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Farfetch Limited (NYSE:FTCH)
Q2 2020 Earnings Call
Aug 13, 2020, 4:30 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good afternoon. My name is Rob, and I'll 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] Thank you.

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

Alice Ryder -- Vice President, Investor Relations

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.

Jose Neves -- Founder, Co-Chairman and Chief Executive Officer

Thank you, Alice, and thank you all for joining us today. I am 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 six key differentiating advantages, which positioned 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 continues 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 wellbeing 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 are 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 had 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 initiatives 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 both worlds by enabling them to shop at global supply of luxury fashion from 3,500 of the best brands via net 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 guys. 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 US, which grew slower than the overall market place in Q2. We saw encouraging signs of demand picking up as growth began to accelerate at the end of the quarter.

Fourth, our unique e-concession 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 or e-concession sales on the Farfetch Marketplace as compared to Q2 2019. And we continued 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 on to 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 SS [Phonetic] 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 the 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 differentiation of the Farfetch Marketplace with consumers. Recently, our consumers have had exclusive access to exciting collections from Gucci's first circular 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 sixth 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-concession.

A fifth differentiating advantage lies in Farfetch Platform Solutions, or FPS, the enterprise solution 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 enable their continued operations even as their stores remain closed. GMV for FPS clients with a one-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 and to have enabled them to continue serving their global consumer base, while their Knightsbridge 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 few years are expected to be even more critical for brick-and-mortar luxury, as leading brands seek to optimize sales per square foot in a 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 toward 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 one-year anniversary as part of the Farfetch family. Since last August, the Farfetch and New Guards teams have been working closely to advance the three key tenets of our collective brand platform vision and strategy, and we've been thrilled with the execution to date. First, toward 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 via Farfetch Marketplace. And FPS has begun replatforming their nine brand.com sites to enable their mono-brand channels.

Additionally, we have taken proactive actions to reduce or eliminate product allocations to non-strategic 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 this mix by further leveraging New Guards unique merchandising approach in combination with the digital capabilities of the Farfetch platform.

We have also seen New Guards 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 Guards 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 key one addition to the brand portfolio, has already gained recognition as the 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 counteraction to fight for racial equality. I believe Black Lives Matter, and that Farfetch has the 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 black 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 toward creating positive change for the future.

I would also like to take a moment to outline the above 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 through our next chapter of growth.

I am delighted that Stephanie Horton, Diane Irvine, 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 exciting chapter one, 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 wisdom and keen insights to the Board over the past three 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.

Elliot Jordan -- Chief Financial Officer

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 forward. 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 tech, general and admin costs were held flat between Q1 and Q2 of 2020, while the Group added $110 million of GMV between the two quarters. These results show we are making excellent progress and 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 three business segments. First, our Digital Platform, which enables global third-party transactions across our multi-brand marketplaces, branded e-commerce solutions by 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 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. The COVID-19 related mix effect toward 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 three 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 and spending we saw this time last year. And finally, improving first-party margins at 30% versus some 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 toward first-time orders across the marketplace. Because new customers have lower conversion rate and a higher paid mix versus repeat customers. This means the demand generation cost for our first time orders run 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 brands 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 grants 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 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 six 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 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 brands, 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 toward 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 our 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.

Jose Neves -- Founder, Co-Chairman and Chief Executive Officer

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 under-penetrated 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.

We believe the visibility on when and to what extent international travel and foot traffic to luxury retailers will resume, brands and retailers are fast-tracking their digital transformation to offset the unprecedented declines in their 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've now be delighted to take your questions.

Questions and Answers:

Operator

[Operator Instructions] And your first question comes from the line of Oliver Chen from Cowen. Your line is open.

Oliver Chen -- Cowen and Company -- Analyst

Hi. Thank you. 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, 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? Thank you.

Elliot Jordan -- Chief Financial Officer

Hi, 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 is starting to reverse a little bit. So the new seasoned 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 AOV. 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 toward in more casual clothing. So, that's a positive early indication. We're also seeing the new customers continue to buy strong toward 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 I 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 is what we're seeing.

Operator

Your next question...

Jose Neves -- Founder, Co-Chairman and Chief Executive Officer

Yeah, Oliver. Sorry, I was going to answer the second part of the question. If that's OK?

Operator

Please go ahead.

