Strategic Analysis - FARFETCH [Part 2 of 4] PESTLE ANALYSIS

Strategic Analysis Project, Part Two Br yan Kaetz | 6 October 2020 LEAD 701 - From Agoras to Digital Markets: Fundamentals of Business Design Professor Jeremy Kobus | Fall 2020

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Contents Political

4 6 8

Economic

Socio-Cultural

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Technological

10 12 14 Legal

Environmental

*clickable topics click page numbers throughout document to return to contents

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Political

“Brexit is negative. It will create problems for businesses. In our case, our biggest concern is talent. We have a big percentage of our team who are from the European Union and other countries. That’s what makes London such a great city.

Brexit was def initely a move towards more controls in terms of immigration. That will af fect the ability to attract talent.”

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JOSE NEVES CEO and Chairman, Farfetch BREXIT With great uncertainty of future involvement with the EU, UK fashion companies are on unsure footing. Farfetch is also headquartered in London.

EMPLOYMENT POLICIES Countries around the world regulate employment in varied ways. Global companies are challenged to ensure proper policy on a worldwide basis.

EASE OF DOING BUSINES Similarly, business regulations var y greatly from countr y-to-countr y.

RISE OF CHINESE LUXURY Paired with a rise in Chinese consumption of luxur y goods and increased control of Hong Kong, Farfetch will be challenged to follow all business guidelines in China. China ranked 31/191 versus Hong Kong’s 3/191 in Ease of Doing Business.

The majority of apparel, textiles, and similar manufacturing businesses are included in List 3 or List 4A to be tarif fed up to 25% of landed costs from China to the US. On Sept. 15, the World Trade Organization found the United States breached global trading rules by imposing multibillion-dollar tarif fs in Trump’s trade war with China.

DAVID SHEPARDSON Reuters

political

TAX POLICIES As witnessed with the US-China trade war, tax & trade policy can change in an instant and varies countr y-to-countr y. This also has great effects with legal and economic factors.

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Economic

“In China, we have had a ver y successful business for the past two years. We saw, and to be honest JD.com too, the opportunity to double down because quite clearly we have the proposition for the Chinese customer which works.�

JOSE NEVES CEO and Chairman, Farfetch CHANGE IN LUXURY CONSUMERS With more and more luxur y business moving to China, there are many potential challenges for companies doing business in the countr y.

As Beijing cracks down on the sovereignty of Hong Kong, fashion companies have more and more reason to open storefronts in mainland China.

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COVID-19 The pandemic signif icantly impacted the luxur y fashion industr y - from greatly-reduced foot traff ic in many stores to fewer tourists, yet a signif icant increase in luxur y e-commerce.

COMPETITORS Amazon (amongst others) is getting into the luxuxr y e-commerce game with their Luxur y Stores marketplace.

Economic

LUXURY TRAVEL REVENUE Luxur y revenues from tourism spending tends to make up a large percentage of these brands’ total revenues. With dismal travel forecasts, this will continue to decline.

GLOBAL WEALTH The number of high net-worth individuals (HNWIs) across the globe is increasing. With

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Socio-cultural

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% of urban households in China, by annual household disposable income

CHINESE CONSUMERS The Chinese culture will continue to impact global trends, especially for the luxur y goods industr y. As this culture focuses more on the collective and is gaining an increased wealth, luxur y companies need to pivot their business models to the vastly different Chinese market. From Alibaba’s T-mall to streaming apps and payment options, luxur y brands must embrace the digital future not only to maintain prof itability, but in order to sur vive.

COVID-19 The current pandemic has truly changed the face of the global marketplace. This situation evolves day-to-day with no complete end in sight.

SOCIAL ATTITUDE OF LUXURY In times of prosperity, luxur y is f launted, shown off, and emblazoned with logos. Following the pandemic, luxur y consumers may want to be quieter about their purchases and opt for more subtle, personal luxuries.

GROWING OLDER POPUL ATION As life expectancy increases globally, so does the aging population. Older consumers tend to be more conser vative in their values and spending, but they do have the money to spend and are loyal to brands they know.

socio-cultural

POPUL ATION GROWTH While the aging population is growing, so is the total population overall. Despite a growing population, the rate of growth has been steadily declining from its highest at over 2% in the 1960s and is projected to stagnate by the end of the centur y.

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10 technological

FASTER SUPPLY CHAINS Technology and consumer demand are increasing the speed from production to end consumer - hello, 2-day shipping! To maintain competitiveness, f irms continue to improve, advance, and speed up.

