarters in London and main branches in Lisbon and Porto.
Farfetch is a technology platform for the global luxury fashion industry, operating a global digital marketplace at scale, seamlessly connecting brands, retailers, and consumers. Farfetch wants to redefine how fashion is bought and sold through technology, data, and innovation.
Farfetch facilitates the discovery of new brands, provides tools to allow consumers to find the items they are looking for, and inspires lovers of fashion around the world. Consumers choose Farfetch’s Marketplace for a consistent, high-quality experience from start to finish.
The luxury merchandise on Farfetch is curated in three phases: (1) rigorous selection of luxury sellers; (2) the expert buying decisions of retailers, including the individual perspective and combined buying expertise of boutiques and (3) optimization of product mix using data insights and knowledge of the luxury market. This is generally how Farfetch works.
Why are luxury brands okay with losing money in clothing?
Farfetch offers comprehensive supply chain capabilities to its platform partners, from content creation to its global fulfillment network, which integrates delivery partners worldwide in a single, efficient interface.
Luxury fashion inventory is located across a highly fragmented network of luxury sellers. Farfetch’s fulfillment network is based on a distributed inventory model, aggregating inventory from multiple stock points of its luxury sellers in real time, giving Farfetch the capability to get shipments to consumers quickly and efficiently due to the proximity of the inventory to the consumer.
How does Farfetch make money? What is the business model of Farfetch?
Value proposition
For Consumers
- Global access to an unparalleled range of luxury merchandise: Farfetch allows consumers to discover and access the most comprehensive range and depth of luxury merchandise online. Farfetch provides curated access to over 3,400 brands from over 1,400 luxury sellers, including over 820 leading luxury retailers and 590 brands.
- Curation of Supply: Farfetch’s business model of marketplace aggregation allows consumers to discover unconventional items that inventory-bearing retailers may not choose to stock. Farfetch has a three-stage supply curation process to monitor the product supply in its marketplace. Only those luxury sellers that meet its strict criteria are selected.
- Personalization and inspiration: Farfetch uses its rich data sets and data science capabilities to enable consumers to navigate the breadth of products available, providing an inspiring and more personalized discovery experience.
For Luxury Sellers
- Global distribution and access: Apart from providing access to over 3.6 Million Marketplace consumers of luxury fashion in 190 countries, Farfetch offers a fully managed suite of services to support luxury sellers, from content creation to last-mile delivery and returns.
- Attractive economic model: Farfetch enables Luxury Sellers to grow their addressable market without diminishing economics. Luxury sellers can achieve incremental sales by making their inventory available to a global audience and optimizing inventory without increasing their physical footprint.
- Insights: Farfetch generates critical insights for luxury sellers, allowing them to offer more relevant products, improve inventory management and optimize their pricing strategies, and enabling them to scale their businesses efficiently.
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For Brands
- Full Control: Brand positioning and visual representation are paramount to luxury brands. Farfetch facilitates engagement with a broader audience in a multi-brand environment without forgoing control of the most critical aspects of their business, including product pricing.
- Targeted audience: With compelling brand adjacencies, premium content, and access to a high-intent consumer base, Farfetch offers a highly targeted digital channel, enhancing a brand’s online visibility and exposure.
- Catalyst for emerging brands: Emerging brands typically face high barriers to entry in the global luxury market. Farfetch’s marketplace lowers these barriers by providing access to a high-intent luxury consumer base, attractive marketplace economics, and exposure alongside leading luxury brands.
Products
The Farfetch Marketplace – The marketplace forms the basis of the business model of Farfetch. Its the largest global digital luxury fashion marketplace at scale connecting, as of 2021, consumers in over 190 countries and territories with merchandise in more than 50 countries from over 1,400 brands, boutiques, and department stores, delivering a unique shopping experience and access to the most extensive selection of luxury at a single destination.
Farfetch Platform Solutions – Farfetch’s white-label enterprise offering to the luxury industry, which builds and operates e-commerce and technology solutions for luxury brands and retailers, utilizing the proprietary Farfetch platform. FPS also offers luxury sellers ancillary services, including digital marketing, production, and customer service.
