Image source: The Motley Fool.
Farfetch Limited (FTCH -1.02%)
Q3Â 2019 Earnings Call
Nov 14, 2019, 4:30 p.m. ET
Contents:
- Prepared Remarks
- Questions and Answers
- Call Participants
Prepared Remarks:
Operator
Good afternoon. My name is Chris and I'll be your conference operator today. At this time, I would like to welcome everyone to the Farfetch Third Quarter 2019 Results Conference call. [Operator Instructions] Thank you.
I would now like to turn the call over to Alice Ryder, VP of Investor Relations. Ms. Ryder you may begin your conference.
Alice Ryder -- Vice President Investor Relations
Thank you. Hello, and welcome to Farfetch's third quarter 2019 conference call. Joining me today to discuss our results are Jose Neves, our Founder, Co-Chair 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 risk factors that could cause actual results to differ, please see the Risk Factors section of our Annual Report on Form 20-F, which was filed with the SEC on March 1, 2019. 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.
Jose Neves -- Founder Co-Chair and Chief Executive Officer
Thank you, Alice. We have made great progress in Q3, capturing market share aggressively, while balancing our growth with improved margins quarter-over-quarter and beating guidance on both top line growth and adjusted EBITDA margin. We executed on the strategy we outlined to you in August to navigate the promotional environment with great success. Our decision to moderate our digital platform GMV growth from 44% in Q2 to 37% in Q3 was in our view the right approach, as we delivered sequential improvement in margins and the strong debt-to-EBITDA margin guidance, with less reliance on promotions.
These results also demonstrate growth that is multiple times faster than our nearest competitor. I am confident that this strategy will continue to deliver on both top line growth, strong market share capture, healthy unit economics and as a result, places us on a steady path to profitability. And I believe this will be the case independently of how long the promotional environment will last. Our Q3 results now include New Guards Group, or NGG. Going forward, we will report NGG's revenue generated offline in wholesale transactions as brand platform. Revenue from online sales across both channels farfetch.com and brand.com will be defined as digital platform, previously referred to as platform.
Digital platform GMV grew 37% or 40% at constant FX in Q3 ahead of our guidance of 30% to 35% growth. We are growing twice as fast as the market, according to Bain's estimate of global online luxury growth which is 20%. This strong market share capture is a result of our platforms flywheel, the incredible network effect taking place in the Farfetch platform. On the supply side, we believe Farfetch is the sole multi-brand luxury platform who can offer brands the advantages of a direct-to-consumer e-Concession model, including full control over merchandising and pricing, as well as higher margins as compared to the only alternative, which is wholesale distribution.
More than ever before, luxury brands are choosing Farfetch's unique e-Concession model. Over the past years one handset brands have directly chose the platform, including top labels such as Brunello Cucinelli, Stella McCartney, Acne Studios, Moschino and Golden Goose among others. As we said in August, we continue to see brands reducing their exposure to online wholesale, in pursuit of their direct-to-consumer and e-Concession channel. As a result of this gradual shift, in addition to signing new brand, we have also seen existing brands double down on Farfetch.
At the end of Q3, our top 10 brands, which includes leading brands such as Gucci, Prada and Sandy have more than twice as much direct stock on our platform as a year ago. The increased supply from direct brand partners, combined with continued growth of supply from our boutique network, has driven Q3 stock value up to nearly $3 billion, up more than 50% year-over-year. On the demand side, the unique offering of over 3,000 designers approximately 300,000 SKUs, which is roughly 8 times our competitors and improvements in our best-in-class technology and service are fueling our customer growth, with active customers up 52% over the same period.
This increased scale on both supply and demand further drives the dynamic of our two-sided marketplace and generate massive amounts of data, which ultimately in this flywheel even faster. With $1.8 billion of digital platform GMV and 1.9 million active customers in the past 12 months Farfetch is the largest digital in seasonal luxury player in the industry. Being number one puts us in a very strong position, which allows us to now focus even more on our path to profitability, while continuing to target sustainable growth and market share capture. At this point, and roughly one year after our IPO, I'd like to take stock of the incredible features of our marketplace power business and how they not only remain intact that in fact has been reinforced. First, we have AOVs in the region of $600 and take rate of 30%. This implies approximately $180 of commission per average transaction, which together with strong retention and engagement produces attractive LTV to CAC ratios and payback on cash in less than six months.
Second, we are the only luxury marketplace at scale in a $300 billion global industry, with practically all our competitors being retailers. Not only this has to surpass as the most strategic partner to believe in Luxury brands, but we are also capturing market share from these retailers at a remarkably fast pace. Third, we have built unique and proprietary technology logistics and data platforms with incredible network effects and have fanged just under 500 brands for a total of over 1,200 luxury patterns for our platform, with 100% retention among our top 100 brands.
Fourth, we are one of the very few western e-commerce companies which have demonstrated success in penetrating China. A market which according to Wayne is expected to grow to represent 45% of luxury by 2025. In the last year, our presence in China has been going from strength to strength and GMV growth has outpaced the overall marketplace demanding China's position as the second largest market for Farfetch. Last, we are building a unique brand with strong cultural relevance. We want to be the first and the last destination for people who love fashion. The start of inspiration for fashion lovers, but also the place where you find that unique piece you were looking to buy and it's available only on Farftech. The recent acquisition of NGG is a significant step in that direction and the halo effect of the original content its brand platform will produce will create a unique DNA for the Farftech brand. All of these features are very difficult to find in global digital marketplaces or platforms and position us uniquely to go after what is the $100 billion incremental opportunity in online luxury sales in the next six years.
