No. 9: Let's Make a Deal

Richemont was able to move on. Johann Rupert sold a majority of his shares to Farfetch & Alabbar after years of carrying the Yoox Net-a-porter Group, a loss-making company. Richemont Chairman Johann Rupert will realize his dream to transform YNAP into an industry-wide platform with no controlling shareholder. Farfetch Platform Solutions will help the company transition to a hybrid model. Farfetch Platform Solutions is a white-label tech service that retailers of all sizes and shapes. FPS will provide the Richemont-owned Cartier and Van Cleef & Arpels brands, as well as other brands, with the digital firepower they need to enhance their omnichannel client experience.
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Richemont brands will also be opening e-concessions through Farfetch Marketplace. Rupert said that Richemont never intended to own an online company. He also stated that YNAP was originally owned by Richemont because former shareholders wanted to sell their shares. Rupert stated that Richemont will be able to 'deliver on its global digital strategies' while allowing Farfetch to 'focus on the things it does best'. Rupert stated that the goal is to build brand equity in the luxury maisons of the company, while not having to worry about digital business. Farfetch's deal, he stated, would be transformative for luxury in general and not just a few. Farfetch's tech-savvy assistance will allow them to open a shop and transform large and small European companies. Jose Neves, Farfetch's founder and chief executive officer, said that Farfetch's technology will be a game-changer in Richemont's brand and enable them to compete in a market that is open to all. He said that the deal will increase Farfetch's gross merchandise value by two-fold. The announcement of the deal on Aug. 24, which was announced by both companies, saw shares rise and analysts who had been complaining about YNAP's inability to make a profit gave it a thumbs up. Luca Solca from Bernstein stated that the alliance was a boon to Platform Solutions, which has been the backbone for Farfetch's business. FPS is a good option for Farfetch because it allows them to achieve rapid gross merchandise value growth and improve their bottom line.
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Solca stated that Farfetch's YNAP deal is a significant win as it adds nearly $3 billion in additional GMV from YNAP and the participating Richemont brands. Solca also stated that Farfetch will be able to generate traffic from the Marketplace by having megabrands like Cartier. "Megabrands can drive traffic to their [websites], which is better for them in terms of both economics and data. Farfetch believes that having the most prestigious luxury brands in the world could encourage smaller brands to join its Marketplace. Bernstein stated that it could boost [Farfetch’s] prospects in jewelry, watches, even though hard luxury won't be as supportive in terms of consumer frequency. Neves also agreed
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"The Richemont Maisons' eConcessions on Farfetch Marketplace are a step forward in our strategy for hard luxe, which accounts more than 20% of the luxury market globally but only 3% of Farfetch sales. This is an area where there is much stronger customer demand relative the supply we have had," he stated shortly after the August deal was announced. The deal was also well-received by analysts. RBC Europe called the deal 'long-awaited and positive from Richemont’s perspective' in terms earnings before interest and taxes margin increases.
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"It also allows the Richemont portfolio return to a pureplay luxurious group," which the bank claimed could increase its share value relative to other competitors like LVMH Moet Shennessy Louis Vuitton or Hermes International. While activist shareholder Bluebell Capital Partners didn't comment publicly on the YNAP deal but it had been pushing Richemont to sell the e-tailer so that it could focus on luxury hard goods. While Rupert was brokering Farfetch's deal, he was also fighting Bluebell Capital Partners, who wanted to make changes to Richemont's operations and to place Francesco Trapani on the board. Richemont shareholders voted against Trapani and against several proposals that would have given Richemont's publicly-traded 'A' shares holders a greater voice at the annual general meeting in September. It will take many years for the Farfetch deal to be completed. Antitrust approval is still needed by the partners, which could take as long as one year. The first stage should be completed before the end 2023 calendar year. Richemont and Farfetch, Richemont and Farfetch’s long-standing Gulf States partner, have agreed to purchase 47.5 percent and 3.2%, respectively, of YNAP. Richemont will now hold 49.3 percent. Richemont will be receiving Farfetch shares in exchange. These Farfetch shares are expected to account for 12 to 13 percent Farfetch's total issued share capital. Richemont stated that YNAP will be adopting Farfetch Platform Solutions, while Richemont's individual brands will use Farfetch technology 'to address our clients' needs and get our products to the correct place, at the right times, and in a seamless fashion. Richemont was not financially affected by YNAP's exit.
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Richemont recorded a 2.9 billion Euro loss from discontinued operations in its first half ended September 30, following a 2.7 million euro, noncash writedown YNAP's net assets. Richemont has reclassified YNAP on its books as a discontinued operations' ahead of the deconsolidation. The deal was widely applauded by the public markets, but Farfetch has much more work ahead of it. Wall Street will still need to be convinced about its retail proposition and growth prospects. Farfetch's Capital Markets Day, which was held earlier in the month, was its first since 2018 when it went public. This marked the start of this process.
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His company is a combination of three businesses that he described as connected: Platform Solutions, which provides ecommerce capabilities to third parties; Marketplace, which connects buyers and sellers via electronic commerce; and New Guards Group, which develops brands. Neves stated that he had built the global platform of luxury and is the clear leader in this space. Farfetch is at the tipping moment. We are at the tipping point, where we will start to leverage our investments over the past 14 years in order to continue the path of growth and profitable growth as well as cash flow generation. He said that today's focus is to provide clarity on the key elements of that road map.
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Farfetch stated that the company's gross merchandise value would reach $10 billion by 2025, with adjusted earnings before interest taxes, depreciation, and amortization margins of 10 percent. Platform Solutions will contribute $4.3 billion to GMV, and is expected drive an EBITDA margin around 20 percent. This is a huge difference to the Farfetch Marketplace division which is expected to generate an EBITDA margin around 5 percent. Investors were alarmed by the projection and sent shares down 35%. Mid-December saw Farfetch trade at $4.66, down 85 percent from the beginning of the year. Farfetch is now a "show me" stock. Analyst at Wells Fargo Ike Boruchow believes the company will win in the long term
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He stated that the Capital Markets Day projects were'management' 'ripping off' the Band-Aid and resetting growth expectation while simultaneously laying out a plan which leads to quite compelling growth/profitability goals. We remain bullish on this story but recognize that bulls will need duration The stock is in a poor spot and any real inflection will be at least twelve months away. If it does occur, that inflection should coincide with the first phase of the YNAP agreement and could open a new chapter for Farfetch's growth.