Why Farfetch’s ‘Store of the Future’ Platform Will Be an Uphill Battle

Farfetch

Long time in the working -2 years and counting-, Farfetch’s “Store of the Future” platform for stores is finally coming; first as a beta of course.

The platform got its first public outing at the FarfetchOS event. Forbes:

A beta version of the Store of the Future was on show at the FarfetchOS event – so named for the idea of an “operating system”, which is what the concept aims to become. It will officially launch in Browns in London and Thom Browne in New York later this year, but has the potential to reach any one of the brand partners Farfetch works with, not to mention the hundreds of boutiques around the world, thereafter.

The system is built on the idea of a universal login or identity for each customer. Modular in form, it could consist of a multitude of different experiences, but the one on show demonstrated such ideas of a connected store as logging in initially using a QR code stored within the Apple Wallet, and then having access to things like a smart mirror that suggests recommended items based on an algorithm. It also recognizes pieces brought in via RFID tags and allows the user to ultimately change what they’ve got for other sizes, colors and more accordingly, and then checkout via their smartphones too.

Business of Fashion has an in-depth overview of the platform and an interview with the founder.

Farfetch, which rumor has it is preparing for an IPO, is not yet profitable:

Farfetch is not yet profitable (market reports suggest it lost around $40 million last year), it surpassed gross sales of $800 million in 2016, up 60 percent from 2015, with estimated annual revenues in the region of $150 million. (Farfetch is said to take a 25 percent commission on net revenues from partners.)


The “Store of the Future” Farfetch is building is, essentially, a platform, a kind of operating system, for services that can enhance store operation and customer experience.

The OS metaphor -the event was even called FarfetchOS– can be taken at face value. Farfetch hopes that a thousand app flowers may bloom on its platform:

while Farfetch has developed the core operating system on which Store of the Future runs, the initiative is conceived as a platform, meaning the majority of innovation will ultimately come from third-parties, who build new services on top of it. […]

For the time being, Farfetch has developed a few key applications to demonstrate the power of the platform: a universal login that recognises a customer as she checks into the store; an RFID-enabled clothing rack that detects which products she is browsing and auto-populates her wishlist; a digital mirror that allows her to view her wishlist and summon items in different sizes and colours; a mobile payment experience similar to what exists in Apple Stores; and, of course, the underlying data layer that connects these services with each other and the Farfetch platform.

​As said, Store of the Future is still in beta. This autumn, London-based boutique Browns will be the first location equipped with the platform. Farfetch bought Browns in 2015. The platform will also come to the New York flagship of Thom Browne. The real roll out is planned for 2018.

Business of Fashion talked to Farfetch founder and CEO José Nevesa about the new platform. Here are some quotes:

Today, over 90 percent of transactions take place in brick-and-mortar stores. By 2025, it will be around 80 percent, which is still eight out of 10 sales.

​That is..interesting. He expects over the next 8 years to only see a shift of 10 percent of sales from brick-and-mortar stores to online. With the hockeystick growth we see in Western markets, I doubt that will be true.

You have to understand the dynamics: The change in behavior is not happening linear. Even if it were: The attacked systems (store chains) are build on scale effects. Take away those scale effects (significantly lower sales) and the companies go down like houses of cards. Now combine that with a broader societal change. (media consumption, social behavior, the broader changing context for near-by industries, suppliers and advertisment environments and so on) Seeing only another ten percent go digital over the next eight years is laughable.

In huge markets like China the starting position is even completely different: Here, the markets more or less start at nonconsumption and go straight to online. Over the next 8 years technologies and companies will rise in those markets that will make their way to, say, Western markets as well.

So, three key facts: number one, digital is completely influencing consumer behaviour and the creation of desire; number two, online is growing much faster than offline; but three, offline is still — and will be — where the vast majority of transactions take place.

​It is remarkable how number one and number two contradict number three, isn’t it.

The physical store is going to survive and is going to remain the centre-stage of shopping, but it’s not going to be a physical store as it exists today. The disconnected store — as opposed to the connected store — won’t be around. Period. And the biggest evidence of this is actually Farfetch itself, because once we connect a boutique to the platform, we account for about 45 percent of sales. We’re like OpenTable for boutiques — they know every empty table, we know every shoe that is sitting on every shelf unsold. We know how much offline is moving and how much online is moving. And just by making your physical inventory available 24-7 to a global audience, you massively boost your economics.

