Richemont and the rules of engagement for ‘Collaboration among Competitors’

Shares of both Farfetch and Richemont surged yesterday after both companies confirmed they are in advanced talks on an expanded partnership.

The focal point of the expanded partnership : a potential merger of the companies’ marketplaces.

The news — when it broke out — wasn’t unexpected.

Richemont — the owner of luxury brands like Cartier, Peter Millar, and Montblanc among others — had always struggled to create ‘the network effect’ on Yoox-Net-A-Porter (YNAP), their luxury e-tailer platform. (Richemont acquired YNAP in June 2018; this acquisition was its largest ever).

Collaboration among competitors is rooted in trust

Any form of collaboration among competitors or peers is based on the premise that none of the competitors gain a competitive advantage after agreeing to collaborate.

In its most common form, Competitive Collaboration is used to solve a common pain-point. Like regulations. A recent example of this was when, last year at the height of the pandemic, cruise rivals, Royal Caribbean Cruise and Norwegian Cruise, collaborated to lobby the CDC for a relaxation of the CDC guidelines to enable cruises to restart stalled operations.

Richemont’s problems around creating growth runways for YNAP appears to be trust-related: Some luxury brands were reluctant to join YNAP given that the platform is controlled by a competitor (Richemont).

The announcement yesterday of a potential merger between YNAP and Farfetch creates ‘neutrality’ and augurs well for Richemont and the ‘hard-luxury’ — watches and jewelry — industry as a whole.