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2017 IPO Prospects: Farfetch Dresses Up to Go Public

Posted on Friday, Oct 6th 2017

Market reports expect the global online retail services to grow double in the next three years from $1.9 trillion in 2016 to more than $4 trillion in 2020. UK-based Farfetch is a Billion Dollar Unicorn  player in the industry that now appears to be gearing up to go public.

Farfetch’s Offerings

Farfetch was founded in 2007 by Portuguese entrepreneur José Neves as a project to leverage his experiences as a fashion designer, wholesaler, and retailer. Through his earlier entrepreneurial experience, José had realized that there were several designers globally who were finding it difficult to sell their products due to depressed local economic conditions. He saw a need to help these designers set up their online stores – thus, Farfetch was born. Farfetch now connects global consumers with this curated network of small, independent boutiques.

Recently, Farfetch has taken several steps to ensure that it becomes a leading fashion e-commerce platform. Earlier this year, it announced the addition of Net-a-Porter founder Natalie Massenet as its non-executive co-chairman. Earlier this summer, it also announced the launch of a new platform for brick-and-mortar stores called the “Store of the Future”. The OS-like platform will convert physical stores to highly tech-enabled ones. Some of the features offered are a universal login that will identify a customer when they check into the store, an RFID-enabled clothing rack that can detect the products they are looking at, and update their wishlist, a digital mirror that will view the wishlist and collect items in different sizes and colors; and a mobile payment model similar to that in the Apple Stores. These stores are still in Beta stage and will be launched next year.

Recently, Farfetch also announced the acquisition of another online service Style.com for an undisclosed sum. Style.com was Condé Nast’s attempt at building an e-commerce site last September. Farfetch hopes to integrate Condé Nast’s content capabilities with its e-commerce platform into its portfolio.

Farfetch’s Financials

Farfetch does not disclose its detailed financials, but market reports suggest that its gross sales grew 60% last year to over $800 million. Farfetch earns revenues by charging a commission on the sales it helps its stores make. The commission rate is estimated at 25%, translating to $200 million in net revenues last year. But the profits remain elusive. It is estimated to have recorded a loss of $40 million last year. It is, however, cash flow positive.

Farfetch has been venture funded so far with $700 million in funding from investors including JD.com, Eurazeo, IDG Capital Partners, Teamsek Holdings, e.ventures, DST Global, Vitruvian Partners, Condé Nast, Advent Venture Partners, and Index Ventures. Its latest funding was held in June this year when it raised $397 million at an undisclosed valuation. The market believes that the company is now looking to go public and is planning to list in the US at a valuation of $5 billion. Earlier rounds had pegged the company at $1.5 billion valuation.

Farfetch may be a strong contender in the global online fashion space. But it has to be worrying about Amazon. According to recent market reports, the 2016 US apparel sales, including offline sales, grew 3% to $200 billion. Amazon accounted for just $3.4 billion of the market but its sales grew 25%. Amazon is also pushing into the segment with a few test initiatives – like the Prime Wardrobe, which is a subscription service that will offer brands like Adidas, Calvin Klein, Levi’s and Hugo Boss at no upfront charge. With Amazon entering the physical stores through the Whole Foods acquisition, some even believe that it may be looking to buy a specialty apparel retailer next. Either way, Amazon’s online prowess is gigantic compared with anything that Farfetch can put together.

More investigation and analysis of Unicorn companies can be found in my latest Entrepreneur Journeys book, Billion Dollar Unicorns. The term Unicorn was coined in a TechCrunch article by Aileen Lee of Cowboy Ventures.

This segment is a part in the series : 2017 IPO Prospects

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