The two e-tailers — which both debuted in June 2000 — believe their moment has come to raise the bar on luxury fashion e-commerce in an underexploited market where size, scale and speed count for everything.
“Established business models are being increasingly disrupted by the technological giants,” said Johann Rupert, chairman of Net-a-porter’s parent Compagnie Financière Richemont, who brokered the all-share deal to create a new fashion e-commerce group, with Yoox founder Federico Marchetti. “We believe it is important to increase leadership and size to protect the uniqueness of the luxury industry. The merger of the two leaders will further enhance an independent, neutral platform for a sophisticated clientele looking for luxury brands.”
On Tuesday, Richemont and Yoox Group revealed the merger of the latter with Net-a-porter in a transaction that will see the creation of a new retail brand, Yoox Net-a-porter. Built on three pillars — in-season and off-season fashion and the management of online, monobrand stores — the new group will have combined net revenues of 1.3 billion euros, or $1.41 billion at current exchange.
The deal immediately ramps up the scale of both Net-a-porter and Yoox to be able to better compete with mega players like Amazon and Alibaba as well as smaller but fast-growing e-tailers including Mytheresa.com and Matchesfashion.com. The merger also solves what was clearly a thorny issue for Richemont: How to grow Net-a-porter into a consistently profitable operation among its more hard-luxury focused other brands, which include Cartier, IWC, Van Cleef & Arpels and Montblanc, as well as Chloé and Dunhill.
“This is an industry-shaping deal, with an expanded platform that will reach two million customers and more geographic markets,” said Marchetti, who will serve as chief executive officer of the new company. “This is the right time to bring the companies together. We changed the fashion industry somehow — and now we’ll do it even more,” he said.
Marchetti, who holds a 7 percent stake in Yoox, called the deal “the biggest professional achievement in my career” and vowed during a conference call to expand the business steadily, and bring value to shareholders. Going forward, he said, the storefront will stay the same, “but with better technology and logistics that better serve customers. We are better together than apart.”
Marchetti said Tuesday’s deal is the culmination of talks with Net-a-porter that began in February 2009, before Yoox went public. “That’s when Natalie and I first spoke about this idea,” he said. Sources say talks about a potential tie-up go back even farther than that — but the timing was never right. Eighteen months ago, WWD reported that talks were back on between Yoox and Net-a-porter, but Richemont firmly denied that Net-a-porter was for sale.
Over the years, the two companies developed very different cultures — Yoox a profit-driven, no-frills retail machine based outside Bologna, Italy, and Net-a-porter a shop-able, glossy online magazine with strong sales, yet not nearly as profitable as Yoox.
As the years passed, Yoox focused on its off-season business; the small in-season site Thecorner.com, and creating sites for brands ranging from Giorgio Armani and Valentino to Diesel and Alexander Wang. Net-a-porter, meanwhile, polished its multibrand retail credentials, unveiled a men’s wear site, and published online editorial content as well as a print magazine.
Natalie Massenet, the founder of Net-a-porter Group and its interim ceo, will become executive chairman and hold shares in the new company. She will manage and oversee the image, marketing, social media, editorial content and long-term strategy of Yoox Net-a-porter Group, among other responsibilities.
“Today, we open the doors to the world’s biggest luxury fashion store,” she said in a statement revealing the deal. “Together, with our world-class teams in technology, logistics, content and commerce, we are redefining the fashion media and retail landscape.”
Although the financial terms of the deal were not disclosed, both Yoox and Net-a-porter have come to the table with valuations of more than a billion euros each. Barclays in London believes the two companies are similar in value, at 1.44 billion euros, or $1.56 billion, apiece, while Exane BNP Paribas said the merger values Net-a-porter at 1.5 billion euros, or $1.63 billion. Vontobel pitched Net-a-porter’s valuation higher, at 1.7 billion euros, or $1.84 billion. On Monday, the eve of the announcement, Yoox’s market capitalization was 1.44 billion euros.
Like Yoox, the newly merged company will be based in Italy and quoted on the Italian bourse. It will have an adjusted EBITDA, or earnings before interest, taxes, depreciation and amortization, of 108 million euros, or $117 million.
