Farfetch Limited (FTCH) Q2 2021 Earnings Call Transcript

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Farfetch Limited (FTCH 3.45%)
Q2 2021 Earnings Call
Aug 19, 2021, 4:30 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good afternoon. My name is Erica and I will be your conference operator today. At this time, I would like to welcome everyone to the Farfetch Second Quarter2021 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 2021 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 Stephanie Phair, our Chief Customer Officer.

Before we begin, we would like to remind you that our discussions today will include forward-looking statements. Actual results could differ materially from those indicated in the forward-looking statements and forward-looking statements made today speak only to our expectations as of today. We undertake no obligation to publicly update or revise them. For a discussion of some of the important risk factors that could cause actual results to differ, please see the Risk Factors section of our Form 20-F filed with the SEC on March 4, 2021. In addition, we will refer to certain financial measures not reported in accordance with IFRS on this call. You can find reconciliations of these non-IFRS financial measures to the IFRS financial measures in our earnings press release and the slide presentation, both of which are available on our website at farfetch.investors.com.

And now, I'd like to turn the call over to Jose.

Jose Neves -- Founder, Chairman & Chief Executive Officer

Thank you, Alice, and thank you all for joining us today. I am delighted to speak with you about our results in Q2, which is the first quarter that fully laps the effects of store closures and travel restrictions brought on by the COVID-19 pandemic. Reflecting on the past year, I am very enthused by the extraordinary resilience of the luxury industry. Overall, luxury seeing very strong demand, with many brands reporting sales in excess of their pre-pandemic levels. This suggests the industry is returning to a secular growth trend, which is even more remarkable given the restrictions that still remain in place globally.

During the past year, the industry has also taken the opportunity to rebalance an overexposure to the wholesale channel toward curtailing, promotional and markdown activity. And I take pride in the fact that Farfetch actively partnered with brands to enable their migration to direct-to-consumer or DTC channels for greater control over their online sales including with respect to pricing.

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

This in combination with another key result this quarter demonstrates significant strength. Full prices sales on our marketplace grew 90% year-on-year, which allowed us to shrink the markdown activity in our business by double digits and still achieve our growth targets despite the reopening of physical stores and on a three-year basis, full price sales grew 140%. The reason why this is so important is that going forward this stronger full price customer cohorts which have grown on a two-year stack at incredible pace will underlie our future growth.

On the back of strong performance by the marketplace, as well as our other business units across the group, Q2 GMV grew 40% year-on-year, exceeding $1 billion for the second time in the past three quarters and more than doubling as compared to Q2 2019. This year we also marked the second anniversary of our New Guards acquisition. One of the core strategies behind the transaction was to create a pipeline of original content and exclusive collabs that will drive brand and a significant halo effect to increase the engagement of our global customers around the Farfetch brands, and ultimately, drive more organic traffic. I'm pleased to say we had succeeded in spades. New Guards has propelled brands like Off-White and Palm Angels to become top 10 brands on the marketplace by GMV in Q2 and these brands collabs draw customers to the Farfetch platform with little to no marketing extends.

The strong momentum behind New Guards brands is also evident in the acceleration of high generating capital they are producing. Recent collabs have included Off-White Lemonade Nike Air Force 1s, Palm Angels collabs with Missoni and [Indecipherable], and Ambush's collabs with Nike Dunk, Gentle Monster eyewear, and even a first ever redesign of Moet & Chandon champagne bottle.

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

Looking forward we see tremendous opportunity for continued growth from New Guards. We plan to rent collabs and have more than 60 in total brands for 2021. We will also look to continue expanding our brands into new categories such as beauty, to enlarge our distribution with presences on Tmall and further enhance the shopping experiences by digitally connecting our directly operated stores by our Luxury New Retail or LNR capabilities. We also have plans to launch and grow many more brands, including the first brand jointly created by Farfetch and New Guards called there was one view to launch later this quarter. Born from our marketplace data insights, there was one is a sustainable line of luxury wardrobe classics designed initially for women and offering a high quality to price ratio, which will be exclusively offered on the Farfetch digital platform.

Finally, I'd also like to take you on our 2021 strategic pillars, which I'm pleased to share are all progressing extremely well. Starting with brand partnerships, our execution on prioritizing full price and reducing promotions over the last two years has led to strong alignment with the industry players and our relationships have ever been better. Top 10 third-party e-concession brands expanded available stock units more than 70% year-over-year and saw more than doubling of sales over the same period. Our commercial relationships have also matured to a level where we are now seen as an essential strategic partner who provides valuable insights. As a result, now that brands are beginning to reengage in advertising after taking a hiatus during the pandemic. They are also engaging in opportunities to tap into our last pure-play luxury audience to achieve their marketing objectives. This has translated into our highest second quarter of media solutions revenue in Q2, which Stephanie will discuss in more detail.

