Insolvency is not out of the question for Farfetch as the company explores a range of options to keep its business afloat amid a weakened cash position, The Business of Fashion has learned.

The luxury e-tailer had more than $400 million in cash on its balance sheet at the end of June. But its financial obligations have mounted. Farfetch has around $2.8 billion in financial obligations that include convertible notes, according to estimates from Bernstein. That includes over $1 billion in term loans, including a $200 million credit facility it took out in September.

In an October report, Bernstein analyst Luca Solca spelled out the urgency of Farfetch’s short-term financial situation. “It is debatable — from our analysis — that Farfetch has enough liquidity to get to the year end as a going concern,” Solca said in the report.

Since then, Farfetch’s position has only worsened, three people familiar with the company’s finances and operations said. On Nov. 29, Farfetch cancelled its quarterly earnings release, where it would have been required to update the market on its sales, profits and cash position. The decision followed a report in The Telegraph on Tuesday that chief executive José Neves, who founded Farfetch in 2007, was in discussion with top shareholders and JP Morgan to delist the company.

Going private, preferably with a deep-pocketed investor, isn’t the only option Farfetch is exploring to raise cash, BoF has learned. The company has shopped around business units like Off-White operator New Guards Group and luxury beauty retailer Violet Grey.

Farfetch is also attempting to tap existing partners for an investment to keep it afloat, though it has yet to secure a bailout, according to people familiar with the situation. A potentially lucrative deal with Richemont, in which Farfetch would buy a stake in its biggest rival Yoox-Net-a-Porter, also appears to have stalled. The Swiss luxury giant stated last week it had no plans to invest further in Farfetch.

Farfetch declined to comment.

A Perfect Storm

Insiders and analysts say Farfetch’s current cash troubles reflect bad decisions and flaws in the underlying business model, some of which date back to before the company’s 2018 initial public offering.

However, it appears to have been this year’s broader luxury slowdown — as aspirational shoppers in key markets like the US and China are spending less on nonessential goods — that tilted long-simmering challenges into a full-blown crisis and made arranging a rescue more difficult.

For example, according to two people familiar with the matter, Farfetch is considering the sale of New Guards Group (NGG), the operator of Off-White and Palm Angels which it acquired for $675 million in 2019.

But NGG, once Farfetch’s only profitable unit, has heavy exposure to aspirational shoppers in the US, who have been among the hardest hit by inflation and economic uncertainty. Under-investment in marketing at Off-White, including a cancelled fashion show earlier this year, haven’t helped. Sales plunged by more than 40 percent from a year earlier in the second quarter, its most recent report before last week’s cancelled earnings release. All this has made NGG a less attractive asset and contributed to Farfetch’s cash crunch.

Farfetch is similarly unlikely to recoup its investment in beauty, which included a $50 million acquisition of cult Los Angeles-based beauty retailer Violet Grey in January 2022. Farfetch insiders also added that integrating multiple acquisitions has been a distraction, requiring valuable management time that was not directed at the core business.

Farfetch has longtime partnerships with some of the world’s biggest retailers, which could theoretically inject more cash to prop up the business. In addition to Richemont, there’s Alibaba, which has a joint venture with Farfetch in China; and LVMH, which owns the Off-White brand, the biggest by far in New Guards Group’s portfolio.

Of the three, Richemont was widely seen as the closest Farfetch had to a white knight. But the company stated on Nov. 29 it “does not envisage lending or investing into Farfetch.” That was interpreted by the market as Richemont all but pulling the plug on the YNAP deal; Farfetch’s stock plunged by more than 50 percent, briefly trading below $1 a share (at its peak in early 2021, shares traded above $70).

The reaction from Wall Street reflects how much of Farfetch’s future was tied to the YNAP joint venture. For over a year, Farfetch had been working on a complex deal with Richemont to acquire a 47.5 percent stake in YNAP, mostly for shares, with the intention it would buy the rest in a few years once YNAP becomes profitable.

European Union regulators approved the deal in October, theoretically clearing the way for all parties to proceed. In addition to adding billions of dollars in gross merchandise volume — a measure of sales on its marketplace — Richemont would also re-platform its brands using Farfetch’s technology, giving a boost to the latter’s white label software service.

