Farfetch Limited (FTCH) Q4 2020 Earnings Call Transcript

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Farfetch Limited (FTCH -2.06%)
Q4 2020 Earnings Call
Feb 25, 2021, 4:30 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good afternoon. My name is James and I will be your conference operator today. At this time, I'd like to welcome everyone to the Farfetch Fourth Quarter and Full Year 2020 Results Conference Call. [Operator Instructions]

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

Alice Ryder -- Vice President, Investor Relations

Hello, and welcome to Farfetch's fourth quarter and full year 2020 conference call. Joining me today to discuss our results are Jose Neves, our Founder, Chairman and Chief Executive Officer; Elliot Jordan, our Chief Financial Officer and also Stephanie Phair, our Chief Customer Officer.

Before we begin, we would like to remind you that our discussions today will include forward-looking statements. Actual results could differ materially from those indicated in the forward-looking statements and forward-looking statements made today speak only to our expectations as of today. We undertake no obligation to publicly update or revise them. For a discussion of some of the important risk factors that could cause actual results to differ, please see the risk factors 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, Chairman and Chief Executive Officer

Thank you, Alice, and thank you all for joining us today. 2020 was the year in which Farfetch leads with values and successfully advanced our chapter through initiatives, executing on our mission to enable the luxury industry. And we did so through a tremendous display of our reverse capabilities, resilient operations and utmost perseverance from our more than 5,000 Farfetchers. This was particularly significant during the height of the lockdown when many boutiques and designers could not operate their physical shops, and relied on Farfetch as a significant source of revenue and also as customer demand exponentially moved online throughout 2020.

As we look toward 2021 and beyond, we are laser focused on expanding our position to be an operating system and digital enabler for the entire global luxury industry, both online and offline, a nearly $300 billion opportunity. In doing so, we will build on our progress in 2020 where our teams executed impeccably to grow full year group GMV 49% to over $3 billion, further cementing our position as the largest global online destination for luxury fashion.

This is on the back of a strong fourth quarter as we ended the year with our first $1 billion GMV quarter, attracted our largest cohort of new customers and achieved a crucial profitability milestone with our first quarter of positive assertive EBITDA. During the quarter, we also announced a transformational partnership with industry giants Alibaba, Richemont and Artemis to go after our shared vision for luxury new retail, by leveraging Farfetch's platform capabilities in combination with our collective expertise in luxury and retail technology.

As we enter 2021 we are more determined than ever to execute on our mission to be the global platform for luxury, connecting creators, curators and consumers, and we are focusing our strategic roadmap across five major themes of our Chapter 2 strategy. The first three are one, strengthening our luxury partnerships two, China three, the Luxury New Retail, our LNR platform four, the Farfetch brand.

Starting with our luxury partnerships. What we are continuing to see is a paradigm shift with brands attitudes of digital inflation moving from nice-to-have to being the number one priority. And looking across the landscape, Farfetch is uniquely positioned to be their strategic partner. Not only are we the only global luxury platform offering e-com fashion, brands preferred mode of operating with multi-brand channel, but we are continuing to offer revolutionary innovation by advancing LNR, which is what brands need right now.

In fact, our top 10 e-concession brand partners increased their participation on the marketplace as they grew their stock listings by more than 70% in Q4. And our top 100 brand partners have remained lasting partners with 100% retention over the past three years. Our enterprise clients have also expanded their businesses via our platform as we power more than 50% growth on average in 2020 in the brand.com e-commerce channels of our more mature Farfetch Platform Solutions or FPS clients, those who have been on FPS for at least one year.

Turning to China. Over the next five years, Mainland China is expected to become the largest luxury market and represent more than $100 billion of luxury spend. Our localized operations in China position us well to attract valuable Chinese customers by enabling them to shop a global supply of luxury fashion from upto 3,500 of the best brands via our app, website and social commerce channels such as WeChat, in their native language supporting their preferred payment methods and for our private clients via a local stylist who is attuned to their local styles. As a result, we are one of only a few western e-commerce companies who are succeeding in China. This is evidenced by the fact that Mainland China is our second largest market for the marketplace and has continued to be a growth driver of our global business having grown GMV faster than the overall marketplace again in 2020.

Additionally, in another demonstration of our technological and operational excellence, we are delighted to have soft launched Farfetch on a dedicated store front in Tmall Luxury Pavilion or TLP on the 5th of February ahead of schedule. Our soft launch significantly expands the selection of luxury products on Tmall. Of the 2,412 brands we have already made available, more than 90% did not previously have a presence on this channel. As a result, Tmall's consumers are now able to shop the broader selection of luxury fashion online at a time when they are unable to travel to their favorite luxury shopping destinations, and we believe these shoppers will increasingly repatriate their luxury purchases to domestic channels such as the Farfetch app or TLP.

We will continue to add more brands to the store front up until the official launch on the 3rd of March at which time we will begin deploying significant marketing resources to promote our brand with Tmall's 779 million consumers. In 2021 we will lean in and invest behind building our audience in the TLP channel as well as overall Farfetch brand awareness in China across all channels, including apps where most of our business is conducted as we believe this is the time to invest in brand awareness in the market widely recognized as the key driver of growth for the luxury industry.

On to platform and the luxury new retail vision. Farfetch is more than a marketplace. From day one we set out to be a platform for the luxury industry and over the past 13 years we have been expanding our platform capabilities to address the needs of our marketplace and branded sites as well as those of the broader luxury industry, which we envisioned would become increasingly digitized.

