Paul Poiret Trademarks Acquired By Shinsegae International

10/08/2015

“They want to reinvent the DNA and make it relevant to today” Pierre Mallevays said 

It’s Only Money: Financing an Independent Fashion Brand

17/11/2014

“Remaining independent limits the pace of development and ultimately how far it can go”

Paul Poiret paused for brand revival

28/10/2014

“The unusual side here is that the process is meant to allow the successful bidder to relaunch and develop the brand as a business. This is not for collectors.”

M&A World Chasing Fashion Brands

30/12/2013

“The rise and success of the contemporary category has been the defining trend of the last decade, with brands ranging from the creatively respected — Acne Studios, Alexander Wang, Isabel Marant — to the superbly well merchandised, like Tory Burch”.

M&A Activity Soars in Jewelry, Fashion

28/05/2013

Mallevays pointed out that “everyone seems fascinated by the development success of the contemporary category,” alluding to such fast-growing brands as Acne, Rag & Bone and Isabel Marant

The Next Wave: Big Money, Young Talent

15/04/2013

“These companies are nicely profitable from early on. This makes it possible for the big groups to get involved even at an early stage without having to micromanage them.”

What’s Next for Nicolas Ghesquière?

“Major fashion talents can truly have a transformational impact on brands,” Pierre Mallevays continued, citing as examples Alber Elbaz and Phoebe Philo, who respectively catapulted Lanvin and Celine to critical and commercial success.

Arnaud de Lummen: Fashion’s Brand Reviver

02/05/2012

Pierre Mallevays, managing partner at London-based Savigny Partners LLP, which is advising Luvanis in its brand-revival model and was involved with both the Vionnet and Moynat deals, said dormant brands could be of interest to multiple players, except private equity.

The Global M&A Scene: Steady Deal Flow Expected in 2012

13/03/2012

Pierre Mallevays, managing partner of Savigny Partners said  “There is a lot of appetite for deals, particularly from China, but often with a very narrow scope and specific requirements.”

Dissecting the LVMH Strategy

01/12/2010

“You simply have more and more people that are less involved in the business, and who might prefer to have cash rather than illiquid shares,” Mallevays said. “The real danger is the danger from within.”

Luxury’s New Road

02/11/2009

Luxury has its limits, and the global economic downturn delineated them clearly.

Even as luxury goods executives grow more optimistic the worst is over, the recession will leave behind a sector with fewer players and a new set of rules and dynamics. “Value” and “meaningful consumption” are among the new buzzwords and “accessible luxury” possibly on the endangered species list.

“We live in a world of competition. Maybe there was too much,” mused Karl Lagerfeld, among major industry figures WWD surveyed to divine how the luxury landscape might look once the dust from the downturn has cleared.

The designer of Chanel, Fendi and Karl Lagerfeld collections also said an “obsession” with extreme fashion statements is also likely to ebb and “ commercial,” long a disdainful term used to describe a boring fashion show, will lose its sting. “ Clothes are made to be worn,” Lagerfeld stressed.

While a range of opinions emerged, designers, chief executives, analysts and other observers agreed that, in luxury’s next wave, consumer expectations are likely to be higher than ever, with craftsmanship, service, heritage and longevity among new priorities.
“They want it all: the quality, the creativity, the exclusivity and the service. You tend to forget that in good years because in good years, it’s easier,” said Pierre-Yves Roussel, chief executive officer of the fashion division at LVMH Moët Hennessy Louis Vuitton. “ Being in luxury, we have to be perfect in everything we do.”

Meanwhile, on the business front, emerging markets for luxury goods, the growth of e-commerce and social networking and eco concerns are also likely to shape the industry in years to come.

Harsh market conditions will certainly separate the wheat from the chaff, some observers noted, even as there have been recent predictions the sector might see a rebound in the second half of 2010.

“Many brands have appeared that may not be perceived as ‘true’ luxury,” noted Gilbert Harrison, chairman of Financo Inc. “The changes occurring will bring a much sounder definition of what is luxury and the iconic brands will survive and continue to have demand and luster that they have had in the past.”

Below, here’ s what the exp erts had to say.

A SMALLER SECTOR, SLOWER GROWTH
Robert Polet, president and ceo, Gucci Group: “I believe the era of ‘accessible luxury’ is over. The current crisis has been particularly difficult for these ‘affordable luxury’ brands as their customers have been most affected by it. It has also been tough on brands without a strong financial base or global profile… so I think the industry will also emerge from the crisis a bit leaner — with fewer, stronger brands offering products of superior quality and value. There is a noticeable trend away from conspicuous consumption to conscious consumption. People are returning to a consciousness of heritage, quality, craftsmanship and long-lasting value. Luxury remains about experience: the experience of heritage, quality, authenticity and artisanship . The other trend being witnessed in the industry is the ongoing importance of China and other emerging markets, which now represent a third of the luxury business.”

Michael Burke, ceo, Fendi: “There will be a lot fewer players. This is the first recession that luxury goods has entered with leverage. It shows that you can’t use the same financial tools. This recession has proved that trying to be too much to too many people is not the right way. If you want to go global, you have to be very focused. Your brand strategy can’t rely on too much diversification.

Since we’re not supposed to go after all customers, we have the luxury of being focused, the duty to be focused. Also, this is the first recession where the Internet is a major medium. People have as much information as professional investors. Your mistakes are much more visible: your expansion mistakes, your design mistakes.”

Gilbert Harrison, chairman, Financo Inc., New York: “ When the economy rebounds, luxury purchases are not expected to return to the same level as experienced over the past 20 years. Consumers will have been trained to get comparable levels of satisfaction from secondary lines or private label lines. Tougher credit will limit the ability of high-value purchases [and] residual economic worries of the recession will mitigate purchasing power.… These trends have highlighted the overbranding, overstoring and overpricing of the U .S., which is leading to a major shakeout of brands and retailers. Luxury brands can use scarcity to enhance the desirability of their products. Emerging markets are widely viewed to be helpful, but not fully dependable, in serving as an offset to the sales declines and margin erosion in develop ed markets.”

Matteo Marzotto, co-owner, Vionnet: “The decade between 1997 and 2008 wasn’t sustainable anymore because it was too financially driven. The multiples used for the valuation of a company were mesmerizing. Already, after 9/11 there were warning signals that excess was starting to waver, but then the whole industry became too centered on finance and it fell to the floor. Now, it will take years for the consumer to go back to the pre-crisis buying approach — and even when things pick up , we must come to terms with the fact that it won’t be like 2007 anymore. More than ever, it’s important to excel in the quality-price-craftsmanship ratio because even those consumers with money and a lighthearted and whimsical shopping approach are knowledgeable and attentive to this aspect.”

Concetta Lanciaux, founder, Strategic Luxury Advisors: “Universal aspiration to luxury has never dwindled and never will. It can only increase in the years to come as all basic needs are being met worldwide. In some countries, consumers will continue to be willing to even lower their food budget in order to buy status objects. The big change is only in the level of income that people will have available to spend on luxury goods. The lasting values of luxury brands such as quality and design identity, in a market with less spending capacity, are reinforced and gain an even more central place. But the luxury market will have fewer global contenders and the offer will become clearer. Luxury brands that will be able to… offer collections with identity and relevance, but with a wider range of prices, will win the large base of the customers they need.”

Luca Solca, senior retail and luxury analyst, Sanford Bernstein: “ The recession will likely usher in an era of more subdued growth, on the back of less buoyant economic growth in the medium term. Smaller players will be even more marginalized than today, while larger and stronger leading players will emerge. Consumers will avoid excesses and maintain a more considerate shopping behavior. This is showing today with major brands being preferred for their iconic products, with consumers clearly looking for ‘investment- grade’ purchases rather than newly invented fads. Similarly, consumers will question value and price more. Brands that were not seen to discount so aggressively will be preferred. Designers and apparel products, I would expect, will face the highest scrutiny and skepticism, considering that lower-p riced design alternatives abound.”

Anne Chapelle, ceo, BVBA32 , the holding company of Ann Demeulemeester and Haider Ackermann: “ Priorities in spending patterns have been rearranged, and consumers have experienced the feasibility of this change in their everyday lives. To bring them back to their previous spending [habits] will definitely take time, care and investment from our side. Secondly, the players in the luxury business have changed as well. The economic downturn forced some, sometimes smaller and younger fashion houses, to close down or to get reorganized in a dramatic way. Consumers are [repositioning] their attitudes toward luxury….They are even more focused on the quality of materials and craftsmanship , and the choice of sustainable and truly valuable goods.”
Cristiana Ruella, group managing director, Dolce & Gabbana: “Recession aside, the economic-social system worldwide has been hit by structural change due to the shift in the way both companies and consumers think. We will face the upcoming months with even more rationalized collections for customers oriented toward distinction and quality. We will continue to invest in a focused manner and obviously with more attention when evaluating each project to further reduce the margin of risk compared to what was tolerable in the past.”

Lew Frankfort, chairman and ceo of Coach Inc.: “Luxury is changing and it will be much less about price and more about great product and exclusivity. Price will no longer be a positive factor in making a purchase decision. Consumers will want products that are extremely well made, scarce and at a good value.” Frankfort believes that accessible luxury will thrive given some “ compelling price points out there, and that you will see less conspicuous consumption in the high-tick et area. There will be exceptions. Hermès will continue to thrive. Growth, however, will be in areas that are more in reach of a more discerning consumer. The consumer will be careful when she emerges regarding how she buys and where she buys. Diamond rings over $50,000 will be trending to a lower level.”

Pierre Mallevays, managing partner, Savigny Partners, London, a boutique investment bank specializing in luxury goods: “The crisis has changed the definition of ‘value.’ That was a dirty word in the luxury goods circle before the downturn, just like ‘mass.’ Now the luxury customer wants value as in investment value. In luxury goods, value will come from the perception of a high degree of craftsmanship and quality combined with durability, with a good sprinkle of functionality. The customer now wants to spend right: not to accumulate or to have, but for the right reason. The investment proposal has to be right. Brands will rediscover they have a soul, and will have to engage the soul of their customers to be really successful. This will require a multichannel, interactive dialogue, where the customer will feel a sense of ownership of the brand or sharing in its set of values.”

Stefano Pilati, designer, Yves Saint Laurent: “What happens after this kind of a cycle is that consumers become more aware of value, with a heightened attention to the exclusivity and quality of a product. They will recognize and expect expertise in design and craftsmanship, and a strong, coherent aesthetic identity from the brands they patronize. My approach to design has always given primacy to pure aesthetics without losing an orientation toward the needs of the market. At Yves Saint Laurent, we anticipated the crisis, in a sense, through the creation of the various ‘Edition’ capsule collections, which operate and respond vertically to diverse mark et needs and requests.”

Ralph Toledano, chairman and ceo, Chloé: “Customers have gotten used to discounting in ready-to-wear, and that is very bad for us. I really believe people look at price, but they also want to have quality. The expression ‘value for price’ is absolutely valid. We see in our stores the customers really want the best quality. We also see the buy-now, wear-now phenomenon. We used to deliver coats first for fall. This might change. It’ s clear we also have to look at our retail networks and our service in particular. We will be looking more at CRM [customer relations management], viral marketing, in-store events and service, service, service.”

Patrizio di Marco, ceo, Gucci: “Even prior to the financial crisis…the consumer [was] placing higher emphasis on individuality, personalization and less ostentation. The crisis has increased the focus on discrete consumption and the price-to-value relationship. The crisis has lowered substantially the disposable income of entry-level, aspirational consumers with a resultant drop in traffic from this segment. For the foreseeable future, [consumers] will be more prudent, pragmatic and discerning. When buying luxury products, they will evaluate more true quality, heritage, craftsmanship, exclusivity and expect outstanding levels of service. I also believe that social responsibility is increasingly important in the minds of consumers. A concern for the environment, appropriate labor practices and a policy of giving back are all factors that can play a part in purchasing decisions today.”

Jean Cassegrain, managing director, Longchamp: “We have been less affected by the crisis than most of our competitors. Our first half of 2009 has been difficult, but we have still ended up versus last year, which was a record year. In July and August, even the markets that have been most affected by the crisis — the U .S. and Japan — were up again. I believe that this success is related to the positioning of our brand. We are a European luxury brand, but we have never been overpriced.… The customer still wants a sexy, desirable product but is no longer ready to pay $1,500 or $2,000 for a bag that is obviously not worth it.”

Ilaria Alber-Glanstaetten, ceo of Provenance, the London-based strategic and creative marketing agency: “Consumers will be looking for a greater price-value ratio. I think companies will very quietly follow the lead of Dolce & Gabbana, for example, who have lowered their prices. I also think there will be a return to service. It’s no longer going to be about a power dynamic between shop assistant and customers, but more peer-to-peer selling. I was recently invited to a YSL store event in London, and the chief executive of the company was there helping the customers with the clothes. I think there may be more user-generated products similar to what you see in the mass market: more interchange between consumers and companies. Nowadays, you can design your own T-shirts, sneakers.”

Patrick Thomas, ceo, Hermès International: “One phenomenon will accelerate: There will be a segmentation between brands with high quality, craftsmanship and quality materials — and masstige. Consumers are quite discriminating, and within luxury goods there are high-quality players and the rest is mass luxury goods. In Japan, for instance, consumers are extremely aware of the quality of products and give a premium to products of high quality. There’s also the growing importance of Chinese customers everywhere. There’s a big surge, including in Paris. It’s a long-term phenomenon. For the moment, we have fewer Russian customers, but that’s not going to last.”

