Online retail does pay

Here at SmartCompany our tech reporter Patrick Stafford is currently putting the finishing touches on his story which looks at Australia’s top online retailers, which will be published on Thursday.

It’s an impressive list with a few real surprises, but once again it really does highlight how online retail is becoming an increasingly important part of the whole retail sector.

Of course, there are some – most notably Gerry Harvey – who have questioned the value of online retail, both as a profit driver and as a long-term business model.

But if our list of Australia’s best e-tailers doesn’t answer their criticisms, perhaps the story of a British shopping website that sold last week for a staggering $580 million will.

Former journalist Natalie Massenet founded Net-a-Porter in 2000, at the height of the dotcom bust. The site sells luxury fashion brands such as Burberry and Jimmy Choo and caters to customers (almost all of whom are women, it seems) who want the convenience of buying items online, well before they hit the stores.

While you would think customers would be cautious about buying these expensive items without trying them on, it seems Massenet’s hunch about the power of what she calls “stealth shopping” was right.

The average transaction is $830, while some transactions can be as high as $33,000. The company reported revenue of just under $200 million last year, up 50% on 2008 despite the crippling downturn that hit Europe.

The site also has over three million visitors a month, who come for the shopping and the fashion-focused editorial, which includes a glossy-magazine delivered in an online format.

Last week, Richemont, the Swiss luxury brands group that owns Cartier and Montblanc signed an agreement to buy Net-a-Porter in a deal which values the site at $580 million.

Massenet, who made it onto Vogue‘s list of the world’s most glamorous women a few years ago, will reportedly receive about $83 million for her stake, although a substantial part of this will be reinvested in the business.

Not bad for a company that started with about $1.3 million raised from family and friends.

Massenet’s story is a great example of how powerful the online retail model is when the right product is matched with the right community.

It’s also worth noting who has bought the company. Luxury brands like Richemont have long struggled with finding the right online retail model and in this case Richemont has decided that it is far better to buy a specialist than try and start their own e-tail venture.

Perhaps Australia’s big retailers, who have also struggled to crack the online retail model, might be forced down the same path.

And if you want a tip about the future of e-commerce, Massenet told the Financial Times that it’s all about content.

“I think there will be an increasing convergence between content and commerce, that it will be about following consumers instead of making consumers come to you, and I am especially excited about the various platforms that will allow more and more access to customers.”