COVID may be over, but luxury revenge spending is just getting started. The luxury fashion industry is seeing “remarkable levels of profitability” coming out of the pandemic — and online marketplace Farfetch is reaping the benefits.  

From mom and pop shops to must cops

When the pandemic hit, many expected the $316b luxury goods industry to tank as sweatpants became the go-to. Instead…

• Online buying soared in China — accounting for two-thirds of luxuries’ growth.
• Consumers flocked to luxury fashion brands — with LVMH (owners of LV and Christian Dior) seeing higher sales than in 2019.

Lockdowns helped one business in particular: Farfetch, the luxury fashion marketplace. Founded in 2008, Farfetch lists boutique fashion stores online. It took nearly a decade to convince companies like Gucci and Prada to list on its website — which is when the company really took off. Today, luxury brand retailers make up over 40% of its sellers.

Invest in the best dressed

On top of growing losses, a surprise acquisition in 2019 prompted investors to run, and Farfetch’s share price sunk 40% in one day. But that was nothing a good lockdown couldn’t fix:

• Sales accelerated to 64% to $1.67b in 2020.
• Alibaba and Richemont invested a combined $1.1b in the company for its expansion into China. 

Farfetch came out on top through the pandemic due to its unique business model:

• Farfetch connects buyers and sellers. It doesn’t own any inventory so it wasn’t affected by the same supply chain constraints as its competitors.
• This led to sales surging 90%, being one of the only online marketplaces able to quickly ship out clothing.

Investors: Doing well without Chanel?

Farfetch had a good year but its growth faces potential roadblocks:

• The biggest luxury brands (Louis Vuitton, Hermès and Chanel) stayed off Farfetch – preferring to sell directly to consumers.
• It’s too early to tell how online sales will react as brick-and-mortar stores continue to re-open around the globe.

Growth is forecasted to slow down from 63% in 2020  to 35-40% in 2021, but Farfetch is expected to turn its first full-year profit in 2021. For investors, the online luxury marketplace might not be such a farfetch’d idea.