Farfetch Ltd (FTCH) 2020 Q2 法說會逐字稿

Good afternoon. My name is Rob, and I will be your conference operator today. At this time, I would like to welcome everyone to the Farfetch Second Quarter 2020 Results Conference Call. (Operator Instructions) 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 2020 Conference Call. Joining me today to discuss our results are Jose Neves, our Founder, Chairman and Chief Executive Officer; and Elliot Jordan, our Chief Financial 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 sections of our Form 20-F filed with the SEC on March 11, 2020, and in Exhibit 99.2 to our Form 6-K filed with the SEC on April 27, 2020. 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 Jose.

Thank you, Alice, and thank you all for joining us today. I'm very pleased to be speaking to you about our results for Q2 2020. Group GMV grew 48% to $721 million, driven by digital platform GMV acceleration to a record $651 million, up 34% or 39% on a constant currency basis as well as the addition of brand platform GMV, following the acquisition of New Guards in Q3 2019.

Last quarter, I outlined 6 key differentiating advantages, which positions Farfetch to emerge from the COVID-19 situation even stronger. And our outstanding Q2 results clearly demonstrate that they're playing out. As the industry undergoes what I believe is a major acceleration of the sustained online adoption we have been anticipating since in founding Farfetch 13 years ago.

First, our business model has proven to be truly resilient as we have continued to be able to serve our brands, retailers and consumers since the onset of the pandemic with no material disruption, while also prioritizing the health and well-being of our employees, partners and customers.

Second, our market-leading digital platform has enabled us to leverage our reach across our 190 markets and capitalize on our stronger share of voice, by investing in regions where our programmatic marketing algorithms detected demand by consumers who were shifting their shopping online.

As a result, we delivered a record level of transactions during the quarter as we acquired our largest ever cohort of over 0.5 million new customers. And more than doubled year-over-year app installs. This is particularly valuable as our mobile app customers have historically exhibited higher LTVs. Additionally, with access now up to 2 million members, we now have 80% of our active consumers enrolled in our loyalty program. This presents significant opportunity for us to fuel our future growth by driving engagement and sustained repurchase through loyalty initiative for our expanded consumer base.

Third, our expertise and localized operations in China and other key markets allow us to offer luxury consumers the best of those worlds by enabling them to shop a global supply of luxury fashion from 3,500 of the best brands via an app and website, in their native language supporting their preferred payment methods and for our private clients via a local stylist who is attuned to their local type styles.

As a result, we have seen our markets across EMEA, including major European countries and the Middle East as well as markets in APAC and the Americas, such as Mainland China, and Mexico outpace our overall marketplace growth as tourism shopping demand is being repatriated in light of continuing restrictions and concerns around international travel. Additionally, in the U.S., which grew slower than the overall marketplace in Q2, we saw encouraging signs of demand picking up as growth began to accelerate at the end of the quarter. Plus, our unique e-Concessions model is helping even more brands, boutiques and department stores navigate this unprecedented situation.

In fact, in Q2, our top 20 direct branded partners together saw a doubling of their direct-to-consumer our e-Concessions sales on the Farfetch's marketplace as compared to Q2 2019. And we continue to maintain 100% retention of our top 100 brands and our top 100 retailers.

With a significant shift of consumer demand to online since the onset of COVID-19, brands' and retailers' focus on digital channels has intensified in Q2. And we have expanded our partnerships to nearly 1,300 third-party sellers now participating on the Farfetch marketplace, including more than 500 brands and over 750 retailers. We're also looking forward to bringing selection from renowned French department store, Printemps, among others signed recently onto the Farfetch marketplace. In addition to seeing strong interest from new partners, existing sellers have leaned into the marketplace proposition, resulting in our highest average SKU count and EPS of inventory in Q2. And Marcellus offering each SKU, which further increases our geo diversity, a key advantage in our ability to continue operating throughout COVID-19 related closures. Another benefit from stronger relationships we have developed with brands has been a ramping up of opportunity for us to partner on exclusive collabs which offer a way to showcase their brands and also drive further depreciation of the Farfetch marketplace with consumers.

