Coupang's acquisition of the British luxury platform Farfetch last year is expected to become profitable.
According to the related industry on the 22nd, Farfetch sold the virtual fitting experience technology company Wannaby Inc. to Perfect Corporation on the 24th of last month. Wannaby is a technology that allows customers to view product details using augmented reality (AR) 3D viewers while shopping online. More than 30 famous brands, including Balenciaga, Dolce & Gabbana, and Valentino, are using this technology.
Farfetch acquired this company in 2022 for $24.5 million (approximately 31.7 billion won based on the exchange rate at that time) in cash and $5 million in stock. Although the details of the transaction were not disclosed, there is an analysis that this deal will expedite Farfetch's normalization.
Farfetch is a global luxury corporation that sells 1,400 luxury brands to consumers in 190 countries. Coupang Inc., the parent company of Coupang, acquired it for $500 million (approximately 650 billion won based on the exchange rate last year) at the beginning of last year. In 2021, Farfetch's market capitalization was $23 billion (30 trillion won) when listed on the U.S. stock market, but just before the acquisition by Coupang, its market capitalization was $250 million (approximately 320 billion won), indicating a near-bankrupt situation.
In 2022, Farfetch's operating loss reached 1.168 trillion won ($847.16 million), and in the first half of 2023, it amounted to 560 billion won ($464.3 million). Ultimately, Farfetch plans to delist in the second half of 2023 and was acquired by Coupang.
Following the acquisition of Farfetch, Coupang focused on solidifying its internal structure through strong restructuring, including the dismissal of inefficient businesses. In August last year, it closed the 'Farfetch Platform Solutions' business, which provided technology and logistics-related solutions to luxury brands worldwide.
According to Coupang, in the third quarter of last year, Farfetch's adjusted earnings before interest, taxes, depreciation, and amortization (adjusted EBITDA) was negative $2 million (approximately 27 billion won), which is a reduction of $29 million from the previous quarter ($31 million). Farfetch's net loss decreased by 61%, from $113 million in the first quarter of last year to $44 million in the third quarter.
At that time, Bum Seok Austin Kim, chairman of Coupang Inc., said in a conference call, "Farfetch is making significant progress in improving operational efficiency," adding, "Our goal was to achieve profitability close to the breakeven point, and we reached that milestone this quarter."
The industry anticipates that if Farfetch gets back on track, Coupang's luxury business will also become more active. Coupang launched its luxury beauty service R.LUX in October last year, kickstarting its luxury business. R.LUX operates as a vertical app (dedicated to specific products or services) separate from the Coupang application. While maintaining Coupang's fast delivery service, the shopping experience has been differentiated from the existing Coupang app.
Although it is currently limited to cosmetics, industry analysis suggests that R.LUX will play a significant role in expanding Coupang's luxury business alongside Farfetch. Although Coupang holds the number one position in the domestic e-commerce industry, it has faced assessments of vulnerability in high-value-added fields such as fashion, beauty, and luxury.
However, opinions are divided on how Coupang and Farfetch will achieve synergy. Some analysts suggest that since the acquirer of Farfetch is Coupang Inc., which holds 100% equity in Coupang, it may not be easy to integrate into the domestic platform. Moreover, unlike Coupang and R.LUX, which are based on direct purchasing, Farfetch operates on a transaction-based open market structure.
A retail industry official noted, "Coupang quickly realized normalization through strong restructuring after the acquisition of Farfetch. There are also predictions that a turnaround to profitability occurred in the fourth quarter of last year," adding, "For Farfetch and Coupang to succeed in the luxury market, more technical cooperation seems necessary."