“Discerning buyers understand the value of heritage, acquiring the trademark rights of dormant brands (along with their archives) to restart them,” says Pierre Mallevays, co-head of merchant banking at Stanhope Capital.
“Discerning buyers understand the value of heritage, acquiring the trademark rights of dormant brands (along with their archives) to restart them,” says Pierre Mallevays, co-head of merchant banking at Stanhope Capital.
The part of the pyramid they need to protect is right at the top, among the wealthy who will not have to economise on shopping. “The rich remain rich, even in a recession,” says Pierre Mallevays, a partner at Stanhope Capital. The world has enough high luxury buyers for LVMH get through any downturn without worrying too much about sacrificing bag charm sales.
Experts say the value of Tom Ford is ultimately bigger than the brand itself. “Tom Ford sits firmly among the elite group of megabrands that benefit from high awareness, high desirability and (very) high margins,” says Stanhope Capital’s Mallevays. “It is a virtuous circle that feeds on itself — allowing for market share gains in both good and bad times.”
“At LVMH, there is always a degree of healthy tension between individual brands and transversal resources” like manufacturing and marketing, Pierre Mallevays, co-head of merchant banking at Stanhope Capital and a former director of acquisitions at LVMH, wrote in an email. “Stéphane’s expanding remit and promotion to the Executive Committee underscore his growing influence.”
“The Covid-19 crisis accelerated the disruption of distribution channels. Ironically, this helped reinforce the domination of the superbrands. The next tier of big brands needs to scale up to take advantage of growth markets and not lose relevance.”
“Bally does have some very sharp and desirable products, but they’re sitting alongside some pretty generic ones,” Pierre Mallevays, co-chair of merchant banking at Stanhope Capital (and BoF contributor) said. Still, bringing in a “strong and visible creative director would not make sense unless the current owners are prepared to underwrite a complete overhaul.”
“When Fosun acquired majority control, Lanvin had lost a lot of customers as a result of successive designer changes and was spiralling down,” says Pierre Mallevays, co-head of merchant banking at Stanhope Capital. “It takes time to turn around. Lanvin is getting customers back and recruiting new customers. There is a healthy balance between Fosun’s respect for an illustrious heritage brand and the group’s ambitions for the brand.”
“The luxury sector is particularly suited to family-office investment — it tends to be very resilient but a long-term play, and it is all about growth equity and not so much financial engineering or leverage,” said Pierre Mallevays, co-head of the merchant banking department at Stanhope Capital Group in London.
He noted that family offices, especially single-family offices, are investing their own money “so they have much more flexibility than typical private equity funds when it comes to due diligence requirements and, most importantly, investment horizon.”
“Kendo provides an intermediary layer of management populated by leaders that are both close to their start-ups and close to senior executives; both agile and able to navigate the wider group and put synergies to work,” explained Pierre Mallevays, co-head of Stanhope Capital’s merchant banking unit and previously director of acquisitions at LVMH.
Stanhope bills itself as one of the world’s leading independent wealth management and advisory groups, overseeing $24 billion in client assets from six offices: London, Geneva, Paris, New York, Philadelphia and Palm Beach. Its merchant banking department advises clients on mergers, acquisitions, divestitures and capital raising of debt and equity. It has been active in media, agribusiness, technology and mining, recently advising the leading shareholder of Teranga Gold on its $5 billion merger with listed Canadian gold mining firm Endeavor.
“Italian brands have traditionally relied more than others on a domestic multi-brand retail network which has really suffered through Covid-19, so I think that we will see some Italian brands coming to the market,” says Mallevays.
“Covid-19 has accelerated underlying trends, forcing the hands of many to revisit plans,” says Pierre Mallevays, founder and managing partner at financial advisory firm Savigny Partners. “We expect corporate activity to pick up as a result, with the added effect of lower expected valuations attracting new investors.”
Die Covid-19-Pandemie hat die Erfolgssträhne der Luxusindustrie beendet. Berater Pierre Mallevays, der lange Zeit an der Seite von LVMH-CEO Bernard Arnault arbeitete, ist der Meinung, dass 2020 besser ausfallen wird als befürchtet. Die Abhängigkeit von China sieht er kritisch
“A number of brands have to plan to reduce their cost base in light of lower turnover,” said Pierre Mallevays, founding partner at luxury M&A advisory firm Savigny. “The first thing to be right-sized will be the retail network.”
“There is still plenty of room at the top end of the market,” says Pierre Mallevays, founder of Savigny Partners, a financial advisory firm that focuses on the luxury sector. “But the lower end of the Swiss luxury watch market is definitely under threat.”
Swiss private equity fund French Legacy Group is taking on the storied shoemaker.
It is understood London-based Savigny Partners advised Fung and Loubier in the transaction.
Pierre Mallevays, Managing Partner at Savigny Partners, a mergers and acquisitions firm focused on the luxury sector, notes that “the existing global supply chain model left many high and dry during the time of COVID due to factory closures and delays in international shipping.”
“Travelling shoppers will take significantly longer to return,” said Pierre Mallevays, founder and managing partner of Savigny Partners LLP, a mergers and acquisitions advisory firm focusing on luxury brands and retail. “This means travel retail and tourist-dependent stores will continue to suffer into 2021.”
“Coronavirus hit the luxury industry hard, with stock market valuations of luxury groups shedding a third of their value — or more — since the middle of January,” says Pierre Mallevays, founder and managing partner at financial advisory firm Savigny Partners. “Markets have since recovered somewhat, but we are still down some 20 to 25 per cent for the stronger groups and more for others.”
“Brands that require investment to prove their growth potential or to establish profitability will face a reduced pool of investors and will find it harder to meet valuation expectations,” said Pierre Mallevays, founder and managing partner of financial advisory firm Savigny Partners LLP.
“The strong performance of the sector masks different realities,” said Pierre Mallevays, managing partner of Savigny Partners.
“Big luxury groups and digitally agile brands are doing very well whilst more traditional, middle market brands continue to struggle,” he added.
“The world as a whole is growing and so is demand for luxury goods,” said Pierre Mallevays, the former head of acquisitions at LVMH who now runs the boutique financial advisory firm Savigny Partners. “There may be some volatility along the way but China will remain a long term source of growth for the luxury sector. Even the recent events in Hong Kong have not had that much impact on global luxury brands with luxury purchases having been transferred to the mainland,” Mallevays added.
Pierre Mallevays, former head of acquisitions at LVMH, who now runs the boutique financial advisory firm Savigny Partners, said: “Arnault is a man of great vision. He did not invent luxury brands but he invented the luxury industry. He singlehandedly helped transform a landscape which was a collection of family-run businesses into organised, professionally run groups with synergies and benefits of scale. He anticipated that more and more people would want to buy luxury products and organised himself to ride that growth.”
Analysts expect the opportunity to drum up considerable interest. “The high-end footwear category continues to interest many investors as it has less seasonality than apparel and a potential for great margins,” said Ludovic Grandchamp, a partner at the London-based advisory firm Savigny Partners LLP.
“With a dormant fashion house, you have an inexhaustible reserve of storytelling to match, yet it comes with no liability, negative connotation or skeletons in the cupboard. There is no restructuring to be done and you can position the brand however you wish in terms of creativity, price points and distribution channels. It is basically ‘carte blanche’ to devise a modern business model that comes with the benefits of aura and heritage”, says Pierre Mallevays, managing partner of Savigny Partners LLP, who is dubbed the “Grand Wizard” of M&A in the fashion and luxury industry.
Pierre Mallevays, managing partner of London-based M&A advisory firm Savigny Partners, noted that there are two primary types of deals. The first are strategic investments that aim to tap industrial synergies with existing portfolios. Here, key examples include Shandong Ruyi (SMCP, Aquascutum, Gieves & Hawkes and Cerruti 1881); Icicle (Carven); and Gansu Gangtai Holding (Buccellati). Then, there are financial investments by the likes of Fosun (Lanvin, Caruso, St John Knits), Fortune Fountain Capital (Baccarat); and First Heritage Brands (Sonia Rykiel, Delvaux, Clergerie).
In both cases, investors aim to take advantage of their knowledge on their local market to boost sales of the French brands in China.
“The worst you can do in terms of succession planning is not to have any succession planning,” said Pierre Mallevays, founder and managing director of Savigny Partners. But it’s not easy. “The landscape of possible hires is always moving,” continued Mallevays. “People who are happily committed to a job may be open to a move six months later, and talent who are potentially available now might be working elsewhere the following season.”
“The very top brands will not look at who is available, they will look at who would be a good fit, irrespective of whether people are open to moving,” Mallevays said. “They will assume — rightly so — that the job’s attractiveness and the uber-generous pay package for the chosen candidate will be enough to bring him or her on board.”
“We are honoured to have partnered with Savigny Partners LLP, one of the leading luxury and fashion investment advisory firms in the world, and are especially pleased to have Ludovic Grandchamp join the company’s advisory board,” said Menē CEO Roy Sebag. “While Menē is witnessing accelerated growth and consumer adoption, it is important to balance our entrepreneurial spirit by collaborating with partners who understand the long-term outlook required when building a luxury brand. Ludovic and the rest of the Savigny Partners team have been involved in industry-leading M&A transactions, and we are fortunate to benefit from their experience as we navigate these important early years.”
Pierre Mallevays, managing partner of Savigny Partners — an investment firm working in the luxury sector — believes that for now, there is little cause for concern. “Unless there is a major geopolitical showdown between superpowers, China will continue to be the engine of growth of the luxury good sector for the next decade,” he believes.
October’s monthly Savigny Luxury Index (SLI) — a general market index published by Savigny Partners which tracks patterns across the sector — reported its biggest fall since August 2015: a decline of 11 percent. “There has been a stock market correction,” explains Mallevays. “But there is no real decline in the luxury sector per se.”
“Of course there are synergies, and the bigger the group the more bargaining power with suppliers and landlords for example,” said Ludovic Grandchamp of Savigny Partners, an advisory firm focused on the retail sector.
“Charles James was the first designer to truly elevate American fashion. He is on a par with the best European designers like Christian Dior or Paul Poiret or later Yves Saint Laurent,” said Pierre Mallevays
Ludovic Grandchamp, partner at Savigny Partners, spoke of Farfetch as “the king of the luxury goods marketplace” and said that with 2.3 million consumers, the IPO is bound to be a big success.
“If you have a super ‘hot’ designer being very successful, you will get higher monetary [benefits] and exit plans,” said Pierre Mallevays, founder and managing partner of Savigny Partners LLP.
“The market is being hugely disrupted as consumers call for cleaner and greener products, while accusing their longtime suppliers of poisoning them,” said Ludovic Grandchamp, partner at Savigny Partners, the boutique M&A firm based in London. “This creates opportunities for emerging companies with fund-raising and acquisitions on the horizon.”
Following his appointment, minority shareholder Ralph Bartel and investment banker Pierre Mallevays of Savigny Partners, both board members, submitted letters of resignation to disassociate themselves from Wang’s decisions and governance.
The Savigny Luxury Index, which tracks retailers including Prada and LVMH, rose by 2.8 per cent
in September, offering a further indication of the recovery of the sector. The index was boosted over
the month by the 13.3 per cent rise in the market capitalisation of Michael Kors.
After all, equity is expensive. “Once love money from friends and family is exhausted, it’s tempting to want to reach to investors for the next step,” says Pierre Mallevays, founder and managing partner of Savigny Partners, a London-based corporate finance advisory firm focused on retail and luxury goods. Past clients include Nicholas Kirkwood, which sold a majority stake to LVMH in September 2013. “But it’s important to have a plan for which the money will be put to use.