Before I pass to Elliot, I'd like to briefly update you on NGG. Last quarter, we announced the acquisition of New Guards Group and firm closing this transaction on the 9th of August, we created a new brand platform division for the business. We believe NGG's existing and future brands will drive incredible cultural relevance for Farftech. We believe NGG will elevate the Farftech brand and increase organic traffic and customer engagement, which will make Farftech and even more attractive channel not just for consumers, but also for our brand partners. The NGG current portfolio sold more on Farftech in Q3 than any other single brand, which demonstrates on one side the incredible compatibility of the two businesses from a consumer perspective, but also the extraordinary capability that NGG has of bringing the most sought-after labels to market labels that were practically non-existent just six years ago.
Off-White for example ascended to number one most such luxury brand as per the Q3 listing date, ahead of more established heritage brand. The NGG acquisition was also enthusiastically welcomed by our brand pattern. They participate on Farftech in part because we are a highly curative multi-plant channel. Rents recognized that by having the best collection of label, Farftech attracts the larger audience. And in fact, this is evident in our proposition to Lexa among online luxury fashion destination. Almost, 70% of our multi item transactions consist of multi-brand baskets and brands seek to be in channel with other attractive label. This is why they participate in multi-brand channels, such as department stores for example.
New Guards operates as a platform. It uses a single common infrastructure and model to incubate and grow emerging talent into highly sought-after brands to a shared services model. They operate an asset-light model and procure manufacturing resource is based on demand and quantities are produced to other. As a consequence they are very inventory light. Since August we have been working to integrate the brands in the New Guards Group portfolio onto our marketplace. We're pleased to once again have demonstrated our proficiency in integrating new acquisitions with the entire New Guards Group portfolio, now selling directly on Farftech. This NGG supply has been consigned to our fulfillment by Farftech warehouse in Italy and is now servicing customers globally. We have also made progress in our plans to replatform Off-White e-commerce site, which is expected to be completed in Q1 2020 and will then proceed to replatform other brands in the NGG portfolio, giving them best-in-class global e-commerce capabilities.
This integration on the Farftech platform will unlock exciting jobs exclusive collects and an unrivaled range from NGG as well as future new concepts and brands, which will be available only on Farftech for our 1.9 million global consumer base. Driving direct-to-consumer revenues for the new brand is a tremendous opportunity to capture 1P sales at a very profitable margin and we plan to grow the e-Concessions and roll out websites for the portfolio throughout 2020.
Turning now to Elliot to discuss our Q3 financial results and outlook.
Elliot Jordan -- Chief Financial Officer
Thank you Jose and good evening, everyone. I am very pleased to be presenting the Q3 2019 financial results, which represent another strong quarter for Farfetch. We have continued to extend our market-leading position, improved our unit economics and delivered better-than-expected adjusted EBITDA through continued operating leverage. The acquisition of New Guards Group has also contributed to a stronger financial position overall.
Group revenue has grown 90% year-on-year to $255 million and our adjusted EBITDA loss was $35.6 million substantially better than our expectations. We now have two complementary platforms our technology platform, which going forward will be described as our digital platform. And since the acquisition of New Guards Group, our new brand platform. You will see that we break out the revenues and gross margins for each platform as well as from our stores.
I will now explain the performance we have seen on each platform being cover our group technology spend, group costs and overall adjusted EBITDA position. First, the digital platform, which outperformed expectations with GMV growth of 37% year-on-year, improved unit economics quarter-on-quarter and expanded the strong active customer base, which underpins future growth. The 37% year-on-year growth was broad-based and reflect our well-placed investments into China, the Middle East, Japan, Brazil and U.S. markets among others.
Our third-party take rate is stable quarter-on-quarter at 31.2% with increasing underlying commission rates across our brand and boutique seller base and growing income from our Media Solutions business mix with a stronger share of GMV year-on-year on the marketplace from our brand e-Concessions and growth of our platform solutions white label business. Order contribution margin stepped up quarter-on-quarter from 28.1% in Q2 to 31.3% in Q3, which is a result of lower promotional spend and improved first-party margin, partially offset by investment into digital marketing. Whilst the broader backdrop of the quarter was characterized by ongoing higher-than-average promotional activity, we made a conscious decision to support the values of the luxury industry by reducing our use of promotions.
Instead we offered certain incentives and discounts in a targeted fashion to appeal to our more valuable and loyal customers. The result is order profitability in line with our expectations and we continue to develop the proposition to improve this position over the longer term. As I have reported in the past, we have historically seen payback on customer acquisition spend well within six months. This continues to be the case with the acquisition cost of the Q1 2019 cohort now fully recovered six months later. This strength gives us ample headroom and our superior marketplace data insight allowed us to reinvest into customer engagement strategies to drive retention and frequency of shop, as well as increasing our online presence, boosting downloads of our app and broadcasting the Farfetch proposition to a wider audience on social media channels. All of this work puts us in a very strong position which, we believe underpins healthy customer acquisition and cohort values moving forward.
