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Shares in Farfetch fell by as much as 50 per cent on Wednesday, despite reports that its founder could take the luxury online retailer private following a collapse in its market value.
Farfetch had been due to report quarterly results on Wednesday but postponed the announcement, saying it would “not be providing any forecasts or guidance at this time, and any prior forecasts or guidance should no longer be relied upon”.
Richemont, the Swiss luxury group that has been one of the ecommerce group’s main backers, also said it had no plans to invest any more money in Farfetch.
José Neves, who launched the online retailer in the central London district of Clerkenwell in 2008, is exploring the option of taking it private with advisers at JPMorgan and Evercore, according to people with knowledge of the situation.
Farfetch, JPMorgan and Evercore declined to comment.
The company’s market value peaked at $23bn in early 2021 as pandemic luxury shopping boomed, but has since shrunk to below $400mn. The shares have lost more than 95 per cent of their value since it went public in New York in 2018. They rose by 22 per cent in US trading on Tuesday after the Daily Telegraph first reported the potential plan to take it private.
Neves owns 15 per cent of Farfetch but controls 77 per cent of the voting rights thanks to a dual-class share structure. Other large investors besides Richemont include Alibaba, the Chinese ecommerce group, and Artemis, the family holding company of the billionaire Pinault family.
Richemont, which owns jewellers Cartier and Van Cleef & Arpels, agreed to sell a stake in its lossmaking Yoox Net-a-Porter online fashion and accessories platform to Farfetch in 2020, but the deal has yet to close due to regulatory delays. It is unclear what a delisting would mean for the transaction.
Richemont on Wednesday said that it was “carefully monitoring the situation” but had no plans to put new funds into Neves’ company.
“Richemont would like to remind its shareholders that it has no financial obligations towards Farfetch and notes that it does not envisage lending or investing into [the company],” the Swiss group said.
Farfetch sells luxury goods to consumers online, obtaining inventory from independent boutiques and directly from some luxury brands. It also licences its technology to brands and department stores including Harrods, which operate their own websites.
However online shopping in luxury differs from ecommerce in other sectors because big brands like Hermes and Louis Vuitton tightly control distribution and see their high-end stores as key to wooing buyers. The top brands sell online via their own websites and are reluctant to relinquish control over their pricing and carefully curated images.
Even as its revenue has expanded and its staff swelled to over 6,000 at its peak in 2021, Farfetch has consistently reported operating losses over the past five years, which Neves has justified by saying the company was still in investment mode. Its business model is also burdened by a high cost base and thin margins.
Farfetch’s deal with Richemont received the go-ahead from EU regulators last month. Under the terms, Farfetch would take a 47.5 per cent stake in Yoox Net-a-Porter and Richemont would receive Farfetch shares in exchange. A system of put and call options would also leave Farfetch with a chance to acquire the remainder of the company in the next five years, or allow Richemont to sell to other investors or list shares.
Yoox Net-Porter has become an expensive problem for Richemont, which has lost market share to nimbler competitors, including Farfetch, and fumbled technology upgrades. Richemont has taken the ecommerce platform off its balance sheet and has had to write it down several times, to the tune of over €3bn.
However, the value of Farfetch shares has declined drastically since the deal was struck, from around $10 each to around $1 currently.
“Richemont would have to accept a significantly lower value for Yoox-Net-a-Porter or agree on new deal terms with Farfetch. Taking Farfetch private could facilitate a compromise on new terms,” said Rogerio Fujimori at Stifel.
Given the collapse in Farfetch’s share price and Neves’s control over voting rights, “the market may see a buyout as the best solution for [the company] to resolve its problems without the pressure from external shareholders”, he added.
Source: Financial Times