A Marketplace Within a Marketplace: What does Tmall Mean for Farfetch?

Following the announcement of a global partnership between Alibaba, Richemont and Farfetch dating back to November last year, luxury retailer Farfetch officially kicked off operations on Tmall Luxury on 1 March. Users are now able to access its official store directly from the Tmall Luxury homepage. Farfetch isn’t the first global luxury retailer to establish a presence on Tmall – its predecessors include Net-a-Porter and Monnier Frères – but its timing might prove to be the most impeccable yet.

Chinese consumers have always been avid online shoppers, but not necessarily for luxury products. With the impact of the pandemic on overseas shopping and cross-border luxury sales, however, Chinese consumers have had little choice but to turn to domestic consumption. Besides offline retail, online luxury sales in China also started seeing a surge largely due to demand from consumers in non-first tier cities and the sluggish domestic travel market. As international luxury labels grew increasingly convinced about the online opportunity in China, Tmall Luxury saw its stable of brands grow rapidly throughout 2020.

Net-a-Porter’s tie-up with Tmall (Yoox Net-a-Porter and Alibaba entered into a joint venture in September 2020) might have received a great deal of media attention, but it is Farfetch that all the big tech players in China are vying for a piece of. In 2017, JD.com wholly-owned subsidiary Kadi Group invested a total of $397 million in the platform, and Farfetch launched its flagship store on JD.com in 2019 (before shuttering it on 31 December 2020). Despite its moderate successes in the China market, tech investors remained bullish about Farfetch, and in January 2020, it received a $250 million investment from Tencent and Dragoneer Investment Group. In November within the same year, a further $550 million from Alibaba (including $300 million in convertible bonds and a $250 million capital injection into Farfetch China)brought the retailer to Tmall.

Why Farfetch?

According to José Neves, Founder, Chairman and Chief Executive Officer at Farfetch, “What excites me the most is that here are 3,500 designers, 95 per cent of which did not have a store on Tmall, a very similar percentage did not have any e-commerce operation in China.” And now, they will all be featured on the world’s largest online marketplace.

The launch of Farfetch on Tmall will help expand Tmall Luxury’s brand portfolio and allow more niche brands to grow their businesses in the Chinese market. On top of that, Farfetch comes with its own set of unique traits – which is why it is highly favoured by investors.

Farfetch, as its name suggests, acts as a giant hub that distributes fashion pieces from more than 50 countries to consumers around the world. Unlike other luxury retailers such as Net-a-Porter and Matches Fashion that stick to the wholesale model inherited from traditional retailers, Farfetch functions like a marketplace of sorts, listing available products from brand or multi-label stores from cities all over. Essentially, Farfetch does not hold any inventory of its own, and ships out items directly from the boutiques. Although this model can sometimes be confusing for consumers – multiple listings of the same item and inconsistent pricing are par for the course – it gives consumers access to a large number of SKUs while reducing Farfetch’s own operational and warehousing costs. This model proved to be particularly advantageous when the pandemic hit, as inventory crunches and supply chain issues were significant factors in dragging down the profitability of brands and retailers. Farfetch’s model demonstrated its resilience and allowed the company to post a positive adjusted EBITDA for the first time, in the fourth quarter of 2020.

In addition to Farfetch’s innovation at the retail level, it has also been gradually building up its positioning as more than a luxury marketplace. Following acquisitions of boutique retailer Browns in 2015, sneaker retailer Stadium Goods in 2018, and most recently New Guards Group (the parent company of Off-White) for 675 million in September 2019, Farfetch is slowly shaping itself as global fashion conglomerate that not only has a diverse brand portfolio, but also its own proprietary business units like Black & White and Store of the Future to help luxury brands better navigate the fast-changing digital landscape.

For Chinese tech giants, Farfetch is not just yet another luxury e-commerce platform, but more importantly, a benchmark for the digital age of luxury. From its Store of the Future collaboration with Chanel to the AZ Factory World Tour, an innovative experience site in partnership with AZ Factory (a brand co-created by Alber Elbaz and Richemont group), Farfetch has been gradually presenting its broader vision of luxury to the world.