Recently, our consumers have had exclusive access to exciting collections. From Gucci's [off-The Grid] collection, Burberry's Summer Monogram Capsule and Marni's homeware collection. We also established an ongoing exclusive relationship to be the sole multi-brand online channel for Rihanna's label FENTY, which marks our 6th LVMH direct brand relationship across the Farfetch group. And we are continuing to explore opportunities to strategically partner with mega brands seeking to increase their direct-to-consumer distribution via a multi-brand e-Concessions.

[A fifth] differentiating advantage lies in Farfetch Platform Solutions, or FPS, the enterprise Solutions side of our business. We're pleased to see that FPS is firing on all cylinders across both our longer standing as well as our new partners as we enabled our continued operations even as their stores remain closed.

GMV for FPS clients with a 1 year or longer tenure, grew faster than the Farfetch marketplace, reflecting a broad-based shift to online across the industry, including by brand loyal consumers. Additionally, our launch of Harrods replatformed e-commerce business in February also drove significant GMV growth for FPS and contributed to the acceleration of digital platform GMV in Q2. Our first full quarter reflecting this partnership. We are pleased to have delivered stronger-than-expected growth for the iconic department store to have enabled them to continue serving their global consumer base while the [Night's Reach] location was closed for most of Q2.

Finally, our augmented retail initiatives, which we have been developing through our exclusive technology partnership with Chanel, over the past 3 years, are expected to be even more critical for brick-and-mortar luxury as leading brands seek to optimize sales per square foot in the lower traffic post COVID-19 environment. We look forward to unveiling the next-generation of our solutions to help physical retailers enable an enjoyable and personalized new normal shopping experience. We plan to launch our revolutionary start of the future experience in our own ground smashing boutique towards the end of this year, which will be an exciting ongoing demonstration of the capabilities we have been developing.

Turning now to New Guards, which just celebrated its 1-year anniversary as part of the Farfetch family. Since last August, the Farfetch and New Guards teams have been working closely to advance the 3 key tenets of our collective brand platform vision and strategy, and we've been thrilled with the execution to date.

First, towards our initiative to increase the mix of high-margin direct-to-consumer revenue across New Guards brand portfolio, we have fully integrated the brands into our fulfillment by Farfetch facility to enable sales science Farfetch marketplace. And FPS has begun replatforming their 9 brand.com sites to enable their monobrand channels. Additionally, we have taken proactive actions to reduce or eliminate product allocations to nonstrategic online wholesale partners in our efforts to prioritize long-term brand value over short-term revenues. These efforts have significantly increased the mix of online direct-to-consumer revenue from 2% at the time of the acquisition to 19% in Q2. And we see opportunity to continue to increase its mix by further leveraging New Guard's unique merchandising approach in combination with the digital capabilities of the Farfetch platform. We have also seen New Guard's brands bring cultural relevance to the Farfetch brand and deliver a strong halo effect on the other 3,500 brands available on the marketplace.

In Q2, the number of baskets with both a New Guard's item and an item from another brand doubled year-over-year. And when the most recent Off-White Air Jordan collab Sail dropped last month, it sold out within the first hour and generated 800 million hits during that time with no marketing spend. Finally, we have made progress in continuing to expand existing brands and building new brands of the future to drive long-term growth. We're pleased to see Palm Angels has now moved into the top 20 brands on the Farfetch marketplace based on GMV and Ambush, a Q1 addition to the brand portfolio has already gained recognition as a next-generation brand and cultural pioneer by Lyst and Highsnobiety. I'd also like to take a moment to address the important developments behind the global contraction to fight for racial equality.

I believe Black Lives Matter. And that Farfetch has a responsibility to help eradicate systemic races in society, starting from within. Over the course of the past months, we have had open conversations with our blank employee network and across our business. And what we can clear is that we have a lot to learn and a lot to do to support and champion our black colleagues. Farfetch is a company of action, not just sentiment. Beyond donating money to important causes on this front, some examples of the actions we have already taken include: implementing training and career development programs; establishing a global diversity and inclusion team to drive our efforts across the business; amplifying the black fashion community across our platform; and becoming an inaugural member of the Black In-fashion Council, an organization focused on advancing black representation at every level, including the C-suite of the fashion and beauty industry. We remain committed to driving change and results at all levels of our business. This includes our Board of Directors, where we have also improved representation. Additionally, we have created a new ESG committee of the Board, which will be dedicated to overseeing our efforts around sustainability, social responsibility and governance as well as our diversity and inclusion initiatives.

