Farfetch Ltd (FTCH) 2021 Q2 法說會逐字稿

Good afternoon. My name is Erica, and I will be your conference operator today. At this time, I would like to welcome everyone to the Farfetch Second Quarter 2021 Results Conference Call.

(Operator Instructions)

Thank you. I'd now like to turn the call over to Alice Ryder, VP of Investor Relations. Ms. Ryder, you may begin your conference.

Hello, and welcome to Farfetch's Second Quarter 2021 Conference Call. Joining me today to discuss our results are José Neves, our Founder, Chairman and Chief Executive Officer; Elliot Jordan, our Chief Financial Officer; and Stephanie Phair, our Chief Customer Officer.

Before we begin, we would like to remind you that our discussions today will include forward-looking statements. Actual results could differ materially from those indicated in the forward-looking statements, and forward-looking statements made today speak only to our expectations as of today.

We undertake no obligation to publicly update or revise them. For a discussion of some of the important risk factors that could cause actual results to differ, please see the Risk Factors section of our Form 20-F filed with the SEC on March 4, 2021.

In addition, we will refer to certain financial measures not reported in accordance with IFRS on this call. You can find reconciliations of these non-IFRS financial measures to the IFRS financial measures in our earnings press release and the slide presentation both of which are available on our website at farfetchinvestors.com. And now I'd like to turn the call over to José.

Thank you, Alice, and thank you all for joining us today. I'm delighted to speak with you about our results in Q2, which is the first quarter that fully left the effects of store closures and travel restrictions brought on by the COVID-19 pandemic.

Reflecting on the past year, I am very enthused by the extraordinary resilience of the luxury industry. Overall, we luxury is seeing very strong demand with many brands reporting sales in excess of their pre-pandemic levels.

This said, the industry is returning to a secular growth trend, which is even more remarkable given the restrictions that still remain in place globally. During the past year, the industry has also taken the opportunity to rebalance an overexposure to the wholesale channel towards curtailing promotional and markdown activity, and I take pride in the fact that Farfetch actively partners with brands to enable their migration to direct-to-consumer or DTC channels for greater control over their online sales, including with respect to pricing.

Finally, I am tremendously excited by our significant market share capture on the most relevant 2-year stack period, where our Digital Platform, GMV, increased by nearly 90%. In fact, this 90% increase is the key highlight of our performance this quarter, where we delivered 40% year-on-year growth, along with more efficient demand generation and higher adjusted EBITDA profitability, which in itself is a reason to celebrate.

This, in combination with another key result this quarter, demonstrates significant strength. Full price sales on our Marketplace grew 90% year-on-year, which allowed us to shrink the markdown activity in our business by double digits and still achieve our growth targets despite the reopening of physical stores and on a 2-year basis, full price sales grew 140%.

The reason why this is so important is that going forward, these stronger full-price customer cohorts, which have grown on the 2-year stack at incredible pace, will underlie our future growth.

On the back of strong performance by the Marketplace as well as our other business units across the group, Q2 GMV grew 40% year-on-year. exceeding $1 billion for the second time in the past 3 quarters and more than doubling as compared to Q2 2019.

This month, we also marked the second anniversary of our New Guards acquisition. One of the core strategies behind the transaction was to create a pipeline of original content and exclusive collabs that will drive buzz and a significant halo effect to increase the engagement of our global customers around the Farfetch brand and ultimately drive more organic traffic.

I'm pleased to say we have succeeded in space. New Guards has propelled brands like Off-White and Palm Angels to become top 10 brands on the Marketplace by GMV in Q2. And these brands' collabs draw customers to the Farfetch platform with little to no marketing expense. The strong momentum behind New Guards brands is also evident in the acceleration of high-generating capsules they are producing.

Recent collabs have included, Off-White, ‘Lemonade’, Nike Air Force 1s. Palm Angels collabed with Missoni and TEAM WANG, and Ambush collabed with Nike Dunk, GentleMonster eyewear and even a first-ever redesign of Moët & Chandon champagne bottle.

Off-White is going from strength to strength, driving continued growth on the back of brand-elevating collections and expanding categories. And given that Palm Angels is demonstrating a similar growth rate to Off-White at a similar stage of development, we are thrilled to have recently increased our investment in Palm Angels to now have full ownership of the Palm Angels' operating company and the majority interest in its brand entity.

Looking forward, we see tremendous opportunity for continued growth from New Guards. We plan to rent collabs and have more than 50 in total planned for 2021. We will also look to continue expanding our brands into new categories such as beauty, to enlarge our distribution with presences on Tmall and further enhance the shopping experience by digitally connecting our directly operated stores via our Luxury New Retail or LNR capabilities.

We also have plans to launch and grow many more brands, including the first brand jointly created by Farfetch and New Guards called There Was One due to launch later this quarter. Born from our Marketplace data insights, There Was One is a sustainable line of luxury wardrobe classics designed initially for women and offering a high quality to price ratio, which will be exclusively offered on the Farfetch Digital Platform.

Finally, I'd also like to update you on our 2021 strategic pillars, which I'm pleased to share are all progressing extremely well. Starting with brand partnerships. Our execution on prioritizing full price and reducing promotions over the last 2 years has led to strong alignment with industry players and our relationships have never been better.

