How Did a Geek Build a US$1 Billion Fashion E-Commerce Company?

He doesn't care much for fashion, yet he built an online store for (almost) every boutique in the world. How did he do it?

The Portuguese entrepreneur José Neves founded his first company at 19; it made software for running shops. Twenty years later, another company he founded, Farfetch, raised a US$86 million Series E round that valued it at US$1 billion. The lead investor drew just as much talk: the Russian Yuri Milner and the DST fund he runs have an unusually strong record, with winning bets on Facebook, Twitter, Flipkart, Alibaba and Xiaomi.

Farfetch is a British luxury fashion e-commerce company. "Farfetch's pace of expansion is impressive," said DST's Yuri Milner. "In the fast-growing fashion e-commerce market, it has enormous potential." Condé Nast and Vitruvian Partners also joined the round. Condé Nast needs little introduction: it is one of the world's largest media groups, publisher of Vogue, GQ, Wired and The New Yorker.

This is not a simple story of a fashion insider getting rich. José Neves is no fashion devotee. Walk into Farfetch's offices and you will find staff in plain white shirts and jeans, and Neves himself has told the press: "It took me years to learn the fashion game. My wife and I are not compulsive luxury buyers. We would never take home a £2,000 piece of clothing."

Neves found his footing in fashion through the business he started at 19, when he wrote software for managing retail stores. Farfetch, too, is driven by technology. It is not a fashion retailer in the usual sense but a platform that gathers more than 300 boutiques from 30 countries and sells their stock in one place. In the past, a buyer-led boutique in a given neighborhood depended on the tastes of local customers and had to buy stock with great care. A platform like Farfetch gives it a new way to sell.

There are many boutiques around the world; "D'NA" is one of them, and one of Farfetch's partners.

Another partner, "L'Eclaireur"

The boutique Browns

Technology is the company's biggest investment. Farfetch has 100 engineers today and will have 200 by year-end. Their main job is to make sure goods from those 300-plus boutiques reach customers in 180 countries without error. That is hard: payments, logistics and currency conversion all depend on a great deal of back-end work.

For the boutiques selling on Farfetch, by contrast, the process is simple. They scan a barcode with a handheld scanner and never have to adjust inventory by hand.

José Neves was born in Porto, Portugal's second-largest city, where the clothing industry is especially strong and his friends and family all worked in the trade. "My grandfather owned a shoe factory, so I was influenced by him from childhood," he told QDaily. He entered the fashion business in the mid-1990s with a shoe brand, SWEAR. Soon afterward he founded SIX London, a fashion retail and licensing agency that did business with 600 retailers worldwide. In 2001 he created the fashion label B-store, which won him a London Fashion Award in 2006.

"Back then, we boutiques were all fighting the old department stores like Liberty and Harrods. Winning the London Fashion Award was like winning the Oscars of fashion."

Neves got the idea for a luxury e-commerce site at Paris Fashion Week in 2007. Online retailers were rising fast while physical stores struggled to survive. These boutiques were popular offline but did little to promote themselves online. Why not build one site that brought them together and showed them all in one place? That is the problem Farfetch set out to solve.

When he started building the site, Neves had only 25 boutique clients, all gathered through his earlier businesses, which had put him in touch with boutique owners. "Looking back, I first started a technology company, then worked in boutique fashion and got to know boutique owners," he told QDaily. "So it's not surprising that Farfetch, which combines technology and fashion, came next. The business came together step by step. I just never imagined at the time that it would grow as big as it is today."

Farfetch founder and CEO José Neves

What Did Farfetch Achieve in 7 Years?

In 2008, less than a year after the site launched, Farfetch's numbers already looked good: its platform had more than 300 boutiques, over 1,500 designer brands, more than 125,000 items, 600 employees and 7 million visits a month. Its customer base was also growing fast and now spans more than 180 countries. Seven years on, Farfetch is essentially global: 90% of its employees are foreign nationals, and only 10% of its revenue comes from Europe.

In 2014 it had sales of US$300 million and grew more than 90% a year; sales for 2015 are projected at US$500 million.

Sales grow fastest between the start of the year and Christmas. In December 2014 they peaked at US$8 million in revenue a day. Across global markets in that period, the big sellers included MOSCHINO's oversized logo-print T-shirt, KENZO sweatshirts and CHIARA FERRAGNI's sequined casual shoes with a winking-eye motif. Its tiger-embroidered sweatshirt made KENZO the platform's best-selling brand of 2014.

Since the first boutique signed on, Farfetch has gathered many distinctive shops: Browns in London, L'Eclaireur in Paris, The Webster in Miami, Fivestory in New York and Smets in Luxembourg, among others. They range from newly opened stores to old ones such as Venice's Al Duca D'Aosta, founded in 1902.

How Did It Become an E-Commerce Company Valued at US$1 Billion?

It has grown fast. Who has been putting money into Farfetch? Beyond the Series E round mentioned above, the earlier rounds trace how the company grew:

Series A: US$4.5 million, June 2010. The investor was Advent Venture Partners.

Series B: US$18 million, January 2012. The investors were Index Ventures and eVenture Capital Partners, along with the earlier investor Advent Venture Partners.

Series C: US$20 million, March 2013. Condé Nast International led the round, its largest e-commerce investment at the time, and earlier investors Index Ventures and Advent Venture Partners also took part. By then Farfetch had raised US$44 million in total.