Playing By A New Set of Rules

Given its unique consumer behaviours and a digital ecosystem that is distinct from the West, international third-party luxury retailers cannot apply its global operational tactics in China. Those that did so struggled to find success in the market – Yoox Net-a-Porter, for instance, saw two of its platforms, The Outnet and Yoox, pulling out of China in early 2020. Net-a-Porter, on the other hand, pivoted to Tmall and is currently retailing both menswear and womenswear on the platform.

Farfetch was more than aware of this. So when it first dove into the Chinese market, the company took pains to simplify the user purchase journey by localising its official site and app, and supporting local payment methods including JD Pay, WeChat Pay and Alipay. It also opted to lean on big e-commerce marketplaces to expand its reach – first JD.com, and now Tmall. Since Tmall’s launch of Luxury Pavilion in 2017 – a walled garden that distinguishes itself from the main Tmall site – its appeal to luxury brands has grown tremendously, and it now has over 200 brands on board. Particularly during COVID-19, international luxury labels came to realise the value of online sales channels in China and top brands like Gucci, Prada and Hermès all opened flagship stores on Tmall.

As Stephen Ju, an analyst at Credit Suisse, wrote in a client note, the first six months of 2021 will be one of superlatives, but the real opportunity for Farfetch comes from its integration into Alibaba’s Luxury Pavilion. Farfetch currently has 3 million active shoppers, and Ju forecasts it can be multiplied tenfold over the next five years. Joining Tmall will also allow Farfetch to gain deeper insights into the Chinese e-commerce ecosystem and explore new marketing tactics, such as livestreaming or participating in Tmall’s shopping milestones.

At the same time, its partnership with Tencent has allowed Farfetch to refine its brand narrative. Farfetch launched the Farfetch Communities initiatives in 2019 to drive social engagement through curated content and help more people discover its products. Fashion insiders, trendsetters and creatives like Adwoa Aboah and Riz Ahmed were among those invited to curate style edits for the platform. This community strategy was also brought to China and localised as “Kangmiti”. In addition to bringing the complete e-commerce experience to WeChat via a Mini Program, Farfetch also worked in tandem with celebrities and influencers to launch themed pop-up e-stores. For example, Huang Jue’s Community Mini Program, launched in April last year, saw Chinese actor Huang Jue creating his wardrobe based on his three identities (celebrity, father and trendsetter), based on Farfetch’s product listings. The Mini Program also included a UGC module for users to share their outfits, further enhancing its social community aspect.

Farfetch’s localisation in China reflects the transformation that Western platforms and brands are expected to undergo when developing their online presence in the market. Brands need to adapt and evolve their operations and marketing methods, and not simply repurpose tactics used in other markets while hoping for the same level of success.

A Tipping Point For Luxury E-commerce

Chinese digital platforms tend to be more multi-faceted than Western ones, often spanning various stages of the consumer journey. They also have vastly different audiences, and content published on each platform needs to be catered to their tastes and preferences. As such, frontrunners in the digital race in China have developed distinct identities on each platform, understanding that each platform plays a unique role and is part of the wider China digital ecosystem.

The same goes for product listings on these platforms – many of which now have independent e-commerce functionalities. As such, the onus is on brands to develop a unique product mix and merchandising strategy for each platform to ensure that their presence on any given digital channel complements instead of competes with other channels.

Farfetch’s presence on both Tmall and WeChat shows complete understanding of this. Its pop-up stores on WeChat only offer a limited range of items and is supported by well-curated content assets, while its storefront on Tmall acts as the frontline of the brand’s e-commerce presence, giving consumers access to a wider range of product listings.

China’s rapidly evolving digital landscape is gradually altering the digital marketing mix of luxury brands. As the market grows increasingly fragmented, brands need to tailor specific journeys and accompanying marketing tactics for varying audiences across different platforms. In the turbulent year that was 2020, China became the core focus of many international luxury brands as other global markets continued to stall. The potential in this market has proven time and again to be vast – but the country’s sophisticated digital-native consumers and fast-paced digital landscape will continue to pose challenges for brands, and only the most agile and adventurous companies will be able to snag and retain a share of the coveted pie.

Cover Image: Farfetch