Our vision also encompasses offline luxury channels and since 2016 we have been building out our start of the future capabilities, which are now part of the overall FPS product suite. We will leverage these technologies into fueling our LNR strategy to address the needs of luxury businesses such as Harrods, our largest enterprise client. This time last year we launched harrods.com on FPS. Since then, our capabilities have been instrumental in enabling the iconic luxury department store to continue serving its global clientele throughout the pandemic.

We have also continued to expand our solution set for our enterprise clients. One new exciting, and we believe, unique capability I would like to highlight is FPS' recent launch of e-concessions as a service. This solution enables department stores and e-tailers to directly plug into brand stock systems and effectively become private places. Our first implementation is now powering Burberry's e-concession on harrods.com, and the results over the initial couple of months indicate that the future is delivering a meaningful lift to Burberry's performance on harrods.com.

Our enterprise grade operating system proposition powers some of the largest and most prestigious luxury brands. From CHANEL to Harrods and is endorsed by Alibaba, Richemont and Artemis to deliver digital innovation for the industry via the luxury new retail vision. This squarely positions Farfetch in the category of digital enablers and reinforces my belief that Farfetch is the platform that will enable the entire industry to try a unique vision we have to not only go after the online luxury market, but also to address the digital strategies of our enterprise partners' offline channels and the entire nearly $300 billion global luxury industry.

Clearly, we are at the start of this journey, but we are tremendously excited about luxury new retail, it's relevance today for luxury and the spectacular reaction we are getting from the luxury industry to our vision. We will continue therefore to invest in our technology and also start investing in our B2B brand and pursue enterprise sales efforts with increased organizational approaches. While we remain committed to achieving profitability for the full year of 2021, we have also earmarked a portion of our anticipated profitability to fund these growth initiatives.

Before passing to Stephanie, I'd like to update you on the important work we are doing around ESG. Our positively Farfetch initiative integrates a multitude of programs throughout the business to further our vision in a sustainable way. In 2020, a year that highlighted more than ever the importance of using our global platform to be an enabler of positive change across the industry, we made significant progress across each of our five positively Farfetch pillars. Since committing in April 2020, we have been carbon offsetting all deliveries and returns. We also significantly increased our offering of sustainable products, our Conscious edit, which now represents 1 in 10 products on the marketplace and more than 5% of 2020 group GMV.

And importantly made clear our platform is a platform for everyone through initiatives such as our Black designer edit, which helped drive 66% GMV growth for these brands on the marketplace. These are just a few examples of the positive changes we're driving. I would invite you to visit the ESG tab on our Investor Relations site at farfetchinvestors.com to access an infographic to published with some key highlights from 2020 and learn more about our longer-term aspirations, which we outline in our 2030 goals.

I will now let Stephanie walk you through our two other pillars, brand and unrivaled global customer experience. Stephanie?

Stephanie Phair -- Chief Customer Officer

Thank you, Jose. Hello, everyone. It's great to speak with you all today and give you whistle-stop overview of our Chapter 2 initiative as we redouble our efforts to build a truly customer-centric organization. To touch on our brand pillar first. As Jose summarized, we had an incredible 2020. It was a pivotal year for our brand as we introduced our new brand identity and launched a full funnel brand marketing campaign.

The campaign was focused on building brand love and an emotional connection to Farfetch by communicating what makes Farfetch unique, who we are and what we do. It has drived greater awareness and transformed our brand image with luxury consumers and brands alike. And there is still so much more to do. I could spend hours on everything we have done for the customer in 2020, but as they say an image says a thousand words. So I'd like to invite you to view a video we've made available on our IR site at farfetchinvestors.com.

We have the ambition to be the most loved brand in luxury and the first and last destination customers go to when they want to be inspired or shop for luxury. As such, in 2021, we intend to invest in initiatives to both grow our brand awareness and cement our unique positioning. Some of these initiatives include our second brand campaign going live in April in targeted cities in the U.S., China, the Middle East and the U.K., only on Farfetch, our strategy to differentiate our brand by playing to our unique strengths with an ongoing focus on our boutique proposition, on leveraging our NGG acquisition and delivering exclusive brand partnership while deploying all our capabilities from our global reach to our innovation features.

This follows our successes with brands like Gucci, Burberry and Armani Homeware in 2020, but also in fine jewelry with Chopard who made Farfetch their platform of choice to unveil their 2020 holiday collection. And already in 2021 we have executed on the launch of Richemont's new concept with Alber Elbaz's AZ factory among other partnerships and hosted the live stream of the Men's show for Dolce & Gabbana and Off-White's new season concepts, Imaginary TV. These are examples of partners who in addition to seeing Farfetch as one of their sales channels also recognize the targeted luxury audience and marketing capabilities we offer to support their own effort to grow their brands.

We continue to invest in full funnel marketing and driving efficiency in existing channels while adopting new ones, such as programmatic TV, Snapchat and Tik Tok. By leveraging our unique data capabilities, we aim to create a balance between paid efforts and cost effective owned channel by thinking in an integrated way between paid search, app downloads, display, affiliates, social and CRM channels to drive acquisition and retention. And to do this more sustainably and build brand love, we will continue to focus on delivering an unrivaled global customer experience, our fifth strategic pillar.

Starting with our private clients. Our most valuable and most engaged customer segment, which serves as our proxy for the most demanding customer and who we reference to help us streamline our efforts across the business. Here, we will continue to lean into new ways of shopping enabled by technology and accelerated by COVID such as live stream events and virtual styling appointments. We will continue to scale our fashion concierge service, which secures any item on demand whether on Farfetch or not, and provides a fantastic retention tool and unique differentiator in our overall proposition. The team regularly sells items with a value above $100,000 and on occasion, much more. You might remember our $1 million sale earlier in 2020. And importantly, we continue to invest in our stylist team, which spans 29 global cities and who build brand love by providing even more personalized service to the customer wherever they are.

