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The Chinese market welcomes merger of Farfetch and JD.com

By Angela Gonzalez-Rodriguez


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Business |ANALYSIS

New York – The online fashion giants have confirmed this Monday their intention to merge their businesses and operations in China. This move, first announced in February, comes after Farfetch acquired JD.com’s luxury fashion arm, Toplife.

The relationship between the two companies goes back a long time. China’s e-commerce giants JD.com invested 397 million dollars in Farfetch in 2017.

JD.com had run its luxury fashion division separately until quite recently. Now, the Chinese retailer argues that merging its operations with Farfetchin its home country will allow both firms to optimise the usage of technology and logistics platforms, enabling them to create an unparalleled entry for luxury brands into China.

Commenting the move, Farfetch founder and chief executive Jose Neves, said: “We are delighted to build on our relationship with JD.com, and bring to market an unrivalled solution for luxury brands to succeed in the Chinese market.”

Jon Liao, chief strategy officer at JD.com, said on the merge: “This win-win collaboration is a key development in our ongoing relationship with Farfetch. We are combining the best of global and local market expertise in the luxury segment.”

Deal to facilitate a one-stop shop for luxury brands into China

Unveiling their growth strategy Neves pointed out that “With this agreement, and our previous strategic investments in China including our acquisition of Curiosity China, we now offer luxury brands a one-stop solution to develop their digital strategies in accessing the engaged and sophisticated audience in this important market.”

It’s worth recalling that this move comes as the retailers look to cash in on growing demand for luxury goods in China. The tariffs war with the U.S. coupled with changing consumers’ preferences have pushed the Chinese government to cut taxes on imported goods in a bid to encourage its citizens to buy goods domestically, rather than abroad and in duty-free stores, highlights Reuters.

Fighting counterfeit products is also high on Farfetch’s priorities agenda.

Although little detail has transcended to date on how this merge will work in reality, Neves has already advanced that the choice of platform will still remain with its customers. “Of course we will listen to the brands and we will consult them about their presence on this new channel,” he said. “We will offer brands the option not to be on the platform, but our recommendation is to be on it.”

Market welcomes the move

Farfetch has lately been on the favourites list for many analysts. When the online retailer announced its partnership with Harrods, its stock gained as much as 9.4 percent and traded at its highest level since mid-December. A couple of weeks ago, Farfetch announced a strategic partnership with Harrods to provide the department store with a global e-commerce platform. Back then, BI analyst Deborah Aitken wrote that the "endorsement of Farfetch’s global e-commerce model by Harrods, an elite and globally aspirational department store, will likely open doors for more elite retailers to follow suit and seek Farfetch’s e-expertise," reported Bloomberg.

According to analysts polled by Zacks Research, the current consensus target price for Frafetch’s shares is 30.25 dollars.

Institutional investors currently hold around 3.74 billion dollars or 50.7 percent in FTCH stock, with Index Venture Associates V Ltd, Vitruvian Partners Llp, and Galileo (Ptc) Ltd being the three largest institutional shareholders at Farfetch. By the end of 2018, 51 institutional investors were reported to raise their holding in the company.

Image courtesy of Farfetch