The World's Biggest Fashion Store That Never Closes Is Born. Just How Good Is Net-A-Porter, the Company Behind It?

Since everyone claims to be going upscale, let's look at how the world's most popular high-end e-commerce company was built.

On the last day of March 2015, London-based Net-a-Porter and the Italian online retailer Yoox confirmed that they will merge. The combined company will be called the Yoox Net-A-Porter Group. The announcement put to rest rumors, which surfaced last week, that Amazon was in talks to buy Net-a-Porter.

The merger is due to begin in June and finish in September, when the company plans to list on the Italian stock exchange at a valuation of up to US$2.5 billion. Richemont, Net-a-Porter's parent company, and Yoox will each hold half the shares, but to keep the merged company independent, Richemont's voting rights will be capped at 25%.

Net-a-Porter has just closed its financial year and expects to turn a profit on sales of more than 700 million euros. Yoox, like Net-a-Porter, is growing at double-digit rates, and both are forecast to reach about 1.3 billion euros. On these numbers, the two companies are evenly matched.

Yoox, like Net-A-Porter, was founded in 2000. It runs several multi-brand online stores around the world, including yoox.com, thecorner.com and shoescribe.com, and operates about forty official single-brand online flagship stores, among them Bottega Veneta, Saint Laurent and Alexander McQueen.

After the merger, Net-A-Porter founder Natalie Massenet will become executive chairman, and Yoox founder Federico Marchetti will become CEO. "This will be the largest luxury fashion retailer in the world, and it will never close," Massenet said.

As it happens, on December 30, 2014, we reported on how Net-A-Porter became what it is today. It is old wine in a new bottle, but we hope it tells you a little more about the company.

The original article follows:

Natalie Massenet may not quite be "the internet queen of fashion," but she commands the reverence of countless people in the industry. The New York Times once wrote that her standing rivals that of Anna Wintour, editor-in-chief of American Vogue: if she dislikes a designer, that designer's sales suffer badly.

"We generally don't drop a designer entirely," Massenet told The New York Times at the time. "We might pass on a particular season. If a collection isn't good enough, we won't put it on the site. We buy in large volumes, so we can affect certain numbers. It's a huge responsibility."

But what makes her more compelling than Anna Wintour is that she used Net-A-Porter (known in China as "Pote Nüshi," and called N-A-P below) to change completely the way people buy expensive fashion. N-A-P was founded in 2000 and survived the dot-com bubble and investors' many disillusionments. Gilt, another e-commerce company founded around the same time, also sells fashion (note that we cannot simply call N-A-P a luxury e-commerce company; we explain why later in this article), but it pitched itself as a place for fashion brands to dump stock piled up in the financial crisis. That is where Gilt's invention, the flash-sale business model, came from.

When the Swiss luxury group Richemont bought it in 2010, N-A-P was valued at 350 million euros. On November 21, Bloomberg reported that Richemont, its current owner, might either spin N-A-P off in a listing or sell it, though anyone with common sense knows the two will not both happen. On November 26, Reuters dug further into the source of the listing rumor, and this time the account looked well founded: the rumor leaked because Massenet had been confirmed to be meeting investment bankers and analysts to work out exactly what N-A-P is worth now. She was doing this less for the company than for herself.

Under the agreement Massenet signed with Richemont at the time of the acquisition (Richemont disclosed it in that year's financial report), by March 31, 2015, the group will pay her cash equal to 14% of all N-A-P's shares.

Since N-A-P broke even in 2014, some analysts expect its sales to reach 700 million euros by the end of the current financial year (March 31, 2015). Comparing it with the market valuations of its rivals Asos and Yoox, analysts reckon N-A-P could be worth about 1.4 billion euros. That means that, after some fixed costs, Massenet could collect at least 100 million euros.

What makes N-A-P worth so much? The site does run discounts, yet it leaves an impression of luxury rather than a clearance sale. (It did later set up a separate discount site, outnet.com, but only after the Richemont acquisition.) The main reason is the role Massenet defined for the company at the outset.

"People think the retail experience and physical stores are places where things get sold," she told The Telegraph earlier in 2014. "But really it should be about people's desire for something new. Customers want new things, and nobody has taught the people selling the goods how customers want to buy them."

This is especially true in fashion, because "some of the early fashion e-commerce experiments were set up by people who didn't understand fashion at all, or, conversely, by old hands whose heads were already full of outdated assumptions. None of them could disrupt themselves."

Massenet's starting point for fashion e-commerce was simple, and it still has much to teach anyone in China trying to do business in this field: imagine you are a customer who wants to buy these things.

Let's look at the services N-A-P provides:

1. Deliveries go out in black vans bearing the brand logo. Every order comes in a black cardboard box, wrapped like a gift in ribbon printed with the logo.

