Stocks Plunge 99%, Abandoned by Chinese Capital

The once highly sought-after Farfetch by Chinese capital tycoons is now facing a reluctant delisting.

Recently, Coupang Inc., known as the "Amazon of South Korea," announced that it would acquire Farfetch for $500 million. After the completion of this acquisition, Farfetch will be delisted from the New York Stock Exchange with a sense of disappointment.

Farfetch was once the world's largest luxury e-commerce platform, with a market value as high as $25 billion at its peak.

However, in the past three years, it has been continuously abandoned by the capital market, with its stock price plummeting by 99% within three years, and now it is only worth $253 million.

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What exactly happened behind the scenes? Why was Farfetch, once adored by capital, so harshly dropped to the ground?

Farfetch, once pursued by Chinese magnates

The year 2020 was the peak moment for Farfetch, with its stock price soaring from $10 to over $60, and its market value reaching $25 billion, ascending to the throne of the "biggest" global luxury e-commerce platform.

Farfetch's explosion in the capital market was greatly related to the pursuit of Chinese capital magnates.

As early as 2016, Septwolves invested $30 million in Farfetch, and in 2017, JD.com invested nearly $400 million in Farfetch. In 2020, Tencent invested $125 million in Farfetch, and by the end of the year, Alibaba and Richemont each invested $300 million in Farfetch.

Not only that, but Alibaba and Richemont also each invested $250 million to establish a new company to associate with Farfetch's business.What exactly is the charm of Farfetch that has garnered such favor from domestic bigwigs?

The reason lies in the luxury resources behind Farfetch.

According to financial reports, Farfetch has the authorization of 550 boutiques in over 400 countries, more than 200 international brands, and over 2000 designer brands.

At its peak, Prada even opened more than 70 warehouses to Farfetch.

It is important to note that luxury brands have always been very strict about channel control, making it extremely difficult to obtain brand authorization.

So how did Farfetch manage to secure the favor of luxury brands?

Farfetch's "Technology Card"

Farfetch's founder, José Neves, has been very interested in programming since childhood and founded Farfetch in 2007.

On the surface, the company's main business is fashion products, but Neves has always claimed that Farfetch is a technology company.

His reason is that Farfetch's model has never been the model of a conventional e-commerce platform.FARFETCH does not participate in the supply chain, does not hold inventory, nor does it determine the selling price. Instead, it provides a "solution" for major brands. This solution covers everything from the platform and digital marketing to logistics and customer service. It can be said that FARFETCH can help with all aspects of online sales. This is undoubtedly very attractive for luxury brands. At that time, e-commerce was rapidly rising globally, and traditional luxury brands also wanted to actively seek change in response to changes in the market environment. Luxury brands want to embrace e-commerce, and there are essentially two ways to do this. Either they can build their own online team, or they can join an e-commerce platform. Building an online team is not cheap, and they would need to build a new system. The platform, inventory management, logistics, customer service, and payment are all issues. However, joining an e-commerce platform also faces a series of problems. Ordinary e-commerce platforms rely on low prices to win traffic, which is far from the tone of luxury goods. Moreover, e-commerce and offline stores are competitive relationships. If they join an ordinary e-commerce platform, they will undoubtedly add another competitor to themselves. Now that FARFETCH has appeared, it mainly plays the technology card. It can not only provide a low-cost and efficient e-commerce solution but also will not form competition with offline stores. Therefore, it is natural that FARFETCH can win the trust of luxury brands.Are luxury goods and e-commerce inherently incompatible?

After leveraging technology to break into the market, Farfetch began to transform following the acquisitions of Off-White, New Guard, and Stadium Goods. Farfetch's business shifted from technical services to a triad of digital platforms, brands, and physical stores.

This signifies a complete reversal of Farfetch's previous strategy, as it has returned to the traditional e-commerce model. However, e-commerce and luxury goods seem to be inherently at odds, with almost no particularly successful examples either domestically or internationally.

Not to mention overseas, but focusing on the domestic front, in 2008, a plethora of luxury e-commerce platforms emerged in the Chinese e-commerce market like mushrooms after rain.

However, four years later, leading luxury e-commerce platforms such as Pinju Network, Zunku Network, and Sina Luxury Goods were no longer viable.

Subsequently, Secoo, known as "China's first luxury e-commerce stock," once bloomed briefly but has recently faced two bankruptcy applications and received two delisting warnings from Nasdaq. In addition, there are over 20,000 consumer complaints.

Now, Farfetch, the world's number one, has also followed Secoo's old path after being abandoned by Chinese magnates.

Why is it so difficult for luxury goods to succeed in e-commerce?

Firstly, it is essential to understand why affluent individuals purchase luxury goods. Is it because luxury items are aesthetically pleasing, beautiful, and durable?Of course not. The reason why wealthy people buy luxury goods can be summed up in one word: expensive.

However, the high price is just a superficial attribute of luxury goods. The core lies in its ability to create "social distance."

What is social distance? In simple terms, it's about letting others know that they are "out of reach."

But e-commerce mainly focuses on cost-effectiveness, which is completely unrelated to luxury goods, and can even be described as "incompatible."

Secondly, the supply of luxury goods is often problematic.

The top luxury brands are often family businesses, belonging to the top part of the entire industry chain. It's really difficult to get them to grant authorization externally.

E-commerce platforms that can't get authorization can only buy from secondary or even tertiary dealers. This not only allows middlemen to earn the difference, but also can't guarantee that the goods obtained are genuine.

Once it is discovered that they are selling counterfeit goods, it basically announces the "death" of luxury e-commerce.

Although selling counterfeit goods is not the original intention of e-commerce, consumers who buy counterfeit goods will definitely curse e-commerce.

This has also led many luxury e-commerce platforms to go to great lengths to obtain genuine products. The most exaggerated case was the former top luxury e-commerce platform, Show.com, which went to the extent of smuggling 300 million yuan worth of luxury goods at a low cost, leading to the imprisonment of the CEO and shocking the entire industry.So, luxury goods and e-commerce indeed have a somewhat inherent conflict, which also determines that if luxury e-commerce does not have a relatively unique model, it is doomed to end in a tragic manner.