Sebastian Suhl, chief operating officer, Prada Group: “The current macroeconomic context clearly provides opportunities to leading brands. Those brands, which are able to develop and drive a strong retail network and support it with a solid communications platform, will ultimately come out on top. Balance is key: A leading luxury brand must maintain its appeal, offering innovative, top-quality products across all product lines and providing customers an exceptional retail experience.”

Massimo Ferretti, chairman, Aeffe Sp A: “The current downturn has certainly changed the industry environment, particularly the attitude of the clientele: more selective and more sensitive to the value-price ratio. The true challenge we face is to be in the perfect condition to catch the opportunities of the up coming economic recovery, with an efficient and flexible organization, with appealing and well-balanced collections, with a selective presence on the key markets.”

Maria Grazia Chiuri, co-creative director, Valentino: “ The product remains king because that’s how we transmit our point of view.
More than ever, there has to be coherence between store windows, the ad campaigns and the relationship s with the celebrities, all for a unique vision.”

Francesco Minoli, ceo, Pomellato: “ The companies that will survive the downturn are the ones that in the past years coherently carried forth an authentic message. Conversely, those that overexposed and overdistributed the brand in the name of growth will suffer, as they will inevitably be repositioned. This crisis has taught everyone that growth isn’t infinite, so there will be major attention to production, stock and distribution. Shopping will be a moment of self-gratification, but a more pondered one.”

Consuelo Castiglioni, creative director, Marni: “We consider the difficult economic situation as an opportunity of growth for the future, leading to the expansion of the niche market. The customer pays more attention to the value of the items. We are concentrating on our core strengths: craftsmanship and creativity. We consider the Internet to be an important means to reach a broad clientele, even in countries that have no distribution or boutique yet.”

Donatella Versace, designer: “ We designers absolutely have to re-edit our approach. It’s all about going back to your roots. The only way to entice customers to buy is to give fashion a more emotional excitement. It’s also about thinking of new ways to get your collections out there — social media, Internet, virtual runway shows — that are more cost-effective, global and creative.”

Pierre-Yves Roussel, ceo, fashion division, LVMH Moët Hennessy Louis Vuitton: “I don’t think the luxury industry will fundamentally change. The crisis itself is just putting us back into being better in tune with what luxury and fashion are about. The reality is consumers are and will be more demanding. People are looking for meaningful consumption. They are not just consuming for the sake of buying. People want to be reassured. Discounting is something we have to get away from. We have to get back to the true value of things. Meaningful could mean environmental issues, but there are different meanings: what it takes behind the scenes to make a product. It’s about seduction, beauty and happiness. People should feel good about buying. We don’t have to find gimmicks. We just have to be true to what fashion and luxury are really about.”

Anya Hindmarch, designer: “I think there’s going to be a shift to being really aware of buying things that give you years of pleasure. The power has gone back to the customer. I’ve always hated the idea of the ‘It’ bag. Being on a waiting list for something everybody else has is not luxury. There are two very different moods. Yes, people are absolutely buying fewer pieces, but you also want something that really makes you feel amazing. I recently bought a jacket in fluorescent yellow, which says change; it says new. There’s been a huge surge in the bag market, and analysts are saying it’s going to move to jewelry, but I’m not sure. A bag is very tribal; it shows who you are.”

Fabrizio Malverdi, ceo, Givenchy: “For consumers, the biggest change in the luxury business post-downturn will be raising the consciousness of a new way of spending: not necessarily less, but more focused on authentic values, on brands that are able to tell a real and coherent story. The service and shop p ing experience we are able to supply will influence consumers’ attitudes and habits. More and more, customers and their needs will be a core art of our business activities. They k now that they are able to influence the destiny of a brand, and they will be more and more demanding.”

Graeme Black, designer: “Recycling has become the new cool. People are thinking of it like vintage — it has that sort of cachet. In terms of buying, they are pulling back — buying two pieces instead of five. People are also starting to think of luxury as time spent at home with the children, with the concept of creating a home.”

Allegra Hicks, designer: “I think luxury is becoming much more of an internal thing. It’ s no longer about looking at the next person to see what they have — all that has been destroyed by the recent crisis. My vision for my customers is to come into the store to buy something that will make them feel good, something that won’t be dead in three months’ time. I think the new luxury is about no longer running after the latest trend, but understanding your personal style.”

Carlo Giordanetti, creative director, Montblanc: “The reemerging of true, solid, inspirational brand values will be real criteria for customers to show their interest in a brand. Customers have become more demanding in their selection criteria; they have rediscovered the power of saying ‘no,’ and they are not ashamed to express their need for confidence and expertise. They have also learned to favor those brands that show ethical behavior in a proven and solid way.”

Elisabeth Ponsolle des Portes, president and ceo of the Comité Colbert, an association of 70 French luxury brands: “We see consumers make purchases guided by a desire to make a real investment, to acquire a product that has a history and that can be p assed to their children. They are more and more attracted to quality products, but also to the concept of sustainability, which is set to become key for the luxury industry.”

Sergio Loro Piana, ceo, Loro Piana: “ There will be a return to content rather than form, to values and tradition rather than excess, quality rather than flashiness and show-off. Customers will have a wider awareness of the environment and will be willing to buy products that fulfill a promise of quality and durability, that are sustainable and here to last. Luxury consumers will look for value and only go for the best.”

Donna Karan, designer: “There is a new way of look ing at luxury. Cashmere is cashmere. What feels good feels good, and you are not going to change that. There is a new luxury out there. I t’s not only about, ‘Oh, I am going to buy the most expensive something.’” Luxury, she added, will encompass a multitude of lifestyle issues, from finding the time to enjoy a sunset to “being able to eat well and take care of yourself and being able to have a lifestyle.

European Firms Seek Minority Partners

31/12/2008

By Miles Socha with contributions from Andrew Roberts WWD

The latest chapter in fashion’ s topsy-turvy acquisitions story could be titled “ Minority Report.”

With valuations heading south — and bank financing scarce — minority stakes are becoming newly derigueur with private equity and family-controlled funds, which are still sitting on cash piles and hunting for deals.

“Minority investments will be a bigger part of the deals we’ ll be seeing in 2009,” said Ariel Ohana, partner at Paris-based investment banking firm Ohana & Co. “Most of the funds we’ re working with tell us that’s what they’re looking for.”

There seems to be no shortage of willing sellers these days, either, with Brioni, IT Holding, de Grisogono, Mariella Burani Fashion Group and Lanvin among the high- profile firms said to be seeking minority partners. Tory Burch also revealed plans earlier this fall to seek a minority investor, but in recent weeks the designer has soft-pedaled the plan.
Fashion companies are either looking to take out burdensome debt, fund expansion of their retail networks or provide liquidity to a part of their investor base that needs cash, said Pierre Mallevays, founder and managing partner of Savigny Partners, a luxury goods advisory and mergers and acquisitions firm in London.

He noted that the economic crisis is having an indirect, albeit potent, impact in cases where “this is to repay debt where lenders are keen to get their money back and cash flow is suffering from the current environment, creating a double wham my effect.”

However, observers agreed that investors are keen to consider minority stakes in growing and healthy companies, rather than distressed ones without hope of a turnaround.

Mallevays also noted that “family office-type investors” — which act like professional funds, but with a family fortune — are likely to be key victors in getting minority stak es since they “can take a long-term view and are not necessarily constrained with an exit strategy.”

Given the financial crisis, most observers don’t expect many deals to be consummated in the near term, especially given the poor state of the M&A market currently. A Thomson Reuters study earlier this month found that the value of canceled M&A deals in the fourth quarter was greater than the completed ones. Furthermore, the survey found that announced M&A activity up to early December was 27 percent below that of last year.

That trend is expected to continue into next year, with the overall number of transactions likely to shrink, but with a bigger proportion of minority stakes, Ohana predicted. This contrasts with the past two years, when private equity players were behind a flurry of leveraged buyouts of majority stakes.

“We’ll be seeing less majority deals backed by financial investors because there’s a shortage of acquisition financing from the bank,” Ohana explained. “Those funds still have the equity, but they no longer have access to debt, so either they do nothing or they start doing other deals that are not leveraged.”

“I think you’ll see more minority investments until the economic conditions stabilize,” agreed R. Adam Smith, founder and chief executive officer at Circle Peak Capital LLC. The New York-based fund recently made a minority investment in luxury stationery and accessories firm Mrs. John L. Strong.

Jean Caillaud, partner at Paris-based fund N. I. Partners, said selling a minority stake is one of the few ways for companies to get financing today, with some positive upside.

From the seller’s point of view, there is no need to change the management, and there’s the added benefit of having “evolved professions” available to give input, he noted.

As for the buyer, “it can be very attractive because there’s less risk,” said Kim Vernon, president and ceo of Vernon Co. , a New York-based brand consultancy that interfaces with investors. “They’re not necessarily responsible for having an operational position.”

On the sellers’ side, taking on a minority partner is an avenue to funding retail expansion, sharing risk with another party and cashing out without giving up control, executives agreed.

Investment professionals said strategic buyers, who recently have been getting back into the acquisitions game, are likely to take a pass on this trend, however.

Strategic players rarely take minority stakes, with some notable exceptions being Hermès International’s 45 percent stake in Jean Paul Gaultier and Compagnie Financière Richemont’s minority stake in online retailer Net-a-porter. Ohana noted that there are other reasons firms might agree to buy a minority rather than full control: because the company wishes to try out a new activity with no plans to integrate, or because it invests in a company where there’s a “conflict situation” that might put it in a position to obtain control at some point in the future.

But Caillaud asserted that minority investments by strategic buyers are less likely than in the past because multibrand conglomerates are apt to “keep their available financing for things they control.”
For investors, the fact that earnings multiples are deflated — down by as much as half, in some cases — in comparison with a few years ago means the market is ripe with cut price opportunities.

Caillaud said valuations are coming down, but it’s difficult to know by how much, since “there’s been few transactions recent enough to have been negotiated pre-summer,” ahead of the financial crisis.

Ohana said firms contemplating a majority deal before the crisis now might downscale to a minority sale, given lower valuations.

For companies, which are being squeezed by diminishing revenues and increasingly disproportionate debt, selling a minority stake makes a lot of sense.

“[In this situation] you have to sell some of your assets to cure your debt or find a new partner that can balance the situation,” Intesa Sanpaolo analyst Gian Luca Pacini told WWD.

Antichi Pellettieri SpA, part of Mariella Burani Fashion Group SpA, sold 49 percent of its bags division to private equity firm 3i in June to raise 118 million euros, or $150.3 million, in cash. The company is in line to be debt free this year and cash positive next year, after net debts of approximately 65 million euros, or $89.1 million, in 2007.

Mariella Burani also has been in contact with investors from the Middle East regarding the sale of a minority holding. The Italian company’s ceo, Giovanni Burani, said he had received “ many proposals, but it is still early.”

As reported, IT Holding SpA chairman and ceo Tonino Perna is in discussions to sell a minority interest in the fashion company’s parent company, PA Investments SA, to an investor fronted by Hong Kong businessman Billy Ngok. Perna is hoping to ease the group’s net indebtedness and open up the Asian market.

Last week, Moody’s Investors Service and Standard & Poor’s downgraded IT Holding’s credit rating for the second time in as many months after the group, which owns the Gianfranco Ferré, Malo and Extè brands and operates under license the Just Cavalli, Costume National C’N’C and Galliano labels, asked lender Intesa Sanpaolo to again postpone, to April 1 8 from Dec. 22, a 9.4 million euro, or $13.2 million, tranche payment on its bank loan originally due Oct. 30.

Despite the negative outlook the pressure is expected to force IT Holding to find an investor, mainly due to the development potential of the brands in its portfolio. At what price, though, remains to be seen.

Debt-ridden Safilo Group SpA also might attract a white knight.

Former Valentino Fashion Group SpA chairman Antonio Favrin, who sits on Safilo’s board, bought 4.8 million shares in Safilo, or 2 percent of its capital, in October, prompting speculation that he could begin building a minority stake. At the time, Favrin told an Italian newspaper he had no interest in upping his stake, nor did he have hostile intentions. However, privately, he is believed to think otherwise.

The Tabacchi family, which owns Safilo, controls around 40 percent of the eyewear company, via Only 3T Holding.

Safilo’s balance sheet is under severe pressure following a 63 percent drop in earnings in the first nine months of this year and hefty net debts, which Deutsche Bank has forecast could reach 580 million euros, or $731.2 million, come year end — nearly 4.6 times earnings before interest, taxes, depreciation and amortization. Only 3T is also burdened with around 300 million euros in debt.

After issuing its second profit warning in as many quarters this month, Safilo, which has licenses with Giorgio Armani, Dior, Gucci and Valentino, among others, has forecast a 2 percent drop in revenues from 4 percent growth and a net income target of 1 percent of sales, from 3 to 3.5 percent.

Italy’s Brioni said last month that it was looking for a partner to take a 20 to 25 percent holding and had tapped B N P Paribas as its adviser. Sources said it was easy to understand why Brioni would want to sell the stake — to unload the cost of buying out former ceo Umberto Angeloni in 2006 and finance expansion — but it was more difficult to understand from an investor standpoint.

“Two years ago there was a big appetite to invest in luxury. Now it is completely different,” sources said.
The downturn in luxury creates a major hurdle for fashion firms aiming to sell a minority shareholding. Talks between Lanvin and a fund linked to the ruling family of Qatar regarding the sale of a 40 percent stake, valued at around 80 million euros, or $101 million, have stalled, according to market sources.

Lanvin-owner Shaw-Lan Wang, who bought Lanvin from L’Oréal in 2003, has been seeking a capital increase in return for a minority stake to speed growth of the French fashion house, which is underdeveloped versus its competitors in terms of product categories and retail expansion. She since has lost her appetite to sell, though, according to sources.

