It’s Wall Street folklore that beating Amazon.com ( (AMZN) - Get Report) in retail is impossible. Shareholders of Farfetch ( (FTCH) - Get Report) would beg to differ. This is why investors should get ready to buy the stock.
Farfetch has a competitive advantage Amazon can’t match: the appearance of exclusivity.
The UK company operates both as a marketplace for luxury goods sold online and technology platform. It’s a unique position because Farfetch is able to help smaller boutiques seamlessly make the jump to e-commerce, while building out application programming interfaces for large brands. It’s a surprisingly big business that is growing like gangbusters as consumers become more comfortable making big ticket purchases online.
Amazon.com has made a concerted effort to play in this space. The Seattle, Wash.-based company certainly has the logistics expertise to make this happen, but luxury brands have mostly demurred.
Last week LVMH Moët Hennessy Louis Vuitton SE, the French luxury goods maker best known for its ultra-expensive leather case goods, became the latest retailer to turn down a request from Amazon.com to sell its brands.
In addition to Louis Vuitton, the company controls Dior, Bulgari, Givenchy and the Sephora makeup stores. A storefront at Amazon.com could certainly add to sales volume. However, it would come at a cost. LVMH managers worry about diminishing the value of their brands by association with Amazon, a mass marketer.
Luxury goods makers thrive when their brands are associated with exclusivity. When designer purses and blouses become plentiful, prices decline, and so too does the perceived value. That’s the kiss of death for a luxury brand.
It also doesn’t help to face price competition from scores of third party stores on Amazon.com. Some of these shops have been found to sell counterfeits. Nike ( (NKE) - Get Report) and Amazon in 2019 ended a turbulent two year relationship when the athletic shoe and apparel company complained about fakes and price competition.
By contrast, Fartfetch gives boutiques and brands complete control. Items can be either sold at its online store, or brands can use company APIs to build out their own branded ecommerce backends operating in the Farfetch cloud. Either way, clients gain full governance over store branding, product pricing and every aspect of inventory.
In the end, exclusivity is maintained.
The London business wins, too. It gets transactional income from products sold at its store, and consulting and hosting fees for building and providing the ecommerce backend infrastructure.
Most important, it’s a huge competitive advantage over Amazon.com, where no such assurances or services are offered, and it’s showing up is spectacular sales growth.
The company had $1 billion in sales during 2019, up 69% year-over-year. And when firm reported second quarter financial results in August, sales ballooned to $364 million, up 74%.
Alibaba, a Chinese technology conglomerate, is investing $300 million in Farfetch, according a report at The Information. The investment play is obvious. Chinese consumers make up a third of the global marketplace for luxury goods. The bet is Farfetch, with the backing of a major global tech business in an important geography, can bring more luxury goods brands online faster.
It’s a good bet.
I recommended Farfetch to my newsletter customers last week before it shot up, so it was nice to see a big reward. It’s likely the business is entering a new phase, where exponential gains are possible.
Veteran tech columnist Jon Markman is the publisher of Strategic Advantage, a popular daily newsletter about the great digital transformation of business, entertainment and society -- and how to invest in it. Click here for a free two-week trial.