Farfetch’s Store of the Future: A strategic hedge against the e-commerce plateau.
Farfetch’s Store of the Future concept set off a bevy of mentions, analyses, and reactions. We’ve poured through the Business of Fashion, Quartz, and the New York Times to put the idea into context. (1,156 words)
LONDON — Farfetch’s ambitious Store of the Future (SoTF) concept, unveiled to select group in London last week, is the latest plot point in the omnichannel timeline. SoTF will be launching in beta this fall in London at Browns, and in New York at the Thom Browne flagship. The rest of the industry can expect a full roll out sometime in 2018.
Farfetch has set off a bevy of mentions, analyses, and reactions with this one. We’ve poured through the stories from the Business of Fashion (BoF), Quartz, the New York Times, and others, and plucked the best highlights to help place the SoTF into broader context for you. Enjoy!
1. What are Farfetch’s strategic motivations here?
For one, their e-commerce arm is at risk, something BoF, (politely) addresses, but tiptoes around without going into much detail. (Farfetch is in the BoF family; they share the same investor in Felix Capital). The numbers they point out should be of some concern to Farfetch:
“While luxury e-commerce is growing fast, the portion of personal luxury goods purchases that happen online — now about 7 percent of total — is expected to plateau at about 20 percent by 2025. This means that, for the foreseeable future, the vast majority of sales will still take place in physical stores.”
Likewise, here’s Tamar Koifman, head of marketing at the Digital Luxury Group speaking to Digiday: “[I]f Farfetch pulls it off, it will open a new revenue stream with no cannibalization of its core business.”
SoTF is Farfetch’s hedge against the e-commerce plateau. E-commerce continues to grow, but in reading these reports, it’s absolutely clear — especially by acquiring London boutique Browns in 2015, and by pushing this new SoTF concept — that Farfetch is bolstering the physical retail side of its business to make sure it’s not pinned down by an e-commerce plateau. The numbers above hammer that point home. This hedge is particularly important for their soon-to-be IPO, which is getting closer by the month.
Still, we’re not saying expect Neves to start buying a cluster of retailers or boutiques anytime soon — not that that’s out the realm of possibility. But it’s clear that in focusing more on the brick and mortar side of things, they’ve decided to bring the digital Farfetch approach to physical retail. It’s a smart play — as more retailers look to modernize their retail infrastructure Farfetch could become the turnkey upgrade they look to first.
Also, don’t underestimate Farfetch’s competition with YOOX NAP. Digiday assessed it best:
“Farfetch is starting to clip Net-a-Porter’s heels. To date, Farfetch has raised a total of $305 million, putting its valuation at $1.5 billion, following its Series F round of funding (which added $110 million) last year. According to Luca Solca, the head of luxury goods at BNP Exane Paribas, Farfetch has been growing 60 percent per year, and is on track to surpass Net-a-Porter as the largest online aggregator within two years.
Farfetch, which is rumored to be prepping for its IPO, brought in a projected $125 million in revenue in 2016. Yoox Net-a-Porter’s revenue totaled $1.9 billion. In February, Net-a-Porter founder Natalie Massenet, who exited her company when it merged with Italian off-season luxury retailer Yoox in 2015, joined Farfetch’s Board of Directors.”
2. What exactly is the SoTF, and what’s it bringing to the table?
Jose Neves calls it “an operating system for a shop”, the idea being that Farfetch provides the modular technology upon which stores, brands, and startups build their own “apps” to address their specific needs. That’s the idea, at least.
It’s anchored by three principles:
- Human Touch: “The store of the future is fundamentally about…empowering the staff in the shops to stop being inventory controllers and start being in-store influencers. Right now, they are inventory controllers.”
- Individualized Stores: “We absolutely do not believe there is one store of the future. There will be 1,000 stores of the future.… What we do not want is cookie-cutter experiences.”
- Open Source: “The idea is to create a…platform and then invite start-ups and brands themselves to come and build on top of it.”
It’s all harmonized — no more disconnected technologies. Neves’ big concern with today’s current in-store technology is that it’s not unified: “The digital mirror doesn’t talk to the checkout, which doesn’t talk to the website.” The SoTF attempts to address this.
What this might look like in action, according to Neves: “Being recognised as you come into the store, which is either via Beacons or via a wallet like your Apple Wallet, scanning in like you would with a boarding pass for a flight. Then, there’s what we call the “offline cookie,” which is a technology that automatically adds products to your wish list on your app as you touch it in the store, without having to scan anything.”
3. Data! Data! Data!
Neves is really salivating at the idea of knowing everything about you. Here he is talking to BoF:
“[O]nce you get a consumer to [share her data], it’s gold dust… You’ve asked permission from the customer to drop a cookie. It’s a brick-and-mortar cookie. And you will be able to know everything: how long the consumer was in the store, which products were picked up, what did she try, what were the sizes that fit and the sizes that didn’t fit, what are her preferred payment methods, does she have it delivered to her house, her hotel… and that cookie will be linked to the online cookie as well. So then you have a real single view of a customer.
What you can do with that data is offer a super-personalised experience, both online and offline, it also makes your company much more efficient. Take marketing; imagine targeting a customer on Instagram because you know that five hours earlier they’ve been to your shop and they’ve picked up a certain bag. And let’s remember, this is currently where 90 percent of the action is happening.”
This all sounds interesting. But again, this runs into a big fallacy in today’s digital age: the supposition that consumers or users want everything super personalized — as opposed to just edited or curated based on the brand’s point of view, for example. These hyper-personalized digital ideas all sound compelling in theory, but in practice almost unilaterally turn out to be unwanted.
BoF alludes to this: “There’s little doubt the data gathered by Store of the Future is incredibly powerful for brands and retailers. But does it offer enough value for the consumer?”
As does Marc Bain at Quartz: “Whether or not customers will care, however, probably has more to do with whether all this technology makes their lives simpler. A recent IBM survey comparing the attitudes of 600 executives and 6,000 consumers on digital customer-experience technologies found the executives completely misunderstood what customers want, which mostly came down to a faster, more convenient process.”