CEO Talks: YNAP's Federico Marchetti
by Luisa Zargani, September 20, 2017
Photograph by Simone Lezzi.
The Oxford English Dictionary defines success as “the accomplishment of an aim or purpose.” A photo of Federico Marchetti could well sit next to that definition.
The Italian entrepreneur and chief executive officer of the Yoox Net-a-porter Group had long touted the advantages of merging Yoox and Net-a-porter, envisioning the new company as far back as 2009. His dream became reality in 2015 and, in the first six months of this year, the fashion e-tailer surpassed the billion euro mark in revenues for the first time.
All the group’s divisions registered strong growth in every geographic market, driven in particular by North America and the Asia-Pacific region, while the company continues to invest in new technologies. In June, the group unveiled a state-of-the-art London Technology Hub. This year, capital expenditure is expected to total between 160 million and 170 million euros. The group also continues to attract more brands, even in hard luxury.
Online retailing has become a knock-down, drag-out fight for financial muscle, market share and brands, but as competition increases, Marchetti says he does “not look much in the rear mirror and keeps his eye on the road.” Last year, presenting a strategic plan that runs through 2020, the ceo said that annual revenue growth was estimated in the range of 17 percent to 20 percent at constant exchange rate.
Ahead of the August summer holidays and following the release of the group’s first-half results, Marchetti was looking fit, upbeat and already a little tanned. He attributed this to sailing his 7-meter, handmade skiff on Lake Como, where he is restoring a house. Wearing a Dries Van Noten shirt from Yoox and a Saint Laurent suit and John Lobb shoes from Mr Porter, Marchetti talked frankly about the road he’s traveled, his biggest accomplishment, his main challenge going forward — and his wish to “continue to have fun” working.
WWD: North America continues to be your main market and, in the first half, sales there increased 20.3 percent to 322.5 million euros. This is quite an accomplishment in the current environment.
Federico Marchetti: The fact that the U.S. market is performing very well reflects the goal of our strategy. Last year, when we announced our strategic plan, we identified the U.S. as a market where we could grow in the short-term, while China is more medium-term. The Net-a-porter team has a strong American component. Alison [Loehnis, president, in-season] lives in London, but she is from the U.S. Matthew [Woolsey, managing director] comes from barneys.com and he is also American. Elizabeth [von der Goltz, global buying director] just joined, and she was the head of Bergdorf Goodman [as senior vice president and general merchandise manager]. The team is very America-centric, from the buying to the heads of division. We opened a [service] of personal shoppers in Los Angeles, as we have in Dubai, and we have an office in New York. We are aiming high in the U.S., because it’s the biggest market in the world for luxury, online especially. China is very important for luxury but not yet for online luxury. They started later, they will catch up, but they are years behind. Internet [sales] in China are especially in the mass market range. To sell Gucci, Bottega Veneta or Chloé full price online in China is still very complicated.
WWD: Is it because Chinese consumers are diffident about buying luxury online? Do they worry about counterfeits online?
F.M.: It’s a mix of factors. They started later, so it takes some time. It’s a bipolar market with big players with more knowledge of mass market than luxury. There is not much luxury on Alibaba or JD.com. although they are both aiming at this sector now. There’s always a problem of counterfeits, as you said, so the Chinese are the most skeptical and worried about this. And they are bargain hunters. They are smart. If they understand they can buy from Hong Kong, they would rather fly to Hong Kong. The business of Chinese travelers is bigger than business in China. It’s not that they like to travel, but they know that when they travel to Paris and go to Galeries Lafayette they save money compared to buying at home. All this makes luxury online underdeveloped, conversely to the U.S., so balancing short and long term, the U.S. is what we are aiming at. We are doing well in China, but an additional upside is expected in the next few years. For the first time, we increased our market share in the U.S. last year.
WWD: Are U.S. department stores pushing with their web sites? Is this becoming strong competition? How do you view their online stores?
F.M.: Yes, there is a big shift online. I have always considered department stores as our biggest competitors in that market. They are concentrated in the U.S. The business of department stores is very local: Galeries Lafayette is strong in France, Harrods in the U.K., Isetan in Japan, etc. It’s difficult to be transnational. [La Rinascente vice chairman] Vittorio Radice is on our board, he is a veteran of retail, so much fun, and he is doing something special, aggregating department stores in Italy, Germany, the Netherlands and so on, but it’s not Rinascente going to Germany. Each has a local presence. [Nordstrom president] Blake Nordstrom, a dear friend, was telling me how well the web site was doing, compared with the brick-and-mortar stores. I think in general there is more of a real estate problem [in the U.S.].