Moving to LNR and FPS, we continue to have conversations with multiple large enterprise customers on a broad spectrum of capabilities from global e-commerce to logistics-as-a-service and LNR among others and continue to see existing partners take on additional FPS services. We have also made strides in cementing our Connected Retail strategy, where we have already equipped CHANEL and our brands boutiques with our retail store technologies. Just this week, we also kicked off an exciting pilot of our newest solution, which expands the capabilities we have implemented in our own ground store to our community of third-party retailers on the marketplace, our licensed platform tenants.

Farfetch Connected Retail will leverage the Farfetch app to act as an interface between our 3 million plus marketplace consumers and participating Farfetch Retail product around the world. Using our Farfetch app, consumers will be able to be notified if their wish list item is available for trial or purchase in a nearby store, identify themselves as a Farfetch customer when shopping at Farfetch boutiques and pay for their purchases via our app among other functionalities.

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

Moving to China, in Q2, our China team continued to drive strong performance and GMV growth accelerated and continues to grow faster than the overall marketplace. The fashion authority we have built among high end luxury consumers in China has drawn brands to see Farfetch as media partner in China, as well as globally.

We have engaged our private clients in experiences with brands such as Burberry and creating localized and culturally relevant content and campaigns for Loro Piana and Armani Beauty to name a few. And we're thrilled to expand our relationship with Harrods who recently signed a multiyear partnership with CuriosityChina, focused on enhancing their marketing strategy in China and powering their communications with consumers across multiple channels, online and offline. I believe these are early signs that Farfetch China will not only be a unique DTC channel for many luxury brands, but it will also be a very powerful marketing vehicle in these crucial markets. This once again demonstrates the unique strengths and capabilities we have in that market.

Q2 was also our first full quarter of rating our storefront on Tmall's Luxury Pavilion, TLP. And we are very pleased by the month-over-month growth we have achieved. We continue to hone our learnings on the Tmall platform and improve our merchandising strategies. These have contributed to strong customer engagement across our very differentiated range of available luxury brands on TLP, 90% of which are exclusive to Farfetch on Tmall, as well as to building affinity for the Farfetch brand as our Tmall fanbase grew to 250,000 followers. We continue to remain very excited about serving the luxury shopping demands of Chinese consumers. Our arrival brand partnerships and global supply decision as well, particularly in light of recent guidance, which indicates travel restrictions may continue for another year, which we believe will further drive repatriation of luxury demand within China.

I will now let Stephanie update you on the remaining two strategic pillars. Stephanie?

Stephanie Phair -- Chief Customer Officer

Thank you, Jose. Hello, everyone. I'm pleased to update you on the progress we have made toward our brands an unrivaled customer experience initiatives, both of which have supported the focus we have put on increasing full price sales. First, with respect to brand, our brand initiatives involve the holistic approach aimed at building an emotional connection to the Farfetch brand and ultimately driving more organic traffic and loyalty. Over the past two years, our brand campaigns rebranding Farfetch and focusing on our marketplace experience upgrading our content and editorial and integrating our brand ethos throughout the end-to-end customer journey has strongly contributed to delivering on our objectives.

Following our second full funnel brand marketing campaign in four key luxury markets, The New York metro area, London, Dubai and China in April. Our Q2 brand tracker survey noted year-over-year improvement in brand awareness with particular upticks in the U.S. and U.K. and we believe this is translating into lower cost traffic as our mix of page visits in Q2 declined in favor of low cost or free channels, such as direct app notifications, email and referrals.

Importantly, we have further enhanced our already highly attractive luxury audience, similar to Q2 2020, more than 500,000 new customers shopped on Farfetch in Q2 2021, but we saw a double-digit increase in the average spend per customer from this year's cohort compared to the prior year cohort. This is an indication of the quality of the customers we are acquiring for buying into full price items at a higher average sales price. In addition, customer engagement has strengthened. Retention rates continued to improve year-on-year in Q2 and here on year average order frequency increased for the first time since the pandemic. Another indication of the traction behind the Farfetch brand is improving wallet share gains.

New members to the access loyalty program in the first half of 2021 have upgraded tiers at a higher one month rate and new customers added to access in the first half of 2020. As our base has increased and our efforts on retention are showing results, we have seen the mix of GMV from existing customers increased in each of the past four quarters, which together with our improvement in brand awareness explains the increase in mix from unpaid channels as we lean into our owned low cost channels.