We are just at the beginning, but we are committed to continuing to listen and learn and to work towards creating positive change for the future. I would also like to take a moment to outline about evolution we've announced today. These changes reflect the planning, the Board and the nominating Corporate Governance Committee have undertaken in anticipation of the natural evolution we expected following our IPO, with a view of ensuring continued strong governance and support of Farfetch to our next chapter of growth.

I am delighted that Stephanie Horton, Dana Evan, Victor Luis and Gillian Tans have agreed to join the Farfetch Board of Directors. As each brings valuable perspective and complementary skill set across key areas, including technology, fashion and finance. I am excited to work with the new directors and the entire Farfetch Board as we continue to solidify our position as the global platform for the luxury industry and maximize shareholder value.

At the same time, I'd like to thank the departing directors for their many contributions to the company over the past several years. Each has played a significant role in Farfetch's success in Chapter 1, and I am grateful for their leadership.

Finally, I'd like to say a special thank you to my co-Chair, Natalie Massenet. Natalie brought incredible rhythm and keen insights to the Board over the past 3 years and a half. And played an invaluable role in Farfetch's growth and transformation, particularly in relation to our focus on putting the customer at the heart of everything we do.

Natalie and the other departing directors leave us with our very warmest wishes and thanks. And now I'd like to turn the call over to Elliot for the financial review.

Thank you, Jose, and hello, everyone. As Jose has been describing the Farfetch platform has excelled over the last quarter, and I'm pleased to share the financial results of the group, which reflect this very strong performance and position moving forwards.

Across the group, GMV grew 48% year-on-year to $721 million. Adjusted revenue increased 70% year-on-year to $308 million. Adjusted EBITDA, our measure of underlying profitability, improved $12 million or 33% compared to Q2 2019 to minus $25 million, taking our EBITDA margin to minus 8%. And our cash position closed the quarter at just over $800 million, boosted by the $390 million of net proceeds from the issue of convertible debt we executed in April, but also reflecting a significantly reduced underlying cash burn of just $12 million across the quarter. It's also worth highlighting that our combined tick general and admin costs were held flat between Q1 and Q2 of 2020, whilst the group added $110 million of GMV between the 2 quarters. These results show we are making excellent progress in driving growth on the platform, expanding unit economics and delivering operating cost leverage. Our goal of achieving adjusted EBITDA profitability across 2021 is another step closer.

I'd like to share some specific insights about the Q2 performance from our 3 business segments. First, our digital platform, which enables global third-party transactions across our multi-brand marketplaces, branded e-commerce solutions via our Farfetch Platform Solutions offering and the sale of first-party products from the buying teams at Browns and first-party original products created by New Guards. This platform delivered GMV of $651 million, representing 34% year-on-year growth based on reported results and 39% versus last year on a constant currency basis. This growth was underpinned by the highest number of new customers gained in a single quarter on the marketplace with over 0.5 million people shopping with Farfetch for the very first time. This drove the share of GMV from new customers to levels we have not seen since 2017, and was achieved despite the cost of acquiring these customers on a per customer basis being down 30% year-on-year. The digital platform GMV, also included a full quarter of trade from our client, Harrods, as well as strong growth in our direct-to-consumer proposition for our own brands developed by New Guards across the marketplace and via branded websites powered by our digital platform.

Finally, we saw a strong support for our #supportboutiques campaign at the start of the quarter and growth of our full-price offering across May and June.

Overall, 86% of GMV is from third-party sellers on the platform at a take rate of 29.9%, consistent with Q1 and 14% of GMV is from sales of product on a first-party basis, which continues to grow stronger than the overall platform, driven by growth of the first-party original business coming from the New Guards brands. As a result, digital platform services revenue grew slightly ahead of GMV at 35% year-on-year to $238 million.

Looking specifically at the Farfetch marketplace, as I said before, we had over 0.5 million new customers within the quarter. Without research telling us that the vast majority of these new customers are shopping more online as a response to the pandemic. Overall, traffic grew more than 60% year-on-year and app installs more than doubled year-on-year.

