In the gold rush the best business is selling shovels

After the largest IPO in history being from an online company (Alibaba), we now have an online fashion retailer raising US$86 million in investment at a valuation of US$1000 million. 

It is not the first time that an online retailer has reached these figures, but this company has the particularity that, despite being based in England, it was founded and is managed by a Portuguese CEO, José Neves. This Portuguese entrepreneur created Farfetch in 2008, a company that has just entered the prestigious club of unicorns, as the 80 or so startups worldwide valued at more than US$1 billion are known.

‘In the gold rush the best business is selling shovels’ according to the saying. At a time when selling online is starting to stop being an option and start being a must, Farfetch takes advantage of this trend. The company operates a marketplace where fashion brands, mostly luxury, sell their products online. The site has more than 300 brands that use the site as a platform to sell to their customers worldwide. Farfetch makes its technology, payment methods, customer service and order control available to these brands. For the services offered, Farfecht charges a commission for each transaction. This type of model presents an interesting solution (although it should not be the only channel for most companies) for brands that want to be online and do not have the expertise to compete in this channel.

As usual with large valuations and investments, many people question whether Farfetch is really worth US$1000 million. The company is said to currently have a turnover of around US$300 million and is not yet profitable. According to Farfetch, the investment is intended for the company’s international expansion. Several journalists were quite critical of the valuation as some startups dear to investors in similar businesses, such as GILT Group and, have had many problems and have lowered their valuations.

However, Farfetch has some advantages over these companies. As a marketplace, Farfetch has no inventory, one of the biggest risks and problems for fashion companies, and the shipment of products is done by the brands. The company also has a higher margin than normal. It is estimated that it charges 25% per transaction compared to fees of other market places closer to 6%.

Whether it’s worth $1 billion or not, having a Portuguese founder and CEO is a great source of pride and José Neves is to be congratulated for all he has achieved. We are rooting for the company’s valuation to rise and wish José and Farfetch the best of luck.

David Bernardo
David Bernardo
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