Jose Neves -- Founder, Co-Chairman and Chief Executive Officer

Thank you. Hi, Oliver. Yeah. So, on the start of the future technology, I really believe the online and offline worlds are ultimately going to converge. We've been pioneers in that vision four 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 one-year ago in their number one flagship store in rue Cambon in Paris, the adoption has been absolutely exceptional both from consumers using the Chanel rue Cambon app and shop-floor [Phonetic] staff using our shop-floor app was all the connected experiences and connected products and devices that we have in store. That is extremely exciting.

And we -- in the onset of the COVID-19 crisis, we've gathered our teams and we worked very, very -- in a very, very intense way in terms of adapting the product and evolving the products 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 unveil 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 on going demonstration for new partners. The Chanel exclusivity will come to -- will lapse toward 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 these 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. Thank you.

Operator

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

Louise Singlehurst -- Goldman Sachs -- Analyst

Hi. Good evening, Jose and Elliot. Thank you so much for the color. So far, 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 NET-A-PORTER, Matches, another platforms. Can you just talk a little bit about the competitive environment what you're seeing? Obviously, you're getting much better dialogues direct with the brands, onboarding more department stores. But just in terms of that competitive landscape on why you're kind of differentiating. Obviously, we 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? Thank you.

Jose Neves -- Founder, Co-Chairman and Chief Executive Officer

Yeah. Thanks, Louise. Great talking to you. I think one year ago we were very clear in what was going to be our strategy in terms of staying competitive and looking and keeping an eye on the competition, and also on the promotional front. That strategy has been carried out in the last four quarters. And I'm very, very happy with the results. We have had less promotions than one year ago, and actually reversed the level of promotions from two years ago. So we're back to 2018 levels. And this is in spite of, as you would expect, widespread promotional activity in the phase of COVID-19 buildup of inventory. And 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 exciting examples, but there are many others like you mentioned.

I think the e-concession, 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 are delivering on what we said, what's going to be the strategy one year ago, we're doing that in a very, very strong way. And you can expect this to continue to be our stance going forward.

Operator

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

Marvin Fong -- BTIG, LLC -- Analyst

Good afternoon, and thank you very much for taking my questions. Congratulations on a great quarter. I thought I would just ask -- great numbers on the new customer acquisition. It also seems perhaps that you're 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? Thank you.

Elliot Jordan -- Chief Financial Officer

Hi, Marvin.

Jose Neves -- Founder, Co-Chairman and Chief Executive Officer

Thank you.

Elliot Jordan -- Chief Financial Officer

You go, Jose?

Jose Neves -- Founder, Co-Chairman and Chief Executive Officer

Go ahead, Elliot.

Elliot Jordan -- Chief Financial Officer

I was going to say that actually, yeah, the retention of customers has actually been strong. And so, the sort of statistics we follow around repeat purchase order of one-month, three-month basis indicates that even more recent cohort customers are staying with us. It really feels like there has been a significant behavioral shift in customers mindsets around shopping online and the frequency of online shopping seems to be quite sticky. What we are seeing -- what we had been seeing across Q1 and Q2, as we previously talked about is that, was with a different product mix versus 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 that customers are still there and they're still shopping and that's setting us up for a great platform for future growth.

The team and the demand generation aspect of the marketplace has done a fantastic job, focusing the customers on. At 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 are keeping our foot on the gas in terms of demand generation spends to 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.

Operator

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

Eric Sheridan -- UBS -- Analyst

Thanks a lot for taking the question. Hope all is well and safe as everyone on the Farfetch team. Maybe going back to the announcement you made a couple of quarters ago, when 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? Thanks so much.

Jose Neves -- Founder, Co-Chairman and Chief Executive Officer

Hi, 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 one out of the box they were able to service their Chinese customer, their Middle Eastern customer, their Russian customer, these are geographies that, as you know, are very important for that iconic department store. And there is a number of other very powerful capabilities, such as, for example, the ability for department stores, which is something that we're looking forward to do with Harrods to launch e-concessions within their environment, among other very exciting global omnichannel capability.

So, we really see these enterprise solution delivering strong results. The existing tenants on this platform is around 20 luxury brands, three of them are LVMH. As you know, they are growing very fast, faster than the Farfetch Marketplace. So, a number above 34%, which we think is a 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 these platform part of our business. So we -- this clearly demonstrates that we are an e-commerce enabler, where a platform that enables not just Farfetch as the Marketplace, but also department stores and brands own websites and apps. And I think that is very, very powerful as it is a solution that is absolutely tailored for luxury and the 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. Thank you.