Sources said Lanvin was “a very attractive target,” despite not being very profitable, largely because of its acclaimed designer, Alber E lbaz. However, until Wang changes her mind, the French label is “unavailable” because it is “ solidly held,” they said.

Of course, the major question facing possible sellers and potential buyers is the recession. As European and U.S. retailers come off one of the worst holiday selling periods in decades and even luxury firms begin to feel the economy’s bite, the downturn could force more firms to look for investors. It also could further dry up credit, however, making it even more difficult to complete deals.

PricewaterhouseCoopers recently issued an M&A outlook for next year that stated the market will be “fuelled by necessity. ” Robert Filek, a partner in the firm’s Transaction Services group, said more and more troubled firms, especially in the U.S. , will look to align themselves with stronger partners to survive.

The report highlighted sectors that presented opportunities next year, which include financial services, energy, consumer products, automotive, health care, technology and retail, which might present opportunities for distressed investors. “Retail companies looking to grow may find opportunities in discounted lease rates on prime real estate,” the study said.

In the end, though, Transaction Services group partner Greg Peterson stressed: “Private equity players will be challenged to find new and innovative ways to put their money to work and to find deal mechanisms that can drive the kinds of returns their limited partners expect. Historically, it has been during a downturn when strategic buyers and private equity firms have their best buying opportunities, yielding the best returns. The key will be the availability of financing. ”

M&A Still Happening in Luxury

25/09/2008

By Andrew Roberts, Miles Socha with contributions from Samantha Conti WWD

Despite a grim economic climate, don’t expect mergers and acquisitions in fashion and luxury to come grinding to a halt.

The empires are poised to strike back — if the price is right.

With valuations heading south, and private equity funds stinging from the credit crisis, some of the industry’s usual suspects — strategic buyers — are returning to the fore, along with a host of new family-based funds and international buyers from China, India and beyond.

“If financial buyers have more difficulty structuring a deal, strategic buyers have enough cash on hand to finance their shopping,” said Michel Dyens, principal of Paris-based investment banking firm Michel Dyens & Co.

“Luxury groups see acquisitions as part of their business. They constantly monitor the market in search of the right target.”

A host of serial acquirers have bolstered their brand portfolios this year and are on the lookout for more deals, observers said.

Key transactions so far this year include: LVMH Moët Hennessy Louis Vuitton’s controlling stake in watch firm Hublot and yacht-maker Feadship; Compagnie Financière Richemont’s purchase of watchmaker Robert Dubuis; PPR’s acquisition of Sowind Group, the Swiss holding company that owns luxury timepiece manufacturers Girard-Perregaux and JeanRichard; Mariella Burani’s purchase of Italy’s Finduck Srl, the parent company of bag specialist Mandarina Duck, and Onward Holdings Co. Ltd.’s acquisition of Jil Sander.

More realistic valuations and the relative resilience of the high-end segment are driving acquisitions, despite the glut of grim financial news, observers said.

“The overall M&A market is depressed. But in the fashion and luxury business, it’s still pretty active,” said Ariel Ohana, partner at investment firm Ohana & Co. in Paris. “Luxury goods are less affected [by the slowdown in spending], so they’re still a prime target for strategic buyers.”
To be sure, the number of deals in 2008 is not expected to be spectacular, especially compared with the flurry of transactions in 2006 and early 2007, when private equity funds made a splash in the fashion milieu, observers agreed.

“We know the economic situation is bad and will stay bad for a while. But those who do deals strategically take a longer view, knowing things will improve,” said Andrea Ciccoli, a Milan-based partner at consultancy firm Bain & Co. He added, though, that “2008 is not a great year for private equity or strategic buyers. But then we believe that we are going to see a significant pickup in the number of deals.”

“I think it’s going to be a more active market than ever, especially with the foreign money,” said consultant Robert Burke of New York-based Robert Burke Associates, which advises sellers and buyers. “It’s more an investors’ market now.”

Burke predicted toughening market conditions would spur more firms to seek capital injections to survive and grow. Companies are under pressure to invest more in their retail operations as a cushion in increasingly turbulent economic conditions.

“It’s very frightening for medium-size entrepreneurs, particularly now,” Ciccoli noted. “Extreme market volatility coupled with the need to invest…is a challenging combination. It’s not unheard of in other industries, but fashion and luxury goods entrepreneurs are less used to dealing with it. Therefore, there is greater discomfort.”

For example, the billionaire Bamford family, whose holdings include luxury goods labels Bamford, Bamford & Sons, and the Daylesford Organic food business, said this week they have hired Blackstone Group to help explore strategic options, including potential partners for the business. The family said they were seeking new partnerships in order to help their brands expand on an international level and into new markets.

Cross-border transactions are also picking up any slack, with private equity funds and private investors now operating on a global scale, Burke added.
Pierre Mallevays, managing partner at London-based Savigny Partners, said the credit crunch has finally pushed potential sellers to have realistic expectations. “It will do a lot of good to the M&A market in luxury and branded goods,” he said. “[Luxury groups] need the deals to make sense from a strategic and valuation standpoint.”

Less competition among private equity players and a deflated stock market have also led to more conservative bidding — much to the consternation of Roberto Cavalli, for example, who called off the auction of his company in July after valuations fell short of his 1.4 billion euro, or $2.06 billion, asking price.

Rewind the clock about a year or so ago and private equity players were dominating the fashion landscape, paying top dollar in deals financed with 70 to 80 percent of debt.

“They wanted to go out and buy everything,” Ciccoli said. Among companies snapped up by private equity in recent years were Neiman Marcus Inc., Asprey Holdings Ltd., House of Fraser Ltd., La Perla Fashions Inc., Samsonite Corp., Lord & Taylor LLC and beauty brands Philosophy, Stila and Burt’s Bees.

Today, however, financial institutions are less prepared to take that kind of risk: The cost of debt is higher, which makes leveraging deals more difficult.

“The private equity debt-fueled bubble has burst,” Ciccoli said. “It marks a big change.”

Ohana noted prices have come down since mid-2007, when multiples of 10 times EBITDA or more were common. Single-digit multiples are now the norm, observers agreed.

Strategic buyers, particularly smaller players, are also more comfortable operating in a less-heated acquisitions climate, when the sale process is slower, Ohana noted. “Strategic buyers find it more comfortable to get back in the game.”

“Lots of groups have money, less debt and they’re trying to take advantage of the lower prices in this period,” said Paris-based luxury consultant Concetta Lanciaux, who advises investors and fashion houses. “It’s going to be an easier period.…Things are not inflated anymore.”
New capital operators like private investors and family funds are also changing the landscape.

“Rich individuals or families from cash-rich countries were not a factor in the past, but they are now part of the future. They will pick up some of the opportunities. We see them as a new component,” said Ciccoli.

With ready access to funds, aspiring empire builders like Labelux Group, for example, the holding company of the Benckiser family, have been able to out-maneuver their private equity peers. Labelux outbid the competition to buy Swiss fashion company Bally International AG in May.

Other examples include Reig Capital Group, which bought Azzaro; the Herz brothers investing in Escada, and the French holding company EPI, which owns children’s brand Bonpoint and the labels J.M. Weston, Michel Perry and Alain Figaret.

Mallevays said such “family office” operators “have more appetite, they understand brands, and they have a long-term view,” he said. “Another advantage is [sellers] are more comfortable with this profile than private equity. They’re altogether a more palatable investor than the sharp suits from London and Wall Street.”

The dire economic environment could also create openings for opportunistic investors, according to Milan-based M&A consultant Alessio Candi of Pambianco.

Saks Inc., Coach Inc. and Tiffany & Co., for example, have very low price-earnings ratios and are trading on multiples down by as much as half in some cases by comparison with a few years ago, Candi said.

The world’s second richest man, Carlos Slim Helú, took advantage of Saks’ low stock price in July, snapping up another 2 million shares and building his stake in the luxe retailer to 15.4 million shares, or 10.9 percent, according to a filing with the Securities and Exchange Commission.
“So, there’s definitely an opportunity entering their capital,” Candi said. “But there’s also a risk, even if these are fundamentally solid companies with strong EBITDA and net assets.”

Candi predicted that following the recent job losses in the financial sector, “in all likelihood, there will be a slowdown in the coming holiday season and this could impact companies’ ability to hit full-year forecasts,” meaning that share prices could fall further.

“There’s also the euro-dollar rate,” he added, explaining the U.S. government’s $700 billion market bailout plan might not be enough to stabilize the dollar, which could return to the lows against the euro seen earlier this year.

Observers also cite increased interest from investors from China, Russia, India, and the Middle East who are eyeing the potential of strong brands and high-margin business following the uptick in luxury and branded consumption in those so-called emerging markets.

The parent company of Italian fashion group IT Holding SpA, for example, is in negotiations to sell a minority stake to a firm represented by Chinese businessman Billy Ngok to open up the Asian market.

“They are doing due diligence,” an IT Holding spokesman said, referring to the unnamed suitor, which is not Ngok’s Hong Kong-based supply chain and retailing group Hembly International Holdings Ltd.

“[IT Holding parent company PA Investments SA has] been courted by private equity funds since April or May, but they would come in only with financial capital.…We want someone who has industrial and distributive know-how because we have plans for Asia,” the spokesman said.
Dyens said Asian-based investors had ambitions to be more than just industrial partners.

“[They] want to change their image and stop being considered as production logistics facilities only,” said Dyens. “They have the ambition and the financial means to play among the big international players…through acquisitions of European and American brands.”

Besides the Onward-Sander deal, key transactions involving Asian buyers listed by Dyens include Li & Fung Ltd.’s acquisitions of Peter Black and Van Zeeland; Bombay Rayon Fashions buying Italian denim brand Guru; and Hembly International Holdings acquiring sportswear brand Sergio Tacchini. And Asian buyers aren’t looking only at the luxury sector: On Tuesday, China sourcing specialist Everbright Development Overseas Ltd., founded by Guangying Wang, invested $30 million in troubled U.S. retailer Gottschalks Inc. and will help it with its sourcing.

Alessandro Pirani of M&A deal origination firm 7A Business Co., which has offices in London and Dubai, noted the advent of Middle Eastern players is tied to a desire to ensure the survival of ruling families and the wealth of the region once the oil runs out.

On Monday, the Dubai government revealed it had taken a majority stake in Kuwait- based retailer Villa Moda, with a view to global expansion. It follows last year’s acquisition of Barneys New York by Dubai-based Istithmar. Also, as reported, an investment vehicle tied to Qatar’s ruling family is said to be in negotiations to take a stake in Paris fashion house Lanvin.

“The value of a deal is tied to status,” Pirani said, citing the purchase of 5 percent of Ferrari in 2005 by a fund in Abu Dhabi as the tipping point for Arab investment in luxury. “[That] was a signal regarding making investments in Europe from [the United Arab Emirates],” he said.

Ciccoli agreed, saying investors from these markets are often prepared to pay a premium to secure acquisitions. “It’s not just about economic value for them.”

Pirani cited strong interest from Dubai investors to buy Italian gold and jewelry companies that have production facilities and distribution chains, as well as also second-tier fashion brands.

Given the staggering pace of high-end retail development across the Middle East, Pirani predicted such operators would ultimately seek to become brand owners. “The project is tied to the desire to acquire fashion brands and take them to Dubai and concentrate them there,” he said, adding that $60 billion had been earmarked for investment. “They want to internalize as much as possible the potential of production and consumption they generate in order to keep the money in circulation in the region.”

Not that experts are counting private equity out. Instead, they foresee a shift in which funds are more acclimated to fashion and its longer investment horizons, evidenced by the fact that some are becoming serial buyers.

“The shift in private equity funds is that now they’re asking the companies that they acquired to make acquisitions in the sector,” Ohana said.

He also pointed to the advent of new hybrid players — part private equity, part strategic — such as Dutch fund FR 2 Capital, managed by former Mexx executives, which last year acquired French swimwear maker Vilebrequin.
“It’s structured as a fund, but operationally, fashion people are active within it,” he said, listing as another example Phoenix Equity Partners, which bought L.K. Bennett.

“That’s a recent trend. Private equity funds tend to be very generally-oriented and not sector-oriented,” Ohana said.

“Private equity funds continue to be very keen to invest in luxury, and they seem quite good at brand hunting,” said Dyens. Among firms recently snapped up by funds include Moncler (Carlyle), Gerard Darel and Technogym (Candover) and Kellwood Co. (Sun Capital Partners). “Private equity funds are very much on the watch — even for big deals.”
TPG, for example, has recently raised less than $20 billion and is on the acquisition trail, according to sources.

Ciccoli noted that given the low overall odds of success in creating value through M&As, one might assume the most persistent buyers would be the worst performers.

However, in an analysis by Bain of 1,700 public firms and more than 11,000 acquisitions in six industrialized countries from 1986 to 2001, the consultancy found that U.S. frequent acquirers outperformed occasional buyers by a factor of 1.7 and nonbuyers by almost 2 to 1, with similar results in Europe and Japan.

“Frequent acquirers succeed because they tend to be expert acquirers,” Ciccoli said. “Deal makers at these companies…prepare carefully to create opportunities. The deal team — and typically there is a permanent, well-supported team of experts — works from an established playbook built on years of deal learning, so the company can efficiently recognize deals that fit strategically, evaluate them, seal the contract and then successfully integrate the acquired business. Winners also tend to have a series of checks and balances in place to kill deal fever and maintain a rational, dispassionate approach.”

Observers cited heightened interest in certain categories of business, particularly jewelry — which has outperformed other fashion categories — along with cosmetics, spa brands and luxury yachts.

