What happened
Luxury-goods retail-platform operator Farfetch Limited (FTCH -2.22%) had quite the Memorial Day hangover on Tuesday, with its stock tumbling by almost 8%. Investors weren't happy about an investment the company is making in an old-school peer.
So what
Farfetch and Neiman Marcus Group -- the owner of the storied Neiman Marcus chain of high-end department stores -- announced that the former is making an equity investment in the latter. That investment totals $200 million, which gives Farfetch a minority stake in the retailer. The two companies didn't specify what percentage of Neiman Marcus Group's equity this constitutes.
Image source: Getty Images.
Neiman Marcus Group said that it will utilize the proceeds of the deal to invest in technology "to make life extraordinary for its customers."
Farfetch and Neiman Marcus Group also inked an agreement under which Farfetch is to "re-platform" the website and mobile app of Bergdorf Goodman, another veteran brick-and-mortar retailer that's currently owned by the latter company. Bergdorf Goodman and Neiman Marcus (the department store) will be included on Farfetch's Marketplace platform as partners.
Now what
"The partnership between Neiman Marcus Group and Farfetch brings together the resources of two industry leaders with a shared commitment to creating a seamless experience for customers," the two companies wrote in their announcement.
That may be true, and Neiman Marcus is unquestionably a solid brand in the luxury retail space, but $200 million is a lot of scratch. Investors are likely concerned that it will take quite some time and a lot of effort for Farfetch to make that outlay pay off.