Operator

Your next question comes from the line of Jason Helfstein from Oppenheimer. Your line is open.

Jason Helfstein -- Oppenheimer & Co. -- Analyst

Thanks. Two question. 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, etc. And so, maybe talk about how much that benefited to our contribution margin? And then kind of what you are 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 benefits to you from both relationship in a business with the brands coming out of COVID? Thank you.

Elliot Jordan -- Chief Financial Officer

Hey, 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 are being on search terms versus historical levels. So 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 saw 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 Jose was touching on before. We -- as Jose said, are now spending at the percentage of GMV at 2018 levels, so we reversed the step up we saw last year.

Actually, our cash promo spend is down 26% 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 ex 30 [Phonetic] event of our markdowns. We had no ex event of full-price. We had half as many free shipping days. And as a result of GMV with the promotion, actually halved year-on-year. So with the 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, where all of that promotional spend from us has been pulled back. And that's why you've seen the gross margins of the platform move 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 17% in gross margin to 30% gross margin. 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 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 given 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 to Q3 just yet. We still got six weeks of the quarter to go. And I think a lot of things can change. So I'll update you on that when we next speak.

Jose Neves -- Founder, Co-Chairman and Chief Executive Officer

And, yeah, Jason, on your second part of the question regarding brands 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 done 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 and we will have an additional opportunity now.

And that also applies to other countries around the world, the Middle East, Latin America, we're seeing very strong growth at both the marketplace from those regions. And I think what's happening is that, that paradigm shift in terms of the consumer, means that there is 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 our boutiques, brands and department stores throughout this crisis and for the future. And clearly, we can assist them globally, not just in their domestic markets, but crucially in the largest luxury 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 it's long-standing sustained dynamics in the industry.

Operator

And your last question comes from the line of Doug Anmuth from J.P. Morgan. Your line is open.

Douglas Anmuth -- J.P. Morgan -- Analyst

Great. Thanks for taking the question. Elliot, I know you talked about acceleration through 2Q, and then into the third quarter. So if you can 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? Thanks.

Elliot Jordan -- Chief Financial Officer

Hey, Doug. Yeah. We certainly saw quite rapid acceleration toward the back of the quarter, even over the last 10 days, trades have stepped up again, and that has -- quite pleasing, we're seeing it actually come out of the US market in terms of demand. So, we've talked in the past that China saw a bounce back first at the back of Q1, and Q1. We're then gain in Q2 at the start saw UK and Europe, start to pick up. They both being particularly strong throughout Q2 as has the Middle East and Latin America. But the US really was quite sluggish until quite recently where we've seen despite slight jump back up. That, therefore, added to where we're seeing the other major markets like China growing ahead of the platform, UK and Europe and Russia are growing ahead of the platform and now the US starting to boost up as well, means we are 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 six weeks of Q3, with -- in 2017 levels of GMV from new customers. And the supply of product that's coming onto the marketplace continues to be strong. Although slightly delayed a few weeks, since we've been talking about in terms of uploads versus prior years, but as it's been coming on stream in 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 adoption of online by their customers as well. So, this is really driving sustained growth. Clearly, six weeks in to be able to step us 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 staying with the platform and rolling them straight into ACCESS. We've now got 2 million customers in ACCESS, and we are looking at those customers, 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 believe developing grain behavior around buying luxury online, which means it sustain for the future. That's why I'm confident that we can be in 40% plus -- 40% to 45% for Q3.

Operator

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

Alice Ryder -- Vice President, Investor Relations

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.

Operator

[Operator Closing Remarks]

Duration: 61 minutes

Call participants:

Alice Ryder -- Vice President, Investor Relations

Jose Neves -- Founder, Co-Chairman and Chief Executive Officer

Elliot Jordan -- Chief Financial Officer

Oliver Chen -- Cowen and Company -- Analyst

Louise Singlehurst -- Goldman Sachs -- Analyst

Marvin Fong -- BTIG, LLC -- Analyst

Eric Sheridan -- UBS -- Analyst

Jason Helfstein -- Oppenheimer & Co. -- Analyst

Douglas Anmuth -- J.P. Morgan -- Analyst

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