Turning to our brand platform, which we are reporting for the two months of August and September. Brand platform GMV and revenue for these two months totaled $63 million, reflecting shipments to retailers against the full winter 2019 order book. This was primarily driven from strong demand for Off-White, Palm Angels, and Heron Preston. Gross margins on these shipments were up 44%. We are expecting scale benefits to support gross margins moving forward have a strong order book for spring/summer 2020 and production levels and finished goods on hand are well set up to meet the Q4 revenues, which I will cover later. Now moving to our cost base. Technology expense grew 17% year-on-year to $22 million with continued development of consumer-facing product and increasing focus on our platform enterprise solutions being built in partnership with Chanel and Harrods the latter of which remains on track to go live in the first half of 2020. There are no material technology costs from within the New Guards Group.
SG&A grew 61% year-on-year to $94 million incorporating an increase in cost from within the underlying digital platform business, plus the addition of brand platform SG&A costs. In Q3, we have grown our offline marketing spend ahead of sales, as we continue to drive awareness of the Farfetch consumer proposition. This has been offset by significant efficiency improvements across our customer service and production teams year-on-year driving leverage.
The combined cost position is 41% of adjusted revenue compared to 52% of adjusted revenue in Q3 2018. Overall, this means our underlying adjusted EBITDA position was better-than-expected at a loss of $35.6 million or negative 15.6% of adjusted revenue compared to 28.7% in Q3 2018 and ahead of the 18% to 20% range previously guided with outperformance across both the digital platform and brand platform businesses.
The bridge from underlying adjusted EBITDA to operating loss includes a $22 million credit to the P&L within other items, the quarterly share-based payments charge of $32 million, depreciation and amortization of $35 million and net financing costs of $6 million. The credit and other items arises from the revaluation of stock-based liabilities for acquisitions that will be satisfied in Farftechs share. The share-based payment charge of $32 million reflects an ongoing charge of $50 million per quarter for equity awards, partially offset by an $18 million reduction to the provision for cash settled options and associated employee taxes. The $21 million sequential increase in depreciation and amortization primarily relates to the amortization of intangible asset we have acquired throughout the year-to-date and the year-on-year movement also includes charges in relation to IFRS 16. The resulting loss after-tax for the quarter was $85 million to $0.28 per share. Cash on hand at the end of the quarter was $318 million, a reduction of $361 million over the 13-week period primary outflows relate to the $256 million net cash component of the acquisition of New Guards Group and $21 million in relation to completing the financing aspect of the top line acquisition. We also had a EUR 300 million secured loan commitment, which remains undrawn.
Looking ahead to our final quarter of the year, the most exciting quarter of the luxury industry with gifting and winter clothing a key feature of customer shopping mission. We are pleased with the results quarter-to-date with strong customer engagement delivering results in line with expectations. We, therefore, want to reiterate our previous guidance of GMV growth of 30% to 35% year-on-year across the digital platform. Brand platform GMV is expected to be between $80 million to $90 million. At an adjusted EBITDA level, we are expecting a Q4 adjusted EBITDA loss of $21 million to $31 million, which is an improvement over previous guidance reflecting the overall stronger position of the Farftech Group. Jose?
Jose Neves -- Founder Co-Chair and Chief Executive Officer
Thanks, Elliot. I am very pleased with the progress we made during Q3, delivering growth and EBITDA ahead of our expectation, stabilization of our unit economics, expanding relationship with brand and boutique partners and initial synergies from New Guards integration with Farfetch. I'm very proud that we've completed Chapter 1 the first 10 years of having built the industry leader in online in seasonal luxury and the only luxury tech platform at scale in an industry of retailers.
In spite of our market leadership, we keep capturing market share aggressively. I believe we are uniquely positioned to capture the lion share of the incremental $100 billion online luxury sales that main estimate will materialize over the next six years. This number one position allows Farftech to now focus even more on our path to profitability which as you can see today is well on track. Thank you.
Questions and Answers:
Operator
[Operator Instructions] And our first question is from Doug Anmuth with JPMorgan. Your line is open.
Douglas Till Anmuth -- J.P. Morgan -- Analyst
Thanks for taking the question. I want to ask two. First, just can you comment a little bit on China? I know Jose you talked about how you're positioned there obviously on a longer-term basis but just curious if you're seeing anything from a macro perspective there just given some weak numbers that have been out in the market?
And then second, Elliot, if you could talk a little bit more about that path to profitability and some of the key areas where you're thinking about improving efficiency over the next several quarters? Thank you.
Jose Neves -- Founder Co-Chair and Chief Executive Officer
Hi Doug, thank you for your question. China is firing from all cylinders really. It's -- we're very, very pleased with the performance. Our own channels the Farfetch iOS app, the Android app, our WeChat presence are delivering extremely truly strong results going ahead -- growing more than the average of the marketplace.
I think clearly our unique proposition to the Chinese consumer which is a real-time fashion 3,000 designers, 300,000 SKUs, localized -- fully localized staff with local payments, local data center it's paying off. And we don't really see any impact of macro factors and so we expect China to continue to deliver very strong growth.
