Yoox Net-a-porter its all about the box

In big news two leaders of the online luxury market have agreed to merge in a market changing transaction. YOOX is known for its operations expertise running the back end technology and logistics for luxury brand sites. While Net-a-porter runs its own luxury branded site. Clued into the fashion world Net-a-Porter even produce their own magazine whose content is becoming even more important for social media and sales. The combination will let each partner lean in on each others strengths. I mean look at Yoox's boxes they could sure use Net-a-Porters fashion sense!

Just like Tiffany it's all about the box

Together the pair would claim about 15% of the online luxury market with 2.1 million customers. It's the perfect transaction creating a market leader and being accretive in the first year there is a reason the stock was up on the news. Even with the rise the combined company trades at a EV/EBITDA discount to Asos and Zalando.

The fashion partner of choice
According to McKinsey online sales represent only 4% of the luxury retail industry but are expected to grow at double digits for the next couple of years. Bain and Co estimates that 40% of luxury brands don't sell their bags online. These online brands are realising that more and more people are buying online and even more researching online before they buy. Most luxury brands just need a partner. As can be seen below there will be three business lines.

Source: Yoox Net-A-Porter presentation 

The two businesses are complementary Yoox is known as an off price brand while Net-a-Porter is in season. They are also successful in different markets Net a Porter is big in the UK while Yoox is big in Italy. I'm normally skeptical of 'revenue synergies' but I think it makes sense in this case with more customers and different offerings they will be able to serve more customers and more importantly brands. The merger will accelerate growth they expect no redundancies in the company. The combined entity is too big for luxury brands too ignore. There is no one else with scale that luxury brands can work with. As can be seen below Amazon and other sites trade on value for money. Their average orders are too low for luxury brands.

Source: Yoox Net-A-Porter presentation 

Opening doors to the world's luxury fashion store
The smart part about the transaction was how it was structured. Richemont (who owned Net-a-Porter) will own 50% of the entity but only have 25% voting rights so that the combined entity will remain independent. This independence is important because of Yoox's relationship with luxury retailers. With increased customers and offerings the combined company should be able to convince other luxury brands to transact online. As the founder of Net-a-Porter says "the best way to predict the future of fashion is to create it." With YOOX's operational savvy and Net-a-Porters fashion sense the future of fashion is here.

 Jason

http://www.decisiveassetmanagement.com/

Disclosure: Decisive has a long position in Yoox (YOOX).

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