Farfetch Tie-Up with Neiman Marcus a Shrewd Move For Both Parties

Farfetch Tie-Up with Neiman Marcus a Shrewd Move For Both Parties

Today Farfetch and Neiman Marcus announced a tie-up which covers a number of elements:

1 - Neimans gets a financial shot in the arm. Farfetch just invested $200M in Neiman Marcus.

I estimate that this gives it something like 4% - 6% ownership of the business if you assume that their valuation is something like $4.5B which approximates their 2019 sales, which they are off that pace now. But it's on the order of magnitude.

Not immaterial. Coming off bankruptcy 2 years ago, Neimans continues to need partners who have a similar vision for the luxury segment, but have deep pockets.

Getting a "strategic investor" that believes in the vision is a smart move for Neimans at this phase.

2 - Farfetch gets a new platform customer.

While the cross-border industry likes to talk about Global-E and ESW, there is another large player in the cross-border space and that is Farfetch. They have been slowly putting together a global eCommerce platform stack incorporating inventory management, logistics, Chinese distribution, content management, and customer service -- all focused on the luxury space.

Farfetch has a partnership with Alibaba, and had previously partnered and large investment from JD. Put another way, JD is a small owner in NMG now.

Most of Farfetch digital revenue comes from third-party transactions on its marketplace.

What does this signal?

I think this is a huge move for both parties.

- Neimans needs capital to continue investing in transformation.

- Neimans needs the ability to show fresh new international brands to its luxury shoppers, which Farfetch can provide.

- Farfetch needs to continue to build another major revenue stream in technology and services - and not just rely on fickle consumer tastes on its own marketplace -- although it has a good position there.

- I expect to see Farfetch to leverage its good valuation positions to secure other retail partnerships in large markets like Tokyo, London, Shanghai, and elsewhere -- particularly where it can benefit from the upside of the partnership and build its stickier services revenue stream.