Elliot Jordan -- Chief Financial Officer
And -- hi Doug, on the path to profitability, absolutely, I think, obviously, we've delivered a really good set of numbers across the quarter and have raised our expectations for profitability in the EBITDA position in Q4 on the back of what I think is a very strong position to be in. We've always been focused on a path to profitability.
Clearly, being number one was a big focus for us as well. We are now number one in terms of online luxury. And you'll remember back at the IPO, we laid out how profitable this business could be over the longer term as we take this position of leadership within an expanding industry.
And so the path to profitability is quite clear. It's about continuing to grow GMV on the back of our superior customer proposition and expanding market. It's about lowering customer engagement costs through use of our data insights, exclusive content on the platform, and obviously, now that we've got the exciting brands from New Guards Group on the platform and in the future exclusively available for Farfetch that provides us with an even better customer experience with opportunity to drive organic growth in a way we've not been able to drive that before.
We obviously will continue to drive our high-margin income streams the media solutions business in particular, the white label business delivers very high-margin income streams as well.
And then back on the marketplace reducing the unit cost of shipping significant opportunities around our logistics, our partnerships to reduce the cost of shipping, the unit cost of production, and other order related costs as well to continue to drive our order contribution up to that 60% audit contribution target there. I'm still very confident in over the long-term.
And then for the rest of the business, it's about continuing to drive the operational leverage that we've been delivering against an infrastructure that we have already built really to take the lion share of what we believe is a $100 billion incremental online luxury opportunity.
And so now that we are number one and clearly, extending our gains, this allows us to continue to capture market share at a pace that I think others are unable to achieve and now focuses the business even more on that path to profitability moving forward.
As Jose said on the call just now, we're close to $600 AOV on a recently regular basis. We've got a 30% take rate. We've got 1.9 million active consumers and those mature cohorts are delivering in excess of $100 per order contribution. So, we're at the start of what I think is an amazing growth opportunity and as we said really profitable in a distance, so it's not too far away now.
Operator
Your next question is from Geoffroy de Mendez with Bank of America Merrill Lynch. Your line is open.
Geoffroy Thibault Antoine -- Bank of America Merrill Lynch -- Analyst
Hi, good afternoon. Congrats on the results. I have two questions for you. The first one is on the gross margin at the New Guards Group. I think when you announced the acquisition; the gross margin was at 55% and now it's at 45%. I heard you say that there might be some seasonality, so a potential improvement going forward. Can you talk a little bit about this and if we can go back to the 55% gross margin?
Also on NGG is there any way you could share with us the like-for-like growth on a comparable basis? Obviously, you only had the acquisition for two months out of three, but that would be interesting to see how fast the business grew? And the second question related to this is more on the promotional activity. Could you elaborate a little bit on the differential between Q2, which was obviously very promotional in that margin? And what you've seen in Q3? Thank you.
Elliot Jordan -- Chief Financial Officer
Yes, absolutely. So on NGG as you quite rightly pointed out it was a two-month period. So I'm a little bit reluctant to provide too much information on such a short period, but just on the gross margins that is in relation to what was exactly shipped over that eight-week period as opposed to what you'd normally see across a full season shipments. So the mid-50s is a gross margin that I'm very comfortable with moving forward. As I said just before we've got scale benefits coming through in terms of our supplier base in terms of the production facilities that we tap into so very confident with that position. But it is down just for the eight-week period because of the various shipments that we had with the various commercial partners that we supplied over that period.
Again, reluctant to share year-on-year growth rate, because it was such a short period, but I will say it's in the high-30s in terms of year-on-year growth against a comparative period last year. In terms of the promotional environment, yes you'll remember last time I spoke about the percentage of spend on promotions against GMV effectively doubling year-on-year from Q2 2018 to Q2 2019, what we saw in Q3 year-on-year was a 60 basis point step-up in terms of our spend on promotions. So substantially less than the earlier position that we had much closer to the position that we were at last year.
Still some promotion more last year but substantially reduce versus what we had seen was the big impact that hit us in Q2. So a really good place. Quite pleased actually that even though we did pull back substantially on the promotions we still outperformed on the GMV growth rate. And obviously that helped drive the order contribution up back into the 30% area which is a must be the place for us as we move forward.
Operator
Your next question is from Louise Singlehurst with Goldman Sachs. Your line is open.
Louise Susan Singlehurst -- Goldman Sachs -- Analyst
Hi, good evening, Elliot, Jose. Thank you very much for taking my questions. Just again -- just following up on that promotional environment. Elliot, I think you mentioned something about a much more targeted approach to -- I presume that the cohort that you're after in terms of the promotional spend. Can you just talk about the use of its perfect access now trying -- is that now much more useful in terms of the data understanding that you're obviously not yet annualizing that?
And then I wonder if you can give us an example of the dialogue that you're actually having with the brands. Because presumably and as we're seeing in Black Friday period the commercial environment is unrelenting across the platforms. And I just wonder if there's any examples that you can give us on that?
And then just finally on thoughts just post New Guards. Now you've had it understand for a short period of time, but anything that you can tell us about the working capital demand? Is it still as you expected in terms of the acquisition time 95% of the product being made-to-order to the working capital stays in control? There's nothing in there that you've seen that would change your commentary on that that would be wonderful. Thank you.
