Yoox Net-a-porter Group is poised to accelerate its growth in the Middle East thanks to a new investment from Alabbar Enterprises.
The investment in the luxury e-tailer comes in the form of a capital increase of 100 million euros, or $113 million at current exchange rate, in YNAP, paid for entirely by Alabbar, which is controlled by Mohamed Alabbar.
“I am very happy, this is a success,” an upbeat Federico Marchetti, chief executive officer of YNAP, told WWD. “The Middle East is a market we want to focus on as part of our five-year plan. It is a very complex market that requires a very deep local knowledge. It’s great to have one of the most successful entrepreneurs as a shareholder, who will offer us tremendous support and help us follow through our expansion plan.”
Marchetti said a local partner of such caliber would contribute to provide credibility. “After all, our business relies on credibility, in terms of brands, quality, card transactions,” the ceo observed, adding that the company plans to introduce pages in Arabic, a new development.
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An entrepreneur acknowledged as a driving force behind Dubai’s economic growth, Alabbar is the founder and chairman of Emaar Properties, parent company of Emaar Malls Group, the owner and operator of shopping malls and retail business in Dubai, including The Dubai Mall.
Alabbar Enterprises LLC also operates and invests in businesses in the Middle East, South East Asia and Africa across a variety of sectors, and has a host of fashion and luxury interests in the Middle East and Asia. Alabbar in 2010 partnered with Giorgio Armani to launch the first Armani Hotel in Dubai. Under the umbrella of Emaar Hotels, he launched the next one in Milan. When Alabbar realized there was a need for an international brand association for a retail event, he went back to Italy, this time contacting Vogue Italy editor in chief Franca Sozzani with the aim of creating a Vogue Fashion’s Night Out-style experience for Dubai.
“We believe the region is moving more actively into e-commerce — we see this already through the companies we operate experiencing exponential growth year on year,” Rashid Alabbar, cofounder of Alabbar Enterprises, told WWD. “It is indeed one of the fastest growing industries in the region, and still at infancy stages in comparison to other established markets. As a result, we believe in a strategy that is focused on e-commerce.”
As for YNAP’s competitive position in the region against the likes of mytheresa.com and matchesfashion.com, Alabbar said, “When compared to other fashion e-commerce organizations, YNAP is the market leader both globally and regionally.”
YNAP said it has opted to raise 100 million euros of equity capital, less than the maximum 200 million euros, or $226 million, authorized by the extraordinary shareholders’ meeting in July, in light of the lower than previously envisaged cash requirements. As of Dec. 31, YNAP’s net financial position stood at 62.1 million euros, or $68.9 million.
The board does not plan to utilize its authorization for the remaining 100 million euros, or $113 million, YNAP added.
Asked for the reasons behind that decision, Marchetti responded: “It was our choice We could have had a bigger capital increase, but we put a cap at 100 million euros to avoid a dilution of the stakes for shareholders.”
The capital increase was realized by issuing 3.6 million ordinary shares at a price of 28 euros, or $32, a share, a 5.7 percent premium compared to YNAP’s closing share price on April 18. As the new share capital will amount to 1.33 billion euros, or $1.50 billion, the agreement values YNAP at 3.74 billion euros, or $4.22 billion. Upon completion, Alabbar will hold a 4 percent stake of YNAP’s outstanding ordinary share capital, or 2.7 percent of the total, and has committed to an 18-month lock-up period for its shares.
Marchetti explained that the capital increase was “reserved” for Alabbar, hence the lockup and the premium.
“It was a [busy] autumn,” he said. “We had many discussions with potential partners – interesting partners, ranging from luxury brands and sovereign funds to financial institutions and publishers, but we made a very precise choice, almost surgically selecting a partner that would help our future growth, someone that can further support us, and Alabbar is the ideal one, more than any other.”
He was unfazed by the economic slowdown in the Middle East brought on by the steep drop in the price of oil, focusing instead on the area’s untapped potential. “The luxury online market [in the region] is very much in its early stages, there is no benchmark or competitor, so we have a very positive advantage,” he said. “It’s only the beginning of this story, and there is so much to explore. It’s like China. You see luxury offline has been suffering, but online it’s been growing at a double-digit pace. And we’ve opened up China only recently, with Armani in 2010.”
Asked about strategic choices in the Middle East, Marchetti said the group’s multibrand sites will pave the way first, but “for some luxury labels, the monobrand sites will make sense.” He said the agreement with Alabbar “works for YNAP but also for the brands that work with us.”