​It is interesting how much Farfetch boosts sales for its partners. But that is even more argument for an online retail model, not necessarily for equipping stores with in-store tech. (Though that raises the question were Farfetch’s partners would fit in then. Maybe therein lies the rub?)

This is unlikely to be true:

The physical store is going to survive and is going to remain the centre-stage of shopping

It is likely (but not a given) that especially luxury fashion will sell better through different means than a mere online shop. Will people buy their designer shoes on their couches? Not everyone.

But this shopping experience of the future can take different shapes: Maybe personal shopping assistants will come to your home. Maybe there will be pop-up shops and events at exclusive clubs. Maybe, yes, flagship locations will be equipped with technology to completely change the shopping experience. Or maybe something else we haven’t thought about will come around. (High quality AR could play a role in 5 to 10 years.)

The question is: How big will the markets for solutions of some of those paths be?

People who pay hundreds or thousands of dollars for a piece of clothing may prefer to shop in store. Can those stores stay at the locations they are now at when everyone else essentially stops going shopping in the same street?

Are today’s stores in size and location the best thing ever and therefore should never be changed; except for some in-store tech?

Retail does not change in isolation of everything else. That is also true for luxury fashion retail.

Farfetch is betting on partners:

Data is the common denominator. What’s built on top of this can be built by Farfetch, by a cool startup or by a brand. We are working with RFID companies, we’re working with hologram companies. It’s not like we’re going to build all this stuff ourselves. It’s a bit like an operating system for a shop — you build the apps.

One essential component is what we call the “Shop Floor” app. That’s the app that shop assistants will have. With this one, we will tend to do everything in-house, because it’s what handles all the data from all the various points.

​This is good thinking. A platform that enables store owners to use modules (apps etc.) to build exactly what they need for their situation makes the most sense.

But.

Platforms have at first a chicken-and-egg problem. One side (retailers) only jump on board when the other side (app developers, hardware suppliers) are on board and vice versa.

Given that retailers have to probably make a significant upfront investment, it is hard to see that side to jump eagerly on board. (Even if that side would experiment with new technologies like little kids. And it certainly does not.)

And the unsure prospect of how big the ultimate market for this will turn out to be will lead to few partners on the other side. (hardware, software)

It’s the textbook definition of an uphill battle.

One last thing:

It’s all a very millennial-style negotiation: I’ll give you my data if you give me something in return. That’s what we do every time we open Instagram, every time we open Facebook. We know those guys are gathering all this data, but the exchange makes sense. Data is currency and I expect something back. This needs to be absolute practice for the “Store of the Future.” But once you get a consumer to [share her data], it’s gold dust… You’ve asked permission from the customer to drop a cookie. It’s a brick-and-mortar cookie. And you will be able to know everything: how long the consumer was in the store, which products were picked up, what did she try, what were the sizes that fit and the sizes that didn’t fit, what are her preferred payment methods, does she have it delivered to her house, her hotel… and that cookie will be linked to the online cookie as well. So then you have a real single view of a customer.

What you can do with that data is offer a super-personalised experience, both online and offline, it also makes your company much more efficient. Take marketing; imagine targeting a customer on Instagram because you know that five hours earlier they’ve been to your shop and they’ve picked up a certain bag. And let’s remember, this is currently where 90 percent of the action is happening.

Yes, data is important. How many people like seeing ads for vacuum cleaners around the web because they had the audacity to look at a few vacuum cleaners on Amazon?

Millenials may have a more laissez-faire attitude towards privacy and data than older generations but that doesn’t mean they or anyone else will jump at opening up ‘just because’.

Or to put it differently: To get identified the customer has to opt-in. On the web, cookies are set and then they keep on tracking. How much tracking would the online advertising industry be able to do if every cookie could only be set after a customer gave their OK?

This data exchange model will work for shopping clubs and similar models but in general it is a wet dream of advertisers and retailers that will just remain that, a dream.

To end this not on such a sour note, here are BoF’s first impressions:

First impressions? In-store technology can often feel gimmicky, cheap and out of sync with luxury-level retail. What was most immediately striking about Farfetch’s Store of the Future demonstration was the simplicity and elegance of the customer experience. The digital mirror, in particular, had the kind of high-touch gloss that would integrate seamlessly into a luxury flagship.

Most potential? The value of what Farfetch calls its “offline cookie” is extraordinary. But perhaps most promising is the open architecture that the company has embraced, inviting third-parties to build applications on top of its Store of the Future platform.


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One comment

  1. […] bizarren Eindruck hinterließ Farfetch diese Woche bei der Vorstellung des Store of the Future („See how the […]

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