“During the last few months, private equity funds have been eager to add shipyards to their portfolios,” noted Dyens, mentioning L Capital’s acquisition of Princess Yachts and other deals for Numarine and Tencomar.
Lanciaux also mentioned “hyper” luxury as a hot category, including haute horology and luxury leather goods.

Plotting Lacroix’s Future

12/02/2008

By Miles Socha

PARIS — Christian Lacroix is embarking on a new growth phase — and looking for a strategic partner.

WWD has learned that Lacroix, owned by Florida-based Falic Group,has engaged London-based Savigny Partners LLP to explore the possibility of a minority investor to accelerate the fashion company’s expansion.

“I want to make sure we know what our options are, and if there’s an interesting proposal out there, we might consider it. If not, we’ll just continue,” said Nicolas Topiol, Lacroix’s chief executive officer.

Growing Lacroix Seeking Investment
Topiol said he could not rule out an outright sale of the company, but stressed the goal is to seek “intelligent money” to help Lacroix realize its sales and profitability targets. It is understood Lacroix has already made overtures to several potential investors.

Topiol declined to identify them, but suggested initial reaction has been positive.“It’s a name that definitely triggers interest,” he said. “And it’s now a company that has a very, very solid foundation.”

In a telephone interview, Simon Falic, chairman of Falic Group and Duty Free Americas, stressed his family’s commitment to the Lacroix business, noting the company has been “fully financed by us. We don’t have any outside lenders involved.”

Skeptics initially questioned whether the travel retail specialists might take the Lacroix brand down- market and cash in on its recognition. Instead, the Falics have continued to invest in couture, almost doubling that business, while deflecting all manner of licensing proposals in a drive to bolster Lacroix’s luxury positioning. “If we weren’t committed to the business, we would have taken the easy routes,” Falic said.

He reiterated the goal is to sell a minority stake to fund expansion, but also mentioned that an initial public offering “could be done down the road.”

Since Falic Group acquired Lacroix from LVMH Moët Hennessy Louis Vuitton three years ago, Topiol has engineered an extensive reorganization of the company, disentangling it from the world’s largest luxury conglomerate.

Such diverse functions as accounting, information systems, product management, logistics, customer service and warehousing were all brought in-house, a process that was only recently completed. Topiol said spring deliveries would be the first with the firm’s new teams, including a network of factories and ateliers in France and Italy.

The company — which has estimated wholesale volume of about 40 million euros, or $58 million at current exchange — is still seeing losses, Topiol acknowledged. However, he asserted that “the business today is in a much healthier state than it was three years ago in terms of strategy and brand positioning.

Our operations continue to improve.” The executive declined to give precise figures, but said Lacroix’s sales last year slipped by about 5 percent. The decline stems primarily from a 2006 decision to phase out the Bazaar and Christian Lacroix Jeans diffusion lines and concentrate on the signature line of ready-to-wear — which was brought more upscale in line with the house’s high-fashion image. “It’s been a work of transformation: closing a lot of accounts, opening new accounts and getting people to embrace the new concept,” he explained. Elsewhere, the brand has shown plenty of vigor.

In reporting fourth-quarter sales earlier this month, Avon credited its new Lacroix scents for about half of the 23 percent growth the beauty firm logged in its fragrance business.

Topiol cited “nice growth” and “good sell-through” with select licensed products, including men’s wear, wedding dresses and lingerie, and strong results from recent partnerships: with La Redoute for a line of fashions and home decor items, and with Evian for a baroque, limited edition bottle commanding impressive prices at sites like eBay.

In December, Lacroix opened a Manhattan flagship at 36 East 57th Street. “It’s starting really well,” Topiol said. “We had a good month in January and we’re preparing for an event there in March. It shows our commitment to the brand and the U.S. market.”

Looking ahead, Topiol spies the potential to grow Lacroix’s RTW business in markets like the U.S. and Middle East. At present, Lacroix operates two company-owned boutiques in Paris, one clearance outlet at La Vallée outside of Paris, and a Las Vegas location, in addition to New York.

There are also 23 freestanding franchise boutiques: seven in the Middle East, six in Argentina and five each in France and Japan. Among openings scheduled for 2008 are boutiques in Bahrain and Kuwait, and the brand’s flagship on the Faubourg Saint-Honoré here is slated for an overhaul toward the end of the year.

France remains Lacroix’s biggest market, with Japan, America and the Middle East each holding roughly equal weight, Topiol noted. Accessories are also considered another key expansion area, and the company is recruiting a senior product manager and designer for handbags and shoes to boost its profile in the category.

The designer, who has been emphatic about having good chemistry with his new owners, has been informed of the Falics’ plan to seek a potential partner. “The financial success of this company is something that’s very important to him,” Topiol said. “I have a three-year plan to take the company to a profitable stance,” he continued. “I think we have the foundation in place to grow the business. We’re finished with one chapter and now we’re opening the chapter of growth. We feel 2008 will be a very good year for us.”

IPOs Are Fashionable: Hilfiger Offering Seen First of Many in 2008

08/01/2008

By Samantha Conti with contributions by Nina Jones

LONDON – Despite a sagging stock market and a slowdown at retail on both sides of the Atlantic, 2008 is shaping up to be the year of the fashion initial public offering.

Tommy Hilfiger Group may well be the first to take the plunge, with industry sources saying its planned IPO is on track for the first half of the year. Hilfiger is expected to be followed by Prada, which, if it goes ahead this time, will likely wait until the second half. Ferragamo also has unveiled plans to go public this year, and is expected to elaborate on them later this month.

Industry sources here said Hilfiger’s IPO is on track to take place on Euronext, the pan-European stock exchange that counts LVMH Moët Hennessy Louis Vuitton, PPR, Hermès, Christian Dior and Clarins among its listed companies. The flotation is expected to value the American sportswear company at $3 billion to $4 billion.

And Hilfiger, which is owned by the U.K.-based equity fund Apax Partners, has been rapidly getting its house in order in advance of going public. First, last October, it inked a major deal with Macy’s Inc., which will be the exclusive retailer of Tommy Hilfiger sportswear in the U.S. beginning this fall.
In another major move, the company today is expected to reveal plans to purchase a majority stake in its Japanese licensee, Tommy Hilfiger Japan Corp., according to industry sources. A source here said the buyback was in line with the company’s overall strategy of purchasing licensees, and tightening its hold on brand management and image.

A Hilfiger spokesman declined to comment both on the deal and its potential impact on the company’s planned IPO.

Tommy Hilfiger Japan Corp., established in 1996, is currently owned by Itochu Corp., which will continue to hold a minority share. The terms of the deal could not be learned. The company currently has more than 100 freestanding stores in Japan and 60 department store concessions. It has net annual sales of about $130 million.

Although the Tommy Hilfiger brand has been working to reposition itself in the U.S., its image and positioning both in Europe and Asia are at a higher end of the retail scale.

“There is a big difference, and disconnect, between how Tommy Hilfiger is perceived in the U.S. versus Europe,” said Pierre Mallevays, the founder and managing partner of Savigny Partners LLP, a luxury goods advisory and mergers and acquisitions firm in London. “Europeans talk about Tommy Hilfiger in the same breath as they do Gant, which also has a higher positioning than in the U.S. They are both seen as medium- to high-end sportswear and lifestyle labels.”
(Ironically, Gant also could see a change in its ownership this year: Maus Frères SA, the Swiss retail group that owns Lacoste, continues to consolidate its stake in Gant after last month launching a 5.2 billion kronor, or $809.3 million at current exchange, hostile bid for the Swedish sportswear firm, which was promptly rejected by a majority of Gant shareholders. Maus now owns 23.7 percent of Gant.).

Mallevays added that Hilfiger’s brand penetration is not high in Europe, and that the brand has “room to grow in Europe and eastward into Asia.”

Outside the U.S., the brand is behaving like a high-end fashion label. Its Paris unit is located on the Rue Saint-Honoré, while its London flagship stands on a newly refurbished strip of Regent Street, near Brooks Brothers, Aquascutum and Burberry.

In an interview in late 2006, Hilfiger told WWD he considered his competition in London to be Burberry, Brooks Bros. and Ralph Lauren. In Europe, the brand has wholesale accounts at department stores including Galeries Lafayette in France, El Corte Ingles in Spain, La Rinascente in Italy and Bijnekorf in the Netherlands.

Financial analysts say a valuation of Hilfiger of $3 billion to $4 billion would be a reasonable price range, depending on the company’s current earnings before interest, taxes, depreciation and amortization.

The sources also said that Euronext, a pan-European exchange, is a logical place for the company to list, since Tommy Hilfiger Europe B.V. is registered in Amsterdam.

Euronext has bases in Amsterdam, Brussels, Lisbon, Paris and London. It was created in September 2000, when the exchanges in Amsterdam, Paris and Brussels merged to form Euronext NV, which is headed by a Dutch holding company, to create a cross-Europe exchange. Last April, the New York Stock Exchange Group acquired Euronext for about $10 billion, and the group is now known as NYSE Euronext.

According to NYSE Euronext, the combined exchanges represent a value of $30.3 trillion in total market capitalization of their listed companies, and have an average daily trading value of about $139 billion.

A statement released by Euronext earlier this week said the exchange had a banner year in 2007. Its European markets saw a 47.6 percent rise in equity transactions in 2007 to 309 million, compared with the previous year, representing a turnover of nearly $5 billion. The company added that 140 new companies were listed on Euronext’s European markets in 2007, and that $14 billion was raised in connection with these new listings.

CEOs vs. Designers: Who’s Got More Clout?

08/10/2007

By WWD Staff

Left brain-right brain. In the world of fashion and luxury goods these days, one needs both sides to beat the competition.
But is analytical ability more important than the creative side? Are talents in business more key than being able to cut, sew and tailor? In short, is the designer more important than the chief executive officer, or vice versa?

It’s a $64 million — or, these days, given the size of fashion conglomerates, $6.4 billion — question. Unquestionably, there have been a handful of successful partnerships between designer and ceo. They include Calvin Klein and Barry Schwartz; Tom Ford and Domenico De Sole; Yves Saint Laurent and Pierre Bergé; Valentino and Giancarlo Giammetti; Liz Claiborne and Art Ortenberg; Reed Krakoff and Lew Frankfort; Miuccia Prada and Patrizio Bertelli, and Marc Jacobs and Robert Duffy, just to name a few.

Their respective companies often are seen as among the epitomes of success in fashion and luxury goods. Without each others’ talents and a strong partnership, their businesses never would have flourished the way they did.

Then there are those rare companies where a designer is really in charge, such as Giorgio Armani and Ralph Lauren, who is both chairman and ceo of Polo, although he has had strong partners in Peter Strom and, now, Roger Farah.

However, in some companies, the designer has the upper hand — think Oscar de la Renta or Dolce & Gabbana — while in others, it’s the ceo. Ceo’s are increasingly coming to the fore as private equity firms and other outside investors come into the fashion world, often with a focus more on the bottom line than on the creative talent.

So which model is the best? Here’s how the industry weighed in on the topic:

Donna Karan
“It’s the ‘we,’ not the ‘me.’ It’s not ‘either-or,’ it’s ‘and.’ Unless they’re in sync with one another, neither one could do their job. Neither one could be successful.”Robert Polet, president and ceo, Gucci Group

“It’s a real marriage of equals. It is when you combine long-term business sense with independent but guided creativity at the service of a particular brand. It’s this combination that makes it very, very fruitful. I would estimate that in all very successful brands, there would have been this seamless cooperation with a business sense, a merchandising sense, a customer service sense and a creative point of view.”

Polet said it’s that combination of creativity, merchandising and product development that makes a brand tick and ensures an outcome of “relevant, desirable products.” He said respect between all the players is essential, especially since there is “a field of natural tension” between creative and business types. “The thing to do then is to let them be entrepreneurial in those roles. It’s so different if you really feel you have the trust of someone else to let you do your job.”

Alber Elbaz, designer of Lanvin
“This is like asking a child, ‘Who do you love more? Daddy or mommy?’ You need them both and love them both in a different way. The role of the ceo and the designer is like a mother and a father; only when parents love and support each other will their child be strong and healthy and wealthy.

“Some of the best ceo’s whom I’ve met through my career were the ones who think like artists and true innovators. And some of the best designers are the ones who think like ceo’s. It’s not about territorial power play, but more about collaborating and respecting each other’s responsibilities.”

In Elbaz’s view, it’s impossible for a brand to be great, without strong fashion and business leaders. “You need both a great designer and a great ceo to dream together in order to make this dream come true.”

Oscar de la Renta
“[It’s] the perfect combination of the two: the designer for his creativity and the ceo for his vision.”

Ralph Toledano, chairman and ceo, Chloé
“I always say the most important thing is finding the right couple. The secret of success is the quality of the relationship. You cannot grow without a good designer and you cannot grow without a good ceo. When I hire people, I always say I’m looking for a partner. Credit is often given to management, but formula is very dangerous because it kills creativity. Management has to understand that they have to stimulate newness. A brand needs a talented designer. It needs constant change. Opportunism and formula kills a brand.”

To be sure, there have been periods in the industry when designers were perhaps given too much power and elevated to star status. “For me, the star is not the designer; the star is not the ceo; the star is the brand,” Toledano said. “I think people confuse the idea of the star designer and dependency on designers.”

Mario Grauso, president, Puig Fashion Group
“The most important issue at a fashion house is the relationship between the ceo and the designer. They must communicate well, trust one another and have mutual respect. This is the key to a great brand.”

