What: The Financial Times argues that Farfetch’s woes are intrinsic to the luxury business.

Why this is important: One fundamental truth is that luxury brands are looking to increase their control on the sale of their products, and this means that business models that are successful in other industries simply do not work in luxury.

While platform companies like Uber and Airbnb have achieved significant market values through their digital platforms connecting buyers and sellers, Farfetch, aspiring to be the "Uber of luxury," faced challenges. Initially valued at $24bn, Farfetch's equity was eventually wiped out in a $500mn deal with Korean e-tailer Coupang and Greenoaks Capital Partners. The difficulty lay in the nature of the luxury goods market, which is dominated by a few major brands, unlike more fragmented markets like ride-sharing or short-term rentals.

Farfetch hosted thousands of brands, but a 2020 Bernstein analysis revealed that most were minor, with nearly 70% of them offering fewer than 50 products on the platform. Major brands like Nike and Adidas were likely driving most of Farfetch's traffic. The concentrated market structure of luxury goods gave more power to suppliers, many of whom preferred direct sales to customers, limiting their engagement with middlemen like Farfetch.

After Coupang's intervention, Farfetch remains operational but faces an unclear path to profitability. Its options include drastic cost-cutting or focusing on emerging brands, which might not have the same customer draw or willingness to pay. There's no evident solution for revamping Farfetch's challenged business model.

Why luxury goods just isn’t a platform business