Farfetch Well Placed as Online Luxury Takes Off
However, we lack confidence in the sustainability of its economic profits.
Farfetch (FTCH) is an online platform connecting sellers and buyers of luxury goods. The company partners with around 1,000 luxury goods sellers, including over 600 retailers and 375 brands, to offer their inventory on the platform. For making retailers’ stock available to a million active customers, the company charges a 30%-plus cut (third-party take rate). The business model is capital-light--the company carries only inventory associated with its physical Browns store ownership--so it can offer a significant number of products without incurring risk of excess inventory write-downs. Farfetch offered 3.9 million stock-keeping units at the end of 2017 and 5.7 million currently. The platform carries around 10 times more SKUs than the next-biggest player, according to Farfetch’s initial public offering prospectus.
Although Farfetch generates most sales through its marketplace platform, it has invested in retail operations, such as the Browns acquisition in 2015, and is working toward solutions for an integrated online and in-store experience through its “connected retail project.” It also provides white-label website services for luxury brands through its Black & White division.
Jelena Sokolova does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.