• by Sarah Mahoney , Staff Writer @mahoney_sarah, December 20, 2023

Farfetch finally has a savior, with Coupang, the Korean ecommerce powerhouse, coming to the rescue. The deal ends months of speculation around the flailing Farfetch, which has fallen from a valuation of $23 billion in 2021 to just $200 million. That news was quickly followed by Frasers Group, the British retailer, announcing that it is buying Matchesfashion from Apax Partners for about $63 million.

Why the firesale in these luxury platforms?

For one thing, they’ve never really been about luxury, says Milton Pedraza, chief executive officer of the Luxury Institute. “You cannot sell 3000 products and offer discounts on brands and call it luxury,” he says. “That’s not something companies like Chanel or Dior are going to want to sell into.”

That’s why true luxury brands have been working so hard to build their own ecommerce solutions. “They want to control their own distribution, so they've been reducing wholesale over the years. Many are almost at 80% or 90% direct sales,” adds Pedraza.

So while platforms like Farfetch and Matches may be selling nice products, and even premium items, “they’re just not luxury,” he tells Retail Insider.

And while these platforms never held the attention of ultra-high-net-worth consumers very long, they did come with all the shopping baggage pressuring every ecommerce business, including logistics, delivery, shipping, and the crushing costs of customer acquisition and retention.

“It’s a business model that ultimately will never be profitable, burns a lot of cash and doesn't bring in the right luxury consumers,” Pedraza says.

Coupang says the deal positions it as a leader in the $400 billion personal goods luxury market, not just for Farfetch’s role in the ecommerce ecosystem around the world, but also in South Korea. Coupang says that country has the world’s highest per-capita spending on personal luxury goods.

“Farfetch will rededicate itself to providing the most elevated experience for the world’s most exclusive brands, while pursuing steady and thoughtful growth as a private company,” says Bom Kim, Coupang’s founder and chief executive, in the announcement.

Frasers also believes its acquisition will help it excel with higher-net-worth shoppers. When Apax bought Matches back in 2017, it had high hopes, and said it believed Matches could become the No. 1 luxury fashion commerce company. But Frasers says Matches is now a money loser, with losses of about $42 million in its most recent fiscal year.

Pedraza, however, is dubious.

“I don’t see any winners,” he tells Retail Insider. When luxury companies merge with mass brands, it seldom leads to acquiring luxury customers, he says. “It may attract more aspirational customers, but it never leads to an up-market move. And when your category has inherently poor economics, getting bigger usually just exacerbates the problem.”

Following news of the Coupang deal, an agreement Farfetch had in the works to acquire a 47.5% stake in Net-a-Porter, a rival platform owned by Richemont, has been cancelled. Richemont owns 27 luxury brands, including Cartier and Van Cleef & Arpels.