Marchetti said he expects there to be 60 million euros, or $65.1 million, worth of annual EBITDA and capital expenditure savings by the third year. Half of those savings will come from revenues and the remainder from cost and capital expenditure savings. Synergies are expected to be a net positive as soon as 2017.
Richemont will hold 50 percent of the new company’s share capital, but only 25 percent of the voting rights to ensure that Yoox Net-a-porter remains an independent entity. Richemont has also committed to a lock-up period of three years in respect of shares equivalent to 25 percent of the total share capital of the combined entity.
The agreement is conditional upon the approval of Yoox shareholders at a meeting to be held in June, with the new company officially coming together in September.
Following completion, the new group is expected to launch a capital increase of up to 200 million euros, or $217 million at current exchange, to fund future growth and allow for the entry of “strategic investors,” Richemont said.
Asked about these potential investors, Marchetti told WWD they could be luxury brands. “This is a fantastic platform for luxury. We are the largest in the pure luxury sector,” he said, adding that proceeds from the capital increase will be used “to fund future growth and investments.”
The new company will boast six storefronts, including Net-a-porter.com, Mr Porter and Thecorner.com, and trade in some 180 countries. Some 28 percent of combined net revenues will be from North America, the single largest sales region, followed by Europe, the U.K., Asia Pacific and the rest of the world.
According to Marchetti, the average order value — as a combined entity — is the highest in the luxury industry, at 300 euros, or $326.
In a report for Bernstein Research, Mario Ortelli and Haemi Shin gave the merger the green light, saying it provided critical mass and scale, e-tailing expertise and a platform for e-commerce growth for all of the Richemont brands.
The report added that Yoox gains the benefit of a partnership with Richemont. “Net-a-porter is considered ‘the Bergdorf Goodman of online’ and has good relationships with brands; the combined company has an expanded platform for building stronger partnerships with brands.
“Yoox was looking to gain share and full-price business, and Net-a-porter has a fantastic online business,” it said. The Bernstein report also noted that the combined entity has access to funding from a cash-rich Richemont. Bernstein compared Tuesday’s merger with Neiman Marcus buying e-tailer Mytheresa last year.
Thomas Chauvet of Citigroup also touted the benefits of the deal to Net-a-porter and to Richemont. “We believe The Outnet [Net-a-porter’s off-price business] could be merged into Yoox.com,” he said, “and that Richemont’s underperforming fashion brands — in particular Dunhill, Chloé, Lancel and Shanghai Tang — could be strengthened through the rollout of monobrand stores” on the new site.
There is certainly room for growth in the online luxury space. “It probably goes without saying that brick and mortar is still the preferred channel for today’s luxury consumer, with just under 94 percent of all global luxury sales still taking place in-store,” said Fflur Roberts, head of luxury goods at Euromonitor International. “Online sales of luxury goods currently stand at just under 6 percent of all value sales for 2014. This is up from around 3 percent 10 years ago, but is set to increase by 40 percent by 2019. This growth will open up huge opportunities to drive investment in digital technology with retailers such as Net-a-porter and Yoox able to benefit from new innovation across all online platforms,” Roberts added.
Not all industry observers were keen on the deal. Luca Solca, managing director at Exane BNP Paribas, said Tuesday the overlap of Net-a-porter and Yoox is “relatively modest, considering one is a full-price retailer and the other is an off-price retailer.” He also said Yoox’s expertise as a monobrand e-commerce site operator for third parties could be under threat.
Solca called that business proposition “structurally challenged, as luxury brands realize digital is strategic and decide therefore to internalize it.”
That said, Solca conceded the combined entity is stronger and more competitive, with more scale, supply chain synergies and value creation. He called it “a big positive for Yoox,” and noted that, down the road, the increased value of the company will allow Richemont to “disengage” from the business with a healthy profit in its pocket.
Richemont said the transaction would generate a one-off, non-cash, accounting gain in its financial statements for the year ending March 31, 2016, of about 317 million euros, or $344 million, at both the pre- and post- tax levels.
Excluding the one-off, non-cash accounting gain, the transaction is otherwise expected to be broadly earnings neutral in terms of Richemont’s net income for the financial year ending March 31, 2016, based on available information.