It feels like a British brand again,’ says Pierre Mallevays, managing partner of boutique investment banking firm Savigny Partners. ‘Mulberry is now doing exactly what is needed… re-establishing the range at the more affordable price points the British customer loved Mulberry for.’
“They are retailers, and do the same job as Harrods or Galeries Lafayette, but they are born online with a perfect understanding of digital tools. As pure players where the growth lies, they have a strong edge,” said Ludovic Grandchamp, partner at Savigny Partners, the boutique M&A firm based in London.
The Belgian house Natan have donated one of their creations to the ModeMuseum in Antwerp. For the occasion, the museum has made a documentary about the process of designing and making the dress in its entirety. The film describes the successive stages of creation, from the birth of the idea to shooting on mannequin, through the first sketch and to the various fittings in the workshop. It is supplemented by interviews with Kaat Debo (Director of MoMu), Christian Salez (Addition Ltd London and Director of Natan) and Pierre Mallevays (Managing Partner of Savigny Partners LLP)
“Farfetch is the leader in the category and you always pay a premium for a market leader,” says Ludovic Grandchamp, partner at the boutique M&A firm Savigny Partners. “Businesses like these are so hot, and growth is strong and quick.”
“When you are valuing a business like that, what you are valuing is potential,” said Grandchamp, adding “the universe of stores that Farfetch could potentially tap into is enormous.”
“À court terme, difficile d’imaginer Amazon concurrencer sérieusement le marché de la fast fashion, analyse Pierre Mallevays, managing partner de Savigny Partners LLP. Le risque porte plus sur les marques proposant des basiques – Gap, par exemple.”
“The interest, but also the difficulty, of reviving a ‘sleeping beauty’ lies in the limitless scope of possibilities”
“They want to reinvent the DNA and make it relevant to today” Pierre Mallevays said
“Remaining independent limits the pace of development and ultimately how far it can go”
There are no global Indian retailers. And although India has a rich heritage of textiles, leather and embroidery, there are no global or well known Indian brands, says Pierre Mallevays.
“The new government’s approach has energised a number of companies, including multi-brand retailers and international retailers…” , Pierre Mallevays says.
“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.”
“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”.
L’intérêt réel de cette technique ne résidera pas tant dans la reproduction d’objets que dans l’invention de nouveaux matériaux, assure Pierre Mallevays […]
“One of the key challenges for the group going forward will be to keep a harmonious balance between the luxury side and the more affordable part of the business,” Pierre Mallevays said.
“IPOs versus straight sales is a question of shareholder expectations and growth path,” Pierre Mallevays, managing partner of London-based Savigny Partners, a corporate finance advisory firm.
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
“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.”
“We’re selling you a dream in a way,” Mallevays says about packaging old labels for sale. “Sleeping Beauties can be hugely attractive for the right group—the right brand can get up to scale very quickly and successfully.”
And building a business in today’s climate, as Pierre Mallevays said, requires so much investment, circumstances mitigate against it (unless, apparently, you’re Qatari).
“I don’t see private equity or hedge funds backing (a Ghesquière) brand, because of time horizon and fashion risk,” said Pierre Mallevays of the London investment bank Savigny Partners.
“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.
“You cannot have a China-only market. For your brand to be credible, the travelling Chinese will expect to see your stores in Paris, Milan or New York.”
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.
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.”
Pierre Mallevays, a former head of M&A at LVMH, who now runs boutique advisory firm Savigny Partners, says much of Hermès’s current success is down to the “brand vision” of Jean-Louis Dumas who took the helm in the late 70s.
A lack of scale or expertise limits smaller companies’ ability to build brand recognition and tap demand in Asia and may lead some to seek alternative paths to growth, said Pierre Mallevays […]
[…] Pierre Mallevays said: “A brand like Cardin does not increase (in value) like a normal brand because it is entirely based on licence revenues.”
Pierre Mallevays, a former LVMH executive who founded the boutique investment advisory Savigny Partners, says it could be worth about four times sales, but it’s not clear how much sales are.
Pierre Mallevays […]: “There is no other industry where the pressure is so prevalent and relentless – not just for the show but most importantly for the multiple seasonal deliveries. ” […]
Pierre Mallevays […] says: “During the crisis, all the big luxury groups were heavily restructuring. […] Now, they’re in the happy situation of having a lean cost base while sales go through the roof.”
[…] The way to go for apparel brands, said William Plane, is to reduce seasonality, in other words to come up with up to six collections a year, including pre-collections and inter-seasonal collections.
“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.”
Pierre Mallevays […] noted that some luxury brands – Louis Vuitton, Hermès and Chanel, to name a few – have not only managed to withstand the downturn, but have actually increased market share in recent years.
By Rachel Sanderson Financial Times
Luca Solca, a senior strategist at Bernstein Research, says experience shows that creating value in European luxury goods through mergers and acquisitions is anything but straightforward.
Two illusory beliefs have damaged M&A investors in the past 15 years, he argues.
The conviction that the international success of groups of brands such as LVMH and PPR could be easily replicated, and that luxury is an easy industry for new entrants such as private equity.
That said, Mr Solca still sees possibilities for M&A in Europe, the crucible of the luxury goods industry. They centre on small, niche companies, mid-tier groups and most controversially, even conglomerates such as Richemont.
â€œThere are M&A opportunities out there,â€ he affirms.
Mr Solcaâ€™s suggestion that there is still value to find in European deals is well timed.
Luxury goods companies that have experienced their worst ever slump in sales during the past two years, are nervously awaiting the impact of austerity measures by European governments on an as yet fragile recovery.
Since the start of the year luxury goods sales in Europe have grown by about 10 per cent, but some dealmakers now fear that the industryâ€™s recovery may be shortlived, as scything government cuts affect what disposable income there is still available to Europeans and Americans, the worldâ€™s biggest consumers of luxury.
Federico Aliboni, global co-head of consumer and retail corporate and investment banking at Bank of America Merrill Lynch believes the impact on the luxury goods market could be profound.
He says: â€œYou are going to take out the two largest markets [the US and Europe], so everyone is going to rely on China, south-east Asia and Korea.
â€œWhile these are growing markets, it is going to be a long time before they can properly make up for the slowdown that the western world will be experiencing.â€
That impact is already being felt.
While industry leaders such as LVMH and PPR, with extensive Asian distribution markets, continue to grow and take market share, the bankruptcies of fashion houses Christian Lacroix in France and Mariella Burani in Italy have cast long shadows.
Many groups are weakened, having shed staff, closed shops and cut production.
Yet, Claudia Dâ€™Arpizio, a consultant with Bain & Co, believes â€œthat polarisation may well create fertile conditions for market concentrationâ€.
As the largest luxury companies take advantage of the weakness of smaller ones in order to increase their market share, the search for capital triggers M&A and IPOs. Continued challenging conditions for lagging brands also create the risk of failures and bankruptcies, she argues.
Dealmakers agree that the opportunities for M&A in Europe, home to the worldâ€™s largest concentration of luxury goods companies, fall into at least two broad categories.
Firstly, the acquisition of high-quality niche brands, that mirror PPRâ€™s purchase of Bottega Veneta, a high-cost, high-class house built on a manufacturer of woven leather bags, which is one of the great success stories of the luxury industry in recent years.
Pierre Mallevays, founder and managing partner of Savigny Partners, a boutique luxury goods advisory firm, says that his deal pipeline for companies worth from â‚¬30m ($36m) to â‚¬50m is booming after a hiatus during the crisis. Brands that are focused geographically are especially attractive to the private investor.
Mr Mallevays, who sold French high fashion house Lanvin to such an investor last year, says the new type of investor is a European who has made money elsewhere but is someone who has an â€œemotional responseâ€ to brands and is comfortable with the long-term appreciation of the luxury sector.
â€œThis new universe of private investors looks at luxury as an alternative asset class in the â‚¬10m to â‚¬50m bracket,â€ he says.
The second area of opportunity is mid-tier fashion houses that have the potential to become international groups. Italy remains the best European country for deals of this size, say senior bankers.
Many high profile Italian fashion and luxury brands are still privately owned: Armani, Dolce & Gabbana, Versace and Cavalli, or Prada and Ferragamo are yet to relaunch market listings pulled during the crisis. Bulgari, a sometime target of the biggest luxury goods groups, is majority family-owned.
Still, finding a meeting point with Italyâ€™s fashion entrepreneurs on price remains difficult, dealmakers say. With LVMH and Richemont still trading on relatively high multiples of 17 to 18 times earnings in 2010, price expectations for mid-sized deals remain high.
Bankers say more accessible targets may be those groups still in the hands of private equity, such as Valentino Fashion Group, which was bought by Permira in 2007 for an estimated 14 times Ebitda.
Although Stefano Sassi, Valentino chief executive, said this month that he did not think Permira was looking for a buyer, on a usual private equity timeframe, it will be seeking an exit soon enough.
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. â€œValueâ€ and â€œmeaningful consumptionâ€ are among the new buzzwords and â€œaccessible luxuryâ€ possibly on the endangered species list.
â€œWe live in a world of competition. Maybe there was too much,â€ 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 â€œobsessionâ€ with extreme fashion statements is also likely to ebb and â€œ commercial,â€ long a disdainful term used to describe a boring fashion show, will lose its sting. â€œ Clothes are made to be worn,â€ Lagerfeld stressed.
While a range of opinions emerged, designers, chief executives, analysts and other observers agreed that, in luxuryâ€™s next wave, consumer expectations are likely to be higher than ever, with craftsmanship, service, heritage and longevity among new priorities.
â€œThey want it all: the quality, the creativity, the exclusivity and the service. You tend to forget that in good years because in good years, itâ€™s easier,â€ said Pierre-Yves Roussel, chief executive officer of the fashion division at LVMH MoÃ«t Hennessy Louis Vuitton. â€œ Being in luxury, we have to be perfect in everything we do.â€
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.
â€œMany brands have appeared that may not be perceived as â€˜trueâ€™ luxury,â€ noted Gilbert Harrison, chairman of Financo Inc. â€œThe 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.â€
Below, hereâ€™ s what the exp erts had to say.
A SMALLER SECTOR, SLOWER GROWTH
Robert Polet, president and ceo, Gucci Group: â€œI believe the era of â€˜accessible luxuryâ€™ is over. The current crisis has been particularly difficult for these â€˜affordable luxuryâ€™ brands as their customers have been most affected by it. It has also been tough on brands without a strong financial base or global profileâ€¦ so I think the industry will also emerge from the crisis a bit leaner â€” 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.â€
Michael Burke, ceo, Fendi: â€œThere will be a lot fewer players. This is the first recession that luxury goods has entered with leverage. It shows that you canâ€™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 canâ€™t rely on too much diversification.
