Founded in 2007, Farfetch is one of the few online retailers to offer high-end items from different brands, such as a Saint Laurent wool coat for $5,690 or a De Beers diamond necklace in white gold for $5,900. Recently, Farfetch announced discounts of up to 45% on clothing and accessories from a number of "smaller" brands, including Diesel, Balmain, Lanvin and Balenciaga. For the bigger brands, it's more difficult, due to their pricing policies.

Its shares plunged by more than 50% on November 28 after the company postponed the publication of its quarterly results, stating that previous financial forecasts were no longer valid. On Tuesday, Moody's downgraded the company's credit rating to junk and placed it on watch for further reduction, due to its deteriorating financial situation.

Big brands play their own game

Farfetch's woes are not just a reflection of the economic headwinds that are dampening demand for new clothes from discerning consumers. Its longer-term challenge is the willingness of brands to take greater control of their products, usually in their own retail boutiques - a strategy aimed at avoiding the discounts that third-party retailers like Farfetch rely on to attract buyers.

LVMH 's major brands Chanel, Hermes, Louis Vuitton and Dior have taken the initiative to control all aspects of their product sales, while Burberry is reducing the number of third-party retailers selling its products and improving its boutiques. Kering, which owns Gucci, Saint Laurent and Balenciaga, is also strengthening its network of directly-operated stores.

"It's a trend that brands prefer to control their own distribution," said Caroline Reyl of Pictet, a Swiss multinational private bank and financial services company that holds stakes in Compagnie Financière Richemont and LVMH, but not Farfetch. By tightening their grip, notably through shop-in-shop agreements in department stores, "they control everything, in fact", including prices, buyer data and brand positioning, Ms. Reyl said of high-end brands.

Farfetch declined to comment when asked by email about changing retail trends. The London, US-listed company is working with JPMorgan and Evercore to explore options, including a sale, two sources close to the matter said. Farfetch founder Jose Neves is considering taking the company private, according to the Daily Telegraph newspaper. Farfetch and JP Morgan declined to comment. Evercore did not immediately respond to requests for comment.

Diversification and complication

Richemont, facing similar challenges for its YNAP online business, which includes Net-a-Porter, struck a deal in 2022 for Farfetch to eventually take control of YNAP - a deal involving the transfer of Richemont's labels to Farfetch's technology. Farfetch is not just an online marketplace. It's also a technology company that powers e-commerce for high-end British department store Harrods, Italian fashion house Ferragamo, and is in the process of doing the same for US department store Bergdorf Goodman. On November 10, Richemont expressed confidence in Farfetch's technology, but said it would not inject cash into the company.

Farfetch and Net-a-Porter are also looking to attract customers with exclusive offers from the brands. Farfetch recently offered early access to pre-spring looks such as a Dolce & Gabbana floral print dress for EUR 1,950 and Net-a-Porter sold a limited-edition Gucci wool skirt for EUR 1,700, adorned with a horsebit, ahead of its official release this month. But discounts, which brands fear will devalue their image, remain a major attraction for online marketplace shoppers.

"Big brands will be reluctant to engage, as they strive to implement high price discipline and stay away from promotions, while weaker brands will play along," Bernstein predicted in a 2019 note to clients. Farfetch embarked on a diversification strategy that year, buying brands and licenses to distribute them, such as streetwear brand Off White, thanks to the acquisition of New Guards Group.

In 2022, he entered into a licensing agreement to distribute Reebok products and moved into beauty with the purchase of Violet Grey, taking control of products to potentially attract buyers to his site - although he has since withdrawn from beauty and said in August that he was considering options for Violet Grey.

But slowing demand for luxury goods in China and the US has complicated his efforts to turn a profit, while critics say the business has become too complicated. Olivier Abtan, consultant at Alix Partners, explains that when a retailer is under strong sales pressure, coupled with profitability problems, it may be tempted to increase discount levels - but this can become a vicious circle. "In my experience, when a business isn't doing well, the high season doesn't help it improve, but rather tends to exacerbate the decline," said Abtan.