Like Stiletto Heels Yoox Net A Porter Looks Like Hard Work

(Bloomberg) -- Like tottering around on a pair of ultra-high heel Jimmy Choos, some things just look like hard work. So too Yoox Net-A-Porter's ambitious plan to hike revenue and margins through to 2020.

There's no doubt the online fashion portal is in the right place as wealthy customers turn to the web for Gucci handbags and Burberry ponchos. But it's a tall order to target average yearly net revenue growth of 17-20 percent over the next four years, as well as lifting the adjusted ebitda margin from 8 percent to 11-13 percent.

Given sluggish growth at the start of the year and a procession of executive departures, caution is warranted. After a stellar 2015, Yoox Net-A-Porter -- created by last year's merger of Yoox and Richemont's Net-A-Porter -- has been the worst performer in the Bloomberg Intelligence global luxury peer group in 2016.

All the big luxury markets are stalling. Chinese demand has been soft for a while thanks to anti-graft measures and consumers' reluctance to travel to Europe after recent terrorist attacks. Several companies have said the U.S., still the biggest luxury market, is slowing too.

That said, online luxury sales are forecast to increase by a yearly average of 15 percent through to 2020, according to consultancy Bain and Altagamma, the Italian luxury association. So with Yoox Net-A-Porter's Internet prowess, its growth target doesn't look that out of kilter with expectations for web sales overall. But there's a risk that industry growth estimates prove too optimistic, given the turbulent market conditions.

And while Yoox Net-A-Porter has been at the cutting edge of online retail -- it estimates that it has 10 percent of the web-based personal luxury market -- other brands are investing heavily in this area.

Yoox operates the websites of about 40 luxury brands, including six Kering divisions, as well as other names such as Armani, Moncler and Jimmy Choo. But just as luxury retailers have taken control of their physical outlets, there's a risk they'll do the same online. This is particularly pertinent as shoppers start demanding to buy online but collect in a boutique.

Even after a 43 percent drop in the share price this year, the shares trade on about 38 times the next 12 months earnings. That's more than twice its luxury peer group, though below the ratings of less exclusive online peers Asos and Zalando.

Some premium over the bricks-and-mortar fashion shops is justified by the rapid growth of online retail. Yet Yoox Net-A-Porter is still as pricey as studded Louboutins. The new growth strategy looks like one of those daring fashion items that wows the front-row crowd, then struggles to find any buyers.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story: Andrea Felsted in London at afelsted@bloomberg.net.

To contact the editor responsible for this story: James Boxell at jboxell@bloomberg.net.