In 2020 we acquired almost 2 million new customers at a lower year-on-year cost of acquisition. Our investments in marketing tech over the years and a wide data set enabled us to invest efficiently and nimbly as search volumes and market demand shifted throughout the year. While we continue to lean into customer acquisition and particularly app downloads, 2021 is a year for retaining these customers through our CRM efforts, increased personalization and our access loyalty program. This is in the context of our updated survey where 66% of customers polled state that they will do more or most of their luxury shopping online. So the opportunity is clearly there.

In 2020, we brought our consumer tech products even closer to the customer by orienting ourselves toward delivering value along the customer journey and making the Farfetch experience even more inspirational, relevant and compelling for the customer. And looking to the future with new ways of shopping. In 2021 we will create new opportunities for growth through the expansion of our pre-owned offer and launch pre-order as a way to continue offering newness to our customers and extend the full price selling window for our partners.

I am also very excited to announce that we will be laying the foundations for launching the beauty category on the marketplace in 2022. Beauty has been one of the faster growing personal luxury goods categories and represents approximately 25% of the nearly $300 billion luxury industry. We intend to enter beauty in an Only on Farfetch way, the framework I mentioned earlier. What this means is showing the customer an immersive crossover between fashion and beauty to appeal to our existing audience of fashion lovers. Secondly, leveraging our innovation capabilities to offer features such as virtual try-on for the makeup category. And finally, from a business model point of view, allowing beauty brands to launch their products on Farfetch via our e-concession model and benefit from the higher margins that entail.

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

Elliot Jordan -- Chief Financial Officer

Thank you, Stephanie, and hello, everyone. I am pleased to be sharing with you the latest financial results of the Farfetch group. In particular, the important milestone of achieving profitability at the adjusted EBITDA level for the first time in Q4, which was also our first ever $1 billion GMV quarter.

We have closed the year in a strong financial position with cash reserves of $1.6 billion. The fourth quarter of 2020 was ahead of the expectations we outlined to you on our last call with group GMV growing 43% year-on-year to $1.1 billion. Digital platform order contribution margin increasing 310 basis points year-on-year to 35.1%. Total G&A and technology expenses our operating costs are lower year-on-year as a percentage of adjusted revenue by 540 basis points. We achieved positive adjusted EBITDA of $10 million against negative $18 million one year ago, and we delivered $201 million of positive cash flow from operations across the quarter.

This completes a remarkable full year 2020 performance of group GMV growth of 49% ahead of our initial 40% to 45% growth expectation. Digital platform GMV growth of 42%, an acceleration from 40% growth in 2019, an increase in digital platform order contribution margin by 350 basis points year-on-year, expansion of the brand platform gross margins by 325 basis points year-on-year, a reduction in operating costs as a percentage of adjusted revenue by 570 basis points year-on-year, adjusted EBITDA of minus $47 million versus minus $121 million in 2019 and with $116 million of positive cash flow from operations over the year.

Looking at Q4 by business segment and starting with the digital platform, which grew GMV by 49% year-on-year to $939 million. Within this, third-party GMV grew 40% year-on-year, led by growth in Farfetch Platform Solutions and a more than doubling of brand e-concession sales on the marketplace.

The third-party take rate was 28.8%, a slight decrease year-on-year due to the increased mix of FPS and a lower proportion of higher margin media solutions revenue. Third-party gross margins were 66% versus 68% in the prior year quarter, reflecting the impact of higher fulfillment cost per order on our free shipping and free returns proposition. GMV from our first party business grew 96% year-on-year, and represents a 16% share of GMV supported by our direct-to-consumer first party original proposition at 4% of GMV. First party gross margin stepped up from 24% to 36% year-on-year due to a higher mix of full price sales and growth of our first-party original offering.

Digital Platform order contribution margin expanded 310 basis points year-on-year to 35%, driven by efficiencies and demand generation spend, which reduced from 23% of Digital Platform services revenue in Q4 2019 to 19% in Q4 2020. These efficiencies were achieved while we also acquired over 500,000 new customers in the quarter, our highest ever and maintained strong customer retention by efficiently growing non-pay channels and leveraging data to lower spend per visit on paid channels.

The work is paying off with lower customer acquisition costs year-on-year, despite increasing cost through paid media across the luxury fashion space. Higher adoption of the Farfetch App at now 55% of Marketplace GMV, payback on the Q2 2020 cohort within six months and the Q3 2020 cohort with higher three-month lifetime value than the previous 10 quarters.

We continue to focus on full price sales across the marketplace with fewer promo days in Q4 2020 as compared to 2019. This helped drive better economic for sellers on the platform. As a result we drove higher average selling prices, but fewer items per basket, which has resulted in a slightly lower marketplace average order value year-on-year at $626. The brand platform outperformed expectations with GMV and revenue of $104 million and gross profit of $52 million at a 50% gross margin. This is due to relatively strong wholesale demand for spring-summer '21 option, particularly within the Palm Angels collection. In-store revenue grew 40% year-on-year due to the opening of direct-to-consumer Off-White stores in key locations. However, as expected like-for-like sales were down approximately 20% year-on-year due to pandemic-related store closures.

Turning now to our operating costs, which were stable quarter-on-quarter at $172 million. This demonstrates the leverage we are able to achieve from our platform infrastructure, which has supported a 32% increase in GMV between Q3 and Q4. As a result, we delivered a 540 basis point reduction year-on-year in spend as a percentage of adjusted revenue from 42% in Q4 2019 to 37% in Q4 2020. This culminated in our first-ever profitable quarter with Q4 adjusted EBITDA of $10 million, representing a 2.2% adjusted EBITDA margin.