Elizabeth Pearce, a New York attorney who specializes in the fashion and luxury goods industries
The balance of power “depends on the nature of the organization,” but Pearce said it has tilted in favor of management as the “ceo is more linked with the board and the powers that be.” And despite the fact that consumers are fascinated by designer personas, large companies are wary of “putting too much emphasis on the public image of a particular designer. It’s like a rock band: Once the lead singer’s gone, what’s left?

“The premise of a brand is that it’s a collection of concepts, ideas and imagery,” she continued. “A brand can only be powerful and sustainable if there’s something that goes beyond one person’s point of view.” That said, Pearce stressed that, “Each side has to have a voice and that voice has to be respected by the other party.”

Christian Lacroix
“The most important thing is the alchemy needed between designers and ceo’s. Without that, nothing is possible since a fashion house, like a boat, cannot have several skippers at the helm. In a race — and fashion is kind of a race — you need to go straight ahead and not navigate two opposite strategies at the same time, as we did for too long with [previous owner] LVMH. After a decade of struggling with many opposite strategies, star ceo’s-versus-star designers and the poverty of the result, wisdom is back again and we all understood that this balance is needed with the same language, the same target and, at the end, the same interests.

“A fashion house cannot afford schizophrenia. Creativity is not only the reserve of the style and designing team, but that we need creativity everywhere, from the accountant to the ceo. Good designing without the right management is as negative as powerful businesspeople without the right products.”

Valerie Hermann, ceo, Yves Saint Laurent
“Defining the limits and territories for both designers and ceo’s is important. Each should have his or her priorities. For me, a designer is never more creative than when you give him a framework in which to work….A good product is not only a fantasy of the designer; it has to have a defined purpose.”
Hermann also stressed designers and ceo’s must work in tandem, not in competition with each other. “It has to be about winning the competition together. I don’t think it’s a hierarchical relationship in the traditional sense of a boss and an employee: it’s a partnership relationship.

“There is always a creative solution to any challenge, whether you are a designer or a ceo.”

Bryan Bradley, designer of Tuleh
“The designer is the heart of the house and the president [or ceo] is like the brain. At its best, it’s a symbiotic relationship without strict borders…and even if the heart can survive without the brain, I don’t recommend it.”

William L. McComb, ceo, Liz Claiborne Inc.
“I do believe in the design-merchant king. That far supersedes any role I would play, though there are ceo’s who are merchant kings like Mickey Drexler.”

McComb said one of the reasons he hired Tim Gunn as chief creative director was to have a design-merchant advocate on the executive floor at Claiborne, while letting brand designers remain decentralized. “The center of gravity needs to be design and merchandising, and our company had lost our way in that respect. Now we are putting the companies back together as independent brand-driven teams. It was always that way with Juicy, though our corporate structure impaired that. Now we are bringing it to Mexx, Liz Claiborne and Monet.”

Didier Grumbach, president, French Fashion Federation
“At the beginning, the designer is key and later it’s the contrary,” said Grumbach, who was previously ceo of Thierry Mugler. Given the couture tradition, most houses in France were founded on designers who became the stars of their companies, whereas today, a partnership is necessary between the designer and the ceo. “If one of them wins, the company is lost,” he said. “There should be respect, but there should be tension.”

Mark Lee, ceo, Gucci
Lee attributed success to “a combination of the brand’s depth and history. “Creativity is the engine of our business. I have to give tribute to Frida [Giannini], for her clarity, strength and innovation, building the brand and moving forward, but we work in sync. There must be an executive with a strategic vision, upgrading and protecting, and maintaining the exclusivity of the brand.”

Franco Pené, chairman of Gibò
Pené said it is a 50-50 deal. “Both designers and executives are instrumental, although it’s very difficult to have the right balance with both.” In particular, Pené said there is not a large pool of top-quality candidates who can become successful fashion executives. “Few really emerge.”

Arnold Cohen, founder, Mahoney Cohen & Co. accounting firm
“I’m going to have to take the middle of the road and say both. I can’t think of an industry where the two have to work more closely. My biggest argument in the industry is that designers aren’t business-oriented enough. Very few of them take the time to acclimate into the business segment. They don’t have the time or the inclination. To me, the partnership is best. Look at Calvin Klein and Barry Schwartz, or Peter Strom and Ralph Lauren at that time, and subsequently, Roger Farah and Ralph Lauren today. Even Oscar de la Renta and Jeffry Aronsson.”

Karen H arvey, presi d ent, Karen Harvey Consulting Group
“It depends on where the brand is. If you are a small designer brand that has an amazing product, the most important element you need is a ceo to grow the business. If you are a brand that has evolved but is sliding in relevancy, then the most important thing is the designer to get the brand back on track. In the end the best situation is a partnership and synergy between the two: a ceo who can help a designer be better by forming a strategy and pathway to the consumer in ways that help them expand without sacrificing their vision.”

Dana Telsey, founder, Telsey Advisory Group
“The blend of the financial and the creative is essential to grow the business. We have seen that as businesses have gotten bigger. Take a look at Coach [with Lew Frankfort and Reed Krakoff], and what Domenico De Sole and Tom Ford did to build Gucci. You need to have the right brain and left brain coming together to drive the business as a whole.”

Robert Burke, founder of consulting firm Robert Burke Associates
“I don’t think one can survive without the other and be truly successful. I think you need someone who can position the business and also communicate with the designers. I think that you don’t want either one to have the advantage, but if they do, the name and the designer image is more impactful on a departure because of the visibility of the designer. But it seems to be a trend right now that ceo’s are being recognized and written about on a much more regular basis. The role is no longer about just being a numbers person, but also about having a vision for the business and making sure that vision is communicated and realized. The role of the ceo is becoming more creative and the best ceo’s are ones who understand the design process and know how to support the designers, but also push the business.”

Joseph Velosa, co-founder of the Matthew Williamson business
“I can only really speak from our experience, but I don’t think one can exist without the other. It’s a 50-50 relationship. We each do our separate jobs, but there is a huge amount of gray area and crossover, and there has to be a mutual respect and understanding. At the end of the day, though, you can’t have a design business without a designer, and without the product, you have nothing. The ceo has to respect that.”

Velosa said, however, that when a brand name becomes bigger than the designer’s personality, that’s a different scenario. “There comes a tipping point when the brand is established and entrenched and can carry on, like with YSL, which dipped and then had a revival, or Valentino, where the passing of the reins was straightforward.”

M atthew Williamson
“If you were to caricature us, it would be me throwing pink chiffon in the air all day, and Joseph [Velosa] presiding over piles of money. I’m business-minded. I’m a commercial designer making a product that I want women to pay hard cash for and to wear. And Joseph is incredibly creative. He’ll come to me with a business strategy, and I’ll go to him with a dress design.”

Pierre Mallevays, founder and managing partner of Savigny Partners, a luxury goods advisory and mergers and acquisitions firm in London
“Both are equally important, but I also think it depends on the stage the company is at. Sometimes, a company needs a creative spurt, and other times it needs to get organized under good management. And I do think that, in the case of truly successful brands, behind every successful designer, there is a successful ceo.”

On more mature luxury companies, he said, “I think that once the brand DNA is established, then the designer can disappear, as long as the new designer or design team respects the DNA. But the brand has to pass that tipping point for the transition to happen smoothly.

Lanvin, for example, is not at that tipping point yet because the brand is still too dependent upon Alber Elbaz and women’s wear. That company needs another few years to build success in men’s wear and derive the benefits of a symbiotic relationship between designer and ceo, so the jury is still out.

“A designer can be commercially successful, but if there are no checks and balances from the business side, there’s the risk they can end up in sublime isolation, geniuses left out in the cold with no real business.”

Mallevays pointed to Phoebe Philo and Hedi Slimane as two examples. Both fell out with their business partners: In the case of Philo, she left because she didn’t see eye-to-eye with Ralph Toledano, and Slimane made certain demands that his partner, LVMH, was not willing to fulfill. He said the two could now find it more difficult than anticipated to secure a backer because they are essentially working alone — and come with very high expectations of future partnerships. “There is no alter-ego ceo who can temper them.”

Bud Konheim, ceo, Nicole Miller
“The bottom line is this business is a commercial art, not a fine art. If you have a designer without a ceo, you have a fine art. If you have a ceo without a designer, you just have a commodity, and you won’t thrive for long.

“Without great design, you can be the biggest ceo in the world and everything can be a joke,” Konheim said. “If the designer is able to make all this great product without a ceo, then you don’t need a ceo. But the really good designers are prolific and creative, and they all need an alter ego they can throw ideas against. Someone has to boil it down to what we are going to make a living on.”

Konheim has been that person at Nicole Miller for more than two decades.
“Nicole and my partnership is based on a couple of philosophical tenants I laid down at the beginning: The business is going to be called Nicole Miller, the muse you are going to design things for is you and I am confident there are enough people who share your aesthetic to make a business. I’ve tried to manage her best design efforts, without wrecking it by saying we are having such a great season with all this stuff, don’t make any new things. New innovations aren’t big sellers out of the box, but you have to get them out there.”

Elaine Hughes, president, executive search firm E.A. Hughes & Co.
“In hiring for any company when the designer is an active participant in the business, you have to understand how the designer thinks and then you look for complementary skill sets. In a designer-driven company, designers need to be partnered with someone to hold them accountable, and you look for someone financially sound with a success record. Some designers like [Lauren] think like a businessperson, and he directly recruited Roger Farah, who had the retail experience and was an excellent complement.”

Allan Ellinger, senior managing director, Marketing Management Group
He argues that a third person is equally important: the head of merchandising. “A classically organized apparel company is like a seesaw with the ceo on one side and the designer on the other — and you need the merchant in the middle to create the balance. That person really has to marry the commerciality of the product to the design through helping plan what the collections will look like, edit the line and make sure the collection meets the price points required by the company.”
For Ellinger, the question is whether the ceo is a merchant or an operations guy.

“If you have a ceo who is not a product- or marketing-driven person, that ceo will be totally reliant on someone else to develop and market the product, because the product is the most important part of our business. If you have a very large company that can afford to have a ceo who is financially oriented, like [Phillips-Van Heusen] and Jones [Apparel Group], and is smart enough to hire a product guy, then it’s ideal to have all three.

For example, Bill McComb does not come from this background, and he hired Tim Gunn, which I think was a really smart move, because Tim is really product-centric.”

Bill D’Arienzo, ceo, WDA Marketing
D’Arienzo recently made a presentation to Liz Claiborne Inc. on whether the ceo or designer is more important in resuscitating slumping brands. From case studies on Lacoste, Coach, Burberry, J.C. Penney and J. Crew, he determined it was the ceo. “In every single instance, the ceo did three things instantly: first, he understood and embraced the brand heritage; second, he researched the consumers’ past and current perception of the brand, and third, he brought in a design director to orchestrate the findings and stayed in close communication,” D’Arienzo said. “So it all begins at the top and then is driven by the design director in terms of execution — but these aren’t absentee ceo’s.”

Catherine Sadler, president of New York marketing firm Catherine Sadler Group
“What the designer brings is the heart, and the designer often embodies the brand and its vision. When the product isn’t right, the best ceo in the world is going to fail.

“But designers are artists, and they do their best work when they are unfettered by financial concerns. Design in itself isn’t enough, and many young designers are overcome by unanticipated demands: Brands need to be differentiated and have the right retail relationships. In that sense, the ceo holds the key. Ceo’s need to encourage innovation and support it with the right business acumen, but carefully, because rules and data can kill creativity.”

Lights, Camera, Action: Showbiz Moguls Become Fashion Players

01/06/2007

By Miles Socha with contributions by Marcy Medina.

Welcome to the third stage of fashion’s romance with celebrity and entertainment.

Designers hiring celebrities as their faces in ad campaigns and on the red carpet was phase one, followed by the celebrity-as-designer (a phenomenon that shows no signs of abating — pick a star and she’s bound to be talking of launching her own fashion collection because, of course, every woman wants to dress like her).

But, observers say, it’s now a new world and entertainment bigwigs are emerging as brand owners, backed by powerful investment funds.

Recent transactions include Harvey Weinstein’s acquisition of Halston, backed by Hilco Consumer Capital, and “American Idol” and “Pop Idol” mogul Simon Fuller’s partnership with Roland Mouret, who plans to unveil his new RM collection during couture week in Paris in July, as well as his deal with Victoria Beckham to launch her own fashion line, DVB.

And a host of other Hollywood-fashion deals are brewing, according to sources, suggesting there’s no business like showroom business.

“Entertainment plays a more critical role in driving brand awareness than ever before,” said David Baram, president of Beverly Hills talent management company The Firm. Previously, Baram served as chief executive officer of Pony after The Firm became one of the first entertainment players to acquire a fashion brand in 2001, flipping Pony less than two years later.

“We took it from zero to $50 million and it became a situation where the company started to grow faster than our infrastructure allowed, so we sold it,” he said in an interview.

Baram is also managing director at VMG Equity Partners, a private equity fund looking to make acquisitions in consumer-product companies. “We are looking at some fashion companies right now,” he said, declining to name them.

Separately, sources indicate a “major celebrity manager” is corralling investors to relaunch several historic fashion brands, similar to what Weinstein plans to do with Halston.

Observers said they’re not surprised Hollywood has deemed fashion ready for its close- up.

“They certainly have an advantage in terms of getting exposure, and we all know the right celebrities help sell fashion. Managed correctly, [fashion] can be a very profitable and successful business. There’s also a certain allure and sexiness to buying fashion that you’re not going to get from buying a cement company,” said Robert Burke of Robert Burke Associates, a luxury consultancy in New York. “It’s a very good sign they’re buying brands. It can help revitalize fashion,” noted Concetta Lanciaux, a luxury and fashion consultant in Paris. “Someone who brings a cinematic eye on a fashion brand — it can be very strong.”

