Is Richemont poised to lead the global online luxury market?

Some pore over case studies and endeavour to put figures on online retail’s relentless march. Others are in the thick of the action. Bain & Co fall into the first category. Its recent Luxury Goods – Worldwide Market Study puts the global online personal luxury goods market at €23 billion in 2017 (averaging 25% year-on-year growth since 2013). This equates to a modest 9% market share that is expected to climb to 25% by 2025. Richemont is clearly part of the second set, and more categorically so since its €2.7 billion bid to acquire Yoox Net-à-Porter (YNAP). The acceptance period runs until May 9th 2018, and could be reopened from May 21st to 25th. So far, nothing appears to stand in the way of the deal that would give Richemont full control of the biggest online luxury retailer. At mid-March, the Italian market watchdog Consob (Commissione Nazionale per le Società e la Borsa) gave its approval. A week later, the European Commission announced that the operation fulfilled antitrust conditions.

An investor roadshow

As far as funding the deal goes, Richemont has it all lined up. Following a roadshow with investors, the group had no trouble raising funds through an inaugural €3.75 billion bond transaction with three tranches maturing in 8, 12 and 20 years, with coupons of 1%, 1.5% and 2%. “We are pleased at the support the inaugural bond issue has received from investors, which demonstrates confidence in the quality of our assets and strength of our balance sheet,” said Johann Rupert, Chairman of Richemont. “In line with Richemont’s prudent balance sheet policy, we have taken advantage of the low interest rate environment to raise long-term debt. We will use the funds to invest in the development of our businesses.” At current rates, it’s clear the financial markets create prime opportunities to raise money.

Compagnie Financière Richemont certainly has what it takes to please investors. Operating profit shot up by 46% to €1.1 billion for the six months ended 30th September 2017. Operating margin again exceeded the 20% mark. Better still, the group’s balance sheet shows it is in rude health, with non-current liabilities that represent a tiny 3% of the total €19.3 billion equity and liabilities, and a net cash position of €4.7 billion. Had it wished, Richemont could easily have funded the YNAP buyout from its own money. Sound financial rationale means the group preferred a bond transaction, thereby ensuring better yield for its own funds if the acquisition goes through.

A strong start

Chances that it does are high. Particularly as Richemont is on familiar ground with Yoox Net-à-Porter. Nathalie Massenet, a fashion journalist who made the move into online retail, set up Net-à-Porter in 2000 before selling a majority stake to Richemont in 2010. For five years, Richemont accompanied the growth of a business whose blend of online retail and editorial content proved a winning combination. The merger with Yoox, an Italian firm established in 2002 by Federico Marchetti, followed in 2015 through a share swap that made Richemont the main shareholder of the new group, owning 50% of the capital but with 25% of voting rights, leaving Yoox’s founder in charge of YNAP – a situation that couldn’t go on indefinitely. As recent reshuffles show, Richemont is shaping itself for the digital era and has no intention of missing out on the e-commerce boom. Its offer on YNAP, which includes a premium of 27% on the weighted average price of the three months preceding the announcement, is proof of its firm intention to see the deal through, following which YNAP would be delisted from the Milan Stock Exchange.

Paving the way, YNAP has announced it will shortly launch a dedicated watch and jewellery section which aims to generate €100 million in revenues in the next three years. Which isn’t as extravagant a forecast as it may seem, given YNAP’s dominant position as the world’s biggest online luxury retailer. Its 2017 revenues increased 12% on the previous year to €2.1 billion, for a 10% share of the online luxury market. During its last financial year, YNAP, which employs around 4,500 people, recorded 842 million visits that converted to 9.5 million orders with an average value of €328. Its various sales platforms can count on 3.1 million active customers in the 180 countries it delivers to. In an interview with Fashion Network, Federico Marchetti declared that “our true asset is content with commerce. The reason why it is unique is because we as retailers control the whole supply chain. Our buyers talk to our editors by definition. We also control the inventory and that’s why we can converge content and commerce very well.” For Richemont, which is still taking its first steps in e-commerce, acquisition of YNAP represents a fabulous springboard not to mention an excellent financial transaction.