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Richemont's mini-Google

LUXURY brands business Richemont could be adding some profitable clicking to the dependable ticking of its classic timepieces.

The clicking, ironically, will emanate from Richemont's fashion and accessories segment, which – to be honest – has not featured too prominently of late.

Admittedly, it can't be easy to strut your stuff when classic luxury jewellery and watch brands – Cartier, Piaget, Panerai, Von Kleef & Arpels, Baume & Mercier, Vacheron & Constantin, IWC and Jaeger LeCoultre – are regarded as the real beauties at Richemont.

Richemont's fashion centres, which would include brands like Lancel, Chloe, Dunhill and Purdey (which has a clothes range besides its stylish shotguns), perhaps make up 10% of its business.

The fashion segment is reported in Richemont's results under a rather non-descript "other", a category that also includes the company's watch component manufacturing arm.

Richemont's latest results to end-March 2010 show "other" generating revenue of €584m and an operating loss of €36m.

As indicated earlier, for a €5.2bn a year business with the capability of generating (in better times) operating profits of close to €1bn, the tatty performance from the fashion segment goes almost unnoticed.

But after listening to Richemont's investor presentation on Thursday morning, I reckon that far more attention should be paid to it.

Throughout the two-hour presentation, there were numerous enthusiastic references to online fashion retailer Net-A-Porter by Richemont executives.

I would have loved to hear Johann Rupert's thoughts on Net-A-Porter, but the straight-talking CEO and chairperson was not in attendance as he was dealing with pressing non-Richemont matters.

I'd be more accommodating of Mr Rupert's absence if I knew he was putting the final touches to an inspired deal at Reinet Investments, which surely can't keep sitting with its bum in the BAT(ter). But enough of the personal prattle...

Earlier this year Richemont, which initially held just 33% of Net-A-Porter, took outright control of the fashion retailer in a deal that valued the business at £350m.

Cyber fashion with new age pizzazz

Net-A-Porter, founded and headed by Natalie Massenet, offers online collections from over 300 designers and ships to over 170 countries worldwide. The company's turnover for the financial year ended January 2010 was around £120m, but I seriously doubt it came close to recording a profit at bottom line.

Aside from lacking cash flow, Net-A-Porter hardly seems a typical Richemont business (I mean, it's more the norm for the group to acquire ancient watchmakers and spread its retail footprint via carefully placed boutiques).

But it would appear the group has enthusiastically embraced Net-A-Porter's strategy for a 21st-century model for luxury fashion retailing. It may well be the quickest way of changing the image of Richemont's not-so-sexy "other" segment, draping the business in fashionable black lines (rather than the garish red seen in the last few years).

Long-serving board member Norbert Platt reckoned e-commerce would play a far more important role – although stressing that Richemont would not be insisting that its luxury goods lines be peddled through Net-A-Porter.

But one gets the sense that there are enormous possibilities, with Platt raving about Net-A-Porter's data mining capabilities – even suggesting the company was like a mini-Google: "We have to embrace it and learn fast."

Platt backed up his assessment that Net-A-Porter was a good acquisition with the prediction that the cyber fashion house would be profitable in the financial year ahead.

No doubt Platt's declaration that Net-A-Porter is growing very fast was aimed at dousing feelings in certain segments of the investment community that Richemont may have overpaid for the business.

The bottom line is that Net-A-Porter brings new age flash to a business steeped in centuries of tradition.

The Rupert family has backed some wonderful technology ventures over the last 15 years – from cellular services (Vodacom), vehicle tracking (Tracker) and undersea cables (Seacom). But some ventures have, well, fizzled (remember Intervid?).

After Thursday's investor presentation, expectations will be fairly high for Net-A-Porter (and believe me, they'll call it "Pet-A-Porter" if it barks in the financial year to end-March 2011).

I would be disappointed if Richemont's turnover in the year to end-March 2011 from the fashion or "other" segment was not up by at least 30% - and the operating line much closer to break even.

- Fin24.com
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