Luxury e-commerce merger reshapes market forces

When Net-a-Porter was set up 15 years ago, with the support of London corporate finance, there was widespread scepticism at the idea of selling luxury fashion online. Fast broadband, wireless connectivity and smartphones were but a twinkle in the internet’s eye. Who in their right mind would want to buy designer tops and luxury accessories without trying them on first?

As it turned out, plenty of us did want to. And Net-a-Porter went from strength to strength, fuelled by a blend of interactive high-end shopping and magazine-quality editorial content (its founder, Natalie Massenet, is a former fashion journalist). Massenet reportedly netted £50 million when the Swiss luxury group Richemont bought out Net-a-Porter five years ago, but she will more than double that payday once the latest deal is ratified, the merger of Net-a-Porter with Italian-based online fashion retailer Yoox.

The merger will create a luxury e-commerce giant with annual revenue in the region of £1 billion. Massenet, together with Yoox’s founder, Federico Marchetti, has been bigging up the deal as an industry game-changer, and they might be right. But there are potential conflicts of interest too. Yoox is fundamentally a discounter that sells end-of-season luxury fashion at knock-down prices, while Net-a-Porter is more focussed strategically on the mid-to-high end of luxury.

Luxury internet retailing has a big problem. It is not very profitable. Yoox’s and Net-a-Porter’s operating margin is less than 5%, for example, compared with upwards of 25% for most big-name luxury brands. It is one of the reasons why the industry’s biggest players have been reticent about building stronger online footprints.

However, the industry cannot simply ignore the emergence of a digitally savvy generation that increasingly likes to shop online. As a result, growing numbers of global brands have been investing heavily in their own online platforms. This, in turn, has intensified e-commerce competition and made the online market much more fragmented.

There is little doubt that luxury internet retailing will continue to grow, and will probably be the luxury goods industry’s fastest-growing distribution channel over the next 10 years. But it does not necessarily follow that multi-brand online sellers will be at the forefront of that growth. Luxury goods consumers, both in emerging and developed markets, are increasingly looking for a more bespoke experience, which could end up fuelling the cachet of smaller e-commerce stores.

The wider problem is that global luxury brands have become wary of multi-brand retailers, whether internet-based or bricks-and-mortar. It is why brands ranging from Mulberry to Prada have sought to cull their wholesale and third party footprints, focussing instead on directly owned retail operations where they have maximum control over price points. Mixed retailers in Western Europe have lost market share in luxury goods as a result.


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