Operating loss was $223 million, primarily due to share-based payments of $119 million and depreciation and amortization of $60 million. One final point to know regarding Q4 is that we have seen a $38.65 appreciation of the Farfetch share price during the quarter. It's important to note this increase in Farfetch's valuation as it translate to a non-cash $2.1 billion revaluation on items held at fair value. This additional $5.88 loss per share is the result of revaluing the liability in place over our convertible notes and joint venture in the Middle East, which can be settled in Farfetch shares.

Before we outline guidance for the next 12 months, I wanted to remind everyone about our previously stated financial goals for the business including delivering a 30% adjusted EBITDA margin over the longer term. We expect to achieve this by capturing significant market share, delivering further expansion to our unit economics and continuing to leverage the platform infrastructure. Our 2020 results demonstrate execution in line of these goals. As a result, since our IPO year of 2018, GMV has grown from $1.4 billion to $3.2 billion primarily due to a doubling in GMV on the digital platform. Adjusted revenue is 2.9 times higher and adjusted EBITDA margin has improved from minus 19% to minus 3% and we expect to deliver positive adjusted EBITDA for the full year of 2021.

In 2021, gaining market share remains our priority as does investing into the platform to capture our longer term opportunity. As such, China will be a key focus for demand generation and brand investment as we look to increase brand awareness, build our large TLP audience and ensure Farfetch is the destination for luxury fashion in this market.

Globally, we will also invest in building our brand and continue to invest in our platform technology to deliver functionality to offer new categories such as beauty and additional enterprise-level platform functionality, particularly supporting the luxury new retail vision. We are also anticipating higher unit shipping costs and some additional expense for European digital services taxes as well as some short-term impact to first-party gross margins as a direct result of the U.K.'s withdrawal from the European Union, all of which will put pressure on our order contribution margin.

We actually see an opportunity to leverage our plan fulfillment by Farfetch infrastructure in Europe to support U.K.-based department stores, boutiques and brands, including BROWNS over the longer term. More on this in the coming quarters as we expand our European warehouse capacity and begin diverting our own first-party inventory to continental Europe.

Taking all of this into consideration for the full year of 2021, we are targeting digital platform GMV growth of 30% to 35%, which equates to two-year growth of 85% to 90%. We expect this growth to be front-end weighted. Adjusted revenue is expected to grow a little faster than digital platform GMV as we anticipate faster growth of our first-party original sales. We expect digital platform order contribution margin of 35% to 37%. Our operating costs are expected to leverage further to be between 38% to 40% of adjusted revenue, which will result in an expected adjusted EBITDA margin of 1% to 2%.

Looking at Q1 2021, we expect digital platform GMV growth of 50% to 55%, a slight year-on-year step up in digital platform order contribution margin to be between 32% to 34%, brand platform revenue to be between $95 million to $105 million at circa 48% gross margin and adjusted EBITDA to be marginally ahead of Q1 2020 at minus $19 million to minus $21 million.

Turning back over to you now Jose.

Jose Neves -- Founder, Chairman and Chief Executive Officer

Thank you, Elliot. In summary, 2020 was a landmark year where despite the unimaginable challenges encountered, we exceeded our own initial expectations in terms of driving growth and scale in the business, and meaningfully accelerated our strategic positioning as the principal platform for the luxury fashion industry. None of these would have been achieved without the dedicated efforts of all our Farfetchers and I want to thank them for living our values, day in and day out being brilliant, revolutionary and human, thinking globally amazing customers and working [Indecipherable] for the sake of the creators, curators and consumers of this industry we love to serve.

Looking forward, 2021 will be a year of leveraging the incredible achievement of Chapter 1 and the early years of Chapter 2 to enter a new phase of growth for Farfetch, which will drive significant opportunities in many years to come. We are laser focused on being the platform for this global industry helping brands and retailers in a spirit of win-win partnership to fully digitize their businesses online and offline. Whilst we remain focused on profitability for full year 2021, we will redeploy some of the gains from our continued growth behind these five main pillars. Luxury partnerships, China, luxury new retail platform, brand and customer experience as we continue to go after our Chapter 2 vision and the long-term opportunities ahead to be the platform enabling this nearly $300 billion global luxury industry.

Thank you, and we will now open the call for your questions.

Questions and Answers:

Operator

[Operator Instructions] Our first question comes from the line of Oliver Chen with Cowen. Go ahead, please. Your line is open.

Oliver Chen -- Cowen and Company -- Analyst

Hi, thank you. Regarding the environment that you're seeing now, what are you seeing with the promotional environment and what do you think may happen as stores reopen and the vaccination pathway takes hold globally? Elliot, would also just love your take on your guidance for the contribution margin for Q1 and what's underlying that in terms of what you're expecting in the marketplace? Thank you.

Jose Neves -- Founder, Chairman and Chief Executive Officer

Hi, Oliver. I'll take the first part of your question. What we're seeing in terms of promotions is actually quite encouraging. We think the market last year became more disciplined. Brands are increasing their move toward e-concessions. You've seen Kering publicly and Moncler and other brands clearly saying that the e-concession model, which is a model that we pioneered in this industry, is the model to go. Obviously, e-concession sales, where brands control pricing and promotions, they tend to be less promotional.

In our case, the strategy is clear and independently of what's been going on in the market, we said one year and a half ago that we would focus on the full brand strategy and we've had drastically less promotions, much, much less promotional days in 2020 than what we had in 2019. That is working really well as you could see royalties, in fact accelerating now in in Q1 even. And the e-concession business for example is growing at close to triple digits and we continue to see a much bigger full price mix coming through, which is fantastic news and it validates clarification of our strategy.

