Death of Retail? 2017 Was All About the Empire of Luxury E-Tail

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At first glance, Lauren Santo Domingo may not strike you as an empire builder. A former Vogue editor and glossy blond socialite, she is married to the heir of a Colombian beer fortune and has a slew of “It girl” friends. She could appear easy to dismiss.

But this week Moda Operandi, the online high fashion website she and Aslaug Magnusdottir founded in 2011 as the first “pre-tailer” (a place where customers can pre-order looks immediately after runway shows), announced that it had raised $165 million in its latest round of funding.

As the “death of retail” is heralded as the biggest trend of 2017, boutiques shutter and rumors fly of possible department store bankruptcies driven by changing consumer habits, price wars and the threat of Amazon. High-end e-commerce remains a bright spot in the shopping landscape: flooded with more cash than ever before and with bubblelike sky-high valuations to boot.

“What is so exciting about the amount of money we were able to raise is that we have proved ourselves and our model on a global scale. Year-on-year sales are growing at an exponential rate,” said the Moda Operandi chief executive, Deborah Nicodemus, who has worked with Ms. Santo Domingo since 2013. Their latest investment round was led by Adrian Cheng, whose family controls the jewelry group Chow Tai Fook, and Apax Digital, a fund advised by Apax Partners, a private equity firm that bought a controlling stake in the rival e-commerce outfit Matchesfashion.com in September.

“We feel on top of the world right now, and it is a fantastic place to be,” Ms. Nicodemus said.

It’s a world dominated by two behemoth competitors who have spent the last year aggressively expanding their territories and strategically carving up the landscape between them. Napoleons of the virtual boulevards, they are locked in an escalating battle for power — and your wallet. You may not know their names, but they are shaping how you shop.

Yoox Net-a-Porter, the largest luxury e-tailer by sales, is one of them. It owns the e-tailers Net-a-Porter, the Outnet, Mr Porter and Yoox; it also operates the e-commerce sites for over 30 luxury brands including Stella McCartney, Dolce & Gabbana and Chloé.

Farfetch, the other big name, is an online marketplace for 500 independent luxury boutiques and 200 brands as well as the owner of the bricks-and-mortar store Browns in London.

The stakes are high. Online luxury sales jumped by 24 percent in 2017, according to a recent study by the consulting firm Bain & Co., with the authors estimating that online sales of personal luxury goods will make up 25 percent of the market by 2025. Little wonder that during the past year barely a month went by without Yoox Net-a-Porter or Farfetch unveiling a snazzy new strategy or service in a thinly veiled bid to outmaneuver the other.

In April, for example, Yoox Net-a-Porter introduced “You Try, We Wait”: a same-day try-on-and-wait premium delivery service with at-home shopping consultations. Six days later, Farfetch started a “store-to-door service” in 90 minutes with Gucci in 10 cities worldwide. Then Farfetch revealed a suite of technologies based on responding to consumers in the “Store of the Future.”

Yoox Net-a-Porter promptly responded with “Next Era”: a partnership with brands that debuted with Valentino giving customers access to Valentino products wherever they are, and however they want them.

“We are the leaders in the luxury fashion online space, no question about it,” said Federico Marchetti, the C.E.O. of Yoox Net-a-Porter, from a giant television screen streaming into the glossy “Technology Hub” in West London that he opened earlier this year. On message in every way, he was doing a virtual interview from Milan. “If you want me to describe my territory, then that is how I would describe it,” he said.

An intense and bespectacled self-made multimillionaire, Mr. Marchetti, 48, was a pioneer in Italian luxury fashion, starting Yoox in 2000 as a platform where end-of-season stock could be sold online, before branching out into full-price designer wares.

In 2015, in a merger, Yoox combined forces with its British rival Net-a-Porter to become the world’s largest luxury retailer (in a rumor-fueled internal tussle, the Net-a-Porter founder Natalie Massenet left soon after). For the first nine months of 2017 the group reported sales of 1.5 billion euros, up 19 percent year-over-year, and unveiled ambitious plans to double the size of the business by 2020.

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“In any industry there are always copycats, but what we do here is come up with ideas first and lead from the front,” Mr. Marchetti said, pointing to the group’s early foray into mobile-commerce (two thirds of sales are on mobile), sales of high-end jewelry online and fresh focus on E.I.P.s: the “extremely important persons” who make up 2 percent of the company’s clientele but contribute 40 percent of revenue. While he seemed relaxed about the group’s plans for growth, Mr. Marchetti scoffed at the notion that anyone may be snapping at his heels.

“Lately, there has been more and more focus on our new competitors, but most of them have been around for some time. It’s just one has been sold, the other is trying to go public,” Mr. Marchetti said, referring to the much smaller, but much-lauded, matchesfashion.com and Farfetch. “So there is this perception there is increased rivalry, but in terms of truly new players, I’m not sure I can think of anyone who comes close to us.”

While there was a braggadocio to his words, any first mover inevitably looks behind at the next generation of names adapting their approach to suit ever-evolving contemporary needs. Enter José Neves, 43, who founded Farfetch in 2007. Then a shoe-brand owner from Portugal, Mr. Neves chose to create an online marketplace platform helping smaller bricks-and-mortar stores enter the digital world and taking a commission on each purchase, freeing himself from the need to take on the significant inventory risk and working capital requirements of a traditional store (and Yoox Net-a-Porter).

“What makes us different is that everyone else is operating on a retail model, but we are a platform, not a shop, an enabler not a competitor, and are reaping all the advantages that such a position entails,” the suave Mr. Neves said in London this week. (Although the company is based in Britain, he continues to live in Portugal.)

With a valuation of $1 billion, less than a decade after its start, Farfetch has pulled off a string of media coups this year. In February Ms. Massenet joined its board, a seeming rebuke to Yoox Net-a-Porter. In June, the Chinese e-commerce giant JD.com invested $397 million, the better to boost Farfetch in the world’s third largest luxury market. And although the company is unprofitable, many industry analysts think it will have an initial public offering next year, something Mr. Neves was at pains to downplay.

“We have a completely full plate right now with all our current plans, from consolidating our position locally in key growth markets like China and Korea, and exploration of how to leverage augmented retail and ideas around the store of the future, particularly in relation to Browns,” Mr. Neves said. “We believe we are the only global luxury platform at scale. Maintaining and building on that is keeping us more than busy.”

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Especially as new players start their own incursions into the market and brands ramp up their independent e-commerce operations. High-profile flops like that of Style.com, the Condé Nast-backed venture that shuttered earlier this year, serve as stark reminders that things can easily go wrong.

It isn’t surprising, then, that as the big two (and the one that would be three) fight to expand their reach, their focus is on new territories, particularly Asia and the Middle East.

“Clients from these regions want to make their own decision on purchases, and love the experience of a trunk show and high sense of luxury,” said Ms. Nicodemus of Moda Operandi, noting (or gloating) that the average basket value for its shoppers was $1,300, and “our nearest rival brings in around $650.”

“There is definitely a heightened sense of rivalry across a narrow band of luxury e-commerce players, but there’s also a great deal to play for as it is a growing sector,” she said. “Still, there is no question that everyone is sizing up where to go next.”