European Union antitrust regulators are due to rule by today, 21st October, on whether online luxury retailer Farfetch can proceed with its purchase of a stake in rival YNAP from Cartier-owner Richemont, a deal complicated by Farfetch’s mounting woes.
The American-listed company developed a ground-breaking business strategy that inspired many luxury labels to adopt internet sales.
High technology and marketing expenses have prevented it from breaking even, and it is now struggling as US retailers cut back on their purchases and more of its inventory comes from brands than from their wholesale clients, which limits Farfetch’s ability to entice customers with discounts.
In the last two years, its market capitalisation has fallen from $26 billion to just over $1 billion. In August 2022, Richemont announced a deal to sell a 47.5 per cent ownership in the losing YNAP in return for more than 50 million Farfetch shares. As a result, the Swiss company recorded a writedown of € 2.7 billion (US $ 2.9 billion).
According to the agreement, Farfetch may also purchase the remaining YNAP shares using a put and call option strategy. If the EU competition regulator has serious reservations, it can either accept the merger with or without remedies or launch a four-month inquiry.
