The extent of change in retail was thrown into stark relief again this week.
While Mike Ashley nurtures hopes of turning House of Fraser into the “Harrods of the high street”, online luxury fashion specialist Farfetch revealed plans for an IPO in New York.
Ashley picked up 169-year-old House of Fraser for £90m. Farfetch, launched just a decade ago, has not disclosed price details yet but there has been widespread speculation that it could be valued at as much as $6bn.
Farfetch’s rise epitomises some of the dynamics that will shape the industry in future.
In many ways, Farfetch is the contemporary version of the department store. It is a host to luxury brands – fashion at present but it is considering moves into other categories.
But Farfetch’s model also prompts the question: what is a retailer these days?
Technology meets retail
As Farfetch points out in the IPO documentation, its marketplace model enables it to offer “the broadest and deepest selection of luxury fashion available online globally, while incurring minimal inventory risk and without capital-intensive retail operations”.
Its mission is “to be the global technology platform for luxury fashion, connecting creators, curators and consumers”. It describes itself as being “a technology company at our core” with three foundations: applications, services and data.
In that respect it typifies one of the big trends of the times – partnerships between technology experts and retailers – seen everywhere from Carrefour’s tie-up with Google to Marks & Spencer’s with Microsoft.
Interestingly though, Farfetch’s rise has depended on something that many traditional retailers would recognise – the need to connect on a human level and build relationships.
Founder José Neves describes in his letter to prospective investors how he had to bring on board the key families who owned luxury brands.
He writes: “Most of my early conversations were in Italian and French, frequently involving the grandparents, parents, sons and daughters in the same room and often turning into family quarrels!
“Decisions are not just about business and are never short term. The reputation of the brand, the retailer and the family business are at stake. You need to build deep relationships that are based on a feeling of trust from all of the family.”
The internet’s second wave
In an interview with Wired, he said: “Disruption isn’t everything. The first wave of the internet – Amazon in retail and search engines with the media – threatened to kill creativity in the name of price. The second wave, including Farfetch, is trying to save our industries.”
One thing Farfetch does have in common with Amazon is its willingness to sustain losses in order to grow. In the six months to June 30, it made a loss of $68.4m, more than double that in the comparable period of the previous year.
But like Amazon, the likelihood is that it will find investors willing to buy in. Perhaps that is one reason it is, again like Amazon, listing in New York rather than London, where it is headquartered.
They will be willing, like Neves, to ask “how will the world shop for fashion in five, 10, 20 years?”
If only House of Fraser’s previous owners had asked the same.
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