What happened

Shares of Farfetch (FTCH -50.00%) were climbing today after the luxury fashion e-commerce company announced that it was in talks to expand its partnership with Richemont (CFRUY -0.77%), the luxury goods holding company and parent of brands like Cartier, Piaget, and Montblanc.

As a result, Farfetch stock was up 18.5% as of 11:46 a.m. EST on Friday, while Richemont stock gained 11% after delivering a strong earnings report this morning.

Two pairs of sneakers shown on a love seat.

Image source: Farfetch.

So what

In a brief press release this morning, Farfetch confirmed that it is in talks with Richemont about a potential expansion of its existing Luxury New Retail strategic partnership.  

Richemont invested $300 million last year in Farfetch, alongside Alibaba Group Holding, and also put $250 million into a new joint venture in China involving Farfetch's Chinese marketplace.

Today, Farfetch said that the two companies were discussing several options, including using Farfetch Platform Solutions, a software suite for end-to-end commerce for luxury brands, to power Richemont's brands and the online fashion retailer Yoox Net-A-Porter (YNAP). They were also considering having Richemont's brands sell on Farfetch's marketplace as well as a minority investment from Farfetch into YNAP.

The announcement comes as Richemont has struggled to build its own online luxury platform as its 2018 purchase of YNAP has not fulfilled those ambitions. Given those circumstances, a closer relationship with Farfetch, a fast-growing luxury e-commerce platform, makes sense for Richemont.

Now what

It's clear why investors are responding favorably to the news. Richemont is one of the most valuable luxury goods companies in the world with a market cap of nearly $100 billion, so a closer relationship should only favor Farfetch, especially if it can sell goods from brands like Cartier and Montblanc on its website.

Farfetch was one of the rare success stories in apparel during the pandemic, and the broader strength in luxury goods should continue to support the stock. 

The company will report third-quarter earnings on Nov. 18. Analysts are expecting revenue to grow 61.1% to $591.3 million and for its per-share loss to narrow from $1.58 to $0.36.