Consolidation with rival Yoox could provide opportunities to rationalise costs, grow economies of scale and increase profits for UK-based luxury etailer Net-a-Porter, according to industry sources.
On Monday, Net-a-Porter’s owner Richemont and Milan-based etailer Yoox confirmed they are in talks regarding a “potential business combination”.
It follows reports last week that Amazon is in talks to acquire Net-a-Porter in a deal that would value the company at up to €2bn (£1.47bn).
Luxury group Richemont acquired Net-a-Porter five years ago for £350m and the company’s sales are forecast to reach €700m (£511.6m) in the year ending this month. However, in the most recent results, for the year to March 29, 2014, the company revealed it was losing £10m a year.
Richemont and Yoox are reported to have first held discussions more than a year ago, but no deal was made.
Industry sources suggested the latest talks would most likely play out as a merger to exploit synergies between the two luxury etailers, combining Net-a-Porter’s in-season offer with Yoox’s discounted out-of-season lines.
Yoox, which is valued at €1.3bn (£0.95bn), sells through its site Yoox.com, luxury branded clothing site TheCorner.com and footwear site Shoescribe.com, as well as operating ecommerce sites for brands including Armani.
One womenswear agent, which supplies both Net-a-Porter and Yoox, said: “Yoox is a very important website with exclusivity on certain lines and they understand the luxury end of the market, but Amazon is such a big player, so both could provide opportunities for Net-a-Porter.
“As long as Net-a-Porter says in the UK and continues its well established strategy, both deals could work well, depending on the detail.”
A distributor of brands stocked at both firms agreed: “Although there has been a lot of success in the ecommerce market, there has not necessarily been a great deal of profit, so perhaps some consolidation makes sense.”
He suggested that, while a deal with Yoox could provide an opportunity to rationalise costs and provide better economies of scale, there may be some concerns if it were to be acquired by Amazon.
“Amazon is a price-driven business, but it clearly harbours the ambition to get into the premium market, so if that’s its intention then surely it would be unlikely to pursue that kind of strategy.”
James Doyan, managing director of multichannel consultancy Athito, said: “Net-a-Porter’s business is exploding and they’ve got their customer completely nailed down, so this seems an odd move.
“Perhaps the meltdown in Russia has meant sales dropped off significantly, but otherwise this looks like it is about economies of scale and Net-a-Porter maturing as a business, looking how to maintain its level of growth.”
Fiona Cincotta, senior market analyst at spread betting firm Finspreads, said the reported valuation of Net-a-Porter seemed high, but not unrealistic. “And that is despite the fact that the company will need significant continued investment to grow further and to tackle rising parcel costs and fierce competition from growing online volumes,” she added.