WWD: Are you concerned about this?
F.M.: Not really. Their weakness facilitates us. Not everyone is able to seize this opportunity now. Many of these stores are on the block. We have a horizon of five to 10 years, we are investing more than 500 million euros in technology and logistics in the long term. I am very happy with the performance in the quarter, but I am not focused on it. I don’t know if I would invest as much if I were looking at a short-term period, a year or six months. I’m afraid [American department stores] are in a vicious circle in a market that is evolving very quickly online.
WWD: Are they late in catching up with their investments?
F.M.: I don’t know [demurring].
WWD: Are there other situations that you are looking at or that worry you?
F.M.: I like [global e-commerce site spearheaded by LVMH Moët Hennessy Louis Vuitton] 24 Sèvres, they are doing a good job. First, they play by the rules. They are part of a luxury group. Who better than them can do that in terms of pricing and presentation? It’s a start-up that perfectly adheres to luxury. I like the photos, they are contextualized, the packaging is exceptional. I have great admiration for what they have done. We have a great relationship with all the brands of the [LVMH] group and with the group. Another competitor I really admire is Zozotown; it’s an exceptional company, under the radar. It’s only in Japan, but it has great market share there and it’s managed by a visionary founder. I have a great relationship with them.
WWD: You have repeatedly said you are not concerned about Farfetch, which some analysts have brought up in past conference calls.
F.M.: Why should I worry about it? It’s much smaller, a completely different business model that I believe does not fit with the needs of luxury brands, and we have a big competitive advantage.
WWD: How do you keep updated in such a fast-paced industry?
F.M.: It’s not my main concern to follow what competitors are doing. We are innovators, I don’t look in the rearview mirror a lot. I look ahead of me. We are going fast, so I better keep my eyes on the road. I came up with this analogy because I was thinking about Ferrari. [YNAP just inked an agreement to set up and manage the new Italian luxury brand’s flagship online.]
WWD: I read that you would like to sell Ferrari cars online.
F.M.: It’s more of a dream, it’s not being discussed, but it would be feasible and also an added value. But it’s their strategy, their decision. I can be the Talking Cricket [Jiminy Cricket].
WWD: You have expanded on your sites to include art. Other online players are working to sell different categories, from milk to furniture and fashion.
F.M.: All that is luxury is our focus, and lifestyle. The ultimate luxury is a Ferrari car. It’s not about selling cars, it’s about selling a Ferrari. We will never sell cars, I want to underscore this, but a Ferrari is part of luxury. Just as a [Takashi] Murakami painting is part of the lifestyle of someone appreciating his work at home. We are specialists of luxury seen through the eyes of our customers, who experience luxury with a Valentino dress or a Cartier watch. It all starts from the knowledge of your customer. If that customer spends more than one million euros in fashion, the client could potentially be interested in a Cartier watch or a Ferrari.
Those customers are very special, we call them EIPs, Extremely Important People. They are the 2 percent of our customers that account for 40 percent of total sales. Part of our strategy is for this 2 percent to represent more than half of our sales by 2020. In terms of numbers, there is still a lot of space. Net-a-porter has no local presence in Italy, Japan or Russia, and in many places in the world. Our EIPs are mainly Anglo-Saxons, in the U.S. and London, but we are expanding, with personal shoppers in Dubai and in Los Angeles. This is our main strategy, to grow our EIPS, knowing them and the categories they want. This differentiates us from [our competitors].
WWD: Have you any intention to open brick-and-mortar stores?
WWD: Do you believe you have a creative or financial mind? How do you define yourself? Do you see yourself as a diplomat in creating this web of relations with designers and big groups?
F.M.: I believe I am a creative but probably everyone thinks they are, so perhaps it’s best if others say that. I am an entrepreneur first, I am not a manager. I invented this from scratch and built it brick by brick for 18 years. By definition, an entrepreneur must be creative because you have to invent every day, there must be creativity. Was it creative to invent the monobrand business model in 2005? I believe yes, because it was new and never seen before. Now, 10 years later, competitors are doing it. Was it creative to ask Stefano Accorsi, who is an actor, to direct a short movie [for Yoox]? I don’t know if you can call it creativity, but surely it’s pushing the boundaries.
