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Brussels must fortify sector for a ‘rougher world’, commission president warns in interview with FT

Brussels should incentivise Europe’s defence industry to ramp up production and promote consolidation, the president of the European Commission has said, as she warned that the “world has got rougher”.

Ursula von der Leyen said the commission was developing its defence industry strategy informed by the experience of using taxpayer cash to boost the production of Covid-19 vaccines and for joint purchases of gas.

“We have to spend more, we have to spend better, we have to spend European,” von der Leyen said in an interview with the Financial Times on Thursday.

The plan to gear up Europe’s military industrial complex in the face of rising threats from Russia is due to be released this month; it will need to be approved by national capitals, some of which may resist efforts by the commission to centralise decisions on defence investments.

EU officials are keen to maximise member states’ significant increase in military spending since Vladimir Putin’s full-scale invasion of Ukraine to create a larger, more robust and more efficient European defence industry. 

“We have a very fragmented defence market and that needs to change,” von der Leyen said. “What is the competence of the commission? It’s industry. This is our core business. We are an enabler, not a buyer.”

Speaking on the eve of the Munich Security Conference, von der Leyen said that Brussels needed to ensure the continent’s defence industry could respond to the raised geopolitical threat.

Proposals in the commission’s plan include using the EU budget to increase financing to supplement joint contracts for weapons signed by member states, as well as guaranteeing that production will be bought, officials said. 

That borrows from the commission’s push to roll out coronavirus vaccines, which ultimately resulted in a surge in European production.

“We did this for vaccines and gas,” von der Leyen said.

Von der Leyen’s proposal would help streamline the continent’s defence industry, which is largely divided on national lines, and encourage more spending on European products rather than buying from third countries such as the US.

“We need to improve the return on investment here in the EU,” said von der Leyen. “We need a fair share of European taxpayer money spent inside the European Union.

“We should work with incentives so that it is better for member states to work together. Say you want a new tank? Well, huddle up!”

Almost two years of Russia’s war against Ukraine has shattered decades of peace on the continent and a generation of political thinking that defence budgets could be cut.

European Nato members, the majority of which are in the EU, will together spend a record $380bn this year on defence, Nato said this week, up from less than $230bn in 2014.

The potential re-election of Donald Trump as US president, a Nato sceptic and foreign policy isolationist, has also spooked Europeans alarmed about the possible weakening of the US defence guarantee to the continent through Nato’s Article 5 mutual defence clause.

“It is the element of protection that matters . . . For 20, 30, 40 years, our peace was about integration and peace within Europe. Now for the first time we are speaking about protection from outside,” said von der Leyen.

“We understand the warning signs and we must be prepared,” she added. “The call to step up . . . is there and has to be answered.”

The short-term “critical focus” of the defence ramp-up would be to keep supplying Ukraine with weapons, von der Leyen said. But an EU defence industries strategy is also designed to bolster the long-term security of Europe. 

It would build on pilot programmes already in place, such as a €300mn fund to support joint procurement of military products launched last year to help member states replenish stocks depleted by supplying weapons to Ukraine. 

It could also be complemented by the EU’s Coordinated Annual Review on Defence, which since 2017 has monitored the defence plans of its member states to try to encourage collaboration on spending and investments, and works closely with Nato’s own initiatives to co-ordinate joint development and purchase of weapons.

Oversupply of once-hyped sneakers like Jordans has caused resale prices to plummet, pushing smaller platforms out of the market and sending the bigger players scrambling to adapt.

Last fall, two of Europe’s largest sneaker marketplaces, Netherlands-based Restocks and France’s Kikikickz, filed for bankruptcy. To the casual observer, their failure appeared to come out of nowhere: Both companies continued to list Jordans and Yeezys for sale while churning out an endless stream of content on TikTok, right up until they shut down and sold off their assets to pay creditors.