1. A very generous returns policy.

2. More than 350 designers sell their goods on the site.

3. Fast search and clear layout: product details and prices are visible at a glance.

4. Style guides on the site.

5. Same-day delivery in Manhattan; standard delivery is free.

6. Its own staff run its social media accounts.

7. Accounts on every social platform where potential customers might be: Facebook, Twitter, Instagram, YouTube, Tumblr...

8. A print magazine, The Edit, which also comes out in a digital edition.

9. A channel showing celebrities wearing fashion, with purchase links for viewers and the line "Whatever you see, you can buy."

10. Offices in London, New York, Hong Kong and Shanghai, with logistics centers in the first three cities to ensure fast delivery.

Even companies that do most of these things almost never "publish a print magazine." The Edit now has a weekly circulation of 1.5 million copies across four language editions.

This owes something, of course, to Massenet's earlier career in fashion media (at WWD), but more important is her principle: whatever customers might need, we provide. The magazine is made as well as British Vogue or any other fashion magazine, with 40 pages given over to exclusive interviews and similar features.Also worth noting is how N-A-P runs its menswear site, mrporter.com. Long before the paper Porter appeared on the streets of London and New York (they have since published at least two books as well), the site was already running plenty of content such as style diaries and interviews with well-dressed men. In other words, it is a lifestyle site, not just a shop. It could later expand into print and even books entirely because of this lifestyle positioning: it gave customers a guide they could trust.

We think this approach, though it falls broadly under "content marketing," is far better than the usual practice of posting articles of marginal relevance and hoping they go viral on WeChat Moments.

With content, what you get out is exactly proportional to what you put in. You could even say that if N-A-P had not invested so heavily in content, its customers would not be so loyal, and it would have become just another online shop with an easily copied business model. Meanwhile, its rival Asos targets shoppers in their twenties, and Italy's Yoox, though growing fast, is still far smaller.

It is also easy to see why Alibaba's Tmall and Amazon have a long road ahead in establishing themselves as fashion e-commerce sites: neither understands well enough what a customer who might buy luxury goods online wants. It is not just a question of how much traffic a company has, but also of the atmosphere shoppers sense on its site. A company that thinks all day about selling value for money will not win the hearts of fashion houses.

But here is an interesting fact: although "luxury e-commerce" has become a familiar term, the term itself is a false proposition. Look at the catalogs of the big so-called "luxury e-commerce" sites and you will find that the true luxury brands are missing: Chanel, Hermès, Dior, and, well, Celine, whose prestige has soared in recent years.

The reason they are missing is easy to find in the press. Chanel president Bruno Pavlovsky told Bloomberg: "Fashion is clothes, and clothes are something you need to see, to feel, to understand."

So many people naturally ask: What is fashion? What is luxury? Aren't they the same thing? The definition Vincent Bastien and Jean-Noël Kapferer give in The Luxury Strategy (yes, there is a Chinese edition) is convincing: luxury is built on time and scarcity.

No brand that moves production to developing countries, or mass-produces on assembly lines, can be called luxury, unless it moved production because the craftsmanship it needs truly exists only in that place.

In this sense, you can see why a brand like Chanel is not sold on N-A-P.

Let's sum up what N-A-P teaches high-end e-commerce:

1. Service, service, service. The site should load fast, search fast, check out fast, deliver fast and update its mobile app fast, but unwrapping the package can take a little longer.

2. Guide a way of life, not a purchase. Your final aim is to get customers to buy, but you should show them what a life worth spending on looks like.

3. Fashion has no borders. Widen your horizons: shoppers may know more than you do, and change faster than you think.

Of course, N-A-P's success cannot be credited to service alone. QDaily has also reported on Lyst, a rising star in fashion e-commerce, and you can read some of its founder's views here, including one on "why fashion e-commerce in America is underdeveloped." At bottom, fashion e-commerce is one link in the whole fashion industry. Without the fashion-world contacts she first made at places like WWD, Massenet might have found it hard to build the business from nothing. Even so, she ran it for 10 years before it was sold. Ten years looks absurd to almost any entrepreneur today, but if you want to build a good business, chasing quick success will never work.

Back in China, a fashion industry has not truly taken shape. We are still in the stage of primitive accumulation, making goods under contract for big brands' exports, and designers have only just begun to commercialize. At the same time, a globalized economy has greatly sharpened shoppers' sense of brands and fashion, and they want access to more styles and choices. In this environment, if you try to build fashion e-commerce, or high-end e-commerce (the two are necessarily the same thing), all you will see is an endless stream of discounts and promotions.

So, to the entrepreneurs who think and talk about so-called high-end e-commerce day and night: until you grasp the lifestyle and fashion that shoppers truly dream of, you had better stick to building your overseas personal-shopping business.