How Does Farfetch Make Money? | Farfetch Business Model

Farfetch is an online retailer of luxury fashion created by Portuguese entrepreneur José Neves, who began his career in the industry in the 1990s. 

It allows anyone to purchase apparel from high-end companies based in places like Paris and Milan to comfort their own homes.

Farfetch business model is not inventory-based, differentiating it from a product-based business model.

Farfetch makes money by charging commissions from sales, offering fulfillment services, and distributing wholesale products.

The business model of Farfetch is to connect buyers looking for curated fashion items and accessories with independent boutiques that do not have an e-commerce website.

What Is Farfetch?

Farfetch is a website that sells high-end designer clothing and accessories. When it comes to selling their wares, they work hand in hand with brands and boutiques.

Farfetch Business Model

Farfetch business model is based on revenue from commissions, fulfillment services, a white-label software solution, and in-store and online sales of wholesale merchandise. The company’s business model is based on a marketplace.

Farfetch rose quickly to prominence as a major player in the online fashion marketplace market when it first launched in 2007. It went public in August of this year.

Company NameFarfetch
Company TypePublic
FoundersJosé Neves
ProductLuxury fashion retail
Founded DateJune 2007
HeadquarterLondon, England
WebsiteVisit Website

How Does Farfetch Work?

Farfetch is an e-commerce site for high-end apparel. It collaborates with companies and retailers to distribute the products rather than owning them.

There are almost 1,000 brands available at Farfetch, including Burberry, Gucci, Dolce & Gabbana, and Prada.

Shoppers can browse through a range of categories, including apparel (shirts, jeans, etc. ), shoes, and accessories such as handbags and watches.

Buyers can also visit Farfetch-branded brick-and-mortar stores in addition to its online boutiques. Users can try on and purchase limited items at these stores.

Farfetch fulfills and ships its products either directly via the platform or via one of the many online boutiques it partners with.

Farfetch boutiques go through a rigorous verification process to confirm that the products they sell are authentic and of excellent quality.

Farfetch is offered in more than 190 countries worldwide. Users can shop for things on the company’s website or via the company’s mobile phone app, which is accessible for Android and iOS smartphones.

How Did Farfetch Start?

Farfetch is an e-commerce marketplace for premium goods founded by Portugal-based entrepreneur José Neves, active in the fashion industry since the 1990s.

Neves envisaged a system that will allow anyone to buy garments from top brands located in locations such as Paris and Milan from the comfort of their own home.

Farfetch launched in 2008 as a platform with approximately 40 boutique fashion businesses.

The company launched simultaneously as the GFC but quickly established itself as a fashion industry innovator.

Farfetch relies on shops to pick and package merchandise in Farfetch packaging rather than stocking items in a warehouse.

Thus, the organization operates as a middleman between buyer and seller, avoiding many dangers inherent in a conventional retail operation.

It also provides cost-effective worldwide fulfillment by leveraging technology and economies of scale to minimize delivery times and prices.

Farfetch now ships to over 190 countries, representing nearly 1300 companies.

How Does Farfetch Make Money?

Farfetch earns money from fulfillment services, commissions, a white-label software solution, in-store sales, online sales, and wholesale sales.

Farfetch’s business model is a remarkably broad online marketplace business model.

Fulfillment Service

The marketplace concept of Farfetch includes a variety of fulfillment services for the brands and boutiques it collaborates with.

The fulfillment services include the storage of goods (= warehousing), the delivery of items, and the management of returns.

The fulfillment services are similar to those developed by other marketplaces. For example, Poshmark and StockX are examples of fashion marketplaces.

Farfetch takes a slice of the sale price, just like its marketplace competitors. It is estimated to be around 8%.

Commissions

The majority of Farfetch’s revenue comes from commissions paid to brands and boutiques that sell on the website.

These commissions are subject to contractual obligations between Farfetch and those partners. They probably vary between 25% and 32%.

The commissions for larger companies like Burberry or Gucci would certainly be lower since they have greater bargaining power.

Farfetch Business Model

Farfetch functions effectively using a marketplace strategy. The company does not maintain its inventory but works as an aggregator through its acquired brands and shop ideas.

The production of content and classification of products are critical to surfacing the most profitable products.

This allows Farfetch to insist on high-quality standards from its partners, such as that products will always be available, of excellent quality, and presented enticingly. 

Farfetch also arranges shipping services for its partners.

In-Store & Online Shopping

As previously noted, Farfetch has bought several brick-and-mortar fashion retailers during its history. Browns, Stadium Goods, and New Guards are just a few examples.

Farfetch, like any other traditional retailer, earns money by selling things in-store or online.

Drizly Business Model

The cost of goods sold must be removed from income, including purchasing the products, paying for store rent and personnel salaries, and other related expenditures.

White-Label Solution

The Farfetch Platform Solutions (formerly known as Black & White) provides white-label software as a service for high-end designers and retailers.

The solution includes several characteristics, including the following:

  • Users can leverage Farfetch’s distribution network to create their own branded website.
  • A new iOS app is being launched.
  • Maintain a Chinese-specific account on WeChat.
  • The integration with Farfetch is seamless.

The offering’s price is not disclosed. The initial cost for developing the app and website will be fixed, as with any white-label solution, as a revenue-sharing arrangement. Farfetch earns a part of the money generated by the store.

Wholesale Distribution

Farfetch has acquired several established premium apparel companies in the New Guards deal. Some of them include Off-White, Heron Preston, and Alanui.

This has resulted in these products being distributed wholesale to various boutiques, retail locations, and online retailers. Farfetch earns money by reselling these products to other wholesale businesses.

What Is The Funding and Valuation of Farfetch?

Crunchbase reports that Farfetch has raised a total of $1.6 billion through 12 rounds of stock and debt financing.

Notable investors include Dragoneer Investment Group, Alibaba Group, e.ventures, Tencent, JD.com, and Index Ventures.

How Does SoundCloud Make Money?

Farfetch’s firm was valued at $5.8 billion when it launched its IPO in September 2018, raising an additional $885 million. Today, the company is valued at more than $18 billion.

What Is The Revenue Of Farfetch?

According to Farfetch’s revenue statement, the company generated $1.67 billion in revenue in 2020, up from $1.02 billion in 2019.  

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