Richemont said Sunday it had no further comment beyond its Nov. 29 statement.

Fashion’s Lehman Moment?

A potential Farfetch insolvency, if it were to happen in a worst-case scenario, would have far-reaching ramifications for the fashion industry. Some observers have likened it to fashion’s “Lehman Brothers’ moment,” referring to the Wall Street bankruptcy that sent shockwaves through the global financial system in 2008.

Farfetch is one of the largest distributors of luxury goods online, selling more than $3 billion worth of high-end wares on its marketplace last year. The company, which employs more than 6,000 people in 21 countries, works with more than 1,400 brands and boutiques in 50 countries, and serces as the white label e-commerce platform for major retailers like Harrods and Neiman Marcus.

But industry observers are not counting out Neves’ ability to find options to save the business before it leads to insolvency.

And not everyone has given up on Farfetch. Point72, the asset management firm owned by billionaire investor Steve Cohen, on Friday disclosed a 5.1 percent stake in Farfetch in a regulatory filing. Farfetch’s shares were up 9 percent at market close that day.

Consumers around the world might be mistaken if they believe 2024 will offer a chance to catch their collective breath after enduring a post-pandemic period of turbulence. Universally, slowing growth, new and continued geopolitical conflict, and consumer spending pressures are likely to define economic prospects. And as in previous times, the impacts will likely not be felt uniformly as market responses diverge.

As 2023 rolls towards its end, forecasters have readjusted their outlooks as the strains of high inflation and subsequent interest rate hikes showed few signs of falling closer to target levels. By October, the International Monetary Fund’s forecast put global GDP growth at 2.9 percent in 2024, down from 3 percent in 2023 and 3.5 percent in 2022. The IMF cites slowdowns in advanced economies as the primary culprit.

Inflation, still remaining high, will likely continue to be in the limelight. According to the IMF, the global headline inflation rate is set to fall to 5.8 percent in 2024, from 6.9 percent in 2023 and 8.7 percent in 2022. Against this backdrop, officials at the US Federal Reserve Bank are among those at central banks who expect interest rates to remain “higher for longer.”

What will likely differentiate 2024 from the past few years is that consumers in key economies may be confronting different challenges from each other, thus creating additional complexity for fashion executives steering their companies through headwinds from region to region. In Europe, the economic picture is gloomy, as it continues to struggle under the shadow of the war in Ukraine. By the second quarter of 2023, Europe’s biggest economy, Germany, saw growth stagnate, and the risk of a second recession within a year is still hovering. Meanwhile, in the UK, Europe’s second largest economy, growth was slow as the economy attempted to shrug off 2022′s surge in inflation and adjust to 14 consecutive interest rate hikes.

GDP growth in the euro zone is set to remain low, seeing only a tentative rise in 2024 — from 0.7 percent in 2023 to 1.2 percent in 2024, according to the IMF. A monthly euro-zone survey by the European Commission found that consumer confidence hit a six-month low in September. The euro zone’s ongoing cost-of-living crisis is straining many households, alongside continued higher core inflation rates compared to the US.

In the US, where Federal Reserve policies appear to have averted outright recession and achieved lower levels of inflation, growth prospects seem slightly brighter than those in Europe. However, GDP growth is expected to slow next year, from 2.1 percent down to 1.5 percent.

Various events in the second half of 2023 underscored the fragility of consumer confidence in the country. For example, in October US policy makers lifted the three-year freeze on student-loan repayments, leaving 37 percent of respondents to a Morgan Stanley survey anticipating that they would have to cut spending in order to make payments, while 34 percent said they would not be able to make payments at all. Earlier in the year, credit card debt reached an all-time high of $1.03 trillion, according to central bank research, with high interest rates and financing charges also contributing to headwinds.

In China, 2023 held different economic pressures. The economy moved into deflation, and an ongoing crisis in the property market — which drives 25 percent of China’s economy — left apartment sales in August 47 percent below 2019 levels. Major property companies are buckling under the weight of unsustainable debts and losses. Youth unemployment has been high, hitting 20.8 percent in May (the latest date that China’s National Bureau of Statistics published new figures).