To followers of the sneaker world, these platforms’ demise came as no surprise. For months, users of both sites voiced concerns over unfulfilled orders, unpaid refunds and overdue payments amounting to millions of euros. A Facebook group called “Anti Restocks.Net,” where people still share stories about the money and shoes they are owed, has 3,000 members.

The troubles at Restocks and Kikikickz weren’t isolated incidents, either. After a decade-long boom, the sneaker resale market is contracting. Nike has increased production of some of its most in-demand shoes, driving their value down in the secondhand market. Adidas has shuttered its Yeezy line, cutting off another critical source of supply.

Smaller resale platforms like Restocks and the private equity-backed Edit Ldn, which was sold in a fire sale last month, are being pushed out. The giants in the space — StockX, Stadium Goods and GOAT — have held their ground by diversifying into new categories, and through consolidation. GOAT’s acquisition of high-end streetwear platform Grailed in 2022 helped the platform become less reliant on sneakers, while StockX sells everything from trading cards to PlayStations.

But they’ve not been completely immune to market conditions. In January, StockX laid off 40 employees; its chief marketing officer, Deena Bahri, also left as part of the restructuring.

In the near-term, the prospects for sneaker resellers aren’t good. In 2023, overall trade volume across the secondary market was flat, but if prices continue to fall, then resale stakeholders of all sizes will feel the effects, according to Eric Witschen, founder of Neustreet, a platform which aggregates data from the world’s largest resale sites, including StockX, GOAT, Stadium Goods and Flight Club.

“It’s been a lot of pain for people that are in this resale market,” he said. “Selling high volumes is meaningless if it’s no longer profitable.”

The Fall of Hype Sneakers

Reselling became a big business starting in the 2010s, as sneaker giants embraced the scarcity model, where they would release limited-edition shoes in small quantities to drive hype around their brands. Prices for rare Jordans and Yeezys climbed steadily, then spiked during the pandemic.

But the market peaked towards the end of 2022. A relentless parade of collaborations and unimaginative releases of minor variations on the same retro sneakers was creating fatigue among even the most avid collectors.

Then, all of a sudden, the sneaker giants ramped up production. In the past two years, Nike has pumped out Jordan 1s and Dunks like never before, and New Balance followed suit with its 550 silhouette. Adidas flooded the market with millions of Sambas and Gazelles — a move that helped the brand cash in on surging demand. Meanwhile, it abruptly cut ties with Ye in 2022, and began selling off its remaining stock of Yeezys in big batches last year.

The cumulative effect on the resale market was devastating.

“At one point, Dunks were impossible to get at resale for anything less than three or four times the [original] price,” said Yu-Ming Wu, former chief marketing officer of resale platform Stadium Goods and co-founder of Sneaker Con. “Today, you can walk into any Foot Locker, any retail store, and get Dunks or Jordans [at] retail — or even better, on sale, which is crazy.”

Restocks and Kikikickz weren’t the only casualties. Most of the smaller sneaker resale platforms entered at the peak of sneakermania, and quickly ran out of funding as demand fizzled and high costs of borrowing made investors lose their appetite for speculative ventures.

The bigger platforms are better capitalised, but could run into trouble if the market doesn’t turn around, according to Dylan Dittrich, author of the book “Sneakonomic Growth” and head of research at Altan Insights.

“[They] will still be around, but I imagine their next funding rounds will be much harder conversations than before,” he said.

New Players on the Block

Today, rare collaborations and collector’s items — also known as “grails” — still fetch eye-watering prices and are major cash cows for the remaining resellers. The Fragment Design x Travis Scott x Air Jordan 1 Retro High (2014) sneakers were the most profitable sneaker for sellers on GOAT in 2023, regularly fetching over $2,000.