You asked about stores reopening, obviously we all hope that happens as soon as possible. I think what we're witnessing is a paradigm shift in this industry. This is an industry that remains, still today, very under penetrated. And it was -- online sales were 12% of luxury sales in 2019, that jumped to 23% in 2020 but it's still a low number. And McKinsey, Bain and other analysts predict this to continue to grow very fast, up to 35% in a few years time.

So we will continue to see the secular trend of consumers discovering the benefits of online shopping, and therefore we're very confident that is a sustained growth and the paradigm shift for our consumers and also for brands who have seen the need to elevate digital strategies to their number one priority. And here we are incredibly positioned as the only platform specializing in this sector and offering a fleet of capabilities both on multi-brand, mono brand, which is our own brand.com also online and offline solutions we'd start in the future.

So that's vision of luxury new retail is really what the industry needs and the reception has been spectacular to all these products that we're bringing to market including the e-concession as a service that we launched with Harrods Burberry, I think that can be revolutionary for the industry that can really accelerate brands moving very quickly to e-concessions with e-tailers and department stores alike to the benefit of all parties involved.

Operator

Our next question...

Elliot Jordan -- Chief Financial Officer

And, Oliver, Hi.

Operator

I'm sorry.

Elliot Jordan -- Chief Financial Officer

Great speaking to you. So just following up on the second part. So on the Q1 outlook, I mean we've bounced out of Q4 in a really strong position, particularly on the GMV side of things. So we're expecting to actually step up order growth year-on-year to achieve an acceleration between Q4 to Q1, 50% to 55% GMV growth particularly strong on spring-summer '21. The options that we're getting through from all marketplace participants has really seen good strong growth, and so the order contribution is underlying savings that are coming through.

As always, we're getting a better full price mix on product, which will help drive the gross margins on the first party business in particular. Obviously the first party original product, Palm Angle who in particular is very strong helping drive the direct-to-consumer gross margins. This side of outage rate to consumer offering is now actually as big as sales on the marketplace. So we're really managing to attract customers across a number of different channels there.

We're also seeing savings coming through from our use of data within marketing to drive down the cost of acquisition and use more low-cost channels. The apps' driving fantastic levels of engagement to keep costs down as well. Sort of underlying, things are in the right direction. We do have to manage though some short-term pressure. We are seeing shipping costs go up, obviously the growth of e-commerce recently is putting a lot of pressure on supply demand for global shipping and that is flowing into higher charges for us.

The team is doing an amazing job to mitigate as much of that as we possibly can working with our carriers, working with some innovative solutions around shipping routes and packaging and those sorts of things. But I do think there will be some pressure on the order contribution margin there. We're also seeing pressure because of this digital services tax that's been introduced across European countries. We are sharing the cost of that with our marketplace participants taking on a fair amount ourselves. So that will put pressure on order contribution margin.

And then lastly, as I said earlier on the U.K.'s exit from the European Union has caused some operational challenges near term but also some additional cost challenges as goods move between the U.K. and Europe. We've got a lot of product for BROWNS here in the U.K., so that has to be sold out. I think there will be a little bit of impact on gross margin but that will be short lived. As we move into Q2 and beyond, we are going to move product that's not distant for our U.K. stores and not distant for U.K. online consumers.

We're going to move that to Continental Europe and do fulfillment by Farfetch Solutions that means less cross border to and from the U.K. And we're actually looking to roll that out to as many U.K. department stores, boutiques or other brands that are also seeing the same challenges. So we're actually turning the changes there in terms of regulation into a bit of an opportunity for us as we move forward.

Operator

Our next question comes from the line of Eric Sheridan with UBS. Go ahead, please. Your line is open.

Eric Sheridan -- UBS -- Analyst

Thank you so much for taking the questions. Maybe just two-parter on the soft launch of the storefront on Tmall. I know it's early days but any learnings or things you're seeing in the market as you do that soft launch, I think would be of interest to investors. That's number one and number two, if we look out over '21 I think that soft launch is maybe earlier than we thought, so in terms of the going forward quarters any sense of what investments you still see as critical toward your success in that initiative in China and what sort of elements of contribution are baked into the full-year guidance from that initiative? Thanks.

Jose Neves -- Founder, Chairman and Chief Executive Officer

Hi, Eric. Great question. Thank you. It's, I think, an incredible milestone not just for Farfetch, but I think for the entire industry. Early next week we are going to move from soft launch to official launch. That means that the vast majority, practically all the 3,500 brands on the Farfetch platform are going to be available to Tmall's 779 million customers. 95% of these brands did not have a presence on Tmall, that includes NGG, for example, and this is very, very exciting. I have received messages from CEOs right, left and center. Very exciting.

With what is an incredible achievement with one single integration with Farfetch these brands are able to address the Chinese customer. They were already on our Farfetch Marketplace in China through our apps and WeChat mini programs, but now they open without any word from their site and without any investment, they open to the Tmall channel with almost 800 million customers. So very, very exciting. It's a channel where, as in any other channel, we have to learn. We have to learn how to utilize the platform and through demand generation these platforms are extremely sophisticated as you would imagine.

So we have to apply our data capabilities, our mass impact capabilities to these platform the same way we apply them on Google or Instagram or any other -- or WeChat that will take some time to fine tune, but we're very confident that over the longer term this will be a very, very meaningful opportunity. And meanwhile the Farfetch app, from which is the vast majority of our sales in China continues to grow from strength to strength. So really fast growth on what is our main channel there.

