In 2020, Farfetch, the online fashion retailer, reported a net loss, but the company also celebrated a surge in sales and an important EBITDA achievement. Despite the challenges posed by the pandemic, Farfetch experienced high demand throughout the year, with its gross merchandise value exceeding $3 billion, marking a 49% increase from the previous year. Additionally, the company saw a 64% rise in revenue, reaching $1.7 billion.
While the first three quarters of 2020 were previously highlighted in results reports, the focus now shifts to the fourth quarter, which proved to be strong for Farfetch. The company experienced a 43% growth in gross merchandise value and a 49% growth in digital platform gross merchandise value during this period, reaching record highs of $1.1 billion and $939 million respectively. Furthermore, revenue in Q4 rose by 41% to $540 million, with a margin improvement of 310 basis points to 35%.
Despite being primarily known as an e-tailer, Farfetch also witnessed growth in its in-store revenue. In Q4, in-store revenue increased by 39.6% to $13.7 million, even during a time when physical store closures were prevalent due to lockdown measures. This increase was largely driven by the opening of New Guards stores, counteracting the impact of store closures and reduced foot traffic caused by Covid-19 restrictions.
Nevertheless, it is important to acknowledge that Farfetch remains a loss-making company. In Q4 alone, the net loss amounted to nearly $2.3 billion, compared to a loss of $110 million in the previous year. The wider loss includes a $2.1 billion non-cash impact related to the higher share price on items held at fair value and re-measurements. On a positive note, Farfetch achieved its first-ever quarter of positive adjusted EBITDA, with a profit of $10 million, reversing the loss of $18 million in the previous year.
The tech sector often prioritizes market share and scale over profitability, as demonstrated by Amazon’s early history. However, investors have exhibited impatience, leading to a decrease in Farfetch’s shares both before and after the announcement of the Q4 results. Nonetheless, the shares are still trading at higher prices compared to the majority of Farfetch’s time as a listed business, apart from a few recent months.
José Neves, Farfetch’s founder, chairman, and CEO, expressed optimism about the results and highlighted the company’s leadership as the largest global online destination for luxury fashion. He emphasized the scale and attractiveness of Farfetch’s business model and expressed excitement about utilizing their achievements and platform capabilities to pursue growth opportunities in the luxury industry, both online and offline. CFO Elliot Jordan also commented that the Q4 figures exceeded their initial expectations.
Aside from impressive revenue, Farfetch reached other notable milestones in recent months. Third-party transactions accounted for 84% of the digital platform’s gross merchandise value, and over 1,350 Farfetch Marketplace sellers offered a record number of stock units from more than 3,500 brands. Additionally, Farfetch secured a significant new seller, Russian luxury group Bosco di Ciliegi, which owns multiple monobrand and department stores, including the renowned Gum. The company experienced strong momentum in newer categories, particularly in watches and jewelry, which grew almost three times faster than the Farfetch Marketplace as a whole in 2020.
Useful links:
1. Business of Fashion: Farfetch Q4 Sales Surge, But Losses Mount
2. Forbes: Farfetch Q4 Sales Rise to $1.7 Billion On Strength of Online Over In-Store Sales
