Richemont’s decision to plough €2.7bn (R40bn) into e-commerce by buying out Yoox Net-a-Porter is a wake-up call to sceptics who thought consumers would never buy US$5 000 Cartier necklaces and $50 000 Vacheron Constantin watches online.
YNAP had been targeted by short sellers who thought Amazon.com’s appeal to buyers of books or appliances would be hard to replicate with high-end luxury. The Swiss company’s bid overwhelmed those bearish bets as the stock surged to a record.
“Digital is quickly becoming an important distribution channel for hard luxury,” wrote Michelle Wilson, an analyst at Berenberg, referring to watches and jewellery.
The new wave of online shoppers is led by millennials, who already buy much of their soft luxury, or fashion, online. Future generations of Patek Philippe owners may never set foot inside brick-and-mortar boutiques as consumers grow more comfortable waiting for delivery of higher-priced items, with the convenience of online shopping helping facilitate impulse shopping.
Luxury brands are shifting their strategies in response, with Dior Couture and Dom Perignon owner LVMH launching multi-brand e-commerce ventures last year for both fashion and beverages, while brands including Kering-owned Gucci and Prada rolled out their first online stores in mainland China.
Online luxury sales rose 24% last year, according to consultancy Bain & Co, even as traditional distributors of timepieces went out of business. Richemont’s acquisition follows Apax Partners’ takeover of rival Matchesfashion.com and JD.com’s purchase of a stake in Farfetch last year.
Richemont is expanding a push into retail as it tries to sell more of its timepieces itself, rather than via outside retail partners. Gaining more contact with the customer helps the company gauge watch demand and avoid inventory gluts or shortages. While high-end fashion brands have long boosted margins and safeguarded their brand perception by limiting their exposure to wholesale, multi-brand emporiums still account for a higher share of sales in watches and jewellery.
Own brands
Last year, Richemont built a 7.5% stake in Dufry, the world’s largest duty-free retailer, and passed on the opportunity to buy Breitling, the aviator watchmaker that CVC Capital Partners purchased. Chairman Johann Rupert has said he prefers building Richemont’s own brands rather than overpaying to acquire new ones.
YNAP’s shares surged as much as 26% on Monday to €38, touching the price that the Swiss luxury-goods maker bid for the Milan-based company, which sells $7 000 Chopard earrings and $700 Balenciaga trainers. Almost a third of YNAP’s freely available shares were shorted, according to Markit Securities — meaning investors had sold borrowed stock in the hope of profiting by buying it back later at a lower price.
“There is a possibility of a counter bid to Richemont’s offer,” wrote Sherri Malek, an analyst at RBC Europe, saying YNAP could be attractive to Amazon.com, or that YNAP could tie up with Asos or Zalando.
Richemont owns 25% of YNAP’s voting shares but has economic control over half of the company through non-voting stock. YNAP was created in 2015 from the merger of off-season luxury discounter Yoox with Richemont-backed Net-a-Porter, founded by the former fashion journalist Natalie Massenet. YNAP’s sales rose 17% organically and reached €2.1bn in 2017, the company reported last week.
Goldman Sachs Group advised Richemont on financial matters and BonelliErede and Slaughter & May were legal advisers. — Reported by Thomas Mulier and Robert Williams, (c) 2018 Bloomberg LP