Seventh Avenue is feeling the effects of the macroeconomic credit crunch.
Industry deal makers estimate that 20 percent of mainstream vendors are struggling with credit issues that are forcing them to look for investors or buyers — or even close shop.
"It's a perfect storm," said Allan Ellinger, senior managing partner at Marketing Management Group. "You have more issues contributing to these problems than ever before: Retail business-demand is down, costs are up on the supply side, credit is squeezed from loaners. We're seeing an uptick in people looking to sell businesses, but just because a company is in financial trouble doesn't mean it's salable. People look to acquire companies at advantageous prices, and we'll also see doors closing voluntarily."
Furthermore, as vendors shutter, partner up or simply shave costs to avoid the former two alternatives, layoffs should be expected. For companies that are able to sell themselves to, or merge with, other strategic vendors, jobs will likely be lost as firms look to keep costs down and reduce overlap in the new partnerships. Even companies that choose to stay in business likely will be pruning their staffs.
"You may not be able to control your sales, but you can lower your overhead," Ellinger said. "This will be a defining moment for our industry: Will owners be offensive or defensive?"
Executives of troubled mainstream companies have several options: Invest in the business themselves while cutting costs, get money from venture capitalists, merge with a strategic partner, sell or liquidate. Their decision depends largely on the strength of the balance sheet, the age of the company, the most recent profitability and the distribution channels.
"If they feel it's only a temporary blip in retail, some will bring money from home," said Jack Hendler, president of Net Worth Solutions Inc., an investment firm which has seen a 50 percent uptick in business. "Others might find that the landscape has gotten so difficult that they will say, 'I've had enough of this' and find a strategic partner or buyer. Some who have just been moderate vendors without a strong position or brand will just liquidate out totally."
A new type of company is up for grabs: Many hot contemporary firms are waiting out the storm until they can again fetch a higher price, and not-so-hot mainstream businesses are actively looking for financial saviors, according to bankers. Additionally, along with new sellers comes a fresh group of investors, said Bradley I. Dietz and Marc Cooper of investment bank Peter J. Solomon Co. Traditional private equity interest is ticking down as money in the credit markets becomes less accessible, but hedge funds interested in distressed investments are picking up the pace. Strategic buyers, who couldn't compete with the higher multiples private equity funds were paying, are also reentering the game.
"There's a tremendous uptick in distressed M&A, largely with hedge funds," Dietz said. "They've raised a substantial amount of capital to participate in buying distressed companies that are tapped out from a liquidity standpoint and often entering Chapter 11."
While many of these deals of nearly anonymous middle market companies (for example, a mainstream firm called Sara Max is said to be looking for investments) will be done quietly, the industry has already seen several public examples, including NexCen Brands Inc.'s potential sale of Bill Blass, the new incarnation of which does much of its business at a non-designer level, and the unprofitable brands Liz Claiborne Inc. sold off at discount prices, including several moderate brands — Emma James, Tapemeasure, JH Collectibles and Intuitions — to Li & Fung.
Since it started as a turnaround strategic operation two years ago, Bluestar Alliance, which has bought brands from junior label Hot Kiss to Harvé Benard, has been on the prowl for such opportunistic deals. Schottenstein Stores Corp., which owns a majority of Filene's Basement, DSW Shoe Warehouse and Adrienne Vittadini, had bid on some of Liz Claiborne Inc.'s brands. Schottenstein is also said to be teaming up with Arnold Simon, president and chief executive officer of Designer Licensing Holdings LLC, which has the Bill Blass jeanswear license and owns 10 percent of the Bill Blass trademark, to made a run for Bill Blass. Windsong Brands, which led an investment group to acquire Ellen Tracy earlier this year, is also said to be exploring additional investment opportunities.
Companies locating buyers are finding multiples have "definitely come down a notch and a half from a year ago," Hendler said. The lower prices, relative to even a year ago, create attractive buying opportunities for longer-term strategic buyers, who are most often buying entry into channels of distribution, is higher than it has been in years. For example, Haresh Tharani, the head of Tharanco Group, which bought better knit label Joseph A. earlier this year, said he is eyeing three high-end accessories labels to take advantage of the lower prices.
Former Liz Claiborne Inc. ceo Paul Charron, now a senior adviser at Warburg Pincus who recently started his own investment venture through Fidus Partners, said: "If you can buy beachfront property at a moment of market depression, you know that at some point beachfront property will be back on the up."
“Azzedine has been one of the biggest influences in my life. He has always been such a strong, loving, fatherly figure to me. I call him Papa. His designs are indescribably unique, they are pieces of art. He knew how to make the female form look its loveliest. I have so many memories of him; my favorite might be during my first show with him in Paris. He liked me and he wanted to help me get more work. He called all his friends at Kenzo and Comme des Garcons, and asked them to book me. They said, ‘But she can’t walk!’ And he said, ‘but she has such a great ass!' His friendship and support has been the great privilege of my career. I can't imagine life without him. Repose en paix mon Papa.” - @stephanieseymour tells @wwd. #wwdfashion (📷: @steveeichner) #alaia #azzedinealaia
Azzedine Alaïa, flanked by two of his closest friends, models Stephanie Seymour and Naomi Campbell.
He designed Seymour’s dress for her 1995 wedding to Peter Brant, and treated Campbell (who famously called him Papa), like a daughter. For more on the legendary designer, tap the link in bio. #wwdfashion #alaia #azzedinealaia
Azzedine Alaïa's “I-did-it-my-way” ethos stood out starkly at a time when brands are experimenting with consumer-facing fashion shows, coed formats and trans-seasonal collections – anything to perk up lackluster sales of ready-to-wear in an age of Insta-everything. “It’s not creation anymore. This becomes a purely industrial approach,” the late designer told WWD in an interview last year. “But anyway, the rhythm of collections is so stupid. It’s unsustainable. There are too many collections.” Read more about the iconic designer’s life and work on wwd.com, link in bio. #wwdfashion #azzedinealaia (📷: @WWD Archive, 1986) #alaia
Sneaker reselling app @goat’s latest exhibit, "The Greatest: New York," tells the story of New York's sneaker culture. To celebrate the exhibit, an intimate crowd gathered on Thursday night at the pop-up gallery space, located at Platform in Culver City, to hear guest speaker and illustrator @esymai talk about her own rise in streetwear and women in the business. "For me I'm just someone who is creative. I like to create things," said Chang. #wwdfashion
Azzedine Alaïa, one of the most iconic couturiers of the modern era whose body-con designs defined Eighties fashion, has died in Paris. The diminutive Tunisian-born designer, known for his structured knitted dresses with fitted waists and impeccably cut, figure-hugging second skin silhouettes was deeply admired by his peers, and counted supermodel Naomi Campbell - his adoptive daughter - among his inner circle, one of a gang of glamazons including Farida Khelfa, Carla Bruni and Stephanie Seymour who became ambassadors of his style. (📷: Alexandre Guirkinger) #wwdblast