Bluefly Swatter
Yoox.com exploits its Italian home base to challenge online fashion competitors.
By Carleen Hawn

(Business 2.0) – Last year Jeff Schwartz, a 46-year-old technology consultant, spotted a pair of Puma shoes designed by Neil Barrett, Prada's former design chief. They were selling for $400 at a Seattle boutique, but the store didn't have his size. So Schwartz called Italy. "No one in Europe would sell me the shoes," he says.

Finally he tried Google and found Yoox.com, where the coveted shoes were available in his size for just $175. "They not only had the shoes," he says, "but also around 200,000 other items."

Lots of websites--including Bluefly.com and eLuxury.com (a subsidiary of LVMH)--sell name-brand designer apparel. But Yoox, based in Bologna, Italy, has something of a lock on true haute couture. Sure, you can buy that perennial $476 Giorgio Armani shoulder bag at Bluefly, but the $734 silk-and-wool sari-inspired evening gown from Armani's spring/summer 2005 collection is only at Yoox.

How does Yoox do it? Elite fashion houses typically don't let online fashion discounters carry their high-end lines. That's because most fashion websites sell merchandise acquired through liquidation middlemen, meaning that a couture dress could show up right next to rejects from Macy's. Yoox never buys from liquidators. Instead, it trades on the personal relationships of 36-year-old CEO Federico Marchetti, a former luxury-goods analyst at Lehman Bros. Yoox's staff buyers often visit designers' studios to handpick items. "Federico's solution doesn't conflict with our brand image," says Antonio Padula, general manager of Costume National. "And it helped that he was Italian."

Marchetti's company compares favorably with his fashion-on-the-Net competitors. He says that Yoox's sales grew by more than 72 percent last year to $49 million and that his privately held company will generate nearly $1 million in earnings before interest, taxes, depreciation, and amortization this year. Meanwhile, publicly held Bluefly posted about the same level of sales ($44 million) and an Ebitda loss of $2.6 million in 2004. Benchmark Capital's Mark Evans says his fund invested roughly $7.5 million in Yoox in part because of the company's gross margins--more than 50 percent. "When you start with high gross margins," Evans says, "you can build an interesting business." -- CARLEEN HAWN