Chinese consumers have continued building up savings, while a return to spending has been slow. At around 35 percent to 45 percent of GDP, China’s gross savings rate has been historically high and, according to the World Bank, the country has the highest savings-to-GDP rate among large economies. Indicators suggest that in 2023, China’s savings levels increased further, perhaps as households expanded their safety nets out of precaution.

In contrast, savings pots have dwindled in both the US and Europe. An unusual amount of excess in savings was built up in these regions during the Covid-19 pandemic, but analysis now suggests that these are likely to run out by the end of 2023, after consumers returned to shopping more freely following the lifting of pandemic lockdowns. The subsequent toughening of the economic climate in 2023 has also meant that it is difficult for consumers to replenish their savings, and even as savings remain reasonably high in absolute terms, inflation is causing them to devalue. This bodes ill for discretionary spending in 2024, after recent years of relatively buoyant consumption. Pressure on household budgets is likely to prompt a decline in discretionary spend. In the third quarter of 2023, net intent to purchase apparel was negative 25 in the US and negative 29 in Europe, according to a McKinsey survey.

Rays of Light

Still, there are certain country-level reasons for some degree of optimism. This is the case with China, even if the base case is for muted demand and slow GDP growth, from 5 percent in 2023 to 4.2 percent in 2023, according to IMF forecasts. The volume of imports expanded 1 percent year on year in the first half of 2023 (compared with a decline of 6.4 percent in the same period in 2022), indicating a tentative rise in domestic demand.

Consumer spending plans in China appear to be marginally more positive than in the US and Europe, with a 7 percent net intent to purchase apparel as well as jewellery, and 8 percent for footwear, McKinsey research shows. Meanwhile, 69 percent of consumers are planning to splurge on shopping. However, even if cautious, optimism for the country should be tempered, as the overall outlook may be disappointing — forecasts for shopping and travel have remained dampened in recent months, and growth is still well below historical levels.

Emerging Asia provides potential, too. For example, in India, consumer confidence reached a four-year high in September 2023, while India-based executives are more optimistic than western peers, with 85 percent of respondents to a McKinsey global survey saying that conditions have improved in the six months to August. India’s bellwether manufacturing Purchasing Managers Index (PMI) hit a 31-month high in May and the services PMI reached a 13-year high in July. GDP growth stood at 6.9 percent in fiscal 2023. Strong investment activity, consistent domestic demand and a policy-maker push to invest in infrastructure buoyed the rapid growth. This rate will likely moderate in 2024 but remains strong with forecasted GDP growth of 6.3 percent.

The impact of 2024′s mixed outlook will be felt by fashion businesses across the value chain. Brands and retailers will likely need to confront a further wave of low consumer demand in some key markets, while suppliers may feel the amplified effects of this dampened demand even more as it echoes along the supply chain, leading to underutilised capacity. Revenue growth in this environment is likely to be driven by price rather than volume, and businesses will need to plan price increases with care and precision to avoid alienating cash-strapped consumers.

To build greater resilience across value chains in 2024, fashion decision makers can focus on contingency planning, ensuring that scenarios take into account high levels of uncertainty and the range of regionalised consumer demand shifts. Scenarios for each region will need to factor in increasingly divergent underlying factors. Meanwhile, strong inventory management is likely to remain a priority, continuing successful cost management programmes implemented in post-pandemic times.

Meanwhile, suppliers can expect an increasingly competitive landscape. Manufacturing sector price wars are a possibility as weak consumer demand puts pressure on orders and leads to excess capacity in some supply chains. Suppliers may want to work to build deeper, collaborative relationships with brands to reduce exposure to price competitiveness, while ensuring they retain tight control of costs in the year ahead.

This article first appeared in The State of Fashion 2024, an in-depth report on the global fashion industry, co-published by BoF and McKinsey & Company.

Since its founding 50 years ago, Moon Boot has built a legacy around its signature oversized boot — so much so that the shoe was included in a Louvre exhibition as a symbol of twentieth century design.

But when Mirko Massignan took over as general manager in January 2021, that legacy wasn’t propelling the brand forward: Moon Boot may have an iconic hero product, but its creative vision had stagnated.

