LONDON — Could Amazon be the latest e-commerce giant to court Net-a-porter?
This story first appeared in the March 26, 2015 issue of WWD. Subscribe Today.
WWD has learned that Amazon is engaged in “ongoing talks” to buy Net-a-porter, which could command a valuation of up to 2 billion euros, or $2.19 billion at current exchange.
Details of the talks could not be learned, and an Amazon spokeswoman declined comment Wednesday. As in any discussion, the talks may or may not lead to an actual deal.
Amazon has been looking to buy a luxury e-commerce company, and the financial community is abuzz with the prospect of Compagnie Financière Richemont spinning off Net-a-porter, which it purchased in 2010 and is not a core part of its hard luxury business. A Richemont spokesman also declined comment.
Asked generally about Net-a-porter’s future at Richemont, Luca Solca, managing director at Exane BNP Paribas, said a possible scenario is for the luxury group to monetize the value of the fashion e-tailer, and sell it to a company willing to invest in pure-play luxury retail in the long term.
“One ideal candidate for that could potentially be Amazon,” Solca told WWD. “Amazon needs a separate mall to engage in luxury credibly, sort of what Tao Bao does with Tmall.” Earlier this year, Solca floated the idea of an initial public offering or divestment of Net-a-porter, and said it would be “a positive” for Richemont.
Solca added that Net-a-porter helped Richemont “understand that digital is important, and to export best practices to the core of the business.” However, he said he wonders whether Richemont wants to be in the pure-play Internet retail business in the long-term. “There is no obvious strategic fit in my mind,” he said.
Amazon is eager to make its mark on the fashion world, which executives have said the Web giant sees as a key area of potential growth and is already one of its key sectors. It has opened an online store on Alibaba Group Holding Ltd.’s Tmall.com as it seeks to expand in China, joining retailers that include Zara owner Inditex, Burberry and Asos.com.
In February, Amazon revealed that the group and its fashion sites — Amazon Fashion, East Dane and MyHabit — were becoming the presenting sponsor of New York Fashion Week: Men’s, the first edition of which will be held in July. It also signed on as the new sponsor of the biannual fashion weeks in New Delhi, the latest edition of which opened Wednesday.
Purchasing a company like Net-a-porter — with its glossy packaging and edgy, high-end fashion offer — would be a mega-move, catapulting Amazon firmly into the designer arena.
Last week, Citigroup’s Thomas Chauvet published a report comparing Richemont with rival Swatch Group. In it, he floated the possibility that Richemont could use the five-year anniversary of the purchase of Net-a-porter to spin off the e-tailer and seek an IPO or sell it to private equity or strategic investors.
Citi called Net-a-porter “a high-quality asset operating in a highly-coveted segment” and pointed to the site’s “lack of obvious industrial, cost and commercial synergies with the rest of the group.” Citi added that it’s “unlikely” Net-a-porter would ever distribute Richemont’s higher-end brands such as Cartier, Van Cleef & Arpels and Jaeger-LeCoultre. Richemont also owns Chloé and Dunhill, which Net-a-porter and its men’s site Mr Porter do sell.
“We also believe that a (potential) disposal of the fashion brands would leave NAP even more as an isolated entity within Richemont,” the report said, adding it could envisage a disposal of Net-a-porter within the next 12 to 24 months.
Chauvet also suggested this could be Richemont’s ideal moment to dispose of Net-a-porter, “considering M&A activity in the online luxury space, Amazon’s potential move into online luxury retailing, and rich consensus valuation multiples enjoyed by Asos, Yoox Group and Zalando.”
While some analysts believe that Net-a-porter could command a valuation of 2 billion euros, other banks estimate it would be worth two times the ratio of enterprise value to sales, giving it a valuation of 1.2 billion euros to 1.5 billion euros, or $1.31 billion to $1.64 billion.
Meanwhile, at the end of this month, Richemont will likely exercise its option to buy out the remaining minority shareholders in Net-a-porter, including the company’s founder and executive chairman, Natalie Massenet. Massenet is acting, ad interim, as the group’s chief executive officer as the company searches for a successor to Mark Sebba, who retired last year, but who remains a non-executive director.
Richemont has repeatedly denied reports that it’s interested in selling Net-a-porter, and in November, the group’s chief financial officer, Gary Saage, said during a conference call: “We love all our 20 ‘children,’ and none of the companies is for sale.”
In 2013, Richemont denied rumors that it was in talks to sell Net-a-porter to e-commerce giant Yoox Group, which had been actively courting the company. In November, shortly after Saage discussed Richemont’s “children,” talk of a possible Net-a-porter IPO flared up, and later settled down.
Industry sources have said that Pascal Cagni, an Internet veteran who had been working for Net-a-porter Group in a consultancy capacity last year and who was widely tipped as the front-runner for the role of ceo, drew up preliminary plans to prepare Net-a-porter for an IPO. The sources said management rejected them and Cagni left the company when his contract reached its end.
Net-a-porter is a fast-growing company, although it has struggled — for a variety of reasons — to turn a profit. In November, Saage confirmed that Net-a-porter tipped into profitability in the first half, and its sales growth exceeded the group’s average.
Richemont does not disclose the balance sheets of its separate divisions, but according to the latest figures on Companies House, the official register of British businesses, losses at Net-a-porter narrowed to 12.9 million pounds, or $20.2 million, from 19.3 million pounds, or $30.5 million, in the 12 months to March 29, 2014. Operating profit as a percentage of sales rose to 4.2 from 3.7 percent in the previous year. Sales advanced 22.6 percent to 532.6 million pounds, or $835.1 million, on the back of the new investments, and from growth across all markets, particularly the U.S., and the Asia-Pacific region.