Diesel is a brand that already combines fashion and entertainment elements, and “Tom Ford, I think, has that cinematic eye,” Lanciaux said.

But observers from the worlds of corporate finance, recruitment and luxury goods cautioned that the fashion business is tricky for outsiders to master, and movie moguls — weaned on the short-term buzz of film premieres — are hardly guaranteed long-term success on the selling floor. However, executives applauded the arrival of entertainment figures as a positive development since they hold the promise of invigorating the retail experience and innovating with brand management.

Eric M. Beder, senior vice president of Brean, Murray, Carret & Co., a New York-based investment banking firm, said closer ties between the two industries are inevitable.

“The entertainment and fashion businesses are very similar in that you assemble talent, create product and put it out there,” Beder said. “But a fashion company is probably lower risk than a movie since it has more longevity.”
“I have always believed that the process of managing an artist and a brand are similar,” agreed David Schulte, president and chief executive officer of eyewear firm Oliver Peoples Inc., who was previously with The Firm. “The barriers between the two businesses have been broken down. The world is now about the lifestyle of the consumer: what he or she wears, consumes, listens to, travels to, etc.”

Baram, who manages the likes of singer-actress Mandy Moore and her apparel company, Mblem, said, “We are essentially a marketing branding company working with artists. A lot of those skills can be brought to the table in any business.”

Since the arrival of entertainment figures as executives and brand stewards is still a recent phenomenon, experts could draw on few case studies.

Probably the most famous example was Arnon Milchan’s 1996 acquisition of a stake in Puma AG. Milchan, owner of the production and distribution firm Regency Enterprises, made such films as “L.A. Confidential,” “JFK” and “Pretty Woman.” Last year, Milchan resigned from Puma’s supervisory board after seeing the German activewear giant enjoy a strong growth phase. (French retail and luxury giant PPR recently launched a friendly takeover offer for all of Puma, which would cost it a total of $7.17 billion.)

There are plenty of examples, however, of celebrities out to build and nurture their own brands. Jay-Z sold his Rocawear venture to Iconix Brand Group Inc. in March for $204 million in cash and another $35 million in payments of Iconix shares depending on performance over the next three to five years. In addition, Iconix tapped the music star to be in charge of a new brand management and licensing company that will make further acquisitions.

Mary-Kate and Ashley Olsen, meanwhile, seem determined to expand their fashion empire to reach from Wal-Mart to Bergdorf Goodman and Barneys New York. The acting duo is launching a contemporary line for fall called Elizabeth and James, which will join the mary-kateandashley collection sold at Wal-Mart under a license with Dualstar and the Olsens’ high-end collection, called The Row, which the twins fund themselves. Elizabeth and James is being made under license by L’Koral Industries.
Fashion executives recruited from the entertainment world are relatively few, the most recent being Benetton’s new chief executive officer, Gerolamo Caccia Dominioni, who will join the apparel giant in June from Warner Music International with a mission to put Benetton back in touch with young consumers. But the tenure of another such recruit — Paul Pressler, who was hired from Walt Disney Co. to run Gap Inc. — showed the difficulties of translating management skills from the entertainment to the fashion and retail worlds.

Still, observers suggested entertainment types could offer plenty to the fashion business.

“The fashion industry embraced marketing a while ago and is recruiting good marketers from fast-moving consumer goods, entertainment and elsewhere,” said Pierre Mallevays, founder and managing partner of Savigny Partners, a luxury goods advisory and mergers and acquisitions firm in London. “Entertainment people who are investing in fashion do it with their investment-business hat on, and it definitely helps if they have leverage over the media to increase the visibility of the brand.

“Fashion lends itself extremely well to licensing, and the entertainment industry has been making licensing deals for a number of years,” he added. “That’s a key aspect of the industry.”

Lanciaux argued entertainment specialists “know how to create value by creating new concepts, new ideas. Basically, it’s an industry of intangibles. In the film industry, you don’t make money rationally. You make money by creating something completely out of the blue that inspires consumers.”

Floriane de Saint Pierre, who runs an executive search and consulting firm in Paris, noted that entertainment executives are accustomed to “thinking big” and have valuable experience dealing with creative people with large egos — not unlike many top fashion designers. Also, their approach is one “extremely focused on the final consumer” rather than design expression, which is typically less risky. “It will be more about branding and marketing rather than research and creativity,” de Saint Pierre said. “It will inject a lot of cash in the industry.”

Lanciaux said entertainment experts could contribute greatly to animating the retail experience. As more and more products are being purchased online, brick-and-mortar shopping must become less functional and more engaging and emotional, she said. A simple example is Harrods, which has employed an Italian opera singer in its food halls to attract customers to its restaurants and food services, she noted. On a grander scale are hotel developments, like Frank Gehry’s new Marqués de Riscal in Spain’s wine region, where architecture and art elements “offer another experience.”

“That’s going to happen more and more,” Lanciaux said. “The online revolution, it’s only beginning, and so why would we want to buy something in a boring store if you can buy it online?”

And, as entertainment moves deeper into fashion, designers are delving more into the entertainment world. Dolce & Gabbana recently said it would launch a new store concept next year with devoted space for musical events. Although details are scarce, it’s an example of how designer brands are seeking to animate the store experience. Louis Vuitton, for instance, packed its Paris flagship with art attractions, including a giant video wall abutting the main elevator for rotating exhibitions and a blackout elevator by Danish artist Olafur Eliasson. Many Hermès stores worldwide also have art galleries attached.

Oliver People’s Schulte said the “element of lifestyle and crossover appeal has attracted entertainment executives to fashion.” However, the odds of success still rest on strong management and a vital brand.

“With Puma, Arnon [Milchan] was lucky to have an amazing ceo like Jochen Zeitz, who has a 1 0-year vision for where he wanted to take the brand, and they put the right resources behind this vision to succeed,” he said. “I have to remind entertainment executives sometimes that on the surface it may have seemed like it was getting the sneakers in movies or on celebrities, and, by the way, this helped, but the human and financial capital Arnon put behind Puma is what made it go.”

Schulte also noted management must have a solid plan for ramping up a brand, as The Firm did when it bought Pony, a brand that resonated with certain consumers from the Eighties.

Weinstein and Fuller have yet to fully detail the strategies for their respective brands, but both men have spoken of breaking the fashion mold. “We want to innovate and challenge the norm,” Fuller said when he unveiled the formation of Mouret’s new fashion company, RM1 9, hinting at a variety of fashion-related projects.

For his part, Weinstein said at the time of the Halston deal that he was inspired by Milchan’s success, and “in Halston, we found that brand that relates to the kind of movies that we make.” He tapped Tamara Mellon, founder and president of Jimmy Choo, to assist with Halston’s creative direction and brand structure.

Observers agreed brands like Halston give movie moguls plenty of cachet upon which to build. But important caveats include recognizing there are few quick fixes in fashion, nor overnight successes.

“There’s certainly a learning curve to this industry. It’s a business that is hard to quantify,” noted the consultant Burke. “It can’t be approached like the entertainment industry because it’s not.”

Echoing other observers, de Saint Pierre also noted that entertainment managers are accustomed to working on a “project basis” based on film launches, whereas fashion requires commitment “season after season. You have to be extremely disciplined.” She also noted that production issues are predominant and difficult for outsiders to grasp.
Beder said entertainment types could find the day-to-day operations of running a fashion business dull. “It’s tough to imagine that someone would want to spend five to seven years building a brand,” he said.

“I feel there’s a lack of understanding sometimes for the amount of capital it takes to successfully launch or turn around a fashion business, and that is where many of the newcomers will get seasick in the upcoming years,” said Schulte. “With that said, no one is better at image and mystique than a great entertainment executive….If the cultural vibe is right for more celebrities to promote brands, good executives will know how to leverage this.”

Designers for Hire: Big Names Face Uphill Battle to Get Backing

27/04/2007

By Miles Socha
PARIS – Hedi Slimane, who recently parted ways with Dior Homme, could have as much trouble finding a backer for a signature brand as some men had shimmying into his trim suits and jeans.

Ditto for a host of other well-known and accomplished designers, said to be exploring the launch of their own houses, from ex-Chloé designer Phoebe Philo and Lars Nilsson in Europe to Patrick Robinson in the United States. Even the reclusive Jil Sander is said to be itching to get back into the business and is putting out feelers for financing.

But there are few financial entities targeting start-ups, and available money, while plentiful, typically comes with plenty of strings attached, observers said.

“There is no clearly defined investors’ universe for new designer brands,” said Pierre Mallevays, founder and managing partner of Savigny Partners, a luxury goods advisory and mergers and acquisitions firm in London. “Luxury conglomerates need to focus on their big brands, private equity funds want established businesses and most hedge funds want sizeable deals.”

What’s more, strong-willed designers are often very demanding about creative control and can be blasé about secondary lines, accessories and licensing – cash cows upon which many investors insist.

Observers said designers looking to launch a brand typically require a minimum initial investment of $5 million, with a second round of financing in 18 months to two years in the $10 million to $15 million range.

Designers accustomed to working in large organizations with budgets for advertising and lots of creature comforts may need to rein in expectations. Demands for heavily staffed design studios, cars, drivers and other perks are looked upon dimly by investors, who have their eyes firmly on the bottom line.

Slimane, who exited Dior Homme last month and was succeeded by Kris van Assche, had been in talks to renew his contract and launch a signature fashion house, backed by an investment by Dior believed to be in the neighborhood of $50 million.

According to sources, doing a signature brand is only one option Slimane is considering in his post-Dior career, but he is confident in finding ready partners. “Hedi is totally free today to go anywhere he wants,” said one source close to the designer. It is understood Slimane has already been approached by retailers interested in carrying exclusive designs by him, although no deals are imminent.

“They can’t have everything,” said Robert Burke of Robert Burke Associates, a luxury consulting firm in New York, of designers looking for deep-pocketed backers. “[Designers] can’t expect complete control of the company and they have to be open to going into other categories of business: fragrances, accessories and second lines. Doing a collection business alone is a long and slow process.”

Observers noted the outlook for upstart brands is not entirely grim, however.

Financing is plentiful and the market is hungry for brand names at a time when many of the giants of the industry – Giorgio Armani, Valentino, Ralph Lauren and Karl Lagerfeld among them – are over 65. What’s more, designers “have become the new socially acceptable celebrities, combining glamour and desirability with artistic value,” Mallevays noted. “A lot of investors want to bank on that.”

“It’s probably a better time today than in the past,” Burke agreed. “There’s more interest today from investors in this business than ever before. What we do is manage expectations. [Investors] are used to more stable cash flows than fashion businesses generate.”

Designers have a limited choice of dance partners and there are major trepidations about the likelihood of a quick return on their investments.

“There is investor interest, but people are careful because they want a track record and critical mass,” said Richard Morgan, vice president, corporate finance, at BNP Paribas in Paris. “If they’re not doing $5 million to $10 million [at wholesale], it’s very difficult for investors [to be interested].”

“There tends to be very little interest in investing in these kind of start-ups,” agreed Abel Halpern, managing partner at HMD Partners Ltd. in London, which has investments in the likes of Sinn Leffers, the German premium women’s fashion chain, and previously led the successful turnaround of Escada AG, the German luxury fashion label. “Investing in companies that are start-ups already has a high degree of risk, regardless of the business you are investing in. You don’t see that many fashion start-ups that are given $50 million or even $25 million.”

Fashion designers must also compete for dollars from more attractive sectors, Halpern stressed. For example, venture capital often gravitates to sectors with technological elements, such as life sciences, information technology, or semiconductors, where a core technology suggests an “objective” predictor of success. Alternatively, start-up investors often like nontechnological businesses with well-defined, scalable operating concepts, such as restaurants or other value-added services, that seek to “roll out” a proven business model. “Investors all look at risk-adjusted rates of return on any investment,” he explained. And the fashion sector “in general, has not figured out how to create compelling economics, adjusted for the extreme risk, for a new enterprise investor.”

Xavier Mayer, executive director of Morgan Stanley’s investment banking division, said leather goods remains the most favored subsector of the industry because of the healthy margins it can offer to investors. Apparel, by contrast, is considered far more risky because of intense competition, fickle customers, capricious fashion trends and products that can go stale easily.

“Let’s not forget: Investors invest to make money,” he said.
One executive from an investment fund, who requested anonymity, noted that “even people with established businesses are having trouble finding money. There’s no such thing as a sure bet.”

According to market sources, Proenza Schouler, Narciso Rodriguez and Hussein Chalayan are among well-known designers who have been seeking additional financing to grow their businesses.

Mayer highlighted the need for strong execution in the fashion business. No matter how famous or talented a designer may be, if the products are shoddily made, delivered late and poorly distributed, he or she won’t get far. “Having a good product is clearly not enough; the execution makes the real difference,” he said. “To start a business, there’s so many things that can go wrong. The name doesn’t drive you alone. The product and the execution have to be flawless.”

Apparel-based businesses are also capital-intensive and offer a brief window of opportunity to break through. “Investors get nervous [about] a business model that relies on full-price sales of your first, second and third collections,” Halpern noted.
That said, investors often presume that accessories and other easily licensed categories are the answer for making apparel-based businesses immediately more profitable, he continued. The logic is that products like handbags generate higher productivity per square foot and are less seasonal and perishable than clothes.

However, the success of handbags is intricately tied to brand awareness, prestige and signature hardware that only established and large-scale designers enjoy. “If you are a weak brand, you can’t do a fragrance [either],” he said. “How many new brands have developed a signature handbag in the last decade? Not that many.” “Building a brand takes a huge amount of time, especially when the competition is stiff,” Mayer said. “You’re constrained to have a limited marketing profile, unless you have a name like Tom Ford.”
Observers agreed that wealthy individuals, or midsize manufacturing-based conglomerates, are the most likely candidates to consider getting behind new designer brands.

