Farfetch Partners with JD.com to Boost Chinese Business

LONDON, United Kingdom — Fashion "unicorn" Farfetch is partnering with China's second largest e-commerce player, JD.com, to boost sales in the country. As part of the deal, JD.com is investing $397 million in Farfetch and its founder Richard Liu will join the Farfetch board.

The announcement underscores Farfetch's ambitions to grow internationally, especially in China, the world's second-largest luxury market, which currently accounts for only 10 percent of the company's revenue, according to Cowen & Co, a financial services firm.

"We have all learned that it is excruciatingly painful and difficult to penetrate [China] without a local partner," said Farfetch founder and CEO José Neves. "The toolbox that we use in the West just doesn't work there. The size of the market and the difficulty of the market make it just the right case for this kind of strategic partnership."

JD.com, which is based in Beijing, operates a sophisticated local logistics network — manned by more than 70,000 employees operating out of 250 warehouses — and started experimenting with drone delivery last year. “This really provides us with a last-mile service which is unrivaled. No Western company has, so far, had access to that,” added Neves.

JD.com also has programmatic marketing platforms and payment channels that will surely prove useful to Farfetch, which is also eager to tap the company's alliance with social media juggernaut WeChat, whose parent company Tencent is also the leading shareholder in JD.com.

Farfetch and JD.com share an investor in Temasek, Singapore’s sovereign wealth fund, which contributed to Farfetch’s $110 million Series F round and also has a stake in many of Asia’s largest e-commerce companies. “If you look at the partners we now welcome on board, like Temasek, which has a huge, huge influence in South-East Asia and investments in all the major Asian internet players, and IDG Capital Partners — same thing — it’s definitely a strategic move,” Neves told BoF when the Series F round was announced. “They know all the players there and it makes things easier for partnerships, for hiring, for insights.”

In 2016, Farfetch — a platform which connects consumers with a curated network of boutiques and brands — cleared $800 million in sales, generating an estimated $150 million in revenue (Farfetch is said to take a 20 to 25 percent commission from partners). The company is not yet profitable, though Neves said the core marketplace product “delivered significant underlying profitability” in the fourth quarter of the 2016 fiscal year. Farfetch is now the world’s top luxury e-commerce destination in terms of traffic, outperforming competitors like Net-a-Porter and Neiman Marcus, according to web analytics service Alexa.

Farfetch has raised more than $350 million in venture funding and is seeking scale as it gears up for an initial public offering, which Neves has called “the next financial milestone for the business.” He has been reluctant to lay out a specific timetable for the flotation.

The partnership with JD.com is the latest in a series of recent announcements from the company. In February, Farfetch revealed that Net-a-Porter founder Natalie Massenet was joining the company as non-executive co-chairman. In April, the platform unveiled its ambitious Store of the Future concept, an "operating system" for physical retail. And in June, Farfetch forged a partnership with Condé Nast, following the demise of the publisher's e-commerce venture Style.com.

According to a recent report by Sky News, Farfetch is in the process of appointing bankers to manage a public listing in New York that could value the company at up to $5 billion. Previous estimations of the company's value have been closer to $1.5 billion. When quizzed on the IPO, however, Neves was tight-lipped. "No news," he said.

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