“It was completely disconnected to what was happening in the world,” said Massignan. “The imagery was the super polished, beautiful girl in a shallow setting — so overused and not relevant today.”

Massignan set out to overhaul the image of the brand, starting a new marketing department led by head of marketing Allegra Benini, who nixed the “super polished” ski girl motif and replaced it with a number of campaigns featuring the Moon Boot styled with streetwear and shown in unexpected locations, such as a backyard pool in Los Angeles or on the streets of London. When it’s done the “beautiful girl” approach, it’s upped the star factor, enlisting famous faces like Kim Kardashian and Gigi Hadid.

So far, the formula is working. Sales are up fivefold since 2020, and the brand has won over new celebrity fans including Dua Lipa, Justin Bieber and K-pop sensation NewJeans.

The timing of its revival was astute: Just as Moon Boot was plotting its comeback, the “ugly” shoe trend had just reached the mainstream, with brands like Crocs and Hoka at the forefront. Emerging out of the pandemic, consumers were more interested in comfort than ever, and Moon Boot fit the bill. Nostalgia for all things Y2K helped, too.

But its growth wouldn’t have been possible without a recalibration, and venturing out of the après-ski category. In addition to the new campaigns, Massignan and his team pursued collaborations with brands such as streetwear label Palm Angels and sneakerhead-favourite website Highsnobiety, positioning Moon Boot as a fashion label while retaining the fun, light-hearted feeling of its core product.

“It’s just very much a moment of time, where actually they can capitalise on this much more playful approach,” said Matthew Attard Navarro, the creative director and founder of fashion-focussed creative agency ANCC Studio. “But they’re also able to really break the boundaries between what is playful and affordable and equally accessible.”

Beyond the Slopes

Moon Boot was founded in the 1960s by artist and designer Giancarlo Zanatta, whose footwear holding company Tecnica Group now includes Nordica and Lowa. The chubby snow boot emerged as an icon of mid-century fashion design, worn by wealthy skiers in Gstaad and stars like Paul McCartney in the 1970s. The iconic shoe is recognised in not only the Louvre but also the Museum of Modern Art in New York’s permanent collection.

By the time Massignan took over, its cultural relevance had waned. A resurgence in aughts was not enough to recover the brand, which had been slowly siloed into the ski category, sold in sportswear retailers. But Massignan and the rest of the team felt there was an opportunity for the brand to thrive in a fashion environment, particularly given that its eye-catching shape feels fit for social media.

“It’s kind of a surreal object because of the size and you need to be self-confident in order to to wear it, because it’s super visible,” said Massignan. “We define the community as … individuals that aren’t afraid of the spotlight.”

Like its marketing, the product itself also needed a refresh, particularly to recapture the male consumer. The brand made a Moon Boot without its signature laces, for wearers who wanted a shoe that would slip on more easily. A rain boot and sneaker boot — both in varying heights — were designed to appeal to urban-dwelling customers. Today, the brand offers 37 unisex styles, and 12 styles for women, men and kids, respectively.

Though it rolled out new variations of its core offering, the distinct, over-the-top silhouette remained the same, and in promoting this hero product, the brand leaned into the surreal, playful nature of the physical Moon Boot. This time, they wanted to adapt that approach for a more modern audience.

“The cultural relevance was something we’ve been discussing since moment one, it’s a product with such a big history,” said Benini. “We don’t want to change the heritage of the brand and lose the consumer that we already have, but we need to understand the consumer of the future and make it a bit more relevant for them.”

It ran campaigns featuring athletes in unconventional sports, such as the world championship-winning downhill skating team in 2021. Its Fall/Winter 2022 campaign, Icons of LA, captured real Angelenos, dressed in their actual clothes, wearing Moon Boots, in cheeky settings: a surfer sitting in a pool, wearing cargo pants and Moon Boots, reading a vintage newspaper with a front page that covered the first moon landing. The Fall/Winter 2023 campaign, “School of Life,” put Moon Boots at the centre of a cartoonish mock-up of high school students, complete with a kissing booth.