Farfetch Future Retail – the retail innovation arm of Farfetch that focuses on creating the customer experience of the future and develops and implements technology solutions to support luxury sellers’ retail visions of creating new luxury experiences by seamlessly connecting the digital, physical and virtual realms with the consumer at the center.
Browns – an iconic British fashion and luxury goods retailer. Browns leverages Farfetch’s digital platform applications by selling through the Farfetch Marketplace. Browns also operates two physical stores in London, pioneering Farfetch Future Retail innovations.
Stadium Goods – a premium sneaker and streetwear marketplace and retailer connecting sneakerheads around the world with merchandise primarily supplied by consigners.
New Guards – a platform that uses a single common infrastructure and model to incubate and grow emerging talent into highly sought-after brands. New Guards designs, manufactures and distributes sought-after luxury fashion brands, including Off-White, Palm Angels, Ambush, and Heron Preston, among others.
Fulfillment by Farfetch– Farfetch offers a luxury logistics solution with third-party logistics warehouses in Italy, the Netherlands, the United Kingdom, the United States, and China. These warehouses handle first-party stock, and luxury sellers can utilize them to handle their fulfillment and allocate stock closer to consumers.
Farfetch Private Client: Farfetch Private Client caters to some of its most important and highest-spending consumers. Farfetch offers high-end services such as a dedicated personal shopper, a priority customer service line, and Fashion Concierge services.
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Sales & Marketing
Marketing strategy is essential for the success of Farfetch’s Marketplace model. Farfetch focuses on building brand recognition and a demand generation engine that connects consumers with luxury sellers. Farfetch creates a better proposition for luxury sellers by driving high consumer demand. Let’s analyze the vital elements of Farfetch’s marketing strategy.
Data-Driven Approach: Farfetch utilizes a broad range of data to identify audience segments that are highly engaged in the luxury fashion category, enabling it to focus brand and performance marketing campaigns on those with a high propensity to purchase.
Farfetch has built its marketing technology platform to deploy integrated campaigns that span the entire communications funnel, from awareness to consideration to purchase and retention.
Consumer Acquisition: Farfetch principally acquires consumers through online channels, including paid and organic search, metasearch, affiliate partnerships, display advertising, and social channels.
Retention and Loyalty: Farfetch focuses on building continuous dialogue with its consumers, given their levels of engagement with luxury shopping. Farfetch does this by creating inspiring content and developing personalized and tailored product recommendations, which it distributes via email, push notifications, social media, display advertising, and directly on its platform.
How does Farfetch make money: revenue model
Farfetch made $2.3 billion in 2022, up 3% from 2021. Farfetch primarily makes money through commissions on sales through the Farfetch Marketplace and on services rendered to its consumers and sellers, including those offered via the Marketplace and Farfetch Black & White. Farfetch also makes money through the sale of goods via Browns retail stores.
Farfetch makes money from four revenue streams:
- Digital Platform Services Revenue, which primarily includes commissions and related income from third-party sales and, to a lesser extent, revenue from first-party sales. The revenue realized from first-party sales is equal to the GMV of such sales because Farfetch acts as a principal in these transactions, and thus related sales are not commission based. This segment contributed 62% to Farfetch’s revenue in 2021.
- Digital Platform Fulfilment Revenue, which is revenue from shipping and customs clearing services to digital consumers. This segment contributed 15% to Farfetch’s revenue in 2021.
- Brand Platform Revenue, which is revenue relating to the New Guards operations less revenue from New Guards’: (i) owned e-commerce websites, (ii) direct-to-consumer channels via Marketplaces, and (iii) directly operated stores. This segment contributed 20% to Farfetch’s revenue in 2021.
- In-Store Revenue, which is revenue generated in Farfetch’s retail stores, which include Browns, Stadium Goods, and New Guards’ directly operated stores. Revenue realized from In-Store sales is equal to the GMV of such sales because such sales are not commission based. This segment contributed 3% to Farfetch’s revenue in 2021.