In terms of investments that, as Elliot said, is going to be allocated to the channel both in terms of brand awareness funnel and also performance marketing within the Alibaba platforms and even external platforms to that channel. We want to do a push also for the awareness of Farfetch in China overall because I think this is the year where the Chinese luxury customer is not yet traveling and is really flocking to the online luxury channel, so to say. And so we think this is an unmissable opportunity to capture brand awareness in that market. I think it's early days in terms of baking those elements into guidance and therefore we are going to continue to learn with that channel and update you as we go along.

Operator

Our next question comes from the line of Douglas Anmuth with J.P. Morgan. Go ahead, please. Your line is open.

Cory -- J.P. Morgan -- Analyst

Hey, thanks for the question. It's Cory on for Doug. Two from us. First, just curious what you're seeing in markets that have started to reopen and maybe how that's shaping your thinking for growth in 2021? And then you mentioned earlier on the call the beauty category launch, so just hoping to circle back to that a bit. Maybe if you could talk a bit about the opportunity that you see in the beauty category longer term and then any specifics around launch timing or brand partners that you may have lined up? Thank you.

Jose Neves -- Founder, Chairman and Chief Executive Officer

Hi, Doug. I'll take the first part of the question and then Stephanie will talk about beauty. Very, very exciting new category that we are going to launch in a big way in 2022. Look, I think this new paradigm shift that we've seen with consumers is really here to stay. This is not just a belief, right. We can go through the data points both macro and micro. So on the data points we have at Farfetch, I think the strongest data point's the cohort data.

So we added, as you know, 500,000 customers in Q2, 400,000 in Q3, over 500,000 new customers in Q4, which was the record. We now have cohort data from Q2 and it's incredible data. So the retention is very strong, we have lifetime value for those customers, which are higher than the previous 10 quarters. Those customers -- the cost of acquisition of those Q2 customers has been paid back in less than six months therefore, and the Q3 cohort of customers is, as I said, showing very strong repurchase behavior, spend per customer behavior.

We also conduct surveys. We conducted another one just recently to these new cohorts of customers. 56% of customers have confirmed they are going to shop more online or actually do most of their shopping online either more or most from now on independently of stores closing or opening, etc. And then you look at the macro picture, right. So this is a category that is still very under penetrated. It's 23%, which is a 2020 number that's '20 our room for growth. We ended the year with $3 billion in GMV in $300 billion give or take probably smaller due to COVID but say, $300 billion statistics. So that's 1% right, so it's huge, huge. We're only scratching the surface here.

We have access to markets such as China where online penetration is even lower. So we're not concerned at all with the reopening of the stores. In fact, we think it's a great opportunity. It's a great opportunity to help primarily the small -- the smaller boutiques and smaller brands to drive customers back to their shops, we're working on that as how can we support community to get back in their feet because I think in the end, everyone benefits from a healthy sector and a healthy industry.

Stephanie Phair -- Chief Customer Officer

And I'll take the question on beauty. Hi, Cory. Hi, Doug. Thanks for your question. We've always said that as a business we want to tackle the entire $300 billion personal luxury-goods category and that include beauty, which is about 25%, but it's also one of the faster-growing categories. And especially we've seen during this last year that beauty has performed particularly well as people are more comfortable buying online. So we've been thinking about this for a while and we really want to launch a full proposition end-to-end and when you think about it in a unique way this is not about just launching an adjacent category and we believe that we can truly lead in this space.

So the approach we've taken around beauty is around that framework I mentioned earlier, which is in Only on Farfetch way, which is, in other words, what are the unique selling points about Farfetch, what is our unique proposition that means that customers will come to us as a destination. And we've done extensive research around this, user research and one of the things was an immersive crossover between fashion and beauty. Our customers and Gen Z tell us that they want to shop for look. So there is investment in content and in our customer journey and proposition around how we want to present beauty.

The second one clearly is playing on our USP around innovation and there's a lot happening in the beauty space around innovation, particularly if you think about the merging of the physical and digital experiences, and how do you bring the experiences of physical beauty store online and there is so much that can be done with augmented reality. So that's something that Farfetch can really play into not just to our own technology innovations, but because we are a platform, we're also able to plug in incredible innovations from start-up partners, which really keeps us up to speed with the latest technology out there.

And then third and very importantly, I think from a partner standpoint we've had huge enthusiasm from all of the partners we currently work with and many of them have their fashion business and have a beauty proposition as well. But also beauty brands have been following what we've been able to do for the fashion industry and how we've been an enabler to the fashion industry. And so they're seeing this opportunity around partnering with Farfetch. And in particular as you think about our unique business model it's e-concessions, which I believe is unique.

Brands -- beauty brands are very used to concessions in department stores, but it's not really available online and that gives them better margins and really control of their products. So we've had a lot of enthusiasm from established beauty brands, but also a lot of conversation within the beauty brands, which as everyone knows is incredibly important for the young customers. So it's a multi-year roadmap. Beauty is incredibly specific. It requires investment into our architecture, our platform, developing features and specific content but we're excited about this and we will keep you posted.

Operator

Our next question comes from the line of Louise Singlehurst with Goldman Sachs. Go ahead, please. Your line is open.

Louise Singlehurst -- Goldman Sachs -- Analyst

Hi. Good evening, everyone. Three questions for me, if I may. Thank you very much. Firstly just on e-concessions, it definitely seem to be the increasing preferred dialog for brands and online. There is also been some chatter in the industry about e-tailers considering type of model as well. So the question really is for Jose on thoughts around -- I mean, Farfetch clearly is the leader but is there a view that the competitive landscape must change a little bit Farfetch being the global player with lots of pool of players across regions. And also following on from that, do you think that there is still quite a big change to happen in the traditional kind of wholesale model?