And specifically among private clients,the results we have seen from our most valuable care customers, as their fashion needs shift going out attire evidence of the strong connections they have with Farfetch. In Q2, GMV from private clients grew significantly faster than the market place and private clients delivered a higher full price mix as compared to other access tier. As an additional element to our full price strategy, I am very pleased to announce another customer initiative with the launch of pre-order later this month, which will not only continue to generate new units for our customers to early access, but also enhance our strategic growth with brand partners by extending their full price selling window. In and only on Farfetch way, our pre-order offering will be open to all and already counts many brands we have signed up to this new proposition.

On our unrivaled global customer experience pillar. A key component and outcome as our brand-building effort has been to increase engagement from brand partners driving more compelling partnership, exclusive product launches for our customers and ultimately higher media solutions revenue on the marketplace as we recorded our highest ever media solutions revenue this quarter. Many of our brand partnerships during the quarter focused on innovation, which highlights the fact that brands appreciate Farfetch not only for our highly relevant audience, but also for the innovative technologies that we are able to leverage to deliver differentiated experiences and drive engagement. Campaigns range from Burberry fully immersive 3D and AR experience featuring the launch of their Olympia bag to Gucci imagine future campaign with a unique fitting room experience and supplied virtual try on launch campaign for their happy sport watch.

In June, the marketplace also featured the content campaign highlighting our positively Farfetch EFG initiatives putting a focus on our conscious brands and including Farfetch's donate, which we were thrilled to extend to our U.S. customers in partnership with ThredUp. The innovative content generated by our brand partnerships helps build audience, which is even more critical in light of recently implemented privacy measures such as IDSA. We believe our highly attractive luxury audience makes Farfetch an even more strategic marketing partner for brands as they seek to market on channels that have targeted audiences and access to first-party data. As a market on digital platforms ourselves, we are not immune from the impact of these policy changes, which are currently headwinds. That said, we have been pleased to see what we believe are higher than average operating rates by our customers as compared to other digital businesses to date. Not only is this encouraging from a marketing standpoint longer term, but it also suggests that our increased efforts around personalization, including [Phonetic] per site cons, which drove twice the mix of sales in Q2 as compared to a year ago have been successful in building a high level of trust and relevance with our customers such that they are willing to share their data.

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

Elliot Jordan -- Chief Financial Officer

Thank you. Stephanie and hello everyone. I'm delighted to be reporting a strong financial performance across our second quarter of 2021 with 40% growth in GMV, 43% growth in revenue and adjusted EBITDA of minus $23.5 million versus minus $25.2 million last year. These results are in line with our stated expectations demonstrate our platform is thriving as physical stores have reopened and importantly, with an increase of 350 basis points and adjusted EBITDA margin year-on-year positions us well to deliver our goal of achieving our first full year of adjusted EBITDA profitability in 2021. GMV for Q2 was a touch above $1 billion more than twice the $488 million of GMV achieved two years ago in Q3 2019. As I mentioned on previous earnings calls, we have been doubling the size of the business every two years. Our revenue growth outpaced GMV growth and with the exception of the impact from industry wide increases in logistics and global shipping costs, our margins are improving. In particular, we have delivered strong growth in revenue from our high margin media solutions business, which has also supported a higher third party take rate of 30.3%. Demand generation is more efficient year-over-year within the digital platform. We have achieved a significantly higher full price mix which has driven a higher gross margin across our first party and third-party original businesses.

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

I want to dive into the performance of the digital platform, which is driving the strong growth position, with GMV growth of 40% year-on-year and 89% on a two-year basis. I'm particularly pleased with this performance as the Farfetch Marketplace, which makes up the vast majority of GMV on the digital platform was growing at essentially the same level as it did during Q1 and growing faster in the quarter than it did across all of 2020, even as physical stores have begun to reopen. The differential in digital platform growth rates between Q1 and Q2 was driven by the full annualization of FPS clients.

Trade of full price is particularly strong up 90% year-over-year, markdown and promotional lead GMV took another step back in terms of contribution to GMV growth, driving up the full price mix year-over-year. This is particularly pronounced in the final six weeks of the quarter, as actual levels of promotion and date of markdown were significantly lower than anticipated, as our sellers focused on maximizing full price sales and margin from their spring/summer 21 collections and building their autumn/winter 2021 new season campaigns.

In terms of demand generation, despite having to navigate increasing cost pressure across paid digital marketing channels, as the space has become more competitive. The previous investments we have made into our marketing tech data capabilities and the impact of our highly relevant editorial to improve customer engagement, help drive efficiency and demand generation spend of 100 basis points year-on-year as a percentage of platform services revenue. We continue to see payback of new customer cohorts within six months of acquisition with the Q4 2020 cohort achieving a lifetime value over CAC ratio higher than the equivalent 2019 cohort.

