Yoox positions itself as an “Internet retailing partner” for global fashion and luxury brands. The company began as an online outlet buying up previous season overstock or unsold items, either directly from renowned fashion houses or from manufacturers and authorized dealers, to be sold online at discounted prices.
Launched in 2000 when the fashion world was still distrustful of internet retail, Yoox was a first mover in successfully merging the exclusivity of the fashion world with the accessibility and democracy of the Internet. The business model enables luxury brands to off-load prior season merchandise without undermining their brands or cannibalizing sales at their brick-and-mortar stores, while allowing customers to access luxury at lower prices, with the convenience of trying pieces on in their own homes. As fashion e-commerce depends as much on smooth back-end logistics as a slick front-end experience, Yoox has been able to capitalize on a highly efficient operating model to both create and capture value.
The key drivers of Yoox’s model are:
- A keen focus on operations, and on managing the needs of a large scale e-business while tailoring to customs requirements in over 100 countries, translating descriptions into a number of languages, rationalizing sizes across markets
- Highly automated warehouses using RFID tags and robotic arms to store and sort orders, but humans handling returns to ensure that garments are not destroyed
- Sourcing expertise in locating overstocked items and negotiating for them, minimizing inventory needs to the extent possible
- Being one of the first luxury retailers to effectively mine data from its vast network of online customers
At any given time, the Yoox Group has more than four half million items in its main warehouse; 90% of the goods sell within a year.
The alignment of the operating and business models has allowed Yoox to create a name for itself within the fashion industry, allowing access to an ever broader range of brands and categories, as well as to top names in the architecture, art and design worlds who have curated capsule collections and other special projects. This has allowed the customer to feel more like a connoisseur than a mere bargain-hunter, increasing the cachet of the experience.
At the same time, Yoox has also brought new luxuries to its customer – for instance, with free returns and minimal shipping fees, it has allowed them to try clothes on in their own homes, removing the often intimidating store experience. Yoox encourages its shopper to buy in large quantities and return whatever they don’t like.
Flexibility and continuous improvement are hallmarks of the Yoox culture – in its earlier years, Yoox displayed only a discounted price, not an original price. This allowed brands the illusion that they were not in fact being discounted. In recent years, the rise of customer demand for transparency has moved Yoox to a model where both the original price and the markdown are displayed, and the customer insights they share with designers has allowed them to be comfortable with this new model.
As with most of its back-end operations, Yoox’s buying and pricing decisions are highly data-driven. This has driven value for themselves but more importantly for their customers and the designers that they work with. As a key part of their business, Yoox has shared its data about sales and customer preferences—not only about what people buy but also what they don’t buy. This has sparked a broader trend in the luxury industry to better understand customers and use algorithms to predict market trends. For the customer, the algorithm behaves like “the perfect sales associate,” showing you items based on your purchase history and on the purchase history of others who have bought things you’ve bought (all while staying unobtrusive.)
To mitigate the low margins and inventory risks in the discount business, Yoox has been able to leverage its technical and operational capabilities to run the online store-fronts of a number of fashion houses, where they directly sell current-season items. Unlike the discount business where Yoox buys the inventory, the online flagship business takes current-season clothes on consignment and handles logistics, shipping, customs, returns and customer service in return for a ~30% commission. Inventory costs being the key profitability risk in the fashion business, this has been a critical driver of profits for Yoox – which they are then able to pass back on to customers through attractive prices in the discount business.
At its heart, and in its own words, Yoox is a “global logistics structure that has been specifically customized for fashion e-commerce.” Yoox CEO Federico Marchetti describes his business as a “fashion ecosystem” — younger designers, nurtured on The Corner (a Yoox sister site), can grow into megabrands, with their own Web sites powered by Yoox and with Yoox’s data capabilities providing critical consumer insights. Those brands in turn give Yoox’s buyers special access to their end-of-season goods, which are discounted on Yoox.com, relieving the brands of the tricky problem of liquidating their overstock. Throughout this, the customer benefits from accessibility both through the convenience of the internet and through the discount pricing.
In October 2015, Yoox completed the acquisition of its key fashion e-commerce rival, Net-a-Porter; the Yoox Net-a-Porter Group is now the world’s largest online luxury fashion retailer. Yoox and Net-a-Porter have brought the fashion world online, but how will they continue to win in an increasingly fragmented landscape with low barriers to entry and competitive threats from traditional retailers going online as well as technology-driven marketplaces such as Lyst and Farfetch? The hope is that they will be able to continue leveraging their strong brands and industry relationships while creating synergies between Yoox’s logistical infrastructure and Net-a-Porter’s curation and editorial abilities to serve the ever-demanding global customer.