And then a quick follow-up for Stephanie, if I may, on beauty just also on the topic of e-concessions. Just to say at this point on the beauty strategy is that purely for the e-concession direct with the brand or would that also be a multi-brand boutique type arrangement that sounds super exciting. And then my second question, if I may, just if you can tell us anything about what you saw and the surprises maybe in the cohort in 2020? Any changes in terms of average age, demographic, regional changes that may have been a surprise to you.

And then my last question, Elliot. If I may, just in terms of the guidance, obviously there is a lot of uncertainty and lack of visibility for everybody. But given, I wonder if you can just help us understand the breakdown of some of the piece, you talked also about the contribution margin, but I wonder if there's anything you can help us understand about customer stickiness that you're seeing across the cohort, expectations around returns, levels on the take rates? Thank you very much.

Jose Neves -- Founder, Chairman and Chief Executive Officer

Hi, Louise. I'll take the first question and then Stephanie can take the other two. So I think it's really important to clarify how our e-concessions work and how some of the other deals that you've seen in the market are very early days work because that's a fundamental difference there. So when the brands -- so for example, when Harrods -- let's view of Harrods and Burberry because I can talk to the e-concessions as a service.

When we connected the Burberry e-concession on Harrods, that gave Harrods access to thousands and thousands of Burberry products, drop shipped directly from numerous Burberry integrations. So we have many, I don't know, it's actually probably 20 or more Burberry flagship stores, Burberry distribution centers in Europe, in U.S., in Japan, etc. of Burberry, e-commerce fulfillment centers. This is something that took us six years to build, right. So we have 550 e-concessions. It's now over half of the supply available on Farfetch, it's coming directly from multiple integration, dozens sometimes of integrations with every single brand. And what happens is that we switch this on and suddenly you see a meaningful bridge because the range is expanded right.

Now this is what I call a true e-concession, then I don't know what to call the others. Maybe let's call them, I don't pseudo e-concessions. You're better than me at picking the names, which are simply a financial arrangements where the brands says, I will ship to you the 300 SKUs that you're getting every season. I want the full margin. You ship me back, what you don't sell. So it's a sale or return deal. This is -- this doesn't change the game at all for the consumers. So consumer still sees the same 300 SKUs, nothing changes. The retailer has a lower margin, the brand benefits by having a higher margin and control over price initializing.

So we feel that while it is good for the brand, it's not advantageous and fair for the retailer. It could be in terms of stock risk, etc. but to the consumer it doesn't change absolutely anything. And I think this is where we come in with a fundamentally different proposition to brands. So brands like Burberry today, for example, can go to all their department stores, all their retailers and say use this integration because this integration gives you access to 7,000 SKUs with one single integration.

And I think this is very exciting. This can be revolutionary and accelerate the brands move to e-concessions and be a win-win proposition for the retailer who expands the range for the consumer who sees an expanded range and many unique products not previously available. And for the brand that doesn't need to take risks and allocate parts of stock across dozens of retailers and department stores.

So we're very, very excited. We think we have a unique model. Took us six years and hundreds of millions of dollars of technology investment that we do every year, as you know. We now have 550 e-concessions ready to go, including all the top -- I think 97% of the top 30, 40 brands on our platform are on e-concessions with us. And so we see this as very exciting developments including in beauty but I'll pass the baton to especially on that one.

Stephanie Phair -- Chief Customer Officer

Yes. Hi, Louise. Nice to speak again. So on your question about beauty. Yes. The idea is to operate as mainly as a 3P e-concession business as we have done with fashion on the place and market those are the main competitions we're having with the brands, the large ones and the Indie brands. But the idea is similar again to how we've done it with fashion. Complement that with 1P to really offer unique product and really be able to be nimble and react to customer demands and we're planning to do that two rounds and also think about some of the 1P original opportunities we might have around beauty. So we're really thinking about it in a similar way from -- in that respect. But the way we think about it is that really we can enable an industry. So we can enable brands, multi-label and we've really had a good response from the industry.

On your second question about customers. It's been -- 2020 has been really interesting and incredible year in terms of the new customer acquisition. We've acquired nearly 2 million new customers, quarter 4 was 500,000 new customers. So you can imagine that we've been monitoring these customer cohorts very closely to try and understand where they're coming from and importantly, how can we keep them and retain them through our platform. So we've done pre-brand campaign surveys, post-brand campaign surveys. And we're finding a few interesting data points for you.

We're finding that quite a few of them are new to online and they're coming, for example, from department stores and this I think speaks to the structural change that we're seeing in the industry where people are moving from offline to online. So what we found supports that. We're also finding that we're acquiring a higher proportion of these new customers to our full price business and this is in line with our strategy, which Elliot and Jose had talked earlier about focusing on full price. But what this means is that this is a higher quality customer and we've seen increased repurchase rates. And in the same vein we're seeing more customers acquired through super brands and so what we mean is the absolute top tier of brands, and again those customers are higher quality customers and have a better repurchase rate.

So we've seen our one month, three month and six month repurchase rates are higher from 2019 to 2020. And then in terms of deals we've seen, as you might expect, huge success in China with the repatriation of spend but we've also seen success in emerging markets where customers have discovered us. And so markets such as Mexico, for example, where we have acquired lots of new customers. So we really have a lot of pockets of opportunity for 2021 not only to continue doing what we're doing and acquire new customers because COVID was only an accelerant but everything we were doing has contributed to that but also retaining this huge base of customers.

