Leidi.com Lei Jianping December 15
The once-famous luxury e-commerce platform Farfetch is facing bankruptcy.
According to foreign media reports, Farfetch founder José Neves is discussing privatization matters with shareholders including Richemont Group, Alibaba and investment institutions such as JP Morgan Chase.
The day after, Farfetch announced that it would not release its third quarter financial report for fiscal year 2023.
Once, Farfetch’s market value was as high as US$26 billion, but now it has fallen to US$293 million, with more than 98% of its market value evaporated.
Today, Farfetch faces two prospects: being rescued by "white knight" investors, or entering bankruptcy administration. Farfetch is trying to find investors to take the company private and pitch the idea to private equity groups, other luxury brands and Amazon through bankers at JPMorgan Chase and Evercore. But the white knight has yet to appear.
Farfetch faces $1.6 billion in debt repayments between 2027 and 2030, but investors are increasingly worried that Farfetch will not have enough funds to cover costs in the short term.
Credit rating agency Moody's has downgraded Farfetch's rating to Caa2, a junk level, citing growing concerns about its financial health.
At this moment, Richemont Group, one of Farfetch's shareholders, said it would not inject capital into Farfetch and was re-examining Farfetch's acquisition of YNAP, another luxury e-commerce company under its umbrella. Alibaba President and Board Member J. Michael Evans has also resigned from the Farfetch Board of Directors.
Alibaba, Tencent and JD.com were all shareholders
Farfetch is a global fashion shopping platform founded in 2007, selling products from more than 1,300 boutiques and brands around the world.
In addition to luxury e-commerce business, Farfetch also provides e-commerce solutions for brands and retailers, provides solutions for offline store digitalization and new retail technology, and has its own trend brand matrix.
In May 2016, Farfetch completed a US$110 million Series F financing, with investors including Vitruvian Partners and newly joined Temasek, IDG Capital and Eurazeo.
In May 2017, JD.com invested US$397 million in Farfetch. At that time, Liu Qiangdong, the founder of JD.com Group, also joined the Farfetch board of directors. JD.com helped Farfetch establish an automated marketing system in China and enhance Farfetch’s visibility and market position in China.
In September 2018, Farfetch was listed on the New York Stock Exchange with a market value of approximately US$5 billion. At that time, some brands, including Gucci, had agreed to sell directly through the platform.
In February 2020, Farfetch issued and sold convertible senior notes with an aggregate principal amount of US$250 million through a placement, which were sold to Tencent and investment company Dragoneer respectively, each agreeing to purchase US$125 million worth of notes.
In November 2020, Alibaba and Richemont Group announced a joint investment in Farfetch, and Farfetch's existing shareholder Kering Group increased its capital. At the same time, after Farfetch’s Greater China business was restructured, Alibaba and Richemont invested in the business. Farfetch has opened a store on Tmall International and is integrated into the Tmall luxury channel.
Specifically, Alibaba Group and Richemont Group each invested US$300 million to jointly purchase US$600 million worth of private placement convertible bonds issued by Farfetch Limited. Kering Group increased its holdings of FARFETCH's Class A shares by US$50 million.
Alibaba Group and Richemont Group jointly invested US$500 million in Farfetch China with the same amount and established a joint venture with Farfetch to operate Farfetch’s online sales business in China.
Cash consumption is too high and survival cannot be guaranteed
However, Alibaba and Richemont Group's investment in Farfetch can be said to be at a high stock price, and since 2021, Farfetch's stock price has been falling. At the same time, Farfetch shareholders are accelerating their exit.
Farfetch shareholding structure as of January 31, 2021
As of January 31, 2021, Tencent also held 5.3% of Farfetch’s Class A shares, with 1.4% voting rights.
As of February 14, 2023, Baillie Gifford is the only major institutional shareholder of Farfetch, holding 13.3% of Class A shares and 3.9% of voting rights. José Neves owns 2% of Class A shares, 100% of Class B shares, and 71.1% of the voting rights.
Farfetch’s cash burn and the flaws in its business model were exposed.
The financial report shows that Farfetch’s revenue in 2020, 2021, and 2022 will be US$1.674 billion, US$2.257 billion, and US$2.317 billion respectively; Adjusted EBITDA will be -US$47.43 million, US$1.638 million, and -US$98.72 million respectively.
Farfetch’s revenue in the first half of 2023 was US$1.128 billion, with an operating loss of US$406 million, compared with an operating loss of US$330 million in the same period last year.
As of June 30, 2023, Farfetch held US$454 million in cash and cash equivalents. During this half-year period, Farfetch's cash and cash equivalents decreased by US$287.2 million. This compares with a decrease of $788.1 million for the six months ended June 30, 2022.
Farfetch has struggled to be profitable and secure its products, but top luxury brands don't want to sell through third parties, preferring to maintain control and avoid online retailers relying on discounts to attract customers. The impact of the epidemic has disappeared, consumers have returned to offline, and Farfetch is facing pain after the dividend disappeared.
In the past three years, luxury brands have repeatedly raised prices, making luxury goods prices too high. The global economy is in a downward cycle, which also threatens Farfetch's survival space. This may be somewhat similar to the fate of domestic Secoo, which is also facing a delisting crisis.
Farfetch acquired New Guards Group for US$675 million in 2019, indirectly obtaining permission to sell Off-White. However, under Farfetch's management, Off-White's performance was not good, and it consumed Farfetch's funds.
"The cash burn is too high and they will have to refinance," said Flavio Cereda, a fund manager at Zurich asset management group GAM. . . If they don't get refinanced soon, survival may not be guaranteed. "
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