Since weâ€™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.â€
Gilbert Harrison, chairman, Financo Inc., New York: â€œ 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.â€¦ 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.â€
Matteo Marzotto, co-owner, Vionnet: â€œThe decade between 1997 and 2008 wasnâ€™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 â€” and even when things pick up , we must come to terms with the fact that it wonâ€™t be like 2007 anymore. More than ever, itâ€™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.â€
Concetta Lanciaux, founder, Strategic Luxury Advisors: â€œUniversal 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 toâ€¦ offer collections with identity and relevance, but with a wider range of prices, will win the large base of the customers they need.â€
Luca Solca, senior retail and luxury analyst, Sanford Bernstein: â€œ 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 â€˜investment- gradeâ€™ 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.â€
Anne Chapelle, ceo, BVBA32 , the holding company of Ann Demeulemeester and Haider Ackermann: â€œ 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 luxuryâ€¦.They are even more focused on the quality of materials and craftsmanship , and the choice of sustainable and truly valuable goods.â€
Cristiana Ruella, group managing director, Dolce & Gabbana: â€œRecession 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.â€
Lew Frankfort, chairman and ceo of Coach Inc.: â€œLuxury 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.â€ Frankfort believes that accessible luxury will thrive given some â€œ compelling price points out there, and that you will see less conspicuous consumption in the high-tick et area. There will be exceptions. HermÃ¨s 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.â€
Pierre Mallevays, managing partner, Savigny Partners, London, a boutique investment bank specializing in luxury goods: â€œThe crisis has changed the definition of â€˜value.â€™ That was a dirty word in the luxury goods circle before the downturn, just like â€˜mass.â€™ 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.â€
Stefano Pilati, designer, Yves Saint Laurent: â€œWhat 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 â€˜Editionâ€™ capsule collections, which operate and respond vertically to diverse mark et needs and requests.â€
Ralph Toledano, chairman and ceo, ChloÃ©: â€œCustomers 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 â€˜value for priceâ€™ 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. Itâ€™ 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.â€
Patrizio di Marco, ceo, Gucci: â€œEven prior to the financial crisisâ€¦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.â€
Jean Cassegrain, managing director, Longchamp: â€œWe 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 â€” the U .S. and Japan â€” 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.â€¦ 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.â€
Ilaria Alber-Glanstaetten, ceo of Provenance, the London-based strategic and creative marketing agency: â€œConsumers 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. Itâ€™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.â€
Patrick Thomas, ceo, HermÃ¨s International: â€œOne phenomenon will accelerate: There will be a segmentation between brands with high quality, craftsmanship and quality materials â€” 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. Thereâ€™s also the growing importance of Chinese customers everywhere. Thereâ€™s a big surge, including in Paris. Itâ€™s a long-term phenomenon. For the moment, we have fewer Russian customers, but thatâ€™s not going to last.â€
Sebastian Suhl, chief operating officer, Prada Group: â€œThe 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.â€
Massimo Ferretti, chairman, Aeffe Sp A: â€œThe 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.â€
Maria Grazia Chiuri, co-creative director, Valentino: â€œ The product remains king because thatâ€™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.â€
Francesco Minoli, ceo, Pomellato: â€œ 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 isnâ€™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.â€
Consuelo Castiglioni, creative director, Marni: â€œWe 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.â€
Donatella Versace, designer: â€œ We designers absolutely have to re-edit our approach. Itâ€™s all about going back to your roots. The only way to entice customers to buy is to give fashion a more emotional excitement. Itâ€™s also about thinking of new ways to get your collections out there â€” social media, Internet, virtual runway shows â€” that are more cost-effective, global and creative.â€
Pierre-Yves Roussel, ceo, fashion division, LVMH MoÃ«t Hennessy Louis Vuitton: â€œI donâ€™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. Itâ€™s about seduction, beauty and happiness. People should feel good about buying. We donâ€™t have to find gimmicks. We just have to be true to what fashion and luxury are really about.â€
Anya Hindmarch, designer: â€œI think thereâ€™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. Iâ€™ve always hated the idea of the â€˜Itâ€™ 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. Thereâ€™s been a huge surge in the bag market, and analysts are saying itâ€™s going to move to jewelry, but Iâ€™m not sure. A bag is very tribal; it shows who you are.â€
Fabrizio Malverdi, ceo, Givenchy: â€œFor 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 consumersâ€™ 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.â€
Graeme Black, designer: â€œRecycling has become the new cool. People are thinking of it like vintage â€” it has that sort of cachet. In terms of buying, they are pulling back â€” 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.â€
Allegra Hicks, designer: â€œI think luxury is becoming much more of an internal thing. Itâ€™ s no longer about looking at the next person to see what they have â€” 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 wonâ€™t be dead in three monthsâ€™ time. I think the new luxury is about no longer running after the latest trend, but understanding your personal style.â€
Carlo Giordanetti, creative director, Montblanc: â€œThe 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 â€˜no,â€™ 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.â€
Elisabeth Ponsolle des Portes, president and ceo of the ComitÃ© Colbert, an association of 70 French luxury brands: â€œWe 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.â€
Sergio Loro Piana, ceo, Loro Piana: â€œ 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.â€
Donna Karan, designer: â€œThere 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 tâ€™s not only about, â€˜Oh, I am going to buy the most expensive something.â€™â€ Luxury, she added, will encompass a multitude of lifestyle issues, from finding the time to enjoy a sunset to â€œbeing able to eat well and take care of yourself and being able to have a lifestyle.
Von Christian Schubert
PARIS, 3. September Im Laden stehen dumeinen Preisnachlass zu bitten ist eine Sache. Eine andere ist, im Internet anonym nach SchnÃ¤ppchen zu suchen. In der Welt des Luxus ist das nicht anders. Die franzÃ¶sische Internetverkaufsplattform vente-privee.com hat vor einem Jahr die Website VP Lounge aufgemacht und verkauft dort exklusive Marken wie Yves Saint-Laurent, Dunhill, Sergio Rossi oder ChristofIe.
â€žWir wachsen zweistellig. Die MentalitÃ¤ten der Leute haben sich geÃ¤ndert; sie haben keine Bedenken, im Internet zu kaufen”, berichtet GeschÃ¤ftsfÃ¼hrer Jacques-Antoine Granjon.
Snobismus war gestern. â€žBeispielsweise ein T-Shirt von Fruit of the Loom mit einer Handtasche von Chanel kombinieren – da sagen sich die Leute, warum nicht”, berichtet der Chef des weltgrÃ¶ÃŸten Veranstalters zeitlich begrenzter Verkaufsaktionen im Internet, der in diesem Jahr einen Umsatz von 750 Millionen Euro erwartet.
PreisnachlÃ¤sse von 60 bis 70 Prozent gibt es bei seinen Waren, die meistens RestbestÃ¤nde sind. Der Verkauf etwa eines edlen Rings fÃ¼r 3,000 anstatt 10,000 Euro sei keine Ausnahme.
â€žDie Internetplattformen sind die groÃŸen NutznieÃŸer der Krise”, sagt Karine Ohana, die zusammen mit ihrem Bruder in Paris eine kleine Investmentbank- Boutique zur Beratung von LuxusgÃ¼terherstellern fÃ¼hrt. â€žDie Leute empfinden es nicht als Schande, im Internet zukaufen. Ja, es gilt sogar als clever.”
Da mÃ¶gen die groÃŸen Produzenten noch so schÃ¶ne Konsumtempel errichten, in denen ihre â€žErlebniswelten” zum Kauf verfÃ¼hren sollen – in der Krise widerstehen die Men schen Ã¶fter un d kaufen woan ders oder garnicht.
Nach einem Jahr Wirtschaftskrise hat die LuxusgÃ¼terbranche viel von ihrem Glanz verloren. In Deutschland ist das der Ã–ffentlichkeit mit dem Niedergang von Escada vor Augen gefÃ¼hrt worden. Seit der Pleite von Lehman Brothers fallen nicht nur viele Investmentbanker aIs Kunden aus. Wohlhabende Ã¼berlegen sich zweimal die Anschaffung teurer Produkte, deren Name oft mehr zÃ¤hlt, aIs die Ware hergibt. Die Altkunden begnÃ¼gen sich mit dem, was sie haben, und die Neureichen verschieben Anschaffungen.
Besonders MÃ¤nner, die in den vergangenen Jahren dem Uhrenmarkt zu einem Aufschwung verhaIfen, finden jetzt hÃ¤ufig, dass ein edler Zeitmesser eigentlich auch reicht. Manche Dame denkt bei den teuren Handtaschen anders, wie die recht stabilen VerkÃ¤ufe der zeitlosen Lederwarenanbieter Louis Vuitton oder HermÃ¨s zeigen. Doch auch dort ist man von den Wachstumsraten der Vergangenheit weit entfernt. â€žUhren und Schmuck sind von der Krise besonders stark betroffen, wÃ¤hrend sich die Lederwaren ganz gut halten”, sagt Claudia Lenz, Analystin beim Schweizer Bankhaus Vontobel.
Die jÃ¼ngsten Exportzahlen Schweizer Uhren wiesen abermals nach unten. Zwischen Januar und Ende Juli sind die Ausfuhren gegenÃ¼ber dem Vorjahr um mehr als ein Viertel gesunken. Uhren zwischen 200 unci 500 Franken hielten sich am besten, wÃ¤hrend das Preissegment Ã¼ber 3,000 Franken am stÃ¤rksten litt.
In der Krise trennt sich unter den Anbietern die Spreu vom Weizen. â€žAIle haben zu kÃ¤mpfen, am meisten aber jene, die sich auf modische Produkte konzentrieren. Was dagegen als zeitlos und kIassisch gilt, zieht sich besser aus der AffÃ¤re”, sagt Pierre Mallevays, der mi t seiner Londoner Gesellschaft Savigny Partners Luxusunternehmen berÃ¤t. Als Klassiker gelten fÃ¼r die meisten Branchenbeobachter HermÃ¨s und Louis Vuitton, wÃ¤hrend die Meinungen bei Gucci geteilt sind. In Schwierigkeiten stecken nach MalIevays’ Auskunft jetzt vor allem italienische Anbieter mit finanzschwachen Familien im Hintergrund, die sich deutlich verschuldet haben. Versace, Prada und etwa der Brillen hersteller Safilo gehÃ¶ren in diese Kategorie.
Prada musste vor wenigen Tagen GerÃ¼chte dementieren, dass das Unternehmen Ã¼ber den Verkauf einer Minderheitsbeteiligung verhandele, angeblich mit Richemont aus der Schweiz. Auch das Emirat Qatar soll Interesse gezeigt, als Finanzinvestor aber eine Abfuhr erhalten haben. Der Teufel trÃ¤gt nicht Prada, sondem hÃ¤lt als ungeduldiger GlÃ¤ubiger SchuldtiteI des Unternehmens: Bei einem Nettogewinn von knapp 100 Millionen Euro soil es mit 1,1 Milliarden Euro verschuldet sein. Immerhin verschoben die Banken offenbar die Tilgung von 450 Millionen Euro auf 2012. Von den franzÃ¶sischen Branchengurus LVMH und HermÃ¨s sind die Italiener derzeit weit entfernt. Beide Unternehmen fuhren im ersten Halbjahr trotz Krise noch Gewinne ein ; LVMH ist an der Pariser BÃ¶rse mehr als 33 Milliarden Euro wert, der viel kleinere Konzern HermÃ¨s fast 11 Milliarden Euro, wobei Letzterer als Ã¼berbewertet gilt. Sie profitieren in immer mehr wachsenden Metropolen von einem Netz eigener GeschÃ¤fte. Das macht sie unabhÃ¤ngig von den KaufhÃ¤usern, die ihre eigene Preisund Lagerpolitik ohne RÃ¼cksicht auf die Hersteller verfolgen.
Die Italiener dagegen mÃ¼ssen nach neuen Wegen suchen. Der Hersteller edler AnzÃ¼ge, Brioni, versucht es jetzt mit T-Shirts. Die Ausweitung einer starken Marke auf neue Produkte ist lÃ¤n gst kein Geheimnis mehr, muss aber immer wieder gelingen. Man kann es zu weit treiben, wie etwa Pierre Cardin, der aufgrund seiner Zerfledderung in alle Himmels – und Produktrichtungen nicht mehr als Luxusanbieter gilt. Oder man scheitert wie Christian Lacroix, dessen Parfums nicht beim Publikum ankamen. Das kleine franzÃ¶sische Modehaus, das zum Verkauf steht, ist eine Haute-Couture-Werkstatt geblieben, der anders als der Konkurrenz das MassengeschÃ¤ft fehlt.
