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Is the Farfetch and Boohoo sales model beating the crisis?

2020/05/31


Most European countries and the United States have been in lockdown since mid-March due to the Covid 19 pandemic, and brick and mortar stores have been closed accordingly. Although online retail continues, it is proving difficult due to falling consumer spending, transport issues and disruptions of the supply chain. A forecast by Indian management consulting company Wazir Advisors, which focuses specifically on the apparel sector, predicts a decline in apparel consumption in 2020 of 45 percent in the EU and 40 percent in the US, which could lead to a reduction by 300 billion US dollars (around 274 billion euros or close to 240 British pounds).

 

Wazir Advisors’ outlook, titled „The Big Fall: EU and the US Apparel Consumption to Reduce by US$ 300 bn. Impact of Covid-19 Scenario on European and the US Apparel Market“ expects the current lockdown situation to continue until mid-July because new coronavirus cases are expected to peak by late April/mid-May. This would imply a total three to four months closure for almost all the brick-and-mortar fashion stores across the US and Europe.

 

Even if online retail remains the only way to buy clothes for a few months, apparel purchasing will be delayed. The report gives various reasons for this: On the one hand, consumers are currently primarily buying groceries, medicines and other staples. There is no urgency to replenish clothes, especially because the options to go out are limited with schools, offices, restaurants, gyms, etc. still being closed). On the other hand, consumers have limited product options and potentially long delivery times.

 

Retailers are amongst the hardest hit sectors in the current crisis. Store closures and social distancing has had an unprecedented impact on companies operating bricks and mortar. Many will not survive. And while no industry is immune to a global pandemic, some are sailing through surprisingly unscathed.

 


Farfetch sales model

 

Take Farfetch, a company which owns no inventory and operates as a platform for over 700 boutiques, many of which are the aforementioned, struggling fashion retailers. In the first quarter of 2020 Farfetch estimates a gross increase in merchandise volume between 43 percent and 46 percent, a surprising uplift when most brands are facing dire sales.

 

“When a consumer chooses a product on Farfetch, 85 percent of the time the product is available from multiple sellers, it can be shipped from different locations, often from different countries. This makes our business model more resistant than physical retail in the current situation. It also means that we are well prepared to operate in this type of context, unlike what happens to other luxury e-tailers, which generally depend on a limited number of distribution centers,” said Farfetch founder and CEO José Neves.

 

At a time when e-commerce is also struggling to manage the unprecedented situation, Neves is betting on the resilience of his platform with over a billion dollars in revenues booked in 2019.

 

In a letter sent to shareholders, Neves explained Farfetch has “thousands of inventory points in more than 50 countries, with products being shipped to customers from 190 different countries.” In terms of supply chain and logistics, the luxury e-tailer would therefore positioned to better manage the shocks caused by the Covid-19 pandemic.

 

Among the various factors that contributed to its growth include the acquisition of New Guards Group (NGG), the streetwear platform which operates Off-White, Palm Angels and Marcelo Burlon County of Milan.

 

Founded in 2008, Farfetch sells approximately 3,000 brands on its website. A customer who places an order does it directly from the seller and delivery is made by the single shop, registered on the marketplace. Surplus stock is therefore a non issue for Farfetch, although it is to its clients. Farfetch manages payment, customer returns and the back office policy, all centralized via its offices in London and Porto. Customs fees are pre-calculated and stores can easily integrate into Farfetch’s online platform. Once aligned, their products have immediate international visibility.

 

Boohoo, a beacon of light in dark retail times

 

Boohoo appears to be unbeatable. The online fast fashion retailer not only posted impressive final results to year end February 29th, but more importantly, the group has said that sales in April are ahead of last years, commented Nigel Frith, senior market analyst at asktraders.com.

 

Whilst Boohoo haven’t provided any financial details on how they are coping with the crisis, investors haven’t deemed it necessary, says Frith. Advising that they are operating with tightened safety measures at its warehouse and that it has set up an emergency fund to help suppliers. The stock price jumped over 4 percent.

 

Boohoo’s reign looks set to continue even after lock down eases. Without a vaccine social distancing measures are likely to remain in place for some time to come, meaning reduced numbers in bricks and mortar shops. This can only be beneficial for Boohoo which continues to grab market share, Frith stated.

 

For more information, please pay attention to International Fashion Fair.

 

Source: fashionunited

https://fashionunited.com/news/business/is-the-farfetch-sales-model-beating-the-crisis/2020042333253

Don-Alvin Adegeest

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