Our average order value decreased 18% year-on-year to $493 due to the higher mix of first-time orders which tend to have lower average order values. A COVID-19 realted mix effect towards lower price point categories and currency headwinds. Our full-price mix increased year-on-year despite the markdown levels we've seen externally across the industry, and we significantly reduced our level of promotional overlays to the trading calendar with fewer discounted events and fewer free shipping campaigns during this Q2 versus last year.

The digital platform also significantly improved profitability in Q2, with growth in order contribution of 68% year-on-year and order contribution margin stepping up to 35% compared to 28% a year ago and 32% in Q1 of 2020.

There were 3 key drivers of the higher margin. First, the growing mix of higher-margin services in particular, the momentum of Farfetch Platform Solutions, which comes with a lower cost of revenues and higher order contribution as a result. Second, reduced funding of customer promotions within our marketplace. Our spend on promotion as a percentage of GMV was back at Q2 2018 levels reversing the step-up in spending we saw this time last year. And finally, improving first-party margins at 30% versus sub-10% in Q2 2019, as we delivered a better full-price mix versus last year as well as the growth of first-party original products, which have higher product margins.

These factors were partially offset by a slightly higher cost of shipping as a percentage of GMV due to the lower average order values across the marketplace. In terms of demand generation, this increased slightly year-on-year to 7.3% of platform GMV, primarily due to the skew towards first-time orders across the marketplace. Because new customers have lower conversion rates and a higher paid mix versus repeat customers. This means the demand generation costs for our first time orders runs higher than the cost for repeat orders.

All in all, we are in a very good place with lower absolute per customer acquisition spend and positive early repeat purchase behavior from the new customer cohort.

A final word on promotions and how they impact on platform gross margin, we deduct promotional spend from fulfillment revenue, where this means fulfillment revenue does not cover the pass-through of fulfillment costs, the additional costs are included within digital platform services cost of revenue. In Q2, the lower promotional spend resulted in fulfillment revenue growth of 99% year-on-year, well above order growth meaning we started to recover more fulfillment costs versus last year, which delivers a positive impact to gross margins.

Turning now to our brand platform, representing our connected wholesale business, which generated $66 million of GMV. Whilst this represents a like-for-like decline in wholesale revenue of 20% year-on-year, when we combine this with the direct-to-consumer trade on the digital platform, the New Guards business declined by just 6% overall. This is in a period where other luxury fashion businesses were down 40% to 50%. The synergies that come from owning a studio of brand that develop culturally relevant collections and can reach a global customer base through the digital platform has delivered a strong direct-to-consumer proposition. The brand platform itself delivered $28 million of gross profit for a 42% gross margin.

Finally, our in-store segment saw a slight year-on-year decline in GMV to $4 million due to COVID-19 related store closures during the quarter.

Turning to our cost base where we have delivered strong operating leverage and efficiencies year-on-year. The operating cost of our technology platform and G&A totaled 45% of adjusted revenue compared to 49% in Q2 2019. This reflects our continued focus on scaling our costs with the growth of the business as well as deferring and delaying any incremental spend not deemed essential.

Q2 depreciation and amortization was $52 million, in line with Q1 2020, and our share-based payment expense was $62 million, an increase of $35 million from Q1, primarily due to new award grant and our higher share price being reflected in the provision for employment-related taxes. This increase in share-based payments means our operating loss moved from $108 million in Q1 2020 and to $140 million in Q2.

Turning now to our outlook for the third quarter. It is clear momentum accelerated across Q2, which has continued into the first 6 weeks of Q3. We have entered the quarter with 2.5 million active consumers, new customer growth remained strong. Average order value has already recovered from the levels of a year-on-year decline we saw in Q2 and is now likely to be down mid-single digits in Q3. And new seasoned product is in hot demand. We, therefore, expect to see Q3 year-on-year digital platform, GMV growth accelerate from that, that was achieved in Q2, with growth in Q3 between 40% to 45% as compared to a year ago. We also expect our digital platform order contribution margin to remain between 32% to 35% in Q3.

Within the brand platform, with strong demand for New Guards brand, shipments of full winter product are ramping back up, and we now expect to achieve GMV of $90 million to $95 million across Q3.

Finally, we expect an adjusted EBITDA loss of $20 million to $25 million as we continue to progress towards our target of achieving positive adjusted EBITDA for the full year 2021. COVID-19 could still impact on these results. And as always, we keep a watchful eye on the competitive position across the industry.