Kommt es in der LuxusgÃ¼terbranche nach etlichen Wachstumsjahren bald zu einer Bereinigung unter den Anbietern? Viele Private-Equity-HÃ¤user sind verschwunden, weil der Zugang zurn Fremdkapital versperrt ist. Geblieben sind einige wenige industrielle KÃ¤ufer wie LVMH oder etwa die Holding Labelux der Familie Benckiser, die, ausgehend vom Besitz des Parfum – und Kosmetikhersteller Coty, in neue Segmente strebt. So Ã¼bernahm Labelux den Schweizer Schuhhersteller Bally und beteiligte sich mehrheitlich am amerikanischen Designer Derek Lam. Das war noch vor der Krise. â€žDie Transaktionen sind in der Zahl schÃ¤tzungsweise um rund ein Drittel gesunken, im Wert um noch mehr”, sagt der Pariser Investment banker Ariel Ohana. Damit fallen auch die Preise.
Wann geht es wieder aufwÃ¤rts? Berater Mallevays ist vorsichtig: â€žDer chinesische Markt wÃ¤chst stark. Doch Europa und Amerika bleiben schwach. WÃ¤hrend zwei bis drei Jahren geht es vielleicht leicht auf und ab, doch einen starken Aufschwung erwarte ich in diesem Zeitraum nicht.”
Pleiten strah len auf alle aus
Trotz Krise will Manfred Mroz von Krisenstimmung nichts wissen. â€žWir steigern unsere Studentenzahlen seit geraumer Zeit um 10 bis 12 Prozent im Jahr. Und die AbgÃ¤nger bekommen immer noch gute Jobs”, sagt der Schwabe, der einer von zwei GeschÃ¤ftsfÃ¼hrern der Fachakademie fÃ¼r Textil & Schuhe in Nagold (LDT) ist. â€žAuch von un seren Trainees hÃ¶ren wir, dass die Unternehmen die Ausbildung nicht einstellen.
Wir haben kein einziges Partnerunternehmen verloren. “Bald erreieht die Ã¼ber StudiengebÃ¼hren finanzierte Privatakademie die Zahl von 600 Studenten und denkt Ã¼ber eine Deckelung nach, um nicht ein Massenbetrieb zu werden. Zum Markt der gehobenen Markenanbieter sagt Mroz: â€žEs geht etwas langsamer im oberen Genre, aber langfristig ist ein Markt da.”
Dennoch kann nicht abgestritten werden, dass KrisenphÃ¤nomene wie die Insolvenz des deutschen Modehauses Escada ihre Spuren hinterlassen. Dort stehen 2,300 BeschÃ¤ftigte, davon 600 in Deutschland, vor einem ungewissen Schicksal. Abgegrenzte Zahlen fÃ¼r die LuxusgÃ¼terbranche zu bekommen ist schwierig, weil die weitgefÃ¤cherte Branche ungenau definiert ist.
Die Lage des Einzelhandels strahlt indes auf alle ab. Wenn groÃŸe HÃ¤user wie Karstadt schlieÃŸen, dann ist dagegen niemand immun.
“You can argue that there’s nothing as good as Vuitton in LVMH’s portfolio, but that simply states the fact that LV’s business model is the gold standard of luxury brands; no other brand in the world compares to it.”
By Miles Socha with contributions from Andrew Roberts WWD
The latest chapter in fashionâ€™ s topsy-turvy acquisitions story could be titled â€œ Minority Report.â€
With valuations heading south â€” and bank financing scarce â€” minority stakes are becoming newly derigueur with private equity and family-controlled funds, which are still sitting on cash piles and hunting for deals.
â€œMinority investments will be a bigger part of the deals weâ€™ ll be seeing in 2009,â€ said Ariel Ohana, partner at Paris-based investment banking firm Ohana & Co. â€œMost of the funds weâ€™ re working with tell us thatâ€™s what theyâ€™re looking for.â€
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 â€œthis 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.â€
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 â€œfamily office-type investorsâ€ â€” which act like professional funds, but with a family fortune â€” are likely to be key victors in getting minority stak es since they â€œcan take a long-term view and are not necessarily constrained with an exit strategy.â€
Given the financial crisis, most observers donâ€™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.
â€œWeâ€™ll be seeing less majority deals backed by financial investors because thereâ€™s a shortage of acquisition financing from the bank,â€ Ohana explained. â€œThose 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.â€
â€œI think youâ€™ll see more minority investments until the economic conditions stabilize,â€ 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 sellerâ€™s point of view, there is no need to change the management, and thereâ€™s the added benefit of having â€œevolved professionsâ€ available to give input, he noted.
As for the buyer, â€œit can be very attractive because thereâ€™s less risk,â€ said Kim Vernon, president and ceo of Vernon Co. , a New York-based brand consultancy that interfaces with investors. â€œTheyâ€™re not necessarily responsible for having an operational position.â€
On the sellersâ€™ 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 HermÃ¨s Internationalâ€™s 45 percent stake in Jean Paul Gaultier and Compagnie FinanciÃ¨re Richemontâ€™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 thereâ€™s a â€œconflict situationâ€ 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 â€œkeep their available financing for things they control.â€
For investors, the fact that earnings multiples are deflated â€” down by as much as half, in some cases â€” in comparison with a few years ago means the market is ripe with cut price opportunities.
Caillaud said valuations are coming down, but itâ€™s difficult to know by how much, since â€œthereâ€™s been few transactions recent enough to have been negotiated pre-summer,â€ 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.
â€œ[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,â€ 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 companyâ€™s ceo, Giovanni Burani, said he had received â€œ many proposals, but it is still early.â€
As reported, IT Holding SpA chairman and ceo Tonino Perna is in discussions to sell a minority interest in the fashion companyâ€™s parent company, PA Investments SA, to an investor fronted by Hong Kong businessman Billy Ngok. Perna is hoping to ease the groupâ€™s net indebtedness and open up the Asian market.
Last week, Moodyâ€™s Investors Service and Standard & Poorâ€™s downgraded IT Holdingâ€™s credit rating for the second time in as many months after the group, which owns the Gianfranco FerrÃ©, Malo and ExtÃ¨ brands and operates under license the Just Cavalli, Costume National Câ€™Nâ€™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 Safiloâ€™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.
Safiloâ€™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 â€” 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.
Italyâ€™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 â€” to unload the cost of buying out former ceo Umberto Angeloni in 2006 and finance expansion â€” but it was more difficult to understand from an investor standpoint.
â€œTwo years ago there was a big appetite to invest in luxury. Now it is completely different,â€ 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 Lâ€™OrÃ©al 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 â€œa very attractive target,â€ despite not being very profitable, largely because of its acclaimed designer, Alber E lbaz. However, until Wang changes her mind, the French label is â€œunavailableâ€ because it is â€œ solidly held,â€ 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 economyâ€™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 â€œfuelled by necessity. â€ Robert Filek, a partner in the firmâ€™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. â€œRetail companies looking to grow may find opportunities in discounted lease rates on prime real estate,â€ the study said.
In the end, though, Transaction Services group partner Greg Peterson stressed: â€œPrivate 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. â€
By Astrid Wendlandt and Marie-Louise Gumuchian International Herald Tribune
PARIS: In fashion, cut is vital, but Marie Dupuis has found that it can also apply to price. Thanks to a little bargaining, she recently bought a Jean-Paul Gaultier dress at a 40 percent discount for New Year’s Eve.
Dupuis, 32-year-old Parisian, expressed surprise at paying â‚¬310, or about $400.
“I have never seen that,” she said. “It must be because of the crisis everybody is talking about.”
The high-fashion bargain is usually reserved for the superrich or celebrities who obtain designer clothing free from fashion houses seeking the publicity. But in the current economic downturn, less-expensive luxury items are becoming attainable to more ordinary, though still relatively well-off, shoppers.
With margins at mainstream retailers under pressure as they fight for a share of smaller customer budgets, the couture house created by Jean-Paul Gaultier is among the high- end brands that are jumping on the promotional bandwagon.
From Paris to Milan and New York to London, a strong increase in promotional sales in recent weeks has come to include luxury brands. In retail generally, the year-end holiday season can account for about 40 percent of annual sales, so the stakes are high.
But the high-end sales offerings are subtle. Instead of advertising discounts in shop windows â€” which can damage the brand by undermining the notion that quality comes at a price â€” they lure buyers with discreet “private sales,” some of them earlier this year than last.
For example, Sonia Rykiel, Jean-Paul Gaultier, Jimmy Choo, Prada, Armani, Gucci, Tod’s, Dolce & Gabbana, Alexander McQueen, Gianfranco FerrÃ© and Alberta Ferretti have been offering discounts or holding private sales, but not at every store or in every country.
Tolerated by European regulators outside the traditional January and July discount seasons, private sales are usually exclusively reserved for loyal customers who receive an invitation by mail. The discounts typically apply to small selection of items.
This year, Reuters reporters found that one could buy a wide range of discounted products without an invitation at Jean-Paul Gaultier and Jimmy Choo in Paris and Prada in Milan.
“Some may say they don’t hold them, but they do,” said an assistant at a top designer boutique in Milan. “They just don’t want everyone to know about them. “A spokeswoman for Jean-Paul Gaultier said: “We do not have any comment to make about private sales. It’s down to individual shops to decide them.”
Other representatives for brands including Gucci and Armani declined to comment. A spokesman for Prada said private sales were usually held at this time of year but declined to provide further details.
A spokeswoman for Gucci Group, which also includes Bottega Veneta and Yves Saint Laurent, said, “Our policy is that we do not give information about our commercial activities.”
Altagamma, the Italian fashion industry association, said that it had noted an increase in the number of private sales this year because of the financial crisis but that they were a long standing tradition for many fashion houses.
On Old Bond Street in London, Avenue Montaigne in Paris and in the Quadrilatero d’Oro in Milan, not many customers could be seen at. the end of November and early December.
“I am more careful this year with my money,” said Jean-Michel Fouquet, 55, a French aerospace executive buying a â‚¬290 Hermes leather bracelet as a gift in Paris. “We are all worried about the economy and our job.”
In this downturn, when bonuses are expected to disappear for many highly paid executives, and fortunes are shrinking among the superwealthy from Russia to India, luxury customers’ behavior has changed.
The ostentatious, ephemeral or frivolous has been replaced by an urge for quality and strong brands, according to industry specialists.
As the collapse of financial markets has narrowed investment options, this is not all about consumption. Demand persists for custom-made goods, from tailored suits to specially commissioned fine jewels.
“There is a drive towards timeless, very high-end brands,” said Pierre Mallevays, a partner at Savigny Partners, an investment banking boutique in London. “If you buy a Louis Vuitton bag, you know that it will not lose much value. But if you buy a weaker brand, you are not so sure.”
Louis Vuitton and Hermes said they never conducted private sales, and business looked brisk on recent visits to their shops.
Analysts predict that luxury-goods revenue will drop in 2009 for the first time in over a decade at constant exchange rates.
Consultants at Bain say global luxury sales could drop as much as 7 percent in next year, while analysts at Bernstein are projecting a decline of 5 percent.
“Channel checks and industry interviews highlight an increasingly promotional environment,” Bernstein said in a note, “a clear sign of soft consumer demand.”
Analysts said independent shops were being more severely squeezed by the spending contraction than department stores. The French haute couture house of Jean-Louis Scherrer, for example, extended a 60 percent promotional sale this month on evening dresses that it started in mid-November. The fashion house even advertised the fact in the window of its shop off the Champs-Elysees.
“This is the first time I’ve seen such a sale,” a clerk said.
