What You Need to Know About Internationalizing an Ecommerce Store, with Farfetch
All eyes are on the online sales website of luxury articles that recently announced an NYSE IPO. During the Ecommerce Brasil 2018 Forum, the platform, which has consumers in over 190 countries, presented the pain points and advantages of internationalizing
Farfetch’s announcement of an IPO on the New York Stock Exchange (NYSE) in August came just a few days after the talk of Daniel Funis, managing director Latin America of Farfetch at the Ecommerce Brasil 2018 Forum, that took place on August 14 to 16 in São Paulo, Brazil. Founded in 2008 in London (U.K.), Farfetch has a consumer base of over 2.3 million people located in more than 190 countries. Its platform provides around 335 thousand items of 3.2 thousand different brands. It’s a worldwide phenomenon, and its valuation for this IPO could reach $6 billion US dollars.
Funis started his talk at the event presenting two main focus points for Farfetch: technology and marketing. This is deeply rooted in the fact that the company doesn’t need to invest in stock nor storage, being a website that connects luxury article sellers and boutiques to buyers. So, these sellers and boutiques are in charge to managing the stocks and storage.
With always clear expansion goals, Farfetch has been collecting investments and important partnerships, besides great numbers. In 2017, it received an investment from a Chinese giant company. At the beginning of this year, Farfetch associated with one of the big fish from Middle East. Operating for almost eight years in Brazil and with operations in other Latin American countries, the company is one of the most important names in online luxury commerce in the world.
Farfetch’s official website in Brazil.
With such a success strategy for internationalization, it is no surprise that the company was invited to speak at the Ecommerce Brasil 2018 Forum specifically about the challenges of international expansion. Here are the highlights Daniel Funis shared with the audience:
Each market is different, so are moments
There is no single success formula for internationalization, as stated by Funis. For each target market and for each moment of the market and the company, there are different strategies.
He said that in Brazil, for instance, they realized that the income distribution has a direct influence in people’s behavior on Farfetch’s website: few consumers were responsible for a large sales volume. From this analysis, they created a different customer service for those clients. Soon the strategy was replicated in other countries’ operations, generating a much stronger and global awareness of Farfetch’s brand.
Daniel Funis, managing director Latin America of Farfetch, at the Ecommerce Brasil 2018 Forum
The process of strengthening internationalization in Russia was enhanced after 2014. Until then, as Funis said, Farfetch didn’t have much traction in the country but saw a lot of potential. When they identified a local company that was doing something similar, with great acceptance, they bought it, not only for the acquiring itself but to have the entrepreneur of such company by their side. According to Funis, today Russia is Farfetch’s third largest market, with specific logistic and marketing solutions, among others.
Japan demanded other strategies. Having a highly competitive market, Japan offered a much more expensive landscape for Farfetch to establish all by itself. The solution was to organize a joint venture with local ecommerce specialists. Something similar was done in the United States.
The same strategy was adopted in the Middle East. At the beginning of 2018, Farfetch associated with one of the largest luxury retailers in the region, the Chalhoub Group, which was in the market since the 1950’s.
In China, Farfetch chose to enter alone. In the beginning, the operations were very small, which gave the company the time to learn and really understand the local culture and market. Later, it got the attention of the Chinese giant JD.com, which invested $397 million dollars in Farfetch in 2017 to enhance their presence in the luxury market.
With all these examples, Daniel Funis showed the audience of his talk at Ecommerce Brasil 2018 Forum that there’s no recipe for internationalization. It all depends upon the country you are interested in expanding to, this country’s moment and the moment of your business as well.
Payments: a pain point of the internationalization process
Funis highlighted that payments are always a sensitive subject when it comes to internationalizing a business. Every country has its own methods and behaviors. And each consumer buys and pays in a different way, according to their culture.
In Brazil, Farfetch realized that offering installments as a payment option was a necessity. The 2018 issue of Ebit’s annual report, Webshoppers, showed that over 50% of online purchases made in 2017 were made in installments. By looking at a number such as this one, it’s easy to realize the importance of offering these payment methods, especially in the case of merchants that sell products with a higher average ticket, such as Farfetch.
After this conclusion, Farfetch created F6, in 2016, which allows Brazilians to pay with installments for purchases made on Farfetch’s website, and receive their products in other countries. Consumers can shop for clothes and accessories from sellers and boutiques from all around the world, and pay with up to 6 interest-free installments. They will pay the local prices and pick up the products in the US, Europe, in the hotel or residence they’re in or in one of Farfetch’s partner boutiques.
F6, installments program of Farfetch for Brazil
In this specific moment, Farfetch’s and EBANX’s paths crossed. Since F6’s beginning, EBANX is its payments partner in Brazil, allowing the offering of Brazilian local payment methods such as domestic credit cards and installments to consumers.
Local teams and local partnerships
According to Funis, F6 was only possible because Farfetch had local teams and partners in Brazil, which were capable of connecting the moment of the country, cultural aspects and consumption behaviors. This allowed the creation of exclusive products for specific niches.
“We could only run the F6 project because we had a local team in the country that identified a behavior: Brazilians that consume luxury items buy things while traveling in leisure”, Daniel Funis
This local presence doesn’t have to be a team of your company. A partner, that can be from the marketing area, or logistics, or payments, will also be very valuable. Local people or companies founded in the country, that really know the drill.
One of the biggest challenges of internationalizing a business is balancing both global and local strategies. Funis said that having a centralized company that looks for homogenous solutions for all its markets can be more efficient in some cases, but it won’t be successful in some markets. On the other hand, in a company where personalization is important, tensions can rose from the seek for efficiency. “We know we don’t have the only right answer. We are always looking for local partners or establishing a local presence in new markets”, he said.
Wrapping it all up: 4 big lessons you need to learn from Farfetch about internationalization
Internationalizing offers a much wider spectrum to a business. It means having a larger market and more growth possibilities.
But, it is not only about simply selling cross-border. It is necessary to go further, and to really understand the local culture. It is about having a complete grasp of how locals relate to your product or service in this country, with all the nuances: for instance, which is the season when people buy it the most, and how they pay for it.
At the end of his talk at Ecommerce Brasil 2018 Forum, Funis organized everything he said about internationalizing business in 4 key points:
- When you think about internationalizing, you need to think long-term: according to him, it might take four to eight years for you to start having positive results from the internationalization process. So, have patience. All the steps are important.
- Be curious and empathetic about the market you are targeting: whenever you can, be close to the market, studying and learning. As Funis said, it is very hard to create solutions for these people if you are always far away, in your headquarters. Be present whenever possible and rely on local partnerships to help you on this mission.
- Accept that, at some point, you will be wrong about the strategy: eventually the strategy will fail or won’t come out as you wished. And this is why is so important to be committed in the long term. Having this vision will help you get through the moments when things don’t go as planned.
- The best way of testing something is doing it: you can adapt as you go. It’s like Farfetch’s founder and CEO, José Neves, told WWD website when the company associated with Chalhoub Group in the Middle East: “At Farfetch, we have the fast execution DNA. We have the spirit of not only talking about something but actually doing it”.