Luxury Industry'S E-Commerce Platform

Luxury industry, the circle is very small. Several targets of an enterprise's investment are likely to compete with each other, and the shareholders of a company may also be rivals.

Farfech, a luxury e-commerce platform, has successively collected the investment of Jingdong, Tencent and Ali, and recently announced that it has closed its overseas flagship store of JD and switched to Alibaba.

In the luxury products page of tmall, farfech occupies a separate traffic entrance, which is in parallel with net-a-porter, another luxury e-commerce platform invested by Alibaba. However, at present, the flagship store of farfech tmall is still under "decoration", and all baby links are marked with "special for test".

Farfech has attracted attention, on the one hand, because of its intricate relationship with several big men, and also because of its position in the luxury industry: in terms of market value, farfech is a global luxury e-commerce platform.

In luxury e-commerce, the previously recognized industry leader is net-a-porter (NAP) established in 2000, also from the UK. In the same track, there is also the temple Library of China's local luxury e-commerce platform.

Currently, farfech has a market capitalisation of $21 billion, which is equivalent to seven naps (NAP's market value was $3.03 billion when it was delisted in May 2018) and 130 Temple libraries (with a market value of $161 million).

(from left to right: farfech, Siku and net-a-porter)

There are two stories that hold up fartech's high market value: the first half is about technology, which spent a lot of money on technology to provide digital infrastructure for buyers and brands in Europe and North America; the second half is about China. After the epidemic, it has become a battleground for luxury brands.

That's why farfech has been able to attract Internet companies to invest. But the question is, why did it close the store of Jingdong and embrace Ali, the new shareholder?

1、 "Ali" in luxury industry

Luxury e-commerce, in essence, is also e-commerce, which can not escape two basic modes: platform and self-management.

Net-a-porter is a typical proprietary model, while farfech uses a lighter platform model. Self operation makes profit through price difference, while platform relies on commission.

The main revenue contribution to farfech is the sales commission charged to the buyer's shop and the income from the brand's self operation. It didn't go deep into the supply chain, but cooperated with buyers and luxury brands. It also launched the agent operation business of brand flagship stores in 2015.

Luxury brands have always been "picky" about e-commerce platforms. Big CEOs have publicly refused to enter Alibaba and JD in the early years, but farfech and Yoox net-a-porter have long been trusted. According to farfech's financial report, "there are 550 buyer's shops in more than 40 countries, more than 200 international brands and more than 2000 designer brands. 98% of the retailers have signed cooperation agreements with farfetch. ".

For those buyers and brands that have opened stores on fartech, the attraction of farfech comes from its digital ability. Even if a small boutique buyer has the ability to build its own website, it can not support a series of digital infrastructure such as online and offline integrated inventory management, logistics, payment, etc. And that's exactly what farfech can offer them.

In fact, farfech has said that his goal is not to be a luxury sales company, but to become a basic technology platform for the luxury industry.

In addition to earning Commission and other platform services, farfech also makes money through distribution services and offline stores. It transformed browns, an old British buyer's shop acquired in 2015, into a "store of the future" and a testing ground for new retail.

To make money by charging Commission; to provide digital infrastructure for businesses on the platform; to change offline stores into a new retail testing ground

Does this model look familiar? Yes, although farfech was called "Amazon of luxury industry" in IPO, its business model is more similar to that of tmall Taobao. However, several big factories invested in it not for its "Ali flavor", but for the international luxury resources behind farfech.

2、 Farfech's "Chinese dream"

In 2020, farfech's stock market soared by 500%, from about $10 to $60 all the way. "Black horse" pinduoduo has only increased by more than 300%.

The node of "fafaqi" skyrocketed, which coincided with the rumor in early November that "Ali spent nearly $300 million to invest in farfech". The craze in the capital market reflects the confidence of shareholders in the Chinese market.

China's luxury market, which was the first to recover after the epidemic, ushered in two growth points: one is the overall scale of China's luxury market, the other is the online sales of luxury goods. Bain, a consulting firm, predicted in May 2020 that Chinese will buy half of the world's luxury goods by 2025. Before the outbreak, they predicted that Chinese consumers would buy 46% of the world's luxury goods. Among the several routes of luxury goods consumption, overseas stores, purchasing agents and physical stores have encountered obstacles. The sales volume of the luxury e-commerce that can run through has increased by 150%.

In 2014, farfech has been focusing on the Chinese market. First, it released the Chinese version of the website, and then launched the Chinese version of the app a year later. Last year, farfech gave himself a Chinese name, fafafaqi, and the face of angelababy, the spokesman, covered the subway corridor of Shanghai's Jing'an Temple subway station.

In order to rapidly expand the Chinese market, farfech has successively accepted various local investments: in 2016, it received $30 million from septenaeus, in 2017, it received $397 million from Jingdong, and in 2020, it obtained Tencent's $125 million cash investment by selling US $125 million convertible bonds. By the end of 2020, Alibaba and Lifeng group have invested US $300 million in farfech and will invest US $250 million each to establish new companies.

If farfech accepts the investment of septenaeus, it is the influence of its more than 3000 stores and the huge supply chain behind it. Since then, farfech cooperated with Jingdong and wechat to borrow the logistics network, technology and social media resources of the latter, especially the cooperative relationship with wechat.

Jos é Neves, founder and CEO of farfech, has more than once mentioned the importance of wechat for luxury brands to open up the Chinese market, and even compared wechat to instagram, "but more powerful in function.". Farfech also acquired a domestic digital technology company, curiositychina, with one of its aims to help it operate wechat accounts and create wechat stores and wechat applets.

