Hosted by Highsnobiety Editor-at-Large Christopher Morency, “On the Record” is a podcast series of intimate, off the cuff conversations with icons and cultural engineers that have shaped the worlds of fashion, music, tech, art, business, sports and youth culture at large. For this episode, Morency visited Farfetch’s headquarters in London and talked with Portuguese entrepreneur José Neves.
Ever since launching contemporary shoe brand Swear in London in the late 1990s till founding B-Store in the early aughts, he’s pushed the boundaries of what it means to shop. When Neves founded online marketplace Farfetch in 2007, it was something the industry had never seen before. Instead of buying inventory from brands, holding it, and selling it to consumers, he simply gave consumers a fully-serviced platform to shop from fashion boutiques and brands around the world, comparable to the Amazon of high fashion. It’s resulted in Farfetch being valued at $8 billion on the day of its Wall Street IPO in 2018.
Now with its eyes set on the growing multi-billion dollar streetwear market, Neves is making big moves. In the past year alone, he’s purchased Stadium Goods for $250 million and most recently he surprised the industry when Farfetch announced it had purchased New Guards Group, the mother company of Off-White, Heron Preston and Palm Angels, for almost $700 million.
We dropped by the Farfetch offices in London to speak to Neves about the recent purchases, the future of the resale market and how the next generation will shop.
The below interview is a written version of ‘On the Record’ Episode 4. It has been edited and condensed for clarity.
Christopher Morency: Big announcement with the New Guards Group. I think there's this common misconception that it's the mother company of Off-White and Heron Preston and Palm Angels. But that's not completely accurate. Can you explain what the New Guards Group is and what approached you to the group in the first place?
José Neves: The New Guards is a brand platform company. They take creative concepts and creative people, and build brands with them. And that goes from the original idea and concept to collections. They have the full studio capabilities, in terms of coming up with incredible industrial design capabilities, planning, merchandising, price architecture, production, sourcing etc. They’re based in Milan, so they have great access to the Italian manufacturers. Then there’s also a sales and marketing side to the platform. Then they have a showroom in Paris, do runway shows and all the PR and marketing that goes with. They have a turnkey solution to bring a brand like Off-White to life. It's a company that I've always admired. And obviously, when the opportunity was there to start the conversation, it was something I was really excited about.
The company is fairly new. Before The New Guards Group, was there any other company that could establish and scale brands at such a rapid pace?
I've been [working] in fashion for 25 years and I've never seen anything like it. So it's really impressive what Davide and Andrea have built. I think, obviously you have the luxury conglomerates that build portfolios of brands like LVMH, Kering and Only the Brave. But they have a completely different model where they acquire existing brands. Very rarely do they build brands from scratch. The luxury conglomerate model is one of the 1980s or 1990s and obviously still super successful today. But what’s really interesting about New Guards is that they have a very asset light model. So it's not about operating their own stores or having a lot of franchises. It’s built for the digital world as a platform and built around these creatives that can build digital communities very fast and create hype around their brands.
What are some of the elements that the New Guards Group deeply understands when it comes to bringing a new brand into the market?
What New Guards does so well — and they have an excellent track record — is having the ability to identify and scout talent. It all starts with the creative mind behind the brand and an ability to create a movement around that creative vision. Virgil is a great example of that but there are other community-driven brands. Luxury fashion is extremely complex. So, having the ability to have the right fabric, the right fit, the right print, the right materials, the right price point, even the right range, it’s extremely hard. It’s much harder compared to other cultural industries such as music. If you look at brands that have menswear, womenswear, handbags, shoes, eyewear, accessories, like it's incredible what they do in terms of industrial design. And this is where so many other brands go wrong. They have the talent, they have the buzz around their talent, but then they really struggle because it’s difficult to have that industrial design capability and that industrial proficiency. That's where New Guards excels. Combined with Farfetch’ digital platform, it’s a vision that will create many brands of the future.
Last year, New Guards pushed out 200 collections divided over their brands, almost like fast fashion in that sense. To have that infrastructure in place, that's something that's never been seen before.
Absolutely. I think Davide's background is the industrial world. He's brought other brands to life in previous businesses which he has sold. So he knows the industry inside out. And he's built a team that absolutely is world-class at this. It’s incredibly powerful.
This is where the partnership with Farfetch, to me, makes complete sense, because the thing they did not have was the digital capability. So 97% of their turnover wasn’t direct to consumer. It was essentially the wholesale model. They didn't have the operational ability to even integrate with Farfetch, in terms of their digital capabilities. And not for any philosophical reason, it's because they just didn't have that digital DNA. So that's where the two companies really compliment each other.
You purchased the business for a value of $675 million, which is a massive amount. What makes New Guards Group worth all that money?