A new generation of sneaker brands are filling the void left by Nike and Adidas. The hottest sneakers today are made by newcomers like On and Salomon, as well as lesser-known brands like Mizuno, Merrell and Norda, which are at the forefront of the sportstyle sneaker trend — a fast-growing category that morphs the performance elements of trail, hiking and running shoes with fashion-forward attributes. On has an ongoing collaboration with Loewe, and Salomon’s tie-up with New York designer Sandy Liang has consistently traded at premiums on resale platforms.

While retro sneakers make up the bulk of primary and secondary market sneaker sales — the top-selling brands on GOAT in 2023 were still Nike and Air Jordan — growth in the overall category was largely driven by sportstyle shoes last year, according to the company’s annual trade data report. Sales of Asics’ Gel-1130 and New Balance’s 9060 sneakers grew by 1,176 percent and 744 percent respectively on StockX in 2023.

The newcomers have brought much-needed newness to the market, both in terms of appearance and material innovation, where Nike and Adidas have fallen short in recent quarters. But even so, these new styles are not enough to make up for the share vacated by Jordans, Dunks and Yeezys.

Although the hype may be over, sneakers have become a staple category in fashion. As long as there is continued innovation in the sector, sneakerheads say they’re certain the secondary market will eventually recover.

“There’s no question resale has been on a downward trend for the last year or so, but I believe as the general market recovers and consumers get less fearful, we’ll see resale values start to tick back up,” Wu said.

Neves, who launched Farfetch in 2008, is stepping down amid a slew of corporate changes and the exit of managers including Browns chief Elizabeth Von Der Goltz, and Kelly Kowal, head of Farfetch Platform Solutions.

LONDON — José Neves is stepping down as chief executive officer of Farfetch two months after Coupang and the San Francisco-based firm Greenoaks Capital purchased the e-commerce platform out of administration and pledged $500 million to help revive it.

According to a memo seen by WWD, Neves will remain at Farfetch in a consultancy role and will not be directly replaced as CEO. Going forward, the Farfetch business will be overseen by Coupang’s founder Bom Kim and the Farfetch executive team.

Neves’ move comes amid a slew of managerial layoffs at the company. Elizabeth Von Der Goltz, chief fashion and merchandising officer at Farfetch and CEO at Browns, and Kelly Kowal, head of Farfetch Platform Solutions, are among the top managers exiting the business.

A Farfetch spokesperson said: “As we assessed key priorities and resources across the business, we made the difficult, but necessary, decision to reduce global headcount and redundant roles.

“This decision secures the future of the business and as a result, Farfetch can now operate from a position of strength and focus on what we do best: deliver exceptional experiences for brands, boutiques and customers.”

More job cuts are expected to be revealed in the next few days.

According to the memo, Coupang wants to streamline the business, recover “financial strength and focus on what we do best: deliver exceptional experiences for brands, boutiques, FPS clients and customers. This new, better-structured organization will continue to move with speed to unlock the full potential of the online luxury space that Farfetch pioneered.”

The company said conversations with those impacted by the redundancies will start in Portugal on Friday and in the U.K. and other geographies on Monday.

Although Coupang did not specify the number of job cuts planned, it is understood that Farfetch had staffed up considerably during, and immediately after, the pandemic to deal with increased consumer demand.

In a memo issued to staff later on Thursday, and seen by WWD, Neves said that “after 15 years of dreaming up, creating and growing Farfetch,” his decision to step down was a difficult one, “but I believe the company is in great hands.”

He said the path that Farfetch is charting now “will help strengthen it. As I step away from the CEO duties, I will be celebrating together with you every success that Farfetch achieves for many years to come.”

Neves founded Farfetch in 2008, and six years later the company became one of the U.K.’s few unicorns with a $1 billion-plus valuation. Over the years, Farfetch would become a $24 billion company, but all that unravelled in the final quarter of 2023, leaving Neves, and his remaining investors, out of pocket.

Once a feted entrepreneur who had dreamt of democratizing fashion online and enabling retailers and brands — no matter how large or small — to reach worldwide audiences, Neves fell victim to his own management fumbles, and to certain events beyond his control.

