LONDON — Coty Inc. — and coffee beans — have shoved luxury off the shelf at JAB, the multinational giant that’s announced plans to sell Jimmy Choo and Bally as it puts an increasing focus on consumer goods.
The company, parent of consumer behemoths including Coty and Reckitt Benckiser, and coffee brands Espresso House, Baresso and Jacobs Douwe Egberts, unveiled its strategy on Monday in a terse statement that put an end to its decadelong foray into fashion and luxury.
“JAB has made significant investments in coffee and related areas in recent years, and as a result, now considers its investment in luxury as noncore. JAB has therefore made the strategic decision to focus on its successful core businesses of consumer goods, including Coty Inc.”
JAB has set a strategic review for Bally, and said it “supports” a similar review of Jimmy Choo, which is publicly listed on the London Stock Exchange. As a public company, Choo has its own board and independent directors, who initiated the decision to set a review. JAB took Jimmy Choo public in 2014, and retains a 67.7 percent stake in the luxury footwear and accessories company.
Both Bally and Jimmy Choo are now seeking buyers, and the companies are asking potential bidders to contact BofA Merrill Lynch or Citi.
JAB said the Bally review process would begin shortly and finish in the second half of the calendar year, and Jimmy Choo gave no timetable. JAB said it would not comment further until a decision on strategic options has been made.
Choo’s shares closed up 10.7 percent at 1.87 pounds, or $2.39, on the London Stock Exchange.
Privately held JAB — which is overseen by three senior partners: Peter Harf, Bart Becht and Olivier Goudet, and has offices in Europe and the U.S. — made no comment about its third luxury property, Belstaff.
The obvious omission has led to market speculation that Belstaff’s chief executive officer, Gavin Haig, may have already found a buyer. Haig declined to comment on the future of the company. “We’re building an attractive business and brand proposition,” was all he said.
JAB’s exit from the luxury arena should not come as a surprise: Although it originally had high hopes of building a luxury conglomerate, in the vein of LVMH Moët Hennessy Louis Vuitton or Kering, JAB operated with detachment and never appeared to have the interest, drive or commitment to reach its goals.
An industry source described JAB as “dead-handed,” and a disengaged investor for the three companies, all of which were self-financed. “There was no money going to the brands from the group. Luxury was minor for JAB, not core,” the source said.
Luca Solca, managing partner at Exane BNP Paribas, said he’s seen it all before: “Initially, investors from different industries all think that luxury is an ‘easy’ business, because leading incumbents enjoy high profits and high ROIC (return on invested capital). It looks as if JAB joins the group of those who concluded that — after all — luxury is much more difficult than it looks at first sight. Creating shareholder value is not easy, especially when you pay top dollar to buy brands that potential industry buyers have passed on.”
Originally known as Labelux, the group’s investments once included smaller brands such as Derek Lam, jeweler Solange Azagury-Partridge and the luxury leather and exotic skins accessories brand Zagliani.
The first two companies were eventually sold back to their original owners, while production at Zagliani was paused, and its atelier in Milan earmarked for Bally’s use. In 2014, Labelux changed its name to JAB Luxury.
By contrast, JAB has spent tens of billions of dollars buying up coffee brands – the most recent being Keurig Green Mountain – in its bid to knock Nespresso-owner Nestlé out of its number-one slot in the market.
Last May, JAB Beech Inc., a subsidiary, acquired Krispy Kreme while JAB has also set a merger agreement to acquire Panera, the U.S. bakery-café chain in a deal valued at $7.5 billion, and with an eye to expanding the retail network.
Later this year, JAB’s Reckitt Benckiser division, parent of brands including Nurofen, Vanish, Scholl and Lysol, is set to complete a $16.6 billion takeover of the American baby milk company Mead Johnson.
It has also been focused on building up Coty, which acquired 41 beauty brands from Procter & Gamble last year. Coty Inc. has also just signed a mega-deal for the Burberry beauty license, which will kick into gear in the autumn.
