Spotlight: Farfetch Strategy Considerations

Farfetch is an online global technology platform for luxury fashion, connecting creators, curators and consumers. They supply over 1,000 designer brands to over 180 countries worldwide through its successful e-commerce model resulting in one of the fastest growing start-ups and uses innovation to benefit the luxury community.

Farfetch targets social, luxuriously sophisticated millennials who are fashion lovers and offers expertly curated content to navigate through selections of heritage brands and emerging designers.

Farfetch’s objectives are to continue its ethical pursuit and reposition its brand as the market leader of sustainable fashion by highlighting the brands innovative nature and its ability to connect with its customers. There’s big opportunity out there, so let’s take a look at some of the considerations that could be in their frameworks…

PESTLE Analysis for Farfetch

The luxury e-commerce industry is driven by a combination of an increase of young consumers needs for luxury items to portray their status. The industry is changing as consumer expectations have shifted forward with improving outlooks on usability, sustainability and customer service. Other factors within the macro environment are impacting the luxury e-commerce industry’s future:

• Innovations in the general e-commerce and online industry through Unicorn firms have shifted consumers expectations. The likes of Amazon, Netflix and Deliveroo have developed consumers desires for next day delivery services and high quality tailored services to each individual.

• The Luxury e-commerce industry is highly dependent on fashion trends and developments. Consumers are increasingly scrutinizing high end fashion labels who have no actions or contributions towards ethical and sustainable practices. Changes in choice criteria’s such as these are becoming important considerations not only for fashion labels but for the branded platforms responsible.

Overall, the e-commerce market is highly impacted by the macro-environment and high political uncertainty, coupled with ever changing consumer needs will pose an immediate threat to the industry players who lack adaptive capabilities but still have room for growth.

In more detail…

Political

• Complications of Brexit, Covid-19 fallout, on employment
• US elections and trade deals
• “Yellow Vest” movements causing protests and unrest
• France introduced the “Join The Game” reform to attract foreign businesses from the UK

Economic

• Changes in consumer confidence
• Exchange rates impacting price & profit on overseas clients
• (CC) is rated at 104 and expected to end this quarter at a value of 97 (Trading Economics, 2019). Consumers are feeling optimistic about spending and possibly due to the poor state in which the economy was in the beginning of the year as CC was noted at 87, insinuating a very pessimistic consumer spending approach.

Social

• Online sales and e-commerce on mobile phones growing
• Social media has an influence on consumer decision
• Expectations increasing in brand being ethical

Technological

• Retail e-commerce spending is continuing to grow
• Online luxury shopping will continue to grow
• Companies such as Uber, Netflix, Deliveroo and Amazon have developed consumer expectations in terms of the speed of services.
• Expectations around personalisation and customisation increasing

Legal

• Refund policies and consumer laws
• Health & safety
• Employment laws geographically

Environmental

• Environemntal concerns impacting brand choices especially for younger demographic
• Political pressure for brands to be sustainable
• Certain supplies in fashion industry becoming restricted or higher priced

Read the Ultimate Guide to PESTLE Analysis.

Five Forces Analysis for Farfetch

Looking at Porters Five Forces the e-commerce market is characterised by a highly competitive nature due to:

• High saturation of luxury e-commerce firms who have a global reach, significantly influenced by the low customer switching cost
• Growing popularity of departmental e-tail with 24S and Selfridges having a competitive advantage over e-commerce platforms as their brick and mortar department stores act as a basis of trust for which consumers can have more personal and digital savvy experiences more suited to meet their needs

Threats of substitutes to the luxury e-commerce market is high due to:

• Increasing availability of luxury items through the emergence of the re-commerce market

From the Porter Five Force’s analysis we can observe that the current competition is intense, but power still remains in the hands of Farfetch, as its commercial-partner strategy results in control over supply. The industry is however expected to increase in competitive nature as consumers bargaining power shifts and new forms of industry substitutes gaining more traction.

Industry Rivalry: High

• A high number of a well-integrated fashion e-commerce companies which have a global reach
• Online luxury sales increased whilst dipping at traditional department stores
• Growing number of department stores developing their own e-commerce applications such as Selfridges, 24S, House of Fraser and etc.
• Significant growth of the e-commerce market is only just at the beginning with cross border e- commerce sales set to grow 25% year-on-year and e-commerce brands will have their eyes on the Asia Pacific region as the market

Threat of New Entry: Medium

• Anyone can launch an ecommerce site
• Large barrier in building an audience up
• Need supplier network to populate shop

Threat of Substitutes: High

• The re-commerce – “Resale Commerce” – market is a major substitute to that of e-commerce fashion brands
• Luxury resale market is growing significantly times faster than the general luxury sector
• Other platforms add more validity to the market, which has a serious effect shopping habits, including an influx of luxury shoppers as it Examples include Vestiaire Collective and Depop.

Threat of Suppliers: Medium

• Suppliers of Farfetch are that of the boutiques it represents, therefore security of supply is very much reliant on mutually rewarding relationships
• The bargaining power of the suppliers are weak as they use the Farfetch platform to sell their products online and gain traction surrounding its brand, by giving full control to the boutique brands
• Farfetch doesn’t hold any inventory from its brands and the platform contains an algorithm which calculates the most efficient source and delivery route, allowing partners to upscale their operations

Threat of Customers: Medium

• High concentration of the fashion e-commerce market
• Customer switching costs are low due to consumers evolving and becoming well aware of alternatives
• Re-commerce industry programmes by brands to keep customers highly engaged by giving a sense of ownership in a community of fashion lovers, providing an emotional connection between the consumer and platform

Complete your own Five Forces here.

SWOT Analysis for Farfetch

Strengths

• A well-executed logistical process in place through multiple mini warehouses
• Utilizes drop shipping hence they have no inventory costs, creating opportunities for better spending
• Industry internal advantage of having access to selling cross- seasonal products all year round
• Rich and customized content options for brands
• High content curation along with white label solutions

Weaknesses

• Weak revenue streams making loss (2019)
• Weak customer service based on reviews on Trust Pilot
• No long term relationships with customers due to lack of incentive programme to build relationships
• No sense of community on the platform

Opportunities

• Innovative developments around customer experience and journey
• Higher seamless omni-channel experience
• Development of their Customer Relationship Management (CRM) software implemented in- app or on website
• Improve communication through sales channels

Threats

• LVMH, the biggest luxury company in the world, has launched 24 Sevres an online version of Le Bon Marche
• Threat of new competition
• Existing brands entering e-comm market

Read the Ultimate Guide to SWOT Analysis.

Summary

Using the Ansoff Matrix, I would suggest a good strategy would be Product Development. Using this approach Farfetch should:

• Develop the customer brand relationship with its own branded merchandise to strengthen image; shifting consumer perception of Farfetch, from seeing it as a marketplace.

• Incorporate French influencers in the local campaign, this will enable Farfetch to engage French consumers on a personal level and will develop its market sensing capabilities which will provide insight opportunities.

• Build long lasting relationships as Farfetch Access will involve greater consumer benefits coupled with more behavioural based communications to develop a personalised experience.

Given their online foundation, Farfetch are better placed to rapidly evolve their technology and revenue streams compared to more established brands that rely on physical stores. Whilst they operate in a highly competitive market, it’s also one that is growing and has great potential…