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The implosion in luxury ecommerce

In early November, a group of around 20 top managers from luxury group Kering and British online retailer Farfetch gathered in the Paris-based group’s elegant board room. 

Ostensibly the meeting was an opportunity for Farfetch founder José Neves to present his strategy as a retail partner to the new top executive team at the owner of Gucci and Saint Laurent.

Beneath the surface, however, tension was mounting about the financial health of Farfetch, which was burning through cash while losses rose. Rather than discuss Farfetch’s operations, Neves tried dazzling them by pitching a multimillion-dollar Super Bowl advertising campaign, according to two people with knowledge of the situation. 

His proposal was roundly rejected by the French group and the meeting ended on a sour note, the people say. 

Three weeks later, Farfetch abruptly cancelled its third-quarter earnings as news broke that Neves was searching for a “white knight” investor to take the company private in a bid to avert insolvency. Farfetch was bought by Korean ecommerce group Coupang at a cut price in mid-December, capping a spectacular fall from grace for a company that was listed in New York and valued at $24.9bn at its peak. Neves has since left the group he founded in 2007.

In the same month, UK-based competitor Matchesfashion was sold to Mike Ashley’s Frasers Group for £52mn, crystallising substantial losses for its private equity owner Apax Partners, which purchased the company in 2017 for $1bn.

Only three months later, Frasers then placed Matches in administration and fired half its staff. Matches had to vacate its offices in London’s Shard building last week and administrators are now selling off the furniture, according to two people with knowledge of the situation.   

The implosion at both Matchesfashion and Farfetch represent a dramatic reckoning for the luxury ecommerce sector, which until recently had been the beneficiary of some of the most powerful trends of the past decade — the era of easy money, a historic boom in luxury goods sales and Covid. 

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Companies such as Matchesfashion and Farfetch were able to raise hundreds of millions from backers while interest rates were low. When Covid hit, that started to seem like a wise bet as consumers around the world embraced online commerce, seemingly happy to send back products that did not fit. Shoppers could browse and compare a wide variety of brands from the comfort of their own home.

The rise of these online retailers represented a stark challenge to the conventional way of doing business in the luxury sector, where brands tightly control distribution and spend heavily on lavish stores in expensive locations so that customers can experience the feel and touch of their unique products. 

But the passing of Covid has diminished some of the appeal of online shopping. Many buyers want to try on expensive products prior to purchase, especially if it involves an expensive pair of shoes or dress for a special occasion.

Moreover, the past few years have demonstrated a fundamental clash between the economics of an ecommerce site selling multiple brands and the luxury industry. While online retail is generally a low-margin enterprise rife with discounting, luxury is a high-margin business where the brands jealously guard the pricing and marketing of their products. 

Shoppers queue outside a Gucci store in the Tsim Sha Tsui district of Hong Kong
Shoppers queue outside a Gucci store in the Tsim Sha Tsui district of Hong Kong © Lam Yik/Reuters

It is not just Matchesfashion and Farfetch: Swiss luxury group Richemont is also trying to offload its lossmaking ecommerce business Yoox-Net-a-Porter after €1.8bn in writedowns.

Claudia D’Arpizio, partner at consultancy Bain, says that there are “individual problems” at each of these companies but the online luxury retail sector as a whole has witnessed “a perfect storm”.

“The cost of doing business has been increasing, they need to refresh the technology and do big investments, profitability has not come easily,” she says. “So at a certain point the model breaks down.”

Overlaying these issues is a sector-wide slowdown in luxury after the end of a pandemic-era boom when shoppers armed with stimulus checks indulged in designer handbags and clothing. This year organic sales growth at top luxury groups is expected to slow to 7.5 per cent, according to HSBC, down from the double-digit averages of recent years as extra savings dry up and as luxury growth engine China’s economic outlook darkens.

Tom Chapman, who was a co-founder of Matchesfashion, says that the initial concept was for a highly curated online shopping experience, rather than the broad-based market for designer products that it became.

“It has always been clear to us that a fashion marketplace business would struggle to be profitable. You can’t operate an ecommerce luxury fashion business on those margins,” he says, citing high costs for shipping, marketing and content creation. “The numbers just don’t add up.”


Luxury ecommerce has always had its sceptics. “A lot of online sites are losing money. We created a relatively small site called 24S, which unfortunately is no exception to the rule,” Bernard Arnault, LVMH chief executive, told investors in February 2020.

That wariness among some luxury brands left an opening for businesses such as Farfetch, Matchesfashion and Net-a-Porter. Farfetch and Yoox also started to offer services and software to build and run ecommerce businesses for luxury brands and for department stores such as Harrods. 