Russian sanctions, China’s long road out of lockdown, and spiralling inflation and interest rates all took their toll on Farfetch and on tech companies generally.

An online luxury retailer that had yet to turn a profit, Farfetch was all of a sudden seen as vulnerable, and shareholders began to panic. The end result was a pre-pack administration and distress sale to Coupang.

Some investors still recognize his achievements, and describe him as a trailblazer in the still evolving world of e-commerce.

Danny Rimer, a partner at Index Ventures, an early investor in Farfetch, called Neves a “very special founder and an exceptional entrepreneur.” He said Neves had a clear vision of what the industry could achieve and the role that Farfetch could play in the wider ecosystem.

While Rimer acknowledges that certain things “could have been done differently” at Farfetch, he said the platform made a significant impact on the fashion industry, and on e-commerce as a whole.

Another significant, early-stage investor who spoke on condition of anonymity said Farfetch was the victim of “black swan” events, including trade tussles between the U.S. and China and the war in Ukraine.

The investor admitted that Farfetch was also the victim of poor management and balance sheet oversight. Debts and overheads were too high, and expansion plans were too aggressive.

“Still, José was an incredible visionary with a work ethic and willpower to match. He was very generous with his team, and a loyal, broad-minded leader,” the person said.

Carmen Busquets, another early-stage investor, had been hoping to raise between $500 million and $1 billion to rescue Farfetch last year, and had proposed a five-year plan with the aim of driving fast growth and profitability.

“Farfetch remains the leading company in the industry. It has driven fundamental change to the distribution of fashion globally over the last 15 years,” Busquets told WWD in December.

She described it as a “strategic asset, and given the collapse in market confidence and valuations in the sector there are a number of tie-ups and consolidation opportunities for Farfetch as a leading e-commerce platform for the 21st century.”

Coupang first revealed its purchase of Farfetch on Dec. 18, and since then the company has taken full control of the London-based platform, which was delisted from the Nasdaq as part of the sale.

A Fortune 200 company, Coupang is listed on the New York Stock Exchange. It has e-commerce operations and support services in markets including South Korea, Taiwan, Singapore, China and India.

It compares, albeit on a smaller scale, to Alibaba in China and has been looking to move upmarket, and into fashion and luxury goods services.

Coupang has promised that Farfetch will continue to serve its more than 4 million customers worldwide and said it wants the platform “to pursue steady and thoughtful growth.”

According to sources, Coupang has been taking a “no-nonsense, granular approach” to understanding the Farfetch business as it attempts to streamline operations over the past two months.

Going forward, marketing spend will be diverted to “driving transactions” rather than building the Farfetch brand and image, the sources said. FPS, which works with Farfetch and third parties on software and technology, will remain a core part of the business.

Negotiations to sell noncore assets in the Farfetch portfolio, such as Browns and New Guards Group, are understood to be ongoing.

As reported, Style Capital is eyeing the acquisition of New Guards Group, according to Roberta Benaglia, founder and CEO of the Italian private equity firm.

In early December, WWD reported that Browns was also in play, and that Mike Ashley’s Frasers Group was an interested buyer. Frasers has since bought Matches, another fashion tech company that saw its valuation plummet last year amid a slew of macroeconomic challenges.

As reported, there is an ad hoc group of Farfetch bond holders disputing Coupang’s purchase of Farfetch, and they have taken their battle to a Cayman Islands court.

They are demanding more than $400 million in funds, and want the holding company that had been set up to facilitate Farfetch’s 2018 listing on the New York Stock Exchange to be liquidated.

The bond holders, who are in possession of more than half of Farfetch’s 3.75 percent convertible senior notes, due in 2027, have filed a “winding-up petition” on the grounds that Farfetch Limited is unable to pay its debts.

Even before the legal action, Coupang confirmed that the Cayman Islands shell company would be wound down as part of the delisting of Farfetch.