"We sit on a gold mine of data"
by Maghan McDowell, July 3, 2019
Photography by Jamie Stoker.
Almost 20 years after founding Yoox as an off-price e-tailer, and four years after a merger with Net-a-Porter that culminated last year with a €2.8 billion takeover by Richemont, Yoox Net-a-Porter CEO and chairman Federico Marchetti has hardly lost his entrepreneurial spirit — or his competitive edge.
“My main concern is — I do not want this company to ever become bureaucratic, because speed and agility is one of the most important DNAs of this company,” Marchetti says from his Milan office, days before he’s set to embark on a company-wide roadshow to share his three-year strategic plan. “So I work it as a startup.”
But he’s no longer running a startup. As of 2017, YNAP is the world’s largest multi-brand luxury retailer by revenue with 5,300 employees, two online department stores (Net-a-Porter, Mr Porter), two off-price channels (Yoox, The Outnet) and an Online Flagship division that powers e-commerce for 30 brands including Moncler and The Row.
Challenges remain. Rival Farfetch now has a market cap of $6 billion and, according to analysts, is growing faster. Some brands are eschewing white-label e-commerce solutions like YNAP’s and instead investing in their own e-commerce sites to secure transactions directly. (That includes Kering, which announced in November it would not renew its contract with YNAP and instead move all e-commerce operations in-house.)
Despite those threats, few companies — or sectors — are as well-positioned for growth. E-commerce accounts for around 10 per cent of the growing global luxury goods market, a figure that is expected to rise to 20 to 25 per cent in the next decade. Even if brands’ own websites capture the lion’s share of that growth, multi-brand platforms still stand to double their sales over the next 10 years, says Luca Solca, managing director of luxury goods at Sanford C. Bernstein Schweiz. He expects YNAP will do much better.
“Players like Farfetch and YNAP have built a significant… consumer base, they provide the convenience of finding many brands under one (digital) roof, loyal customers acquire status and secure perks by concentrating their spend on them,” he wrote in a note to investors on 7 June.
Innovating through data
In the four years since Yoox Net-a-Porter merged — a process that resulted in the departure of Net-a-Porter founder and chairman Natalie Massenet in late 2015 — the company has come to favour quick tests and incremental improvements over “big bang” launches.
A smarter and more strategic approach to data has been fundamental. In 2017, YNAP opened a 70,000-square-foot innovation hub in London, where new chief data and analytics officer Alessia Kosagowsky, who came from Burberry, was tasked with making better use of the way the company collects, analyses and acts on data. She and her team are focused on integrating data into all levels of the business, enabling its systems and 5,300 employees to make better, faster decisions; to develop more personal, relevant experiences for shoppers; to retain customers and to grow the top line.
"We sit on a gold mine of data,” says Marchetti. “[We have] 3 million high spenders around the world who we can serve through data better and better and better through personalisation.”
The goal isn’t to obviate humans, but to decrease the number of decisions that humans have to make by making relevant data readily available and creating predictive models. In buying, for example, historical data isn’t always entirely helpful. If the brand sold out of all size small sweaters last year, it only knows how many sold — not how many it would have sold if it had stocked more. Thus, predictive models can try to account for the latent demand — the missed opportunity — in buying even more size small sweaters. Buyers now have this information at their fingertips when placing orders. However, the data is only a starting point, and buyers can veto it at any point.
Similarly, the company’s personal shoppers now have access to an interface that presents the entire profile of a customer: what they buy frequently and in what size, what colours and fabrics they favour, what styles and sizes of bags. An AI tool also serves up product recommendations, drawn from what Marchetti describes as “a big database of taste”. But ultimately, it’s up to the personal shoppers to make recommendations.
“In the end, the relationship is a human relationship,” Marchetti says. “The bow and the ribbon is to be done by humans and not by machines because customers can feel it.” This thinking carries over to its in-house brands, 8 (Yoox), Iris & Ink (The Outnet) and Mr P (Mr Porter), which are informed but not dictated by data.