The other major business within the digital platform is Farfetch platform solutions, which leverages our platform to deliver bespoke and modular B2B SaaS solutions for enterprise clients. This partner analyzing new client additions from earlier in 2020, FPS is positively contributing to the growth of the digital platform with like-for-like GMV growth here of the overall 40% digital platform GMV growth in Q2.

Before concluding on the segment, I want to turn to margin, digital platform gross profit margin was down 200 basis points to 53% and digital platform order contribution margin was 90 basis points lower at 34.1%. Both measures were impacted by an increase in shipping and duties costs, which grew over 50% year-over-year, in part due to higher cost per parcel from our logistics partners, additional duties due to the U.K. exit from the European Union and a slight year-over-year increase in the returns rate,

We decided not to pass all of these incremental costs onto our customers. This is reflected in the P&L with fulfillment revenue up only 48% year-over-year versus a 51% year-over-year increase in cost of revenue. While we expect these headwinds to continue into q3, we have taken action to mitigate these and other costs in the medium-term. In particular, we are in the process of shifting our principal stock holding facility for our first-party business from the U.K. to the Netherlands and further growing the third-party stock available across our globally distributed fulfillment by Farfetch warehousing facilities to reduce costs for cross-border shipping and return. In addition, we have initiated plans to begin sharing some of the digital service tax within cost of revenue with our sellers.

Moving on to the brand platform, which represents New Guards wholesale revenue from our strategic retail partners. This segment delivered GMV of $73 million, a 10% year-on-year increase at a 47% gross profit margin versus 41.8% last year. New Guards business overall grew substantially ahead of us with over 100% growth year-on-year in the digital platform as we have shifted distribution in favor of direct-to-consumer channels. Revenue for our third segment in-store was $18 million, 4.5 times higher than Q2 2020 due to COVID-19 store closures in 2020 and the opening of new stores for New Guards brands throughout the last year. Excluding these openings in-store revenue increased 147% year-on-year.

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

We posted a gain on items held at fair value at $246 million, which means we have delivered our profit after-tax of $88 million and an earnings per share of $0.24 per share. Our adjusted EPS is minus $0.17 per share versus minus $0.20 per share last year. We closed the quarter with strong liquidity of over $1 billion. Liquidity was boosted earlier this month as we completed the formation of our China joint venture, which was announced as part of our Luxury New Retail strategic initiative in November 2020. As part of this transaction, Alibaba and Richemont each invested $250 million in exchange for 12.5% each in the newly formed joint venture. Including the proceeds of this investment, our liquidity would have been $1.65 billion at quarter end.

Looking ahead to Q3, we expect GMV growth overall to be 30% to 35% year-on-year, with circa 100% growth in-store and circa 45% growth in the brand platform. Within the digital platform, we expect GMV to grow circa 30% year-over-year, which represents a sequential acceleration to more than 100% growth on a two-year basis. Our digital platform order contribution margin is expected to be circa 30% of digital platform services revenue as we continue to work through the near-term headwinds we've seen year-to-date.

And finally, we expect to deliver positive adjusted EBITDA of $30 million. These results are a step toward achieving our previously stated full year targets of strong GMV growth between 35% to 40% year-on-year and 1% to 2% margin at the adjusted EBITDA level. We are delivering on our long-term strategy of sustainable growth and strong market share capture.

Jose?

Jose Neves -- Founder, Chairman & Chief Executive Officer

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

Moreover, we had many reasons to be very positive going forward, now that the industry is transitioning to normality. I believe that Farfetch flywheel dynamics we always talked about always play in full force. Our unique luxury brand e-concessions are growing extremely fast with the top 10 brands doubling their sales year-on-year. Our own brand is stronger and attracting more marketing partnerships and this gives a boost in elevated supply, all of which is driving growth of 90% in full price sales year-on-year and 140% over two years, creating layers of strong cohorts for many quarters to come.

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

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

Questions and Answers:

Operator

Your first question comes from the line of Doug Anmuth with J.P. Morgan.

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

Great. Thanks for taking the questions. Elliot, just wanted to ask first about China. I think, perhaps Jose commented that China GMV had accelerated. Just curious is that driven by improvements at the TLP store and any more details around the monthly progress that you're making there? Also just curious if you're seeing any impact or just how to think about impact around increased regulation in China? So that's one question and then perhaps for Jose, hoping you might have some thoughts to share just around Off-White following the LVMH majority acquisition and how did that play into your thinking with Palm Angels and going to 100% ownership there in the operating company? Thanks.

