LONDON, United Kingdom — Luxury e-commerce leader Net-a-Porter Group, a legal entity operated out of the United Kingdom that includes Mr Porter and The Outnet, as well as its namesake brand, is no longer profitable, following the company’s takeover by Richemont, according to accounts filed in the UK earlier this month.
The numbers reflect the performance of the UK entity, which is part of the bigger Yoox Net-a-Porter Group (YNAP) and does not reflect overall global sales. But the latest numbers from Net-a-Porter Group provide a more granular view of what is dragging down overall performance.
The entity’s losses in the 15 months ending March 31, 2019 amounted to £10.5 million ($13.4 million). In 2017, a year earlier, the entity generated a profit of £47.6 million over 12 months. The extended reporting period brings Net-a-Porter Group’s results in line with owner Richemont, which acquired YNAP in May 2018 in a €2.7 billion ($2.9 billion) deal that valued the luxury online fashion group at more than €5 billion.
According to the accounts filed at Companies House on Jan. 6, Net-a-Porter Group saw sales increase nearly 11 percent to £710.9 million in the 15 months ending March 2019. But the cost of sales grew 17 percent to £426.1 million. Administrative expenses jumped nearly 40 percent to £261.6 million.
The results provide greater insight into a tumultuous period of transition and increasing competition.
“The period under review has been one of transition,” Net-a-Porter Group said in the accounts. “Sales have remained strong and customer numbers and order values continue to grow.” YNAP did not provide additional comment.
The results provide greater insight into a tumultuous period of transition following the Richemont acquisition and growing competition in the luxury e-commerce space.
Competitors, including Farfetch and MatchesFashion, are under intense pressure from investors to grow market share as quickly as possible. That’s led to bloated marketing budgets and heavy discounting to entice customers, as well as high technology and logistics costs. As for YNAP, the market leader, it has has been going through a troubled and expensive technology and logistics overhaul that’s dragged on for years, and cost hundreds of millions of euros.
After the Outnet migrated to YNAP’s new technology platform in 2017, year-over-year sales fell every month for a year. The site interface suffered too, prompting a rush of public customer service complaints. Behind the scenes, delays in the company’s plan to expand its warehouse network caused sizable logistical headaches. The group has also experienced an exodus of talent, including Mr Porter’s long-standing managing director, Toby Bateman, YNAP’s Chief People Officer Deborah Lee, and Chief Financial Officer Enrico Cavatorta.
The impact has already shown up in parent company Richemont’s results. In May, the Swiss conglomerate, which also owns Cartier, Van Cleef & Arpels and Chloé among other brands, reported its weakest profit margin in more than a decade. The weak performance was in part due to growing costs as a result of the technology and logistics upgrade — estimated at €200 million for the 2019 fiscal year alone. The company also recognised amortisation costs of €165 million related to the YNAP acquisition.
The latest numbers from Net-a-Porter Group provide a more granular view of what is dragging down the performance.
Richemont’s report for the first half of the 2020 fiscal year, published in November, revealed things have not improved. Sales at Richemont’s “online distributors” unit — which includes YNAP and secondhand-timepiece seller Watchfinder — were up 32 percent to €1.2 billion, but losses widened to €194 million, or a negative 16.5 percent operating margin. (A year earlier, losses were €115 million, or 13 percent.) The company has said it is committed to continue investing in technology to support future growth.
Many of YNAP’s core competitors are also facing substantial challenges. Shares in luxury marketplace Farfetch plunged more than 40 percent last year, after the company — which remains unprofitable — said it was acquiring New Guards Group in a $675 million deal. Farfetch has since said it expects to turn a profit by 2021. Meanwhile, rival MatchesFashion has struggled to control escalating costs, despite continued sales growth. Chief Executive Ulric Jerome abruptly left the company in August.
Still, the sector continues to present a global growth opportunity, with companies vying to scale and lock in high-value customers. Looking forward, Net-a-porter Group said it is focusing on continued global expansion, led by the Middle East and China.