Richemont, Doubling Down on Online Luxury, May Buy Yoox Net-a-Porter

Compagnie Financière Richemont built a conglomerate offering the world’s wealthiest consumers the highest-quality product, often in the most luxurious of settings. Clients walking into a Cartier flagship or a Piaget boutique — both Richemont brands — could expect radiant smiles and soft furnishings, as well as impeccable service for as long as was necessary before they made their purchase.

Increasingly, though, well-heeled clients don’t want that type of service. Cash-rich, time-starved customers want their shopping to be quick, quiet and easy, done in a matter of seconds from their smartphone.

Richemont, which also owns upscale brands such as IWC, Montblanc and Van Cleef & Arpels, knows that times are changing. The Swiss luxury group announced Monday that it was doubling down on its investments in high-end internet retail, making an offer of 2.8 billion euros, or about $3.4 billion, for the online fashion retailer Yoox Net-a-Porter.

The surprise bid was a significant about-face in Richemont’s strategy and an acknowledgment that wealthy consumers are increasingly comfortable buying an expensive watch or pen with a click rather than a trip to an upscale store. The process of buying luxury goods, which traditionally took place over many hours in lavish shops or department stores, is rapidly transforming.

Personal luxury goods had been slower than other retail items to migrate online, but their online sales rose 24 percent last year, according to a study by Bain & Co. The study also estimated that online sales of such products would account for 25 percent of the market by 2025, compared with about 9 percent now.

Richemont, which was already restructuring how it sold its watch and jewelry brands, clearly hopes to capitalize on that growth. It said it had offered to pay 38 euros a share to buy the Yoox Net-a-Porter stock that it did not already own, a 25.6 percent premium to the company’s closing price of 30.26 euros Friday.

Yoox and Net-a-Porter merged in an all-share deal three years ago. At the time, Richemont was Net-a-Porter’s controlling shareholder, and still holds about 25 percent of the combined company.

“With this new step, we intend to strengthen Richemont’s presence and focus on the digital channel, which is becoming critically important in meeting luxury consumers’ needs,” Johann Rupert, the Richemont chairman, said in a news release. Recent years were rocky for Richemont. Exports of Swiss watches slumped, a crackdown on corruption in China stanched demand for luxury goods in an increasingly important market, and global economic growth was sluggish.

That appears to be changing, though. The group has posted strong sales growth in recent quarters, highlighting a recovery in demand for top-end Swiss mechanical watches. The broader mix of products and prices offered by its brands, in particular to younger customers, who tend to browse and buy online, has also bolstered results.

Yoox Net-a-Porter owns and operates the internet retailers Net-a-Porter, Mr Porter, the Outnet and Yoox, and operates e-commerce sites for over 30 luxury brands, including Stella McCartney, Dolce & Gabbana and Chloé.

The company reported sales of 2.1 billion euros last year, up 11 percent from a year earlier, and recently unveiled ambitious plans to double the size of its business by 2020. Its archrival is Farfetch, an online marketplace for 500 independent luxury boutiques and 200 brands that also owns of the bricks-and-mortar store Browns in London. Farfetch is rumored to be mulling an initial public offering this year.

Federico Marchetti, the Yoox Net-a-Porter chief executive, has agreed to sell his shares and any he would acquire through the exercise of options in the offer. He owned about 3.9 percent of the company’s total share capital.

Richemont said Yoox Net-a-Porter would continue to operate as a separate business, “ensuring it remains a neutral and highly attractive platform for third-party luxury brands.” Yoox Net-a-Porter’s headquarters would remain in Italy.

“Richemont aims to provide additional resources that further strengthen and accelerate YNAP’s long-term leadership in online luxury,” Marchetti said in a news release. “This means investing even more in product, technology, logistics, people and marketing.”

With much speculation over the “death of retail,” the steady decline of department stores, and the looming threat of online giants like Amazon, one bright spot in the shopping landscape has been businesses like Yoox Net-a-Porter — high-end, multibrand e-commerce companies that have attained sky-high valuations.

Moda Operandi, the luxury online retailer based in New York, raised $165 million in its latest round of funding in December, just a few months after Apax Partners bought a majority stake in London-based Matchesfashion.com, which had a valuation of roughly $1 billion.

In May, LVMH Moët Hennessy Louis Vuitton, the world’s largest luxury group, made its own foray into the sector with the boutique shopping website and mobile app 24 Sèvres. Just weeks later, however, Condé Nast closed Style.com, its own high-stakes experiment in online fashion retail, a lesson to companies like Richemont that even the most reputable names in fashion can struggle if they arrive late to the game. The Richemont deal nevertheless caught some analysts by surprise Monday. Luca Solca, the head of luxury goods analysis at the French bank BNP Paribas, called it a “puzzling development,” years after Richemont had divested most of its stake in Net-a-Porter.

Sherri Malek, an analyst for RBC Capital Markets, said there was a strong possibility of a rival bid for Yoox Net-a-Porter, given its sales growth and market position. She added that, with the large number of players entering the market and high level of competition, there could be further such deals in the sector.

“As Amazon continues to dominate the internet retail industry and focuses its efforts on penetrating the fashion category, we think this has the potential to incentivize smaller competitors to consolidate,” she wrote in a note to investors.

The Yoox Net-a-Porter deal is subject to regulatory approval and to shareholders agreeing to sell more than 90 percent of the company’s outstanding shares in the offer.