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Top spot for online luxury up for grabs
Economy

Top spot for online luxury up for grabs

Monday, 07 December 2020
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Christophe Roulet
Editor-in-chief, HH Journal

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4 min read

Switzerland’s Richemont, China’s Alibaba and France’s Artémis (Kering) are to invest over a billion dollars in British marketplace Farfetch in a bid to dominate the Chinese online luxury market. The race with Amazon is on.

If you want to stream music, there’s Spotify. Find a hotel, there’s booking.com. Purchase a luxury item online: no single player dominates the global market but several have their eye on the prize, particularly as the coronavirus pandemic accelerates the transition to digital – a channel destined to drive the industry’s bottom line. The recent announcement by Richemont, Alibaba, Artémis and Farfetch should be seen in this context. Whoever dominates China’s luxury e-commerce will be master of the universe. According to Bain & Co., online luxury sales worldwide will reach $58 billion in 2020 compared with $39 billion in 2019. And the engine driving this impressive growth is China, the main market for luxury according to consultancy firm Mazars, which forecasts that China’s share of global luxury consumption will rise from the current 33% to 40% by 2025.

Three into one

It’s worth remembering that half of Chinese luxury consumers are under 30 and that close to a billion Chinese use social media and mobile apps. The combination of the two is a “match made in heaven” for luxury sales. Furthermore, as other economies continue to feel the pain of the global pandemic, China is the only one to have come out of intensive care and is even well on the road to recovery, judging by Alibaba’s performance on Singles Day, the country’s biggest shopping day of the year, on November 11th, when the e-commerce giant reported $74 billion in sales or 583,000 orders per second: an exponential increase of 85% year-on-year.

Half of Chinese luxury consumers are under 30.

Such mindboggling numbers have been food for thought for several luxury powerhouses, and so it was that in early November, Richemont, the world’s second-largest luxury group, Artémis, Kering’s investment vehicle, and Alibaba revealed their plan of attack, namely massive investment in Farfetch, an online fashion marketplace based out of London that was floated on the New York Stock Exchange in 2018. In terms of hard cash, Richemont and Alibaba are investing a total $600 million in Farfetch in private convertible notes. As for Artémis, it will increase its stake in Farfetch’s capital through a $50 million share purchase. Additionally, Richemont and Alibaba will take a 25% stake in the newly formed Farfetch China joint venture for a combined $500 million, with the option to purchase a further 24% after three years.

Loss-making activities

Under the terms of this global strategic alliance, Farfetch will launch shopping channels on Tmall Luxury Pavilion, Luxury Soho and Tmall Global, Alibaba’s luxury platforms in China. The group serves 757 million customers: a fabulous audience for the 500-some brands in the British group’s catalogue. Already in 2018, Richemont and Alibaba formed a joint venture, Feng Mao, to ramp up the development in China of Yoox Net-a-Porter (YNAP), the Richemont-owned luxury fashion platform. This latest transaction could signal closer relations between the two rivals, particularly as both Farfetch and YNAP are in the red. Farfetch made a substantial loss of $537 million in Q3 2020 while Richemont’s online distributors, which include YNAP, recorded a €138 million operating loss for the first six months of the group’s financial year.

The race is on with Amazon, which also has its sights on the luxury market.

The deal is also intended to accelerate the digitisation of the global luxury industry through a Luxury New Retail initiative that will leverage retail technologies and provide luxury businesses with solutions to incorporate digital into omnichannel strategies. The race is on with Amazon. So far the US giant’s image hasn’t gelled with that of high-status brands, compounded by concerns over counterfeits. However, all that could change in the light of recent investments by the group, whose third-quarter earnings increased 37% to $96.1 billion while profits tripled to reach $6.3 billion. Initiatives to lure luxury brands include a showcase of young designers and the launch of an invitation-only Luxury Stores feature for 150 million Prime subscribers. The group, which employs a million people, clearly has its sights on the online luxury market. As do Richemont, Farfetch and Alibaba…

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