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Zozo Acquires Fashion Marketplace Lyst at Sharply Reduced Valuation
The volatile nature of fashion trends extends to the businesses that serve the industry, as demonstrated by the recent acquisition of high-end online fashion marketplace Lyst. Once valued at $700 million, Lyst has been purchased by Japan-based e-commerce giant Zozo for $154 million in cash.
Zozo’s Fashion Portfolio and Background
Zozo’s portfolio includes several prominent fashion brands such as Wear by Zozo, Zozotown, and Zozosuit. Notably, Zozo’s founder, Yusaku Maezawa, previously held the record for the “most retweeted tweet” stemming from a publicity campaign involving a substantial cash giveaway.
Lyst to Operate Independently Under Current Leadership
According to the acquisition announcement, Zozo plans to maintain Lyst’s operations as a standalone entity, with its current Chief Executive Officer, Emma McFerran, continuing in her role.
E-commerce Uncertainty and Factors Influencing Lyst’s Valuation
The significant decrease in Lyst’s sale price compared to its previous valuation reflects the current climate of e-commerce instability and challenges faced by the online fashion sector. Lyst has been navigating headwinds from multiple sources:
Impact of Trade Tariffs
Firstly, rising U.S. tariffs pose concerns for global trade, potentially affecting smaller international businesses that sell to American consumers. A substantial portion of Lyst’s revenue, approximately one-third, originates from sales within the United States.
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Intensified Competition in Online Fashion Retail
Secondly, even prior to tariff-related issues, Lyst encountered fierce competition within the online fashion market. This competition stems not only from specialist retailers but also from dominant platforms like Amazon and Temu.
Investor Focus on Emerging Technologies
Thirdly, contemporary technology investors are heavily focused on artificial intelligence (AI) ventures. This emphasis creates pressure on companies outside the AI domain to demonstrate comparable growth or integrate AI narratives into their business strategies.
AI and the Future of Fashion Discovery
Lyst and Zozo have seemingly acknowledged this industry shift, emphasizing “Transforming the Future of Fashion Discovery through AI and Technology” in their acquisition statements. While this phrase is reiterated, concrete details regarding specific AI applications remain undisclosed.
International Expansion for Zozo through Lyst Acquisition
Beyond establishing a UK presence, the agreement broadens Zozo’s global footprint. Lyst reports serving customers in 190 markets, with revenue distribution spanning the U.S. (30%), the UK (24%), and Europe (34%).
Lyst’s Marketplace Model and Brand Aggregation
Lyst operates on a marketplace model, aggregating a wide array of fashion brands. It claims to offer products from 27,000 brands, encompassing both prominent designers and retailers. The brand list includes Prada, Gucci, Bottega Veneta, Valentino, Miu Miu, Coach, Michael Kors, Hugo Boss, Selfridges, Harvey Nichols, and Harrods.
E-commerce Boom and Subsequent Valuation Adjustment
Lyst benefited from the e-commerce surge during the COVID-19 pandemic. A funding round in May 2021, led by Fidelity and including investors like Accel, Balderton, and Molten, valued the company at approximately $700 million. At that time, the funding was characterized as a pre-IPO round.
However, the anticipated IPO did not materialize, and the e-commerce sector experienced a downturn as consumer spending patterns normalized post-pandemic, and investor interest shifted toward AI technologies.
Challenges in the Online Fashion Market
The online fashion marketplace has faced ongoing difficulties.
A company representative specified that Lyst’s reported 160 million users are “annual unique users,” encompassing both active buyers and browsers. The effectiveness of Lyst’s conversion strategy, crucial for e-commerce businesses, remains unclear. Notably, other high-profile luxury fashion platforms, such as Farfetch, have also experienced significant declines since the pandemic peak.
Lyst Financial Performance
Lyst’s revenue for the year ending March 31, 2024, was £50.1 million ($64 million), consistent with the previous year’s £50 million, as per Companies House filings from December 2024.
While Lyst remained unprofitable during this period, it significantly reduced its losses to £510,000, compared to £23.7 million the prior year. The company also reported an operating profit before taxes of £443,000.
Executive Statement on Acquisition
“This acquisition represents an exciting phase for Lyst and a beneficial outcome for our fashion ecosystem of shoppers and partners as we integrate with ZOZO Group,” stated CEO McFerran.
Future Synergies and Potential Turnaround
The focus now shifts to whether enhanced economies of scale through Zozo’s backing will provide Lyst with the necessary impetus for a successful turnaround.