Series D: US$66 million, May 2014. Vitruvian Partners, a private equity firm that focuses on "dynamic situations," led the round. Existing investors Condé Nast International and Advent Ventures also took part, and a new investor joined: Chen Lin, a partner at the Chinese venture firm Ceyuan Ventures.

Farfetch's competitive advantages come down to the following points:

1. Zero inventory

As it built the site, Farfetch gradually found its place: it is neither a pure online retailer like Net-a-Porter nor a marketplace like eBay. "If you buy stock, you have to build warehouses to store it, and all of that takes money. Buying new goods is also risky. So we chose zero inventory. We only build the platform, and the goods ship directly from the boutiques," José Neves said.

The strategy resembles Taobao's: the platform does not handle sellers' inventory, and third-party merchants deal directly with consumers. That keeps the overall investment down.

2. A broad range of brands and products

In the site's early days, most revenue came from high-end luxury and fashion brands such as Valentino, Saint Laurent, Givenchy and Comme des Garçons. Over time, though, the focus of sales shifted, and smaller niche brands began to stand out.

The company now sorts its merchandise into two categories: high-end luxury brands and "lab brands." There used to be a third category, "everyday wear," but in September 2014 it was folded into "lab brands" to make browsing simpler for customers. The product range is wide, with emerging designers sold alongside high-end labels. A Business Development team works full time on finding good local buyers and boutiques, giving shoppers at their computers plenty of choice.

3. European DNA

Although Farfetch's partner boutiques come from many countries, Neves believes a key reason for its success is that it started in Europe. "Europe has always had a great history of luxury goods. Independent boutiques also have a very strong presence in Europe, which comes from that history." For each market, Farfetch then seeks out key fashion insiders: people who understand local fashion demand and can even weigh fashion trends against digital analysis.

4. A distinctive mobile strategy

In October 2014, Farfetch launched an iOS app called Farfetch Discover. Unlike the website, the app is designed for mobile use and is pitched as a "travel shopping guide": it recommends boutiques at travel destinations, regularly features shops chosen by editors, and uses a built-in Google Map to locate both travelers and shops. Farfetch did not simply copy its website onto phones; it found a new kind of product.

Finally, technology is the core advantage

"By year-end we will have 200 engineers. That is a huge investment. A company with US$1 billion in assets might be able to do it, but it still takes great courage and determination, because many companies are publicly listed," Neves told QDaily.

David Lindsay is senior vice president of technology. He joined Farfetch in February 2013 after five years at Net-A-Porter, Farfetch's biggest rival. The chief technology officer (CTO), Cipriano Sousa, has worked for Farfetch since its founding. Before that, he designed and ran websites for small boutiques, including the B-store site of Farfetch's current CEO, José Neves. He now oversees every aspect of technology, including software development, security and user-interface development. All of Farfetch's engineers work in its London office so they can work closely together; only its operations teams are spread around the world.

Farfetch's Chinese-language site went live last October. The company told QDaily that its best-selling brands in China are currently Givenchy, Kenzo and Dolce & Gabbana, and that it will keep tracking how brands sell there and adjust its offering to match. It is in talks with some domestic courier companies and will use local couriers for deliveries going forward. For now, though, logistics problems mean no Chinese boutiques will join the platform in the near term. We spoke with José Neves about the company's story.

To expand in China, Farfetch held a digital media event in Beijing in April

The digital media event

QDaily (Q): What is your biggest technical challenge right now?

José Neves (J): Technology is never easy; it is complex by nature. For us, the international side matters a great deal. Last year we launched service in six languages within just six months, which is very demanding technically. We also launched a "buy at one store, pick up at another" service, and we run some "rebate" promotions, which also demand a lot of the technology. Then there is updating the sites in different languages and building multilingual apps. All of that needs engineers.

Q: What is the biggest challenge Farfetch has faced so far?

J: Farfetch has a very distinct brand identity. It's not easy to make the Farfetch brand fit with the brands sold on the platform, or to adapt its style to each new market we enter. The company now has more than 600 people, and we are hiring fast at offices around the world. How do we make sure we hire the right people? How do we make sure we pay attention to every employee and meet their needs? How do we make employees feel successful when the company succeeds? Caring about people matters a lot to me. People are also usually the hardest part.

Q: Does every new hire still have to get past you in a final interview?

J: No (laughs). Remembering names isn't my strong point, either. But every 15 days we hold a lunch for new employees, twenty-odd people eating together, which makes sure I meet every new colleague. The London office alone has staff from 16 countries, and sometimes their names are too complicated...

Q: Have any doubts ever made you waver about this business?

J: Many times (laughs). I think that's natural for any entrepreneur. No one can guarantee that every decision is 100% right, and every business decision carries risk. The company is growing fast and things have gone fairly smoothly. Right now my biggest challenge is keeping up that growth, and keeping the company's culture and values intact as it grows. That matters a lot, too.

Q: How do you choose boutiques?

J: We want boutiques that are not only interesting but also very good at curation. Does their style fit Farfetch? We are very sensitive about that, because finding the right partners (boutiques) is extremely important to us. If a boutique's brand list is all big international names and its style is a little safe and boring, we won't pick it. If it isn't avant-garde or fresh enough, we won't pick it either.

Q: What does a typical 24 hours look like for you?

J: It depends on where I am. I get up very early, at 5:30 or 6:30, and go to the gym or for a run in the park. Office work starts at 9, and I spend most of my time dealing with people. I travel a lot: two-thirds of my time is spent around the world. All in all, I'm an early-to-bed, early-to-rise type.