Additional customer-centric tools are on the way, including an image-recognition function that will allow users to shop from a photo captured on their smartphones, natural language search, virtual personal styling and search results tailored to a shopper’s size and location. The company has also been among the first to integrate Instagram Checkout, and made WhatsApp a core part of its personal shopping operation.
A new model for inventory
The central logistics hub for Yoox, The Outnet and the Online Flagship division is Interporto, a seven-building complex in Bologna where inventory is tagged, photographed, uploaded to product pages, stored and packaged — a process that can be completed in a matter of days. Eventually, fulfilment for Net-a-Porter and Mr Porter, which is now in London, is being migrated to a separate site near Milan. A distribution centre and digital production will remain in the UK.
Interporto captures 15,000 images a day for The Outnet and Yoox, much of it automated. Mannequins on wheels navigate a three-to-six-minute loop — in which they are dressed, photographed and undressed — using magnetic floor strips. Photographing a shoe can happen in one click, as multiple cameras surround a lightbox and a turntable. A new, fully automated warehouse at Interporto is 100 per cent operational.
The group has eight local logistics hubs (in London, New York, LA, Dubai, Shanghai, Tokyo, Hong Kong and Milan) that provide proximity to customers and the ability to react quickly to fast-moving items. If the company bought 100 units of a bag, for example, it might hold 60 in the central logistics hub but five in each local hub, which allows for same-day delivery in cities like New York, Dubai, Shanghai and Tokyo. “I don't believe that you need to have a Gucci bag in 90 minutes because it's not milk for your child,” Marchetti says, referencing MatchesFashion.com’s and Farfetch’s 90-minute delivery service in select cities. “Therefore I think that same-day delivery is absolutely what we aim for for our customers.”
Over the past few years, YNAP has completely overhauled its logistics networks to make all of its inventory available globally. (Yoox had previously operated this way, but Net-a-Porter was segmented regionally). The “omnistock” system allows the company to relocate inventory on demand, leading to fewer overstocks and out-of-stocks.
Following a successful pilot with Valentino, YNAP will expand omnistock technology to its online flagship clients next year. This technology allows customers to seamlessly shop a brand’s inventory wherever it is available — whether on a brand’s website, in one of its stores or a YNAP website. “This is like the holy grail of retail, but behind the scenes, it is a super complex thing to accomplish,” Marchetti says.
To further take advantage of this newly integrated ecosystem, YNAP is developing a single checkout that would work across YNAP’s websites, and the websites of its Online Flagship partners — a capability YNAP’s competitors don’t currently offer.
Further avenues for growth
Online Flagship clients sign five-year (or longer) contracts and share revenue with YNAP in exchange for monobrand e-commerce logistics including on-model photography, customised packaging requirements and what YNAP calls “omnichannel light”, such as click-and-collect and booking in-store appointments.
The Online Flagship division’s strategy has shifted since its introduction in 2006 when the approach was to “get as many brands as possible”. It currently runs e-commerce operations for more than 30 luxury brands, which accounted for 11 per cent of the business in 2016. It will lose seven of those clients in 2020 with the end of a joint venture with Kering. Now, YNAP is focusing on fewer, more valuable clients whose online distribution is relatively limited, including Moncler and The Row. “Our goal is to have a few but very big and very successful [brands] with high growth,” Marchetti says.
It’s also increasing its assortment of high-value items such as jewellery and watches, which began in 2016 but is accelerating since the Richemont acquisition. “I thought that from a customer point of view, to buy a Valentino gown for €30,000 probably could be coupled with a Cartier watch,” Marchetti says. “It doesn't take a genius to come up with this idea, but that was my idea in 2016.”
Recent high-value sales include a €165,000 piece of jewellery and a £245,000 watch. “If you are a luxury brand — I know I shouldn't say it — you need to be on Net-a-Porter and Mr Porter,” he says with a grin. “Because if you're not there, you have a problem.”
“It's a highly competitive world,” he admits. “Given that we are the global leaders, we watch out to all the followers from the rear window of our Lamborghini going very fast, but we watch them because it's important to be aware of the competition — and therefore I will never be able to completely reveal our secrets.”
Originally published on Vogue Business.