The logistics of luxury
Online fashion innovator Farfetch is shaking up the luxury retail sector while also enabling it to thrive anew.
The biggest revolution in fashion retailing holds no inventory. It delivers all over the world, in some cities within 90 minutes, yet employs no drivers and owns no transport planes. It connects boutiques in Australia with fashionistas in Brazil, all at the click of a mouse.
At the same time, using proprietary groundbreaking technology, it entices the most iconic of heritage fashion houses to partner on innovations that could change the way they do business forever.
London-based Farfetch calls itself a global platform for luxury. At its core, the Farfetch platform connects: desire and product; buyer and seller; order and delivery. It's in the right place at the right time - the global market for personal luxury goods reached a record high of €262 billion ($296 billion) last year, according to a report from Bain & Company.
Farfetch is the creation of José Neves, a Portuguese fashion fan who's been programming computers since he was eight years old, and launched his first software company at the age of 19. Neves has also worked as a shoe designer, boutique owner, and trade show organizer, acquiring an affection for the fashion industry in the process. He realized that technology was boosting many industries, but not the one he loved. So he set about merging his interests, and launched Farfetch in 2008.
Now, Farfetch is a platform for approximately 880 brand and boutique partners in over 40 countries, from historic brands like Burberry to up-and-coming designers like Eckhaus Latta. Farfetch’s 2 million registered customers can purchase goods from around the world – with seamless delivery guaranteed.
Seamless on the surface requires seriously complex planning behind the scenes. “The biggest challenge we have in our supply chain – as we don’t fully control pick and pack or ship – is consistency,” says Luis Teixeira, Farfetch’s Chief Supply Chain Officer.
Providing not only luxury goods but also a consistent luxury experience to discerning shoppers requires finely attuned orchestration of logistics.
"Factors related to speed of shipping, stock accuracy, or even quality of packing are very important when you're talking about a customer like ours," Teixeira says.
"So with time we have learned how to deal with the fact that we don't touch the goods. And we had to put a lot of standard operating procedures into practice to control these metrics and be able to help our partners to scale their operations, and get better and better at them."
The average Farfetch order is high value, and can be fulfilled from a variety of locations. The platform algorithm calculates the most efficient source and delivery route. Partner boutiques and brands pack the goods with care and often a personal note, an appealing bonus for the customer.
"Farfetch's success is due to their technology enabling things that felt impossible or unrealistic from luxury retailers," says Tom Gehani, Director of Client Strategy for digital-focused business intelligence and research firm L2.
He points out that nearly a quarter of global luxury spending comes courtesy of small and specialty retailers, who may not have the resources to push their prestige goods online.
"Farfetch enabled these brands to sell to the online customer without all the technical implementations of order management and shipping, and with a great customer experience," Gehani explains.
L2's research shows that traffic to Farfetch is largely driven by very specific keywords, including brand names, like "Gucci flip-flops," rather than broad terms like "shoes" or "handbags." These shoppers know exactly what they want, and Farfetch helps them find and receive it, no matter how far away it is, or how small the boutique is that holds it in stock.
The Farfetch platform has approximately 1,000 engineers working so that customer visits to the website go as smoothly and quickly as possible, aiming to turn visitors into repeat customers.
Moving at the speed of fashion
Farfetch works hard at meeting the luxury customer's needs. It currently offers express delivery of goods from over 40 countries to 190 countries. There's same-day service in 18 cities, plus click & collect for those who wish to pick up their package locally. Almost instant gratification is available for shoppers in 12 cities with 90 minute delivery from select retail partners.
Customs charges are precalculated and included in the original invoice, and returns are simple.
Teixeira sees this rapid response plan as an offshoot of some of the challenges posed by the company's fully decentralized stock mode. He says they leverage that decentralized model to capitalize on the need for speed. At the same time, returns, which are an expensive part of doing business online, have not been a major problem.
The customer base is changing, he says, and the industry must develop with it. "Once speed is cracked, I think we and all the companies in the luxury market will want to tailor our services," explains Teixeira.
"If you ask me, personalization is the next evolution."
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Meanwhile, Farfetch is expanding its role as a service provider for the luxury industry. Its Black & White business unit operates discrete e-commerce flagship sites for specific brands.
Omnichannel is the new vogue in e-tail, and Farfetch too is taking its expertise to the streets. Its Store of the Future concept aims to bring the data advantages of digital commerce to the classic bricks-and-mortar approach.
According to a 2017 study from Bain & Company, only 9 percent of personal luxury goods are purchased online. At the same time, online luxury sales jumped 24 percent last year, while dipping slightly at traditional department stores. Chic boutiques, prestige locations and impeccable service are all intricately entwined in the luxury shopping experience, but the digital trend has legs. Analysts anticipate that online activity will account for a quarter of personal luxury sales by 2025.
Generally a protective industry, traditional fashion houses and luxury brands are not known for taking risks. Yet Farfetch has a compelling proposition in the form of tailor-made arrangements. Even iconic Chanel, which does not sell online, formed a partnership with Farfetch this year for in-store tech innovation. Termed "augmented retail," it would integrate web-based methods, like using data about customer preferences to tailor customer experiences, in bricks-and-morter stores.
It was a move that surprised many in the industry, and thrilled Teixeira and his colleagues.
"I think this is just showing that we are doing something right, that they have trust in our brand and what we are doing," he says.
New markets, new methods
The Farfetch global vision includes bringing a large range of luxury, heritage brands to the newest markets and feeding their growing hunger for luxury goods. And again, the right partners are key, explains Teixeira.
"Logistics is absolutely critical. Each time we plan a market incursion either from the supply side or demand side, we do it jointly with the retail partners that will be supplying those markets," he says.
In January, the company announced a joint venture agreement with the Chalhoub Group, the Middle East's largest luxury goods provider. Meanwhile, Chinese online giant JD.com became one of the largest Farfetch shareholders last year, when it invested $397 million in the company.
The partnership, says Liz Flora from L2's Asia Pacific research team, gives Farfetch advantages their competitors can't replicate, including access to JD.com's data, digital marketing, and connection to WeChat, the dominant social media and messaging service in the region.
According to Flora, L2 research on China's luxury goods industry found that Farfetch "had the widest range of luxury fashion brands available out of all international pure-play luxury e-tailers, with 83 percent of them sold on its Chinese-language site."
Teixeira sees his company's horizons as virtually limitless. "Like any business model there are challenges and limitations. I think we have been able to transform a lot of our challenges into opportunities," he says.
"I would say that the only limitation we could have in the near future is if we stop thinking about our customers first. I think that's the only limitation we can have, because the opportunity is huge." — Suzanne Stein
Published: June 2018
Images: Chelsea Lauren/WWD/REX/Shutterstock; Bloomberg/Getty Images; Antoine Antoniol/Getty Images