With that being said, the momentum of the business reflects the amazing work from our team supporting the global Farfetch community, which we will be pleased to continue to serve with our platform proposition in the coming quarters.

I'll now turn the call back to Jose.

Thanks, Elliot. The past few months have prompted paradigm shift in many aspects of our lives, including the way we shop. This is particularly true within luxury, which is a very resilient industry. But one that has been underpenetrated relative to overall e-commerce, in part due to its heavy reliance on tourism shopping. While luxury shoppers demand for luxury fashion is expected to remain, luxury consumers around the globe are clearly shifting online in response to travel restrictions as well as safety concerns in general. And Farfetch is meeting their continued demand with an unrivaled range of luxury fashion and a unique end-to-end global shopping experience.

As a result, I believe we are undergoing a major acceleration of the sustained online adoption, we envisioned as a secular trend shaping the industry. With little visibility on when and to what extent international travel and full traffic to luxury retailers will resume, brands and retailers are fast-tracking their digital transformations. To offset the unprecedented declines in the traditional retail and wholesale businesses. And Farfetch's global platform, which has been tailor-built for luxury, is uniquely positioned to capture this opportunity to enable and connect the curators, creators and consumers of the luxury industry.

Thank you, and we'll now be delighted to take your questions.

(Operator Instructions) Your first question comes from the line of Oliver Chen from Cowen.

Regarding the AOV recovering to down mid-single. What's been driving that improvement? And how do you see AOVs manifesting as we go forward and as you introduce new clients to the platform? And Jose, I would just love your latest thoughts on physical and physical footprint and luxury goods, you own Browns, and you're working with Chanel. What do you think happens there post crisis?

Oliver, good speaking to you. It's Elliot here on the AOV question. So we've seen a couple of things coming through there. The first is actually the mix effect of starting to reverse a little bit. So the new season collection that's on the platform now from the brand e-Concessions and from our boutiques, as I said earlier, is in very, very strong demand. And clearly, as we head into the fall/winter campaign comes at the higher end. And it seems as though customers are now buying back into similar sorts of categories as they were buying last year as opposed to the last kind of couple of quarters that have been dialing back towards more casual clothing. So that's a positive early indication. We're also seeing the new customers continue to buy strong towards the top end of the AOV, which is helping that boost back up as well. So very good recovery on the product mix and the customer mix there.

To your question about, as we move forward, I think the AOV will still continue to be down year-on-year over the next few quarters as the new customer mix continues to hold back on expanding the AOVs as said earlier on, new customers tend to buy smaller baskets. So I think we'll still be in the negative position but not to the 18% we saw in Q2. It's more mid-single digits as we move forward now and as what we're seeing.

Oliver. Sorry, I was going to answer the second part of the question, if that's okay.

Please go ahead.

Thank you. Oliver, yes. So on the start of the future technology, I really believe the online and off-line worlds are ultimately going to converge. We've been pioneers in that vision 4 years ago for the luxury industry in particular. Around a couple of years ago, we did an exclusive partnership with Chanel, a shareholder and innovation partner. We launched 1 year ago in there, #1 flagship store in Rue Cambon in Paris, the adoption has been absolutely exceptional, both from consumers using the channel Rue Cambon app and [shop floor] apps using our [shop floor app]was all the connected experiences and connected products and the prices that we have in store. That is extremely exciting. And we -- in the onset of the COVID-19 crisis, we've regathered our teams, and we work very, very -- in a very, very intense way in terms of adapting the product and evolving the product to the COVID-19 world. And I'm very excited to -- looking forward to the launch of the second generation of this product. We will unvail it as we relocate Browns in MayFair, the new location. This also marks the 50th anniversary of Browns as a company. So delighted to take this iconic boutique into the 21st century in a revolutionary way. And this will be a great lab and a great ongoing demonstration for new partners. The Chanel exclusivity will come -- will lapse towards the end of the year. And I think this is a huge opportunity for Farfetch as we accelerate conversations with luxury brands, but also department stores that are really prioritizing this type of solutions, and I think we have an absolutely pioneering solution that is ahead of the curve for this industry. So very excited on that front as well.

