Verbatim – The Internet, a strategic issue

In April, Compagnie Financière Richemont announced it had acquired Net-à-Porter.com, in which it had previously held a 33% stake. For those not familiar with the site, the news prompted at best a slightly raised eyebrow and at worst, total indifference. This was certainly not the case of the investment research firm BernsteinResearch, which sees the company as a typical example of recent success stories from pure players in the Internet industry.

The meteoric rise of Net-à-Porter

Let’s judge it on the figures. For fiscal year 2009, ended 31 January 2010, Net-à-Porter generated sales of £120 million (€140 million/US$ 172 million) compared to £37 million (€43 million/US$ 53 million) in 2006. This represents average yearly growth of 50% for the past three years. At end January 2009, at the height of the crisis, the company, which presents itself as a luxury brand in its own right, posted pre-tax profits of £8.5 million (€10 million/US$ 12.2 million), an increase of 234% in one year. Net-à-Porter, an online women’s fashion retailer, currently has 2.5 million page views per month, 18,500 unique visitors a day, and an average spend of £500 (€590/US$ 717) per order. This hugely successful growth is of course reflected in the market valuation of Net-à-Porter. Set up in June 2000 by Natalie Massenet, a former Tatler journalist, with an investment of £850,000 (€1 million/US$1.2 million), it was acquired by Richemont in a deal that values the company at £350 million (€410 million/US$ 501 million)!

BernsteinResearch thinks this could attract attention among executives of luxury companies. “The luxury industry has tended to view the Internet with suspicion, particularly due to the surfeit of counterfeit goods,” writes Luca Scola, one of BernsteinResearch’s senior analysts. “Many businesses see it as no more than a shop window, not to mention changes in strategies after the failure of multi-brand portals. But things are evolving quickly now, as we’ve seen with Richemont’s acquisition of Net-à-Porter, Burberry’s recent Internet marketing push, and the return of Fabergé through online sales.”

Impact on three fronts

Luca Scola cites two main reasons for this: new European legislation, due to take effect imminently, which is expected to adopt a much more liberal stance towards the online sale of luxury goods, and the growing number of successful Internet initiatives. According to BernsteinResearch, there is potential for online projects in three specific areas: management of unsold inventory at the end of the season, with price reductions aimed mainly at customers who are already familiar with the brand; management of niche brands which can considerably reduce their overheads through a personalised Internet approach; and the strengthened appeal of universal brands.

“In the case of mega-brands, says Luca Scola, the Internet will never be a substitute for bricks-and-mortar distribution and traditional communication. Advantages for these brands could come from increased purchasing convenience, although this has already largely been exploited, and alternative ways to interact with consumers. Recent experience in developing points of sale away from luxury shopping streets has revealed opportunities to recruit a whole host of new consumers, who feel intimidated by glitzy districts and flagship stores. The Internet could offer another avenue to compound this effect. Marketing experiments on social networking sites (e.g. Facebook, Twitter, YouTube) and mobile phone apps, though in their infancy, also warrant careful monitoring.”