Top 10 third-party e-concession brands expanded available stock units more than 70% year-over-year, and saw a more than doubling of sales over the same period. Our commercial relationships have also matured to a level where we are now seen as an essential strategic partner who provides valuable insights.

As a result, now that brands are beginning to reengage in advertising after taking a hiatus during the pandemic, they are also engaging in opportunities to tap into our large pure-play luxury audience to achieve their marketing objectives. This has translated into our highest ever quarter of media solutions revenue in Q2, which Stephanie will discuss in more detail.

Moving to LNR and FPS. We continue to have conversations with multiple large enterprise customers on a broad spectrum of capabilities from global e-commerce to Logistics as a Service and LNR, among others, and continue to see existing partners take on additional FPS services.

We have also made strides in cementing our connected retail strategy, where we have already equipped Chanel and our Browns boutiques with our retail store technologies. Just this week, we also kicked off an exciting pilot of our new solution, which expands the capabilities we have implemented in our own Browns store to our community of third-party retailers on the Marketplace, our largest platform tenants.

Farfetch connected retail will leverage the Fartatch app to act as an interface between our 3 million-plus Marketplace consumers and participating Farfetch retail partners around the world. Using our Farfetch app, consumers will be able to be notified if their wish list item is available for try-on or purchased in the nearby store, identify themselves as a Farfetch customer when shopping at partner boutiques and pay for their purchases via our app among other functionalities.

On the other hand, boutiques will be able to use the app to deliver a more personalized and interactive service to Farfetch consumers, both in-store and remotely while benefiting from the incremental foot traffic, Farfetch can deliver from our large luxury consumer base, which is even more crucial in the post-pandemic environment. And while we are initially rolling this out with retailers, we also have plans to extend this solution to brands to drive Farfetch consumers to flagship stores they would connect to our Marketplace.

Moving to China. In Q2, our China team continued to drive strong performance as GMV growth accelerated and continues to grow faster than the overall market place. The fashion authority we have built among high-end luxury consumers in China has drawn brands to see Farfetch as a media partner in China as well as globally. We have engaged our private clients in experiences with brands such as Burberry, and created localized and culturally relevant content and campaigns for Loro Piana and Armani Beauty to name a few.

And we're thrilled expand our relationship with Harrods, who recently signed a multiyear partnership with CuriosityChina, focused on enhancing their marketing strategy in China and powering their communications with consumers across multiple channels, online and offline. I believe these are early signs that Farfetch China will not only be a unique DTC channel for many luxury brands, but it will also be a very powerful marketing vehicle in this crucial market. This, once again, demonstrates the unique strengths and capabilities we have in that market.

Q2 was also our first full quarter operating our storefront on Tmall Luxury Pavilion, TLP. And we are very pleased by the month-over-month growth we have achieved. We continue to hone our learnings on the Tmall platform and improve our merchandising strategies. This has contributed to strong customer engagement across our very differentiated range of available luxury brands on TLP, 90% of which are exclusive to Farfetch on Tmall as well as to building affinity for the Farfetch brand as our Tmall fan base grew to 250,000 followers.

We continue to remain very excited about serving the luxury shopping demands of Chinese consumers. Our unrivaled brand partnerships and global supply decisions as well, particularly in light of recent guidance, which indicates travel restrictions may continue for another year, which we believe will further drive repatriation of luxury demand within China. I'll now let Stephanie update you on the remaining 2 strategic pillars. Stephanie?

Thank you, José. Hello, everyone. I'm pleased to update you on the progress we have made towards our brand and unrivaled customer experience initiatives, both of which have supported the focus we have put on increasing full price sales.

First, with respect to brand. Our brand initiatives involve a holistic approach aimed at building an emotional connection to the Farfetch brand and ultimately driving more organic traffic and loyalty.

Over the past 2 years, our brand campaigns, rebranding Farfetch and focusing on our Marketplace experience, upgrading our content in editorial and integrating our brand ethos throughout the end-to-end customer journey has strongly contributed to delivering on our objectives.

Following our second full funnel brand marketing campaign in 4 key luxury markets, the New York metro area, London, Dubai and China in April, our Q2 brand tracker survey noted year-over-year improvements in brand awareness with particular upticks in the U.S. and U.K.

And we believe this is translating into lower cost traffic as our mix of paid visits in Q2 declined in favor of low cost or free channels such as direct, app notifications, e-mail and referrals.

Importantly, we have further enhanced our already highly attracted luxury audience. Similar to Q2 2020, more than 500,000 new customers shopped on Farfetch in Q2 2021, so we saw a double-digit increase in the average spend per customer from this year's cohort compared to the prior year cohort. This is an indication of the quality of the customers we are acquiring. We're buying into full-price items at a higher average sales price.

In addition, customer engagement has strengthened. Retention rates continued to improve year-on-year in Q2 and year-on-year average order frequency increased for the first time since the pandemic. Another indication of the traction behind the Farfetch brand is our improving wallet share gains. New members to the Access loyalty program in the first half of 2021 have upgraded tiers at a higher 1-month rate than new customers added to Access in the first half of 2020.