By Astrid Wendlandt Reuters
* Gitanjali in talks to buy Milan-based jewellery group
* MD says Gitanjali looking to become No. 1 jeweller * Aiming to triple annual sales within 3 years to $3 billion
PARIS: Indian jewellery giant Gitanjaliis on the hunt for foreign rivals weakened by the credit crunch as it aims to become the world’s biggest jeweller, Managing Director Mehul Choksi told Reuters.
Gitanjali is in talks to buy an unlisted Milan-based jewellery group and hopes to complete the deal within four months, he said in an interview.
The Indian company is one of several cash-rich, emerging markets luxury goods groups that industry executives and bankers predict could profit from the current credit squeeze to snap up prestigious brands.
These groups will have a freer hand to make strategic acquisitions since they face less competition from leveraged Western luxury companies and private equity firms that will struggle to raise debt to fund purchases.
The crisis “will help in the sense that there will be more opportunities … and valuations will go down,” Choksi said.
“Next year, the luxury market will be very slow as many people will have lost their jobs.
“We are receiving many offers to buy companies, particularly in the United States and Britain,” he added. The group is also looking at possible purchases in China.
Choksi’s comments echoed those from a division head of one of the world’s biggest luxury goods groups who told Reuters this week he expected several high-profile brands to end up in Russian, Chinese and Indian hands over the next few months.
That executive declined to be identified because the group was in its quiet period and not allowed to make public statements about mergers and acquisitions.
“With this crisis, certain established Western luxury groups are going to need cash … and emerging markets groups are going to accelerate their shopping,” the executive said.
The financial crisis will end sellers’ hopes of a return to valuations of a year ago, said Pierre Mallevays, managing partner at luxury investment bank boutique Savigny Partners.
He said some emerging market luxury groups could be looking to make acquisitions now to take advantage of growing retail space at home as luxury malls and multi- branded shops were mushrooming in cities across China, India and Russia.
“Now they are starting to be able to take advantage of their growing retail infrastructure,” Mallevays said. “So they can immediately leverage a brand when they acquire it.”
Choksi said he expected Gitanjali’s annual sales to grow to more than $3 billion within three years from over $1 billion currently and the company become bigger than world leaders Signetof Britain and U.S. group Tiffanyin terms of annual sales.
“We are striving to become the number one in the world and we will make it,” he said. Choksi said the targeted Italian company was not joint-venture partner Morellato & Sector Group. He added his company supplied leading branded Italian jewellery groups.
Gitanjali has already snapped up several jewellers in India over the past few years and this year completed the acquisition of Rogers Jewellers, one of the oldest U.S. family- run chains.
He said the group had more than $200 million in cash and would get Indian financial institution support to fund buys if needed.
He aimed to lift its operating margin to 10-12 percent in the current financial year from about 8-9 percent last year.
By Andrew Roberts, Miles Socha with contributions from Samantha Conti WWD
Despite a grim economic climate, donâ€™t expect mergers and acquisitions in fashion and luxury to come grinding to a halt.
The empires are poised to strike back â€” if the price is right.
With valuations heading south, and private equity funds stinging from the credit crisis, some of the industryâ€™s usual suspects â€” strategic buyers â€” are returning to the fore, along with a host of new family-based funds and international buyers from China, India and beyond.
â€œIf financial buyers have more difficulty structuring a deal, strategic buyers have enough cash on hand to finance their shopping,â€ said Michel Dyens, principal of Paris-based investment banking firm Michel Dyens & Co.
â€œLuxury groups see acquisitions as part of their business. They constantly monitor the market in search of the right target.â€
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 MoÃ«t Hennessy Louis Vuittonâ€™s controlling stake in watch firm Hublot and yacht-maker Feadship; Compagnie FinanciÃ¨re Richemontâ€™s purchase of watchmaker Robert Dubuis; PPRâ€™s acquisition of Sowind Group, the Swiss holding company that owns luxury timepiece manufacturers Girard-Perregaux and JeanRichard; Mariella Buraniâ€™s purchase of Italyâ€™s Finduck Srl, the parent company of bag specialist Mandarina Duck, and Onward Holdings Co. Ltd.â€™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.
â€œThe overall M&A market is depressed. But in the fashion and luxury business, itâ€™s still pretty active,â€ said Ariel Ohana, partner at investment firm Ohana & Co. in Paris. â€œLuxury goods are less affected [by the slowdown in spending], so theyâ€™re still a prime target for strategic buyers.â€
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.
â€œWe 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,â€ said Andrea Ciccoli, a Milan-based partner at consultancy firm Bain & Co. He added, though, that â€œ2008 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.â€
â€œI think itâ€™s going to be a more active market than ever, especially with the foreign money,â€ said consultant Robert Burke of New York-based Robert Burke Associates, which advises sellers and buyers. â€œItâ€™s more an investorsâ€™ market now.â€
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.
â€œItâ€™s very frightening for medium-size entrepreneurs, particularly now,â€ Ciccoli noted. â€œExtreme market volatility coupled with the need to investâ€¦is a challenging combination. Itâ€™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.â€
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. â€œIt will do a lot of good to the M&A market in luxury and branded goods,â€ he said. â€œ[Luxury groups] need the deals to make sense from a strategic and valuation standpoint.â€
Less competition among private equity players and a deflated stock market have also led to more conservative bidding â€” 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.
â€œThey wanted to go out and buy everything,â€ 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 Burtâ€™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.
â€œThe private equity debt-fueled bubble has burst,â€ Ciccoli said. â€œIt marks a big change.â€
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. â€œStrategic buyers find it more comfortable to get back in the game.â€
â€œLots of groups have money, less debt and theyâ€™re trying to take advantage of the lower prices in this period,â€ said Paris-based luxury consultant Concetta Lanciaux, who advises investors and fashion houses. â€œItâ€™s going to be an easier period.â€¦Things are not inflated anymore.â€
New capital operators like private investors and family funds are also changing the landscape.
â€œRich 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,â€ 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 childrenâ€™s brand Bonpoint and the labels J.M. Weston, Michel Perry and Alain Figaret.
Mallevays said such â€œfamily officeâ€ operators â€œhave more appetite, they understand brands, and they have a long-term view,â€ he said. â€œAnother advantage is [sellers] are more comfortable with this profile than private equity. Theyâ€™re altogether a more palatable investor than the sharp suits from London and Wall Street.â€
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 worldâ€™s second richest man, Carlos Slim HelÃº, took advantage of Saksâ€™ 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.
â€œSo, thereâ€™s definitely an opportunity entering their capital,â€ Candi said. â€œBut thereâ€™s also a risk, even if these are fundamentally solid companies with strong EBITDA and net assets.â€
Candi predicted that following the recent job losses in the financial sector, â€œin all likelihood, there will be a slowdown in the coming holiday season and this could impact companiesâ€™ ability to hit full-year forecasts,â€ meaning that share prices could fall further.
â€œThereâ€™s also the euro-dollar rate,â€ he added, explaining the U.S. governmentâ€™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.
â€œThey are doing due diligence,â€ an IT Holding spokesman said, referring to the unnamed suitor, which is not Ngokâ€™s Hong Kong-based supply chain and retailing group Hembly International Holdings Ltd.
â€œ[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.â€¦We want someone who has industrial and distributive know-how because we have plans for Asia,â€ the spokesman said.
Dyens said Asian-based investors had ambitions to be more than just industrial partners.
â€œ[They] want to change their image and stop being considered as production logistics facilities only,â€ said Dyens. â€œThey have the ambition and the financial means to play among the big international playersâ€¦through acquisitions of European and American brands.â€
Besides the Onward-Sander deal, key transactions involving Asian buyers listed by Dyens include Li & Fung Ltd.â€™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 arenâ€™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 yearâ€™s acquisition of Barneys New York by Dubai-based Istithmar. Also, as reported, an investment vehicle tied to Qatarâ€™s ruling family is said to be in negotiations to take a stake in Paris fashion house Lanvin.
â€œThe value of a deal is tied to status,â€ 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. â€œ[That] was a signal regarding making investments in Europe from [the United Arab Emirates],â€ he said.
Ciccoli agreed, saying investors from these markets are often prepared to pay a premium to secure acquisitions. â€œItâ€™s not just about economic value for them.â€
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. â€œThe project is tied to the desire to acquire fashion brands and take them to Dubai and concentrate them there,â€ he said, adding that $60 billion had been earmarked for investment. â€œThey 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.â€
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.
â€œThe shift in private equity funds is that now theyâ€™re asking the companies that they acquired to make acquisitions in the sector,â€ Ohana said.
He also pointed to the advent of new hybrid players â€” part private equity, part strategic â€” such as Dutch fund FR 2 Capital, managed by former Mexx executives, which last year acquired French swimwear maker Vilebrequin.
â€œItâ€™s structured as a fund, but operationally, fashion people are active within it,â€ he said, listing as another example Phoenix Equity Partners, which bought L.K. Bennett.
â€œThatâ€™s a recent trend. Private equity funds tend to be very generally-oriented and not sector-oriented,â€ Ohana said.
â€œPrivate equity funds continue to be very keen to invest in luxury, and they seem quite good at brand hunting,â€ said Dyens. Among firms recently snapped up by funds include Moncler (Carlyle), Gerard Darel and Technogym (Candover) and Kellwood Co. (Sun Capital Partners). â€œPrivate equity funds are very much on the watch â€” even for big deals.â€
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.
â€œFrequent acquirers succeed because they tend to be expert acquirers,â€ Ciccoli said. â€œDeal makers at these companiesâ€¦prepare carefully to create opportunities. The deal team â€” and typically there is a permanent, well-supported team of experts â€” 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.â€
Observers cited heightened interest in certain categories of business, particularly jewelry â€” which has outperformed other fashion categories â€” along with cosmetics, spa brands and luxury yachts.
â€œDuring the last few months, private equity funds have been eager to add shipyards to their portfolios,â€ noted Dyens, mentioning L Capitalâ€™s acquisition of Princess Yachts and other deals for Numarine and Tencomar.
Lanciaux also mentioned â€œhyperâ€ luxury as a hot category, including haute horology and luxury leather goods.
By Christopher Spink Acquisitions Monthly (Special Reports – 2008 – France 2008)
The major French luxury goods companies are defying gloomy economic forecasts by exploiting fast-growing Eastern markets. Acquisitions are back on the agenda too. Christopher Spink reports.
In times of economic stress, luxury goods makers should be vulnerable. After all, luxury items would surely be some of the first things straitened consumers would forgo. However, the current credit crunch appears to have separated economies that dance to the tune of the US from those that have their own independent financial beat.
The latter are principally based further east, across the Middle East and Asia. Here, notably in India and China, a wave of middle-class consumers are emerging, eager to spend their new-found disposable income on goods branded with such iconic names as Gucci, Louis Vuitton and others.
Makers of such luxury goods can look forward to strong growth from these areas, more than offsetting any weakness in Europe and the US.
The Chinese practice of big four accountant KPMG recently published a report on â€œChinaâ€™s Luxury Consumersâ€. This found that retail sales rose by 17% last year and have doubled over the past six.
And another recent report on the sector by retail consultant Verdict Research predicted that sales in Asia would nearly treble by 2012, allowing the region to overtake the Americas as the second largest market after Europe.
However, taking advantage of that growth is not clear-cut, as the market is already quite crowded. Nick Debnam, partner responsible for consumer markets at KPMG China, notes that Chinese consumers, while still heavily conscious of status, are now becoming increasingly sophisticated and choosing between different brands.
