Embattled British luxury fashion retailer Farfetch Limited is reportedly in discussions with Apollo Global Management to secure emergency funding.
Terms of the potential deal, including whether funding would be debt, equity, or a mixture, have not been disclosed, and sources close to the matter say that talks are still early. Previous reports suggest Farfetch may require up to $500 million to help plug the holes left by runaway cash burn.
Farfetch, once a pandemic success story, has experienced a dramatic reversal in its fortunes as the surge in online shopping cooled, leaving it struggling to navigate the post-lockdown luxury retail environment.
With a market capitalization of just over $220 million, down from a peak valuation of $23 billion, Farfetch's situation led to rumors that founder and CEO José Neves might be considering a management buyout of the company. However, given the rapidly deteriorating financial situation, such a deal may prove challenging.
In the lead-up to the rumored Apollo negotiations, Farfetch sparked speculation over its financial health by postponing its quarterly results, stating only that it would “provide a market update in due course."
The postponement, along with the worsening cash position, prompted Moody's to downgrade Farfetch's credit rating to Caa2, a designation reserved for companies “judged to be of poor standing and subject to very high credit risk.” The business has $1.6 billion outstanding, with maturities in 2027 and 2030.
As discussions continue, major Farfetch stakeholders, including minority owner Richemont, have distanced themselves from the retailer's financial struggles. Richemont clarified that it has no obligations towards Farfetch and does not intend to lend or invest further in the company.
Farfetch was founded in London in 2007 as a digital marketplace for global luxury boutiques. While it enjoyed early successes and backing from prominent industry players, reaching sustained profitability has proved a challenge. Despite an attempt to license its e-commerce technology, Farfetch's core business has been dragged down thanks to troubles securing inventory from premium luxury brands. Those brands prefer to operate via their own direct-to-consumer and owned distribution channels, bypassing third-party platforms like Farfetch that require them to accept wholesale pricing.
Some luxury retailers put up with such an arrangement over the course of the pandemic, with their own retail storefronts largely offline, but have now scaled down relationships with third parties retailers.
Should the Apollo rescue package fail to materialize, Farfetch is also said to be exploring the sale of various subsidiaries, including luxury boutique Browns, to raise additional capital. Yet, even if Farfetch manages to escape the current liquidity crunch, questions linger over the long-term viability of its business model.