And your next question comes from the line of Louise Singlehurst from Goldman Sachs.

I wonder if you can just talk to us a little bit about the promotional environment. Obviously, we've seen some very good expansion in the gross margin, but also where we were a year ago and 18 months ago. We've seen so much competitive pressure from the likes of (inaudible) and other platforms. Can you just talk a little bit about the competitive environment to what you're seeing?

Obviously, you're getting much better dialogue direct with the brands on-boarding more department stores? But just in terms of that competitive landscape and where you're kind of differentiating. Obviously you can see some very strong kind of app download data and the user number stats coming through. But if you could just talk about the peers, that would be really helpful.

Yes. Thanks, Louis. Great talking to you. I think 1 year ago, we were very clear in what was going to be our strategy in terms of staying competitive and rooting and keeping an eye on the competition and also on the promotional front. And that strategy has been carried out in the last 4 quarters. And I'm very, very happy with the results. We have had less promotions than 1 year ago and actually reversed the level of promotions from 2 years ago. So we're back to 2018 levels. And this is in spite of, as you would expect, widespread promotional activity in the face of COVID-19 build-up of inventory. So I think we're focusing on cultural relevance. The NGG acquisition is also playing out in driving organic traffic. We are elevating the quality of our relationship with brands. We mentioned the Gucci exclusive and the Burberry one and LVMH's FENTY, as exacting examples, but there are many others like we mentioned. I think the e-Concessions, which is a unique feature of the Farfetch platform. And as you would expect, luxury brands primarily sell only full price on the Farfetch platform. The top 20 e-Concessions have doubled in GMV year-on-year. So as you can see, lots of strength on the full price part of our business, which full price, as a mix, has actually accelerated this quarter. And so we're delivering on what we said was going to be the strategy 1 year ago, and we're doing that in a very, very strong way. And you can expect this to continue to be our stance going forward.

And your next question comes from the line of Marvin Fong from BTIG.

Congratulations on the great quarter. I thought I would just ask -- 0great numbers on the new customer acquisition. It also seemed perhaps that you were doing a better job of retaining your existing customers. So I just thought, perhaps you could comment on the retention trends you're seeing among your existing customer base? Do you see any signs of stress because it actually look like retention improved.

Marvin...

Thank you...

You go, José.

Go ahead, Elliot.

I was going to say that actually, the retention of customers has actually been strong. So the sort of statistics we follow around repeat purchase on a 1-month, 3-month basis indicates that even more recent cohort customers are staying with us. It really feels like there's been a sort of significant behavioral shift in customers' mindsets around shopping online and the frequency of online shopping seems to be quite sticky. What we are seeing -- or what we had been seeing across Q1 and Q2, as we've previously talked about, is that was with a different product mix. This is previous customer cohorts, which means that the share of the new -- the existing customers sort of dropped back at the same time as the new customer mix was increasing in terms of GMV. But the good news is the customers are still there and they're still shopping and that's setting us up for a great platform for future growth. The team in the demand generation aspect of the marketplace has done a fantastic job focusing the customers on app downloads. You've seen the app download number up over 100% year-on-year. The repeat repurchase activity from the demand generation team through social media and other retargeting has proven to be very positive in terms of that retention that we've just been talking about. And importantly, the cost per repeat order in terms of media spend is down year-on-year. The customer acquisition cost is down 30% year-on-year. The cost per visit is down year-on-year in terms of the data we're using to drive a better targeting. But we're keeping our foot on the gas in terms of demand generation spend, still 7.3% of GMV as a focus on that new customer growth and retention. So we're really setting ourselves up to benefit from this growth of online shoppers.

And your next question comes from the line of Eric Sheridan from UBS.

Maybe going back to the announcement you made a couple of quarters ago in the implementation around Harrods. How should we think about that as a harbinger potentially more deals like that as you think over the medium to long term? And how should we think about it as a contributor to growth going forward, not only in 2020, but maybe even beyond?

