Whatever your views on Farfetch -and we ourselves are at least sceptical when it comes to Farfetch’s “store of the future” platform, which is a major initiative for the company-, the company is very good at getting attention and garnering illustrous benefactors. That is certainly going to help Farfetch with its much rumored upcoming IPO.
The strategic partnership between JD.com and Farfetch leverages JD’s unparalleled logistics, Internet finance and technology capabilities and social media resources, including its WeChat partnership, with Farfetch’s leadership in global luxury, to create a frictionless and seamless brand experience. Farfetch has well-established operations in China and is already the partner of choice for 200 luxury brands and more than 500 multi-brand retailers. JD will help drive further brand awareness, traffic and sales for Farfetch in the market.
As part of this partnership, JD.com will become one of the largest shareholders of Farfetch, investing $397 million, and Richard Liu, JD.com’s founder and CEO, will join the Farfetch board. JD and Farfetch will partner on marketing, logistics and technology solutions to build the brand in China, while Farfetch will continue to be the customer-facing brand.
For Farfetch, this provides the startup with an comfortably large entry into the Chinese market. And access to JD.com’s data trove:
The joint efforts between the two companies will also include leveraging BlackDragon, a digital marketing technology platform powering entities across retail, e-commerce, tech, finance, travel, education and auto. BlackDragon will enable Farfetch to activate the vast resources of JD’s treasure trove of big data and help it market and build automated marketing pipelines to spur Farfetch’s name recognition and market position in China.
For JD.com, one big reason is better access to luxury fashion brands:
The announcement comes as JD is placing a greater focus on high-end luxury and fashion to match the huge demand among its upwardly mobile customers.
Luxury fashion in particular can provide JD.com with a differentiating factor against Alibaba and other, marketplace based, Chinese competitors. JD is a far better controlled, measured environment for wary brands than marketplaces. JD.com already is a great fit for luxury fashion brands compared to the alternatives in China. With Farfetch, the thinking seems to be, that this deal can accelerate this nicely. That may be overselling Farfetch a little bit, but it only goes to show how good they (Farfetch) are at presenting themselves.
José Neves, Founder and CEO of Farfetch:
This partnership addresses the market’s challenges by combining the Farfetch brand and curation with the scale and influence of the foremost Chinese e-commerce giant. This strategic partnership will provide brands a seamless, immediate access to the luxury consumer and Chinese luxury shoppers with access to the greatest selection of luxury in the omni-channel way of life they have already fully embraced.”
The second reason, most likely, is Farfetch’s “Store of the Future” platform. The platform got its first public outing in April this year:
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[…]
We were and still are very sceptical, regarding this platform, firstly because of the (to be frank, absurd) premises on which this is getting build and secondly because of the hurdles the platform has to take:
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.
For JD.com, Farfetch’s store platform could be a welcome partner in combining online and offline retail. JD, like Alibaba, is adding offline retail to its portfolio. Some see this as a larger Chinese trend as the Chinese e-commerce market matures. eMarketer:
In April, JD.com announced plans to open more than a million JD convenience stores across China within the next five years, with half of those slated for rural areas.
And in January, Alibaba made a move to buy out China-based department store chain Intime Retail Group as part of a plan to launch what it calls “New Retail.” According to Alibaba, this strategy is designed to conflate the online and offline experience in a way that sounds suspiciously like—you guessed it—omnichannel retail.
JD.com certainly has also been looking for a partner who can help them put offline and online together.
It’s a two-in-one for JD.com: The company will provide JD.com with better access to fashion brands and be a technological partner for stores.
Again, in my eyes, this is overselling Farfetch a bit on both fronts. But this is the most logical reasoning for this investment, which makes JD.com the largest shareholder of Farfetch. (Also, one other sidenote, while we’re at it: Farfetch’s store platform most likely will never touch JD’s planned million convenience stores for rural areas. I added this quote to show the direction both big players, JD.com and Alibaba, are going into in the Chinese market.)
Especially combining the two -luxury fashion and offline retail tech- must have looked very attractive to JD. Retaining Farfetch as the consumer-facing brand makes sense on both fronts.
For Farfetch, this could solve the big chicken-and-egg problem for their “Store of the Future” platform. JD.com is big enough to push this technology into the Chinese market as a partner. JD.com flagship fashion stores (or Chinese Farfetch stores, run by JD.com) could become the first, best and biggest customers of the upcoming platform.
Think of this relationship in terms of what Whole Foods will be for Amazon’s grocery tech like Amazon Go. (or Amazon for AWS, Echo for Alexa etc.)
For Farfetch, China already is an important market. TechCrunch:
Last year, Farfetch raised $110 million specifically to support its expansion in Asia. China, where Farfetch launched in 2014, had already become its second-largest market by the time that round was announced in May 2016. Farfetch currently partners with 200 brands and 500 multi-brand retailers there[…]
One last note, read this sentence from the press release, the second one in the release, again:
The strategic partnership between JD.com and Farfetch leverages JD’s unparalleled logistics, Internet finance and technology capabilities and social media resources, including its WeChat partnership, with Farfetch’s leadership in global luxury, to create a frictionless and seamless brand experience.
It is very interesting and remarkable that JD.com, the second biggest online retailer in China, is listing its WeChat partnership as one of the most valuable assets it can bring to the table for new partners. Now read this, if you haven’t already: Why JD.com’s Biggest Threat is WeChat.
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