After Farfetch announced its Q2 2023 earnings, it generated a question for me: should marketplaces like Farfetch own brands?
The company acquired New Guards Group in 2019 for $675m and acquired the beauty brand Violet Grey in 2022. In both cases, adding additional revenue opportunities on top of the Farfetch platform was provided as reasons for buying these businesses.
Fast forward to last week’s earnings, and Violet Grey is being shut down as beauty customers are not similar to Farfetch’s typical customer, who has a higher average order value and is focused on high-end fashion items. New Guards Group has seen management changes and has not performed as expected.
New Guards Group contains ten international brands: Marcelo Burlon County of Milan, Off-White c/o Virgil Abloh, Palm Angels, Unravel Project, Heron Preston, Alanui, Kirin Peggy Gou, Opening Ceremony, Ambush and There Was One.
Should marketplaces own brands?
- Marketplaces and brands don’t share incentives - marketplaces want more brands, sellers, and buyers, while brands want to generate revenues and sales.
- Farfetch also owns the Reebok license - to add additional concern for non-marketplace-owned brands, who will believe these brands have a beneficial relationship with the marketplace.
- Adding platforms on top of a marketplace such as a brand or a beauty platform - requires additional services required by the marketplace to solve these solutions. But at what cost?
- Retail platforms use private labels to extract additional value, which is entirely different from owning brands, and requires skills that are different from marketplace management.