Most recently, we’ve asked [model] Bianca Balti to do swimsuits. If I were a manager, I would not have written to her directly through Instagram. All these small ideas, the Murakami [collaboration with Yoox] for art, which I am personally interested in as much as fashion; Margherita Missoni [her kids collection on Yoox] _ this is the most fun part and I will continue to do it forever. The company is big, I have to manage numbers and people, but the two together makes it fun. I want to continue to have fun; I invented this to have fun working. I generally don’t like to quote people, but someone said that if your job is fun, it’s like not working for all of our life. I never feel like I’m going to work, I feel like I’m going to invent something.
As for being diplomatic, for the past 18 years I have always, always been myself. I don’t feel like I’ve ever changed. For example, when I have a meeting with a brand, I never wear that brand’s suit. I don’t wear Dolce & Gabbana when I go to Dolce & Gabbana, I never wear Armani at Armani or Bottega Veneta at Bottega Veneta. I have never done it, while many do it. [Compagnie Financière] Richemont has 25 percent voting rights of this company, it’s a big watch group, and I meet [chairman Johann] Rupert with my vintage Patek Philippe, which is not part of their group, because I like vintage watches. These are tiny examples, but I am always very fair, transparent and honest. But I am also straight to the point, for better or for worse. Many times, the brands avoid me at the negotiating table [laughing at the hyperbole]. If I were a diplomat, I would not negotiate, but I am a very strong negotiator, and I really like to negotiate.
WWD: What do you attribute this ability to create strong relations to?
F.M.: What you see is what you get. Honesty, an impassioned opinion. [Daily Sole 24 Ore] has defined me “American Romagnolo” [hailing from Ravenna in Italy’s Romagna area]. I am business driven, I’ve studied and lived in the U.S. I created the company, managed it, merged it, publicly listed it. I’ve done everything except sell it. I think this is part of my American entrepreneurial background, to distribute stock options and the wealth that has been created and this is not so common in Italy. [Also from Ravenna, the late Raul] Gardini was Romagnolo, a genuine entrepreneur, honest, direct. I think this comes out.
WWD: Was he a mentor? Do you have any?
F.M.: Mentors? No, everyone and nobody. I learned from everyone. In 1999, I did not come from fashion nor from the Internet, so you can imagine. I learned from the super New York Times journalist Holly Brubach, or from a Florence retailer tricks on how to negotiate; from a mega banker how to list my company the best way. But there is not one person I am inspired by. I’ve always followed my own path.
WWD: Do you have anyone you share ideas with?
F.M.: No. I have many points of reference, people who have helped me and to whom I am grateful, from my first venture capitalist Elserino Piol, to Johann Rupert, who said yes to this merger of the century and with whom I share ideas with great pleasure. It depends on the issue. [In specific cases] I turn to my lawyer Stefano Valerio. We’ve worked together for 17 years, he sits on the board and is [YNAP’s] vice president. But there is not that one person, say Steve Jobs [laughing] I think of every day. I don’t want to resemble anyone.
WWD: You often talk about your team and during the conference calls with analysts you always share the results with them. How do you see yourself as a manager? What do you look for when you hire someone?
F.M.: First of all, I am not a manager, I am more of an entrepreneur. Also when I manage people, I am more of an entrepreneur, which means a lot of things. I thank people because execution is even more important than the ideas and the vision. From a concept to a fact, there is execution, and the better it’s carried through, the better it works. My relationships are very different from people to people, that’s why I am more of an entrepreneur. I am instinctive, rather than cold and icy.
I look for decisiveness, I like people who decide. I’d rather have someone who makes decisions and thus may make mistakes, than someone who is not decisive, because it’s all about the speed. I believe I am extremely efficient, and very fast.
WWD: Are you strict?
