Richemont makes concessions to its new activist investors over lossmaking Yoox Net-a-Porter

Richemont’s share price is up about 16% over the past two trading days after the company announced it was in “advanced talks” with other industry players about establishing a new, combined vehicle for its online business.  

But what this business would be, who would be part of it, who would not, and whether it would be listed, all remain sketchy while the industry wrestles with a conundrum about the future of online sales of luxury goods. 

It’s a puzzle not only for Richemont, but for all the players in this very profitable, high-growth sector. The argument that it is impossible to sell luxury goods online has been comprehensively disproven. 

But Richemont, an early adopter in this space, has struggled to increase its market share, not to mention sell profitability online, underlining some peculiar difficulties in selling, for example, hugely expensive watches and jewellery online.  

Richemont’s original plan was to try and build an industry-wide online presence, and to that end it bought two successful ecommerce offerings, now combined as Yoox Net-a-Porter (known as Ynap). This contrasts with the approach of its competitors, which have generally opted for a brand-specific approach, trying to match the store experience with the online experience.  

Richemont also has brand-specific online offerings, but it has persevered with its attempt at an industry-wide offering, recently buying into the US-listed British company Farfetch alongside Chinese internet giant Alibaba. 

What the company revealed at its results presentation on Friday is that it is interested in creating an online presence with other luxury brands, and that neither it nor any other group would have a majority shareholding.  

This and the sparkling results were clearly music to the ears of the new activist hedge fund Third Point and some other investors, who, reading between the lines, were pushing in this direction. 

Richemont chairman Johann Rupert said, somewhat indeterminately, that this had always been the plan, “.. this not a spin-off, this is not a carve-out, this is the realisation of a dream of some six years ago”, he told the investors’ meeting.  

So, this would not necessarily mean it would hive off the business into a separate company. But Richemont has invested in Farfetch, which Rupert said had “remarkable, truly remarkable, technology”, and the companies had invested in a Chinese business together with Alibaba. 

Asked about listing the new entity, Rupert said, “It’s way too soon to decide.” 

But the newcomers were investing. 

“We are looking at this as a great route to market and I think what helped the push was Covid, because we had industry newcomers approaching us out of the blue when they realised the sensitivity when their stores got shut. So, we had people, big names that you will know, approaching us to join this joint venture,” he said.  

All this is bad news for Yoox Net-a-Porter, which sells clothing and accessories through two online shops, but it has lost market share and, weirdly, has not benefited from the boom in online shopping during the pandemic.  

Why this is the case in the face of thumping great increases in sales for the groups as a whole, even compared to the pre-Covid period, is perplexing.  

Peter Armitage, the CEO of Anchor Capital, said it may be that the problem for online sales has to do with the complexity of price points, different sales categories and particularly marketing spend.  

Clearly, with some products, like very high-end watches, most buyers probably need to actually feel and see the product in-store. But handbags and other apparel sell online, particularly in Asia, like hot cakes. 

“For years, the ratio between sales and marketing in traditional stores has been pretty well known. But we are still at the stage with sales in the digital space where it’s not always clear what the equation is,” he said. 

Despite the outstanding issues, Paul Theron, CEO of investment house Vestact, said: “I think the market just needed to know there is a plan.” 

What that plan is precisely, and whether it will work, remains to be seen. DM/BM