European Union regulators are expected to reach a decision by Friday regarding Farfetch’s acquisition of a stake in rival YNAP from Cartier owner Richemont. This acquisition has become more complicated due to Farfetch’s ongoing challenges.
Farfetch, a U.S.-listed company, introduced a unique business model that attracted luxury brands to sell their products online. However, the company has struggled to achieve profitability due to high technology and marketing costs. Furthermore, a decline in orders from U.S. retailers and a shift in inventory sourcing has limited Farfetch’s ability to attract shoppers.
As a result, Farfetch’s shares have plummeted by over 90% in the past two years, causing its market capitalization to drop significantly. In August, the company experienced a decline in share price following a disappointing sales outlook.
The agreement between Richemont and Farfetch involves the sale of a stake in YNAP in exchange for Farfetch shares. This deal resulted in a significant writedown for Richemont. Additionally, Farfetch has the option to acquire the remaining shares in YNAP.
The European Union’s competition enforcer has the authority to approve the deal with or without conditions, or to initiate an investigation if concerns arise. Analysts have highlighted the implications of Farfetch’s struggles for Richemont, as the company plans to transfer its online business to Farfetch’s technology and provide a credit facility. Investors are concerned about the level of support Richemont is willing to provide.
Further concerns have been raised regarding the impact of Farfetch’s challenges on the industry as a whole. Numerous boutiques and department stores rely on the Farfetch platform and technology. If Farfetch continues to falter, it could negatively affect these businesses.
Overall, the EU’s ruling on Farfetch’s acquisition will determine the fate of the struggling online luxury retailer and the level of support Richemont is willing to provide. Additionally, it may have broader implications for the luxury fashion industry.
Useful links:
1. Farfetch Investor Relations
2. Richemont Official Website
