PARIS — Can investing in a fledgling fashion house reap profits?
A growing number of European investors think so, and they are starting to pump capital into young fashion brands. In France, investment bank Natexis Capital has created a fund called Mode et Finance to invest in young designers, while in Belgium, investor Anne Chapelle has purchased shareholdings in the young businesses of Haider Ackermann and Dirk Schonberger. She also holds a stake in Ann Demeulemeester's company.
Meanwhile, in the U.K., Imran Amed, a former consultant at McKinsey & Co., has assembled the first round of financing for a fund called Byesse that will buy into young fashion firms; the first investment is expected to be made later this year.
Giles Deacon, Anne-Valerie Hash, Christian Wijnants and Charles Anastase are among the young designers some think may attract this new group of investors.
The development is propitious for struggling talents, as the market has been challenging for independent fashion houses in the face of giant and well-capitalized conglomerates like LVMH Moët Hennessy Louis Vuitton and PPR, parent of Gucci Group.
Ackermann is a case in point. Just a few years ago, he was on the verge of closing, despite industry kudos — unable to scrape up enough money to produce a collection.
"It was a horrible period," he recalled over coffee at the Café de Flore here. "I was working day and night. I was loading and unloading boxes. It seemed funny at first, but doing everything yourself got old very fast."
Then the designer's fortunes reversed. He participated in the Gwand fashion festival in Switzerland and took the first prize of 100,000 euros, or about $128,000. Then Chapelle bought into his company.
Now the designer is on track, having moved from Antwerp, Belgium, to Paris, where he has assembled a new studio and feels fresh creative energy. Chapelle is banking on his business moving into the black within a year.
"It all happened at a very critical moment," said Ackermann. "I could show again. Even more than the money, which I needed desperately, it gave me confidence again."Chapelle's support has given Ackermann more breathing room and brighter prospects for future growth, he said. "When I started, I thought it was a luxury to be independent. Now I think it's a luxury to have a financier."
More and more young designers feel the same, which represents a big change in their mentality. The new attitude underscores how difficult it has become for them to survive. Even fashion graduates these days say they want to work for a big house, where they can expect a monthly paycheck, instead of schlepping it on their own with uncertain prospects for survival.
And while designers recognize the value of financing, investors see untapped opportunity in such creative voices and a potential niche for developing brands that stand out in a retail landscape that is becoming increasingly standardized. Generally, the investment strategy entails taking small shareholdings in a stable of young brands with the view that maybe one or two will make it. The strategy mirrors that of venture capitalists in the high-tech and pharmaceutical sectors, sprinkling seed money around to see what sprouts.
Investors dream of finding a jewel along the lines of Jimmy Choo, which Tamara Mellon — adding business acumen and marketing savvy — helped to build into a business with sales of almost $150 million within a decade. The company is now owned by the private equity firm Lion Capital, which bought it in November 2004.
But many investors are simply besotted by fashion and love nurturing creative types. They know that elevating a budding name takes patience, and that fashion offers few quick returns.
"First you have to be willing to invest, and then you have to work with the designer to get [the formula] right," said Chapelle. "With a young designer, it takes at least three seasons before you can reach breakeven."
Amed said many fashion start-ups lack the business expertise needed to succeed in today's highly competitive landscape. "Throwing money at young designers isn't enough," he argued. "You need a business partner."
He pointed to successful fashion-business tandems Tom Ford and Domenico De Sole, Yves Saint Laurent and Pierre Bergé, and Miuccia Prada and Patrizio Bertelli."Fashion is a complex business, and [designers] aren't trained to run businesses," said Amed. "Each designer has challenges and faces different problems. The pattern of real success in the fashion industry is to have a real business partner."
Understanding the idiosyncrasies of the business is important, too.
"Having an artistic sensibility is important for an investor," said Amed, who started in the performing arts before going on to Harvard Business School and McKinsey. "You have to have a feel for the business and share the designer's passion."
Investors said one problem many young designers are unable to surmount is structuring their collections so that they have retail legs. They often focus too heavily on image-generating showpieces to the detriment of sales potential.
"Determining your market is very important, whether it's a niche product or a product with a wider appeal," said Chapelle. "It's important to build a collection. You can't just do transparent tops, for instance. You need a balance of coats, jackets and pants. You can't just make 20 pairs of pants and just one coat. That doesn't work. You need to have a commercial balance."
Young designers today can find other avenues to secure financing and business support. Fashion festivals and scholarships certainly help, as Gwand did for Ackermann. Raf Simons, who won the Gwand prize a year before Ackermann, was in a similarly difficult position before he won the Swiss honors.
"The financial support connected to the prize did a lot," said Simons. "It enabled us to do our Paris show as we wanted it to be."
That show was widely praised in the press and helped to position Simons for wider recognition. Last year, he was hired to oversee the turnaround at Jil Sander, and last February showed his first women's wear line for the house, which generally was well received. "Financial support is needed to promote your brand," he said.
But fashion's philanthropists are doing more than doling out cash these days. Strategy, marketing and commerce are important focuses for them as well.
Nathalie Dufour, who runs France's Andam prize, which has awarded bourses to designers from Viktor & Rolf to Martin Margiela and Charles Anastase and Jean Touitou of APC, said Andam and French business school HEC have a study under way to evaluate what it takes business-wise to succeed in fashion."The idea is to help designers who are starting out to understand what type of business strategy could help them to develop," she said.
The steps mirror what the Council of Fashion Designers of America is doing with its CFDA/Vogue Fashion Fund, which selects three designers each season for financing of up to $200,000, as well as mentoring from a senior executive from within the industry. In the U.S. generally, though, young designers tend to get funding more by doing consultancy work for large companies in the jeans, beauty and fashion sectors than backing from private equity companies.
France's Chambre Syndicale also is involved in finding business financing solutions for young designers. Didier Grumbach, the Chambre's president, said he and France's minister of industry, Renaud Dutreil, are working on a bank credit system for young designers that would help finance the expensive production process. "It is designed to keep them solvent during this cycle," he said.
But even beyond financing, Grumbach argued that the biggest hurdle a young designer often faces is naïveté in the ways of the world and the fast-changing nature of today's fashion business.
"They need to change their attitude," he said. "It's not enough to design. You have to have a product that is produced in innovative ways. You can't only produce in France. Today is 2006, not the 1980s. The system has changed; the rules are no longer the same. One has to adapt and find solutions that work on a case-by-case basis."
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