Coupang just released second quarter earnings, and it was a mixed bag. Net revenues rose 25% year-over-year on a reported basis to $7.3 billion. Excluding online luxury fashion marketplace Farfetch, which it acquired at the end of January, revenues were up 18%.
However, it reported a net loss of $105 million, attributed to operating losses at Farfetch and an estimated $121 million fine by Korea’s Fair Trade Commission (KFTC) related to allegations it favors its private-label goods over those from third-party merchants.
Coupang is said to be South Korea’s answer to Amazon, with an extensive e-commerce marketplace, logistics and delivery network, entertainment streaming, food and grocery delivery and a payment platform.
Despite going public on the New York Stock Exchange in 2021 and moving its global headquarters to Seattle in 2022, it primarily serves mass-market consumers in South Korea and other Asian markets.
That’s why it seemed a stretch to pay $500 million to bail out Farfetch Holdings from imminent collapse late last year. Strategies that work in the mass market don’t translate well, if at all, to the luxury market, so Coupang appeared ill-equipped to turn around the faltering luxury fashion marketplace.
Yet, while it is still early days under Coupang leadership, Farfetch has brought in $748 million since Coupang took over – $288 million in the first quarter and $460 million this.
And it’s averaged over 26 million monthly online visitors through the first six months of 2024, more than the combined total of Farfetch’s top three competitors, including Lyst, Mytheresa and Net-a-Porter, according to Similarweb. So Coupang must be doing something right with Farfetch.
Opportunity Knocks
In Coupang’s 2023 year-end earnings call, Coupang founder and CEO Bom Kim explained the thinking behind the Farfetch investment:
“While we weren’t seeking an acquisition we came across a rare opportunity to buy a sector leading service with $4 billion in GMV for a $500 million investment.
“We hope in a few years we’ll be having the conversation about how Coupang turned Farfetch into a business that transformed the customer experience around luxury fashion, while also providing strategic value for Coupang.”
He added, “Even if that full potential is not fully realized, we’re highly confident that this will prove to be a prudent financial decision. We’re already executing on a plan to make Farfetch self-funding with no additional investment beyond the announced capital commitment.”
Off On The Right Foot
During the call, no mention was made about Kim’s first decisive step to turn the company around: taking over the company’s management. In mid-February, Farfetch founder José Neves “stepped down” as CEO, though he may continue in some consulting capacity.
And, according to an internal memo obtained by Business of Fashion, Farfetch’s chief financial officer, chief product officer, chief platform officer, chief marketing officer and chief operations officer were also let go.
“As we assessed key priorities and resources across the business, we made the difficult but necessary decision to reduce global headcount and redundant roles,” a Farfetch spokesperson shared in a statement.
“This decision secures the future of the business and as a result, Farfetch can now operate from a position of strength and focus on what we do best: deliver exceptional experiences for brands, boutiques and customers.”
In The Right Hands
The 45-year-old Kim has an extraordinary history of success, having amassed a $4 billion fortune since founding Coupang, ranking him among Forbes World’s Billionaires and one of Forbes 400 wealthiest Americans.
Born in South Korea, he was raised in the States after his family immigrated when he was seven. He attended Deerfield Academy and went on to Harvard, graduating with a Bachelor of Arts degree. He then enrolled in Harvard Business School, but business called, and he dropped out after six months.
He did a stint with Boston Consulting Group (BCG), then followed by founding Vintage Media Company, which he sold in 2009 before launching Coupang in 2010 with the help of BCG-buddy Matthew Christensen.
Christensen is the son of Harvard Business School professor and business consultant Clayton Christensen, who developed the “disruptive innovation” theory – a model that Kim adopted at Coupang. Matthew’s Rose Park Investors owned 5% of Coupang before its 2021 IPO.
Softback’s Vision Fund was another early investor, pumping billions of dollars into the company starting in 2015.
“When I met Bom and spent three days in Seoul with him, I was blown away by the level of customer understanding and the customer centricity of his company; the innovation that was taking place,” Vision Fund’s investment partner and former Coupang board member Lydia Jett shared with CNBC.
“It was clear to me that this company was doing something radically different from its competition and the customers were responding,” she continued.
With that track record and his laser focus on consumers’ wants and needs, Kim has what it takes to pull Farfetch up by its bootstraps.
Work To Do
In Coupang’s financial reporting, it hasn’t folded in Farfetch’s previous year’s results, so direct line-by-line comparisons aren’t available. Stepwise, second quarter’s $466 million take was an improvement over first quarter’s results of $288 million, but that included only two months of reporting.
Extending those results across three months would mean Farfetch generated about $436 million in the first quarter, a 7% uptick quarter-over-quarter. By comparison, Mytheresa reported $256 million in net sales in the first quarter, which ended March 31, on $276 million gross merchandise value (GMV).
Yet Farfetch website traffic is way off previous years, down by one-third from nearly 40 million in an average month in 2022 to 26.1 million this year, according to Similarweb.
However, its three leading competitors – Lyst, Mytheresa and Net-a-Porter – all show a drop off in traffic since 2022, likely due to the overall weakness in the luxury fashion market following the post-pandemic boom.
Nonetheless, Farfetch still commands the lion’s share of luxury fashion marketplace shoppers, and it consistently gets more traffic than the other three competitors combined.
Farfetch’s Future Calls
Coupang’s Kim promises to keep the pressure on to realize Farfetch’s potential. “We see massive potential that is still largely untapped,” he shared in the most recent earnings call.
He confirmed that the company is executing to plan to generate “close to positive adjusted EBITDA on a run-rate basis by the end of the calendar year.”
He added, “Though we’re still in the very early stages of our journey, we’re excited about Farfetch’s progress and potential.”
Closing his comments, he reiterated the strategy that has taken Coupang so far since its founding just 14 short years ago.
“Our strategy to capture that potential has been unwavering: disciplined investment and operational excellence to deliver customer WOW – the best selection, service and savings for our customers,” he said.
“We believe to our core that the happiness of our customers is the key to maximizing opportunities in the long term for our suppliers, merchants, employees and shareholders,” he concluded.
That’s a commitment which will work no matter whether serving customers in the mass or the luxury market. Under Kim’s capable hands, Farfetch seems to have found a leader with the right stuff to realize its potential.
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