Deal focus: JD.com plugs Farfetch into China

When UK-based luxury fashion retailer Farfetch raised its $110 million Series F round last year, one of the secrets to its success was said to be a lack of competitive overlap with big-name counterparts like Amazon and Alibaba. After all, elite brands don’t want to be associated with the mainstream masses.

As a result, more than a few eyebrows may have been raised this month when the company agreed its biggest funding round yet with Chinese e-commerce giant JD.com. JD bought a minority stake of unspecified size for $397 million as part of a plan to grow Chinese exposure.

Farfetch says it is still too soon to gauge the reaction of its discriminating designers. However, the likes of Gucci and Saint Laurent are unlikely to be ruffled by what appears to be a practical partnership that remains more about raising brand awareness than rebranding. 

“Even with JD being one of the major investors, the management team is still in full control of everything,” says Richard Chen, China advisor for Farfetch and a venture partner at Vitruvian Partners. “We know how to deal with Western luxury brands, how to make them feel comfortable and keep brand integrity. But at the same time, we now have JD’s resources to reach the Chinese consumers.”

The JD investment more than doubles the amount of money raised by the company so far at around $702 million. Previous backers include Vitruvian, Ceyuan Ventures, IDG Capital Partners, Temasek Holdings and Advent Ventures.

The new capital will be used to expand Farfetch’s shipping capacity in China, promote integrations with top Chinese brands and attract less affluent clientele through financing mechanisms that allow for monthly payments. The plan is to increase China from 12% of Farfetch’s global customer base to around 35% within three years.

Timing is a factor since the company aims to go public next year and pursue a series of global acquisitions to sweeten its profile among retail investors. Farfetch is understood to be plotting a $5-6 billion float, despite being valued at only $1.5 billion as recently as last year. Takeover targets have not been specified but the biggest pending acquisition is tipped to be transacted after the IPO.

JD’s funding round could prove the deciding factor in realizing these M&A ambitions. Chen estimates Farfetch will grow at a rate of around 70-80% this year before hitting a stride of no less than 70% across the next few years. In this outlook, Chinese expansion is not a necessary step for consolidating a niche online space – but it can’t hurt.

“China is still very new to us, so we need more partnerships there and different ways to push that market because it should be at least as big as our American business,” says Chen. “Without significant growth in China, we will still experience a snowball effect and grow at about 80% a year. But with China, we hope we can grow much faster.”

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• Topics
• Greater China
• Expansion
• Technology
• Consumer
• China
• Europe
• TMT
• Venture
• JD.com
• Ceyuan Funds