As our base has increased, and our efforts on retention are showing results, we have seen the mix of GMV from existing customers increasing each of the past 4 quarters, which, together with our improvements in brand awareness, explains the increase in mix from unpaid channels as we lean into our owned low-cost channels and specifically among private clients.

The results we have seen from our most valuable tier of customers as their fashion needs shift to going-out attire, evidences the strong connection they have with Farfetch.

In Q2, GMV from private clients grew significantly faster than the Marketplace and private clients delivered a higher full price mix as compared to other access tiers. As an additional element to our full-price strategy, I am very pleased to announce another customer initiative with the launch of preorder later this month. which will not only continue to generate newness for our customers through early access, but also enhance our strategic role with brand partners by extending their full price selling window.

In an Only On Farfetch way, our preorder offering will be open to all and already counts many brands who have signed up to this new proposition. On our unrivaled global customer experience pillar. A key component and outcome of our brand-building effort has been to increase engagement from brand partners, driving more compelling partnerships, exclusive product launches for our customers and ultimately, higher media solutions revenue in the Marketplace as we recorded our highest-ever media solutions revenue this quarter.

Many of our brand partnerships during the quarter focused on innovation, which highlights the fact that brands appreciate our Farfetch not only for our highly relevant audience. but also for the innovative technologies that we are able to leverage to deliver differentiated experiences and drive engagement.

Campaigns range from Burberry's fully immersive 3D and AR experience featuring the launch of their Olympia bag, to Gucci's Imagined Futures campaign with a unique fitting room experience and Shepard's virtual try-on launch campaign for their Happy Sport Watch.

In June, the Marketplace also featured a content campaign, highlighting our Positively Farfetch ESG initiative, putting a focus on our conscious brands and including Farfetch Donate, which we were thrilled to expand to our U.S. customers in partnership with ThredUp.

The innovative content generated by our brand partnership helps build audience, which is even more critical in light of recently implemented privacy measures such as IDFA. We believe our highly attractive luxury audience makes Farfetch an even more strategic marketing partner for brands as they seek to market on channels that have targeted audiences and access to first-party data.

As we market on our Digital Platforms ourselves, we are not immune from the impact of these policy changes, which are currently headwinds. That said, we have been pleased to see what we believe are higher-than-average opt-in rate by our customers as compared to other digital businesses to date. Not only is this encouraging from a marketing standpoint longer term, but it also suggests that our increased efforts around personalization, including personalized comms, which drove twice the mix of sales in Q2 as compared to a year ago, have been successful in building a high level of trust and relevance with our customers such that they are willing to share their data.

And now I'll hand the call over to Elliot to discuss our financial results and outlook.

Thank you, Stephanie, and hello, everyone. I'm delighted to be reporting a strong financial performance across our second quarter of 2021, with 40% growth in GMV, 43% growth in revenue and adjusted EBITDA of minus $20.5 million versus minus $25.2 million last year.

These results are in line with our stated expectations, demonstrate our platform is thriving as physical stores have reopened, and importantly, with an increase of 350 basis points in adjusted EBITDA margin year-on-year, positions us well to deliver our goal of achieving our first full year of adjusted EBITDA profitability in 2021.

GMV for Q2 was a touch above $1 billion, more than twice the $488 million of GMV achieved 2 years ago in Q2 2019. As I've mentioned on previous earnings calls, we have been doubling the size of the business every 2 years. Our revenue growth outpaced GMV growth. And with the exception of the impact from industry-wide increases in logistics and global shipping costs, our margins are improving.

In particular, we have delivered strong growth in revenue from our high-margin media solutions business, which has also supported a higher third-party take rate of 30.3%.

Demand generation is more efficient year-over-year within the Digital Platform. We have achieved a significantly higher full price mix, which has driven a higher gross margin across our first-party and first-party original businesses.

And in the brand platform, our gross margins have increased on the back of a focus on strategic retail partners. This means that we have achieved an improved adjusted EBITDA margin position of minus 4.7% compared to minus 8.2% last Q2.

I want to dive into the performance of the Digital Platform, which is driving the strong group position with GMV growth of 40% year-on-year and 89% on a 2-year basis. I'm particularly pleased with this performance as the Farfetch marketplace, which makes up the vast majority of GMV on the Digital Platform, was growing at essentially the same level as it did during Q1, and growing faster in the quarter than it did across all of 2020, even as physical stores have begun to reopen.

The differential in Digital Platform growth rates between Q1 and Q2, a was driven by the full annualization of FPS clients. Trade of full-price is particularly strong, up 90% year-over-year. Markdown and promotional-led GMV took another step back in terms of contribution to GMV growth, driving up the full price/mix year-over-year. This is particularly pronounced in the final 6 weeks of the quarter as actual levels of promotion and depth of markdown was significantly lower than anticipated as our sellers focused on maximizing full price sales and margin from their Spring/Summer '21 collections and building their Autumn/Winter '21 new season campaigns.

In terms of demand generation, despite having to navigate increase in cost pressure across paid digital marketing channels as the space has become more competitive, the previous investments we have made into our marketing, tech, data capabilities and the impact of our highly relevant editorial to improve customer engagement, helped drive efficiency and demand generation spend of 100 basis points year-on-year as a percentage of platform services revenue.

