Alibaba and Farfetch seek digitally transformed luxury market

A Chinese e-commerce giant and an online luxury fashion retailer are forming a new joint omnichannel venture.

As part of a new global partnership that will also include investment from Swiss luxury goods company Richemont, Alibaba will launch Farfetch luxury shopping channels on its Tmall Luxury Pavilion, Luxury Soho, and Tmall Global platforms.

In addition, Farfetch and Alibaba will leverage their platforms and augmented retail (AR) technologies to accelerate the digitization of the luxury industry. The new channels will expand the reach of Farfetch’s global luxury platform to Alibaba’s 757 million consumers and offer luxury brands a multi-brand solution through a single integration with Farfetch. 

Alibaba and Farfetch intend this integrated solution to provide luxury labels with an opportunity to elevate their brand awareness while expanding their addressable market of luxury consumers. For luxury consumers, this will provide multiple ways to shop either through the Farfetch integration or the existing Net-a-Poter integration on Tmall Luxury Pavilion. 

The e-commerce companies are also launching a new initiative, Luxury New Retail (“LNR”), which will leverage Farfetch’s and Alibaba’s omnichannel retail technologies to serve the needs of luxury businesses, including a full suite of enterprise solutions powered by Farfetch. These solutions will serve both mono-brand and multi-brand distribution strategies for luxury brands, including fully-connected e-commerce websites and apps, omnichannel retail technology, and access to the Farfetch and Tmall Luxury Pavilion marketplaces via a single integration. 

Farfetch and Alibaba have also formed a steering group to further enhance the LNR initiative. Richemont chairman Johann Rupert and luxury holiding company Artemis chairman François-Henri Pinault will join Farfetch and Alibaba on the LNR steering group as founding members.

Alibaba and Richemont will invest $600 million USD ($300 million USD each) in private convertible notes issued by Farfetch Limited. Alibaba and Richemont will also invest $500 million USD ($250 million USD each) in Farfetch China, taking a combined 25% stake in a new joint venture that will include Farfetch’s marketplace operations in the China region. In addition, Alibaba and Richemont have an option to purchase a further combined 24% of Farfetch China after the third year of the joint venture’s formation. 

Furthermore, Alibaba and Richemont will explore additional opportunities to work with Farfetch to provide services to luxury brands. The investments by Alibaba and Richemont in Farfetch China and the establishment of the joint venture are expected to be completed during the first half of calendar year 2021, subject to the satisfaction of closing conditions. 

“This announcement is a major step in our mission to connect the curators, creators and consumers of the luxury fashion industry,” said José Neves, Farfetch founder, chairman and CEO. “The $1.15 billion investment in Farfetch from Alibaba Group, Richemont, and Artemis is a strong validation of our position as the global platform for luxury. The new initiatives with Alibaba Group and Richemont extend Farfetch’s strategy to power the digital transformation occurring across the luxury industry, which has been accelerated by the unprecedented challenges resulting from the COVID-19 pandemic. The Luxury New Retail initiative will explore ways we can help the wider industry move forward and thrive in the post-COVID world.” 

“This highly complementary partnership brings together some of the world’s leading luxury retail and technology platforms, representing another milestone in Alibaba’s strategy to meet the rapidly growing demand for luxury products in China,” said Daniel Zhang, chairman and CEO of Alibaba Group. “The Chinese luxury market – which is expected to account for half of global luxury sales by 2025 – consists of hundreds of millions of young, digitally-native consumers. By partnering with Farfetch and expanding our existing relationship with Richemont, we will accelerate the digitization of the global luxury retail industry and transform the luxury shopping experience for consumers.” 

Goldman Sachs International acted as lead financial adviser and Allen & Company LLC acted as financial adviser to Farfetch.