Eric, we're very excited about FPS, our enterprise side of the business. We really think we've proven we've created the premier global platform for luxury. FPS inherits all the marketplace capabilities. And so I think Harrods, as you point out, is a great case study. So from day 1 out of the box, they were able to service the Chinese customer, the Middle Eastern customers, the Russian customers, these are geographies that, as you know, are very important for that iconic department store. And there's a number of other very powerful capabilities, such as, for example, the ability for department stores this is something that we're looking forward to do with hard to launch e-Concessions within their environment, among other very exciting global omnichannel capabilities. So we really see these enterprise solutions delivering strong results. The existing tenants on the platform is around 20 luxury brands, 3 of them are LVMH. As you know, they are growing very fast, faster than the package marketplace. So a number above 35%, which we think it's the demonstration of the strength of this enterprise offering. And yes, absolutely, new enterprise customers, we are -- with open conversations as you would expect, with other department stores, other brands, which I think will benefit greatly from this platform part of our business. So we -- this clearly demonstrates that we are an e-commerce enabler. We're a platform that enables not just Farfetch as a marketplace, but also department stores and brands on websites and apps. And I think that is very, very powerful as it is a solution that is absolutely tailored for luxury and a solution that is global out-of-the-box which I think is a unique proposition on this front. So we think watch the space. I think we are definitely going to continue to have good news coming from that front.

Our next question comes from the line of Jason Helfstein from Oppenheimer.

2 questions. So can you -- clearly, there was a benefit I think, broadly, in marketing spend in 2Q as you were able to benefit from less expensive media costs, lower CPMs, et cetera. And so maybe talk about how much that benefit or contribution margin and then kind of what you were seeing in the third quarter as far as the media because I do think pricing has come back up? And then secondly, it really seems that you have really helped brands get through COVID. We're not done, but make the best of it. Just maybe talk about what you think the benefit to you from both the relationship and a business with the brands coming out of COVID?

Jason, I'll take the first question on the cost to serve. You're absolutely right. We are benefiting from lower costs. I think some of that is external in terms of competitors and how aggressive they're being on search terms versus historical levels. They've obviously stepped back. So we've been able to benefit there. But also, we've done some fantastic work internally around rationalizing and reviewing how we spend and where we put our media dollars and the better ROI and the better cost to serve that comes from some of that activity, particularly around retargeting, social media and also the search engine marketing spend that we've been investing in. So that's allowed us to really reduce, as I said before, the cost per repeat order and the CAC. And that's coming from the data advantage that we have as a marketplace with substantially more visitors year-on-year with significantly higher number of customers interacting with us and with the step-up in terms of our product range, we've been really able to mine the data to decide where we'll be investing our media spend and where we just don't see the return.

But what that's actually mean for order contribution as we've reinvested that in the new customer acquisition. And clearly, where there's customers looking to shift online, we sort those customers out, and we've leaned into that with additional spend. So the order contribution benefit year-on-year isn't actually down to our demand generation spend. That was broadly 20% of our platform services revenue this year and 20% last year. Where the benefit has come from in terms of the order contribution step-up from 28% last year to 35% this year is on the promotional spend that José was touching on before. We -- as José said, and our spending as a percentage of GMV at 2018 levels. So we reversed the step-up we saw last year. Actually, our cash promo spend is down 26% and year-on-year.

So we're spending less on promo than this time last year, even with the step-up in GMV growth. And that's because we had no exclusive event of our markdowns. So we had no ex events of full-price. We had half as many free shipping days. And as a result, the GMV with a promotion actually halved year-on-year. So with a full price mix, and really pulling back on promotions to support the industry is coming through as planned. And what that means is we've been able to step up the gross margin, both of the 1P business, but also the 3P business, we -- all of that promotional spend from us has been pulled back. And that's why you've seen the gross margins of the platform moved from 48% last year to 55%.

And then within that, you can see we've included for the first time, a split of that between 1P and 3P. The 1P business has moved from sub-10% gross margins to 30% gross margins. A combination of better full price mix and less promotions on external brands and of course, the stronger product margins that come through from the first-party original business out of New Guards Group.

So really sort of all the plans to expand the gross margin, as we've talked about before, the higher first-party original, improved margins on 1P, reducing reliance on promotions. And of course, saving on demand generation, which we have, of course, reinvested this time and allowed us to reinvest all helping drive the order contribution up. And also that's giving us the confidence to be at 32% to 35% order contribution in Q3. I won't go into demand generation spend and what we're seeing in terms of media spend for Q3 just yet. We've still got 6 weeks of the quarter to go, and I think all things can change. So I'll update you on that when we next speak.

