Todd Snyder might have gotten a lifeline from American Eagle Outfitters — but it’s a rescue that probably isn’t available to many other designers looking for a backer.
That’s because Snyder brings with him not only his designer business, but the 24-year-old campus concept Tailgate, which has one store near Iowa State, as well as two decades of experience at other men’s wear brands, including stops at Polo Ralph Lauren, The Gap and J. Crew.
Snyder felt the ills of many emerging designers — he had exposure and brand image, but not enough scale to really flourish. “We’ve been self-funded for five years and it’s been stressful,” the designer told WWD last week, after cutting an $11 million cash and stock deal with American Eagle.
There are any number of designers looking for funds. Prabal Gurung, for instance, is said to be seeking a backer who can bring not just money, but also operational help. But it can be a long road.
For Snyder, the road ended with American Eagle. And dealmakers and analysts said the specialty chain crafted a transaction that leaves it with some extra design oomph and a fair bit of upside potential from Tailgate, but not tons of risk.
“The Todd Snyder thing is very clever of American Eagle,” said John Howard, chief executive officer of Irving Place Capital and a director at specialty chain New York & Company. “For them, it’s a way of extending out their reach and leveraging their expertise.”
But building out a small concept into a powerhouse could be easier said than done. American Eagle is planning on two or three new Tailgate stores next year, but over 200 down the line.
“The question is whether they can take it and create something exciting, like [J. Crew’s] Madewell out of it,” added Howard. “Can that be their Madewell? It takes a long time for that to be material. I mean, a really long time. This is a seed that they’re planting and they’re going to see what sprouts.”
American Eagle’s coming from something of a position of strength — comparable-store sales grew 9 percent in the third quarter — and clearly the retailer’s thinking of the future.
“It gives American Eagle a smaller, cool venue to reach people with a great margin product,” said Kim Vernon, president and ceo of consultancy Vernon Co. “Is this a big idea? I don’t think it’s big, I think it’s easy. I don’t think there’s a lot of risk in it for American Eagle. For American Eagle, I think it’s a very small deal. Todd is also an asset — he’s worked for J. Crew, he’s worked for his own brand. So bringing him into the fold of American Eagle is a good idea. It’s like hiring a great employee.”
More brainpower might be what retailers need to stand out in a changing marketplace populated by younger, tech-savvy shoppers.
“This is a really tiny business, but I think there’s an increased value placed on the ideation power of creative minds and to a certain extent tying them up or at least having a good relationship,” said Mortimer Singer, president and ceo of Marvin Traub Associates. “It doesn’t move the needle for them, but potentially medium to long-term, it can and that’s smart planning. You can’t just throw printed Ts at people and expect them to stick.”
Others see the need for new ideas more acutely.
“What else are they going to do?” said Elsa Berry, managing director of investment bank Vendôme Global Partners. “American Eagle and other specialty retailers really, really need to think differently. The physical retail space is going to be rethought completely.”
Berry said the overall M&A — including much bigger deals — could also make it a good time for brands to get a good price.
“We’re at a point where there’s just so much money and it’s not smart money anymore,” she said. “It’s money that just needs to be parked and that creates unrealistic valuations. It’s a market ripe for errors. It’s a good time I guess, if you’re selling, but if you’re a buyer you need to be really careful.”
For entrepreneurial fashion businesses with sales of $20 million to $40 million or so, Berry said, “It’s a good time to take some change off the table now.”