Compagnie Financière Richemont is finally exiting Yoox Net-a-Porter, but the price of ridding itself of the loss-making online luxury business is a hefty one.
On Wednesday, the Cartier owner said it would sell a 47.5% stake in YNAP to online marketplace Farfetch and a further 3.2% to investor Mohamed Alabbar, developer of the massive Dubai Mall. The deal leaves Richemont with a minority stake in YNAP. There are also options for a second stage of the transaction that would see Farfetch acquire the whole of YNAP.
The business will no longer be on Richemont’s balance sheet, ridding it of YNAP’s losses, which have depressed its earnings and valuation. In the year to 31 March 2022, Richemont’s online distributors, led by YNAP, lost €210-million.
But the exit is costing the company dearly.
In return for the stake in YNAP, Richemont will receive 12-13% of Farfetch’s issued share capital, implying a value for the whole of YNAP of about US$1-billion, based on Farfetch’s closing share price on Tuesday. Even with the as much as 20% rise in Farfetch shares in pre-market trading on Wednesday, and another $250-million payment in five years, this is far below the about $5-billion valuation Yoox Net-a-Porter had in early 2018 when Richemont agreed to take full control of the digital business.
Consequently, Richemont will take a non-cash writedown of about $2.7-billion.
Johann Rupert, Richemont’s chairman, said on Wednesday that the luxury group had learned a lot from its ownership of YNAP. The Swiss company went on to acquire second-hand watch platform Watchfinder and also struck a deal with Alibaba Group four years ago, gaining more clout in China and making it look briefly like an online luxury powerhouse.
But these benefits can’t disguise the fact that Richemont’s frequent U-turns on Net-a-Porter — first striking a deal with Yoox Group and then buying the combined company — were not its finest decisions, strategically or financially.
To be sure, it’s a feat that Richemont has managed to reach an accord despite a worsening outlook for the luxury industry in both China and the US. Meanwhile, the slump in tech stocks threatened to derail discussions with Farfetch.
That may explain why Farfetch looks like the real winner from Richemont’s retrenchment. It gets a sales boost, particularly in watches and jewellery, just as online growth is slowing and luxury buyers return to stores. Most of Richemont’s brands, including Cartier and Van Cleef & Arpels, will join the Farfetch marketplace.
In May, Farfetch, which listed in New York in September 2018, cut its outlook after it was hurt by exiting Russia and lockdowns in China. Richemont will also provide it with a $450-million credit facility. Fortunately, the Swiss company will be able to benefit from any upside through its holding in Farfetch.
Rupert usually takes a long-term view. But when it came to online retail, Richemont’s investors had a much shorter time horizon. The shares had slipped recently on concerns that it would not be able to finalise an agreement with Farfetch before its annual meeting next month. Richemont is also facing a campaign from activist investor Bluebell Capital Partners to shake up its governance structure. The shares rose about 3% on Wednesday.
At least the deal with Farfetch draws a line under Richemont’s rare strategic flip-flopping over online, and should enable its watch and jewellery businesses to shine. That could be a blessing if the bling bubble bursts later this year. — Andrea Felsted, (c) 2022 Bloomberg LP