“I would guess that the total amount invested by private equity and hedge funds in private fashion companies – whether start-ups or established players – is so small that it would not even register as a percentage of the total,” Halpern said.

BNP Paribas’ Morgan noted Diesel and Gibò, both Italian companies, have shown some interest in young brands with their investments in Martin Margiela and Viktor & Rolf, respectively. Other midsize manufacturers with designer brands in their stable include Marchpole (Jean-Charles de Castelbajac), Onward Kashiyama (Joseph) and Redwall Group (Alessandro Dell’Acqua), he added.

Echoing other observers, Carine Ohana, partner in Ohana & Co., a boutique mergers and acquisitions firm in Paris, said individuals or small-scale groups are probably the best hope for start-up brands. Small designer companies are typically “inefficient for the structure” of large conglomerates, difficult to integrate and possess a different culture, hierarchy and discipline, she said.

Ohana noted that historically, some “industrial groups” have had trouble integrating smaller designer brands, including Chanel, which shuttered Isaac Mizrahi in 1 998, and LVMH, which sold Christian Lacroix in 2005 to Falic Group.

Still, “backers that have industry knowledge are better,” she stressed.
Mallevays agreed: “A designer’s main line needs to grow and be visible, but you can lose a lot of money if that segment of business is not under adult supervision.”

Noting the emergence of entertainment moguls as fashion investors – consider Harvey Weinstein’s recent equity stake in Halston – Burke predicted a new group of financiers geared to smaller and start-up brands is bound to emerge.

Burke noted that Ford’s approach to launching a signature brand in his post-Gucci career could be a model for others to follow. Ford forged licensing pacts with beauty giant the Estée Lauder Cos. for beauty and Italy’s Marcolin Group for eyewear, which generated brand awareness and royalties ahead of his apparel launch earlier this month with Ermenegildo Zegna. “Licensors are trying to pick the names for the next five years,” Burke noted. Most investors are looking to own at least 50 percent of a designer’s brand, as Gucci Group did in 2001 when it launched the Stella McCartney fashion house, which is slated to reach breakeven this year, aided partly by licensing pacts and partnership deals with the likes of Adidas, LeSportsac and Target Australia.

“Gucci [Group] has been very good at launching new designers, or relaunching old brands,” Ohana noted.

Burke said many young designers get fixated on having majority control. “For an investor, that’s not easy,” he said.

Most agreed a partnership is the best route, as many of fashion’s biggest success stories involve a striking rapport between a designer and a businessperson, with one of the earliest examples being Yves Saint Laurent and Pierre Bergé, who built a landmark French couture house.

“I don’t think an investor can afford for a designer not to be implicated,” Morgan stressed.
Mallevays cautioned that each brand has to be handled differently. “The most successful and durable partnerships are when brand and operating control are shared, not wholly ceded nor entirely kept by the designer,” he explained. “This is not the same as artistic control, which should remain firmly within the designer’s camp.”

Observers noted start-ups are done at higher risks and higher costs — with flagships and big marketing — or with less working capital by outsourcing production and doing purely wholesale distribution. “That’s how a lot of great businesses got started,” Halpern said, adding the latter strategy can take a long time.
In Halpern’s estimation, it is probably harder for designers to find backers today than in the Eighties or Nineties, despite a market flush with investment capital.

“The market is bigger, but on the other hand, it’s far more competitive, and the large luxury conglomerates exert more powerful control over distribution,” Halpern noted. “It’s harder to get noticed.”

But the promise of finding the next Bottega Veneta, Dolce & Gabbana or Jimmy Choo is what fuels speculative plays, where the odds of success are low, but the payoff can be massive.

“It’s a little bit like backing a rock star,” Halpern said. “If they’re big, they can get really big.” Mayer noted that he recently spent some time in Brazil and was struck by the number of promising talents in that market. “I would not exclude a top brand in the next 20 years could be a Brazilian brand. Or it could be that the next Giorgio Armani is a Chinese brand,” he said. “Don’t forget, when Bill Gates launched his business, it was so new and innovative that only very few people thought it could work.”

Shooting at the Net: Luxury Brands Boost Their Online Profiles

21/02/2007

By Miles Socha
PARIS – Imagine having an audience of 860,000 people for a couture show?
You don’t have to: Giorgio Armani’s already done it, having streamed his Armani Privé show in Paris last month live on Msn.com.

Too intimidated to walk into a Place Vendôme jeweler? No worries: Log on to Secondlife.com, pretend you’re a bee and fly around 3-D computer renderings of Dior’s latest precious baubles.

Initially wary of the cyber world, European designers and luxury goods firms are suddenly buzzing about new media and communication technologies, unveiling six- figure gems online, dispatching fashion shows to cell phones and iPods, and expanding e-commerce to more product lines and regions, from the U.S. to Japan.

To be sure, many brands are still tiptoeing into the fast-moving field, investments remain small and some have yet to come to grips with the dizzying pace of change. But believers contend the high-tech world offers crucial new channels to communicate with current and future customers, enrich their brand experience – and capture impressive sales.

“For us, it’s like electricity, trains, cars, planes were for other generations: It hadn’t existed before,” said Karl Lagerfeld, who last year did a live podcast of his signature fashion show from New York. “The world has changed: For some audiences, it will soon be the only way to reach them….Fashion has to be seen.”

“It is the future and it will continue to grow,” echoed Mark Lee, chief executive officer of Gucci, which saw its online sales rocket 65 percent last year, making e-commerce one of the Italian brand’s fastest-growing channels. “I think it’s really just complementary.”

Gucci has also done a live Web cast of its cruise collection, and offered a podcast of a store opening in Tokyo, underlining the role of new technology for brand communication.

“It’s very valid,” said Sidney Toledano, president and ceo of Christian Dior, which broadcast its “Madame Butterfly”-theme couture show last month to an audience in Japan. “It’s about communicating with the customer in new ways.”

Regarding the fine jewelry preview, editors who didn’t log on to Secondlife.com were recently dispatched a DVD containing a film and downloadable images of the online “Belladone Island” — although the disc’s contents were programmed to self-destruct within 24 hours. “I love the fact that this presentation is open to anyone who wants to come and see it. There are three million people on Secondlife.com. You can fly, meet people, sunbathe on a huge rock,” Victoire de Castellane, Dior’s fine jewelry designer, enthused about her online teaser. (The real stuff will be unveiled in Paris next week.)

“It is a necessity for luxury brands to exist within a contemporary context, no matter how accessible, as long as you can deliver real quality,” added de Castellane.
Toledano noted Dior intended to ramp up its use of technologies, especially given the advent of handheld devices.

Lagerfeld said the Internet had become the first point of reference for fashion, rather than written critiques in conventional print media accompanied by few visuals. “People want to make their own opinion by seeing a lot — all, if possible — and in the minute,” he said. “We are 100 percent in tune with all the new media and ways of communication. If you aren’t, you will be dead soon…and in a way it’s not fun NOT to be involved with the use of recent, the most recent, inventions. I love all that!”

In the early days of the Internet boom, luxury brands feared online selling would undermine the exclusivity of a dedicated brand environment, promote the “gray market,” antagonize wholesale clients and generate few profits, said Pierre Mallevays, founder and managing partner of Savigny Partners, a luxury goods advisory and mergers and acquisitions firm in London. “All those fears are pretty much dissipated by now,” he said. “The Internet channel is effectively turning into the best or one of the best stores in each local market.”

What’s more, “having a Web presence and strategy has made luxury goods brands more sensitive and more open to viral marketing and actually opened a whole new way of communicating with customers and potential customers,” Mallevays said.

For example, in November, Fendi tapped into popular online social networking sites in Japan to build hype for a launch in Tokyo for its B. Mix leather goods.

Certain brands are delving deeply into technological devices. Prada recently teamed up with LG Electronics of South Korea to launch a signature phone with an advanced touch screen. The fashion house collaborated on every aspect, from software and graphic interface to the design and packaging. Prada is also venturing further onto the Internet. Besides an interactive site for its perfumes, the brand introduced a new informational site — pradatheleadingskischools.com — that is expected to start selling Prada skiwear this fall, a company spokesman said. He added the brand would sell special ready-to- wear and accessories related to its America’s Cup sailing bid at lunarossachallenge.com.

Observers agreed luxury brands had been late adopters of new media and communication technologies. Robert Triefus, Armani’s executive vice president of worldwide communications, credited informational sites like Style.com and multibrand online retailers like Net-a-porter, Neiman Marcus and Nordstrom for popularizing the Internet as a go-to resource for fashion information and shopping.

Today, “every magazine, every editor, every publisher realizes they have to have a live and interactive presence to complete the magazine.”

Ditto for fashion brands. That’s why Armani chose to broadcast his couture show online and on Cingular telephones. More than 1 .4 million people looked at slides of the January event, attended by the likes of Cate Blanchett and Katie Holmes.

“Now we all recognize that our daily habits include a significant amount of time online,” Triefus continued. Armani devotes about 3 to 5 percent of its media spending to new media, the lion’s share for search optimization and much of the balance to online advertising.

“But that is growing rapidly,” Triefus said. “In the next three years, you could see that going up to 10 to 15 percent,” especially to support brands with a big e-commerce piece.

Triefus disclosed that Emporio Armani, which has sold watches online since 2005, intended to expand its offering to include the whole lifestyle. Armani launched e- commerce for A| X Armani Exchange in 2000, and layered on Emporio Armani watches five years later, as well as its cosmetics the same year.

Armani’s online A| X store in the U.S. is its most productive unit in the world, representing between 7 and 10 percent of revenues for that brand, Triefus noted.
Alexander McQueen does not yet have his own online boutique, but has made Web- based marketing the chief vehicle for his second line, McQ, which is targeted at the 18 to 25 crowd.

He’s mulling mobile technology and podcasting, too. “We believe that it is the future of communication and may be the only way for McQ,” said McQueen ceo Jonathan Akeroyd. “We will keep developing our Web site, encouraging a community to grow and become more involved in what we do. It will become our most vital marketing tool.”

The designer recently plastered key cities with posters to drive traffic to the m-c- q.com Web site and a MySpace.com initiative in which the brand cast talent online to create the visuals.

“The advertising and Web activity create the opportunity to keep people interacting with the brand and ultimately become part of our online community,” Akeroyd said, noting the street posters had boosted online traffic tenfold.

Many European brands are ramping up online sales.

The Internet channel “is effectively turning into the best, or one of the best, stores in each local market for the luxury goods brands,” said Mallevays, adding he considered the Web “wide open” in terms of product categories.

Louis Vuitton, which already sells its products in France, the U.K. and Germany, plans to launch an online shop in Japan in April, and in the U.S. later this year. Recent bestsellers include its iconic Speedy and Alma handbags, along with small leather goods, a Vuitton spokeswoman said.

Gucci noted that online sales closely mirror what it sells in stores, notably leather goods and women’s footwear.

Toledano said Dior had already had success selling at the LVMH-owned Web site eluxury.com, and at its own site in a growing number of markets, most recently the U.K. and soon Spain and Germany.

“We’re approaching new customers,” he said, mentioning clients in secondary cities like Bordeaux in France. “I see a lot of development. I see my own daughter: She doesn’t buy from the store; she wants to buy from the Internet.”

Gucci has been selling its products, except rtw, online in the U.S. since 2002, and recently expanded to the U.K., France and Germany. Lee said he was considering expanding the service to other markets, and added, “It’s inevitable that at some point we will contemplate ready-to-wear. I don’t think there’s anything people won’t buy online. This is definitely a channel we believe in.” Gucci recently updated its Web sites to reflect its brighter, warmer packaging and updated store concept — and it quickly uploads fashion show videos and other features. “It should be a seamless brand experience,” Lee said.

Brands accustomed to exerting considerable control over their image — from the retouching and quality of print ads to their exact placement in magazines — are entering unfamiliar territory in the cyber world.

Executives agreed the new media posed numerous challenges, starting with developing creative, visual materials for unfamiliar formats like Web sites and handheld devices. “The challenge is to communicate the essence of your brand and to make the brand as exciting in the new media,” said Gucci’s Lee. “The biggest challenge in all of this is that it is so fast-moving.”

Lagerfeld noted the new media did change the need for outstanding creativity. “One has to make a show to have a good video, used for six months in the shops and on the Internet,” he said. “You cannot imitate a real diamond or a couture dress.”

Looking ahead, brand executives said they expected to be able to use technology to personalize and customize information for individual consumers, by, say, sending a packet of photos showing outfits deemed suitable based on past purchases.
“I think that’s a very feasible reality,” Triefus said.

Perhaps the biggest challenge — and opportunity — with all the advancements in communications technology lies in its often addictive nature. “It’s part of fashion or lifestyle, even if there is an overuse of cell phones and e-mails very often,” mused Lagerfeld, who is famous for his handwritten notes and faxes. “I don’t use cell phones and the like because I would spend too much time online and on the phone.”

Majority Stake of Sigerson Morrison Sold

31/07/2006

By Jennifer Hirschlag

NEW YORK – Sigerson Morrison, the footwear firm that grew from making custom-made shoes for private clients to a $30 million business with two lines and a high-end handbag collection, has a new owner.

The 15-year-old company said Friday that as part of an effort to further expand the label, it has sold a majority stake to Marc Fisher LLC, a Greenwich, Conn. -based footwear firm headed by Marc Fisher. Fisher was president of product development and sourcing for Nine West Group from 1999 to June 2003. He is the son of Nine West co-founder Jerome Fisher. The younger Fisher founded his own firm in January 2005.