More active users can make the brand interact with consumers, and combine marketing and sales. This is why fartech values wechat, and maybe one of the reasons why it closed its Jingdong store and switched to Alibaba. Like Ali, farfech's real customers are also merchants.

3、 Jingdong and farfech?

As a luxury e-commerce, JD is not playing with tickets, but its fashion road has been very bumpy.

In 2017, both Alibaba and Jingdong were exploring the territory of luxury e-commerce, inviting brands to settle in, but they were publicly rejected by CEOs of many luxury brands. Reasonably speaking, Jingdong is relatively easy to be trusted by the brand for its own authentic products. Moreover, its high customer price through 3C digital products is equivalent to helping luxury brands find "high net worth people" in China.

As early as 2015, Jingdong began to land in Milan fashion week, two years earlier than Li Ning, who went to New York Fashion Week in 2017. Jingdong, who is familiar with the key points of domestic fashion brand promotion, not only took several local designer brands throughout the world in the following years, but also cooperated with CFDA of American Fashion Designers Association and BFC of British Fashion Association, hoping to be in line with international fashion.

2017 is the year that JD is closest to fashion. A fashion division has been set up on the business map, and Zhang Zetian has been frequently sent to attend the international fashion week with the title of "Jingdong fashion brand development consultant".

This year, JD also launched topLife, an independent luxury e-commerce platform. It gets rid of the jubilant red color of Jingdong app. The main color is high-grade black and white gray, and the model and interface finally have a sense of delicacy. In order to support topLife, Jingdong has invested in the construction of luxury goods storage facilities, and opened air transportation lines and jingzunda logistics. This means that after a big brand handbag comes out of the warehouse in the constant temperature zone, it will fly to your city by air special line, and then be handed over by the express brother in suit and leather shoes and white gloves.

However, this was regarded by the media as "an important chip to fight in China's luxury market", which stopped after 649 days of operation. In the financial report of JD in 2018, there is no mention of topLife. In the financial report of 2019, there is only one sentence about topLife: "merge with farfech, a luxury e-commerce platform".

However, Jingdong's business model makes it difficult to capture the heavy luxury consumers.

Jingdong, which started with 3C digital, is far away from fashion. Although Jingdong makes up for its short board of clothing and beauty by holding shares in vipshop, vipshop, which focuses on tail sales, attracts people who are price sensitive. In fact, what vipshop is selling is not "luxury" in the traditional sense. The best-selling brands are bosden, Hailan house, brother brother and Balabala.

In addition, the mode of self support determines that JD has to consider the inventory problem. Naturally, it will choose more popular classics, such as Burberry's Plaid Scarf or LV's old flower bag - but these items are no longer as attractive to heavy luxury consumers. Classic style often attracts the primary users of luxury goods, and they also need to rely on the recognition of luxury goods to "arm" themselves. They may be middle-class people with little money in their hands - people whose financial situation has been hit by the epidemic.

The closed-loop marketing and sales that fartech values cannot be given by Jingdong. However, several resources it can provide also seem to have some disadvantages

In 2017, when Jingdong became a shareholder of farfech, the payment methods of * * on farfech were "Jingdong payment" and "Jingdong white note". However, at present, the payment * * of farfech has become Alipay and wechat. In addition, farfech will use JD's "jingzunda" for distribution - although JD is good at logistics, it does not have the advantage of cross-border logistics. Orders from abroad, even if the use of jingzunda relay in China, the speed will not be much faster.

However, farfech, who boarded the first-class entrance of Jingdong, may have hoped that shareholders would bring a large number of luxury consumers for themselves. But obviously, the traffic that JD brings is not what it expected.

Therefore, we can see that farfech, who once occupied the first level entrance of Jingdong, embraced the platform of its rival Ali.

The experience of self built websites in China has proved to be impractical, and it is impossible to realize the Chinese dream by going to Jingdong. So, is it OK to switch to tmall?

Tmall used to be the object of "ten actions but refuse" by brands. Luxury Pavilion, which was launched two months earlier than Jingdong topLife, is not so bold in persuading luxury brands to enter. While topLife has 17 big names, luxury pavilion has only 12.

But now, if luxury goods want to enter the Chinese market, tmall and other e-commerce platforms are the choices they can't avoid. In 2020 alone, Prada, Cartier and other luxury brands will open stores in tmall. Even Gucci, who once expressed distrust of tmall, opened its flagship store and opened a virtual museum in the store by the end of 2020. This is the dividend of the e-commerce platform brought by the digital wave of luxury brands under the epidemic situation.

Luxury e-commerce is not only a sales channel, but also provides an experience different from offline stores, either cheap or scarce.

Luxury Pavillion has also found its own way of Playing: to obtain the rights of luxury brands in the whole network, or to release limited edition new products by designers. The 3D commodity display and virtual exhibition hall on the product details page can meet the demands of brands to fully express their brand spirit.

The most important thing is that when luxury brands decide to dig for gold mainly in the Chinese market, vertical e-commerce with too narrow audience will face the pressure of traffic growth, and the problem that the whole category of e-commerce has been difficult to accurately reach the consumer population in the past has also been solved by big data. Among Ali's 757 million active consumers, more than 100 million consumers have been labeled as "heavy new product consumers" - they have more economic foundation, more time for "shopping" and more keen on interaction. These young people who are attracted by the new products are the most eager consumer groups of luxury brands.