The nuts and bolts of Richemont’s acquisition of fast-growing fashion retail website Net-a-Porter are easy enough to understand – but the rather more interesting subtext is the changing relationship between the luxury and online worlds. Richard Woodard reports.
Figures first. Already the holder of a 33% stake in Net-a-Porter, Richemont agreed to acquire the remaining 67% in a deal which values the company at GBP350m – not bad for a venture established in 2000 by ex-journalist Natalie Massenet with GBP800,000 cobbled together from friends and family.
The reason for the hefty price-tag is partly the company’s size – it turned over GBP120m in the year to January 2010 – but mostly its potential.
That turnover figure was up 50% on fiscal 2008, and the site is adding new customers at a rate of about 10,000 a month. Well over 3m people in 170 countries are now using it.
In that context, and with the luxury marketplace as a whole stuttering back towards growth after a grim 18 months, Richemont’s timing looks good, and the deal could constitute a bargain if it can go on increasing Net-a-Porter’s business at such a healthy rate.
But the acquisition says far more about the way luxury goods companies now view the internet and e-tailing.
Once they would have thought the web dangerously democratic and borderline anarchic – the place for a bargain, not a luxury shopping experience. Now it’s an increasingly important part of their business model.
It’s not hard to see why. Consultant Bain & Company has estimated that the buoyant online luxury goods segment grew by 20% in 2009, even as overall luxury sales declined by 8%.
Online sales still only account for about 3% of total revenues, but that’s changing fast. The argument about whether people are willing to purchase luxury goods online is over, and conclusively so.
Richemont executive chairman and CEO Johann Rupert has restated the company’s philosophy that it values the independence of its “maisons” highly, adding: “That principle will especially apply to Net-a-Porter as a platform for third parties.”
In other words, don’t be tempted to muck about with the winning Net-a-Porter formula by stuffing the site full of Alfred Dunhill and Chloé.
Apart from the fact that those “third parties” will be queuing up to leave the site, canny online consumers are equally likely to vote with their keyboards and go elsewhere.
Models that work
That’s a reflection that there are two major online retail portal models that work: single branded sites, or “comprehensive” third party portals like Net-a-Porter, currently selling the wares of 300-plus designers and counting.
By contrast, grouping your various brands under one “corporate umbrella” site in the old way makes little sense.
Most consumers will have no clue that Richemont, for instance, owns Dunhill, Chloé, Cartier and Jaeger-LeCoultre, so why should they expect (or indeed want) them to be grouped together in one online portal?
Such was the painful lesson learned by LVMH with its ill-fated eLuxury venture, launched in 2000 as the company’s internet retail portal, but gradually rendered obsolete over the years that followed as consumers gravitated away to individual brand sites.
eLuxury was phased out in the first half of 2009, and has since been replaced by a very different beast: Nowness.com.
Nowness is a reflection of the way in which different spheres of activity – editorial content, commercial considerations and the ever-more subtle ways of marketing your brands – are becoming increasingly blurred.
For the record, Nowness promises “an exclusive daily premiere of the most inspiring stories influencing contemporary arts and global lifestyle”. No, I don’t quite know what that means either.
It does, however, claim to be editorially independent and as such doesn’t just involve brands from within the LVMH stable.
And, according to Kamel Ouadi, digital executive vice president of Nowness, the site’s software enables the company to track the preferences of users trawling the site content.
Less tangible benefits
If it’s easy to see what Net-a-Porter does for Richemont – its retail operations contribute to the group’s revenue and earnings, adding a new area of business to boot – the benefits of Nowness to LVMH are rather less tangible.
It doesn’t sell anything, and its claimed independence means it could theoretically boost the fortunes of rival brands (although one suspects that LVMH wouldn’t let that happen more than once).
But, in the end, Nowness illustrates the increasingly sophisticated way in which brands communicate with their target audience online, many of whom won’t take kindly to being “sold to” in the conventional way.
In that respect, such ventures are rather like companies’ growing involvement with social media phenomena such as Facebook and Twitter: they represent another strand to a company’s overall marketing strategy, alongside traditional advertising, sponsorship and events.
What they add to the bottom line is difficult to quantify, but they are becoming an altogether more subtle form of communication to complement the rather more blunt marketing instrument of, say, a two-page ad in a glossy magazine.
And, as the digital world evolves and changes, luxury companies are becoming increasingly switched on to its merits and its challenges, swapping the suspicion of the past for an altogether more positive stance.