New Guards is a very large company. It's a multi hundred million revenue business growing very close to 60% a year, and it’s very profitable. So the multiple was what you would expect in a transaction like this. I think what that says, is what can be built via the combination of both businesses. So if you think of it, we have the best design and industrial platform, the best brand platform in the world that is able to scout, conceptualize, materialize, produce, sell, and manufacture, all categories. And then this company is now joined with the world's most global online luxury platform. So we were able to take them from their current stage and build a direct-to-consumer model, and also involve our boutique network of 650 boutiques.
The speed at which these brands like Off-White and Heron Preston are built, what does that say about the state of fashion today?
I think it's extremely exciting. I was a shoe designer in my previous life, 25 years ago, and in my days I had to come up with the designs, find the studio, find the factory, find the showroom, and these would be different people, all with my own investment. To build a brand [then], I had to attract the attention of the department stores, would have to wait for the stylists and the editors of the glossy magazines to feature it and they needed three to four month lead times. So the cycle was extremely slow, and the gatekeepers were the media and the department stores in the main markets. So very few gatekeepers and the very long cycle, And that's why the conglomerates came in to help these designers such as Alexander McQueen to build global brands. Fast forward Off-White five years and it’s one of our top brands at Farfetch and stocked at hundreds of boutiques. And all of this is accelerated through the ability to bring those creative concepts to life via a platform like New Guards. Thanks to platforms such as Instagram and Highsnobiety, you’re able to create a buzz and a movement. That's ultimately exciting for the consumer.
Farfetch was founded in the age of the recession around 2008. Why did you think then was the right time to launch your own business?
I’ve done everything in fashion except being a model, which, I wouldn't be able to cut. I had a multi brand boutique called B Store. I ran a trade show here in London and a licensing business helping other brands starting their shoe collections, and obviously my own footwear label Swear. So I knew the industry really well, and I knew what made the boutiques tick, how designers thought about building their brands, and how consumers engaged with this culture. The idea Farfetch just came naturally, because I was essentially thinking, this incredible community doesn't have a high end platform. To me, it was very super simple idea. The execution is a bit more complicated, but to me, it seemed like an idea that evolved naturally. Right now we have around 450 brands directly on the platform and around 640 boutiques.
Farfetch is enabled through three pillars. You have your logistics pillar, your data pillar and then your tech pillar. For someone who might not know know Farfetch' operations, how do these three things work together?
When I started Farfetch, there were very few businesses that connected on demand, supply from the real world with one single digital platform. Today, there are many businesses in other industries that do that. OpenTable connects you in real time with restaurants, Uber and Lyft are other ones. In our case bringing physical products to a global audience was something that for our industry was quite revolutionary. It had to be built from scratch. What you see in-store, you will see online on Farfetch. On top of that, we've built a logistics platform because obviously you need to ship. But what we’ve really built is data and logistics platform on top of our own proprietary tech stack. It's a lot of work and we have around 1,500 technologists between product managers, engineers, data scientists. That's what Farfetch is. It connects you in real time with the most beautiful product from anywhere around the world.
Was it tough in the beginning to get these stores involved to convince them to go online?
It was. Fashion, in a way, is an industry that doesn't move very fast. It moves very fast in terms of the trends and the creative side of it. In terms of the business model, it tends to be cautious. Again, back in 2007, when I started speaking to boutiques, it was the year of the iPhone. If you think of it, apps didn't exist. The concept of one single global digital platform linking customers from all around the world with boutiques and brands was just mind boggling. I think maybe that's why I called it Farfetch because it was kind of far fetched idea.
Digital sales today are only about 10 percent of total sales for brands. Most sales still happen via brick and mortar. How do you stand out in retail?
I discovered the magic of physical retail when I was operating my multi-brand boutique B Star, which opened in 2003. For me, it was incredible to see when you do retail right, when you have the right interior design, the right curation of brands, the right merchandising, the right customer service, it's magical. I think fashion is culture, but fashion is material culture. It's not like music or video. Similar to cuisine or architecture or industrial design, fashion is physical, it can’t be digitized, so the physical store will always be relevant. In the end, the human experience is what differentiates physical retail.
What role will personalization play with physical stores of the future?
I think personalization is going to be huge in retail. It's already, if you don't embrace it online, you're dead in the water. Online is all about how do you cater to different personas and how do things like your ranking algorithm work based on previous visits? What do you recommend to the customer? What do you show the customer? That's a science that's evolved very fast online. Offline, we just don't do it. From a consumer perspective, it's very impersonal. If you think of it, especially intellectually, customers are traveling customers. If you have a customer from Shanghai who is a big Chanel customer, let's say in the local Shanghai store, if they go to Miami or if they go to New York, they won't be recognized. Maybe they won't have the attention that they probably would deserve as a very loyal customer of the brand. Maybe what the sales assistant is going to offer isn’t relevant. Maybe they already bought it, in a couple of colors. So there’s no data flow. That person entered the store, left the store, and no data was collected, unless there was a transaction. Even when there is a transaction, there's a very poor connection of the dots around the customer journey. It's so important and it's a big part of our Store of the Future and obviously involves an option for the consumer to opt in, be recognized or not.
