Sometimes the title of an IPO note writes itself!

FarFetch ($FTCH) is another online platform for "luxury goods" is preparing to test the IPO market this week. It's a quality deal so it'll get done. The question is what is the long-term potential for a company that provides online merchandising and sales. There's been major growth in online "brands" that are are purveyors of a niche style segment with a curated and well-produced presentation of products. In some cases, they create some of their own or partner to create special "members only" versions of third-party products. Current examples include companies like Carbon2Cobalt, Bespoke Post, Huckberry, and Outerknown. There are also "micro-brands" like American Giant and Supreme.

The first time we covered a "merchandising IPO" was Zulily back in 2013. Zulily ($ZU) had a strong IPO then and focused initially on helping "moms shop" better with a daily email of curated items of special interest to them. They also typically offered items that were on sale or steeply discounted. At the time of their IPO, Zulily was doing $500M in revenue (up 100% YoY) and had 2.2 million active customers. Since they are not focused on the luxury market their average revenue per customer was lower - $214 versus over $600 for FarFetch. With their higher transaction sizes and larger "take rate," FTCH has

Zulily diversified into different product areas and after some time as a public company had a successful final "exit" in a sale to IAC in 2015 for $2.4B. We've got relatively recent numbers from Zulily since IAC broke out results for 2017 -$1.6B in revenue across 5.8 "active" customers defined as buying something in that 12 months period. Even with their growth, Zulily generated a small loss of $129M.

Some other "marketplace" companies that have come public recently include Esty ($ETSY) for arts and crafts, Wayfair ($W) for home furnishings and in China, we have JD.com ($JD). All three of these companies have done very well in the public markets, although volatility has been high and it's taken them a few years to establish their positions in the market.

JD.com is a monster commerce platform in China. They had revenues of $55B in 2017 and will do something close to $75B in sales this year. JD operating margins are rather low at 1.1% during the most recent quarter. A JD.com investor and affiliate, Kadi Group, plans to purchase shares in the FarFetch IPO as a "concurrent private placement."

JD is interesting enough for a separate note of its own. The shares have corrected sharply from $50 to $25 even as Google ($GOOG) invested $550M in June 2018 as part of a strategic partnership. The Google deal was done at $40/ADS. With a market capitalization of $38B, $JD is trading at about 0.5x revenues.

We also consider Stitch Fix ($SFIX) to be in this group of "new retail" models but since they are clearly not a marketplace we won't focus on them here. They do however fit into the mix of the relationship between consumers and their fashion supply. At the end, we'll also cover some of the well-funded but still private companies in this space.

These data points will inform us as we look more closely at $FTCH.

It is clear that there is demand for online purchasing of luxury brands and it's not just the younger generation. The last PwC survey indicates that although the majority of purchasing demand is in-store a healthy portion (already 30-40%) is online. The so-called Millennials do skew more online at 42% versus 28% for Baby Boomers.