The only campaign that features Moon Boot in proximity to skiing is the Fall/Winter 2023 campaign “Snowchasers,” which shows wearers in their Moon Boots and carrying skis, but walking on the sidewalk in London, rather than on the slopes.

“We didn’t want to be too specific with fashion trends,” Benini said of the brand’s approach to its campaign strategy. “The easiest way to show the boot out of context, but to still be credible within that new context, was to dress up individuals with a super strong personality,”

But alongside those campaigns, it also rolled out other marketing materials that elevated the brand’s fashion credentials, like those starring Hadid and Kardashian, as well as a slew of collaborations. A tie-up with Netflix’s “Stranger Things” served as a nod to the brand’s heritage and popularity during the 1980s; other collaborations include Gucci Vault, the brand’s metaverse and digital fashion arm, and fellow Italian outerwear brand Moncler.

Next up, it wants to create summer-ready offerings with its first spring/summer collection in 2024, so it “can extend the brand’s shelf life,” according to Massignan, and boost sales outside of its top-performing window of November to January. The company also plans to expand in markets such as Japan and South Korea.

The challenge is to avoid falling prey to becoming a trend, as Moon Boots has in the aughts.

“We were the perfect brand for Y2K, but we don’t want to be too associated with a trend because there is a risk of becoming a fad,” Massignan said. “And when that trend is over, the brand could be over.”

Indrė Narbutaitė and Lukas Žvikas, founders of UK-based streetwear brand Broken Planet, can vividly recall how as students in 2018, they queued for hours before Travis Scott’s Astroworld concert in London to buy T-shirts from the tour — wardrobe grails they treasure to this day.

It was a full-circle moment, then, earlier this year, when the duo was asked to design a merch capsule for hip-hop festival Rolling Loud in Portugal, which featured Travis Scott, among others, as a headliner. The collection comprised of T-shirts and drop-shoulder hoodies featuring colourful graphics relating to three of the festival’s biggest acts: Scott, Playboy Carti and Meek Mill.

Known for oversized streetwear silhouettes with large, playful text, Broken Planet hypes its products through behind-the-scenes TikToks and boisterous pop-up events. The brand’s founders used the same formula with its Rolling Loud merch.

Each day when the festival’s doors opened at 4 p.m., Narbutaitė and Žvikas were taken aback as people sprinted over to get their hands on the merch, which would sell out within 20 minutes, Narbutaitė said.

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In collaborating with Broken Planet, Rolling Loud benefitted from the brand’s clout among hip-hop fanatics and a scarcity model. To this day, the Broken Planet x Rolling Loud hoodies change hands on resale sites for as much as €340 ($370), more than double the original retail price of €140.

Broken Planet’s collection was a far cry from how music merch is typically created, where artists print graphics on cheap T-shirts that end up being forgotten or used as pyjamas. Today, artists and festival organisers are levelling up their merch by tapping legitimate names in fashion and streetwear, to not only transform their merch into valuable fashion pieces but also to be able to charge more for each shirt or jumpsuit. The market is certainly there; vintage and limited-edition band T-shirt can go upwards of hundreds of dollars for a single piece at specialty shops today.

“Music merch is this perfect opportunity to have your brand remembered for creating clothing which people have an emotional connection to, forever,” said Narbutaitė.

“It’s the ultimate symbol of belonging. This is why people go crazy for it, to be able to say: ‘I was there,’” added Žvikas.

For artists, the upside is high: If successful, merch can provide a lucrative revenue source that supplements their income from touring — a necessity considering the notoriously low rates musicians receive from streaming platforms. Rather than striking deals with licensing companies that take sole responsibility for creating the merch, top artists today are taking their merch production in-house, where they have a say over the look, feel and distribution of the product, and take a greater share of the revenues.

Travis Scott’s ongoing “Utopia” tour, for example, saw merch sales surpass $1 million per night at shows in Dallas and Denver, smashing record sales for both venues, according to Complex.

“Artists are increasingly beginning to understand the real value in owning the process of creating their merch, rather than going for standard licensing deals,” said Tersha Willis, chief executive of Terrible, a London-based start-up working with rising British artists like Sampha and TikTok-favourite singer Pink Pantheress to create and sell dedicated merch to mark album launches, tour dates and retail pop-ups.

