(Miss this week’s Leadership Brief? This interview below was delivered to the inbox of Leadership Brief subscribers on Sunday morning, Feb. 14; to receive weekly emails of conversations with the world’s top CEOs and business decisionmakers, click here.)
In its annual forecast issued in November, Bain & Co. said that global luxury-goods sales were set to plunge 23%, to $258 billion, in 2020. So it’s an odd time for a company selling $2,145 Dolce & Gabbana leopard-print cashmere sweatpants and $975 Balenciaga two-tone sneakers to be thriving. But one of the most persistent, unsettling dynamics of the pandemic’s impact is that the rich are getting richer, and with fewer weekends in St. Bart’s and tasting menus at Le Bernardin, there is even more disposable income available for some luxury items.
Farfetch, an online shopping platform that provides access to many of the world’s most expensive brands including Fendi, Gucci, Prada and Thom Browne, outperformed the industry due to a new willingness on the part of shoppers to buy luxury goods online. (While Farfetch sales hit record levels in its most recent quarter, the startup still has yet to post a profitable quarter as a public company.) In retail parlance, luxury-goods sales have been “underpenetrated” online, but the pandemic is changing that. José Neves, the founder and CEO of Farfetch, says the company has added 900,000 customers in two recent quarters. He says customers are also getting more comfortable buying expensive items online. Farfetch has sold a $1 million gold jewelry set and collectible sneakers for hundreds of thousands of dollars, said Neves.
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Neves believes that the move to online shopping for luxury items is a “complete, complete paradigm shift” that will last beyond the pandemic as people have gotten more comfortable buying expensive clothes without trying them on. Such willingness has gotten a boost from new technology: Farfetch customers in China can virtually try on a pair of sneakers using “sophisticated 3-D geometry algorithms, together with neural networks, that identify the position of the shoe in space and apply it to the users’ feet,” according to the company. Online sales make up about one-third of many retail categories, a level that Neves thinks luxury could reach in five years, up from about 12% before the pandemic. “Fashion will never be 90%, but it will certainly be north of 30% to 35% in the next five years or so,” he says. According to the Bain report, online sales accounted for 23% of all luxury sales during the pandemic.
Farfetch’s growth prospects are also bolstered by a major partnership, announced late last year, with Alibaba and fashion conglomerate Richemont to further expand Farfetch’s reach in China and beyond. The Chinese luxury market is expected to account for half of global luxury sales by 2025, according to Daniel Zhang, CEO of Alibaba.
Before launching Farfetch, which has made him a billionaire and one of the richest men in his native Portugal, Neves spent a stint designing shoes. Neves recently joined TIME for a video conversation on “revenge shopping” in China after the pandemic, why he doesn’t see Amazon as a threat (yet) and his “brutally honest” assessment of how businessmen dress.
(This interview with Farfetch CEO José Neves has been condensed and edited for clarity.)
So what are people buying right now?
What we found out is that if you love fashion, you didn’t stop loving fashion just because of COVID. We have obviously seen a change in the categories. Things like evening wear—people are not buying that kind of fashion. For more formal fashion accessories, like high-heeled shoes, it’s tough these days. What we’ve seen is that people are buying more stay-at-home fashion, a lot of athleisure. But what’s interesting is that people continue to shop. For certain designers that are more specialized in red carpet, or that kind of thing, that’s what’s been suffering a little bit.
People are still buying high fashion. It’s not just nice cashmere sweatpants?
Absolutely. They’re buying real outfits. Our average order value dipped in the second quarter, and then it recovered so we’re back to where we were roughly one year ago. But what is in the shopping basket has changed. Before we would see a pair of stilettos and a long dress. Now you’ll have a pair of sneakers and a blazer and maybe a T-shirt, but still very high-end.
What’s the average purchase, or shopping-basket value?
It’s around $600.
It sounds like “all dressed up and no place to go.” Where are people wearing these clothes?
They’re wearing them in their homes because they’re having a Zoom meeting; they’re having Zoom parties. It’s very difficult to understand if you don’t love this part of culture. People who love fashion will continue to buy and wear and share it with their friends.
When the pandemic ends, will people rush to buy clothes for galas and red-carpet events, or will they find out they are quite happy without them?
It’s very difficult to predict. In China, what we saw was a bit of revenge shopping. I think that there could be a little bit of pent-up demand.
You had strong third-quarter sales. Is this a blip, buying high fashion online, or will people be thrilled to go back to Bergdorf’s?
One thing we’re very confident of is that a lot of people discovered buying fashion online, and they’re not going back. In the last two quarters, we added 900,000 new customers, which is a lot for us and for this industry. And of course, the question that everyone’s asking is: Are these customers going to stick around? Indications are really, really strong.
What are you seeing in the data that makes you so confident?
We look at several metrics: repeat purchase rate, and the time between the first and the second purchase. And the time between the second and the third purchase, and how the average order value progresses, because the first purchase is a lower value, as you would expect. The second is higher, and the third is at higher value. Income is the other thing, right? That’s why categories such as home are doing so well. There’s a lot of budget that was released. You’re not traveling anymore, and you’re not spending on fancy restaurants, so all that is suddenly available to spend in other categories.
What home items are selling well for you?
For clothing, what about fit, which is so essential? How can you replicate trying something on in a store to see if the fit is flattering?
It’s the billion-dollar question. We have a lot of effort, brainpower going into solving that problem. You can switch models. Let’s say you’re very skinny and very tall: you can change to a skinnier model.
What about Amazon’s foray into the luxury business?
They launched Amazon Luxury Stores last year. They’ve been trying for a few years now. They’ve been trying to hire the right people to bring the brands on board.
How are they doing? Are they a threat?
You should never underestimate Amazon. When these guys enter a category, they enter big and they enter to win. On the other hand, the current reception from the industry—and the consumer, personally and unbiased—I think was a little underwhelming. They have a very small number of labels, none of the big names, none of the big groups have really embraced the platform. My view is that the Amazon brand has nothing to do with luxury; the Amazon brand has everything to do with convenience, price, value, speed; it doesn’t have any emotional appeal. I think they have a brand problem.
(An Amazon spokeswoman said, “Since unveiling Luxury Stores with Oscar de la Renta’s store, we’ve launched Roland Mouret, La Perla, Altuzarra, Clé de Peau, Car Shoe, RéVive Skincare, Mark Cross, the Conservatory and Elie Saab. We’re equally delighted with the interest we’ve received from both emerging and well-known fashion houses worldwide.”)
A philosophical question: Given what’s going on in the world, with so many people suffering and out of work, is there something a little obscene about people spending so much money on nice clothes right now?
Fashion is part of culture. It has been part of human culture for millennia. And people are going to continue to engage in culture, and whether it’s fashion or music or art or literature. It’s essential for us as human beings. The other thing I would point out is the worst thing that can happen in any economy is a freezing up consumption. If people stopped shopping for fashion, look at the shops that would be lost: the boutiques, the department stores, the designers, the factories. And at the end of the supply chain is a worker in India, or Turkey. Consumption is not evil. Consumption is essential for the economy. Excessive consumption has its problems, like anything excessive in life.
What was your favorite type of shoe to design?
Completely outrageous. Totally bonkers. Believe me, crazy. I was not on acid, I promise.
How would you characterize how the average American businessman dresses?
Can I be brutally honest? The average businessman anywhere in the world doesn’t care much about fashion, do they? It’s a very male behavior, and I’m one of them. I’m wearing black T-shirts, six out of seven days a week.