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Why Farfetch and Neiman Marcus Need Each Other

As the industry consolidates further, the online luxury platform will invest up to $200 million in the American department store group, powering its tech in the hopes of gaining a stronger grip on the US market.
Neiman Marcus is investing $200 million into the redesign of stores like its Forth Worth, Texas location
A Neiman Marcus store in Forth Worth, Texas. (Neiman Marcus)

The online luxury market is in consolidation mode, and Farfetch is leading the charge. On Tuesday, the company, which runs its own luxury marketplace, offers white-label technology solutions and owns a stable of other businesses — including brand accelerator New Guards Group, sneaker seller Stadium Goods and beauty retailer Violet Grey — announced that it was joining forces with the US-based Neiman Marcus Group (NMG).

As part of the deal, expected to be completed by the third quarter of 2022, NMG will move the website and mobile applications of its New York department store Bergdorf Goodman over to the Farfetch platform. The Neiman Marcus brand, which operates over 35 full-line stores in the US, will leverage some of Farfetch’s technology. Bergdorf Goodman and Neiman Marcus will also sell on Farfetch’s marketplace, with Farfetch investing up to $200 million in the NMG business.

José Neves and Geoffroy van Raemdonck, chief executive officers of Farfetch and NMG, respectively, said that the long-term nature of the agreement meant that the Neiman Marcus website, which generates a large portion of the company’s overall sales, may at some point be powered by Farfetch.

In 2021, NMG said it would spend about $500 million on new technology, including its “Connect” app, which allows in-store associates to better communicate with customers, and the acquisition of software-as-service platform Stylyze, which creates store-like customer experiences on e-commerce. The Farfetch cash, and tech support, frees up NMG to an extent. Its current plan is to pour $600 million into the business, to include supply chain enhancements, $250 million worth of store renovations and $200 million on tech.

The partnership is a significant win for Farfetch’s white-label business, which offers both multi-brand retailers and single brands a suite of plug-and-play products, from full-blown websites and consumer-facing applications to customer relationship management systems used by store employees. While department stores like London’s Harrods have partnered with Farfetch in recent years, NMG is by far the biggest retailer to join the marketplace, with annual sales of over $4 billion pre-pandemic.

Since its debut on the public market in 2018, Farfetch has positioned itself as the leading consolidator of online luxury, building what it considers to be an ecosystem that starts with brand creation (New Guards Group) and ends with several options for the customer, including its own platform, but also British department store Browns and the growing list of retailers who use Farfetch to power their own websites. Last year, the company confirmed that it was in talks with Compagnie Financière Richemont to partner with longtime rival Yoox Net-a-Porter Group, sparked by Farfetch’s joint venture with Richemont, which currently owns YNAP, and Chinese tech giant Alibaba.

Neves said that Farfetch continues to “have those conversations” with YNAP, and is also in talks with other brands about using its white-label service. A deal with NMG, however, gives Farfetch a particular advantage in the US, where a new generation of consumer is emerging. During the pandemic, younger people, and those in lower income brackets, began spending more on luxury than ever before, and existing customers with a surplus of disposable income turned more of their spend toward physical goods.

Farfetch CEO and José Neves and Neiman Marcus Group CEO Geoffroy van Raemdonck.

NMG’s vast network of stores in the US also more closely connects Farfetch to the American consumer offline. Bernstein analyst Luca Solca called the deal “a strategic opportunity for Farfetch to stand out among service providers and to benefit from the strength of the local US customers” in a recent note.

However, Neves said that the current bump in the US market did not factor into the NMG deal. “This is not out of recent dynamics,” he said, noting that conversations with NMG have been ongoing for a while, and that his focus is on long-term opportunities.

For NMG, the partnership could alleviate challenges most retailers face when it comes to scaling globally online, offering options for e-commerce translation, international payments and worldwide shipping. In particular, Bergdorf Goodman, one of the most iconic American stores still in operation, is poised to grow faster with Farfetch tech support.

The move could prove pivotal for the group, which filed for Chapter 11 bankruptcy protection early in the pandemic, eliminating the majority of its $5 billion in debt. Today, it’s experiencing double-digit sales growth, with adjusted EBITDA (earnings before interest, taxes, depreciation and amortisation) doubling year-over-year.

But beyond taking advantage of easy-to-use technology, joining the Farfetch marketplace will also give NMG a sense of how the concession model can contribute to its top-line growth down the line. As major brands eschew traditional wholesale relationships to focus on direct sales, multi-brand retailers are increasingly offering up the concession model — where the brand essentially rents space in the store, or on a website, and the retailer takes a small cut of sales instead of managing the product themselves for a larger cut — as an option to keep them on board. (Last year, Net-a-Porter entered a concession partnership with Prada, which now sells the vast majority of its products direct-to-consumer.)

However, Van Raemdonck said that while he recognises that the multi-brand store business model “may” continue to evolve, e-concession is not currently part of the NMG plan, and that “maison curation,” or the ability for his team to choose the product sold in Neiman Marcus stores, is key to making the brand feel unique. (He cited a global exclusive with Prada, actually, as a proof point.)

Regardless, industry competition is only intensifying, and the partnership could be viewed as an offensive move that put both parties in a better position. Whether or not the YNAP deal finally materialises, the industry can expect to see more efforts to consolidate from Farfetch, as well as others.

Additional reporting by Tamison O’Connor.

Further Reading

On the heels of its first profitable year, the luxury platform is continuing on with a multi-pronged strategy to gain more market share, from a potential YNAP deal to a hundred-million-plus opportunity with Reebok.

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