Following the Sigerson Morrison acquisition, top priorities include building the label’s assortment by possibly adding eyewear and fragrance, among other categories; boosting its retail stores, including opening a new flagship here; strengthening wholesale accounts, and adding more staff, with ambitions to hire Sigerson Morrison’ s first chief executive officer in the next six months.

“It’ s a huge move for us, ” said Kari Sigerson, who founded the firm with Miranda Morrison in 1991. The two will remain co-creative directors at the label. Terms of the deal were not disclosed.

“We’ve always been our own little independent brand, but it was frustrating for us, ” added Sigerson. ” We have this great product, but we haven’ t had the magic stuff to grow it. There’ s always been some aspect we wanted to conquer that we just couldn’t. And now it’ s like we’ re unlocking that secret room . ”

Sigerson Morrison told WWD in May 2005 that it was hoping to attract investors to help grow the label. The firm’s meetings with Fisher date back a year.

“It’s been a long and hard road, ” said Sigerson. ” We worked for a long time just to mentally prep are ourselves for this type of deal and get all the documents together. Then we did a lot of homework and met with a lot of people, including private equity companies and huge fashion conglomerates. It came down to three incredible offers. ”

Morrison added that what ultimately helped them make the decision was their new partner’ s passion for footwear.
“To see them at work with their shoes and hear them talk about their sector of the business made it feel like home, ” said Morrison. ” The firm also shares our entrepreneurial spirit and respects our D N A. ”

Sigerson Morrison has about 32 employees, all of whom are expected to stay on at the firm, which will remain based in New York.

Fisher’s first deal at his new company was signing a licensing agreement to produce and distribute Guess women’s and men’s footwear. In January, Fisher also launched an eponymous collection of contemporary shoes priced between $60 and $90 that is sold exclusively through Macy’s.

“One of our first agendas when we started this company was to get into the better shoe market, ” said Fisher. ” We want a diversified portfolio of businesses. I ‘ve always loved the Sigerson Morrison brand and found Kari and Miranda to have a great eye. ”

Sigerson Morrison established its business by creating updated takes on classic footwear styles like skimmers, kitten heels and motorcycle boots at prices that range from $300 for a sandal to $800 for boots. Sigerson Morrison introduced small leather goods and handbags, utilizing the same luxurious leathers and fine Italian manufacturing as its shoes, at prices averaging around $750 in 2001.

Belle, Sigerson Morrison’s diffusion line of footwear at prices that average around $200, began retailing for spring 2004. Morrison said, among other areas, Belle offers a huge opportunity for the firm, with the introduction of handbags for that label being an obvious step to make.

“Our number-one task is to tighten up the job we do based on the product we have, ” said Morrison. ” Then we want to address the obvious categories for us toexplore, like handbags, eyewear and a fragrance. ”

Retail expansion is also on the agenda. The firm has four boutiques, two in New York’s N oLIta neighborhood, one in Los Angeles on West Third Street and another in Tokyo that is operated in partnership with the Shin-ei Group Ltd.

“We want to open a flagship here, and we would like to look at creating boutiques in key cities, ” said Morrison.

A specific goal for the number of stores is still to be determined, but cities both Stateside and abroad will be on Sigerson Morrison’s radar.

“We have always been an international company,” said Morrison. “But we think it’s time to take our selling more on the road. We see that as a big growth opportunity, so we are thinking globally.”

Sigerson Morrison wholesales to approximately 250 doors worldwide, including Bergdorf Goodman, Bloomingdale’s, Macy’s, Nordstrom, Stanley Korshak in Los Angeles and Harvey Nichols in London.

Private Equity Funds Get Taste for Fashion

23/04/2006

By Miles Socha with contributions by Amanda Kaiser

PARIS – An entrepreneurial spirit, plenty of capital, connections galore and a real sense of urgency.
Those are among the virtues ascribed to private equity funds, which are emerging as key players in fashion and luxury as they continue to snap up brands in the current buoyant acquisitions climate.

Investment executives say brands moldering within conglomerates or cash-starved independents can get a new lease on life under more driven and flexible owners ‹ even as detractors warn there are few quick fixes in fashion.

“One of the key features of private equity is they’re able to apply focus and professional management to their investments,” said Pierre Mallevays, managing director of Savigny Partners LLP, a corporate finance and mergers and acquisitions firm in London. “If you have a large group, there will often be isolated assets that get less attention from senior management.”

“For any brand that needs to be revitalized, new ownership helps,” agreed William Smith, managing partner of Global Reach Capital, a fund that has invested in fashion house Tory Burch and has signed letters of intent to acquire two other “big well-known” brands. “The private equity guys are very sophisticated. They hook up with new operators and merchants. We’re very focused and we can add value from sourcing and brand building.”

To that end, Smith works in collaboration with luxury consultant Robert Burke, who offers his retail and merchandising expertise.

“Our point of view is that we want to buy businesses and build them up, and we have the resources to get there. We have a history of being retail operators on an international scale,” said Gunnar Sigurdsson, managing director of U.K. investments for Icelandic investment firm Baugur Group, which owns a range of British fashion chains, from Karen Millen to Whistles.

“Depending on the brand, the growth potential can be quite significant,” said Sigurdsson, citing Baugur’s Jane Norman young women’s chain as an example, which posted double-digit like-for-like sales last year.

Recent months have seen several headline deals involving private equity players, including Change Capital Partners buying Jil Sander, Sun Capital Partners Inc. taking on Stila Cosmetics and Sciens Capital Management LLC and Plainfield Asset Management LLC teaming up for Asprey. (For more on Asprey, see pages 1 0 and 1 1 .) Then, of course, there was last year’s $5 billion acquisition of Neiman Marcus Group by private equity players led by Texas Pacific Group.

“We will look at luxury investments based on their own merits,” said Roger Holmes, a managing director at the London-based Change Capital who worked with its head, Luc Vandevelde, at Marks & Spencer plc. Change tends to target European businesses with annual revenues of about 75 million euros, or $92.3 million, to 300 million euros, or $369 million, and in which it can take a majority stake and leverage its retail expertise. Holmes acknowledged that “fashion risk” and the cyclical nature of the fashion business can discourage private equity investors from the industry, but he’s confident this won’t be the case with Jil Sander given its high-quality allure.

A bullish market for luxury is paramount among the factors that are attracting a new crop of financial bidders, rather than more familiar strategic buyers.

Mallevays of Savigny Partners said private equity firms have become more interested in luxury goods and fashion as some of the perceived “negative connotations” have disappeared in their estimation. Principal among these are the high multiples luxury brands command, unease with fashion and luxury goods’ reliance on the creative process and a perception that management resources are slim. To the latter point, Mallevays countered: “People have realized there’s a pool of management talent that is very significant.”

Meanwhile, growth has roared ahead for the major luxury conglomerates ‹ LVMH Moët Hennessy Louis Vuitton (which on Thursday reported its first-quarter sales leaped 1 5 percent), Gucci Group and Compagnie Financière Richemont ‹ that have demonstrated impressive resilience through all sorts of economic and sociopolitical gyrations.

“This interest shown by private equity funds to invest in fashion brands … means that the luxury industry is in good shape and is healthy,” said Armando Branchini, vice president of Intercorporate.

What’s more, the funds see more growth potential for luxury and fashion now that “China is open for business and India is opening up for business. These are going to be huge markets,” Mallevays noted.
Burke said he also spies major upside in the fast-growing United States.

“Luxury is absolutely going to continue to grow and aspirational luxury is going to grow even more,” he said, citing such disparate examples as Coach, Juicy Couture, Jet Blue and Starbucks as bright lights in the latter category. “Good taste and good fashion are becoming more democratic than ever.”

To be sure, observers cited a litany of examples where a change of ownership ‹ often to private equity ‹ changed a brand’s fortunes and notoriety.

Perhaps the most frequently cited success is Gucci, which was acquired by Bahrain- based investment fund Investcorp and revitalized in the Nineties in spectacular fashion by Domenico De Sole and Tom Ford.

But plenty of others followed. Karine Ohana, partner in Ohana & Co., lauded Vestar Capital Partners’ “beautiful turnaround” of Polo Jeans Co. and two British brands involving private equity, Jimmy Choo and Molton Brown.
In her view, the entrance of these players is positive for the industry because it increases management motivation and efficiencies, which ultimately benefits consumers. “Most of the time the management is financially involved and is undertaking an entrepreneurial challenge, which they are often deprived of in big luxury groups,” Ohana noted.

Added a luxury goods executive, who requested anonymity, “I think this is only good for fashion and luxury because when private equity companies take over, they look for specialized managers. Right now is a good opportunity for managers to advance. Also, the private equity companies are very, very generous with giving managers equity in the company as part of the pay package, so there is money to be made, too.”

“I think it can be positive, taking these people to work in an entrepreneurial setting rather than a conglomerate setting,” agreed Gilbert Harrison, chairman and chief executive officer of New York-based Financo Inc. “The apparel business is entrepreneurial by nature. … Some of these funds can be much more intuitive and they have much more flexibility.”

Harrison noted, for example, that a takeover by a private equity fund inevitably brings forth lots of cost-saving initiatives.

Smith agreed funds are driven to enact a turnaround “in a reasonable time frame. They are more likely to figure out what are the opportunities and if there’s a fix, do it quickly.”
And like conglomerates, larger funds with multiple holdings are keen to extract synergies and leverage their connections.

For example, when Baugur acquired British fashion retailer Oasis in 2003, it detected an infrastructure capable of taking on more banners. To wit: Baugur helped Oasis acquire Karen Millen and ultimately assemble a multibrand group that “gives an insulation from the fashion cycle,” Sigurdsson said.

Also, Baugur’s Jane Norman chain just made the leap outside of the U.K. with an outlet in the Danish department store Illum, also a Baugur property. “If it works out well, we’ll go some other places,” Sigurdsson noted.

Fendi, Lanvin, Bottega Veneta, the luxury watch brand Officine Panerai and Aéropostale are other examples of brands that benefited from a change of ownership, observers noted, although in the cases of the first three, they were bought by luxury conglomerates.

Mallevays also cited a succession of private equity deals in the Nineties involving Ferretti, a maker of luxury yachts. It signaled the depth of the market for high-end products as Ferretti’s expansion sailed far beyond original expectations. “That was a big eye-opener,” he said. Another brand in the same vein was TPG’s purchase of Ducatti motorcycles, shares of which zoomed when it went public.

Franco Pene, chairman of Gibò, cited L Capital’s minority stake in Mariella Burani Group’s leather goods business, Antichi Pelletieri SpA, as a success story. Antichi Pelletieri, which bought the Coccinelle brand earlier this year, is heading to the stock market this year via an initial public offer.

“The luxury goods industry has two positive characteristics. It can have both very fast growth levels and strong margins,” he said.

Branchini noted that Coraline’s purchase of home linens brand Frette seems to be working well under ceo Enrico Marinelli, but the industry lacks success stories since private equity’s entry to the fashion world is so recent.
“A fund has to provide more than just money. It has to provide strategic marketing, a product identity and a brand identity,” Branchini said.

On the cautionary side, several observers mentioned Bally as an example of a private equity investment that’s had a rocky time on the road to rejuvenation, although TPG has had more luck lately with Bally and another holding, J. Crew, which has become one of the fastest-growing retailers in the U.S. under the reign of Millard “Mickey” Drexler and may go for an IPO later this year.

To be sure, skeptics question whether private equity firms will carve a major and successful path in fashion and luxury in the long run. And the luxury goods executives pointed out that the sector is only one of many private equity players are investing in, given the “huge amount of money in these funds right now; they’re looking everywhere.”
Antoine Colonna, head of the luxury goods research team at Merrill Lynch in Paris, said funds remain “marginal” in the sector, although there is speculation the champagne brand Taittinger, recently put on the block by Starwood Capital, could land in private equity hands. Press reports, citing sources, have said the field of bidders has narrowed to six and include private equity firm CVC Capital Partners and the Taittinger family.

“We’re still missing a big deal,” Colonna said in an interview. “The major issue with luxury goods is it’s not easy to get a quick return. [Funds] may not have the patience required to succeed.”

Mallevays agreed the investment horizon of private equity funds ‹ typically three to five years ‹ is “not necessarily compatible” with the time it takes to turn around fashion brands. That’s why he predicted hedge funds would likely start playing a bigger role in fashion deals, with Asprey being a watershed because they can have a longer horizon for a return.

According to one fund manager who requested anonymity, the key with a fashion or luxury asset is an attractive entry price, which is rare in today’s heated M&A environment.

“You have to be very selective,” the executive said. “This is an industry where you have no certainty of a turnaround of a brand. There’s an element of risk. But people tend to believe in miracles, especially in this industry.”
According to another European source involved in private equity investments, funds are turning to fashion out of desperation.

“All of the conventional private equity deals are getting increasingly competitive, and over the last five years more and more funds have been getting into the game,” the source said. “Today, when potential targets come up there’s an auction for them; the prizes come at a high price and the deals are fewer. Don’t forget that private equity raises money from investors on the basis that investors will get a return on their investment.”
One analyst at a London bank agreed.

“There are no longer a lot of private equity investment opportunities out there in the classic, very stable sectors ‹ like cement companies, for instance ‹ which is why investors have turned to fashion, which they perceive as less obvious,” the analyst said. “But it’s risky for them. I think what you’re going to be seeing is a natural selection of successful companies. The winners will be investors who have actually done their homework, and done a deal that makes sense for them. I think a lot of investors fall in love with the idea of owning a luxury brand, so they pay over the odds. Then reality hits and they see what sort of business they’re dealing with, and the risk is that they kill off the golden goose.”