Fast Retailing Co. Ltd.’s Tadashi Yanai appears ready to spend big time in his drive to become the world’s largest fashion retailer — including up to $5 billion to snap up J. Crew Group Inc. and bring on board his idol, Millard “Mickey” Drexler.
Uniqlo-parent Fast Retailing is in talks to acquire J. Crew from owners TPG and Leonard Green & Partners, and should the talks go smoothly, a deal could be finalized within the next two months, according to a source. Drexler himself would earn a major windfall — he owned 5.4 percent of the retailer in 2010, although sources say he may have increased his stake since then.
A buyout would be a major coup for Yanai, chairman, president and chief executive officer of Fast Retailing. Long an admirer of Drexler, J. Crew’s chairman and ceo, Yanai borrowed much of the casual basics playbook the merchant developed during his years at Gap Inc. and used it to successfully march Uniqlo out across the world. RELATED STORY: Fast Retailing Shares Rise >>
J. Crew — which has dipped a toe in international markets but is still mostly raw potential abroad retailwise — would give Fast Retailing a strong growth vehicle globally and a solid foothold in the U.S., enabling it to better take on its rivals H&M, Gap and Inditex, parent of Zara. J. Crew has 330 stores, almost all in America, and saw revenues of $2.43 billion last year.
But a sale to Fast Retailing isn’t the only option. J. Crew and its owners are also exploring an initial public offering with Goldman Sachs, which declined to comment. The talks with Fast Retailing were first reported by The Wall Street Journal Friday.
A Fast Retailing spokesman in Tokyo declined to comment, while Drexler could not be reached. Interestingly, the legendary retailer was in the Far East last month during New York Fashion Week and missed J. Crew’s seasonal presentation. It was unusual for Drexler to do so, since he generally uses the opportunity to meet senior fashion editors and other retailers, as well as to do interviews with the global fashion press.
While other strategic players and private equity firms are said to be eyeing J. Crew, the price Fast Retailing appears willing to pay would seem to be prohibitively high at about 13.5 times adjusted earnings before interest, taxes, depreciation and amortization for 2013. That’s in a market where 10 times EBITDA is seen as a very healthy valuation and 12 times ranks as great.
Fast Retailing can afford the deal, though: As of August, it had cash and cash equivalents of 295.62 billion yen, or $3 billion.
Drexler, who joined J. Crew in 2003, took the company public in 2006 in one of the most successful IPOs in retail history, and then took it private again four years later in a $3 billion deal with TPG and Leonard Green. TPG took a majority of the retailer, while Green had a minority. But sources said the talks in the Fast Retailing deal are being driven by Leonard Green, which has a clause to get out of the investment after seven years but wanted to strike sooner, and is mulling its options between a buyout and an IPO.
Uniqlo is growing in the U.S., with about 17 stores and hubs in San Francisco and New York, and would certainly benefit from J. Crew’s intimate knowledge of the market. Another 20 Uniqlo stores are expected to open in the U.S. this year.
As for J. Crew, it would benefit from Fast Retailing’s international acumen and its resources, which would enable it to step up its global expansion, especially in the Far East. International expansion is a major opportunity for the U.S. retailer, which currently has only three stores outside North America, all in London. It has 10 stores in Canada. The company last month revealed plans to open two stores in Hong Kong in May as its first move into Asia.
Fast Retailing also could help J. Crew more quickly roll out its other formats, including Madewell.
A successful deal for J. Crew would mark a major turning point in Fast Retailing’s expansion and would put the company, which already has a strong presence in Europe and Asia, on a truly global footing. Only a handful of retailers — including Wal-Mart Stores Inc., Carrefour, Inditex and H&M — can claim to genuinely have a worldwide empire of stores.
Yanai made his global ambitions clear in 2009, when he laid out plans to grow Fast Retailing’s sales by 2020 to 5 trillion yen, more than $49 billion at current exchange.
“We hope to become the biggest maker and retailer in fashion,” he said at the time. “The dream will come true if we can grow our business by at least 20 percent each year.”
For the year ended Aug. 31, Fast Retailing’s sales rose 23.1 percent to 1.14 trillion yen, or $12.65 billion at average exchange. Profits jumped 26.1 percent to 90.38 billion yen, or $1 billion.
To keep pace with Yanai’s ambitions, the retailer could use the sales shot in the arm J. Crew would provide. As of January, Fast Retailing projected a sales increase this fiscal year of 15.7 percent — a growth rate that would more than double to more than 37 percent on a pro rata basis if J. Crew were brought on board.
Yanai clearly has a close eye on the competition. Fast Retailing’s Web site lists the major global specialty apparel retailers — and ranks itself fourth, behind Inditex, H&M and Gap and just ahead of L Brands Inc. and Ralph Lauren Corp.