Jose Neves -- Founder, Chairman & Chief Executive Officer

Hi Doug. I think I'll take both questions actually.

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

Okay.

Jose Neves -- Founder, Chairman & Chief Executive Officer

Starting with finance, we're really, really pleased with the performance in China. The growth has accelerated and America continues to grow faster than the marketplace. It's driven both by the car and I wouldn't call the business, the business that we built in China were CPS, this is our app business, which is still the vast majority of our business in China that's growing very, very fast. And of course, we now have a new layer on top of that of Tmall. So we're growing very fast on both our app and on their channel.

And I think it's a tremendous opportunity -- continues to be a tremendous opportunity where the government has issued guidance that international travel is probably going to be very limited, very restricted for another year at least. So that's going to drive a continuous repatriation of luxury spent within China. I think we're uniquely positioned. We're probably the only Western company with the infrastructure, the team, the multiple partnerships and channels to really enable the industry to penetrate the China luxury market in a digital way.

And in fact, I think, that role of being the gateway to China for many, many brands will continue to be of great importance. So I think the news -- performance is very strong and great news on Tmall and all those channels, so very, very bullish on China in fact. And in terms of, Off-White, following the LVMH acquisition, so your second question. I think, first of all, huge congrats to Virgil and invite to the NGG team, right? I mean, this is a brand that was created by Virgil with Andrea for the NGG team from scratch, right? So the fact that this brand goes from strength-to-strength and end up with this massive several approval is a fantastic message to the creative community out there that we really have a brand platform that can build from scratch incredible brands.

And you touched on Palm Angels that's another great example for brand, again, built from zero, with a great talent Francesco Ragazzi and on the same track as Off-White. If we look at the trajectory, we've seen the same number, the same patterns and we're very, very supportive of the expansion of that brand. It started like Off-White with men's wear, we then expanded case with women wear, kids, eyewear and in the case of appliance we expanded to home wear and beauty that is now available as a platform for other brands.

So this is fantastic, we're seeing, of course, other brands in the portfolio of NGG growing very fast as well and we're creating new brand. We just announced a new only on Farfetch brand so there was one, so that will be a digital native brand full created by Farfetch and NGG.

So, that's really positive in terms of the message to the creative community and an actually a chance of deepening of our relationships with LVMH. We have so many great ties with LVMH. We have many of our brands with e-concession such as [inaudible] doing extremely well, FPS clients, CuriosityChina collaboration with maximum losses on events with -- within China as well.

And now these opportunities they have to see how proficient we are in operating digital brands that have a very strong digital component, right, because the audience for these brands is more of the millennial generation type of it. So we think it's NGG two years anniversary. So it's a big reason to celebrate is this acquisition and the contributions it's bringing to the group.

Operator

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

Oliver Chen -- Cowen -- Analyst

Hi, Jose. On Luxury, Pavilion and Tmall, you mentioned learnings and merchandise strategies, what's ahead there in terms of things that you're and catalyst that you are focused on? I would also love your thoughts ahead on Farfetch platforms solution, as you I think about the total addressable market with FPS and also what's on your mind for the pipeline there? And then, Elliott, with 2Q GMV growth that was attracted but it came in at the lower end of the guidance range, if you could help brief us on how the regions look in terms of how it came out relative to your current guidance? Thank you.

Jose Neves -- Founder, Chairman & Chief Executive Officer

Yeah. In terms of Tmall, it's very, very exciting what we are seeing. Very strong engagement. We now have 250,000 fans on Tmall and our store. Returning to Tmall with a very differentiated offering, over 90% of the -- over 3,000 current brands we have on Tmall, 90% of those have exclusive presence by Farfetch on that platform.

That is very compelling offering for the Chinese customer on that platform. In fact we are seeing many brands that are not on the top 20 list on Farfetch ranking very high on in terms of our sales on Tmall. So success also in a very complimentary demographic, so Tier 2, Tier 3 city customers -- are customers on our own app, they tend to be more of the caterpillar when fashion needs the customers and on Tmall we are seeing this fashion enthusiasts customer, slightly lower ARV, not much lower actually, so actually we are -- these are really luxury customers, but obviously, with the slightly lower ARV then the Farfetch app.

So that's driving our merchandise strategy really so and we keep learning, obviously. We always said this is a learning curve and also in terms of algorithms, and meetings, and advertised on the Tmall platform, if you know, it's a platform driven by advertising also. So all of those leaders are, it's a learning curve and we're very pleased, Alibaba is very pleased with the performance as well and we will continue to build on these. And as we said, we are very confident this will be a material channel for Farfetch China in 2022 and beyond and it's already contributing to our strong growth in the territory.