Elliot Jordan -- Chief Financial Officer

And then, Louise, on guidance, Elliot here, again, obviously we think 2021 is super exciting year for Farfetch. As you point out, there is a lot of moving parts and what we've done in setting the guidance is really focus our goals on two things. The first is delivering sustainable levels of GMV growth, and the second is ensuring we grow ahead of the market and capture market share. And we believe the 30% to 35% year-on-year growth ticks both of those boxes. We obviously are good at seizing opportunities. You saw last year we set out initially to deliver $2.5 billion and we stepped up our growth to deliver $2.75 billion on the marketplace -- sort of the marketplace via the overall digital platform and growing customers at the same time.

So if we see opportunities, we'll obviously chase those opportunities down. But I think it's worth pointing out, as we head into Q2, especially will be annualizing the launch of Harrods, so FPS becomes more like-for-like from Q2 onwards as opposed to incremental growth over the last nine months so far. We also have on the marketplace an annualization of the very high numbers of new customers that we saw from Q2 onwards.

So we are expecting the growth will be front-end weighted as we just said earlier on, at 50% to 55% GMV growth for the first quarter. And then as we start to annualize those impacts from last year, what I think you'll see is we're going to skew growth back toward more retain customers, including those customers we acquired in the last 12 months. Obviously, last year we were skewing growth toward those new customers, this year we're going to see growth skew back toward customer retention from our customer base previous to 2020 and those acquired in the last year. On returns, I'm not seeing any significant movement either way to be totally honest with you, I think that's fairly neutral for the year ahead. So it's all about order growth on the marketplace to drive what we've seen in terms of the GMV year-on-year.

In terms of take rate. A couple of things to point out here. First of all the take rate includes all revenue across the digital platform from all third parties. On the marketplace we're actually seeing commissions go up year-on-year. So despite that some increasing brand e-concession mix, underlying commissions are actually going up. We've seen 100% retention of the top 100 marketplace participants at the same time. So we are clearly seeing value that's being created. But as FPS has grown over the last 12 months, we've seen a lower take rate start to flow through. But actually, at the end of the day it's order contribution that matters because FPS drives higher order contribution and you have seen that increase over the last year up 310 basis points in the last quarter and ultimately that's what we're focusing on.

So guidance for this year is good sustainable growth, market share gains, improving order contribution, driving through the leverage of the fixed cost base, allowing us to invest in the brands, into China and to the platform and then deliver 1% to 2% EBITDA margins, which will be a fantastic result first year of profitability.

Operator

And we have time for one last question. Our final question comes from the line of Ed Yruma from KeyBanc Capital Markets. Go ahead, please. Your line is open.

Edward Yruma -- KeyBanc Capital Markets -- Analyst

Hey, good evening, guys. Just two quick ones from me. I guess first on China, how will it be reported on the P&L going forward, will you segregate what the JV is doing versus Farfetch individually? And then just as a broader question, I know it's been a strategy over the past year plus to really reduce demand generation expense you guys have done a great job with that. Are these kind of [Technical Issues] we're thinking about longer term? Thank you.

Elliot Jordan -- Chief Financial Officer

I didn't quite catch your second question, actually. So maybe we can come back to what that was. On the first question quite a short answer no we won't be breaking out China between the app or Farfetch or the new JV, it will be all reported as our digital platform GMV as all other JVs that we have and channels. I missed your second question, actually if you're still there to repeat.

Edward Yruma -- KeyBanc Capital Markets -- Analyst

Yeah, the bigger picture question you guys have done a great job at reducing demand generation expense. I know you kind of shifted a little bit into free shipping. I guess, kind of looking back on '21's levels are these sustainable levels going forward or do you think you'll need to reinvest in that line? Thank you.

Elliot Jordan -- Chief Financial Officer

The -- yeah, there's two things happening here that are really driving underlying reductions in demand generation. The first is our use of data we've got more data in terms of luxury participants now than anybody else. And the marketing team have built a fantastic engine to be able to use that data to really target customers and shift them away from high cost channels toward low cost channels and retain via the app or through organic or direct traffic. And also allow us to moderate our spend on search engine marketing so that we can reduce wastage in that space and really sort of focus on options where we know we're going to get more conversion because the data is telling us we've got customers here that look like customers that will shop with us.

So over the -- that's an inherent saving that we believe we'll carry on moving forward. And then the second is everything that Stephanie has been talking about in regard to the investment around the brand and our engagement with customers and in only on Farfetch way whereby we have so many unique opportunity to speak to customers from our boutiques, our brands, the curation that we have our editorial content that will allow us to be able to continue to engage with customers, particularly on the app again, which was 55% of our GMV in the last quarter and that will allow us to continue to lower that demand generation spend, you saw a significant reduction year-on-year in Q4.

Now, I think as we touched on around China. We do want to leverage the asset and we do want to lean into the new opportunities. So we will redeploy some of that short term back into China, but over the longer term as we push order contribution up, we will see demand generation expense come down.

Alice Ryder -- Vice President, Investor Relations

Terrific. Well, I think that brings us to the end of the call. Thank you all for joining us. We look forward to updating you on our next quarterly earnings call in the coming months. Have a good night.

Operator

[Operator Closing Remarks]

Duration: 72 minutes

Call participants:

Alice Ryder -- Vice President, Investor Relations

Jose Neves -- Founder, Chairman and Chief Executive Officer

Stephanie Phair -- Chief Customer Officer

Elliot Jordan -- Chief Financial Officer

Oliver Chen -- Cowen and Company -- Analyst

Eric Sheridan -- UBS -- Analyst

Cory -- J.P. Morgan -- Analyst

Louise Singlehurst -- Goldman Sachs -- Analyst

Edward Yruma -- KeyBanc Capital Markets -- Analyst

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