We continue to see payback of new customer cohorts within 6 months of acquisition with the Q4 2020 cohort achieving a lifetime value over CAC ratio higher than the equivalent 2019 cohort. The other major business within the Digital Platform is Farfetch Platform Solutions, which leverages our platform to deliver bespoke and modular B2B SaaS solutions for enterprise clients.

Despite now annualizing new client additions from earlier in 2020, FPS is positively contributing to the growth of the Digital Platform with like-for-like GMV growth ahead of the overall 40% Digital Platform GMV growth in Q2.

Before concluding on the segment, I want to turn to margins. Digital Platform gross profit margin was down 200 basis points to 53% and Digital Platform order contribution margin was 90 basis points lower at 34.1%.

Both measures were impacted by an increase in shipping and duties costs, which grew over 50% year-over-year. in part due to higher cost per parcel from our logistics partners, additional duties due to the U.K.'s exit from European Union and a slight year-over-year increase in the returns rate.

We decided not to pass all of this incremental cost on to our customers. This is reflected in the P&L with fulfillment revenue up only 48% year-over-year versus a 51% year-over-year increase in cost of revenue. While we expect these headwinds to continue into Q3, we have taken action to mitigate these and other costs in the medium term.

In particular, we are in the process of shifting our principal stockholding facility for our first-party business from the U.K. to the Netherlands and further growing the third-party stock available across our globally distributed Fulfillment by Farfetch warehousing facilities to reduce costs for cross-border shipping and returns. In addition, we have initiated plans to begin sharing some of the digital service tax within cost of revenue with our sellers.

Moving on to the brand platform, which represents New Guards' wholesale revenue from our strategic retail partners. This segment delivered GMV of $73 million, a 10% year-on-year increase at a 47% gross profit margin versus 41.8% last year. New Guards business overall grew substantially ahead of this with over 100% growth year-on-year in the Digital Platform as we have shifted distribution in favor of direct-to-consumer channels.

Revenue for our third segment in store was $18 million, 4.5x higher than Q2 2020, due to COVID-19 store closures in 2020 and the opening of new stores for New Guards brands throughout the last year. Excluding these openings, in-store revenue increased 147% year-on-year.

Turning to our cost base, where we have delivered operating leverage year-on-year. The operating cost of our technology platform and G&A totaled 42% of adjusted revenue compared to the 44.6% in 2020. This continued leverage is being driven by the scale of the platform and investments to date to drive growth with minimal incremental costs, particularly in the operations, customer services, technology and corporate functions.

We posted a gain on items held at fair value of $246 million, which means we have delivered a profit after tax of $88 million and an earnings per share of $0.24 per share. Our adjusted EPS is minus $0.17 per share versus minus $0.20 last year. We closed the quarter with strong liquidity of over $1 billion.

Liquidity was boosted earlier this month as we completed the formation of our China joint venture, which was announced as part of our luxury new retail strategic initiative in November 2020. As part of this transaction, Alibaba and Richemont each invested $250 million in exchange for 12.5% each in the newly formed joint venture. Including the proceeds of this investment, our liquidity would have been $1.65 billion at quarter end.

Looking ahead to Q3, we expect GMV growth overall to be 30% to 35% year-on-year with circa 100% growth in store and circa 45% growth in the Brand Platform. Within the Digital Platform, we expect GMV to grow circa 30% year-over-year, which represents a sequential acceleration to more than 100% growth on a 2-year basis.

Our Digital Platform order contribution margin is expected to be circa 30% of Digital Platform services revenue as we continue to work through the near-term headwinds we've seen year-to-date.

And finally, we expect to deliver positive adjusted EBITDA of circa $10 million. These results are a set towards achieving our previously stated full year targets of strong GMV growth between 35% to 40% year-on-year and 1% to 2% margin at the adjusted EBITDA level. We are delivering on our long-term strategy of sustainable growth and strong market share capture. Jose?

Thank you, Elliot. The past 1.5 year was unprecedented, and I am really impressed with the resilience of luxury, already back to growth with even stronger fundamentals. I'm very proud that Farfetch was a close partner for both retailers and brands in this historical period, delivering strong growth to our sellers, and as a result, doubling our GMV in the last 24 months.

Moreover, we had many reasons to be very positive going forward now that the industry is transitioning to normality. I believe the Farfetch flywheel dynamics we always talked about are at play in full force.

Our unique luxury brand e-concessions are growing extremely fast with the top 10 brands doubling their sales year-on-year. Our own brand is stronger and attracting more marketing partnerships, and this means a boost in elevated supply, all of which is driving growth of 90% in full-price sales year-on-year and 140% over 2 years, creating layers of strong cohorts for many quarters to come.

This Marketplace flywheel effect is, in turn, accelerating our progress to become the global platform for luxury, including continued advances in China, FPS, Farfetch Connected Retail and Luxury New Retail.

Thank you. I'll now ask the operator to open the call for Q&A.

Your first question comes from the line of Douglas Anmuth with JPMorgan.