AR + VR Luxur y brands, especially those with physical locations, utilize advancing technologies such as virtual and augmented realities to improve their customers’ experiences in-store and online in steadily growing formats.

AI Artif icial intelligence and automation are speeding data analytics and reducing time needed for previously labordriven jobs. As ser vicefocused companies rise, product-focused companies are continually replacing workforce with robotics.

technological

E-COMMERCE Online shopping has advanced from physical only to multichannel, omnichannel, and beyond.

New technologies develop daily to improve e-commerce experiences. Following the start of the pandemic, digital markets have grown exponentially and will continue to do so.

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VARIED COUNTRY REGUL ATIONS A f irm like Farfetch that does business on a global scale must ensure to follow all local and national regulations, crossing ever y t and dotting ever y i.

legal

INTELLECTUAL PROPERT Y The focus (or scapegoat) of various trade wars and repurcussions, IP is an important consideration for companies desiring to protect their competitive advantages.

CONSUMER PROTECTION From health and safety to countr y-of-origin and data privacy, legal ramif ications var y.

Online-based companies like Farfetch must ensure the protection of not only their consumers’ physically, but also any digital assets they have acquired.

EMPLOYMENT L AWS Labor laws may be strict in Western, f irstworld countries, but developing areas such as parts of Asia and the Middle East still have little labor regulation. Companies have to be aware of each and ever y law.

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INCLUSION EFFORTS As the US faces racial reckoning, global communities demand more and more inclusive efforts from companies. Legal ramif ications var y from countr y-to-countr y.

legal

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14 environmental

• CARBON EMISSIONS REDUCTION • RENEWABLE ENERGY

environmental

CSR + ENVIRONMENTAL PRACTICES Consumer demand increasingly supports greater environmentally-minded efforts from a company perspective. From waste to emissions, luxur y brands especially have to validate the effects they leave on the world and do what they can to reduce that footprint, including efforts such as:

• ETHICAL L ABOR

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References

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Blazyte, A . (2020, August 20). Retail sales value of personal luxur y market in China from 2015 to 2018 with a

forecast for 2025. [Digital image]. Statista. Retrieved October 03, 2020, from http://media-publications.bcg. com/france/2019BCGTencent_Luxur y_Digital_Playbook.pdf.

Buchholz, K. (2019, May 21). Chinese Consumers Drive Global Luxur y Market Growth [Digital image]. Statista. Retrieved

October 05, 2020, from https://0-www-statista-com.librar y.scad.edu/chart/18076/chinas-luxur y-market-share and-market-share-growth/ Ho, J., Poh, F., & Zipser, D. (2019, December 18). China consumer report 2020: The many faces of the Chinese consumer. McKinsey & Company. https://www.mckinsey.com/featured-insights/china/china-consumer-report 2020-the-many-faces-of-the-chinese-consumer#.

Milas, C. (2019, September 5). How Brexit uncertainty is hurting the UK economy. The Conversation. https:// theconversation.com/how-brexit-uncertainty-is-hurting-the-uk-economy-in-four-charts-122987.

Roser, M. (2019, November). Future Population Growth. Our World in Data. https://ourworldindata.org/future population-growth.

Shepardson, D. (2020, September 25). Some 3,500 U.S. Companies Sue Over Trump-Imposed Chinese Tariffs. Reuters. ht tps://w w w. agriculture.com/market s/newswire/some-3500-us-companies-sue-over-tr ump-imposed-chinese tariffs.

The World Bank Group. (2020). Ease of Doing Business rankings. Doing Business: Measuring Business Regulations. https://www.doingbusiness.org/en/rankings.

Tobin, L. (2019, March 13). How will Brexit impact the UK fashion industr y? Evening Standard. https://www.standard. co.uk/lifestyle/esmagazine/how-will-brexit-impact-the-uk-fashion-industr y-a3931611.html.

Williams-Grut, M. (2017, June 23). Farfetch CEO on Brexit: ‘Our biggest concern is talent.’ Yahoo! News. https:// uk.news.yahoo.com/farfetch-ceo-brexit-apos-biggest-060200091.html.

York, E. (2020, September 18). Tracking the Economic Impact of U.S. Tariffs and Retaliator y Actions. Tax Foundation.

Retrieved October 1, 2020 from https://taxfoundation.org/tariffs-trump-trade-war/#timeline.

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