What: The Financial Times reviews the reasons why Farfetch is facing a reckoning now.

Why it is important: The disappearance of Farfetch could induce new opportunities for agile department stores, but also new threats if they are late to react and if another player does.

In 2018, Farfetch, led by founder José Neves, went public on the New York Stock Exchange, initially achieving a high valuation with strong investor interest. However, five years later, the company's situation has drastically deteriorated. Farfetch's shares have plummeted by over 97% from their peak, reducing its market value from around $24bn in 2021 to about $220mn. The company now faces a critical choice: to find a "white knight" investor or to go into administration.

Despite initial success and interest from major investors, Farfetch has struggled to become profitable. The company's business model, focused on online luxury retail, has faced challenges in securing products from top brands, which prefer direct control over their sales channels. The company's diversification efforts, including acquisitions like New Guards Group and ventures into different sectors, have not stabilized its financial woes.

Farfetch's financial struggles are compounded by a significant debt repayment schedule and a downgrade by Moody's to a deep junk status. The company's future is uncertain, with potential impacts on the wider luxury e-commerce industry and the many boutique retailers it supports. The industry fears that Farfetch's collapse could lead to widespread inventory issues, discounting, and pressure on larger retailers. Even if Farfetch survives, doubts remain about the sustainability and value of its business model in a luxury market increasingly moving towards direct-to-consumer sales.

Where did Farfetch go wrong?