So your second question around FPS. I think it is tremendous opportunity. In fact, FPS is not only about e-commerce and end-to-end e-commerce solutions and FPS is the suite of services. We can enable the luxury brand grow and we call that B2B, these are luxury retail. So it goes from end-to-end e-commerce to global logistics, e-concession-as-a-service, fulfillment-as-a-service. So there's a number of components here.

We're discussing -- we're accelerating conversations with multiple enterprise clients. I think these conversations are going to accelerate, as you can imagine, these are enterprise clients and CHANEL's sentiment, our business has a multi-billion dollar business, these customers -- type of customers we're finding have long sales cycles and COVID-19 was not the ideal timing for companies to begin closer and impacting capex and replatform a little bit.

I think now that the industry is transitioning to normality. I'm confident that we're going to see an acceleration of the multiple conversations we have. But let me stress that the existing customers on FPS are expanding the services they use with us and are also growing their business with us faster than Microsoft. So we have growth from FPS from existing customers, both from expansion of services and the growth we're enabling for them globally. That is above of the micro and will partly contribute to the overall brand, of course, very, very powerful pipeline of competition.

Elliot Jordan -- Chief Financial Officer

And Oliver, hi. Just on the GMV growth for the quarter. Obviously, we're absolutely delighted with the position that we achieve. Particularly if we look at our growth on the two-year basis, I think it's important to look back to where we are versus 2019. So they start to normalize some of the impact of the pandemic. And obviously, the digital platform is up 89% on that two-year basis, very similar to the two-year growth rates we delivered in Q1, and overall, the business more than double in terms of GMV versus 2019.

In terms of what we saw within, effectively the marketplace, which was delivering very, very strong growth throughout, was that in the last six weeks of the quarter, we didn't see as much sale on markdown, as we were previously expecting. So when the sort of the guidance that I gave, we were factoring in an element of our suppliers on the marketplace going into sale, usual levels of depth of markdown and breadth of activity in sale. And actually, we just didn't see that breadth and depth as we had previously seen.

And as a result, the full price mix dramatically increase year-on-year rather than being a sort of a standard full price markdown quarter as you'd expect, because of spring/summer clearance activity. It was actually a full price quarter very similar to fall end season sales and our full price sales as a result were up 90% year-on-year, 9-0 percent and 140% year-on-year on a two-year stack.

So we sort of started to see the GMV hit toward the mowing of the range within those last six weeks as we didn't see that markdown GMV come through. That was across the Board actually in terms of geographical location. So maybe if I just run through some highlights of, our top markets, the U.S. actually accelerated between Q1 and Q2 and growing ahead of the overall average, Mainland China accelerated between Q1 and Q2, grown ahead of the overall average. Markets like Russia accelerated and again ahead of the overall leverage. Plus we also saw other Asian markets like Korea accelerate ahead of the overall average and then some core sort of traditional markets like France and Italy also delivering ahead of the overall average.

So really strong broad based growth and the only sort of deviation really there was on the full price versus markdown and the fact that markdown was a bit softer than we were expecting. I actually think that's a really good thing. Our sellers on the marketplace tell me that's a really good thing, because they were able to maximize their margins from the spring/summer campaign. They were able to hold back on markdown levels and carry over more into building their autumn/winter campaign.

Obviously helped drive the ARV up, actually the ARV was up 20% year-on-year, which is obviously a key metric for us. And most importantly, the sellers saw our growing customer base now 3 million plus active consumers, 500,000 new customers, as Stephanie said, in the quarter. It's highly desirable to buy into the full price campaigns, hence why you saw the immediate solutions revenue up significantly year-on-year, which drove the take rate back up over to 30%, 30.3% take rate, all coming from strong commission and media solutions revenue from the brands. So, really well positioned in terms of delivering just what the industry wants higher full price mix.

Operator

Your next question is from Louise Singlehurst with Goldman Sachs.

Louise Singlehurst -- Goldman Sachs -- Analyst

Hi. Good evening, everyone. Thanks for taking my questions. Let's go back to the regional information that you've given, obviously, you've given quite a bit of color already. But there's a lot of concern in the market currently with regard to the growth outlook for luxury, we can see a bit more volatility in share prices at the end of June seems quite a long time ago. Now, if I posed the question slightly differently, we think about the outlook for Q3 that you provided with -- us with, is there any change to how you're thinking about the regions versus three months ago? I said, is there anything that you're seeing, I think, where China and we should be thinking about as we go into the quarter? And then, secondly, for China, just on the JV, can you tell us a little bit about the inventory availability? I know in the past you have talked about the number of brands and the availability? Does the inventory and the inventory depth comparable to what you have on the original China platform? Are there any brands not there any ones that are on the platform, but not selling through Tmall? And then just related to China to be, can you also tell us about the competitive environment? Obviously, you have net importer on the app very close by? Is there a different customer support that you think is being attracted by the Farfetch app? That would be fantastic. And final point on the China JV, sorry, are there any logistics benefits coming through, now that the JV is all operational, logistics benefit coming through from Alibaba, your partners? Thank you.