And yes, Jason, on your second part of the question regarding brand and helping brands navigate COVID. And I think -- listen, I think what we're witnessing is a real paradigm shift. And I think this paradigm shift is happening from the demand side and is happening from the supply side as well. I think clearly, luxury consumers are moving to online increasingly. And there's also what is very specific to the luxury industry, a huge repatriation of luxury spend. So if you take China, for example, in 2019, Bain estimates the Chinese about $70 billion while traveling. So they are 35% of the industry and a significant percentage of that was then while traveling. So now they're not traveling, which opens an incredible opportunity to service them online and several brands have reported strong demand in China. We believe that's a market that was already an incredible opportunity. We will have an additional opportunity now. And that also applies to other countries around the world, in Middle East, Latin America. We've seen very strong growth above the marketplace from those regions.

And I think what's happening is that, that paradigm shift in terms of the consumer means that there's a paradigm shift in terms of the brands as well and department stores as they absolutely have to fast track their online and their e-commerce strategy. And here is where Farfetch comes in, I think we are clearly the platform of choice for these global multi-hundred million industry. We are very focused in being a great partner for boutiques, brands and department stores throughout this crisis and for the future. And clearly, we can assist them globally, not just in the domestic markets, but crucially in the largest -- the 3 goods markets in the world, where we have a real competitive advantage. And you see that in the numbers. We are witnessing an absolute acceleration throughout Q2 and into Q3. And that's a result of this paradigm shift and this long-standing sustained dynamics in the industry.

And your last question comes from the line of Doug Anmuth from JPMorgan.

Elliot, I know you talked about acceleration through 2Q and then into the third quarter. I was hoping you could give a little bit more detail around this momentum kind of what you're seeing July into August and a little bit more on what gives you the confidence on growth accelerating into that 40% to 45% range in 3Q?

Yes, we certainly saw quite rapid acceleration towards the back of the quarter. Even over the last 10 days, trades have stepped up again, and that has continued through into Q3. And quite pleasing, we're seeing it actually come out of the U.S. market in terms of demand. So we've talked in the past that China saw a bounced back first, the back of Q1 and Q1 within in Q2, at the start, or U.K. and Europe start to pick up. They've both been particularly strong throughout Q2 as has the Middle East and Latin America. But the U.S. really was quite sluggish until quite recently, where we've seen this despite swipe jump back up. That, therefore, added to where we're seeing the other major markets like China growing ahead of the platform, U.K. and Europe and Russia are growing ahead of the platform, and now the U.S. starting to boost up as well, means we're more confident about demand over the quarter. We're also seeing that the -- as we said before, the customer retention is there, the customer interaction is strong. We're seeing new customers continue to really drive trade. So the level of trade we talked about across Q3 in terms of share of GMV continues into the first 6 weeks of Q3 with 2017 levels of GMV from new customers. And the supply of product that's coming on to the marketplace, continues to be strong, although slightly delayed a few weeks, as we've been talking about in terms of uploads versus prior years. But as it's been coming on stream, very, very strong quantities, very, very strong range. And then lastly, across FPS and the clients on our platform outside the marketplace we are seeing continued strong growth across the vast majority of those clients in terms of adoption of online by their customers as well. So this is really driving sustained growth. Clearly, 6 weeks in to be able to step us up to 40% to 45% shows that we have seen strong growth across July, ahead of where the platform was for Q2. And we've got 500,000 fabulous new customers across Q2 that we are showing the benefits of saying with the platform and rolling them straight into Access. We've now got 2 million customers in Access. And we are looking after those customers to push them up from bronze to silver to gold through frequency of shop. So we're really seeing the data tell us that the customers are here to stay. They are telling us through research that they're shopping online because of the pandemic, they intend to shop more online because of the pandemic. And I'm really starting to, I believe, developing growing behavior around buying luxury online, which means it's sustained for the future. That's why I'm confident that we can be in 40% plus, 40% to 45% for Q3.

And there are no further questions. I'll turn it back to our presenters for some closing remarks.

Terrific. Thank you, Rob. Well, thank you all for joining us. We look forward to speaking to you next quarter to discuss our Q3 results. Have a good night.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.