In 2018, French luxury group Richemont made some major investments into the e-commerce space, acquiring Yoox Net-a-Porter and pre-owned watch seller Watchfinder, and now there’s some indication as to how those investments are paying off. On Friday, Richemont released its annual earnings report for fiscal 2019, showing what acquiring these two companies had done for Richemont as a whole.

The short version is that Net-a-Porter and Watchfinder, which Richemont chairman Johann Rupert referred to as “our online distributors,” have been significant boosts to the company’s overall earnings, but have only begun to justify the massive costs associated with acquiring and operating them.

The investment and the payoff, by the numbers

-Overall, Richemont earned nearly $15 billion in revenue for the entire year, with particularly strong growth among watch brands Vacheron Constantin, Jaeger LeCoultre and IWC.

– Richemont spent $3 billion to acquire Net-a-Porter in January of 2018. In June, the company acquired Watchfinder, though it did not disclose the price.

– Watchfinder and Net-a-Porter made up 15 percent of total sales for Richemont.

– In Asia Pacific, Richemont saw a 14% increase in sales excluding online distributors Net-a-Porter and Watchfinder, and 20% including them. 

– Richemont had a 1% increase in sales in Europe without online distributors and a 37% increase with online distributors included.

– In the Americas, Richemont saw a boost of 11% without online distributors and a 40% boost total.

– Richemont’s operating margin fell to 13% in the fiscal year.

What it means
Richemont’s massive investment into YNAP and Watchfinder was costly, but it also infused the company with a one-time $1.5 billion cash windfall at the time of the acquisitions. However, the costs also gave Richemont its lowest operating margin in more than 10 years.

Still, Richemont expressed a lot of confidence in its e-commerce investments and their potential to affect the other brands in its portfolio.

“A compelling go-to destination for online luxury and fashion, YNAP increased sales at a double-digit rate,” said Rupert, in a press release. “We have also defined a multi-year integration roadmap with a view to developing robust omnichannel capabilities for our maisons.”

Notably, the online distributors significantly boosted sales in the Americas and Europe. However, China, while still posting good growth for Richemont, was less affected by online distribution. This is likely because Net-a-Porter does not currently have much distribution in China. This will change once the still-in-the-works joint venture between Alibaba and Net-a-Porter comes together, though there have been no updates on when that will be launching since it was announced last October.

“It is rare to find retailers that are exclusively physical or online, as consumers expect both,” said David Naumann, vp of marketing at Boston Retail Partners. “Richemont’s investment in luxury e-commerce companies has been a great way to diversify its portfolio from brand, product category and channel perspectives.”

Richemont and its chief competitors LVMH and Kering are all in a dead heat when it comes to dominating the luxury e-commerce space. LVMH just re-branded its e-commerce platform 24 Sèvres to 24S and Kering continues to flourish with strong online sales, meanwhile independent platform Farfetch is struggling. Richemont is hoping the money it has poured into Net-a-Porter and its work in China can help propel the group to the front of the luxury e-commerce pack.

“I think consolidation in the luxury space is a good thing as long as brand value is aligned,” said William Richmond-Watson, founder and chief creative officer of Watson & Company. “What I like about Richemont’s acquisition of Net-a-Porter is that it positions Richemont away from elitism and towards inclusivity. The mindset of today’s luxury consumer is changing and the traditional codes of status are no longer relevant.”