Elliot Jordan -- Chief Financial Officer

Hi, Louise. Let me just follow up on the regional mix question. As usual, I won't be providing sort of information about the quarter that we're in. But let's just sort of talk about maybe the exit rates from Q2 in terms of regional mix.

We're seeing China really the key enabler of growth here, and as Jose sort of touched on before the overall proposition, both on the Farfetch app and the sort of direct relationship we have with customers via but also on TLP is really building, and as I said, accelerated out of the quarter. We're also seeing the U.S. continue to deliver strong levels of growth as we exited the quarter and into the start of Q3. And actually seeing reasonably good sort of pick up from another top five market the U.K. as we trade through.

I think what's interesting is, all of those markets that I've just talked about are markets where stores have effectively reopened, physical stores have reopened, and yet the marketplace continues to deliver fantastic levels of growth. And the guidance that we've given of 30% growth for this year, actually on a two-year basis is over 100% on a two-year stack, so an acceleration from the first half position on that 2019 basis.

So, good broad growth, I think, this really highlights the fact that the investments we've made to-date to build out our global proposition, the 3 million plus active consumers are well distributed around the world and we're able to navigate through any challenges that might come our way. But those top markets really driving the growth as we head into Q3.

Jose Neves -- Founder, Chairman & Chief Executive Officer

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

In terms of the Tmall channel. We've seen very strong adoption from brands on their channel. When a brand is available on Tmall, it is available with a full assortment. So what we will have capability to think that same brand that you have on the Farfetch app. There is a number of brands that, as I updated, new one this quarter. There is a number of brands that have asked for some time to compare those brands that have launched just very recently, some of them a month, two months, three months ago, before our launch on Tmall.

And I think we started having great case studies of brands that have both the presence direct from Tmall and the presence on Tmall via Farfetch and have benefited from that. Like, we have 7.5 times the number of SKUs that those brands have on average on Tmall. So we are really boosting that visibility on that asset has 800 million customers, 800 million shoppers like this, right? So we have strong case studies and we think we can soon start sharing those with the other brands to make them comfortable.

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

The other company, you mentioned, NAP on Tmall. They operate on the retail model, on a wholesale model, as you know. So very limited inventory, I haven't -- I had an account in front of me that I wouldn't leave because I would have 30 times the number of brands and then much more that within each of these brands. So we operate on a marketplace model with 3,250 brands give or take representatives on Tmall. Because they're very different, I don't think you can compare apples-to-apples, this are a very different proposition.

And again, in terms of the editorial, the merchandising, we really attracting that millennial generation type customer there and we know that's -- the majority of the growth is coming from those customer cohorts in China and in fact globally. So we think we have a very, very strong, competitive position in that market. And again, in terms of Western companies in that market, we have 600 people on the ground, we have a unique app both for iOS and Android, with incredible functionality built by Chinese engineers and private people on your way to why designers and an incredible logistic proposition both domestic and cross border.

So I think we're really in a very, very strong position. And I think the China opportunity is immense. That's one of the another year of repatriation of luxury demand in China. And luxury is very under penetrated. So even if there are in -- today there were concerns in the market with some volatility and some luxury stocks related to China.

I think the point investors should observe is that in China, all our luxury penetration while single-digit people, we don't know when we have the numbers post-COVID, but it's certainly lower than in the West and with plenty of room for growth. And we are already very relevant sales channel for many of these brands and in this environment we will become even more clear, that means, the tailwinds are very strong and will continue to be very strong by virtue of this dynamic.

Operator

Your next question is from Stephen Ju with CS.

Stephen Ju -- CS -- Analyst

Okay. Thank you so much. So, Jose, I want to ask about your, I guess, efforts in the beauty category. What do you think is going to be the right, wholesale versus marketplace mix in this category? Is this something you think would require greater participation for you as the first-party seller? And Elliot, I got a follow-up on the markdown versus full price sales comments earlier, this suggests that your competitors are taking heavier markdowns earlier, it seems so which would -- we would have to think is not sitting very well with your brand partners. So, is there anything you can share in terms of the feedback from the brands and what we hope will be increased willingness to work to a greater extent with Farfetch versus the others? Thanks.

