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LUXURY

Duelling Visions for Online Luxury in

Mytheresa and Farfetch’s Latest Results
Success online during this past year was hard-won, but questions remain about
which players will be best positioned for the post-pandemic world.

Farfetch's shopping features | Source: Courtesy

By CHANTAL FERNANDEZ
26 February 2021

BoF PROFESSIONAL

Farfetch and Mytheresa both reported booming sales in their latest results on Thursday, as the pandemic
continued to send more shoppers hunting for high-end goods online. The question facing both companies is
what will happen as luxury shoppers are once again able to travel and visit physical stores.

Farfetch is still the giant to beat in the space, and the market agrees. Its stock price has increased 546.5
percent over the last year. This week, Credit Suisse analyst Stephen Ju predicted the marketplace will grow
its active user base tenfold by 2026, driven by its new joint venture in China with tech-giant Alibaba. Its
goal remains to grow very large, very quickly: an official launch on TMall is due in the first week of
March, and an expansion into the beauty market in 2022.
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The company sold more than $3 billion worth of goods in 2020, up 49 percent year-over-year, generating
revenue of $1.7 billion and achieving positive adjusted EBITDA in the fourth quarter for the first time.
Profitability is still the goal for 2021. The company reported lower operating costs in 2020 and said
customer acquisition costs declined to more efficient customer targeting. It also said discounts decreased in
2020 as brands took more control over their sales channels.

Mytheresa is aiming to succeed in a different lane: the wholesale retailer is hoping its high-income
customers and close relationships with luxury brands keep it growing steadily, if slower than Farfetch, even
after the pandemic. It has the advantage of running a profitable business model for years, reducing the
pressure to expand at a breakneck pace, though as a newly public company it must show it has momentum.

Mytheresa

At the German-based online luxury retailer’s first earnings call as a public company on Thursday, the
company’s leader hammered a clear message: we are stable, profitable, debt-free and growing.

But in a competitive market where luxury brands hold substantial leverage, even a clean balance sheet and a
wealthy audience may not be enough to survive. Some analysts, like Berstein’s Luca Solca, believe it is yet to
be seen if there is a “viable and profitable competitive space for a differentiated multi-brand digital retailer,”
like Mytheresa, which he said is undermined by high customer acquisition costs, over-reliance on Europe
and low average order value. Other analysts, like Flavio Cereda of Jefferies, see Mytheresa’s strong
financials, fruitful relationship with key brands, high-net-worth customer base and potential for global
expansion as strong advantages.

Its latest results were in line with or better than analyst expectations. In the last three months of 2020, the
all-important holiday season, Mytheresa reported net sales grew 33 percent to €158.6 million ($194
million), thanks to a record number of first-time shoppers. And during the last six months of the year, net
sales increased 30 percent to €285 million, with an adjusted EBITDA of €32.6 million up from €17.2 million
during the same period last year. Net income was €25.4 million ($31 million), up from €2 million ($2.4
million) the prior year. Growth was stronger in Europe and the US than Asia Pacific, where customers are
more comfortable going to stores.

Shares ended down 4.7 percent on Thursday at $30.98.

Chief executive Michael Kliger was careful to stress that the company’s recent growth was due to more than
just store closures amid pandemic lockdowns. He argued that the company is well-positioned to capture a
significant part of the growing share of online luxury shares, projected to represent 30 percent of the market
by 2025, by focusing on ultra-high net worth customers who represent the top 30 percent of the luxury
personal goods market.

Mytheresa’s differentiator, the company posits, is a higher-end and more highly curated product offering
than its much larger competitors, including Farfetch and Net-a-Porter. The company said the top 30 percent
of its customers spend more than €15,000 with the company each year on average.

But finding and catering to those customers is expensive, and its customer acquisition costs are more than
three times higher than that of Farfetch, according to a January note from Bernstein’s Solca. Mytheresa
reported that customer acquisition costs have decreased recently, without disclosing metrics. Kliger said the
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company is aiming to cut back on marketing to customers with less propensity to buy and allocating more
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The company still has work to do to increase its brand awareness with consumers. “We believe there is still
more opportunity to improve online marketing efficiencies,” said Kliger. “We will continue to invest heavily
in our growth while not needing or wanting to sacrifice our current profitability level.”

Mytheresa’s wholesale-reliant model, where it buys products and sells them at a markup, is another concern
for investors, as many top brands have moved toward a direct sales model in recent years. Kliger said the
company was in talks with brand partners to “increase merchandise availability,” with potential concession-
style deals through the platform. As more luxury brands push to shift more of the sales direct-to-consumer,
multi-brand platforms are pivoting to maintain those key relationships. Recently, Net-a-Porter agreed to a
deal with Prada to drop-ship its products instead. Farfetch has already invested in “e-concession”
relationships with brands.

We always stressed that our model probably will evolve as the industry overall evolves.

“We always stressed that our model probably will evolve as the industry overall evolves,” Kliger said. “We are
in discussions with some major brands that would allow us to have on a more continuous basis, access to
products, more products.... Nothing has been developed and also fully laid out in terms of financials.”

Mytheresa’s ability to offer limited-edition or special products from luxury brands will be key to growing its
customer base. “Access to more selection, more access to items that are already sold out, items that are
limited distribution is [all] highly interesting to our customers,” said Kliger.

Farfetch

Mytheresa will have to fight harder for access to limited-edition product as Farfetch continues to expand its
dominant reach across the industry with both consumer-facing sales and brand-facing services.

“Farfetch has made the most of the digital luxury acceleration produced by the Covid-19 pandemic,” Solca
said in a note.

Gaining market share and investing in the Chinese market, the second largest region for the marketplace,
remain the top priorities for Farfetch. Other key areas of focus include forming deeper partnerships with
luxury brands through e-concessions and store services and creating a stronger brand identity for Farfetch
with consumers both in the West and in Asia.

“Building our brand is a tremendous opportunity, I always joke that we are a bigger business than we are a
brand,” said founder and chief executive Jose Neves in an interview.

Neves defended Farfetch’s e-concession model, which counts 550 brand partners. He said it cost millions of
dollars and six years to develop the technology, that offers a brand’s entire product offering online, and
similar models on the market are simply a “financial arrangement” by which brands get better margins and
retailers barely benefit. With a new system that Farfetch is offering to Burberry, Harrods has access to all of
the British brand’s products from its mono-brand stores and distribution centres, which are then drop-
shipped to Harrod’s online shoppers.

Farfetch’s owned brands through New Guards Group saw strong growth in 2020, too, with revenue more
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than doubling to $390 million and a profit margin of 48.9 percent. Chief financial officer Elliot Jordan
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