Yoox With Online Luxury Is Alluring for Amazon: Real M&A

By Andrew Roberts and Brooke Sutherland

Photographer: Tiziana Fabi/AFP via Getty Images

The Giorgio Armani Menswear Spring-Summer 2015 collection during Men's fashion week in Milan.

Yoox SpA offers potential suitors a way to combine two of the fastest growing areas of retail: luxury goods and the Internet.
The $1.6 billion company, which operates e-commerce sites for designer brands including Armani and Moncler, is poised to boost sales by about 75 percent over the next three years, according to data compiled by Bloomberg. Affluent consumers from Seattle to Shanghai have more to spend on luxury goods and are increasingly going online to do it, according to Retail Metrics Inc. That may grab the attention of Amazon.com Inc., said CRT Capital Group LLC.
Amazon, whose stock is under pressure after reporting a $126 million quarterly loss last week, has been flirting with high-end goods, most recently selling Burberry Group Plc fragrances. Yoox, which is profitable, could jumpstart the $149 billion company’s luxury business, according to the Luxury Institute LLC. The Italian company’s technological know-how also makes it a possible target for traditional retailers such as department stores that are looking to bolster their online presence, said retail researcher Conlumino.
Yoox is “in a pretty attractive space to be in at this point in the retail cycle,” Ken Perkins, president of Retail Metrics, a Swampscott, Massachusetts-based researcher, said in a phone interview. “It could be on people’s radar in terms of a takeover.”

The stock rose as much as 4.1 percent and traded 2.3 percent higher at 20.64 euros at 9:34 a.m. in Milan. A representative for Yoox declined to comment. Representatives for Seattle-based Amazon didn’t respond to requests for comment.

Tripling Growth

Since Yoox went public in 2009, the operator of e-commerce for more than 30 brands has nearly tripled its revenue to about $605 million last year. That growth is poised to continue, with analysts projecting sales of more than $1 billion by 2016.
Potential buyers could get the company for a bargain right now. Yoox’s shares have fallen about 40 percent this year, leaving them near their lowest valuation since last May, as one of its closest peers, Asos Plc, reduced profit forecasts.
That slump is unwarranted because Yoox has a wider product offering than Asos, more geographic reach and a more affluent consumer base, according to Chiara Rotelli, a Milan-based analyst at Mediobanca SpA. Yoox said yesterday that net sales in the second quarter climbed 15 percent to 111.5 million euros, topping analysts’ estimates.
“This might be the right time for companies to look to acquire a company like Yoox,” said Milton Pedraza, chief executive officer of the Luxury Institute, a New York-based research and consulting firm. “The mass brands understand that luxury is far more profitable and more resilient. For a company to trade up to the luxury or the premium providers in categories, that would be wise right now.”

Bargains and Designers

Amazon has been building a bigger share of the apparel market and started selling Burberry fragrances. Still, it’s known more for bargains than designer dresses. Buying Yoox would give the e-commerce giant a stronger presence in luxury apparel and accessories, where margins are higher, said Neil Doshi, an analyst at CRT.
“It’s ultimately Amazon’s desire to be able to serve anybody anything that they want on their site,” Doshi said by phone. The company “has probably done a pretty good job in the lower to mid-range for apparel. To cover the full, broad spectrum, I think they’d probably want to get into more high-end stuff.”
Sales of luxury goods have been growing faster than the broader retail industry since the U.S. recession as wealthier shoppers, buoyed by rising real-estate values and equity prices, have more money to spend, said Perkins of Retail Metrics.
EBay Inc., the $66 billion online marketplace operator, may also want to expand its designer and luxury offerings, according to Kerry Rice, an analyst at Needham & Co.

Department Stores

Yoox’s focus on e-commerce makes it “very valuable” to existing luxury retailers as well, according to Maureen Hinton, global research director at Conlumino. A department store would be the “perfect owner,” strengthening the potential buyer’s sales channels while preserving Yoox’s independence, she added. Yoox also runs three multi-brand Web stores.
Exane BNP Paribas projects that e-commerce will account for about 40 percent of global luxury expansion in the next five years.
Yoox “is well positioned for this growth, with exposure across different segments of online luxury and unparalleled expertise,” Exane BNP Paribas analyst Luca Solca wrote in a report.

Retail Relationships

Kering SA could be interested in buying Yoox, should the owner of Saint Laurent dresses and Bottega Veneta handbags decide to take its relationship with the company one step further, said Rotelli of Mediobanca. Yoox runs the online operations for most of Kering’s brands.
Cie. Financiere Richemont SA, which last year sought to quash speculation that it was in talks to sell its online fashion retailer Net-a-Porter to Yoox, may instead decide to buy Yoox, said Pedraza of the Luxury Institute. Such a move would enable the Swiss company to take the cost-cutting and revenue benefits of a deal for itself.
Kering may prefer to continue its joint venture rather than acquire Yoox, and Richemont may be content with its Net-a-Porter operations and not want to get bigger in online fashion.
Representatives for San Jose, California-based EBay and Paris-based Kering declined to comment, as did a representative for Richemont.
Still, Yoox sits at the confluence of luxury and e-commerce, and that makes it desirable for both Internet giants and retailers, said Pedraza of the Luxury Institute.
“To me, Yoox is about premium and luxury,” he said. It’s “an extremely attractive candidate for a strategic acquirer.”