This week, a look at the sell-offs of Farfetch and Matches, and what went wrong at the companies that led them to their fate. Scroll down to use Glossy+ Comments, giving the Glossy+ community the opportunity to join discussions around industry topics.
2023 has been a difficult year for luxury, in light of slowdowns in spending and creative director reshuffling. But perhaps no part of the industry has suffered more than multi-brand luxury e-tailers. Two big names in the space, Farfetch and Matches — the latter recently renamed from Matchesfashion — were sold for pennies on the dollar this week, owed to a combination of low sales, high debt and an increasingly difficult investment market.
Farfetch, after a year of difficulties including mounting debt and slowing sales, was sold to the South Korean e-commerce company Coupang for just $500 million — a paltry sum compared to the $23 billion valuation Farfetch held just two years ago.
Farfetch was long called “the Amazon of luxury,” growing rapidly from its launch in 2008 until 2019, when its wild spending habits began to tank its value. It powers the behind-the-scenes e-commerce tech for brands including Salvatore Ferragamo and retailers like Harrods, and it’s bought up brands and competitors like New Guards Group and Yoox Net-a-Porter. The Net-a-Porter deal, unfinished at the time Farfetch was sold, has since been aborted.
Farfetch’s sale is an inauspicious development for the company, which was once riding the highest wave of luxury. But Farfetch always struggled to become profitable, spending more than it earned and only briefly reaching profitability in 2021.
Meanwhile, Matches was bought at an even lower rate. The British retail giant Frasers Group, which owns department stores and high street shops across the U.K., acquired Matches for just over $60 million on Wednesday. That’s only six years after Matches was purchased by private equity firm Apax Partners in 2017 at a valuation of over $1 billion. At the time, it was a profitable business, but it has since taken a downturn. By the time of the sale to Frasers, it was losing tens of millions of dollars each quarter.
Nick Beighton, the former CEO of ASOS, was brought in as the new CEO of Matches last year to right the ship, but he wasn’t able to halt the company’s slide. In a press statement, Beighton said the financial stability of being part of Frasers will let the company make the progress that wasn’t possible before.
“Since I joined Matches last year, we have made good progress, sharpening our brand and product curation and improving the day-to-day operations of the business,” Beighton said. ”As a result, we have seen a resilient trading performance despite the challenging economic backdrop. Being part of Frasers, with their utter commitment to luxury, will give this business access to greater scale, best-in-class retail expertise and the financial stability it needs to more effectively deliver for our brand partners and our customers.”
For both companies, debt was a major factor landing them in their current situations. Farfetch currently has more than $1.15 billion of debt, due to its heavy spending, including on deals like the Yoox Net-a-Porter investment. In its first year as a publicly traded company in 2018, the company spent over $1 billion, which concerned investor Condé Nast so much that it sold off its stake in Farfetch in 2019. Matches is less debt-loaded, with around $25 million in debt, but its losses have been widening by the quarter to around $41 million in losses per year.
“The Matches acquisition further underscores how important it is for brands to build out their own direct-to-consumer strategies rather than increase reliance on retail partners for long-term business health,” said Sam Atkinson, co-founder of the e-commerce software company Swap. While Farfetch and Matches have different business models — Farfetch is a marketplace, while Matches is wholesale like Net-a-Porter — both require brands to give up a measure of control to sell on. “With Farfetch and Matches both selling at significant losses this week, it will reinforce the transition of enterprise brands moving to Shopify and taking control of their own e-commerce. Brands cannot continue to risk their sales on the success of larger platform retailers.”
Turnaround efforts are ongoing at Matches. In October, the company launched Matches Outlet, an off-price spinoff that, if it’s anything like Saks Off 5th or Nordstrom Rack, could help make up for Matches’ losses. Many off-price brands have helped their parent companies stay afloat.
Michael Murray, CEO of Frasers Group, admitted that luxury is in a tough spot right now.
“Whilst the global luxury environment is softer, we are confident that, by leveraging our industry-leading ecosystem, we will unlock synergies and drive profitable growth for Matches,” he said in an emailed statement.
With Farfetch and Matches both now humbled, what will happen to the third member of the luxury online marketplace triumvirate, Net-a-Porter, remains a question. The company’s sales fell by 10% this year and it has lost $137 million, making it a drain on parent company Richemont’s otherwise successful portfolio. The plan was that, by joining with Farfetch, both marketplaces would thrive, but with that deal out the window, Net-a-Porter could also find its way to the chopping block for a similarly low price.
“As brands have gotten smarter selling through their own direct channels, it has created direct competition with their wholesalers,” Atkinson said. “That’s not to mention acquiring new customers has only become more expensive over time, with targeting becoming more challenging and media costs increasing. We’d expect to see Yoox Net-A-Porter Group get acquired for a similarly low ball price in January since their acquisition by Farfetch fell through.”
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