Great. Elliot, I just wanted to ask first about China. I think perhaps José commented that China GMV has accelerated. Just curious, is that driven by improvements at the TLP store? And any more details around the monthly progress that you're making there?

Also just curious if you're seeing any impact or just how to think about impact around increased regulation in China. So that's 1 question.

And then perhaps for José. Hoping you might have some thoughts to share just around Off-White following the LVMH majority acquisition. And how did that play into your thinking with Palm Angels and going to 100% ownership there in the operating company?

Doug, I think I'll take both questions, actually. Starting with China, we're really, really pleased with the performance in China. The growth has accelerated, and the market continues to grow faster than the Marketplace. It's driven both by the cost -- I wouldn't even call it the cost, the business that we've built in China over 6 years, which is our app business, which is still the vast majority of our business in China. That's growing very, very fast.

And of course, we now have the layer on top of that of Tmall. So we're growing very fast on both our app and on that channel. And I think it's a tremendous opportunity. It continues to be a tremendous opportunity. We -- the government has issued guidance that international travel is probably going to be little bit limited, very restricted for another year, I believe.

So that's going to drive a continued repatriation of luxury spend within China. I think we're uniquely positioned. We're probably the only Western company with the infrastructure, the team with multiple partnerships and channels to really enable the industry to penetrate the China luxury market in a digital way.

And in fact, I think that role of being the gateway to China for many, many brands will continue to be of great importance. So I think the news are -- the performance is very strong and great news on Tmall and all those channels. So very, very bullish on China.

And second, in terms Off-White following the LVMH acquisition, so your second question. I think, first of all, a huge congrats to Virgil, and in fact to the NGG team, right? I mean this is a brand that was created by Virgil with Andrea, so the NGG team from scratch, right? So the fact that this brand goes from strength to strength and ends up with this massive set of approval is a fantastic message to the creative community out there that we really have a brand platform that can build from scratch incredible brand.

And you touched on Palm Angels that's another great example for a brand, again, built from zero with a great talent Francesco Ragazzi. And on the same track as Off-White, if we look at the trajectory, we're seeing the same number, the same patterns. And we're very, very supportive of the expansion of that brand.

It's started like Off-White with men's wear. We then expanded categories to women wear, kids, eyewear. In the case of Off-White, we expanded to home wear and beauty. That is now available as a platform for other brands. So this is fantastic.

We're seeing, of course, other brands in the portfolio of NGG growing very fast and well. And we've created a new brand. We just announced a new Only On Farfetch brand called There Was One. So that will be a digital-native brand co-created by Farfetch and NGG.

So that's really positive in terms of the message to the creative community and actually a chance of a deepening of our relationships with LVMH. We many great ties with LVMH, we have many of their brands. We did concessions such as FENTY, I'm thinking, doing extremely well.

FPS clients, CuriosityChina, collaborations with MAXFIELD launches and events within China as well. And now this opportunity they have to see how proficient we are in operating digital -- brands that have a very strong digital component, right, because the audience of these brands is more of a new angle and generation side.

So we think it's NGG, a 2 years anniversary. So it's a big reason to celebrate is this acquisition and the contribution it's bringing into the group.

Your next question is from the line of Oliver Chen with Cowen.

José, on luxury, pavilion and Tmall, you mentioned learnings and merchandise strategies. What's ahead there in terms of things that you'll do and the catalysts that you're focused on? Would also love your thoughts ahead on Farfetch Platform Solutions as you think about the total addressable market with FPS. And also what's on your mind for the pipeline there?

And then Elliot, with 2Q GMV growth, it was attractive, but it came in at the lower end of the guidance range. If you could help brief us on how the regions looked in terms of how it came out relative to your prior guidance?

Yes. In terms of Tmall, it's very, very exciting what we've seen, very strong engagement. We now have 250,000 fans on Tmall on our [star]. We're coming to Tmall with a very differentiated offering.

Over 90% of the -- over 3,200 brands we have on Tmall. 90% of those have exclusive presence via Farfetch on that platform. And that is a very compelling offering for the Chinese customer on that platform. In fact, we're seeing many brands that are not on the top-20 list on Farfetch ranking very high on -- in terms of our sales on Tmall's success. Also in a very complementary demographic, so Tier 2-, Tier 3-city customers, our customers on our own app, they tend to be more of the second-tier ones, fashion-enthusiast customers.

And on Tmall, we're seeing these fashion enthusiast customer, slightly lower AOV, not much lower actually. So actually, we're -- these are real luxury customers, but obviously, with a slightly lower AOV than the Farfetch app.

So that's driving our merchandise strategies really. So -- and we keep learning obviously. We always say this is a learning curve. And also in terms of algorithms and bidding and advertising on the Tmall platform, as you know, it is a platform driven by advertising as well. So all of those levers are -- it's a learning curve. And we're very pleased. Alibaba is very pleased with the performance as well. And we will continue to build on this.

And as we said, we're very confident it will be a material channel for Farfetch China in 2022 and beyond. And it's already contributing to our strong growth in the territory.

To your second question around FPS, I think it is a tremendous opportunity. In fact, FPS is not only about e-commerce and end-to-end e-commerce solutions. FPS is the suite of services we can enable the luxury brand with, and we call that -- this big vision Luxury New Retail.

