Farfetch may be set to wind down its beauty business, according to a report from the publication Women’s Wear Daily. Vogue Business has the category’s closure pegged at August 31st. The luxury fashion e-tailer did not respond to Beauty Independent’s request for comment.
The news comes approximately 18 months after Farfetch acquired the luxury beauty specialty retailer Violet Grey at $49.4 million in cash, $1.3 million of reverse vesting shares and $5 million of restricted stock units based on Farfetch’s share price at the time of acquisition. It announced an aggressive, multi-pronged beauty strategy in April 2022 with the launch of a digital marketplace that listed over 100 luxury beauty brands like Gucci Beauty, La Mer, Charlotte Tilbury, Chanel and Olaplex. It intended to create its own beauty brands and build out beauty offerings for its existing fashion labels through an in-house incubator called NGG Beauty, which was to be spearheaded by Violet Grey founder Cassandra Grey. Grey assumed the position of global beauty advisor at Farfetch after the retailer’s acquisition.
Simultaneous to its digital push, Farfetch also entered physical beauty retail through Browns, the London department store that it acquired in 2015. About 90 beauty brands were scheduled to launch in the store’s two brick-and-mortar locations and on its website. By late April 2022, 13 brands including Benefit, Clinique and Estée Lauder were available for sale on Browns’s website. Beauty is no longer listed as a category at Browns and its second location, Browns East, closed last September.
Per the Vogue Business report, Violet Grey will remain a standalone business within Farfetch after the category exit. The retailer will continue to maintain its e-commerce website and its Los Angeles-based brick-and-mortar store.
Bold strategy perhaps wasn’t enough for Farfetch to win in beauty. Its first attempt to enter the category, through a 2016 partnership with beauty specialty retailer Space NK, also shuttered. Neil Saunders, managing director at the data and analysis firm Global Data, argues that the e-tailer’s beauty offering was likely not captivating enough to differentiate it from existing pure-play beauty retailers. He says, “In the case of Farfetch, the beauty offer is a little underwhelming and although the company talks about showcasing trends and new products, it doesn’t do a great job of this.”
Saunders continues, “Consumers can find a lot more newness and inspiration somewhere like Sephora. The Farfetch consumer is pretty discerning, and they probably feel a bit short-changed by what the company has done in beauty. The offer isn’t terrible, but nor is it good enough to really move the dial.”
Wizz Selvey, founder of retail strategy agency Wizz & Co and the former head of beauty at Selfridges, agrees that Farfetch’s lack of differentiation put it at a disadvantage in a highly competitive beauty e-commerce landscape. “It was interesting that Farfetch acquired Violet Grey, as they saw the opportunity of providing a point of view and curation. I’m not sure they’ve been able to execute this in the way they had anticipated as consumers act on different shopping behaviors [as compared] to fashion,” she says. “Beauty retailers need to create added value and experience for customers to get them to spend their money with them. It takes time to build up an authority in beauty. ”
The battle for luxury beauty has revved up since Farfetch acquired Violet Grey. Fashion e-tailers Moda Operandi and Shopbop launched beauty verticals in January and October of 2022 respectively. Meanwhile, Ulta Beauty made moves earlier this year to beef up its luxury beauty assortment in 200 of its 1,300-plus physical stores.
Although fashion and beauty have long been merchandised together at department stores, mass-market retailers and through pioneering e-tailers like Net-A-Porter, motivations to purchase are often different depending on the category and not every retailer nails the subtleties. “Fashion has two strong drivers: fast-moving trends that capture cultural moods and feelings, and the ability to manage operations to meet the same. Fashion trends have mainly to do with style rather than substance,” theorizes Rohit Banota, founder of the emerging beauty brand accelerator, Jump Accelerator. “Beauty, on the other hand, is driven both by functional and emotional needs—the failure of celebrity beauty brands that lack pure innovation proves the point.”
Banota argues that Farfetch’s business model for fashion, which is reliant on quick-moving aspirational trends, is likely at odds with that of its key beauty acquisition, Violet Grey. He says, “Violet Grey is about education around a better, innovative solution. New products are introduced by category innovators and are vetted by the retailer’s professional community. I think Farfetch was not able to translate those insights to its main offering.”
Tina Bou-Saba, co-founder and co-managing partner of the early-stage consumer-focused investment firm Verity Venture Partners, believes that Farfetch’s potential retreat from beauty is likely a result of the e-tailer’s struggle to reach profitability since its IPO. She says, “It may be the case that they’re generally cutting costs and perhaps non-core areas like beauty had to be cut.”
The British-based company raised $885 million at a valuation of approximately $6.2 billion during its 2018 debut on the New York Stock Exchange. Its stock was valued at $27 a share at the time. Since then, it’s failed to yield consistent profits for investors. Last year was a particularly tough one for Farfetch as inflation, pandemic-related lockdowns in its top international market of China and the rising dollar stifled growth. It ended 2022 with a negative EBITDA, or earnings before interest, taxes, depreciation and amortization, margin of 4.9%. At the time of publication, its stock was trading at $5.09 a share.
Farfetch is forecasting a sunnier outlook for 2023 following its first quarter earnings call in May. Its revenue rose 8% year-over-year for a total of $556 million, $41 million above what analysts were forecasting for the period. Its EBITDA margin is expected to land between a positive 1% and 3% for the year.
Regardless, beauty may not be part of the picture moving forward for Farfetch. Bou-Saba says, “Beauty retail/e-tail is a tough business. It looks flashy, but in reality, like all retail businesses, margins are thin and efficiency is crucial. A company can’t ‘dabble’ in it. The incumbents are excellent at what they do and it’s very difficult to compete without resorting to unsustainable promotions. It’s also critical for companies to master their core business before contemplating expanding into other areas. Doing too many things is almost always a recipe for trouble.”
A case in point in Bou-Saba’s philosophy is Amyris, the biotechnology parent company of celebrity beauty and wellness brands Rose, Inc; JVN Hair and Stripes. Following a heightened period of expansion and consumer brand acquisitions, the company filed for bankruptcy on August 10th amid a second round of personnel layoffs. The announcement comes days after the publication The Business of Fashion reported that two of Amyris’s acquisitions, Onda Beauty—the clean beauty brick-and-mortar retailer it plucked up in 2022—and the luxury body and fragrance brand Costa Brazil were set to be shut down as the company moved to save $250 million. CEO John Melo parted ways with Amyris earlier this summer.
This article was updated with new information on August 10th.
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