At $3.4 billion, Richemont’s offer to buy online luxury group Yoox Net-a-Porter is a pricey sign of the times.
Competition to embrace digital e-commerce and technology has defined the growth strategies of other luxury groups, Kering and LVMH, as Richemont has stayed behind. Yoox Net-a-Porter, meanwhile, has two online luxury rivals in Farfetch and MatchesFashion — the former is most like headed to an IPO this year, while the latter sold to private investors for $1 billion in September.
And among the pressure of increased competition, businesses feel stronger together.
“In times of uncertainty, acquisitions rise,” said Rony Zeidan, founder of luxury agency RO NY. “There’s discomfort in longer-term visions, so sales reduce risk. Richemont has a lot of catching up to do, and Yoox Net-a-Porter has to expand to beat its competition. The game overall is who is going to be the biggest, and the best.”
Richemont — owner of Cartier, Van Cleef & Arpels and Piaget, as well as fashion brands Alaia and Chloé — announced its bid to take over Yoox Net-a-Porter on Monday. Already, Richemont is YNAP’s largest minority shareholder, and the offer comes at a time when the conglomerate is reckoning with the unignorable rise of online luxury shopping.
Particularly, the company plans to increase YNAP’s international presence (most likely in China, where Richemont’s current growth efforts are concentrated), add new brands and increase inventory, and bolster Net-a-Porter’s customer service experiences. Those currently include WhatsApp messaging with stylists and an Extremely Important Person loyalty program for those who spend $70,000 a year or more with the company.
“Richemont realizes the future of luxury is dependent on online distribution. What this is going to be mean is that competitors in the luxury space will need one big, multi-brand retailer behind them for online purchases,” said Zeidan. “It’s the race to the bottom line.”
With Richemont behind it, Yoox Net-a-Porter will be able to expand on initiatives like its Tech Hub, where a 500-person team is developing future stages of personalization, artificial intelligence and mobile commerce, as well as its EIP program. These initiatives were to set the company back nearly $600 million by 2020, according to YNAP’s 2016 five-year plan.
The upgrades are necessary to cover ground in the arms race for online luxury retail. As Zeidan pointed out, high-end luxury brands typically create close ties with one multi-brand retailer in order to reduce overexposure. And competition is increasing: Farfetch has built a relationship with JD.com in China to expand overseas and has invested in revolutionizing the in-store experience; MatchesFashion has established itself as the global store with transparent luxury pricing.
For Richemont’s part, the conglomerate is finally opening its eyes to the full potential of online luxury spend. With YNAP in its arsenal and its money bet on online retail, Richemont can make up for the slumping sales at some of its underselling brands. (Sales of watches have slipped over the past year, falling 10 percent in 2017.) And while Richemont’s luxury labels operate e-commerce stores, with in-store and online direct sales accounting for 59 percent of the company’s business, the multi-brand store is what’s driving growth in the online luxury sector. LVMH launched its own, 24 Sèvres, last year, to get a piece of online sales from brands outside of its portfolio. Richemont’s solution: If you can’t build it, buy it.
“These companies are experimenting. Change is good, and the evolution we’re seeing right now is one driven by digital,” said Zeidan. “This is a sheer indication of where luxury is headed, in case you haven’t woken up yet.”