Investors eye Christian Lacroix

April 9, 2009

By Vanessa O’Connell Wall Street Journal

The owner of the iconic but unprofitable Christian Lacroix couture fashion house is in talks with private investors considering a stake in the firm , people familiar with the matter said, as cutbacks by high-en d U.S. department stores take a toll on apparel designers.

Paris-based Lacroix, one of a tiny and shrinking club of haute-couture design houses, has been looking for investors amid falling sales of luxury goods. Neiman Marcus Group Inc., Saks Inc., Nordstrom Inc. and Barneys New York have reduced orders for fall 2009 merchandise from designers.

Neither the terms being discussed by Lacroix’s owner, Florida-based Falic Group, nor the identity of the investors could be immediately learned. The negotiations could still fall apart, those people said. Other luxury goods makers, such as Italy’s Brioni Roman Style SpA, also have been seeking investors amid weakening sales.’

U.S. stores “aren’t taking any risks” on designer labels that might not sell well at their stores in the recession, says Pierre Mallevays, managing partner of Savigny Partners LLP, an advisory firm in London. Retail buyers “are favoring brands that have a proven sales record – and even then they are cutting orders by 20% or 30%, ” he adds.

Spokesmen for Nordstrom and Neiman Marcus say their stores dropped Lacroix after carrying it last year. Buyers for Saks purchased Lacroix’s spring styles but didn’t place any orders for its fall 2009 collection, unveiled earlier this year.

Barneys New York, a unit of Istithm ar World, an investment arm of the Dubai government, placed orders for fall 2009 Lacroix merchandise, according to a person with knowledge of its plans.

Lacroix, whose spring collection includes a $6,685 silk calligraphy, print gown and a $4,505 silk trenchcoat, generated 2008 wholesale volume of about €20 million ($27 million) and about €40 million in total revenue, by one estimate. Generally, investors buying a stake in an unprofitable fashion house might value the company at 0.5 to 1 times total revenue, according to investment bankers.

Lacroix recently in curred what one knowledgeable person said were “significant” losses. Another person familiar with the matter said that the fashion house could soon be downsized. It currently has a little more than 100 employees, up from about 60 in 2005.

Requests for comment from executives at Falic Group weren’t returned.
“An haute couture business is very, very expensive to maintain,” said Imran Amed, a consultant to luxury goods firms. Lacroix has that “big cost structure but hasn’t realized the revenue streams on the other side to offset that,” he said. Houses like Chanel and Christian Dior Couture, by contrast, get royalties from licensing those brands in fragrance and sunglasses.

Falic (pronounced FAY-lic) Group) controlled by brothers Simon, Jerome and Leon Falic, is best known for its more than 100 duty-free shops in airports and border towns across the U.S.

Falic bought the House of Christian Lacroix from LVMH Moet Hennessy Louis Vuitton SA in 2005. Nicolas Topiol, the chief executive of Christian Lacroix, built an infrastructure for Lacroix, which had previously relied on a sister company within LVMH for basic functions such as sourcing, sales and·warehousing. Under Falic’s ownership, Lacroix also opened two of its own boutiques in the U.S., one on New York’s 57th Street and the other in Las Vegas.

The U.S. accounts for about 1 5% of Lacroix’s total sales.

Falic Group began looking about a year ago for an investor to help share the burden of expanding its retail sales outlets. One problem: not many buyers want to spend on extravagant fashion shows for a new acquisition that doesn’t generate a profit.