What's interesting to me with the next generation of consumers it the increased speed in which people consume. Have you guys at Farfetch seen the speed go up in recent years?
I think the speed is going up and it's again function of the internet. That conversation has a much quicker cycle than the previous offline conversation. Because it has a quicker cycle, the consumption cycle is also quicker. That's where you see resale coming in. That's where fashion businesses also have a responsibility to think if it’s sustainable and what they can do to facilitate a circular economy.
It ventures perfectly into my next point, Stadium Goods. Do you remember the first time you met John and Jed from Stadium Goods?
We were introduced by a mutual friend in New York. I first met with John, and I was absolutely amazed with his business. John is a real connoisseur. He understands the sneaker community and he's part of it, and it comes very natural to him. At the time, I could really see a huge opportunity for both companies to work together. I come from a more designer-oriented side of fashion and sneaker culture is a different ball game, they can tell I'm not one of them from a mile away. So having someone that is part of that community, and is super passionate about sneakers, to me made it clear that if we wanted to play in the space, it will have to be a marriage.
We launched them on our platform in 2018 and it was an immediate success. We saw big demand from China and the Middle East, as well as the rest of the world. A few months later, we ended up acquiring the company.
It caused quite some waves in the sneaker world as you bought it for $250 million. It cemented the credibility of the sneaker resale market as something that might not go away tomorrow.
I absolutely think it will be here in the future. I always remember watching that documentary on Netflix, Sneakerheadz. It’s really interesting because that documentary takes you through the years when eBay first started being used by the sneaker community and all of that. It’s always existed, it's just that you didn't have specialists doing it. So I don't think it's going to go away. In the US you see, you know, three or four players emerging and having a lot of traction, but you're starting to see it in China too. We're trying to accelerate that side of the business. I think the international opportunity for the sneaker resale market is tremendous.
Many brands are still against the resale market, but one can’t live without the other.
Even if they could, I think it would be a really bad for the primary market. Because right now it shows your brand has credibility and it demonstrates hat you've done your job right. You've done your marketing, your distribution right, your design right. And the community has given it the stamp of approval and therefore your sneakers are being resold at higher prices. That’s a badge of honor.
Where do you see the (sneaker) resale market going?
The first thing that will happen is international expansion. So I think what already started happening in the US will be absolutely massive and maybe multiple times bigger in Asia. This global phenomenon will happen and then there will be innovation around the model. I also think because of the international expansion, you will find certain editions, certain colorways in specific countries that you don't find anywhere else, so you’ll have this whole new world of limited releases. It’s something Farfetch could facilitate because we have the logistics capability. Stadium Goods could piggy back on top of that.
If you flip the coin. What do you think about the negative connotations around reselling?
What creates inflation is scarcity, not the resale model. If anything, the resale model makes it more efficient, therefore the price will be lower. But, again, the reason why it's hard is because they're rare. They're difficult to find. It's not because there's a resale market. So imagine there will be no resale market. Shoes would be even more expensive. It would be completely opaque how much they're going for. Therefore, you know, someone could ask whatever they wanted. Right? So I don't think that it is correct to say that the resale market is creating inflation. What is creating inflation are the brand's distribution policies. It makes it exciting because suddenly there's a gamification element. And then so if you kill that, you also kill a part of the magic.
To round things off, if you look back at your own experience over the past 20 years working in fashion. What are some key takeaways you’ve learned along the way you could turn into advice for the next generation of entrepreneurs?
I don't like to give advice a lot because I think times change. So what was maybe not working then is working now and maybe what failed 10 times, it will work at the 11th. My wife always says that if advice was valuable, it wouldn't be free. Right? To me, the only thing that I'd say is that it’s a very tough industry. As we said, there are 3000 designers that we have on our platform, but that's a subset of the industry. You have tens of thousands of amazing creative talents and companies from all around the world. So it is a vast industry with lots of participants.
So you have to do it for the love of fashion. It has to be a labor of love. If you’re going to start a business or a brand, the acid test to me is if you will not forgive yourself if you don't try. And that’s my only advice because then it's a win-win. You always win because even if you fail you can say, "I failed." But it would be even worse if I hadn't tried. That will give you the resilience and the drive because you'll have many bumps along the road. That's the only truth that's out there. It will never be an easy ride. And on those days, if you do it for the love of your industry, and if it's something you will never forgive yourself if you weren't doing, then it's worth it. And that gets you through the noise and hopefully to something that’s successful.
Thank you so much José.