Farfetch faces EU antitrust ruling on YNAP deal amid mounting woes

European Union antitrust regulators are due to rule by Friday 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 U.S.-listed company pioneered an innovative business model that persuaded many luxury brands to embrace selling online.

But it has yet to reach break-even because of high technology and marketing costs, and is suffering as U.S. retailers slash their orders and more of its inventory comes from brands rather than their wholesale customers — meaning Farfetch has less leeway to attract shoppers with promotions.

Its shares have lost more than 90% of their value in the past two years, with its market capitalisation plunging from $26 billion to just over $1 billion.

They slumped 40% in a single day in August following a gloomy annual sales outlook due to weaker-than-expected demand in the key U.S. and Chinese markets.

Richemont’s deal to sell a 47.5 stake in loss-making YNAP in exchange for more than 50 million Farfetch shares was unveiled in August 2022, and resulted in the Swiss group booking a 2.7-billion euro ($2.9 billion) writedown.

Under the agreement, Farfetch can also acquire the remaining shares in YNAP through a put and call option scheme.

The EU competition enforcer can approve the deal with or without remedies or open a four-month investigation if it has serious concerns.

Bernstein analysts said this week Farfetch’s troubles raised questions for Richemont, which under the deal is set to transfer its online business to technology run by Farfetch and provide a $450 million credit facility, thus becoming even more entwined with the online retailer.

“There are many moving parts to the deal and Farfetch could still survive if it narrows its focus, but it will remain a drag on Richemont’s share price until they alleviate investor concerns on how far they are willing to go to help their new partner,” Bernstein said.

Farfetch’s troubles “could have ripple effects through an already suffering industry,” it said, as more than 500 Italian boutiques depend on the platform and department stores Harrods and Bergdorf Goodman rely on its technology.