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Richemont publishes its full-year results on Friday but the Cartier and Chloé owner is unlikely to give much detail about the ongoing sale of its loss-making online fashion retailer Yoox-Net-A-Porter (YNAP). It will say that some parties have expressed interest, but it will not admit that many have pulled out of the bidding after seeing YNAP’s numbers.

Several private equity firms including Sycamore Partners, Bain Capital and Permira have walked away, spooked by YNAP’s track record, losses and shaky business plan, sources with first-hand knowledge of the matter said. They do not believe YNAP can be turned around, they said.

“Most private equity firms that looked at it are no longer interested,” one of the advisers involved in the talks said. “They’ve all left the process.”

In documents presented by Richemont to potential investors, YNAP loses money for four years and makes a profit only in the fifth year. YNAP’s annual operating losses are estimated to amount to about €220 million, and the cash burn is a bigger number. That’s a lot of money. Richemont has so far booked €1.8 billion in non-cash write-downs on the business and reported an operating loss of €128 million in the first half to September 30 of its current financial year to end-March.

Potential investors question YNAP’s growth prospects. Most big brands belonging to the Kering and LVMH groups have severed ties with online fashion retailers such as YNAP, Farfetch and MatchesFashion in recent months. One wonders what kind of business YNAP will be doing with these brands in a few years’ time. Only small- and medium-sized brands will be left, labels that need such an online retailer to reach out to consumers and sell their products since they have only a few boutiques of their own, if any. Most stock from LVMH and Kering brands you find on online fashion retailers these days is mostly from previous collections or thanks to distribution agreements that will expire soon.

Fashion brands use multi-brand online retailers mostly for marketing purposes and keep their best-sellers for their own website and boutiques. Adding to the pain, big brands have been drastically cutting the margin these websites are allowed to make from selling their wares.

That is also why they have been struggling to make money. Since the end of the pandemic, big brands do not need them as much as when their boutiques were closed because of the lockdowns. Today, most big fashion houses give online multi-brand sites only a few items that allow them to say they carry the brand, but if you look closely at the assortment, their offer is pretty scant.

Last week, on the “New In” section of Net-A-Porter, there was hardly anything from big brands aside from one raffia tote by Loewe and one Bottega Veneta bag. Big labels such as Prada, Miu Miu, Armani, Celine and Loro Piana are absent from the website altogether. For Celine and Dior, there is only eyewear. For Givenchy, two pairs of shoes. Net-A-Porter, on the other hand, offers bigger assortments for Chloé and Alaïa, fashion brands that belong to Richemont.

“There isn’t a single online fashion retailer today that makes money apart from Mytheresa, and Mytheresa’s profitability is declining,” one industry source with knowledge of the process said. “In the current environment, investors are skittish and YNAP’s record is terrible. The truth is that I do not see any big private equity firm willing to invest in this business.” Also, the more time passes, the more it will be hard to find a buyer, the source added.

Complicating the deal is the fact that Richemont wants to retain a minority stake in YNAP. Since the company sells many of its brands, including watchmakers IWC and Vacheron Constantin, the Swiss group wants to make sure that they are not sold at a discount or presented badly, as this would affect their desirability and brand equity.

Rival online fashion retailer Mytheresa has been approached by Goldman Sachs, Richemont’s advisers, about making a bid. However, the Munich-based retailer is not oozing enthusiasm either. There could be some synergies in terms of warehousing and shipping costs but “merging the two companies presents many risks and difficulties”, a source close to the company said. It is still early in the process and Mytheresa is “far from any concrete discussions with Richemont for now,” the source added.

In an ideal world, it would make sense for Mytheresa to merge with Net-A-Porter (NAP) and Mr Porter (NAP’s menswear online arm) whose brands are still strong. Their business is close to that of Mytheresa in that these two companies provide editorial content and a curated selection of brands like the German retailer does. Yoox, on the other hand, is a discount online retailer, specializing in selling stock from previous seasons. Yoox also provides white-label e-commerce services to some brands. It still powers Armani’s online boutique and Federico Marchetti, Yoox founder and ex-YNAP CEO, still sits on Armani’s board.

