Farfetch poised for "steady and thoughtful" growth under Coupang? Let's hope so.
After a last-minute drama involving antsy investors mobilising to try to block it, South Korean retail giant Coupang formalised its $500 million rescue deal for global fashion marketplace Farfetch this week and is promising the business will deliver "thoughtful and steady" growth under its ownership.
In a statement released to the New York Stock Exchange, Coupang said: "By providing access to $500M in capital, this acquisition allows Farfetch to continue delivering exceptional services for its brand and boutique partners, and to more than four million customers around the world. By leveraging Coupang’s operational excellence and innovative logistics, Farfetch is now well-positioned to pursue steady and thoughtful growth."
It is said that Farfetch founder José Neves approached Coupang himself to rescue the pioneering business he founded in London in 2007 after private equity investor Apollo walked away from a potential deal towards the end of last year. But investors have been left questioning why an urgent deal was needed in the first place.
The investors, who opposed the buyout by Coupang, formed an entity called The 2027 Ad Hoc Group and said that they wanted to "explore options over the proposed acquisition of the Farfetch business by Coupang." Holding over 50% of Farfetch’s 3.75% Convertible Senior Notes due in 2027, the group appointed Pallas Partners as legal counsel and Ducera Partners, an investment bank, as financial advisors, to "urgently evaluate options to protect its interests in the face of the value destruction that it believes will be effected should the Coupang sale go ahead."
They were alarmed at what they said was a lack of transparency in the sale process and were also questioning how Farfetch could go from "guiding the market to YE 2023 liquidity of over US$800 million in August 2023, to a distressed sale four months later." Furthermore the group said that the terms of a transaction support agreement (TSA) with Coupang, which Farfetch entered into on 18 December 2023, risked making it "unviable for any other bidders to present an alternative, value-maximising offer".
In the event their efforts were thwarted (at least it seems so) – that José Neves owned 15% of Farfetch shares and controlled 77% of its voting rights may have been pertinent here. This week Coupang told the New York Stock Exchange, where it is listed (and where Farfetch had been listed), that the deal had gone through. But the final line of its short announcement emphasising its intention to embark on a path of "thoughtful and steady" growth was telling.
Quite how Farfetch went from a guidance of having the best part of $1 billion in cash to being on the verge of collapse a matter of 16 weeks later is perhaps due to the fact that its growth over the past 17 years has been anything but steady and, at times, not terribly thoughtful either. A slowdown in the global luxury market, as shoppers began to baulk at spiralling prices and the lucrative Chinese market pulled back after a post-pandemic boom, will not have helped matters either.
Farfetch's byzantine finances have for some time been baffling to those on the outside and, quite possibly, to some of those on the inside too. When the business floated on the NYSE in 2018 to much fanfare, it was valued at $6.3 billion. It the five years that followed, it lost 95% of its value. At one stage it was valued at an eye-watering $23 billion, but by 13 December 2023, it had a market value of a measly $221 million.
One of the first signs that shareholders were not happy with the strategy Neves was taking was the $675m acquisition of brand house New Guards Group, which took place shortly after the Farfetch IPO in 2019. New Guards owns luxury streetwear-inspired brands such as Off-White, Heron Preston and Palm Angels. Farfetch argued that the deal would augment its aim to be "the global technology platform for luxury fashion, empowering individuality, and connecting creators, curators and consumers".
Investors were unconvinced arguing that they had bought into a business that operated an inventory light model connecting luxury brands and boutiques to a global audience of fashion-loving, affluent shoppers and would leverage its technology to support other brands with their online growth. Owning brands and inventory, they said, was not a proposition they had backed. Its share price tanked by 40% after the deal was announced in August 2019 and at that point shares were already down 36% on the IPO valuation.
Nonetheless the deal-making continued. In 2019 it merged its Chinese arm with one of the country's (and the world's) biggest retail giants JD.com (JD had previously acquired a stake in Farfetch in 2017). Then in 2020 Farfetch entered into a joint agreement with luxury conglomerate Richemont and another Chinese giant Alibaba who jointly invested $600 million in Farfetch, taking a combined 25% stake in its Chinese ventures.
Richemont is the parent of Farfetch rival YOOX Net-A-Porter (YNAP) and in August 2022 Farfetch reached an agreement to purchase a 47.5% stake in YNAP from Richemont with plans to move it onto the Farfetch technology platform. Interesting side note here, Net-A-Porter founder Dame Natalie Massenet – who had left the business she founded in 2015 when Richemont agreed to merge it with YOOX – joined Farfetch as Co-Chair in February 2017 but by August 2020 she had quietly stood down.