F.M.: That’s not the right word. I would say fair. I never play games behind people’s backs, I am straight to the point, I don’t have many screens. With those that I’ve created a relationship, it’s incredible. There are very many people who have been working here for 17 years, from our chief operating officer Alberto Grignolo to Gabriele Tazzari [research and development director]. I work very well with Alison [Loehnis], who joined in 2007. There’s Alba [D’Amico, global head of corporate brand and digital communications], who’s worked here for 12 years. She’s one I’ve been very straight to the point with [laughing]. There are some people who appreciate this, others who don’t. At school, I appreciated those teachers who were fair or, as you say, strict. There are those who like transparency and we get along perfectly. I am not the perfect counterpart for those who are more political, but these people are not fast nor decision makers. I need people focused on execution, very decisive and very fast, not because I want to drive a Ferrari at 300 kilometers per hour but because this is a business where speed is key, if you miss the moment, you lose great opportunities. It’s a must.
WWD: What are the main challenges you see now? Your dream was to merge with Net-a-porter. What now?
F.M.: Continuing to speak of people, I think that’s one of the biggest achievements. It’s been only 20 months since the merger, and we had an offsite in mid-July with 40 top key managers — a third from the former Yoox group, a third from the former Net-a-porter and a third new hires, composing the dream team I put together. And there, I realized I had made it. It was very hard at the beginning, really very hard.
WWD: Were people diffident at the beginning?
F.M.: There is always uncertainty when there’s such a big operation. People worry about the future, their job, their salary whenever there is a merger. I think this is the first time ever a merger doesn’t bring layoffs.
WWD: How many people left after the merger?
F.M.: A very small percentage. All operations of this kind are hard, and this was also cross-border, Italians with English. The integration in terms of the platform was very complex. I could have just joined the companies and kept everything the same, maybe that’s something that someone who just wanted to make ends meet would have done, but my job was to build a new formidable company for the long-term, changing all the backend, with a platform that no other competitor will have in 2018. This was objectively very, very brave, but also risky.
I’ve been taking risks since 1999 and there was no reason to stop now. Try to imagine. On the card it’s a perfect operation, two complementary businesses, two leaders, two business lines. It was the perfect Byzantine Ravenna mosaic. But then again, it was a matter of execution, so people needed to be engaged in this new plan and in this new company. There were a lot of changes, but I have a lot of respect for the DNA of each brand, Yoox remains Yoox, Net-a-porter remains Net-a-porter and so forth. And I don’t interfere. You can’t imagine how many brands ask me to go on Net-a-porter, and I say you have to ask to the person in charge. I am respectful of the independence of brands and managers.
Every six months we have a meeting to take stock. At the beginning, the teams were suspicious, diffident, as it was to be expected. They sniffed each other and tried to understand where the wind was blowing — on both sides, also at Yoox. Sometimes they counted the days I spent here [at Yoox]. It’s all very human, normal. Then there was a neutral phase, when the project was understood and embraced, but the passion was still missing. At the offsite in mid-July, I saw everyone working together as one team with great passion, and there I told myself that the job to culturally integrate the two was done. For me, this is the biggest success of my career. Sincerely I don’t even know how I did it [laughing], I confess. But it happened. It was also a bit magic and it’s not all my doing. A lot of people contributed to this — Alison, Alberto, all of the team. My contribution was 33 percent. After the two-day offsite, I was the happiest person in the world.
Hard luxury has been a real success. You remember, everyone thought we were going to democratize Net-a-porter, but we went even higher. We’ve signed a partnership with the best entrepreneur in the Middle East [Mohamed Alabbar, in November 2016]. We’ve promoted talents and opened up their potential. Toby [Bateman, managing director at Mr Porter], he was the buyer, or Lea [Cranfield, merchandising director, in-season]. We’ve promoted a lot from within. It’s always about people. Then we added brands such as Prada, Moncler. People said who knows what will happen without [Net-a-porter founder] Natalie [Massenet, who exited in 2015 after the merger]. I don’t think in the history of Net-a-porter there have been so many brand additions or capsule collections as in the past 12 months.
WWD: So what now? What is your main challenge?
F.M.: [Thinking it over]. The main challenge is looking at the customer and continue to innovate. Innovation is the constant challenge. I’m not sure it’s the main one but it’s constant, in terms of service and product. For example, we are launching a private label [Mr P]. It’s small, but still…the other challenge is to continue to find talented people, the best in the world. This has been my priority for the past 18 years and it will continue to be so.
Originally published on WWD.