Mytheresa IPO Is Less Fashion-Forward Than It Looks

Former Neiman Marcus owners have sold a stake in the online retailer at a high valuation, but its business model may need a makeover.

By guest author Carol Ryan from Wall Street Journal

Caption and Graphics courtesy by the Wall Street Journal

Online luxury-fashion retailer Mytheresa, which used to be owned by struggling department store Neiman Marcus, has fetched a high price at its market debut. Although the business seems to tick all the right boxes for investors, not all trends are in its favor.

This week, around one-fifth of Mytheresa’s parent company, MYT Netherlands, MYTE 19.23% was sold to investors at a $2.2 billion valuation. Appetite for fashion e-commerce businesses is strong among investors. One week after its initial public offering, Poshmark’s shares are trading about 66% above where they initially priced.

Mytheresa shares started trading Thursday at $35.85, and ended their first day at $31, up 19% from the offering price on the New York Stock Exchange.

It is a great result for Mytheresa’s owners, private-equity firm Ares Management and the Canada Pension Plan Investment Board, after a messy legal spat and Neiman Marcus’s bankruptcy. The department store’s bondholders sued the duo for changing Mytheresa’s place in the failing retailer’s corporate structure in a way that put it out of reach of creditors.

Proceeds from the sale will ultimately be used to settle debt the parent company owes as part of the bankruptcy settlement. Although the loans don’t mature until 2025, they carry an expensive 7.5 % coupon so it makes sense to retire them early.

Investors have paid through the nose for the business. At the IPO, Mytheresa was valued at four times last year’s sales and over 50 times earnings before interest, taxes, depreciation and amortisation. The highest bid its owners received in 2019, when they tried to sell the business, was just USD 500 million.

Mytheresa is one of the few profitable luxury e-commerce players around. Peers Farfetch, The RealReal and Yoox-Net-a-Porter are deep in the red. But hanging on to its attractive margins will be tough. Competition among online players is fierce, especially now that Amazon and Instagram want a cut of luxury goods sales. Companies may need to spend more on marketing and offer price reductions to lure shoppers.

Crucially, luxury brands are becoming more selective about the online retailers they will work with. They increasingly favor platforms such as Farfetch and Alibaba’s Luxury Pavilion that take a cut of sales but give them full control over pricing. Brands don’t like their own lucrative websites being undercut by third-party e-commerce sites offering discounts.

Mytheresa has a less fashionable business model because it owns all the inventory it sells. If it has to introduce the kind of concession approach seen at Farfetch, it will be harder to remain profitable.

It is still in brands’ interests to work with a handful of well-run online department stores such as MyTheresa and Net-a-Porter. However, their terms are becoming more onerous. If MyTheresa needs an overhaul to keep them happy, the company’s plush valuation could start to fray.

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www.neimannmarcus.com

www.mytheresa.com