Prior to the planned YNAP share purchase, in January 2022, Farfetch had also acquired US beauty retailer Violet Grey ahead of a planned push into the beauty space, and in April 2022 it had invested in US department store group Neiman Marcus. There had been acquisitions before the float too, of luxury boutique Browns in 2015, Condé Nast's e-commerce platform Style.com in 2017 and sneaker retailer Stadium Goods in 2018.
If that's hard to follow, it's because it is (one day business students will write papers on this if they aren't doing it already). Farfetch moved at breakneck speed and, to be fair, achieved impressive growth. From a plucky London start-up with a smart idea to enable small boutiques to ride the e-commerce boom, it achieved record revenues in FY 2022 of $2.3 billion. But profits proved elusive. Its FY 2023 results announcement did not happen as it revealed it was executing a rescue plan; a shame as they would have made interesting reading.
A "steady" period under Coupang, while less fun for us all to watch, is just what Farfetch needs. It also needs to revert to the purity of its original purpose. The YNAP deal is off, which is just as well, and it seems likely Coupang will dispose of New Guards Group and Browns.
Coupang itself offers a variety of services, including same-day and dawn delivery of merchandise, delivery of prepared foods through Coupang Eats, fintech through Coupang Pay, and video streaming through Coupang Play. There's plenty of opportunity to augment Farfetch by leveraging those competencies and having an owner that understands the business needs to stop and take a breath is no bad thing. To be fair to José Neves, who is sticking around for now, while The 2027 Ad Hoc Group of investors were not happy, this is perhaps the most "thoughtful" of the many deals he has pulled off.
However, this is Farfetch and while it may seem it has found a safe harbour and some respite for now, drama (much of which is of its own creation) follows it around. The 2027 Ad Hoc Group is not done yet and is investigating legal avenues to see if they can recoup some of the losses they have made as a result of the deal. They are taking issue with suggestions that the Farfetch business was fairly marketed before the sale to Coupang was agreed and they believe Farfetch could have spun off its non-core assets itself to enable it to meet its obligations rather than resort to a fire sale.
Whether these investors are successful in their claim remains to be seen. It would be nice to think, however, that Farfetch itself could go on to be successful. For many independent brands and retailers, the platform Farfetch provides has been a lifeline and, before it got distracted by noise, deals and the endless pursuit of growth and cash, Farfetch's vision and proposition was solid. If only it had been more "steady and thoughtful" from the start...
Farfetch: a brief timeline of a complex business
2007: Entrepreneur José Neves sets up the business in London as a marketplace enabling independent fashion boutiques to ride the e-commerce wave
2015: Farfetch acquires one of the world's best known fashion boutiques, London's Browns fashion
2017: Farfech acquires the Style.com website from publisher Condé Nast
2017: Chinese giant JD.com takes a stake in Farfetch
2017: Dame Natalie Massenet, founder of Net-A-Porter, joins Farfetch as Co-Chair
2018: Farfetch acquires sneaker retailer Stadium Goods
2018: Farfetch floats in New York and is valued at $6.3 billion
2019: Farfetch merges its Chinese business with JD.com
2019: Farfetch acquired New Guards Group and its shares tank by 40%, having already lost 36% of their value since the float
2020: Farfetch enters into a joint agreement with Richemont and Alibaba, who jointly invest $600 million, taking a combined 25% stake in its Chinese ventures
2020: Dame Natalie Massenet exits the business
2021: Farfetch launches its first in-house fashion brand, There Was One
2022: Farfetch acquires US beauty retailer Violet Grey
2022: Farfetch invests in US department store group Neiman Marcus
2022: Farfetch reaches an agreement to purchase a 47.5% stake in YNAP from Richemont with plans to move it onto the Farfetch technology platform
2023: Farfetch announces it is exiting the beauty market and will be selling Violet Grey
2023: Farfetch says it will not be releasing its FY 2023 results and will be seeking a rescue deal that will see it delist from the New York Stock Exchange. The business is valued at $221 million
2023: Private equity house Apollo and luxury conglomerate LVMH are linked with a potential purchase of Farfetch along with the original Net-A-Porter investor Carmen Busquets.
2023: In December, Farfetch announces it has agreed a rescue deal with South Korean retail giant Coupang who will inject $500 million of emergency capital into the business. All board directors, bar José Neves, stand down
2024: Despite last minute protests from a group of shareholders, who organised themselves under the The 2027 Ad Hoc Group name, Coupang completes the Farfetch deal
2024: The 2027 Ad Hoc Group says it will explore avenues to legally challenge the Coupang deal.