Why Farfetch and Neiman Marcus need each other

The online luxury market is in consolidation mode, and Farfetch is leading. On Tuesday, the company, which operates its own luxury market, offers white-label technology solutions and owns a stable number of other businesses, including the New Guards Group brand accelerator, Stadium Goods sneaker retailer and Violet Gray beauty salon, announced a joint effort. with the American Neiman Marcus Group (NMG).

As part of the deal, which is expected to be completed in the third quarter of 2022, NMG will move the website and mobile apps of its New York department store Bergdorf Goodman to the Farfetch platform. The Neiman Marcus brand, which operates more than 35 full stores in the U.S., will use some Farfetch technology. Bergdorf Goodman and Neiman Marcus will also sell in the Farfetch market, with Farfetch investing up to $ 200 million in the NMG business.

Jose Neves and Jeffroy van Raemdonk, CEOs of Farfetch and NMG, respectively, said the long-term nature of the deal means that the Neiman Marcus website, which generates much of the company’s overall sales, may at some point be Farfetch-based.

In 2021, NMG said it would spend about $ 500 million on new technologies, including the Connect app, which allows store employees to better communicate with customers, and the acquisition of a software platform like the Stylyze service that creates stores. as a customer experience in e-commerce. Farfetch’s cash and technical support to some extent liberate NMG. His current plan is to inject $ 600 million into the business, including improving supply chains, renovating stores for $ 250 million and $ 200 million for technology.

The partnership is a significant win for the White Label Farfetch business, which offers both retailers with different brands and individual brands a set of plug-and-play products, from full-fledged consumer websites and applications to customer relationship management systems used store staff. While department stores such as London’s Harrods have partnered with Farfetch in recent years, NMG is by far the largest retailer to join the market, with annual sales of more than $ 4 billion before the pandemic.

Since its debut in the public market in 2018, Farfetch has positioned itself as a leading luxury consolidator on the Internet, creating an ecosystem that it believes begins with brand building (New Guards Group) and ends with several options for customers, including its own platform as well as the British department store Browns and a growing list of retailers who use Farfetch to create their own websites. Last year, the company confirmed it was in talks with Compagnie Financière Richemont about a partnership with longtime rival Yoox Net-a-Porter Group, triggered by a joint venture between Farfetch and Richemont, which now owns YNAP, and Chinese technology giant Alibaba.

Neves said Farfetch continues to “have these conversations” with YNAP and is also in talks with other brands about using its white Label service. However, the deal with NMG gives Farfetch a particular advantage in the US, where a new generation of consumers is emerging. During the pandemic, young and low-income people began to spend more on luxury than ever before, and existing customers with excess cash income spent most of their spending on physical goods.

NMG’s extensive chain of stores in the U.S. also links Farfetch more closely to U.S. consumers offline. In a recent note, Bernstein analyst Luca Solka called the deal “a strategic opportunity for Farfetch to stand out among service providers and benefit from the power of local customers from the United States.”

However, Neves said the current blow to the U.S. market did not affect the NMG deal. “It’s not because of the recent dynamics,” he said, noting that talks with NMG have been going on for some time and that his focus is on long-term opportunities.

For NMG partnerships can alleviate the challenges most retailers face when it comes to global scaling online by offering options for e-commerce translation, international payments and worldwide shipping. In particular, Bergdorf Goodman, one of the most iconic American stores still operating, is poised to grow faster thanks to Farfetch’s technical support.

The move could prove crucial for the group, which filed for bankruptcy protection in Section 11 at the start of the pandemic, eliminating most of its $ 5 billion debt. Today, it is experiencing double-digit sales growth, with adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) doubled compared to last year.

But in addition to using easy-to-use technologies, joining Farfetch will also give NMG an insight into how the concession model could help grow its top lineup in the future. As big brands move away from traditional wholesale relationships to focus on direct sales, retailers with different brands are increasingly offering a concession model – when the brand essentially rents space in a store or website and the retailer takes a small share of sales instead this self-manage the product for a larger cut – as an option to keep them on board. (Last year, Net-a-Porter entered into a concession partnership with Prada, which now sells the vast majority of its products directly to consumers.)

However, Van Remdonk said that while he recognizes that the multibrand store business model “may” continue to evolve, e-concession is not currently part of the NMG plan, and that “home supervision” or his team’s ability to choose the product sold in Neiman Marcus stores is the key to making the brand feel unique. (As proof, he cited a global exclusive with Prada.)

Despite this, competition in the industry is only intensifying, and the partnership can be seen as an offensive step that has put both sides in a better position. Whether the YNAP deal is implemented or not, the industry can expect more consolidation efforts from Farfetch as well as others.

Additional report by Themison O’Connor.

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