Elliot Jordan -- Chief Financial Officer
Sure. Hi, Louise. I'll let Jose cover off conversations that he's having with the brands. Let's look at promotions though. So what we did is we used our spend more wisely and targeted the more loyal customers that either are within our access loyalty program or sit within the top tier our 1% of customers there or our VIP customers are driving 20% to 25% of our GMV. And rewarded those customers with free shipping obviously, which is part of Access, but also with some targeted basket promotions and savings. And make sure as I said last time, we rekept and retained the more valuable customers, but we didn't give away promotions to new customers or customers that only shop with us when we're on promotion.
As those customers there really don't drive the LTVs up, don't drive the order contribution over the longer term and those were the customers that effectively was the difference between 37% year-on-year growth in Q3 and 44% year-on-year growth in Q4. So we stopped doing that with customers that don't shop really with us and use the money more wisely on the Access customer base. Access is going super strong. So we are now up to over 60% of our Access consumers are regularly accessing the awards and the rewards that they get figuring out how they move from one Tier to the next.
The AOV on customers that sit within the excess program is some $100 to $200 on average higher than customers that don't sit within the Access program. And that's obviously driving a much better part of the GTV and the frequency of shop from those customers is higher than customers that are outside the program as well. So we're very pleased with how that investment in effectively free shipping and basket level promotions is driving retention.
Before I talk to -- I'll let Joe talk about the brand. So on NGT you will see when you get to the details of the balance sheet that we've got stock on hand at the end of the quarter. That stock is already made and is really for dispatch to drive the Q4 numbers. I said now it's about $80 million to $90 million of revenue in GMV from that product, where we've got $25 million of stock really to ship.
So we're at a really good place to get that product dispatched and get the cash in over the next quarter to drive the positive or negative working capital. The favorable working capital however you want to say it that comes from that proposition. So yes we're very pleased financially as well as operationally and strategically how that acquisition has already started to impact on the business.
Jose Neves -- Founder Co-Chair and Chief Executive Officer
Hi, Louise. Thanks for your question. So I think we made the right decision in my opinion. We protected the values of the luxury industry cited with the brands on their request to control the level of promotions and help them move increasingly from reliance on online wholesale to direct-to-consumer and the concessions.
The results were even better than expected. And I think we found a formula. We found a formula that balances growth still market share capturing growth multiple times the closest competitor. And the formula I believe will work no matter how long it lasts in terms of the promotional environment.
So the conversations with the brands are extremely healthy. We -- this year and just recently we launched Prada Linea Rossa as their exclusive global multi-brand partner for that new line. We are -- we have this year launched exclusively with Balenciaga with Burberry.
We have an ongoing program with Gucci called Gucci Open House and the brands are very excited, very excited to see tremendous growth in their e-Concessions at the global base, we are capturing for example in China, a Chinese consumer that is 29 years old on average and spending even per basket than our average of $600 AOV.
So this is the true luxury customer in China in the demographic that is absolutely the sweet spot for the brands. The result of all of these is conversations around absolutely doubling down on fact. You see that from the data and the numbers with the inventory more than doubling for the top 10 brands and we expect this trend to continue.
I think the end game is highly, highly favorable to Farftech. This is the luxury industry. Brands will have to protect price integrity. They will have to contain promotional activity. The online wholesale channel doesn't allow them to do that. They completely lose control obviously after they pass the title to the online retailer and now we are -- they have an alternative at scale. And I think that we don't know obviously, the transition not only it will take, we now have to follow to navigate the competitive landscape as and when that transition materializes we think we stand to be a big winner from all these dynamics.
Operator
Your next question is from Eric Sheridan with UBS. Your line is open.
Eric James Sheridan -- UBS -- Analyst
Thanks so much and thanks for the additional level of detail on the GMV and the gross profit breakout there. Following up though looking at digital platform GMV as well as sort of gross profit and order contribution margin, any sense of how to think where we could go over the medium-term on those metrics versus what you laid out originally through the IPO process as investors sort of trying to understand how the business evolves and develops, especially on the gross profit margin line. And on the order contribution margin line not only just in Q4 but maybe looking out over the next couple of years? Thanks so much for any color.
Elliot Jordan -- Chief Financial Officer
Sure. Hi, Eric. As I said on the last call, we are forecasting that the promotional environment with the industry will last what is now two to three more quarters. Clearly the work that we did over the last 13 weeks to pull back on promotions is the right thing to do and it is helping with the order contribution position. But I would say that we have to be wary of what the next two or three quarters might look like.
So now we're back into the 30% order contribution, that's a good place to be over the next couple of quarters. And then as we execute on the broader offering around exclusive content to bring down our cost of digital marketing, to drive organic traffic as we are able to pull back even further on promotions as the industry starts to reset itself about those promotions, two to three quarters out, we'll be able to improve the gross margin position of the marketplace which is obviously where our promotional spend hits us.
And of course, what we haven't done is really drive leverage on our logistics network that's still a big part of our delta in the revenue to the gross margin position. And we've got a number of work streams that will help us push that including improving the logistics flow with the fulfillment by Farfetch model, as we are now testing and rolling that out by having more localized facilities using third-party logistics providers to get the cost of shipping down. We will also be able to revisit how we do our shipping. Which carriers we use? How we use air freight versus other means of shipping? How we might use local carriers in a better way. There's quite a lot of opportunity to drive savings within that position.