The main shareholders of YNAP are now Net-a-porter’s former owner Compagnie Financière Richemont, with a 24.3 percent stake; Marchetti, with 6.1 percent; Renzo Rosso, through his Red Circle Investments, with 6.1 percent, and Alabbar. Separately, Rosso is due to visit the Middle East starting Sunday traveling to Bahrain, Jeddah, Riyadh, Dubai and Abu Dhabi to check out business in the region.
Johann Rupert, chairman of Richemont, said: “The expertise of Mr. Alabbar and the experience of the team in the luxury retail sector will significantly strengthen and facilitate the further development” of YNAP.
Analysts generally looked favorably on the deal.
Luca Solca, managing director of equities and sector head of luxury goods at Exane BNP Paribas, said YNAP “is without a doubt a business that promises a strong sales growth. It is understandable that it can be attractive for a long-term investor.”
In their study, Citi luxury analysts Thomas Chauvet and Mauro Baragiola highlighted that “the capital increase is aimed at enlarging core shareholder base rather than raise cash.”
“In our view, while YNAP stated that Alabbar’s strengths will help YNAP to accelerate growth in the Middle East, we also believe that such an agreement with a key wholesaler should also help YNAP to strengthen its relationships with luxury brands,” the analysts wrote. “We increasingly find it difficult to see why bearish investors on YNAP should remain such.”
A Milan-based luxury goods analyst who requested anonymity said “synergies are all on the Middle East, where it is fundamental to have a local partner to work and [Alabbar] is a bigwig. Therefore, potentially, they opened a door into a world that is growing strongly and that can reach 5 percent of sales, i.e. what it is worth in percentage for the luxury sector.”
Gianluca Pacini, equity analyst, branded goods at Intesa SanPaolo, said he was “moderately positive.” In his research note on Tuesday, he said that with the agreement inked with Alabbar, “the potential strategic links are less strong in the established markets, but we see as positive the potentiality of the EMEA and Asian development of the group.”
YNAP said that the financial resources raised through the capital increase will be employed over the 2016 to 2018 period to “seize new growth opportunities through the localization in key high-potential geographies; unlock synergies by funding the recently announced investments in the development of a common omni-channel enabled techno-logistics platform across all geographies and storefronts […] and retain maximum balance sheet flexibility.”
Last year, YNAP posted a 37.9 percent uptick in adjusted net income to 59.7 million euros, or $66.3 million, at average exchange, on sales of 1.7 billion euros, or $1.8 billion, up 30.9 percent. The financial statements are pro-forma. The official merger between the Yoox and the Net-a-porter groups took place in October 2015.
It is understood that the investment in YNAP will fall under the charge of Alabbar’s son, Rashid, who has been running two e-commerce businesses for the last few year.
As per a Mastercard Middle East 2015 online shopping behavior study, 83 per cent of UAE residents had made a purchase online during the three months prior to the study being conducted in 2015 and 42 percent of the Middle East’s population use the Internet to shop.
In Saudi Arabia, 25-to-34-year olds were found to be most likely to access the Internet for online shopping and the most popular sites that respondents had visited were Souq.com and Amazon. Other popular sites that attracted the highest levels of traffic included eBay, Saudi Airlines and Namshi. Respondents indicated a slight preference for local Web sites over foreign ones, citing a fear of hidden charges from retailers and the ability to find all the products they need locally as the main reasons for shopping on local sites.
M-commerce is expected to grow significantly in the region. A 2015 Ericsson’s Mobility Report on the Middle East stated that the UAE has one of the highest smartphone penetration rates in the world, at 78 percent. Smartphone subscriptions in the Middle East and North Africa region will grow by more than 200 percent between 2015 and 2021.
The Middle East already accounts for a 5 percent share of global luxury consumption based on Euromonitor Passport estimates for the luxury personal goods market. YNAP said the region has “been witnessing growing Internet and e-commerce penetration led by increasing public investments in IT, e-services and telecoms infrastructure, alongside a young population. In recent years Net-a-porter, Mr Porter and The Outnet have experienced remarkable growth in the region despite not offering localized customer propositions, which is further testament to the group’s significant potential in this flourishing market.”
In February, in a letter to employees of YNAP obtained by WWD, Marchetti touted the accomplishments of the company in its first 100 days following the merger while also taking “a glimpse of the future.” On Tuesday, he ticked off two of the initiatives.
“I mentioned the possibility of a new very big brand joining the group, and it was Prada [as reported earlier this month], and then I cited the capital increase — and here we are.”