Stephanie Phair -- Chief Customer Officer

Hi, Stephen. It's Stephanie. I will take the bigger question. So, as we mentioned, in the last earnings call, we see duty as a huge category, it is a booming category and we're very well positioned to meet here just as we do. In fashion, I think, it's also a great opportunity is 25% of the overall luxury good.

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

Brands in the U.K. have been traditionally very, very focused on wholesale and they are trying to move to direct-to-consumer and we can enable for them. So we're working for the marketplace on e-concession. Obviously, we don't have some third-party buys to round and sort of complementing this category. But we feel that this is a real opportunity and the benefit of working with Farfetch.

We've also saw really respond to our efforts around our customers. We have a highly valuable, very engaged targeted luxury orders. And what we're hearing from the beauty brands is that they not only would see us as a sales channel, but actually is an opportunity to target this audience through our advertising, new distribution channels. So really the opportunity for us significant and it's multifaceted and very much on track for 2020.

Elliot Jordan -- Chief Financial Officer

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

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

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

I think the other thing that's super interesting though is, if you look at the 500,000 customers we added to the platform across Q2, given that we added them during a higher full price mix than the 5 -- full price mix quarter than the 500,000 customers in Q2 last year, which was on a more of a markdown mix, my expectation that these customers that we've added most recently are going to deliver a higher lifetime value moving forward and a much more valuable customer cohort.

And actually, that's already played out. We saw the GMV from these 500,000 customers this year, higher double-digit growth versus the 500,000 customers that shop with us for the first time last Q2. So that's super exciting in terms of what we have achieved from delivering that high full price mix. And to go back to your question, I can only assume the brands are delighted because it's certainly uploading more stock on the platform as we move forward. So I think it's going to be really interesting autumn/winter campaign to see how we can drive through the full price for them over the next six months.

Operator

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

Nathan Feather -- Morgan Stanley -- Analyst

Hi. This is Nathan Feather on for Lauren. Just a quick for me, are able to impact -- are able to size how impactful the shipping and duties headwinds were in the quarter and how much of the digital platform gross margin decline is due to these? And then in your margin guidance for the third quarter and full year, are you assuming any relief in these headwinds or that they continue for the rest of the year? Thank you.

Elliot Jordan -- Chief Financial Officer

Hi, Nathan. Really good question. I think that we do understand what's exactly happening within the digital platform gross margins and particularly with order contribution, because it's the key metric for us. And there's a lot going on both near-term and longer term. If you look at Q2 specifically, overall, we had everything going in the right direction in terms of order contribution margin, except for the impact of shipping and duties. We had, obviously, higher margin services coming through. The 3P take rate was up. Our underlying sort of marketplace gross margin was higher if you exclude our shipping duties, which will come back to, as I mentioned before, first-party margins higher and demand generation down as a percentage of revenue and lower also when you compare it to GMV.

In terms of shipping and duties, the increasing year-on-year was north of 50%, so very much north of 50% in terms of cost and that compares to the 40% GMV, and obviously, part of that GMV came through from ARV growth. So order growth was below the 40% number. So shipping in the 50s versus lower order growth showed you how dramatic that increase was year-on-year.

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

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

But due to our ability to drive margin expansion from other areas of the group on the back of previous investments and the strong business we've built to-date, in particular the tech platform marketing operations team, but also growth in revenue from those higher margin products, means we're still on track to deliver full year profitability as plan. And we continue to build on our customer engagement activity consistently delivering on the topline growth. So, we can manage those short-term costs and still achieve our medium- -- our short-term numbers.

If you look further ahead, we're executing against all the opportunities to drive up gross margin order contribution, which includes shipping 1P and 3P stock closer to our customers. This is in the former by Farfetch facilities that we've already invested in, that will help drive down the cost of shipping medium-term.

We're also improving our first-party gross margins through the growth from low cost marketing channels and that means we see expansion of order contribution ahead as we get into next year. So for now, we'll manage the costs. We will continue to get from the customer provinces and I think that's going to set us up well to deliver good levels of growth at sustainable level moving forwards.

Alice Ryder -- Vice President, Investor Relations

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

Operator

[Operator Closing Remarks].

Duration: 66 minutes

Call participants:

Alice Ryder -- Vice President, Investor Relations

Jose Neves -- Founder, Chairman & Chief Executive Officer

Stephanie Phair -- Chief Customer Officer

Elliot Jordan -- Chief Financial Officer

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

Oliver Chen -- Cowen -- Analyst

Louise Singlehurst -- Goldman Sachs -- Analyst

Stephen Ju -- CS -- Analyst

Nathan Feather -- Morgan Stanley -- Analyst

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