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Farfetch Algorithm Staves Off ‘Material Impact,’ CEO Says

Global luxury fashion technology platform Farfetch Ltd. is expecting a significant slowdown in gross merchandise value (GMV) as major global markets remain in lockdown, the company reported in its preliminary first-quarter financial results.

While the platform has not posted revenue totals yet, it indicated that GMV—the total value of merchandise sold on the Farfetch marketplace—is on track to jump between 43 percent and 46 percent, well below the 58.6 percent reported in the fourth quarter. Digital platform GMV is expected to jump between 17 percent and 19 percent, just half the growth pace from the prior quarter’s 36 percent.

Net losses for Farfetch will be within a range of $70 million and $125 million, while adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) would amount to losses between $21 million and $25 million.

Toward the latter part of the quarter, Farfetch says it observed a slowdown in growth from larger markets in Europe and North America due to lockdown policies, alongside an increase in promotional activity. The report also observed that brands were assessing production capacities for winter collections in light of some factory closures.

The fashion platform notably indicated that it has not seen any material impact to its operations or supply chain since the initial outbreak of COVID-19, crediting its “highly distributed and resilient model,” and “our continuous coordination with our global logistics partners.”

However, the company said the business would be adversely impacted if there were any prolonged closures of fulfillment center and production studio operations, or interruptions to logistics and seller partnerships. More than 200 of its 1,200 sellers are offline as they are unable to pick and pack their orders, said José Neves, Farfetch CEO, founder and co-chair in a letter to shareholders.

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“Our algorithm is selecting alternative sellers for their SKUs or automatically switching off unavailable SKUs, and as such we have not seen a material impact to date, but this could change if more sellers are unable to pick and pack merchandise,” Neves said.

He noted that when a consumer sees a product on Farfetch, 85 percent of the time the item is available from multiple sellers, and can be shipped from different locations, often from different countries.

Farfetch anticipates current trends will drive an acceleration of sales to online channels, and expects a return to normalized levels of consumer activity in 2021.

“Digital transactions are expected to represent a significantly larger proportion of the overall industry,” Neves said. “With current retail store closures, travel restrictions and shifting consumer preference and shopping habits, I expect to see an acceleration of this secular shift to online. This should also spur further online adoption by brands and retailers of our platform, which provides the industry with the broadest reach of luxury customers and full control of the direct-to-consumer offering. We believe our preliminary first-quarter 2020 results reflect the strength of our business model in a changing environment.”

Though the COVID-19 pandemic has led Farfetch to suspend its previously issued guidance for full-year 2020, the company continues to target adjusted EBITDA profitability for full-year 2021.

Amid the pandemic, Farfetch launched the #SupportBoutiques initiative to support the hundreds of small shops across its seller base by increasing visibility of their stock and helping with logistics, marketing and operations. Boutiques on Farfetch are offering 25 percent off their products, and in return Farfetch is giving them 25 percent off the cost of using the marketplace.

In a letter to shareholders, Neves said the company’s mission to be the “global platform for luxury fashion” across a $300 billion market remains unchanged, and called out the rash of recent travel limitations.

“I believe the current situation may serve to further accelerate the secular shift to online with current store closures and travel restrictions driving customers to increase their online shopping,” he said. “Moreover, I believe the restrictions on travel will force the repatriation of consumption not only in China, but also in Japan, Russia, Brazil and the Middle East, which means our retailers and brands will benefit from our strong presence with local offices and localized experiences in all of these markets.”