#13 How José Neves Built Farfetch, the Amazon of Luxury

  • Post category:Billionaires Series
  • Post last modified:June 25, 2022

José Neves is the founder and CEO of Farfetch, a luxury online marketplace.

Farfetch sells more than 3 500 brands to 10 million visitors in 190 countries each month.

The polymath entrepreneur built several companies before creating the “Amazon of luxury”, valued today at $21.5 billion.

Jose Neves
José Neves

Neves owns 15% of the company, and has a net worth of $3.15 billion.

This is his story.


Big Brain

José Neves was born in Porto, Portugal, in 1974.

He had strong asthma as a boy, so his parents had to move to a coastal city for him.

He was a smart kid.

At 8 years old, he received a ZX Spectrum computer for Christmas. Since there weren’t any games (and nobody to play with), he learned how to code in books and designed them himself.

Besides coding, José enjoyed reading. A self-described geek, he discovered the Tao Te Ching when he was 13 years old and adopted Zen Buddhism as a way of life.

He’s been meditating ever since.

At 18, he went to study economics at the University of Porto and kept on coding on the side.

He was good enough that by the time he was 20, he was selling software to dentists.

Shortly after, José met Cipriano Sousa, another smart kid who became Farfetch’s current technology officer.

Cipriano wanted to make software for the fashion industry, but José, who had grown up in the fashion capital of Portugal, hated it.

Sousa managed to convince him and together, they created “Grey Matter”, a software company for clothing manufacturers.

That changed everything.

José understood that the alliance of fashion and technology could give him a chance to build great things.

He convinced a shoemaker to teach him his craft one hour every morning before work and for the next two years, José learned how to make shoes.

In 1996, Neves created “Platforme”, a software company for fashion brands.

That same year, he launched a shoe brand called “Swear” in London, and moved there while Cipriano managed the software businesses in Portugal.

Swear struggled, so José built an e-commerce website in 1997 to increase the number of customers.

Doing so, he realized the amount of leverage the Internet gave him. One website could reach millions of customers without more work on his part!

It was an important “aha” moment that would launch Farfecth a decade later.

After a couple of years, Swear, which was mostly associated with the beginning of the 90s, went bankrupt.

Undeterred, José opened a concept store in London called “B Store Brand” in 2001 where he sold products from new designers.

The shop worked well and José received the British Fashion Award for Retailer of the Year in 2006.

In 2007, he noticed how the ever-increasing number of creators made it harder for customers to find them out and buy from them.

It was time to change that.

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Farfetch

It took José 11 years to concretize the idea he got when he was selling Swear, and many more to transform it into the giant it is today.

Farfetch’s kick-off began at the Paris fashion week in 2007. José told Cipriano Sousa (still in Portugal) about his idea to develop Farfetch, and Sousa accepted.

They launched the website with 25 retailers throughout Europe one year later, on the 1st of September 2008.

15 days later, the stock market crashed.

Lehman Brothers went bankrupt, the luxury industry dived, and Farfetch began its struggle for survival.

For the next three years, Neves singlehandedly funded Farfetch until they got $4.5 million in funding in 2010.

Surprisingly enough, the financial crisis wasn’t Neves’ biggest problem. It was the brands.

Brands didn’t want to sell online and forbade boutiques to do so.

Each year, they gave their retailers an ultimatum: stop selling on Farfetch, or we stop business with you.

So each year, José had to beg the brands to let the boutiques sell on his website.

Eventually, brands came to recognize that e-commerce was the future and embraced the platform.

Farfetch began to receive heavy investments in 2015 from various actors in the fashion industry.

The inflow of money enabled them to launch Black and White, an agency helping luxury brands sell online, and Farfetch Platform Solutions (FPS).

FPS is an e-commerce platform that enables companies to manage inventory from one place while selling on several websites (but not only). It’s the equivalent of Amazon’s AWS, but for luxury brands.

Today, FPS technology powers most luxury e-com websites.

In 2017, Farfetch sold a stake to JD.com for $397 million, which gave them access to the Chinese market.

That same year, Neves invited 200 executives from every fashion brand to a conference where he disclosed the “Store of the Future”, a project he’d been working on since 2015.

Back in the mid-2010s, Neves realized that stores had not changed in 90 years.

While e-commerce was developing fast, he decided to disrupt real-life shopping and bought Browns, one of London’s most famous luxury boutiques.

For two years the company experimented with new shopping tech that they called “The Store of the Future”.