So it goes from end-to-end e-commerce to global logistics, e-concessions as a-service, fulfillment as a service. So there's a number of components here. We're discussing -- we're accelerating conversations with multiple enterprise clients. I think these conversations are going to accelerate, as you can imagine, with our enterprise clients. I mean Chanel is a $10 billion business. Harrods is almost $3 billion business. These customers -- type of customers we are finding have long sales cycles.

And COVID-19 was not the ideal timing for companies to do big projects and invest in CapEx and replatform a lot of that. I think now that the industry is transitioning to normality, I'm confident that we're going to see an acceleration of the multiple conversations we have.

But let me stress that the existing customers on FPS are expanding the services they use with us and are also growing their business with us faster than the marketplace. So we have growth from FPS on existing customers, both from expansion of services and the growth we're enabling for them globally.

That is above (inaudible), so it will partly contribute to the overall brand, plus a very, very powerful pipeline of conversations.

And Oliver, it's Elliot here. Just on the GMV growth for the quarter. Obviously, we're absolutely delighted with the position that we achieved, particularly if you look at our growth on a 2-year basis. I think it's important to look back to where we are versus 2019. So we start to normalize some of the impact of the pandemic, and obviously, the Digital Platform was up 89% on that 2-year basis, very similar to the 2-year growth rate we delivered in Q1.

And overall, the business more than doubled in terms of GMV versus 2019. In terms of what we saw within effectively the Marketplace, which was delivering very, very strong growth throughout, was that in the last 6 weeks of the quarter, we didn't see as much sale on markdown as we were previously expecting. So in the sort of the guidance that I gave we were factoring in an element of our suppliers on the Marketplace going into sales, usual levels of depth of markdown and breadth of activity and sale.

And actually, we just didn't see that breadth and depth as we had previously seen. And as a result, you note the full-price mix dramatically increased year-on-year. It was rather than being a sort of a standard full-price markdown quarter, as you'd expect because of spring/summer clearance activity, it was actually a full-price quarter, very similar to full in-season sales. And our full-price sales, as a result, were up 90% year-on-year, 9-0 percent, and 140% year-on-year on a 2-year stack.

So where we sort of started to see the GMV head towards the [narrowing] of the range was in those last 6 weeks as we didn't see that markdown of GMV come through. That was across the board actually in terms of geographical location. So maybe if I just run through some highlights of our top markets.

The U.S. actually accelerated between Q1 and Q2, growing ahead of the overall average. Mainland China accelerated between Q1 and Q2, growing ahead of the overall average. Markets like Russia accelerated, and again, ahead of the overall average. Plus we also saw other Asian markets like Korea accelerate ahead of the overall average. And then some core sort of traditional markets like France and Italy, also delivering ahead of the overall average.

So really strong broad-based growth. And the only sort of deviation really there was on the full price versus markdown and the fact that markdown was a bit softer than we were expecting. I actually think that's a really good thing. Our sellers on the Marketplace tell me that's a really good thing because they were able to maximize their margins from the spring/summer campaign.

They were able to hold back on markdown levels and carry over more into building their autumn/winter campaign. They obviously helped drive the AOV up. We see the AOV was up 20% year-on-year, which is obviously a key metric for us.

And most importantly, the sellers saw our growing customer base, now 3 million-plus active consumers, 500,000 new customers, as Stephanie said, in the quarter, as highly desirable to buy [into] their full-price campaigns. Hence, why you saw the media solutions revenue up significantly year-on-year, which drove the take rate back up over to 30%, 30.3% take rate. All coming from strong commission and media solutions revenue from the brands. So really well positioned in terms of delivery, and just what the industry wants that higher full-price mix.

Your next question is from of Louise Singlehurst with Goldman Sachs.

Can I just go back to the regional information that you've given? Obviously, you've given quite a bit of color on it, but a lot of concern in the market currently with regards to the growth outlook for luxury as we can see a bit more volatility in share prices. The end of June seems quite a long time ago now. If I pose the question slightly differently, as we think about the outlook for Q3 that you provided us with, is there any change to how you're thinking about the region versus 3 months ago? So is there anything that you're seeing either in U.S., China that we should be thinking about as we go into the third quarter?

And then secondly, for China, just on the JV. Can you tell us a little bit about the inventory availability? I know, in the past, you talked about the number of brands and the availability. But is the inventory and the inventory debt comparable to what you have on the original China platform? Are there any brands not there? Any brands that are on the platform but selling through Tmall?

And then just related to China JV, can you also tell us about the competitive environment? Obviously, you have NET-A-PORTER on the app very close by. Is there a different customer cohort that you think is being attracted by the Farfetch app? That would be fantastic. And final point on the China JV, sorry. Are there any logistics benefits coming through now that the JV is all operational, logistics benefits coming through from Alibaba or your partners?

