Farfetch Stock: The luxury fashion marketplace rises on momentum

COVID may be over, but luxury revenge spending is just getting started. The luxury fashion industry is seeing “remarkable levels of profitability” coming out of the pandemic — and online marketplace Farfetch is reaping the benefits.  

From mom and pop shops to must cops

When the pandemic hit, many expected the $316b luxury goods industry to tank as sweatpants became the go-to. Instead…

• Online buying soared in China — accounting for two-thirds of luxuries’ growth.
• Consumers flocked to luxury fashion brands — with LVMH (owners of LV and Christian Dior) seeing higher sales than in 2019.

Lockdowns helped one business in particular: Farfetch, the luxury fashion marketplace. Founded in 2008, Farfetch lists boutique fashion stores online. It took nearly a decade to convince companies like Gucci and Prada to list on its website — which is when the company really took off. Today, luxury brand retailers make up over 40% of its sellers.

Invest in the best dressed

On top of growing losses, a surprise acquisition in 2019 prompted investors to run, and Farfetch’s share price sunk 40% in one day. But that was nothing a good lockdown couldn’t fix:

• Sales accelerated to 64% to $1.67b in 2020.
• Alibaba and Richemont invested a combined $1.1b in the company for its expansion into China. 

Farfetch came out on top through the pandemic due to its unique business model:

• Farfetch connects buyers and sellers. It doesn’t own any inventory so it wasn’t affected by the same supply chain constraints as its competitors.
• This led to sales surging 90%, being one of the only online marketplaces able to quickly ship out clothing.

Investors: Doing well without Chanel?

Farfetch had a good year but its growth faces potential roadblocks:

• The biggest luxury brands (Louis Vuitton, Hermès and Chanel) stayed off Farfetch – preferring to sell directly to consumers.
• It’s too early to tell how online sales will react as brick-and-mortar stores continue to re-open around the globe.

Growth is forecasted to slow down from 63% in 2020  to 35-40% in 2021, but Farfetch is expected to turn its first full-year profit in 2021. For investors, the online luxury marketplace might not be such a farfetch’d idea.