â€œThe challenges facing new entrants to Chinaâ€™s luxury market are intensifying,â€ he says. â€œThe market has become more crowded, as evidenced by the rising number of luxury brands recognised by consumers in China.â€ Two years ago, a representative sample of such consumers aged 20 to 44 recognised 52 such brands. This year, 64 were recognised.
Nevertheless, there still remains a strong desire to enter these markets. Larger groups, with their greater marketing and distribution clout, are well placed to snap up smaller family-owned brands, keen to take advantage of this predicted growth by piggy backing on the larger companies.
As such, the prices paid to acquire particular brands across the luxury universe in its widest sense have remained remarkably resilient. Opportunities in Asia were part of the reason for the biggest deal so far this year, the â‚¬5.65bn (US$8.87bn) acquisition at the end of March of Vin & Sprit by French drinks maker Pernod Ricard.
That represented more than 20 times the â‚¬270m that the Swedish state-owned spirits company made in earnings before interest, tax, depreciation and amortisation (Ebitda) last year. Pernod managing director Pierre Pringuet was comfortable splashing out, since it gave him control of Absolut Vodka, the fourth biggest selling premium spirits brand globally.
At the moment, the Chinese market is very small for Absolut, but it is likely to grow significantly in the next five to 10 years.
Absolut also fits perfectly with Pernod Ricardâ€™s strategy of focusing on â€œpremiumâ€ brands, defined as the upper half of the total spirits markets, retailing above US$26 a bottle. Absolut, as the biggest selling premium vodka, means more than 70% of Pernod Ricardâ€™s sales will now come from these higher margin premium brands.
Pernod Ricard says this â€œpremiumisation strategyâ€ of providing â€œluxury in a bottleâ€ meets the expectations of consumers â€œwho want to drink less, but consume higher quality productsâ€. It also helps accelerate sales growth and increase margins for the overall business.
With their glorious wines and fabulous cheeses, the French have long known how to enjoy the best things in life. As well as these gourmet creations, France has also given other items of luxury to the world, notably Paris haute couture and other wearable accessories such as bags, watches, perfumes and jewellery.
Not surprisingly, therefore, the country boasts two of the biggest producers of luxury goods in Louis Vuitton Moet Hennessy (LVMH) and Pinault Printemps Redoute â€“ Gucci (PPR). Both have in the past been highly acquisitive. However, in recent years, despite being linked with many iconic brands, Pernod Ricard has led the way in terms of acquisitive growth.
LVMH and PPR both engaged in a flurry of acquisition activity before the turn of the century. Since then, their focus has been on consolidating their positions, reducing borrowings and managing their balance sheets more conservatively. Most deals have been smaller acquisitions to fill gaps in their portfolios.
In the meantime, Pernod Ricard has made several transformational deals to become the second largest spirits group globally after Diageo. This was achieved through the purchase of Seagram of the US in 2001 and Beefeater gin maker Allied Domecq, bought for an enterprise value of US$17.7bn in July 2005.
LVMH, with its unrivalled range of cognacs and champagnes, was rumoured to be considering a bid for Absolut at one stage last year. However, an adviser to LVMH notes that this was never likely, as LVMH did not want to expand its drinks division beyond â€œthe cognac and champagne markets, which it already has stitched upâ€.
If the luxury goods sector is defined in a very loose way to include upmarket alcoholic drinks brands, then the Absolut deal, at â‚¬5.65bn (US$8.87bn), looks like being the largest transaction this year by some distance in this area. Pernod Ricard looks satisfied for the moment. After the deal is complete, the companyâ€™s debt will stand at six times Ebitda.
Managing director Pierre Pringuetâ€™s prime focus will be to reduce borrowings before bulking up other under represented parts of the Pernod portfolio, such as tequila and wine. LVMH and PPR might be more interested in smaller acquisitions in other more obvious areas of luxury.
Maureen Hinton, analyst at Verdict Research, believes the most likely areas are watches and jewellery, where LVMH in particular is under-represented. She says being part of LVMH is useful for a smaller company.
â€œFor any brand, coming under the LVMH umbrella is very useful because of the scale of such a large company,â€ she says. â€œLuxury goods are a lot do with marketing. LVMH does understand the value of a brand and has been seen to be quite good at building up underdeveloped brands. And when you are part of a group, you have the benefit of using the superior buying and supply arrangements.â€
In April, LVMH bought Swiss watchmaker Hublot for an estimated SFr300m (US$284m), or 12 times Ebitda. One analyst says LVMH was prepared to pay a relatively high price as it â€œreally wantedâ€ the business. This was chairman Bernard Arnaultâ€™s first significant deal for some time.
Some commentators maintain that the current financial conditions are discouraging similarly bold deals from being proposed at present.
Pierre Mallevays, managing partner at Savigny Partners, a boutique that specialises in luxury goods M&A, believes that while the current economic uncertainty may or may not be affecting demand for luxury goods, depending on the particular product and its markets, major French acquirers are certainly being more circumspect.
â€œThe reality is that valuations are lower than six months ago,â€ he says. â€œCompanies are keen to buy but are not keen to pay the same price as last year.â€ Vendors have yet to catch up with this though. â€œSellers donâ€™t want to sell, if they believe the current uncertainty is temporary and they can ride it out and wait for prices to recover,â€ Mallevays says.
This means a deal will only be struck if it makes strong strategic sense for the purchaser, he says. Bolder deals are currently on ice and he does not expect a revival until the end of the year.
â€œIf itâ€™s a clear strategic deal it will get done but more opportunistic ones will have to wait. We will get a much clearer idea of future developments during the second half of the year,â€ Mallevays says.
For these reasons, he does not think that any of the larger possible acquisitions with which LVMH has been periodically linked are likely to come to fruition anytime soon. Rumoured targets include fellow French companies Hermes, the leather goods group, and Clarins, the cosmetics producer, as well as US jeweller Tiffany.
Mallevays says Hermesâ€™ family dominated shareholder base is typical in the luxury goods sector. â€œStructurally, it is like a pressure cooker. One day it will explode but I have no idea when,â€ he says.
Hermes is more highly valued than many of its peers, at more than 30 times expected earnings, as many believe the family might be willing to sell their stake to a predator. â€œA lot of the value in Hermes stock is down to takeover speculation,â€ says Mallevays.
Tiffany might be more affected by a US slowdown and would not necessarily fit with LVMHâ€™s strategic goals either, he says.
Other analysts have pointed out that Tiffany focuses on more middle range goods than LVMH. However, activist investor Nelson Peltz, through his Trian fund, owns 8.4% of Tiffany and could provoke further action.
In terms of cosmetics, earlier this year PPR sold YSL Beaute to Lâ€™Oreal for â‚¬1.15bn (US$1.75bn). Many thought the business would go to Clarins. While this makes the latter company a more likely target for a third party, again nothing is foreseen in the immediate future.
Allegra Perry, an analyst at Lehman Brothers, agrees that the perennial speculation has become somewhat stale for one obvious reason. â€œThere arenâ€™t that many large deals left in the industry,â€ Perry says. â€œMost standalone luxury goods brands of a certain size have already been acquired or are not for sale.â€
One area where rival broker Merrill Lynch expects activity is in Italy, where a lot of family owned businesses are facing succession issues. Prada and smaller fashion business Ferragamo are both planning to float in Milan, depending on demand, by the end of the year.
JPMorgan, Mediobanca and UBS are advising Ferragamo, with Banca IMI, Goldman Sachs and UniCredit acting for Prada. A sale to one of the major French trade players could be an alternative exit route.
LVMH again has been linked with Bulgari, which is already partly listed but remains majority controlled by the family, and other smaller brands. Versaceâ€™s fate has hung in the balance for most of this decade as well.
Bulgari, which has a strong presence in watches and jewellery, set up alongside others a â‚¬300m private equity fund called Opera to take part in the expected consolidation of smaller Italian luxury goods makers.
One striking development last year saw Permira buy Valentino Fashion Group for â‚¬2.6bn (US$4bn), beating stiff competition from Carlyle. Opinion is divided about whether this was a one-off deal or that it might herald further activity from financial investors in the luxury goods space.
Certainly, some analysts have subsequently criticised the timing of the deal, which was agreed just before the credit crunch took effect last summer.
Others have pointed out that the main motivation for Permira was the acquisition of German group Hugo Boss, in which Valentino has a 51% stake.
Savigny Partnersâ€™ Mallevays says: â€œThere should be huge growth in emerging markets for Hugo Boss.â€
Permira itself is keen to use Valentino as a platform from which to make further investments in the fragmented fashion sector. The firm reckons Valentino and Hugo Boss combined make it the fourth largest luxury goods company globally after LVMH, PPR and Polo Ralph Lauren.
â€œValentino is already one of the largest groups in the luxury space. We are ready to implement an add-on strategy for the group,â€ says Gianluca Andena, joint chief executive of Permira in Italy. â€œGiven the large size of the business, we think we are like a natural magnet that can attract other companies with the idea of further expanding the group.â€
Permira has experience of executing such a buy-and-build strategy in this area, having built up yacht maker Ferretti by this method. â€œGroup building is in line with our way of looking at private equity, where we act with an industrial approach,â€ says Andena.
â€œAccordingly, notwithstanding the current focus, which is more on Valentino and Hugo Boss, we remain interested in both large deals, which could add to the group another important brand, and in smaller transactions, which could complement and further strengthen our product offering of the existing brands,â€ he adds.
However, he warns that â€œwith the deterioration of the credit environment experienced since the first half of 2007, large transactions like Valentino are not yet possibleâ€.
What are possible in these conditions are deals to restructure the portfolios of existing luxury goods companies. Permiraâ€™s Andena says: â€œUncertainty may also create unstable situations, triggering sales processes or revisions of portfolios, creating interesting M&A opportunities for the most entrepreneurial players.â€
Of the major French groups, PPR is most likely to be involved in such manoeuvres. The group increased its stake in Puma to 64.4% last year, valuing the German sportswear brand at â‚¬5.3bn (US$8.2bn). At the time, Merrill Lynch said this meant PPR had â€œthe most stretched balance sheet of all its luxury goods competitorsâ€.
Since then, the company has sold YSL Beaute to Lâ€™Oreal for â‚¬1.15bn (US$1.68bn), helping efforts to shore up its finances. Other possible candidates for sale include books and music retailer FNAC. One analyst said such a retail restructuring was â€œhighly probableâ€. The group also has mail order interests, which seem to be non-core.
Luxury goods currently account for just over half of PPRâ€™s revenues. But with its main brand Gucci reporting slower growth than its peers, an acquisition of â€œa second super- luxury brand to the portfolio is very tempting from a strategic standpointâ€, says Merrill Lynch.
Savignyâ€™s Mallevays expects PPR to expand its sporting interests following the Puma deal, saying: â€œPPR canâ€™t catch up LVMH in luxury goods as the gap is too great. Therefore, it needs a different angle and has bought Puma.â€
Overall, the outlook for luxury goods providers remains optimistic. As one adviser says: â€œThis sector is proving to be more inelastic than traditionally thought; when good times are good, consumers want to indulge in luxury goods and when good times go bad, consumers are tending to seek comfort in luxury goods.â€
By Christina Passariello Wall Street Journal
PARIS – For years, fashion houses had one of two kinds of owners: designers who founded their eponymous fashion houses, or big conglomerates with a bouquet of brands.
Taiwanese publishing magnate Shaw-Lan Chu-Wang represents a new breed of fashion patron — deep-pocketed entrepreneurs who enter the industry after making their fortunes elsewhere. Some are finding that the learning curve can be steep.
After she took a stake in the venerable Parisian fashion house Lanvin in 2001, the label became one of the most watched-for names on the Paris catwalk.