It would be complicated and costly to separate NAP from Yoox, several sources close to the two companies have said. Many aspects of their back-office operations, such as warehousing, customer service and IT, are integrated. “It would be a nightmare to try to rebuild them into two separate entities,” one person close to the company said. Hence, NAP and Mytheresa make sense on paper but in reality, any buyer will have to take on both companies. It is not clear whether Mytheresa would have the money to fund YNAP’s losses.

In the quarter to March 31, it is expecting to report a net loss ranging from €3.4 million to €4 million. Mytheresa has been the most successful of all online fashion retailers thanks to its strong fashion point of view and affluent customer base. It has positioned itself as the go-to place for fashion-conscious buyers and regularly organizes events to cultivate good relations with them.

Earlier this month, Mytheresa organized a glamorous party with Brunello Cucinelli on the romantic Lake Orta in Piedmont, in Italy.

This category continues to spend money, but the revenue Mytheresa generates from them has not been enough to compensate for the exodus of thrifty aspirational customers in the past year. Consumers have been tightening their purse strings because of inflation and high interest rates. They are looking for highly discounted items, which are not Mytheresa’s core business. Mytheresa focuses on selling products at full price. That’s why it has good relations with brands and these in turn allow platform to sell of their best-selling items. In addition, Mytheresa’s cash reserves are small. In June 30 last year, its last fiscal year-end, it had only €30.1 million left, down from €113.5 million the previous year.

Mytheresa CEO Michael Kliger outlined the company’s strengths when it published its first-quarter sales on April 18. “We build a community for luxury enthusiasts and create desirability through digital and physical experiences,” Kliger said in a statement. “This makes us the winner in an otherwise still tough market environment.” The company said its net sales would reach €230 million-€235 million, representing an increase of between 15 and 18 percent compared with the same period last year.

“What is not helping is that Richemont is not giving any details of how much money they are ready to inject in the company to offload it,” one of the people involved in the talks said.

Richemont has classified YNAP as assets for sale on its balance sheet. The Swiss luxury group knows that this description is only valid for a year. Technically, it became applicable after the deal to sell 47.5 percent of YNAP to Farfetch and 3.2 percent to the Emirati businessman Mohamed Alabbar foundered in November. Hence, from then on, the business was put back on the market.

Shocked by Farfetch’s mounting losses, Richemont Chairman Johann Rupert lost faith in the company and in its founder and CEO José Neves and pulled the plug. As part of the deal with Farfetch, Rupert was ready to inject $290 million of cash into YNAP to help cover its losses in the short term and provide a $450 million 10-year credit facility to mop up future losses.

Neves was counting on future business with Richemont brands such as Cartier to boost its revenues and profitability. Richemont’s retreat most probably accelerated Farfetch’s downfall. In December, the company narrowly escaped bankruptcy when it was acquired by South Korea’s online retail and delivery company Coupang. Since that deal took place, most of Farfetch’s top management have left and Neves has resigned. It is not clear what will happen to the company. However, for now the website continues to operate.

Richemont needs to secure a sale of YNAP soon or consider alternative solutions such as offloading the business and letting it survive on its own, or shutting it down.

In theory, it would seem there could be interest from trade buyers such as Alibaba, with which Richemont has a joint venture in China with Farfetch. There also is America’s Amazon, which is desperate to get into fashion and luxury. Alibaba is present in the sector with its luxury platform Tmall Luxury Pavilion, on which many of Richemont’s brands do business.

However, China’s Alibaba is not keen on buying YNAP. It has bigger fish to fry. The company is struggling with declining demand for luxury goods in China and is undergoing a restructuring as it is being split into several entities. It is also facing growing competition from the social media platforms TikTok and Pinduoduo which are stealing market share.

Also, why would Alibaba buy YNAP, a lossmaking company, when it is already doing business with the brands of its owner Richemont? Amazon, on the other hand, is likely to be a much more serious contender. Its entry into fashion and luxury has been a flop. The only luxury items the U.S. company sells are second-hand, from brands such as Gucci, Burberry and Saint Laurent.

None of the big brands want to work with Amazon because it has carried counterfeits for too long. Amazon has always been seen as the enemy of the luxury industry. If Amazon bought YNAP, it is not clear how small and medium fashion and luxury brands would respond. They might be desperate to boost their top line, but perhaps not to the extent of doing business with the mighty Amazon.

Investors always have always known that finding a buyer for YNAP was going to be difficult. However, it is proving much harder than they expected.