Soon after Farfetch stock surged on the back of its Alibaba mega-deal, mid-sized Mytheresa quietly submitted paperwork for a proposed IPO. Can niche players compete with the heft of online luxury leaders in a crowded market?
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Mytheresa is going public. Or at least that seems to be its intention after its Netherlands-based parent company said this week that it had filed paperwork for a proposed initial public offering with the US Securities and Exchange Commission.
According to market reports, Mytheresa aims to IPO in early 2021 and is seeking a $1 billion to $1.5 billion valuation. This would generate a substantial return for owners Ares Management and Canada Pension Plan Investment Board, which acquired the German e-tailer in 2014 via Neiman Marcus (which they then controlled) for about $253 million.
Mytheresa’s backers first began exploring strategic options for the business in April 2019, soon after an estimate by Goldman Sachs valued Mytheresa at $1 billion. But it’s not surprising the company is seizing the current moment to make a move.
Investor interest in online luxury players is riding high after a pandemic-driven e-commerce boom. Farfetch’s share price has almost quadrupled this year, supercharged by store closures and the luxury e-commerce frontrunner’s recent $1.1 billion deal with Alibaba and Richemont.
A vaccine promises a return to relative normalcy next year, but neither consumers nor retailers are likely to unlearn the digital behaviours they adopted under lockdown, and Covid-19 is widely expected to prove a long-term accelerant for digital sales of luxury goods.
Mytheresa has made online luxury profitable where others have struggled, keeping customer acquisition costs down with a sharp focus on a highly specific cash-rich, time-poor customer and a tightly curated product assortment and customer service operation to match. But a big part of Mytheresa’s success comes down to discipline and scale. The company hasn’t pursued the rapid, marketing-fuelled growth that has derailed larger competitors.
Mytheresa generated €450 million in the year ending in June 2020, making it far smaller than luxury e-commerce leaders like Farfetch and Yoox Net-a-Porter. The Munich-based company is underpenetrated in China and the US, the world’s largest consumer markets, where the e-tailer has significant growth potential. But in a crowded online luxury market, where too many players are chasing the same customers and even giants are under pressure to consolidate, can mid-sized Mytheresa deliver the return shareholders expect?
It’s too soon to know.
Scale was certainly the logic behind Farfetch’s recent Alibaba deal, which gives the fashion platform awesome reach in the world’s largest luxury market. And rising customer acquisition costs and the logistical friction and expense of managing shipping and returns inherent in luxury e-commerce clearly favour players with financial and operational heft.
But consumers may be thirsty for the opposite. “For the consumer, bigger isn’t better,” said retail consultant Robert Burke. “People want more edited, focused product selections.”
A more special front-end experience, rooted in tight curation and impeccable service was critical to the early success of luxury e-commerce pioneer Net-a-Porter, but scale diluted its point of view and personal touch, making space for the rise of smaller players like Mytheresa and MatchesFashion.
So, is the future of luxury e-commerce big or small?
The answer to the riddle may be both. Niche players may coexist with giants. But most advantageous of all may be a marriage of the two, whereby a goliath plugs a niche player into its platform, uniting a more personal consumer experience with the advantages of scale.
Amazon and Facebook have signalled their interest in luxury e-commerce, but observers are sceptical the tech behemoths could make good on a luxury acquisition.
“The problem for an internet giant like Amazon or Facebook to buy a multi-brand retail specialist is that of buying an empty shell — brands could get scared and depart,” said Bernstein analyst Luca Solca.
And yet it’s not hard to imagine a hyper-focused e-tailer like Mytheresa plugging into a larger player like fellow German platform Zalando, one of Europe’s largest fashion e-tailers, which has heft and interest in the luxury space but lacks the cache and customer base.
It’s still early stages in the luxury e-commerce race, but in a market that’s ripe for consolidation, merging specialness and scale may be a winning proposition.