But Lanvin needs management focus and funds to grow, and Ms. Wang is finding it hard to divide her time – and money – between publishing Taiwan’s United Daily News Group and managing the fashion business. Barely profitable, Lanvin still hasn’t opened a store in the U.S., for example
“I’ve invested plenty. Now we need to develop,” Ms. Wang said in an interview in Paris, days before the Lanvin fashion show this Sunday.
Ms. Wang is among the many entrepreneurs from outside the fashion business who have bought into one of the world’s most high-margin industries and are trying to adjust to a business whose success lies in the careful balance between finance and creativity.
Though she is chairwoman of Lanvin, Ms. Wang spends only 20% of her time on the fashion house, with the rest focused on her publishing businesses.
“I don’t bother people” at Lanvin, she said. In particular, she noted that she tries to leave all creative decisions to Alber Elbaz, Lanvin’s highly acclaimed designer.
But Ms. Wang, who declines to give her precise age but says she was born in the “Year of the Snake,” or 1941-42, says her love of fashion dates to a sewing class taken when she was 17 years old. She says she sometimes can’t resist reminding Mr. Elbaz to look beyond the lanky models who wear his designs on the runway.
“Any woman over 40 has extra flesh here and here. I never hesitate to say to Alber, ‘Think of older women!'” she exclaimed, grabbing her upper arm and her midsection.
Recently, Ms. Wang convinced Mr. Elbaz to put the Lanvin logo — a mother-and- daughter in dresses shaped like a sail, on handbags. Ms. Wang thought the purses with the company’s insignia would appeal to customers in Asia and in the U.S., where goods with logos are more popular than in Europe.
Other newcomers to fashion also are struggling to find their way. The Florida-based Falic Group, a family-run investment company that bought Christian Lacroix from LVMH MoÃ«t Hennessy Louis Vuitton in 2005, is primarily an operator of duty-free chains around the U.S. It has yet to make the French fashion house profitable. Now that Lacroix needs to open more stores to drive sales, the Falic family is looking for another investor to help share the burden.
Silicon Valley entrepreneur Asim Abdullah, who built his fortune on developing business-to-business software, purchased the unprofitable Emanuel Ungaro business from Italian luxury-goods company Salvatore Ferragamo SpA in 2005. To run the business, Mr. Abdullah hired veteran luxury-goods executive Mounir Moufarrige, who also took a minority stake in the house.
“I know nothing of Silicon Valley, and Asim knows very little about fashion,” Mr. Moufarrige said in a recent interview, tapping the ash from his Dunhill cigarette into a wooden box. “But it’s fun for him and exciting.”
Owning a fashion house, says Pierre Mallevays, managing partner of Savigny Partners advisory firm in London, “is like owning a piece of art. There is clearly a glamour factor.” But Mr. Mallevays, who is helping Christian Lacroix’s owners look for a new investor, warns that a label can quickly become an “orphan” under inexperienced owners.
Ms. Wang bought a stake in Lanvin from French cosmetics group L’Oreal SA in 2001 and then bought the rest of the company two years later. “I found it difficult to work with other people,” recalls the businesswoman, who wears Chinese collars under her Lanvin dresses.
Under its new owner, the French label’s finances at first suffered. In 2002, for example, Ms. Wang launched a new Lanvin-branded perfume. Instead of entrusting the business to a licensee, as most fashion houses do, Lanvin decided to go solo.
To help finance the launch, Ms. Wang forged a deal with the textile division of Japanese conglomerate Itochu Corp. Itochu paid Lanvin $9 million in exchange for the rights to sell clothes under the Lanvin name in Japan. In exchange, Itochu got a 5% stake in Lanvin from Ms. Wang and also lent the fashion house more than â‚¬6 million ($9 million).
The problem with the perfume launch was that Lanvin didn’t have the know-how or a distribution network, so it ended up with millions of euros worth of unsold perfume bottles between 2002 and 2004, according to Lanvin’s 2004 financial records.
Moreover, while the Itochu deal gave Lanvin funds, many in the industry said it was a fashion faux pas. In addition to the main Japanese Lanvin line, Itochu produces and sells a second, less-expensive, line, Lanvin Collection, that analysts say could end up diluting the French brand in one of the world’s most important luxury-goods markets. Itochu reaped $282 million in sales from Lanvin-branded clothes last year, according to an Itochu spokeswoman.
Lanvin’s finances still wobbled, however. In 2004, Lanvin closed four of its subsidiaries and laid off 48 people. Lanvin again banked on its perfume business. In 2004, Interparfums SA, a French perfume manufacturer, paid Lanvin â‚¬16 million in addition to royalties for the right to make its fragrances. Two years later, Lanvin was still losing money. In 2006, the company posted a net loss of â‚¬14.5 million on â‚¬74 million in sales.
Still strapped for cash, Lanvin last year sold its perfume business outright to Interparfums for â‚¬22 million. That helped Lanvin make a small profit in 2007 on some â‚¬100 million in sales, the company says.
Ms. Wang began her career in Taiwan as a reporter for a newspaper owned by her father. “I always got the most scoops, because I knew everybody,” she says. Ms. Wang hopes to make Lanvin a family business, too. She envisions eventually handing off the label to her now-seven-year-old granddaughter.
As Mr. Elbaz’s designs have earned world-wide critical acclaim, several investors have offered to help out the brand financially. A number of them — including Aronsson Group LLC, the private-equity fund created by former Donna Karan chief executive Jeffry Aronsson — approached Lanvin about buying a minority stake.
Some offered as much as â‚¬30 million for a minority stake. But Ms. Wang turned them all down.
“I don’t like people who come to speculate on Lanvin,” she said.
By Rachel Sanderson International Herald Tribune
LONDON: As the fashion show cycle continues through Milan and Paris, industry executives here are debating whether Britain’s efforts to grow its own Gucci or Louis Vuitton will require a new industrial revolution.
A decades-long decline in British manufacturing is back in the limelight with the beginning of government-funded research to find out if, despite their acclaim, young designers like Marios Schwab are at a serious disadvantage to French and Italian rivals because they don’t have factories on their doorsteps.
So far one thing is clear: However hot the talent, it is impossible to get ahead if you cannot get your clothes made.
“British designers are not progressing season-on-season because of the manufacturing,” said Wendy Malem, director of the nonprofit Center for Fashion Enterprise, who is leading the Â£100,000, or $194,000, government-sponsored project. “They cannot overcome the manufacturing glass ceiling.”
In the past 40 years, many British factories owned by some of the oldest brand names from Burberry to Barbour have closed as retailers shunned the high cost of “Made in Britain” and shifted manufacturing to cheaper places like China and Turkey. Burberry has kept two factories in Yorkshire but shut one in Wales last year because of expense.
In Manchester, once the center of global coat making, one of the last surviving premium outerwear manufacturers offers a snapshot of British manufacturing’s decline.
Cooper & Stollbrand employs 60 workers, stitching and cutting trench coats, overcoats and bomber jackets often in signature hunting-and-shooting fabrics like tweed and gabardine.
Their staff rosters have fallen sharply – from 200 in 1995 from 450 in 1971, the year when the pound strengthened sharply against the dollar, increasing costs for British exporters and starting retailers’ exit to cheaper sites.
Now, with a renaissance of British luxury under way – thanks to a crop of new talents and booming demand for luxury goods from Chinese and Russian consumers – this manufacturing gap is gaining attention.
Pierre Mallevays, a former LVMH MoÃ«t Hennessy Louis Vuitton executive who is now managing partner of Savigny Partners, a corporate finance and marketing boutique specializing in luxury goods, said British luxury’s renaissance might have come just in time.
“British brands simply cannot emulate the French and Italians – they need to reach back and find their history, but in many cases that history in no longer there,” he said.
“Where the British were very good traditionally was in their own production and their own manufacturing. Once you start dismantling that by selling factories you sell your soul.”
Of course, Britain is not alone in shifting manufacturing offshore. The best-known French and Italian brands can start making a handbag or shoe in China or Turkey and bring it home to be finished and still gain the “Made in France” or “Made in Italy” tag.
But designers in Paris and Milan have the benefit of commercial networks in the luxury goods trade developed over centuries and still-thriving local artisanship that is often protected by the biggest conglomerates. PPR’s Gucci Group, for example, trains the artisans making its Bottega Veneta signature woven-leather bags.
In contrast, designers and luxury industry executives say Britain is jeopardizing its talent because it has taken its manufacturing decline too far.
Among Britain’s most acclaimed young designers, Christopher Kane is one who says he is suffering from the lack of nearby manufacturing capacity. Even with his credentials – he was partially sponsored by Donatella Versace through his master’s degree – Kane said he had difficulty finding anyone willing to make his clothes.
“Especially being a young designer, it’s actually quite hard to source outside Britain because people really don’t want to touch you, you don’t have a brand as such, like Gucci, or huge amount of money behind you,” he said.
In Britain, the few factories left find it inefficient to turn out the small runs that Kane requires or they lack the skill.
Complaints about lack of skill, in a country where a century ago artisans were valued more highly than in Italy, aren’t restricted to fashion newcomers.
Geoffroy de La Bourdonnaye, the new French chief executive of the luxury store Liberty, founded in 1875, told a recent industry meeting how difficult it was to find someone in Britain who can still operate the traditional block printers used for Liberty’s signature fabrics.
The owner of Cooper & Stollbrand, Michael Stoll, said the British had been too short- sighted. “In Britain, loyalty has been to short-term profit, rather than long-term gain,” he said.
At the Center for Fashion Enterprise, Malem, working jointly with the government- sponsored endowment Nestor, plans interviews with 30 designers to provide a snapshot of the Â£800 million British design industry. Her aim is to lobby the European Union for assistance in providing British designers with access to manufacturers equal to that of their Italian and French rivals.
But not all Britain’s luxury designers believe a lack of factories should curb their international ambitions. Anya Hindmarch, creator of the “I’m Not a Plastic Bag” tote and a line of upscale handbags, will have 55 shops by May after openings in Las Vegas, Moscow, Beijing and Japan.
Having started her business at age 19, Hindmarch said that being British was in her products’ DNA but that she would manufacture “all over, wherever we think it is the right thing for that particular bag.”
“It is about being tenacious and getting on with these problems,” she said. “You have to wake up and smell the coffee and get through the tough times.”
By Miles Socha
PARIS â€” Christian Lacroix is embarking on a new growth phase â€” 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 companyâ€™s expansion.
â€œI want to make sure we know what our options are, and if thereâ€™s an interesting proposal out there, we might consider it. If not, weâ€™ll just continue,â€ said Nicolas Topiol, Lacroixâ€™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 â€œintelligent moneyâ€ 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.â€œItâ€™s a name that definitely triggers interest,â€ he said. â€œAnd itâ€™s now a company that has a very, very solid foundation.â€
In a telephone interview, Simon Falic, chairman of Falic Group and Duty Free Americas, stressed his familyâ€™s commitment to the Lacroix business, noting the company has been â€œfully financed by us. We donâ€™t have any outside lenders involved.â€
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 Lacroixâ€™s luxury positioning. â€œIf we werenâ€™t committed to the business, we would have taken the easy routes,â€ Falic said.
He reiterated the goal is to sell a minority stake to fund expansion, but also mentioned that an initial public offering â€œcould be done down the road.â€
Since Falic Group acquired Lacroix from LVMH MoÃ«t Hennessy Louis Vuitton three years ago, Topiol has engineered an extensive reorganization of the company, disentangling it from the worldâ€™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 firmâ€™s new teams, including a network of factories and ateliers in France and Italy.