Louise, let me just follow up on the regional mix question. As usual, I won't be providing sort of information about the quarter that we're in. But let's just sort of talk about maybe the exit rates from Q2 in terms of regional mix. We're seeing China really is a key enabler of growth here. And as José sort of touched on, before the overall proposition, both on the Farfetch app and the sort of direct relationship we have with the customers there, [but also on TLP] is really building and as I said, accelerated out of the quarter. We're also seeing the U.S. continue to deliver strong levels of growth as we exited the quarter and into the start of Q3, and actually seeing reasonably good sort of pickup from another top-5 market, the U.K. as we trade through.

I think what's interesting is all of those markets that I've just talked about are markets where stores have effectively reopened -- physical stores have reopened. And yet the Marketplace continues to deliver fantastic levels of growth. And the guidance that we've given of 30% growth for this year, actually, on a 2-year basis, is over 100% on a 2-year stack. So an acceleration from the first half position on that 2019 basis. So good, broad growth. I think this really highlights the fact that the investments we've made to date to build out a global proposition, the 3 million-plus active consumers that are well distributed around the world, and we're able to navigate through any challenges that might come our way, but those top markets really driving the growth as we head into Q3.

Louise, great to speak to you. In terms of the China supply proposition, I think it's extremely strong. I think it's important to highlight that all the brands that are on the Farfetch app that you and I can see here in the west are available in full assortment in our China app, right? So we don't have any brand that we don't cover globally.

So I think that is very important. In terms of the Tmall channel, we've seen very strong adoption from brands on that channel. When a brand is available on Tmall, it is available with a full assortment. So what -- so 100% availability with the same depth, same breadth that you have on the Farfetch app.

There is a number of brands that, as I updated you last quarter, there's a number of brands that have apps for some time to -- comparing those brand that have launched just very recently, some of them announced 2 months, 3 months ago, before our launch on Tmall. I think we've started to have great case studies of brands that have both presence, direct presence on Tmall and presence on Tmall via Farfetch, and have benefited from that. Like we have 7.5x the number of SKUs that those brands have on average on Tmall. So we are really boosting their visibility on that app that has 800 million customers (inaudible). So we've had strong case studies, and we think we can soon start sharing those with the other brands to make them comfortable.

But with the current supply, I think what we're seeing, it's incredible because it's very complementary and actually is a good segue to the second part of your question, we're attracting -- in China, we're attracting a very young customer. Actually, we're attracting very young customers globally. So -- but in China, it's even younger. So around 30 years of age versus 34 years of age on average we will take globally. So that is a strong differentiation. Our offer, which 90% of the brands we offer are again, exclusive to Farfetch on Tmall.

The other company you mentioned NAP on Tmall, they operate on the retail model, on the wholesale model, as you know, so very limited inventory. I haven't account in front of me, but I would believe that Farfetch would have 30x the number of brands and then much more within each of these brands. So we operate obviously on a Marketplace model with 3,250 brands, give or take represented on Tmall. So it's a very -- it's a completely -- I don't think you can compare apples to apples. So it's a very different proposition.

And again, in terms of the editorial, the merchandising, we're really attracting that millennial and Generation Z customer. And we know that the majority of the growth is coming from those customer cohorts in China and in fact, globally.

So we think we have a very, very strong competitive position in that market. And again, in terms of western companies in that market, we have 600 people on the ground. We have a unique app both for iOS and Android with incredible functionality built by Chinese engineers and product people and UX/UI designers and an incredible logistics proposition, both domestic and cross-border.

So I think we're really in a very, very strong position. And I think the China opportunity is immense. There's going to be another year of repatriation of luxury demand in China. And luxury is very underpenetrated. So even if there are -- as we touched today, there were concerns in the market and some volatility in some luxury stock related to China, I think the point investors should observe is that in China, online luxury penetration was single digit pre COVID. We don't -- no one really has the numbers post COVID, but it's certainly lower than in the west and with plenty of room for growth. And we are already a very relevant sales channel for many of these brands. And in this environment, we will become even more so. And I think the tailwinds are very strong and will continue to be very strong by virtue of these dynamics.

Your next question is from Stephen Ju with CS.

So José, want to ask about your, I guess, efforts in the beauty category. What do you think is going to be the right wholesale versus marketplace mix in this category? Is this something you think would require greater participation for you as the first-party seller?

And Elliot, I got a follow-up on the markdown versus full-price sales comments earlier. They suggest that your competitors are taking heavier markdowns earlier it seems, so which we would have to think is not sitting very well with your brand partners. So is there anything you can share in terms of the feedback from the brands and what we hope will be increased willingness to work to a greater extent with Farfetch versus the others?

Stephen, this is Stephanie. I will take the beauty question. So as we mentioned in the last earnings call, we see beauty as a huge category, as a booming category. And we are very well positioned to meet here just as we do in fashion. It's also a great opportunity. It's 25% of global personal luxury goods.

In terms of our own proposition. I think it's very unique and what the last few months have cemented for us in our conversations with brands is that there's really appetite to work with us. And officially it's because of the model that we're offering them. It's an e-concession model. It really helps and enables them to then move to direct-to-consumer.

Brands in beauty have been traditionally very, very focused on wholesale. And they are trying to move to direct to consumer. And we can enable them for that.

So we're working for the Marketplace on e-concession. Obviously, we will have some third-party [buys] through brands and sort of complementing this category. But we feel that this is a real opportunity and the benefit of working with Farfetch. We've also seen them really respond to our efforts around our customers. We have a highly valuable, very engaged, targeted luxury audience.