And then, of course lastly, it's around the first-party business margins and mix. Clearly, we're growing the first-party business faster than the overall business. At the moment, it's now 12% of our GMV at a lower gross margin than the marketplace. As that starts to moderate over the coming months with Howard is coming onboard next year in, H1 that's obviously a 3P model, the mix will drop, which will improve the overall blended gross margins and the 1P gross margins can grow through a better price points etc--etc, so a number of different levers.
think it's worth pointing out as I said last time our more mature customer cohorts. So we're already at 55% plus as an order contribution that shows us how we can get there in terms of the path toward 60%. Obviously, it's around organic traffic, higher basket sizes, lower returns rates, and of course when we start to sell more of the product that New Guards Group has produced for the group, the first part the original product that comes at even higher margins as does the Media Solutions business. I will stop there because I'm probably rambling, but as you can tell there's a lot of levers for us to pull to get back to that 60% position.
Operator
Your next question comes from John Blackledge with Cowen. Your line is open.
John Ryan Blackledge -- Cowen -- Analyst
Hi, thank you. A couple of questions. Just any color on expectations for the holiday? And given the U.S. is a decent part of the overall business, do you expect any impact from the shortened holiday season here in the U.S.? And if so, is that baked into guidance? And then on China just any update on the JD integration on top life? Any color on impact on the China business? Thank you.
Elliot Jordan -- Chief Financial Officer
Hi John yes. So holiday season we're very confident in the offer. We had a good start to the quarter with regards to our singles day offering earlier on this week and that went really well. So, we're very pleased with how that's kicked off. Clearly the next seven weeks are key to this quarter. There's a lot of activity coming our way. But we -- with some of the exclusives that we've got the Prada lines that we are the exclusive third-party distributor. We're very excited about that.
Obviously, some of the collections that we have out of Off-White Palm Angels, very excited about that, and we now have just under 500 direct brand e-Concession relationships and we work very closely with those suppliers to put the best holiday offering forward over the season. And clearly party, we are gifting. It's a very exciting part of the luxury industry time for the luxury industry. So, we're very confident about that and delivering that 30% to 35% GMV growth year-on-year across the digital platform.
Jose Neves -- Founder Co-Chair and Chief Executive Officer
Touching on China. I think for us what is extremely extremely exciting is the absolute validation of product market sheet. Our own channels, the Farfetch app, primarily because China is an app business. As a result of considerable investments in the local data center 350 staff in Beijing, Shanghai and certainly in Hong Kong as well creating on top of our API and that is incredible and that is as fast as fleek with local payment systems completely localized. All of that is paying off and we're seeing this extraordinary traction from Chinese consumers very high AOV, higher than the average of AFG so higher than $600 materially younger customers. It's extremely extremely exciting.
On top life, we are very excited with the proficient integration that our teams demonstrated. It launched only a few months ago. As I said, it's a 2020 focus and it's a channel we're optimizing. It will be the chair on top of the cake, but the cake is I'm pleased to say growing very fast. So, very good news from China around.
Operator
Your next question is from Jason Helfstein with Oppenheimer. Your line is open.
Jason Stuart Helfstein -- Oppenheimer -- Analyst
Thanks. Two questions. First, Jose, can you talk about geographic price protection to the extent 1P e- commerce retailers are not respecting this. How are you enforcing this on behalf of your brand partners? And then just clarified you only in force for your brand partners.
And then Elliott maybe talk just a bit about kind of future potential cash needs, based on most street models the company would need to raise capital and I think late 2020 early 2021, how are you thinking about this? And then to the extent have you limited the size of the lumpy business, can you get working capital to be a source of funds versus user funds? And then anything you can do to reduce capex ratio? Thanks.
Jose Neves -- Founder Co-Chair and Chief Executive Officer
So on what we call geo pricing; we have developed industry leading tools for brands and retailers to manage the pricing. We do not set prices. We're a marketplace. So for the most part 90% of our turnover roughly is 3P. The price is asset by the seller. Having said that, it's extremely easy on Farftech for a retailer to adhere to geo pricing. They just need to take a box. And, obviously, we only work with the best multi-brand boutiques, all of these boutiques are known to the brands and authorized by the brands on Farfetch.
There is a mutual respect that strategy in some cases decades of relationship between the brands and these boutiques and we've been able to manage that very, very in harmony in the platform. What's happening out there it's -- you are right there is indiscipline from the wholesale -- the online wholesale channel. But to my point early on with Louise displayed in our favor, more and more the brands are trying to phase out online wholesale, not only is less profitable as a channel. They book half of the revenue. They have much lower margins but they lose complete control of pricing and geo pricing and control of merchandising. Now they have an alternative multibillion alternative at scale globally with very exciting customer base now 1.9 million active customers. And this is extremely exciting for the industry. So I think we will be the beneficiary of protecting the wealth of the industry. And of course, this has meant that we moderated growth and -- but we found the formula. So really, really satisfied with that and satisfied with the way we're managing the geo pricing as well.
