GENEVA, Switzerland — At the risk of making the understatement of the summer, investors are not taking well to Farfetch's evolving business model, hyperactive M&A and disappointing profit performance. Indeed, the recent market correction has been severe, sending shares to all-time lows this month.

To be sure, Farfetch founder José Neves and his team have quickly built one of the broadest and most compelling luxury fashion propositions on the internet. They wisely chose to engage with third-party retailers first, rather than directly targeting luxury brands, which, for years, resisted e-commerce and have only recently recognised the strategic value of digital.

With multi-brand stores, Farfetch found fertile ground: for years, luxury brands had neglected wholesale distribution, while concentrating on their direct retail channels. Many of the independent stores that Farfetch targeted had shiny reputations and glorious pasts but were suffering from an increasingly complex and competitive market. The prospect of their piggybacking on a global distribution platform, allowing them to extend their reach beyond their local markets, and adding to both top and bottom line seemed a no-brainer and a godsend. Thus, Farfetch was able to rapidly build a network of retailers and assemble a vast offering of brands.

This offering allowed Neves and his team to go to brands with a compelling message: We sell your products already, as we source them from your wholesale customers. Why don’t you supply us directly? You will be able to control your image more effectively and save a lot of money. In fact, you give your traditional wholesale customers a 50% discount on your retail prices; we can work with a fraction of that. For some brands, this also looked like a no-brainer and a godsend, especially those who were behind in direct digital distribution. Take Prada, for example, which was late to the e-commerce party and has been keen to tap the fast-growing channel but lacks a mature digital platform of its own. Being on Farfetch boosts the brand’s top line and profit.

But Farfetch’s no-brainer, godsend proposition has some insiders scratching their heads.

1. Independent multi-brand retailers likely make little or no money on the extra revenues they generate through Farfetch. This makes sense when one examines the platform's 30%+ average "take rate" (which likely includes single-digit percentage commission for mega-brands) and its slew of promotions and discounts, partially co-financed by retailers. Many of the smartest independent multi-brand retailers have therefore decided to keep the hottest styles to themselves for direct sale in-store, uploading to Farfetch only the styles they are less sure about. As a result, the look and feel of the platform is less compelling than its direct retail competitors.

2. Mega-brands may start to wonder whether helping to create a "winner takes all platform" for fashion is such a good idea after all. Farfetch aims to become an Uber-like platform for luxury. That is appealing to Farfetch and its shareholders, but it should cause concern for other industry players. Mega-brands have been accustomed to getting better terms from shopping mall operators in China, for example, and maintaining them over time. But getting preferential terms from a "winner takes all" platform is not going to last. Once that platform becomes too big to avoid, it will dictate terms to the very brands who helped it grow. This is a very different dynamic to the one that brands have with, say, the best shopping mall in Chengdu. One could understand Gucci helping Farfetch grow to prominence with a series of partnerships if parent company Kering had a stake in the company, but that's not the case.

3. Smaller brands are already experiencing the shape of things to come. Far from removing overlapping products from the platform's wholesale partners and enforcing stricter price discipline and tighter control of distribution, Farfetch has recently discontinued, at times, its geo-pricing controls. Luxury brands often sell their products at different prices across the world; their direct dot com operations match prices found at local mono-brand stores. And when wholesale partners on Farfetch sell products at the European price to customers in the USA or Asia, the brand.com sales in those regions plummet, because local clients flock to what they see as 20 percent to 30 percent cheaper prices. For the moment, this has happened to second-tier brands, due to their weaker relative bargaining power. But as Farfetch grows, will bigger brands be immune?

Confronted with these challenges, Farfetch has been hyperactive on M&A and its latest deal, the acquisition of New Guards Group (NGG), seems to hint at a change of business model. It’s one thing to come to the market with bolt-on moves like the acquisition of streetwear marketplace Stadium Goods for $250 million, or with moves aimed at supporting geographic expansion like the acquisition of JD.com’s luxury platform Toplife for $50 million. But acquiring New Guards for an enterprise value of $675 million, is a completely different matter.

New Guards has birthed many of luxury streetwear's most hyped and successful brands, including Virgil Abloh's Off-White. And, in theory, the purchase positions Farfetch to build out its own private label platform, through which it can launch, test and scale brands. But why should the market believe that Farfetch has the skills required to create brands, when its core business is distributing them online? What is the rationale for this acquisition less than a year after its IPO, when management should be concentrating on executing the vision they have sold?

Farfetch’s latest results did not instil confidence. Earlier this month, Farfetch announced disappointing profit performance and said steep competition and heavy discounting were weighing on growth. Why is Farfetch reducing its gross merchandise value (GMV) growth rate guidance, despite post-IPO acquisitions (Stadium Goods, Top Life) aimed at propping it up?

It is ironic that Farfetch, in its results, cited a highly promotional retail environment as part of its rationale for committing more resources to promotions. Our analyses indicate that Farfetch has been leading the promotions game. And therein lies the rub: promotions have certainly helped Farfetch drive rapid growth, but along with its lack of geo-pricing discipline, they have also put the platform on a collision course with many of its brand partners (as well as with its original multi-brand boutiques). Farfetch cannot afford to fall out with key brands — especially at a time when the brands are rapidly dialing back on wholesale — and the notion that the market will be less promotional in a few quarters sounds more like a hope than a plan. Hence, Farfetch has to abandon the concept of a winner-takes-all-platform built on the lowest prices.

But this has implications for growth, and a maturing growth profile will have to go hand-in-hand with more sanguine prospects for profit. It’s not surprising, then, that more muted GMV growth guidance coupled with timid profit forecasts have been taken badly by the market.

Luca Solca is head of luxury goods research at Bernstein.

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