Analysts and industry observers said it makes absolute sense for JAB to divest now – and that Jimmy Choo and Bally deserve investors that can invest and pay some attention to them. The big question is, who might take them on?
George Sevier, principal associate at law firm Gowling WLG, said the Jimmy Choo sale looks well-timed.
“Shares in Jimmy Choo have been on an upward trajectory for the past 10 months. Added to that, the value of the pound since Brexit means that U.K. companies such as Jimmy Choo represent value for foreign buyers.”
Luxury analysts Antoine Belge and Erwan Rambourg at HSBC have their doubts. Asked about Choo’s prospects, they said, “At the time of its IPO in 2014, Jimmy Choo’s equity story looked simple on paper, combining robust top-line and margin prospects. Three years on, and sales and profitability are not where we believe they should be.”
“At the sales level, the disappointment comes from the fact that given its small size, Jimmy Choo should have significantly outperformed the industry, like Moncler did — and continues to do.”
At constant exchange rates, Jimmy Choo’s sales growth was 2 percent in 2016, compared with 12 percent in 2014. That compares with HSBC’s luxury industry average of 5 percent and 1 percent, respectively.
Choo’s profit in the 12-month period fell 20 percent to 15.4 million pounds, or $21 million, dented by an increase in selling, distribution and financial expenses linked to currency fluctuations.
Since its listing, the company has expanded rapidly, in the Far East in particular, with 150 stores in its global portfolio by the end of 2016. It continues to build the business. As reported, Jimmy Choo has extended its Safilo license until 2023, and scheduled the launch of men’s sunglasses and eyewear for 2018.
Earlier this year, Barclays said Choo has scope for at least 250 stores and that it expects the pace of the retail rollout to continue into the long term. “This is a key growth driver, with China especially underpenetrated,” it said, noting that Choo enjoys high brand recognition in China.
JAB bought Jimmy Choo in 2011 for an estimated 549 million pounds, or $889.4 million, beating competitors including TPG Capital and Jones Group Inc. Its 2014 listing on the stock exchange valued the British footwear brand at more than 700 million pounds, or $1.14 billion.
Industry sources believe Choo could fetch upward of $1 billion, given the brand’s continued growth potential in the Far East, future product extensions, and potential for further momentum.
According to Pedro Aguilar, research analyst at Euromonitor, Choo needs a big group, such as LVMH or Kering, to invest and give it access to global supply-chain synergies and fixed supply costs.
Others agree that LVMH would make sense, as would the Italian footwear manufacturer Tod’s. Some market sources said a Chinese investor could help it grow in the region.
Regarding Bally, which has been undergoing a major restructuring and consolidation of late, industry sources said the company could easily go to an Italian buyer, given the fact that it recently transferred all operations to Milan and Caslano, Switzerland.
Chief executive officer Frédéric de Narp told WWD earlier this year the aim is to pump up the women’s overall business, which represents just 37 percent of sales, to 50 percent by 2020. He confirmed his original sales target of $1 billion by 2021.
JAB owns 100 percent of Bally, having purchased it from Texas Pacific Group for an estimated 600 million to 700 million Swiss francs, or $558 million to $650 million.
“We need to concentrate on accessories and we see a massive opportunity in shoes,” he said. In March, the company will move to a bigger manufacturing facility in Tuscany, outside Florence. The new space will span 15,120 square feet, confirming the company’s “sustained investment” in the future of accessories.
Bally could end up in the hands of the Chinese, too, given its brand recognition in the region and its retail network.
Mainland China is Bally’s largest market (it first entered the region in 1986) and has 58 points of sale there, although de Narp said he plans to shave that number down to 45.
Plans are in the works for a stand-alone e-commerce site in China. “We’re not going with TMall, or Alibaba. We are so sure of our business model that we want to be on our own, control our image, our destiny and ensure there are no fakes out there,” the executive noted.