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LONDON — YGM Trading, the owner of Guy Laroche, is poised to pocket another Western heritage brand, Aquascutum, and is part of a growing band of Chinese investors eager to snap up companies with potential for growth in their home market.
This story first appeared in the May 3, 2012 issue of WWD. Subscribe Today.
The Hong Kong-based public company, which also has distribution deals in Asia with brands including Charles Jourdan and J. Lindeberg, plans to purchase Aquascutum Ltd., the loss-making British arm of the brand — and the only part of the Aquascutum business that it does not already own.
On Wednesday, Aquascutum’s administrators, FRP Advisory, said they have entered into an exclusivity agreement with Aquascutum International Licensing Ltd., a wholly owned subsidiary of YGM Trading for the purchase of the business, which entered the U.K. equivalent of Chapter 11 last month.
YGM, which is listed on the Hong Kong Stock Exchange, owns Aquascutum’s intellectual property rights and controls its Asian business, which generates about 80 percent of global sales and 100 percent of the profits.
Although it is no money-spinner, the U.K. business will give YGM global control of the brand and the opportunity to build it in the U.S. and Europe, where it still has a strong name and heritage.
A long-term licensing deal is already in place with Ittierre SpA, which has a six-year contract to produce Aquascutum’s men’s and women’s ready-to-wear and accessories for the continental Europe, Russian and Middle Eastern markets. The first collections bowed for fall.
The acquisition, which is set to be completed next week, is more than simply an opportunity to cover more of the globe with Aquascutum trenches, outerwear and plaid umbrellas, however. It is part of an increasing drive by Chinese investors to help themselves to a slice of the profits from Western brands with growth potential in China.
“This is a serious trophy asset for YGM, a phenomenal purchase,” said Kim Winser, who served as chief executive officer of Aquascutum under its Japanese parent Renown. It’s no secret that much of the growth in fashion and luxury will come from China in the next decade, “and the Chinese want to have ownership of those brand names,” she added.
Last month, Trinity Ltd., part of the Li & Fung Group, agreed to purchase Savile Row tailor Gieves & Hawkes in a deal valued at $95.3 million. Trinity was already Gieves & Hawkes’ long-term licensee in greater China, where it operates more than 100 Gieves & Hawkes stores.
Li & Fung wasn’t even the first Chinese owner on the scene: Gieves & Hawkes had been owned since 2002 by a subsidiary of the Hong Kong-based Wing Tai Properties Ltd.
Pringle, Hardy Amies and Sonia Rykiel are among other Western luxury and fashion brands with Chinese backers. Last year, IDG Capital Partners, a private equity company based in China, took a stake in Moncler, alongside the Paris-based investment company Eurazeo.
Industry sources said the storied British men’s wear label Tommy Nutter may also be in the sights of Li & Fung or one of its investment companies. All parties have declined to comment.
“Yes, there is an appetite among Chinese investors for Western brands, but the Chinese are always very careful about price and valuation,” said one investor who works with Chinese partners. “It’s a myth that they are ready to pay big prices for brands.”
French entrepreneur Arnaud de Lummen, whose Luxembourg-based company Luvanis SA holds intellectual property and trademark rights for a range of brands for which it is seeking joint-venture partners or buyers, noted that Chinese companies have so far demonstrated a preference for “troubled brands because they can obtain a bargain price.”
He added, too, that few Chinese companies possess the “know-how or vision to revive sleeping beauties. In two or three years, maybe.”
Ariel Ohana, managing partner at the Paris-based M&A advisory Ohana & Co., believes the know-how and vision will evolve among Chinese investors.
He noted that the most active Asian players scouting for deals in Europe are not necessarily trade players with brands in their portfolios — and that they tend to have Western executives in their management team.
These include financiers such as the private equity fund Fosun, retailers such as Lane Crawford or Hengdeli Holdings and manufacturers or sourcing companies such as Li & Fung or YGM.
“This will change, first because investment banks like Ohana are talking to all those guys, therefore opening opportunities that they are not necessarily aware of from Mainland China or even Hong Kong,” Ohana said. “Secondly, management will progressively have a Western component as a result of hires and, most of all, Chinese execs are becoming more ‘Westernized.’”
For the moment, however, YGM is still very much a traditional, Chinese-run company and it remains to be seen what it will do with Aquascutum.
YGM has struggled for years to revive the Guy Laroche business, which it bought in 2004, with little success. In the first six months of the fiscal year, combined licensing income from the Guy Laroche and Aquascutum brands rose nearly 17 percent to 49.1 million Hong Kong dollars, or $6.4 million.
In the six months to September 30, overall turnover at YGM rose 25.7 percent to 596.3 million Hong Kong dollars, or $76.9 million, while profits climbed 23.8 percent to 111.3 million Hong Kong dollars, or $14.3 million.
One industry source familiar with the company said that, going forward, he feared YGM would not have deep-enough pockets to bankroll Aquascutum’s growth and development.
“They are not a top-tier group and they do not have Li & Fung or LVMH Moët Hennessy Louis Vuitton kind of money or vision. It’s just not that big an operation. On top of that, do they know how to develop a brand in Europe or the U.S.? They are fundamentally a licensing house, and what they will likely do is turn Aquascutum into a cheaper version of what it is now,” the source said.
YGM Group was founded by S.K. Chan in 1949, and was listed on Hong Kong’s public stock exchange in 1970. The group’s businesses include clothing, textiles, wholesaling, retailing and other manufacturing industries.
In 2004 — the same year it bought Guy Laroche — YGM acquired the exclusive distribution license for Charles Jourdan full-line apparel and accessories for the Greater China region and several Southeast Asian countries.
Since 1998, it has been the master licensee, authorized manufacturer and sole distributor for Aquascutum in the greater China, Singapore and Malaysia markets, and in 2009 it acquired Aquascutum’s intellectual property rights for most of Asia.
The company says: “It is YGM Trading’s long-term strategy to continue Aquascutum’s successful position as a prestigious, classic European label with a flair of high fashion.”
Aquascutum itself has had a chequered past: British Fashion Council chairman Harold Tillman and his partner, Belinda Earl, were the latest in a string of executives who failed to jump-start the growth of the brand, which over the years sparred with Burberry over which one actually invented the iconic trenchcoat.
Winser, who was hired by Renown, succeeded in positioning the brand as a luxury label, getting it onto the runways at London Fashion Week and into the showrooms of Milan, and securing wholesale accounts with stores including Bergdorf Goodman, Saks Fifth Avenue, Harrods, and Corso Como. She inked licenses with the Italian manufacturers Antichi Pellettieri for footwear and accessories, and with Novaseta for ties and scarves. When Winser tried to engineer a management buyout, she was rebuffed by Renown, which preferred to split the company into the Asian and Western businesses.
Unlike Burberry’s former parent Great Universal Stores, Renown never had a global vision for the brand: It focused heavily on the Japanese market in the boom years of the Seventies and Eighties, but failed to update its fashion image and in the Nineties began to struggle in Western markets because of its dowdy look.
Tillman and Earl, who bought the U.K. business in 2009, wanted to focus on the U.K. and Europe, but found themselves with a cost base — including a factory and a London flagship that have both been shuttered, expensive runway shows and sample production — and zero intellectual property rights for the brand.
They ploughed about 30 million pounds, or $48.3 million, into the business from 2009-12 and worked to develop the brand and product offer only to see the company collapse under the weight of its debts, and of its past.