Economics of E-Commerce Fashion: It’s Not Farfetched

Lily Share ‘21, Section Editor

Farfetch has become one of the most popular places for young people to shop. The online luxury fashion retailer carries thousands of international brands and ships worldwide. But how does its business model work?

Farfetch operates as a middleman. Small boutiques might have a buyer with great taste but could not afford to reach a broad audience of luxury-goods consumers and lacked knowledge of e-tailing. Farfetch’s founder Joseé Neves, a Portuguese entrepreneur, had the inspiration to sell clothes from lots of these independent boutiques on the new website he created. Farfetch was able to connect the boutiques to customers around the world and take a commission from every sale. As Farfetch grew, it started to carry luxury brands such as Saint Laurent and Prada, who were also less comfortable with e-tailing. Nowadays, Farfetch makes the majority of its revenue from retailing these famous brands while still representing many boutiques.

Farfetch also acquires some brands to sell exclusively. Recently Farfetch paid $675 million to acquire New Guards Group, a fashion holding company, which gave the company exclusive licenses to several streetwear labels. One of these brands Off-White by Virgil Abloh, who is also the artistic director of Louis Vuitton, and interned with Kanye West at Fendi.  Off-White is already one of the top ten most popular brands on Farfetch. Kanye’s Yeezy line is now represented too on the website. 

The company’s business model sounds great but should we invest in it as well as shop on it? The stock has been volatile since the acquisition of New Guards Group. The stock price has dropped by over 50% since last summer. Investors are reportedly concerned that because New Guards Group does more wholesale and licensing as opposed to retail like Farfetch, the acquisition does not fit into the company’s business model. But in the long run, there is space for optimism because of the opportunity for growth in online luxury sales around the world.