By  on May 31, 2007

After seven years in business, luxury e-retailer Net-a-porter continues to post dramatic increases in sales and profits.

Company executives said that for the fiscal year ended Jan. 31, profits before taxes rose 61.5 percent, to 2.1 million pounds, or $4 million, from 1.3 million pounds, or $2.2 million, despite the expense of opening a distribution center in New York in the third quarter last year. Revenues grew even faster, rising 74.6 percent, to 37.2 million pounds, or $72 million, from 21.3 million pounds, or $37 million.

"We're attributing [the growth] to an increase in our new customers on a regular basis," said chief executive officer Mark Sebba. The company averaged about 2,000 new customers a month in 2005; that figure swelled to about 3,000 a month last year. That's not to say Net-a-porter lacks repeat customers, he said.

"They like the proposition. They talk about us. There's an enormous word of mouth," Sebba said. The company also has an enormous mailing list of people who've signed up to get weekly e-mails, he added.

The company has benefited from the growing acceptance of apparel shopping online, said founder Natalie Massenet. Last year, apparel pushed past computers and software to become the number-one-selling category online, excluding travel.

"There is greater adoption and confidence with online shopping," she said. "A lot of our customers have been getting e-mails from Net-a-porter for a while, but now that purchasing online has become a way of life for them in other areas, such as groceries and travel, they are going over to apparel."

Fueling Net-a-porter's growth, the average order value has gone up slightly, to about $1,000, and units per order have increased from approximately 1.8 to 2.1. Gross profit margins also increased slightly, to 48.4 percent from 47.6 percent.

The company's future plans are not dramatically different from its current model, and include offering overnight shipping globally to as many customers as possible, continuing to add new brands, tailoring the online shopping experience for specific types of customers and continuing to expand Net-a-porter's customer base internationally, including in the Middle East and Australia.

"There are women with laptops all around the world who are looking for the latest Chloé dress," said Massenet.While all Net-a-porter customers share a love of fashion, they tend to fall into four camps: the top fashion customer, the aspirational shopper, the sale shopper and men who buy for women. The company could customize e-mails, personal shopping, landing pages and other features for each group.

What sets Net-a-porter and its customers apart from other online luxury stores is an authoritative point of view, said Massenet. "We were founded on the principle of reviewing trends in the business from an editorial perspective and offering them for sale to the customer. Now that I'm a retailer, I understand the temptation to sell things every season that have sold the season before, but the fashion-forward customer wants what's next, and our customer comes to us for what's next, not what sold the season before."

The Net-a-porter customer has very little price resistance to fashion must-haves, and wants to be pre-alerted to the right items, she said.

It was this approach that led the company to acquire 100,000 new customer names from Girlshop after the Internet pioneer closed last month. "Girlshop departed from other online fashion sites by having a point of view," Massenet explained. "I thought its customer base would respond to our positioning. We were also keen to tap into the New York and U.S.-centric customer base."

It was not the first such acquisition for Net-a-porter, which also has snapped up customer lists from in the U.K. and Language, a fashion-forward NoLIta boutique that closed several years ago.

Opening the U.S. distribution center last year was expensive for Net-a-porter, but it cut distribution costs "dramatically" in only six months and increased the portion of sales coming from the U.S., said Sebba, who declined to specify exact figures. On average, 50 percent of orders in the U.S. now come from new customers, vs. 30 percent in the rest of the world, he said.

Sales in the first quarter of this year through March 31 were up around 80 percent compared with the same period last year, said Sebba. The retailer has nearly doubled its revenue every year since it was launched in June 2000. It has been profitable for three years.Net-a-porter, which is partially owned by Compagnie Financière Richemont SA, has no plans to be acquired or to go public, said Massenet. The Italian Internet retailer Yoox recently said it planned to go public next year.

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