GrowthSpotting: The Art of Global Investing
This series cuts through market noise to explore what we believe are the most relevant and inevitable global trends for investors seeking growth.
In it, we take a closer look at what we think is a valuable framework for understanding growth drivers worldwide—our “MANTRA” (Mass Affluence, New Technology, Restructuring and Aging).
Today’s post focuses on Mass Affluence and luxury online retailing.
What did we do before the Internet! Remember trudging from one store to another, lugging increasing loads of packages, hoping that what you planned to buy was still in stock—assuming you had figured out what to buy in the first place? It’s easy to see why Internet shopping is growing so rapidly, even at the luxury end of the market. We believe this trend is being monetized nicely by one of the companies we own in our International Growth Fund—an Italian firm called Yoox (YOOX IM).
Yoox is two businesses really. It is an online retailer of high-end designer clothing and accessories, as well as a business service provider to luxury fashion houses. Currently, both businesses are fast growing, self-financing and profitable.
Design houses and luxury brand manufacturers retain Yoox to create and operate online stores for them, as they do not have the resources to do so on their own. Yoox is the strategic e-commerce partner for major firms such as Armani and Dolce & Gabbana, as well as much smaller—or to use the terms they prefer, “more exclusive” and (even better!) “artisanal” – designers.
In its capacity as online retailer, Yoox owns and operates theCorner.com and yoox.com. thecorner.com showcases 70 different luxury brand makers and offers in season, fully priced merchandise from them. On yoox.com, you can find offseason, on sale merchandise that designers don’t want to carry for one minute past the appropriate season. The synergies “fit well”!
Yoox’s business service offering includes site design, advice on which items to offer online, customer contact strategies, logistics, shipments, payment, handling, returns and so forth. Yoox can offer an online customer a shopping experience that is impossible for all but the largest companies to deliver cost effectively. Furthermore, Yoox specializes in the luxury fashion niche and understands the dynamics and tensions of the business, and its participants very well. Relationships and reputation are important in this industry, and Yoox has been building theirs for some time. These combined scale and specialization characteristics provide Yoox with some defense against competitors.
Yoox’s gross margins have held steady in the high 20% range since 2007. Earnings before interest, taxes, depreciation, and amortization (EBITDA) margins have risen over the past five years as the business has grown. Although past performance does not guarantee future results, Yoox has no net debt and has returned 12%-15% on invested capital for the last three years. 1 Currently, Yoox’s PE valuation may look expensive, but at 1.75x sales, it is trading at less than the 2.9x revenue price that Richemont paid for Net-a-Porter in 20102 and the 1.9x sales that Amazon paid for Zappos in 2009, 3 despite the fact that Yoox’s EBITDA margins are the same or better.4
- Bloomberg, 12/2012
- Citi Equity Research Report, 11/2009
- http://uk.reuters.com/article/2010/04/01/markets-europe-stocksnews idUKLDE6300R020100401
Past performance does not guarantee future results.
The mention of specific securities does not constitute a recommendation by any Oppenheimer fund or by OppenheimerFunds, Inc. Certain Oppenheimer funds may hold the securities of those companies mentioned.