Farfetch shares fell as much as 50% on Wednesday despite reports its founder may take the luxury online retailer to private after its value plummeted.
Farfetch was due to announce quarterly results on Wednesday, but has postponed it, saying that “it will not be providing any forecasts, or guidance, at this time. Any prior forecasts, or guidance, should no longer be rely upon”.
Richemont, a Swiss luxury company that was one of Farfetch’s biggest backers, said it also had no further plans to invest in the group.
Jose Neves is exploring taking the company private with JPMorgan and Evercore advisers, according to sources with knowledge of the matter.
JPMorgan, Farfetch and Evercore all declined to comment.
Market value of the company peaked in early 2021 at $23bn as luxury shopping boomed. Since then, it has dropped to less than 400mn. Since it was listed in New York, the shares have lost over 95 per cent of value. The shares rose 22 per cent on Tuesday in US trading after the first report of the potential plan to go private.
Neves controls 77 percent of Farfetch’s voting rights due to the dual-class structure of shares. Richemont is not the only large investor. Alibaba, a Chinese e-commerce company, and Artemis are also big players.
Richemont owns Cartier, Van Cleef & Arpels and other jewellers. The company agreed to sell a share of its Yoox Net a Porter fashion and accessory platform in 2020 to Farfetch, but due to regulatory delays, the deal is yet to be closed. The transaction would be affected by a delisting.
Richemont said on Wednesday that it is “carefully” monitoring the situation, but has no plans to inject new funds into Neves’s company.
The Swiss group stated that Richemont “would like to remind their shareholders that they have no financial obligations towards Farfetch, and that it does NOT envisage lending or investing in [the company].”
Farfetch is an online retailer of luxury goods. It sources its inventory directly from luxury brands and boutiques, as well as from independent boutiques. It licenses its technology to department stores and brands, including Harrods.
Online shopping for luxury is different from other sectors of ecommerce because major brands like Hermes and Louis Vuitton control the distribution and view their high-end shops as essential to wooing customers. Top brands are selling online through their own websites, and they do not want to give up control of their carefully curated images and pricing.
Farfetch, despite its growing revenue and staff of more than 6,000 employees at its peak, in 2021, has reported consistent operating losses for the last five years. Neves justified this by stating that the company is still in an investment mode. The company’s business model also suffers from a high cost structure and low margins.
EU regulators approved Farfetch’s deal with Richemont last month. Farfetch agreed to take a 47.5% stake in Yoox Net-a-Porter in exchange for Richemont receiving Farfetch’s shares. Farfetch would have the option to buy the rest of the company within the next five-years, and Richemont could sell the shares to other investors.
Richemont has a costly problem with Yoox Netporter. It has lost market shares to competitors who are more agile, such as Farfetch. They have also failed in their technology upgrades. Richemont removed the ecommerce platform from its balance sheet, and had to write down the amount of €3bn several times.
The value of Farfetch’s shares has dropped dramatically since the acquisition, from $10 per share to $1 today.
“Richemont will have to accept a much lower price for Yoox Net-a-Porter, or agree new terms with Farfetch.” “Taking Farfetch public could facilitate a new deal,” said Rogerio Fujmori of Stifel.
He said that given the fall in Farfetch share prices and Neves’ control of voting rights, the market might see a buyout for the company as the best way to solve its problems without external pressure.