Despite a drop in monthly visitors, Farfetch earned $460 million on Coupang this quarter

Coupang logo, sign on the company’s Silicon Valley headquarters. Coupang is a South Korean e-commerce … (+) company – Mountain View, California, USA – 2021

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Coupang just released its second-quarter results, and they were mixed. Net revenue was up 25% year over year on a reported basis to $7.3 billion. Excluding online luxury fashion marketplace Farfetch, which it acquired in late January, revenue was up 18%.

However, the company reported a net loss of $105 million, which was attributed to Farfetch’s operating losses and an estimated $121 million fine from the Korea Fair Trade Commission (KFTC) over allegations that it favored its own-brand goods over third-party goods.

Coupang is considered South Korea’s answer to Amazon, offering a comprehensive e-commerce marketplace, logistics and delivery network, entertainment streaming, food and grocery delivery, and a payments platform.

Despite going public on the New York Stock Exchange in 2021 and moving its global headquarters to Seattle in 2022, the company primarily serves mass market customers in South Korea and other Asian markets.

That’s why paying $500 million to save Farfetch Holdings from imminent collapse late last year seemed like a stretch. Strategies that work in the mass market don’t translate well, if at all, to the luxury market, so Coupang seemed ill-equipped to turn around the shaky luxury fashion market.

Although the company is still in its early stages under Coupang’s leadership, Farfetch has earned $748 million since being acquired by Coupang – $288 million in the first quarter and $460 million this quarter.

And it averaged more than 26 million monthly online visitors in the first six months of 2024, more than the combined total of Farfetch’s three biggest competitors, including Lyst, Mytheresa, and Net-a-Porter, according to Similarweb. So Coupang must be doing something right with Farfetch.

Opportunity is knocking on the door

During Coupang’s 2023 end-of-year financial results conference call, Coupang founder and CEO Bom Kim explained the thinking behind the investment in Farfetch:

“While we were not looking for an acquisition, we came across a rare opportunity to acquire a leading services company with a GMV of $4 billion for a $500 million investment.

“We hope that in a few years we will be talking about how Coupang transformed Farfetch into a company that transformed the customer experience of luxury fashion while providing strategic value to Coupang.”

He added: “Even if this full potential is not fully realized, we are confident that it will prove to be a sound financial decision. We are already executing on our plan for Farfetch to be self-financing without any additional investment beyond the announced capital commitment.”

The right foot

The conversation did not mention Kim’s first decisive step to turn things around: taking over the company’s management. In mid-February, Farfetch founder José Neves “resigned” as CEO, although he may continue to serve as a consultant.

According to an internal memo obtained by Business of Fashion, Farfetch’s CFO, chief product officer, chief platform officer, chief marketing officer and chief operating officer have also been laid off.

“As we evaluate key priorities and resources across the company, we have made the difficult but necessary decision to reduce our global headcount and non-essential positions,” a Farfetch spokesperson said in a statement.

“This decision secures the future of the company, so Farfetch can now operate from a position of strength and focus on what we do best: delivering exceptional experiences for brands, boutiques and customers.”

In good hands

Kim, 45, has an extraordinary track record of success. Since founding Coupang, he has amassed a fortune of $4 billion, making him one of the Forbes Billionaires of the world and one of Forbes 400 richest Americans.

Born in South Korea, he was raised in the States after his family emigrated when he was seven. He attended Deerfield Academy and then Harvard, where he earned a bachelor of arts degree. He then enrolled at Harvard Business School, but business called and he dropped out after six months.

After working for a stint at Boston Consulting Group (BCG), he founded Vintage Media Company, which he sold in 2009, and then launched Coupang in 2010 with the help of BCG colleague Matthew Christensen.

Christensen is the son of Harvard Business School professor and business consultant Clayton Christensen, who developed the theory of “disruptive innovation” — a model Kim adopted at Coupang. Matthew’s Rose Park Investors owned 5% of Coupang before its 2021 IPO.

Another early investor was Softback’s Vision Fund, which has been investing billions of dollars in the company since 2015.

“When I met Bom and spent three days with him in Seoul, I was impressed by the level of customer understanding and customer-centricity of his company; the innovation that was happening,” Lydia Jett, an investment partner at Vision Fund and a former Coupang board member, told CNBC.

“It was clear to me that this company was doing something radically different from the competition, and that customers were responding to that,” she continued.

With a track record like this and a keen focus on consumer needs and expectations, Kim has what it takes to turn Farfetch around.

Work to be done

Coupang’s financial statements do not include Farfetch’s results from the previous year, so direct line-by-line comparisons are not available. The $466 million in second-quarter profit was an improvement over the first-quarter results of $288 million, but that covered only two months of reporting.

Spreading those results out over three months would mean Farfetch generated about $436 million in the first quarter, up 7% quarter-over-quarter. By comparison, Mytheresa reported $256 million in net sales in the first quarter, which ended March 31, with $276 million in gross merchandise value (GMV).

However, traffic to Farfetch’s website is significantly lower than in previous years – down by a third from almost 40 million on average per month in 2022 to 26.1 million this year, according to Similarweb.

Average monthly reported traffic for Farfetch, Lyst, Mytheresa, Net-a-Porter, 2022 to … (+) first half of 2024, according to Similarweb.

Chart: Pamela Danziger, Unity Marketing

However, the site’s three main competitors – Lyst, Mytheresa and Net-a-Porter – have all seen their traffic decline since 2022, likely due to the overall weakness of the luxury fashion market following the post-pandemic boom.

Despite this, Farfetch still commands the lion’s share of the luxury fashion market and consistently sees more traffic than the other three competitors combined.

Future Farfetch Summons

Coupang’s Kim vows to keep up the pressure to realize Farfetch’s potential. “We see huge potential that is still largely untapped,” he said on a recent earnings call.

He confirmed that the company is on track to generate “near positive adjusted EBITDA on an annual basis by the end of the calendar year.”

He added: “While we are still very early in our journey, we are excited about the progress and potential of Farfetch.”

He concluded his speech by reiterating the strategy that has helped Coupang grow since it was founded just 14 years ago.

“Our strategy to leverage this potential is unwavering: disciplined investment and operational excellence to deliver WOW customers – the best choice, service and savings,” he said.

“We strongly believe that the satisfaction of our customers is the key to maximizing long-term opportunities for our suppliers, vendors, employees and shareholders,” he concluded.

It’s a commitment that will work whether it’s serving mass or luxury customers. Under Kim’s capable hands, Farfetch has clearly found a leader with the right skills to fulfill its potential.