The Chanel team was so impressed with the progress that they signed a 2-year exclusivity contract and invested in Farfetch.

In 2018, the company IPOed in New York and was valued at $6 billion. All employees received shares.

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One year later, Neves went on a buying spree. He bought Condé Nast’s shopping platform style.com for $100 million, Stadium Goods for $250 million, and New Guards Group (Off White owner) for $675 million.

Confused with the investments, investors dumped their shares and the stock price dived by 42% within 24 hours.

José understood that as a public company, he had to justify his moves instead of doing it all by himself.

So he went to see his biggest investors to explain his plan.

Farfetch mainly attracted people because of the brands it sold, not because of its name. Moving into retailing directly will enable them to sell items unsold anywhere else and to attract wealthy millennials and Gen Z buyers motivated to buy from New Guards Group.

José explained that just like Netflix aggregated content before making their own, it was time for Farfetch to sell their products too to build their brand.

The message was received and the stock went back up.

In November 2020, Alibaba, Richemont, and Artémis (Kering) invested in Farfetch – quite an unlikely alliance.

Neves sought Alibaba’s help to improve the Chinese business after the lukewarm performances with JD.com.

As for Richemont and Kering, they were mainly interested in the tech prowess of Farfetch – namely, the digitalization of stores and the e-commerce software.

The investment was a surprising announcement given that Richemont owns the platform Yoox Net-a-porter, Farfetch’s biggest competitor.

But Neves promised them all the same thing: more sales.


Farfetch Business Model

José Neves is often compared to Jeff Bezos and Farfetch is often likened to Amazon.

However, both are widely different.

Amazon buys from brands, stocks merchandise in its warehouses, and delivers to the customers. They’re not helping Mainstreet shops to sell more – they seek to replace them. As a result, everyone hates Amazon.

When asked about Amazon’s monopolistic attitude, José explains it’s not what he wants to do at all.

Farfetch aims at being a platform on which people sell online, not a company that owns everything.

As a result, Farfetch’s business model is closer to Fiverr than to Amazon.

Farfetch takes care of photographing, marketing, selling, and delivering the goods sold on their platform. The “warehouses” the goods come from are the boutiques themselves, which helps for fast delivery. Otherwise, Farfetch doesn’t own warehouses.

When two boutiques sell the same goods (think about a Gucci in London and a Gucci in Paris), Farfetch gives priority to the boutique located the closest to the delivery address.

They make money off the commission on each purchase.

Farfetch works with Mainstreet because unlike Amazon, they don’t seek to annihilate them. They want to empower them to sell more.

Farfetch sees itself as an additional sales channel for brands, not as the only sales channel.

This vision enabled José to get investment not only from his competitors, but from actors that directly compete with each other (LVHM, Kering, and Richemont being the biggest luxury groups in the world).

José doesn’t see other businesses as competing actors but as collaborators. The luxury market is such that there can’t be one company selling to everyone.

Brands each work with a different signature to satisfy different types of customers that have different needs.

As a result, José sees himself as building bridges in a heterogeneous market to ensure everyone wins.

FPS powers major brands’ websites rivaling directly with Farfetch, and Neves himself said he wouldn’t mind supplying the technology to a hypothetical competitor of his platform.

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The Future Is Farfetch

José Neves has big plans for the future. First, Farfetch wants to digitalize and modernize real-life shopping. José envisions a world where websites and street stores come together in one shopping experience.

Second, Farfetch slowly moved into the marketing business by taking care of campaigns for different brands.

Third, Farfetch wishes to consolidate its position as the ultimate online marketplace for luxury items.

Their logistics experience is so good they are now capable to ship an item from Paris to China within 4 days.

Finally, they seek to provide their e-commerce software to more brands and offer a Shopify-like experience.

It is undeniable that Farfetch’s strongest asset is José Neves’ knowledge of both technology and fashion.

That enabled him to create the only tech unicorn in the fashion industry.

“This could be bigger than LVMH”, said one of Farfetch’s early investors.

José Neves is single-handedly transforming luxury.

For Farfetch, it’s only the beginning.

For more billionaire articles, head to auresnotes.com.

Picture credits: Farfetch.

Sources:

Productmint

Linkedin

Forbes

Robbreport

Wikipedia

Business Of Fashion

FT

FT

Goldman Sachs

Bloomberg

About Farfetch

ThetwentyminuteVC

Vogue Business

Wikipedia

Product Mint

Vogue

Glossy

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