In Japan, where Fast Retailing draws about 60 percent of its sales, Uniqlo still has the image of a discount retailer, although it’s trying to re-brand itself as a more upmarket yet well-priced label with an emphasis on basics, as well as technologies such as its Heattech apparel that moderates body temperature. Uniqlo has also laid the groundwork to open 100 doors annually in China until it has 1,000 stores in the market.
Fast Retailing also owns the 375-door French fashion brand Comptoir des Cotonniers, as well as Princesse Tam Tam, Theory, GU and J Brand. Dealmaking is a key part of Fast Retailing’s expansion plans. The company acquired a stake in Link Theory in 2003 and made an unsuccessful play to buy Barneys New York for $950 million in 2007. While Fast Retailing has been considering takeover targets in the U.S. and Europe, investment bankers said its preference has been an American retailer.
Bankers in the U.S. said Fast Retailing has looked at teen retailers American Eagle Outfitters Inc. and Aéropostale Inc. as possible acquisition targets. Last year, the company was also said to have made overtures to Gap Inc., although both companies denied the talks.
The company has noted, “The objectives of our [mergers and acquisition] activities are, first, to acquire businesses overseas and in new markets to strengthen our business platform. M&A will enable us to expand our retail store network and obtain top-quality talent, even in new markets. The second objective of our M&A activities is to acquire brands with the potential for global development.”
London’s newly opened @designmuseum will look back on the life and work of Azzedine Alaïa in a show that the designer helped to curate before he died of heart failure last month. The retrospective, which Alaïa had worked on with Mark Wilson, chief curator of the @groningermuseum, will look at the impact of his work worldwide. The show, “Azzedine Alaïa: The Couturier,” will run from May 10 to October 7. Read more about the exhibit on WWD.com #wwdnews #wwdfashion (📷: @zefashioninsider)
@Pharrell and his wife Helen Lasichanh were among the stars that came out to celebrate @rimowa’s first pop-up concept shop. The space, which is located on Rodeo Drive in Beverly Hills, draws inspiration from airport luggage carousels and lounge areas – and features the company’s luggage and accessories. If the pop-up is successful it could pave the way for addition temporary shops throughout the world. #wwdfashion (📷: Owen Kolasinski/BFA)
@carineroitfeld celebrated @crfashionbook’s first calendar last night with a dinner party at Spring Place in Manhattan. Photographed by @stevenkleinstudio, the calendar takes on a fitness theme and features @joansmalls, @gigihadid, @danielle_herrington_ – pictured here – and more. “[Carine Roitfeld] wanted me to feel sexy and she wanted me to be myself and feel it out on my own and do what I felt was right,” said Herrington, aka Miss October. #wwdeye
@saintrecords and @virgilabloh last night at @americanexpress’ “A Night With Success Makers” event. “I always bring it back to community because without that I wouldn’t have the courage,” said Knowles when asked how she has gotten where she is now. Read more highlights from their conversation on WWD.com. #wwdeye (📷: @lizdoupnik)
This Just In: Industry sources have told WWD that Anastasia Soare is rumored to be considering selling her beauty business, @anastasiabeverlyhills. According to those sources, Soare has tapped investment bank Imperial Capital to explore sale options for her eponymous beauty brand –– and with at least $340 million in net sales, this would be a big deal. Put in context of other recent transactions for makeup companies, Soare’s price tag could be in the billions if she were to sell the whole thing. #wwdnews #wwdbeauty (📷: @clint_spaulding)
@assouline’s latest book, “The Spirit of Bentley: Be Extraordinary” captures the adventurous attitudes and opulent lifestyles of @bentleymotors’ most creative owners and enthusiasts throughout the U.K. The 292-page hardcover has a section dedicated to showing its team of skilled artisans and photos of its most colorful owners, from George Bamford to designer @alicetemperley, pictured here by Aline Coquelle. #wwdeye
@google released its report on the most popular search terms this year. For fashion brands, the list was led by @gucci, the luxury brand that stunned the market last October when it pledged to stop using fur. Runner ups were @supremenewyork and @fashionnova, along with more established brands like @louisvuitton, @chanelofficial and @ysl. #wwdfashion (📷: @aitorrosasphoto)
In yet another fashion show shuffle, @elleryland is moving its show in sync with the Paris couture calendar — though the brand is still keeping one foot on the city’s ready-to-wear schedule. Their runway show in January will coincide with the launch of a new strategy: designing two main collections each year instead of four, which will then be released in four drops. “As we all know, the system needs to change. We need to show sooner to give time back to artisans and designers to do what they do best — create,” said founder Kym Ellery. #wwdnews #wwdfashion (📷: @kukukuba)
@maxmara’s classic 101801 coat was the cornerstone of its pre-fall 2018 collection. The design team expanded the traditional double-breasted, kimono-sleeved style into a trapeze coat, lean belted styles and a peacoat and presented them in monochromatic looks – like the camel one pictured here. #wwdfashion #prefall18 (📷: George Chinsee)