Scott A. Dahnke is looking for tailwinds in the winds of change.
And as global co-chief executive officer of L Catterton, which has $15 billion under management and investments in 85 companies, he’s in a good spot to get a feel for where the market’s going and the ability to place bets accordingly.
L Catterton — which was formed this year after private equity firm Catterton teamed with Bernard Arnault’s LVMH Moët Hennessy Louis Vuitton — is looking to buy businesses that play in areas of the market that are expanding.
“At our core, we believe the most important decision one makes as an investor is the category,” Dahnke said. “Warren Buffett says, ‘If you take a management team with a reputation for being outstanding and you put them in a category with a reputation for being challenging, it’s the reputation of the category that stays intact.’… We’re trying to identify places where there is tailwind existing.”
L Catterton clearly sees more potential in the consumer world. The firm bills itself as the largest consumer growth investor, with about one-third of its investments in the retail, fashion and restaurant areas, including Sweaty Betty, Worth New York, Pepe Jeans, John Hardy as Hanna Andersson. Its businesses saw 20 percent sales growth last year.
(Dahnke noted that while LVMH and L Catterton could overlap as they hunt for deals in the market, Arnault would generally be searching for larger strategic plays while his company focuses on smaller brands growing quickly).
But the consumer segment is not an easy space. Dahnke said fashion brands need to be more distinctive to really thrive in the market and to become good investments and that “brand and leadership are critical for these businesses.”
And L Catterton, like so many others, is working to understand a dramatically shifting landscape.
“Disruption is happening…at a rate that is unprecedented in our lifetimes and perhaps in history,” said Dahnke, who predicted growth would speed up more over the next few years.
By way of example, he pointed to advances in artificial intelligence and machine learning.
“We’re just seeing in this industry the beginning of that, for example with Amazon Alexa,” he said, referring to the web giant’s device that looks like a speaker, but can place e-commerce orders from voice commands. “Where’s that world going?”
And the advent of AI and other decidedly techie changes are accompanied by broader shifts that played out over decades in fashion.
Dahnke noted that big players that derived their power from economies of scales in the Sixties, Seventies and Eighties, only to see power shift to category killers in the Nineties.
And that power is on the move again.
“Power is shifting inexorably to the consumer and all that disruption on so many different levels, in terms of who the competitors are, what the consumer is looking for…we see that disruption from an investing point of view as both an opportunity and obviously a threat.”
He said consumers are able to ultimately control brands and are keeping everyone on their toes, unleashing evolutionary forces.
“The market will go to the fast, the mammals, if you will, as opposed to the dinosaurs,” Dahnke said.
Executives in the audience were no doubt feeling those same pressures, and many designer brands are looking for investment partners and clearly wanted to know more about L Catterton’s approach and how it differs from other investment houses.
“We’re not just investors and financial types, in spite of the fact that I’m wearing a tie today, I generally don’t,” Dahnke said. “We’re operators. I was ceo of a public business, most people in our firm were c-level executives, so that makes us different kinds of partners. Our relationship with LVMH is definitely valuable. Our heritage of investing in these kind of categories is powerful and relatively atypical.…We do have our own history and heritage of being executives, so we think that makes us more empathetic when winds kick up.”
Few in the room would have said fashion is sailing quiet seas.
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