Elliot Jordan -- Chief Financial Officer
And Jason just on cash, I'm very comfortable with where we are on cash. So obviously we closed the quarter at $318 million of cash. I'm expecting to close the year so end of December at around $300 million of cash as well. That's obviously actually benefiting from some of the working capital benefits that come through from the marketplace over the fourth quarter. And we also have the 300 million secured loan facility, which at the moment is undrawn, but available to us to provide more financial flexibility and liquidity. So, both of those positions put to me in a very comfortable position. We obviously will benefit from the New Guards working capital position as us expanding with Louise moving forward. And in terms of your question around capex, you're probably already seeing actually when you go through the detail there the capitalized development spend was $16 million in Q3. That was against $20 million in Q2.
So we've already bought that down. There was around $8 million worth of plant and property capitalization, that --that we completed in Shanghai in New York in the time period and that's not to be repeated. So we've got savings there in terms of our capex as we move forward. And so I think we're in a really good place around that position. So I'm not worried about where we're at and that gives us good headroom through to becoming cash flow positive.
Operator
Your next question is from Edward Yruma with KeyBanc Capital Markets. Your line is open.
Edward James Yruma -- KeyBanc Capital Markets -- Analyst
Hey, good evening, guys. Thanks for taking the questions. I guess first you mentioned that the pull out of promotional activity allowed you to kind of disinvite maybe those most price-sensitive consumers I guess did you see any change in buying behavior or maybe your most loyal or habituated consumers given some of the pullback in promo? And then I guess second, as you kind of dig in on the New Guards business, any sense as to whether investments are necessary either from a capital perspective or from an expense perspective to kind of continue that rate of growth? Thanks so much.
Elliot Jordan -- Chief Financial Officer
Yes. Let's talk New Guards. So they operate under a very asset-light model. They haven't got production facility. So we -- the product is made is in Europe, near Europe suppliers. We obviously were using scale benefits to drive a better input prices. They haven't got warehouses that they built for themselves. So there's no capex requirements there. And they operate from a very -- what I'm looking for. They're not flashy as their office in Milan.
It's very prudent in terms of cost management that don't need to expand significantly the head office facility. So I'm very comfortable with the guidance that we have around capex to include the New Guards operations.
In terms of promotions and how do customers behave, I'm actually quite pleased to say that our more loyal customers given that we sort of allowed our teams internally also to focus on how to broadcast the full price offer and new and in-season products through editorial and through our marketing to our customers and our private client teams, our fashion teams we're able to target the customer base with what is an amazing full price offering and a really strong in-season offering.
So we actually saw our top 1% customers by more full price than we have in the past. So we were very pleased there. The noise of promotions allowed us to focus on offering to the customer a beta proposition and they bought into that proposition which is why we've outperformed.
Operator
Your next question is from Ike Boruchow with Wells Fargo. Your line is open.
Irwin Bernard Boruchow -- Wells Fargo Securities -- Analyst
Hi. Good afternoon, everyone. Two questions for Elliot I believe. Just on Harrods next year, is there any more information you could give us as it's coming closer, I'm thinking specifically about GMV contribution, take rate contribution margin? Is there anything that can help us as we try to factor that into our models for next year?
And then I apologize Elliot, I know you've had this question asked a couple of different ways, but I'll try another way. A lot of focus on the time line to positive EBITDA. I guess the consensus number has positive EBITDA implications for fiscal '21. I guess my question is does that seem reasonable? Or are there puts and takes that we should consider?
Elliot Jordan -- Chief Financial Officer
Great questions. I'm not providing guidance around Harrods for next year today. We would normally talk about 2020 on the next call which is still the plan. But what I will say is that when we've talked about the long-term growth of this business being a 30% to 35% GMV growth that obviously includes bringing on new clients for the black and white team includes Harrods obviously. So if you've got the sort of long-term 30% to 35% in your numbers that's a good place to be.
And also in terms of take rate, the 29% to 32% take rate that I've talked about on a number of occasions also includes the growth of our black and white business as well. So those numbers are already including the expectations for Harrods. Profitability again a great question. I think as I said earlier on we're -- overall we're very pleased with how we've been able to deliver across the quarter that gives us more confidence for Q4. I wouldn't normally provide guidance for 2020 and beyond I'm not going to provide guidance for 2020 and beyond. But your date of 2021 being breakeven I think Farftech centers overall debt position. That seems about right to us at this point in time.
Operator
Your next question comes from Lloyd Walmsley with Deutsche Bank. Your line is open.
Lloyd Wharton Walmsley -- Deutsche Bank. -- Analyst
Thanks. A couple of New Guards. When you acquired it, you said it was growing I think 55% in the first
Operator
Lloyd Walmsley, your line has gone mute. (Technical Issues) Your next question is from Stephen Ju with Credit Suisse. Your line is open.
[Technical Issues] Okay. Ladies and gentlemen, my apologies for the loss of audio there. I can move on to the next question. And the next question is from Marvin Fong with BTIG. Thank you. Your line is open.
Marvin Milton Fong -- BTIG LLC Research Division -- Analyst
Yes. Hi. Thank you for taking my questions. Just a couple of housekeeping ones. Just based on what -- did you say how the operating margin of New Guards worked out in the quarter? Was that consistent with which had previously guided to last quarter? And second, did you -- can you call out any particular noise in the third quarter with Hong Kong or Japan as some of the other
Just based on what -- did you say how the operating margin of New Guards worked out in the quarter? Was that consistent with which had previously guided to last quarter? And second, did you -- can you call out any particular noise in the third quarter with Hong Kong or Japan as some of the other luxury houses have called out? Did you see anything unusual that drove or hurt the 37% platform GMV growth? Thank you.
