Analysis: What’s changed since the Farfetch-YNAP deal was first announced

This week, Farfetch’s proposed acquisition of a 47.5 per cent take in the Richemont-owned luxury fashion e-commerce company Yoox Net-A-Porter, was approved by the European Union, seven months after the UK Competition and Markets Authority gave its stamp of approval, and over one year after the deal was first announced in August 2022.

Compagnie Financière Richemont said that the European Union was the last regulatory authority that was required to provide clearance, and Richemont is planning to complete the deal later during the fourth quarter of 2023.

However, there are a few more hurdles first. According to Richemont, the execution of the deal remains subject to “certain other conditions that Richemont and Farfetch are working towards fulfilling”, and further updates will be provided “in due course”.

Yoox Net-A-Porter owns the brands Yoox, Net-A-Porter, Mr Porter and The Outnet.

The origins of the deal

The initial agreement announced in August 2022 stated that Richemont would sell a 47.5 per cent stake in Yoox Net-A-Porter to Farfetch, with provisions for a full acquisition in the next three to five years. Emirati business mogul Mohamed Alabbar would acquire 3.2 per cent of Yoox Net-A-Porter, reducing Richemont’s stake to below 50 per cent and allowing it to remove the under-performing e-commerce platform from its balance sheet.

Richemont first purchased Net-a-Porter in 2010 for approximately US$550 million, before merging it with Yoox. Then in 2018, Richemont bought back the combined entity for about US$3.4 billion.

However, it appears that while the luxury goods group was adept at selling its own brands, managing the technology and logistics of an e-commerce platform like Yoox Net-a-Porter was a different matter.

In the year leading to March 31, 2022, Richemont’s online distributors, led by Yoox Net-a-Porter, lost about US$208.4 million.

Regarding its acquisition of Yoox Net-A-Porter, Farfetch’s CEO and founder José Neves told Business of Fashion, “They built amazing brands … I think the business lacks the cutting-edge technology that is needed today to service customers and compete in what are very competitive landscapes these days. This is what our deal is going to be able to provide them with.”

However, Farfetch has been experiencing its own financial struggles while navigating the rapidly shifting retail landscape.

What’s been going on with Farfetch?

Since last August, Farfetch’s stock has declined by almost 90 per cent, following consecutive quarters of declining sales. In August of this year, the brand reported that second-quarter revenues contracted one per cent year-on-year to US$572 million, well below predicted forecasted profits.

Additionally, Farfetch saw a 40 per cent decline in sales over the past year in its brand incubator platform, New Guards Group, which operates brands Off-White, Palm Angels, and the European license for Reebok. This led the company to lower its sales outlook for the entirety of 2023 to US$500 million.

At the time the acquisition deal was first struck up, Richemont’s shares in Farfetch were estimated to be worth US$440 million; however, the value of those shares now, at Farfetch’s current stock price, is about US$90 million.

Marie Driscoll, an expert on luxury retail and the founder and chief analyst at Driscoll Advisors, believes that one reason Farfetch is losing value stems from its eagerness to expand without strategically planning ahead.

“Farfetch is mostly a technology company — a marketplace platform that via acquisitions (Browns, Stadium Goods, New Guards Group, and Violet Grey) has added retailing, beauty, and resale to its business rather than focus on enhancing and growing its platform and providing the e-commerce underpinnings of many leading retailers and brands with its white label tech offering,” she said.

“From the outside, it looks like they lost focus and were diverted by the latest shiny object. An immediate fix is to exit non-core businesses (as they have with beauty) and return to their core, as well as continue to prune costs where possible.”

On top of individual missteps, the luxury retail industry as a whole is going through a tough time right now, and this too is contributing to Farfetch’s low stock price.

“Most luxury brands are experiencing a slowdown in the US and Europe as inflation, a slowing economy, and preferences for experiences continue to undermine demand for products and Farfetch is not immune. However, luxury goods will fare better than most discretionary sectors given the value they provide qualitatively, emotionally, and socially and will likely bounce back faster,” Driscoll added.

Farfetch has been taking steps to rebuild itself, from closing down its beauty division back in August to seeking out a buyer for luxury beauty retailer Violet Grey to reducing staffing numbers. The retailer reports that it expects to reduce costs by US$150 million this year.

Moving forward, Driscoll suggested that Farfetch will need to invest “huge sums” to maintain and upgrade its technology.

“In some ways, Farfetch is an online luxury shopping center with all the stores and brands from around the world in one place, but without enough of a point of view to be beloved,” she said.

“It is efficient shopping but not supportive of brand engagement, building brand equity, and enhancing the customer lifetime value of a brand. That is best done on a brand website or in a brand store. And since its inception 15 years ago many retailers and brands have developed [or] hired the tech skills to execute direct-to-consumer.”

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