Farfetch's Global Platform Play
Guilaine Jean-Pierre | Apr 10, 2015
Title: Contributor
Topic category: Ready Set Go - Startups

This is an excerpt from a Business of Fashion article that discusses the unique approach of Farfetch:

While Asos, Yoox and Net-a-Porter found success by replicating a traditional wholesale model online, Farfetch has taken a fundamentally different approach, rooted in platform thinking and the connective tissue of the web. “I didn't want to be another retailer with a traditional model. I wanted to do what no-one had done,” explained Neves.

Like most pre-Internet business models, the traditional wholesale model is a linear process. Firms buy merchandise, which they push out and sell to customers. Value flows in one direction much like water through a pipe. Net-a-Porter is a pipe. So is Yoox. These businesses take on significant inventory risk and have high working capital requirements. Farfetch, on the other hand, doesn’t simply buy and push out merchandise. Rather, it provides a platform for certain users (boutiques and brands) to display and manage items for others users (shoppers) to consume with zero inventory risk for Farfetch.

Also at the heart of the company’s vision is what retail strategists call ‘omnichannel,’ the integration of online and offline commerce. While Asos, Yoox and Net-a-Porter are ‘pure play’ e-tailers without physical stores, Neves thinks bricks-and-mortar shopping is here to stay. "Fashion needs to be touched, tried on... That thrill of walking into a boutique or a department store I think will continue to resonate with the vast majority of consumers,” he said. “Physical stores are not going away. They are a core part of the retail experience. But the old model, where you define digital and physical as being separate, that’s going away. E-commerce and traditional retail are merging. It's called omnichannel. But I don't like the term. Internally, we simply call it the new retail.”

“We fundamentally do not believe in making a specific order for the online channel, sending it off to a remote warehouse in the middle of nowhere and shipping it from there to the world,” added Neves. “That is the old e-commerce model. We believe that's finished. It's not the model of the future. The model of the future is distributed stock. The new inventory is made up of dozens — hundreds, in our case — of micro-warehouses.” Indeed, for Farfetch, the warehouse is everywhere, distributed across its global network of stores.

This has enabled the company to deploy services like ‘click and collect,’ which allows customers to buy items from any Farfetch boutique and pick them up, try them on and return them over the counter at any store in the network. Using the same backbone, Farfetch is also planning to deploy same-day delivery across multiple cities. “We want to do this in New York, LA, Milan, Paris, London. No-one does it yet in five cities. The maximum is two or three. That’s because the old e-tail model depends on where your warehouse is situated. If your warehouse is in London, you can service London. If it's in LA, forget it. With this new omnichannel model, it doesn't matter.” To make this work, Farfetch has contracts with local courier companies, as well as DHL and UPS.

As online and offline commerce continue to merge, physical stores are becoming increasingly wired. “Stores are going to be completely different from what they are today,” predicted Neves.

“From day one, we were in stores with software that synchronised inventory and allowed us to manage online orders. But how do you extend that? Multi-channel CRM, point of sale, in-store analytics, payments.... Then there's some gimmick-y stuff, which I'm not a big fan of, but maybe one day we'll make it work, like digital mirrors and stuff like that. We want to be the integrator of all this technology and we will create demonstration stores with our partners to really test and develop this integration. We see this as beneficial for us, because by doing this we are even more seamlessly integrated with boutiques and mono-brand stores. We want to become the world’s omnichannel platform.”

It’s a bold vision and executing towards it has required Neves to build a team that’s equally rooted in fashion and technology. “It's the secret sauce of the business. If you look at our team, everyone comes either from a fashion background or a tech background. It's balancing the left-brains with the right-brains,” he explained. “I think maybe in a more usual retail environment, there would be a tech team and a brand team. Here it's just one seamless team.”

Major fashion incumbents, like LVMH or Kering, which each own big stables of luxury brands, have largely failed to innovate at the scale of Farfetch. “I think there’s a DNA factor. These companies are built on craftsmanship and the creative side of things,” said Neves. “I always say that if e-commerce is one percent of a business, it will be one percent of the brain space of your CEO. So the digital guy sitting there in the corner? ‘You’re worth one percent, we'll deal with you later.’ It's a vicious circle. Because it's small, digital doesn't get the care and the patience it needs. So it remains small.”

“We have a hundred engineers. We will have 200 by the end of this year. It's a huge investment. No brand can convince the CEO to hire 200 engineers. If you're on the $1 billion mark, you can do it, but it takes commitment and many of these companies are publicly traded. How will the market react when they say they will have two quarters of negative results because they plan to invest heavily online?”

Then, there’s Harvard Business School professor Clayton Christensen’s “Innovator’s Dilemma,” which states that large and successful companies often fail to adopt new technologies or business models that can give them an edge in the future because they have too much to gain from the present. “Sometimes I hear brands say, ‘It's working well for us. We're profitable. We're still growing. Why should we change?’”

Tags: Farfetch, omnichannel platform, e-tailers, Net-a-Porter, Asos, Yoox
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