Eventually some leading figures in the industry decided to get involved. Richemont and the family office of Kering’s François-Henri Pinault invested directly in some of these platforms including Farfetch, while also striking deals to use their technology to get their own brands online. Richemont bought Net-a-Porter in 2010 before merging it with Yoox five years later. 

Fashionably dressed people attend a cocktail party
Actress Carlacia Grant at the Net-a-Porter New York Fashion Week cocktail party in September 2023. Richemont is trying to offload the lossmaking ecommerce business after €1.8bn in writedowns © Lexie Moreland/WWD/Getty Images

However as the platforms grew, cracks began to appear in the model. The number of platforms multiplied, increasing competition and reducing their differentiation, and the businesses struggled to become reliably profitable.

While the pandemic drove some companies such as Farfetch to their highest valuations ever as investor optimism about the future of digital shopping peaked, it also pushed luxury brands to invest more in their own ecommerce and distribution capabilities.  

Before the pandemic, many brands were already taking greater steps to control the pricing of their products and became even more frustrated when ecommerce platforms responded to Covid-related uncertainty and excess inventory by offering more discounts.

Top brands owned by groups like Kering and LVMH pushed to switch to a concession model — in effect a mini-shop within an ecommerce site that the brand controls — reducing the need for platforms to hold inventory but also cutting into already thin margins. 

“Ecommerce was new, so at first [brands] were learning and weren’t good at it yet, so they allowed more freedom in that relationship,” says D’Arpizio at Bain. “Covid was the moment they understood they didn’t have control over their brands.”

At the same time, most of the big platforms were facing individual problems with their businesses. At Farfetch, Neves had embarked on a number of ventures, including several acquisitions, that ate up resources and splintered focus, while overheads ballooned as staff numbers peaked at more than 6,000 after a hiring spree.

An elegant Georgian storefront
A Matchesfashion store in Mayfair, London. The crisis at the company represents a dramatic reckoning for the luxury ecommerce sector © William Barton/Alamy

Questions still remain about the precariousness of its financial position ahead of the sale to Coupang. Neves had sent around an email to all staff in mid-October reassuring them that the company had $454mn in cash and cash equivalents at the end of August.

A group of Farfetch creditors who sought to mount a challenge to the deal with Coupang said in a January statement that they had “serious concerns about the rapid and unexplained deterioration in the financial position of Farfetch”. 

The sale to Coupang has since closed. Farfetch and Coupang declined to comment. Kering declined to comment. Neves did not respond to a request for comment. 

At Richemont-owned Yoox-Net-a-Porter, a troubled technology and logistics overhaul dragged on for years, costing hundreds of millions of euros. Farfetch had agreed in 2022 to buy a 47.5 per cent stake, but that deal eventually fell apart because of its own financial problems.

At Matches, Tom and Ruth Chapman, a husband and wife team who founded the business as a boutique in a London suburb in 1987, sold a majority stake to Apax 2017. Since then, the business has gone from making money to deepening losses, even as Apax invested just under £600mn. Matches has had four chief executives in five years. 

“A lot of time was spent between 2020 and last year trying to get the right team in place, but lots of mistakes were made,” says a person close to Matches. “These are low-margin businesses that are very hard to run, they are not at all the same as a high-margin, high-momentum luxury business.” 

Brexit was also a huge blow to the business, which runs all of its distribution out of the UK.

Once Apax decided it couldn’t make Matches work and needed to sell, Frasers was the only willing buyer, according to two people with knowledge of the process. People close to Matches were optimistic that the new operator could make a success of it — preserving jobs, integrating Matches with Frasers’ chain of upmarket Flannels stores and integrating the etailer with the group’s distribution infrastructure. 

But the approach of the new owners appeared to backfire. Frasers did not pay around 200 brands, which in turn refused to send new inventory. Under its new owner, Matches also cut VIP perks and free shipping, and pushed brands for up to 30 per cent discounts in order to get paid. Sales plummeted in January and February. 

The discounting in particular did not sit well with brands, leading high-profile labels such as Kering-owned Saint Laurent, LVMH’s Loewe and The Row to cut ties with Matches. Frasers declined to comment. 

As the dust settles, investors and luxury customers are left wondering which digital retailers will survive. Industry executives and analysts believe that those that do not discount and provide a more targeted, curated service to the top tier of wealthy consumers, such as German luxury etailer Mytheresa, are best positioned. 

“Customers still value multi-brand shopping environments. The monobrand shopping experience can be boring and you can’t style purchases with other [labels],” says D’Arpazio at Bain. “The challenge now is finding a formula that can work, both for brands and online retailers.” 

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