Fashion Leans into Music

Broken Planet is hardly the only buzzy brand tapped to make merch. Last month, Balenciaga announced a partnership to create a “tech-enabled merch series” on behalf of Archive, a London-based trip-hop group. And earlier in November, British luxury designer Martine Rose designed merch including T-shirts and a scarf for “The Hillbillies,” a single released by Kendrick Lamar and Baby Keem. The collection, which included a reworked version of the brand’s signature V-neck football jersey, sold out instantly both in-person at LA’s Camp Flog Gnaw festival and on the Martine Rose e-commerce site.

In recent years, luxury brands have increasingly looked to the music industry to boost their appeal to consumers and reach new demographics. In February, Pharrell Williams was appointed Louis Vuitton’s menswear chief; Lanvin tapped American rapper Future to design a unisex capsule collection for the brand which was released earlier this month; and Dior collaborated with Travis Scott’s Cactus Jack label last year.

Sportswear brands have also got in on the act. Drake’s “Nocta” collaboration with Nike has become one of the brand’s most coveted sub-labels in the streetwear community, while Puma announced the comeback of its Fenty x Puma line with Rihanna earlier this year, and hired A$AP Rocky as creative director of its Formula 1 partnership to create a high-end range of motorsports-inspired merch.

The Fashion Transformation of Merch

The pivotal point for the intersection of fashion and music merch can be traced to the mid- to late-2010s, and was best demonstrated by Travis Scott’s 2018 Astroworld tour, according to publicist and music industry expert Eki Igbinoba.

“The Astroworld tour played a huge part in shifting people’s perception and expectation of what tour merch should look like,” she said. “It looked more like a Supreme drop, these were products from a credible streetwear brand than the usual printed T-shirts with an artist’s name and tour dates.”

Scott designed much of the clothing himself, as well as collaborating with several partners, from Virgil Abloh to the NBA’s New York Knicks, to drive hype around location-specific exclusive merch for various tour.

The rest of the industry has taken note. It’s now common for record labels, artists and festivals to tap streetwear specialists like Broken Planet to design merch as they would a traditional collection. Artists like Tyler, the Creator have built entire brands out of their merch. The American rapper and producer’s Golf Wang label has flagship stores in LA, New York and London.

“Since the pandemic, we have seen a massive acceleration in mainstream artists and record labels investing in more fashionable, better-looking tour merch offerings, sold online all year round, beyond just tour dates,” said Igbinoba.

Willis of merch agency Terrible said her business has received an influx of interest among artists as the industry emerged from the pandemic and artists were able to resume touring, looking to take a more strategic approach to merch.

The Future of Merch

Even without the halo effect of fashion, merch is a booming business, and the music industry’s biggest players are muscling in. Last year, Sony took a stake in California-based merch maker Ceremony of Roses and made it its in-house merch production arm.

Spotify has leveraged its jersey sponsorship deal with historic Spanish football club FC Barcelona since the 2022-23 season, creating one-off jerseys worn by the team during games featuring the logo of Drake’s OVO record label, the “Motomami” album artwork of Spanish singer Rosalia, and most recently the Rolling Stones iconic tongue-and-lips symbol. This unique three-way tie-up was so popular that they inspired dupes sold on the internet. It also opened Spotify’s eyes to the potential of merch as a significant future revenue stream, said the company’s vice president, head of music, Jeremy Elrich.

In November, the streaming platform announced a “Capsule Collection” project, which features weekly drops of limited-edition merch from the likes of Peso Pluma, Daft Punk, Tyler the Creator, Tems, and Rosalía.

“Merch is one of the biggest product categories that artists can generate sales from, along with live appearances and publishing recorded music,” said Elrich, who added that the company plans to expand the project to create a permanent platform where consumers can buy merch from various artists.

While online merch sales are a useful year-round source of income for artists and labels, for music fans, nothing can replicate the experience buying merch at live events — and this is where the biggest opportunities lie for brands and designers to convert new consumers.

“It’s this perfect retail moment that I don’t think is possible to replicate in any way,” said Willis. “A purely emotional connection of being in that place, at that time, with the artist and the people you share the moment with.”