Deal focus: Farfetch carves luxury niche in Asia

Amazon and Alibaba Group dominate e-commerce in the US and China, respectively, but neither has achieved meaningful expansion into the luxury apparel market globally. Richard Chen doesn't think they will.

"Luxury brands don't like Amazon and Alibaba - they see them as mass market and don't want to be part of it," says Chen, a venture partner at China-based Ceyuan Ventures. "The luxury market is only about 10% of the mass market, so it doesn't make sense to have many online luxury malls. Basically, it is one winner takes all."

Ceyuan is backing UK-based high-end e-commerce marketplace Farfetch to be that winner. The seven-year-old company has transformed online retail in Europe, helping little-known boutique stores in Italy access customers overseas. Farfetch now operates in nine languages, working with more than 400 independent boutiques and global fashion brands from over 37 countries. Sales reached $500 million last year, with Farfetch taking a 30% commission on each deal, much higher than mass market players.

Last week, the fashion site raised a $110 million Series F round led by Temasek Holdings, China-based IDG Capital Partners and France's Eurazeo, with participation from existing investor Vitruvian Partners. It took the total investment in Farfetch to more than $305 million and valued the business at $1.5 billion. Ceyuan was an angel investor in the company, while other shareholders include Advent Ventures Partners, Index ventures, e.Ventures and DST Global.

The bulk of new funding will support Farfetch's global expansion plans, with a particular focus on Asia, which accounts for 26% of sales. China alone contributes 12%, and the company only launched in the country two years ago. Its share could rise to 35% over the next 3-5 years.

"It will take a while for other players to build traffic on a global level," says Chen, referring not only to Alibaba and Amazon but also new players out of Europe. "It's very complex - you have to come up with global logistics networks, customer services, online payment systems. [Farfetch] has spent hundreds of millions of dollars on this; late comers will have to double the cost to build that scale."

In addition to the main site, omni-channel Farfetch Black & White has been introduced to allow brands to use Farfetch's e-commerce platform on their own sites. Last May, it gained a physical presence after acquiring London-based boutique Browns. There are plans to develop an online-to-offline business model and expand into new verticals such as skincare and jewelry - but it will all be high-end.

Asked whether Farfetch is a likely acquisition target for the Alibaba, Chen demurs: "Luxury brands won't like it because it's a mass market player," Chen adds. "One of the luxury groups could do it but they are always fighting among themselves, so an acquisition would impact our sales of other brands. An acquisition would not be easy."

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• Topics
• Greater China
• Europe
• Consumer
• Technology
• Expansion
• Ceyuan Funds
• TMT
• Growth capital
• IDG Capital Partners
• Temasek Holdings
• DST Advisors