And what we're hearing from these beauty brands is that they not only will see us as a sales channel, but actually as an opportunity to target this audience through our advertising new distribution channels.

So really the opportunity for us in beauty is significant and it's multifaceted. And we see that very much on track for 2022.

And just on the sort of markdown full-price position. I don't really want to comment too much on what the sort of competitors were doing around the markdown strategy. Clearly, the -- a high full-price mix for us drove higher gross margins in the (inaudible) business. You saw that in the numbers. 30% gross margins last year versus 33% margins this year. So strong full full-price mix helping our margins.

The brands, interestingly, have acted as I would hope they would, which is driving more stock on to the Farfetch platform. As we head into the autumn/winter campaign, we're seeing really good growth in terms of spring -- sorry, seeing an original autumn/winter product, which sets us up well for, obviously, going into Q3 and importantly, the very important Q4 quarter.

We're also seeing good levels of engagement from the brands around editorial and content on the platform. So we're helping them navigate through that. That means we're definitely well positioned to deliver the numbers we talked about today across the second half, and as I said, that acceleration of growth on a 2-year basis.

I think the other thing that's super interesting, though, is if you look at the 500,000 customers we added to the platform across Q2, given that we added them during a higher full-price mix than the -- full-price mix quarter than the 500,000 customers in Q2 last year, which was on a more of a markdown mix, my expectation is that these customers that we've added most recently are going to deliver a higher lifetime value moving forward and a much more valuable customer cohort.

And actually, that's already played out. We saw the GMV from this 500,000 customers this year a higher double-digit growth versus the 500,000 customers that shopped with us for the first time last Q2. So that's super exciting in terms of what we have achieved from delivering that higher full-price mix.

And to go back to your question, I can only assume the brands are delighted because they're certainly uploading more stock on the platform as we move forward. So I think it's going to be a really interesting autumn/winter campaign to see how we can drive further full price for them over the next 6 months.

And we have time for one more question. The final question will come from Lauren Schenk with Morgan Stanley.

This is [Nathan Sandler] on for Lauren. Just a quick one from me. Are you able to size how impactful the shipping into these headwinds were in the quarter? And how much of the Digital Platform gross margin decline is due to these? And then in your margin guidance for the third quarter and full year, are you assuming any relief in these headwinds? Or that they continue for the rest of the year?

[Nathan], really, really good question. I think it's key that we do understand what's exactly happening within the Digital Platform gross margins and particularly the order contribution because it's a key metric for us. And there's a lot going on both near term and longer term. If you look at Q2 specifically, overall, we had everything going in the right direction in terms of order contribution margin, except for this impact of shipping and duties.

We had obviously higher-margin services that are coming through. The 3P take rate was up. Our underlying sort of Marketplace gross margin was higher if you exclude our shipping and duties, which I'll come back to. As I mentioned before, first-party margins, higher; and demand generation, down as a percentage of revenue and lower also when you compare it to GMV.

In terms of shipping and duties, the increase year-on-year was north of 50%, sort of -- very much north of 50% in terms of costs. And that compares to the 40% GMV. And obviously, part of that GMV came through from AOV growth. So our order growth was below the 40% number. So shipping up in the 50s versus lower order growth shows you how dramatic that increase was year-on-year.

The Fulfillment revenue line, the amount of that we pass on to our customers, only grew 48% year-on-year. So you can see that we obviously incurred these industry-wide charges. We decided not to pass on the incremental cost to our customers. And that obviously had a big impact to the gross profit margin, the sole reduction in terms of direct impact on gross margin apart from the mix that you'll see from the 3P versus 1P business.

As we look forward into Q3, we're going to have to continue to deal with that external cost pressure. So shipping and duties will continue to increase. We're going to see further search engine marketing cost inflation and I think also some additional costs coming through from other regulatory changes, including the IDFA and sales taxes, et cetera, et cetera. We will obviously need to manage through those. And the order contribution target that I've given you accounts for those further headwinds in the near term.

But due to our ability to drive margin expansion from other areas of the group on the back of previous investments in the strong business we've built to date, in particular, the tech platform, our marketing operations team. But also growth in revenue from those higher-margin products means we're still on track to deliver full year profitability as planned.

And we continue to build on our customer engagement activity, consistently delivering on the top line growth. So we can manage those short-term costs and still achieve our medium -- our short-term numbers. If you look further ahead, we're executing against all the opportunities to drive up gross margin, order contribution. This Includes shifting 1P and 3P stock closer to our customers. This is in the Fulfillment by Farfetch facilities that we've already invested in that will help drive down the cost of shipping medium term. We're also improving our first-party gross margins, further growth from low-cost marketing channels.

And that means we see expansion of order contribution as we head into next year. So for now, we'll manage the costs. We'll continue to invest in the customer proposition, and I think that's going to set us up well to deliver good levels of growth at a sustainable level moving forward.

Well, thanks, everyone, for joining us today. We hope you enjoy the rest of your summer, and we look forward to speaking to you next quarter.

This concludes today's conference call. Thank you for participating. You may now disconnect.