LuxExperience expanded its customer base with an acquisition last year, but the luxury digital retailer found itself grappling with a problem as sales stalled: Its new high-end platforms didn't focus enough on high-end shoppers.
So LuxExperience decided to sacrifice casual buyers looking for deals to target shoppers who spend tens of thousands of dollars on clothes. The approach has pushed up net sales, top customer spending amounts and average order values.
That along with moves to cut operating costs at its new properties that it deemed much too high for their size have boosted LuxExperience's bottom line when some in the luxury space have struggled with cooling demand.
By seeking out shoppers who spend around $50,000 a year on their wardrobes, and shop one of the company's platforms 10 to 15 times in 12 months, executives knew they would lose some sales. But that focus has shielded its businesses from some of the pressures others in the high-end space have felt.
"This is not a customer that saves up for two years to buy a Louis Vuitton bag," said Chief Financial Officer Martin Beer. "It is really high-net-worth individuals that are not so affected by inflation and gas prices."
The focus on top-tier customers extended with the acquisition from Cartier owner Richemont of Net-a-Porter, men's site Mr. Porter as well as off-price high-end website Yoox. The first two platforms had become overly reliant on markdown sales, attracting deal hunters rather than loyal shoppers, according to Beer. Changing that meant overhauling marketing campaigns and purchasing specific luxury labels that elite customers wanted, he said.
"We had to improve the customer file, and with that, deliberately accept revenue declines at the beginning."
Until recently, in each of the quarters since the deal closed at least one of the acquired business segments had negative net sales growth. That changed with the three months ended June 30, when LuxExperience posted growth across all segments for the first time since the acquisition. The company's overall net sales were up 7.6% on a constant-currency basis, which smooths out the impact of foreign-currency fluctuations.
Average order values, meanwhile, grew double digits at Mytheresa, to EUR875, equivalent to roughly $975, while climbing 9% across Net-a-Porter and Mr. Porter. Top-tier shoppers accounted for under 5% of the customer base across the three sites drove nearly half of revenue.
"So very high concentration at the top," Beer said.
Geographic and demographic positioning are also working in the company's favor. Unlike some luxury brands, LuxExperience has limited exposure to traditional luxury strongholds like China, where demand has softened, said Anna Glaessgen, a senior research analyst covering the consumer sector at investment bank B. Riley Securities. The company is also less reliant on aspirational buyers who tend to be more affected by inflation and other pressures, she said.
Management has insulated the business by maintaining minimal customer overlap since the deal, meaning if one group is particularly challenged, it isn't felt across other platforms. Mytheresa has more established luxury brands like Prada and Valentino, while Net-a-Porter and Mr. Porter focus on emerging designers, said Beer, the CFO. Customer overlap between Mytheresa and Net-a-Porter and Mr. Porter is just 12%, and drops to roughly 3% for the off-price platform Yoox.
The acquisition also brought cost savings into focus. Operating costs at the newly acquired platforms were much too high, according to Beer. There were too many warehouses and they used an IT infrastructure meant for businesses triple the size, he said.
LuxExperience got to work reducing the warehouse footprint, for instance shuttering facilities in Hong Kong, Dubai and Japan, while also integrating software systems where possible or reducing the existing complexity. The moves helped slash operating costs by EUR55 million in the year ended June 30.
"There was good health, good value in those assets," Beer said. "But [they were] highly unprofitable...driven by a too costly IT platform and a too costly operational setup."
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