Page 72 - The Economist Asia January 2018

The Economist January 27th 2018
56 Business
2 online world. On January 22nd Riche- ry e-tailer, is planning to float. Claudia to feuds within the management.
mont, a Swiss luxury conglomerate that D’Arpizio, a partner at Bain, suggests that Such concernsdo notseem to bother Jo-
counts Cartier among its brands, offered to Amazon, an online giant, could eventually hann Rupert, Richemont’s founder and
buy the shares it does not already own in disrupt the luxury market, too. chairman. In a statement on the offer he
Yoox-Net-a-Porter group (YNAP), a leading Not everybody is convinced a takeover mentioned how, a century ago, Alberto
luxury online retailer, for €2.7bn ($3.3bn). of YNAP is needed. It is like buying an air- Santos-Dumont, a famous aviator, com-
Although the deal still faces hurdles, it is line to go on holiday, says Luca Solca ofEx- plained to his friend, Louis Cartier, about
likely to go ahead. ane BNP Paribas, another bank. And the the difficulty of checking his pocket watch
The days of double-digit growth in the deal is not without risks. One is whether while flying. Cartier listened, and—eure-
luxury industry are gone—it grew by 5%, to Federico Marchetti, YNAP’s boss, will in- ka!—the wristwatch was born. Full owner-
€1.2trn, last year. Watches, in particular, deed stay on once he has sold his 4% stake ship of YNAP should, Mr Rupert seems to
have had a rough time. Chinese demand (he says he will). Ms Floquet also worries reckon, allowRichemontto listen to its cus-
collapsed after an anti-corruption crack- that the lackofa chiefexecutive could lead tomers, in person ornot. 7
down; inventory languished, unsold. Last
year Richemont’s revenues dropped by The avocado market
4%, to €10.6bn. Butonline salesofpersonal
luxury goods have continued to rise: they Lack of guac
now account for 9% of the total (see chart).
Bain & Company, a consultancy, reckons
that they will reach 25% by 2025. NEW YORK
Droughts, storms and global demand testAmerica’s love affairwith avocado
Online sales of “hard luxury”, such as
watches and jewellery, lag: they account LTHOUGH New Yorkers are not re-
forjust5% ofdigital revenues. Butthat isup Anowned fortheirpatience, they do
from almost nothing a decade ago, and is not seem to mind waitingtheirturn fora
predicted to reach between 10% and 15% by fresh servingofavocado. At Avocaderia,
2025. And even if purchases are made in which claims to be the world’s first avo-
physical stores, buying decisions are in- cado bar, in Brooklyn, longqueues stretch
creasingly made online: 68% of millenni- from the counteroutward into a large
als’ luxury purchases are “digitally influ- food hall.
enced”, accordingto EY, a consultancy. The venue’s popularity is a sign of the
Small wonder that Richemont wants to times: the avocado is fast becoming
expand its footprint online. Last year the America’s favourite fruit. Although do-
group hired a chief technology officer, as mestic production has stayed flat, im-
part ofa management restructuring which ports have more than trebled overthe
also did away with the role of CEO. It was past ten years, accordingto the Depart-
an early investor in Net-a-Porter, which it ment ofAgriculture. It estimates that the
merged in 2015 with Yoox, another e-com- annual consumption ofthe average
merce firm; it kept a 50% stake in YNAP, the American has increased from about one
resulting combination. The hope is that pound (0.5 kilograms) in 1989 to more
owning YNAP outright will allow Riche- than seven pounds in 2016; total con-
mont to learn things about the online sumption that yearweighed in at 2.3bn
world thatitcould notwith a stake alone. It pounds.
would also increase the Swiss firm’s expo- America’s enthusiasm foravocados Looking for the last avocado
sure to “soft luxury”, such as clothes and may be dented, however, by soaring
bags, a segment in which the firm has prices. The wholesale price fora case of although small in volume compared
struggled, notes Melanie Floquet ofJPMor- 48 avocados peaked at $83.75 in Septem- with Chile’s and Mexico’s, surged by
gan Chase, a bank. ber, up from $34.45 a yearbefore, accord- 3,700% in 2016. Othercountries, includ-
For YNAP itself, the deal promises add- ingto the American Restaurant Associa- ingCanada and Japan, have also worked
ed investment at a time of intensifying tion. Some restaurants were forced to add up theirappetite, raisingaggregate im-
competition. Moët Hennessy Louis Vuit- a surcharge on guacamole, ortemporar- ports by 32% between 2014 and 2016.
ton (LVMH) has launched its own online ily to scrap it from theirmenus altogether. Raisingproduction will be tricky. This
platform, 24 Sèvres. Farfetch, another luxu- Others swallowed the bill. Chipotle, a is because avocados are a fussy plant to
Mexican-themed restaurant chain, said grow, says Mary Lu Arpaia ofthe Univer-
that “historically high avocado costs” sity ofCalifornia, Riverside. Salinity
Distinction benefits were a bigreason why it posted dis- levels need to be just right, the slope of
Online luxury-goods market, worldwide, €bn appointingfinancial results last year. the terrain not too steep and tempera-
Supply shortfalls, brought about by tures stable. Erratic weatherconditions
Online market share, % 9 25
droughts, storms and wildfires in Califor- can easily kill the crop.
8 20 nia, Chile and Mexico, help to explain the Even so, it seems a good bet that
7 jump. Production in California dropped queues like the ones in Brooklyn will
15 by 44% in 2017. Harvests in Mexico that multiply. The founders ofAvocaderia are
5
4 yearwere offby 20%. Labourstrikes in already lookingfornew opportunities to
10 the country furtherreduced supply. expand afteronly havingbeen in busi-
3 Growingglobal demand is also push- ness forten months. Demand is huge
2 5
1 ingup prices. Both Chile and Peru have says one ofthem, Alessandro Biggi. “On
concluded trade agreements with China, openingday we actually ran out ofavo-
0
2003 05 07 09 11 13 15 17* eliminatingtariffs on theiravocado ex- cados afterjust 90 minutes and things
ports. Peru’s avocado sales to China, haven’t slowed down since.”
Source: Bain & Company *Estimate