The road to financial success has been long and thorny this year for luxury fashion, as many have succumbed to the ubiquitous slow down in consumer demand. Two major luxury players, Farfetch and Matches, have struggled with dwindling bottom lines, and while Farfetch has been officially rescued by South Korean retailer Coupang– the fate of Matches is still unclear as 2023 draws to a close.
Farfetch has been at the center of one of the most hotly-anticipated deals of the year, as it was given the green light by the European Union antitrust regulators in October to proceed with its acquisition of rival online luxury fashion retailer Yoox Net-A-Porter (YNAP). However, all was not rosy at the etailer, which is based between London and Portugal.
In August, Farfetch, which has lost more than 90% of its £6.3bn valuation since it went public in 2018, reported a 1.3% fall in revenue to $527m (£450m) in the three months to 30 June 2023, driven by a decrease in brand platform and in-store revenues. Gross profit was down 10% year on year to $242m (£190m) during the quarter, while gross profit margin was 42.5%, compared with 46.2% the previous year.
Drapers had previously revealed that redundancies were on the cards at Farfetch. The etailer stated in its quarterly results that it was reducing headcount by 800.
In November, Farfetch announced that it would hold off publishing its next set of quarterly results, and reports emerged that founder Neves was looking to take the business private.
In a last minute deal, South Korean retailer Coupang swooped in and injected $500m (£394.7m) of cash into the etailer on 18 December, rescuing the business from looming bankruptcy.
Often referred to as the Amazon of South Korea, Coupang offers very similar services as the global ecommerce giant, including Rocket Delivery for next day postage and a subscription service called Rocket Wow which operates like Amazon Prime. It also offers food delivery and entertainment services.
Alice Price, associate apparel analyst at GlobalData, believes Coupang is a good fit for Farfetch:
“Coupang’s exceptional online and technological expertise make it well placed to steer the troubled retailer back to growth, while the player’s strong presence in Asia lends Farfetch the opportunity to tap into the region’s booming luxury market.
“Asia’s strong economy and growing middle class populations will enable the luxury online pureplay to turn its attention away from the struggling regions of the US and Europe and showcase its proposition to a more receptive consumer base.”
However, Richard Lim, chief executive at Retail Economics, said the last minute deal showed there is a “desperation” from Farfetch, and highlighted that its troubles are far from over.
“There are worries about the mountain of debt to be repaid that will come to maturity over the next few years [2025/26]. The business faced increasingly fewer options in terms of what they could do and who they could work with.”
Indeed, the agreement with Richemont to acquire a 47.5% stake in Yoox Net-A-Porter Group (YNAP) has now been scrapped. Lim said this is part of the new “tougher” environment for mergers and acquisitions: “Over the past decade capital [and] money has been cheap and now those days are behind us and we are looking at different ways to finance deals in a way that makes sense.
“There will be a lot more caution around certain parts of the economy. Those parts that are capital intensive and highly leveraged are likely to come over to distress. Lots of deals will be distressed.”
A release from Richemont confirmed that it will now “re-evaluate options for YNAP to best harness its strengths and potential under new stewardship”.
One source close to the business told Drapers: “The deal [between Farfetch and Coupang] was very unexpected. The most probable solution [for how the deal will operate] is that they will sell out the different assets, like New Guards Group (NGG) [which operated production and licenses for contemporary luxury labels Off-White, Opening Ceremony and Palm Angels among others].
“I think the only interest [Coupang] has [in Farfetch] is the marketplace because it’s the only business model they understand and can get value from. NGG and Browns [won’t be of interest] that’s for sure, so I think they will sell what isn’t interesting for them and mitigate the investment.”
Meanwhile, Frasers Group is rumoured to be circling Matches, hoping to snap up the business in a cut-price deal of only £50m. Other interested parties in the etailer are reported to include Next.
Matches has had a difficult few years. Since being sold by its founders Tom and Ruth Chapman in 2017 to private equity firm Apax Partners, the business has had four CEOs. Paolo De Cesare, who joined in September 2021, was at the business for less than a year. Before De Cesare joined, Matches’ previous CEO, Ajay Kavan, left in March 2021. Kavan had been the CEO of the luxury retailer since March 2020. Prior to this, Ulric Jerome left the business in August 2019, having joined the business in 2013 as chief operations officer before being promoted to CEO two years later.
Nick Beighton, former Asos CEO, was appointed as chief executive in July 2022 and launched a three-year turnaround plan to get the retailer back on its feet.
In January, Matches received a £60m cash injection from Apax Partners, comprising £40m equity and £20m debt. In August, Drapers revealed that Matches had reduced its headcount to streamline the business in various departments, including buying, merchandising and personal shopping.
Matches reported an operating loss of £67.2m in the year to 31 January, compared with a loss of £37.5m the year before, which the company attributed to global economic challenges. Adjusted EBITDA loss stood at £33.7m, compared with a loss of £25m in 2022.
However Beighton told Drapers in October that the past six months had shown “strong growth of recovery and green shoots of progress”. He added that it expected to deliver nearly £10m of operational cost savings across FY23, that it was well positioned for peak trading and is confident in its stock position ahead of the Christmas season.
Louise Deglise-Fevre, apparel analyst, at GlobalData said: “[Frasers Group] has successfully penetrated the premium price positioning by elevating Flannels’ proposition and brand image and the acquisition of Matches would further diversify Frasers’ portfolio across price positionings.
“Besides, the recent improvement of Matches’ performance under Nick Beighton’s leadership is highly encouraging for the retailer’s future, representing a potentially highly lucrative opportunity for Frasers.”
Luxury retail consultant Hélène Holzmann highlighted that Matches has had a difficult few years, but that it has not seemed to have bounced back, despite ambitious plans.
She said: “In Matches’ case it’s a shame how it has gone downhill since it was sold in 2017. In my opinion they scaled up far too quickly and were extremely ambitious, it was expensive and started a downward spiral and now [is rumored to be on sale] for not even a fraction of what was paid not so long ago.”
Nick Bubb, independent analyst, suggested Frasers and Matches would be a “reasonable fit” despite the current luxury downturn: “It sounds like Next is also interested, however, and they have more firepower than Frasers,” he added.
While Farfetch has been sold, there are still kinks to iron out and further upheaval is on the horizon for the business, meanwhile Matches’ turnaround continues and further investment is needed to secure its future – there won’t be a dull moment in 2024 for followers of luxury fashion.