The company â€” which has estimated wholesale volume of about 40 million euros, or $58 million at current exchange â€” is still seeing losses, Topiol acknowledged. However, he asserted that â€œthe 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.â€ The executive declined to give precise figures, but said Lacroixâ€™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 â€” which was brought more upscale in line with the houseâ€™s high-fashion image. â€œItâ€™s been a work of transformation: closing a lot of accounts, opening new accounts and getting people to embrace the new concept,â€ 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 â€œnice growthâ€ and â€œgood sell-throughâ€ with select licensed products, including menâ€™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. â€œItâ€™s starting really well,â€ Topiol said. â€œWe had a good month in January and weâ€™re preparing for an event there in March. It shows our commitment to the brand and the U.S. market.â€
Looking ahead, Topiol spies the potential to grow Lacroixâ€™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 VallÃ©e 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 brandâ€™s flagship on the Faubourg Saint-HonorÃ© here is slated for an overhaul toward the end of the year.
France remains Lacroixâ€™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 Falicsâ€™ plan to seek a potential partner. â€œThe financial success of this company is something thatâ€™s very important to him,â€ Topiol said. â€œI have a three-year plan to take the company to a profitable stance,â€ he continued. â€œI think we have the foundation in place to grow the business. Weâ€™re finished with one chapter and now weâ€™re opening the chapter of growth. We feel 2008 will be a very good year for us.â€
By Rachel Sanderson, Reuters
Belinda Earl, chief executive of British fashion brand Jaeger, knows the value of trading up.
Three years ago, the former chief of mid-range British department store group Debenhams joined Jaeger, a 124-year old apparel chain that had tumbled into the red after losing its way as British women marched towards discount fashions.
Fast-forward, and having swapped Jaeger’s dowdy suiting for cashmere studded with Swarovski crystals and faux snakeskin trousers, Earl is marking the brand’s shift in fashion status: from has-been to a trendsetting label worn by Kate Moss.
Top-line sales are up 15 percent this financial year ending February, and Earl on Sunday took a front row seat at London Fashion Week for Jaeger’s first catwalk show for its younger, trendier Jaeger London line.
“It takes us up another notch and that’s where we want to be,” said Earl, 46, who swapped her business suit for Jaeger’s top-selling tuxedo jacket and skinny pants to mingle with the fashion set on the front row.
The revival of privately owned Jaeger comes at a time when trying to spot the next turnaround story among Britain’s faded high-end brands has become an even trickier business.
Since Burberry proved a global luxury goods group can be built out of a First World War trench coat maker, London’s catwalks are full of once-storied names – Asprey, Aquascutum, Biba, Ossie Clark – whose backers are hoping to build fortunes by exploiting their heritage.
While seasoned luxury industry executives believe many of these to be doomed to failure, Jaeger is considered to have potential not least because of Earl’s steady hand.
For Richard Hyman, managing director of Verdict Consulting, Jaeger now has a more secure position in its market than it has had for decades.
“For a long time it was one of those heritage brands that didn’t know what it stood for. What Belinda’s done is given it a sense of identity,” he said.
Pierre Mallevays, a former LVMH executive who is now managing partner of luxury goods corporate finance and M&A consultancy Savigny Partners LLP, said management was “doing a great job” on products, but that some improvement was needed in the design and ambience of Jaeger stores.
“Products and image keep getting better,” he said.
Earl, for her part, maintains the comparison with Burberry underestimates her ambitions for Jaeger: “I actually think Jaeger has a lot more potential because we are not hampered by a trench coat or a house check,” she told Reuters in an interview at her offices close by Regent Street, where advertising campaigns from Jaeger’s 1950s and 1960s heyday line the walls.
The growth of Burberry, Britain’s biggest fashion house with 850 million pounds ($1.66 billion) of sales last year, is strongly linked to its signature trench coat and red, camel and black check.
Jaeger is much smaller, with sales standing at 70.6 million pounds for the 52 weeks to February 28, 2007, the latest figure made public.
Earl, who owns 20 percent of the chain, has sought to expand the appeal of its 144 UK and European stores by extending the ranges to three from one. Besides the original Jaeger line and the younger “Jaeger London” range, is high-end “Jaeger Black,” where floor-skimming cashmere coats costing 450 pounds set out to rival Max Mara and Gucci in price as well as finish.
“It’s only a couple of years old, but it’s really moving the brand upwards in the luxury stakes – I could see it having a show in its own right, ultimately a couture show,” Earl said.
Higher margin accessories also now account for a far greater proportion of sales, rising to 20 percent of turnover during Christmas, Earl said, from less than 10 percent two years ago.
But the focus for 2008 is on international expansion with Jaeger’s overseas stores set to double to 80 as it enters eight new markets, including the United States, South Asia and Australia.
A franchise deal announced last week with Speciality Fashion, part of the Kuwait- based Sultan Center Group, will see it open at least eight shops across the Middle East by 2013. Earl expects international markets to account for half of turnover eventually.
Chairman Harold Tillman acquired Jaeger in 2003 for an undisclosed price that included 10 million pounds in working capital and the cost of the 25 million pound lease for its Regent Street store.
The entrepreneur, who says the option to buy Jaeger was so irresistible it stopped him from retiring, told Reuters he sees Germany’s Hugo Boss, which has 266 directly operated stores worldwide and many more franchised, as a model for Jaeger.
Ruling out a stock market listing while financial markets remain buffetted by fears of a global economic slowdown, Tillman also scotched talk he is looking to exit.
“Absolutely not,” he said. “We decided we are having too much fun.”
Earl, who earned favorable reviews for Jaeger London’s Sunday show of shaggy Mongolian bomber jackets and fringed dresses, agreed the job was nowhere near done: “I’d say we’re 30 percent of the way along the journey.”
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 MoÃ«t Hennessy Louis Vuitton, PPR, HermÃ¨s, 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 FrÃ¨res 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-HonorÃ©, 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.
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 â€” or, these days, given the size of fashion conglomerates, $6.4 billion â€” 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 BergÃ©; 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 â€” think Oscar de la Renta or Dolce & Gabbana â€” 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:
“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, ChloÃ©
“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.”
“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 â€” and fashion is kind of a race â€” 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 PenÃ©, chairman of GibÃ²
PenÃ© 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, PenÃ© 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 â€” 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 â€” 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 â€” 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.”
By Joe Leahy in Mumbai.
To see signs of the increasing spending power of India’s affluent classes, a visitor need only drive along the main western road into Mumbai.
After passing the “Auto Hangar” selling Mercedes cars, the visitor will see the Rolls- Royce dealership and then, further on, a showroom that is still under construction but above which the word “Porsche” is already clearly visible.
The sudden emergence in India of Porsche, the ultimate symbol of brazen consumption, is raising eyebrows in a country in which, not so long ago, the elite drove the indigenous Hindustan Ambassador.
“People have had the money for a very long time but it is only now that they are starting to feel more comfortable spending it locally rather than abroad,” says Ashish Chordia, chief executive of Porsche Centre India.
The showroom, part of a push by Porsche into India’s four biggest cities, is one example of the invasion of the country by high-end carmakers and luxury retailers.
Leather goods maker Louis Vuitton and a variety of other LVMH brands are already present in India and a flood of others, such as elite Italian suit maker Brioni, are setting up shop in the country.
Capgemini and Merrill Lynch estimated in their annual World Wealth Report that the number of people with net assets of $1m or more in India reached 100,000 last year, up 20.5 per cent from a year earlier. It was the second-fastest rate of growth in the world, after Singapore’s 21.5 per cent.
As long as India’s economy grows at rates of more than 9 per cent a year, the country is expected to continue generating wealth on this scale, analysts say.
Alex Kuruvilla, managing director of CondÃ© Nast India, which is launching a domestic edition of its flagship magazine Vogue in September, says that during market research, the magazine discovered two types of luxury consumer.
There is the “old money”, the people who for decades have shopped and holidayed overseas. They tend to be as discerning as their counterparts anywhere.
Then there are the nouveau riche – the new industrialists, professionals, entrepreneurs and others – who are not as familiar with luxury goods but have the cash to experiment.
Describing the average, nouveau riche consumer, Mr Kuruvilla says: “She’s got the money. She can come into Delhi and pick up half a dozen of those $2,000 bags and that makes her a very important person as far as the market’s concerned.”
He envisages introducing more niche magazines as the market develops, such as Brides. India’s wedding market is worth $1 0bn and is growing at a rate of 25 per cent a year.
The industry faces a number of challenges, however. Duties on luxury products, such as watches, can be as high as 60 per cent plus state taxes and value-added tax, making them uncompetitive against overseas prices, according to research by retail advisory firm Savigny Partners.
There is also a paucity of quality retail space outside the luxury hotels. Ermenegildo Zegna, the luxury menswear retailer, discovered this when it opened its first store in India in 2000 in one of Mumbai’s leading malls.
It was later forced to close because of the “deteriorating brand environment”, which included a McDonald’s opening next door, according to Savigny. It reopened this year in Mumbai’s Taj Mahal Hotel.
New luxury developments are on the way. DLF, India’s largest property developer, is building the Emporio luxury shopping mall in New Delhi. Meanwhile, the Wadia Group is planning to create a 25-acre development in Mumbai aimed at high-end retailing.
But life for the conspicuous consumer remains challenging in India. Mumbai, for instance, lacks the necessary infrastructure for sports cars.
While Mr Chordia says the company’s sales have increased from about 40 units a year after it opened in 2004 to nearly 200 today, about 60 per cent of these are of the Cayenne sports utility vehicle.
Selling for up to Rs11m ($275,000), this is more practical than the Porsche sports cars, which cost up to Rs14m and are more vulnerable to abuse on Mumbai’s potholed streets, where traffic often moves at walking pace and cars bump each other jostling for space.
In addition, the lack of parking often forces car owners to have their driver follow behind in a back-up vehicle to take care of the Porsche when it is not being driven. “There is always the worry a valet will not handle the car properly,” says Mr Chordia.
The worldwide luxury market is estimated to be worth $200 billion, and is expected to grow by 10 percent in 2007, according to Pierre Mallevays, managing director of Savigny Partners LLP, a corporate finance and mergers and acquisitions firm in London.
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 â€” 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 â€” 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 â€” weaned on the short-term buzz of film premieres â€” 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 â€” Paul Pressler, who was hired from Walt Disney Co. to run Gap Inc. â€” 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 â€” 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 MarquÃ©s 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 HermÃ¨s 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 executiveâ€¦.If the cultural vibe is right for more celebrities to promote brands, good executives will know how to leverage this.”
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-ChloÃ© 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 blasÃ© 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 GibÃ², 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 EstÃ©e 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 BergÃ©, 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 â€” with flagships and big marketing â€” 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.”
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 PrivÃ© show in Paris last month live on Msn.com.
Too intimidated to walk into a Place VendÃ´me 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 themâ€¦.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” â€” 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, Diorâ€™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 â€” all, if possible â€” 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 â€” pradatheleadingskischools.com â€” 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 Americaâ€™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.
Armaniâ€™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 womenâ€™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, “Itâ€™s inevitable that at some point we will contemplate ready-to-wear. I donâ€™t think thereâ€™s anything people wonâ€™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 â€” 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 â€” from the retouching and quality of print ads to their exact placement in magazines â€” 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 â€” and opportunity â€” 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.”
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.
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 â€¹ 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 â€¹ LVMH MoÃ«t Hennessy Louis Vuitton (which on Thursday reported its first-quarter sales leaped 1 5 percent), Gucci Group and Compagnie FinanciÃ¨re Richemont â€¹ 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 â€¹ often to private equity â€¹ 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 AÃ©ropostale 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 GibÃ², 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 â€¹ typically three to five years â€¹ 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 â€¹ like cement companies, for instance â€¹ 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.”