MILAN, Italy — When the two constituent parts of the world's biggest luxury fashion retailer, Yoox Net-a-Porter, were founded in 2000, they seemed as doomed as Pets.com, the hapless e-commerce start-up that came to embody the silliness of the first Internet bubble. Now, buying expensive clothes online no longer is an outlandish proposition — and European companies such as Yoox and Net-a-Porter have shown that they can do it better than anyone.
Monday was the e-tailer's 's first day of trading as a single entity after the merger of Milan-based Yoox and London-based Net-a-Porter. The company gift-wrapped the Milan Stock Exchange for the occasion. Its shares rose about 2 percent, increasing capitalization to 3.7 billion euros ($4.2 billion). Some might consider this an isolated success: Although online sales account for 17 percent of the U.S. apparel market and about 16 percent of the German one, luxury fashion's share is about 4 percent, and both Yoox and Net-a-Porter have done well in a segment that has fallen far behind its broader market.
That seems likely to change in the next few years. In the presentation describing the benefits of the merger, Yoox Net-a-Porter predicted the online share of sales would increase to 7 percent in 2018 because of a "generational shift, with millennials moving into top spending years." McKinsey, however, predicted earlier this year that online stores would capture 17 percent of the luxury fashion market by 2018. These are the reasons U.S. consumers went online to buy high fashion, according to McKinsey:
The experience of luxury shopping involves touching expensive fabrics, looking good in mirrors, being waited on. Yet online shopping offers different kinds of therapy: the ability to compare and discard many more offerings, the instant gratification of going to a site or opening an app, the thrill of a unique find, the pleasure of getting expert opinions (Net-a-Porter founder Natalie Massenet, a former journalist, stressed content as much as commerce when she created the site). And, not least, not having to talk to the salespeople at boutiques, who sometimes seem to lavish the wrong kind of attention on customers.
Yoox and Net-a-Porter merged because they had complementary offerings. The Italian retailer had a big outlet business thanks to relationships with fashion houses, and it's been building monobrand online boutiques for specific designers such as Valentino and Armani. The U.K. company's niche was multibrand sales in season and full-price sales, in large measure thanks to its content-based, magazine-like presentation. The combined company makes 51 percent of its revenue from full-price sales, 12 percent from monobrand sites and the rest from Yoox-style off-season sales.
The combination looks natural, but it's not the only workable one. The U.K. service Farfetch, which offers online access to collections in small, one-of-a-kind boutiques, is a "unicorn" — it was valued by venture investors at $1 billion this year. In Germany and the U.S., big department stores have been successfully selling luxury fashion online. The Munich site MyTheresa.com grew out of an expensive multibrand boutique when its owners realized they had a knack for selecting items that could be put to lucrative use on the Web.
It's hard to believe there are still parts of the consumer market that the e-commerce revolution has barely touched. Yet that's the case with luxury clothing, and it is preparing for explosive growth in developed markets. In the next three years, McKinsey predicts 17 percent average annual growth in the U.S., 19 percent in Italy, 21 percent in France.
This also is a market where European start-ups can excel. Huge U.S. companies dominate electronic commerce and the Internet in general, but few of them have Yoox's Italian expertise in locating overstocked items and negotiating for them, or Net-a-Porter's London style sense. As fashion brands realize they can deliver different benefits on the Internet — without rent for prime retail space — the online world is copying the bricks-and-mortar one with big U.S. chains and expensive European boutiques.
By Leonid Bershidsky; editor: Max Berley.