Elliot Jordan -- Chief Financial Officer
Hi, Marvin. Yes, so just in terms of New Guards, we're not breaking out fully the EBITDA of the brand platform as all the costs now are all combined in. But what we did see in terms of the outperformance versus expectations for the quarter that was across both the brand platform and the digital platform where both parts of the business did better than we thought they would do at the operating margin position.
Jose Neves -- Founder Co-Chair and Chief Executive Officer
Yes. So just to answer your question around China, Japan, Hong Kong etc we have not seen any material impact on trading. We continue to see growth coming from the APAC including Mainland, China, Hong Kong, Japan. Obviously, it's an unfortunate climate for physical retail in the region and our partners have committed with us in terms of the online dynamic, we're not seeing that. And we're also growing in very, very healthily in other parts of the world Latin America, Middle East, Russia with very notable strong growth. So the 37% GMV growth 40% on constant FX was really broadband [Technical Issues].
Operator
And your next question is from Lloyd Walmsley with Deutsche Bank. Your line is open.
Lloyd Wharton Walmsley -- Deutsche Bank. -- Analyst
All right. Hopefully, you guys can hear me now. And forgive me if I missed a bit of the call. But the question was on New Guards, I think it was growing 55% in the first half you said it was high 30s in 3Q. Can you give us a sense for what growth is implied in that 4Q guidance for $80 million to $90 million of GMV? And how to think about growth in New Guards going forward more broadly? And then on the digital side, how -- can you walk us through how New Guards owning it is driving GMV on the digital side? Are you benefiting at all from the ownership position plugging in more lines or more inventory or anything like that you can give us a sense on?
Elliot Jordan -- Chief Financial Officer
Yes, Lloyd. And apologies the call cut us all off there for a period of time. As I said, it's an eight-week period that we're reporting for New Guards. So, I don't want to sort of use the numbers that we had as an extrapolation for ever more. We should let the business get up and running and then we can talk to it more. But that guidance of $80 million to $90 million for Q4 that is roughly 30% to 40% year-on-year growth as well.
So, what I've guided to is what we've seen over those eight weeks and clearly that's not too dissimilar to what I guided to when we last spoke reflecting how we obviously, bringing the business on board and leaving that settle through as we start to trade the business on that side of things.
In terms of the digital platform, obviously, we haven't focused on the first-party original over those eight weeks because it's obviously just started very focused on that as we move forward because we think that that's an exciting way for us to engage with customers and clearly will drive higher contribution margins as a result.
But as Jose said earlier on, if you pull together all of the products from New Guards Group that was sold via our boutiques that purchased New Guards product before we acquired it, that third- party original product, i.e. original product created by New Guards, but bought and then sold on the platform via third-parties that was just under 5% of our overall GMV.
So, as Jose said, combined the biggest brands -- bigger than any one single brand, but still less than 5% of the overall GTV, which gives you a sense of the upside opportunity we can have when we start to really focus on the platform.
Jose Neves -- Founder Co-Chair and Chief Executive Officer
And just to complement from the qualitative size having these integrated -- having the brands integrated on the platform will allow us to start to have very exciting jobs, very exciting exclusive capsules in the future as New Guards add new concepts and new brands to the portfolio potentially some of those will be available only on Farftech and our network of connected boutiques.
And this I think will have a tremendous effect on the Farftech brand creating a very unique DNA and from a financial perspective as you can imagine the margins are tremendous. We're here talking from factory to consumer via platform that is already paid for.
So, the margins that at scale you will see flowing straight to the fixed cost base are very significant. So, that's very exciting, but we're equally excited on the halo effect that this will have on the rest of the 3P business.
Operator
Ladies and gentlemen, this does conclude the Q&A period. I will now turn it back over to Alice for any closing remarks.
Alice Ryder -- Vice President Investor Relations
Great. Well, thank you everyone for joining us today. We look forward to updating you on our Q4 progress when we speak to you in the New Year.
Operator
[Operator Closing Remarks]
Duration: 70 minutes
Call participants:
Alice Ryder -- Vice President Investor Relations
Jose Neves -- Founder Co-Chair and Chief Executive Officer
Elliot Jordan -- Chief Financial Officer
Douglas Till Anmuth -- J.P. Morgan -- Analyst
Geoffroy Thibault Antoine -- Bank of America Merrill Lynch -- Analyst
Louise Susan Singlehurst -- Goldman Sachs -- Analyst
Eric James Sheridan -- UBS -- Analyst
John Ryan Blackledge -- Cowen -- Analyst
Jason Stuart Helfstein -- Oppenheimer -- Analyst
Edward James Yruma -- KeyBanc Capital Markets -- Analyst
Irwin Bernard Boruchow -- Wells Fargo Securities -- Analyst
Lloyd Wharton Walmsley -- Deutsche Bank. -- Analyst
Marvin Milton Fong -- BTIG LLC Research Division -- Analyst
