Is Luxury’s favorite e-tailer on the verge of bankruptcy?

For more than a decade, Farfetch has been a global retail powerhouse, selling billions of dollars worth of jackets, shoes, handbags and other luxury goods.

But in recent months the online platform, which was valued at more than $20 billion at its peak in 2021, has been fighting for its survival. Its share price has collapsed, rumors are swirling that its founder is trying to take the company private and reports suggest it needs a lifeline. at least $500 million by the end of the year to avoid going bankrupt.

Farfetch has several major investors, including Alibaba, the Chinese technology giant; Artemis, the holding company of the billionaire Pinault family, which owns Kering; and Richemont, the Swiss luxury group. The company’s shares lost about a third of their value this week, at one point falling to a low of just 60 cents, giving the company a market value of about $250 million.

Farfetch declined to comment for this article.

How did Farfetch fall so far and so fast? Who can step in and save it? And who will be affected if it collapses?

What is Farfetch?

Farfetch was founded in 2007 as an e-commerce marketplace for brick-and-mortar fashion boutiques. This meant that a shopper in London could buy boots from an independent store in Paris, or a customer in Beijing could buy a bag that was not available locally from a store almost 5,000 miles away in Venice. Today it collaborates with more than 550 fashion boutiques in 190 countries.

As consumer interest in purchasing luxury goods online began to grow, the company also began working directly with fashion brands to build their websites and back-end operations. Through Farfetch Platform Solutions, the company now offers a range of e-commerce services to brands such as Burberry and Ferragamo, and department stores such as Harrods and Bergdorf Goodman.

In 2015 it bought Browns, the London fashion boutique, and in 2018 the company, then described as ‘the Amazon of fashion’, went public on the New York Stock Exchange.

Who founded it?

José Neves, 49, is a Portuguese entrepreneur who first entered the fashion industry in 1996 with a shoe brand called Swear. For years, he was seen by the fashion industry as a groundbreaking guru who could lead brands to successful digital strategies – and as a result, amassed an estimated personal fortune of $2.5 billion.

Farfetch is a publicly traded company, but Mr Neves still owns a 15 percent stake and 77 percent of the voting rights through a dual-class share structure.

Is the company making money?

Farfetch charges a revenue drop of more than 30 percent for making a retailer’s inventory available to nearly a million active customers. The company achieved profitability for the first time in 2021, but has had a tough time since then.

When did things start to go wrong?

The luxury retailer’s risk appetite began to become apparent in 2019, when more than $2 billion was wiped off its market value in a single day after it blindsided investors with a $675 million takeover of Italian holding company New Guards Group, which owns the license. for fashion label Off White and brands such as Palm Angels, reporting larger-than-expected losses.

Mr Neves defended the acquisition, saying Farfetch was still in growth mode, but critics believed it was a costly departure from Farfetch’s original inventory-free, logistics-focused strategy. It also owns a $200 million stake in US department store Neiman Marcus.

Still, some major power players in fashion kept the faith. Alibaba and Richemont backed Farfetch through a complex partnership that saw them each invest $300 million in the company, and another $250 million each for a 25 percent stake in the Chinese offshoot. The market value peaked at $23 billion in early 2021 as luxury shopping boomed during the pandemic.

Since then there have been major concerns. Overhead costs soared as the company continued to scale. This year, Farfetch’s New Guards division posted a 40 percent drop in sales in Farfetch’s second-quarter results, despite a critically acclaimed partnership with Reebok unveiled earlier this year. Farfetch also reported $1.15 billion in debt for the fiscal quarter ending in June.

There have also been seismic shifts in the broader fashion landscape. Many larger brands are pushing for more control over their e-commerce and distribution operations, in part avoid discounts from external partners such as Farfetch. There is also a slowdown in the global luxury market, especially in key markets such as the United States and China.

What happened recently to make it worse?

Last month, investor confidence was shaken after Farfetch said it was delaying the release of its latest quarterly results, saying it “would not provide any forecasts or guidance at this time, and that prior forecasts or guidance should no longer be relied upon.”

The announcement sent Farfetch’s shares plummeting, and this week, two years after Farfetch’s peak valuation, its market value shrank to less than $238 million, with the shares losing more than 97 percent of their value since the IPO.

A complex deal announced in August 2022 in which Farfetch planned to buy a 47.5 percent stake in Yoox Net-a-Porter, its rival at Richemont, is likely to be renegotiated given the crisis surrounding Farfetch . The deal could even fail.

Can its problems be solved?

Mr. Neves has taken steps to improve the company’s fortunes. This year, Farfetch closed its beauty business and laid off 11 percent of its employees as part of what Mr. Neves described in an earnings call as the most significant cost-cutting measures in the company’s history. There are also industry rumors that he wants to sell Browns and the beauty store Violet Gray.

But the share price has continued to fall and major investors like Richemont have said they will not provide new capital. This month, J. Michael Evans, Alibaba’s president, stepped down from Farfetch’s board.

Now the British business media are reporting that Mr Neves is looking for a white knight investor to help make the company private again. Those reportedly in talks with Farfetch include Apollo management and an original private investor, Carmen Busquets.

The company too faced with lawsuitswith law firms encouraging investors to sue Farfetch for providing what they believe to be misleading information to shareholders about the state of affairs.

What happens if they are not resolved?

The company will be forced to file for bankruptcy protection or be liquidated.

Why does it matter?

Whether Farfetch survives could influence the way consumers buy fashion. This is due to the number of major brands it counts as e-commerce customers, although most of them could probably turn to a competitor. That transition would be more complex for the 700 smaller boutiques and thousands of independent designers who rely on Farfetch. Consumers feel comfortable making luxury purchases with the click of a button. There are other players in the room. But if Farfetch isn’t there to power many of these sales, the digital experience of luxury shopping could change significantly as brands and sellers look for a new way to do business online.