Neiman Marcus’ second initial public offering ran right into the maw of a stock crash and is now a question mark. Vince is bombing under the public market klieg lights. J. Crew is stuck turning around as a private player. Belk skipped an IPO for an immediate buyout by Sycamore Partners. And even Michael Kors — the fashion-financial golden child — is losing altitude (and market capitalization).
Wall Street is no longer the promised land for fashion — at least for now.
The reason? Uncertainty. Two kinds.
Fashion brings its own kind of craziness to the stock market equation, a seasonal rise and fall based on style trends that tend to flummox investors looking for steady returns. Companies also don’t know what they’re jumping into with turbulent markets and the economy, which makes it very hard to price an offering or get the value that their backers want.
“What you’re seeing in retail, it is an incredibly tough macro-environment that continues to get tougher,” said David Shiffman, managing director and cohead of the global retail group at Peter J. Solomon Co. “People are complaining about the U.S. economy, it may be slower growth, but it’s showing more stability than Europe and Asia. You have a lot of things going on.”
That’s a change from what has been the general trend since the market picked itself up after getting knocked down in the financial crisis.
“Since April of ’09, the market has gone one way until two months ago — straight up,” Shiffman said. “Steady, predictable growth. That’s what wins the race. That’s what gets the high valuation. Most of these companies that went public were growing rapidly. You had high growth in the economy and a huge lift out of China. That’s what a lot of these companies rode on. Consumer spending drives retail performance.”
When coming to market, companies are measured against where similar firms are trading, so when a sector suffers, so do the chances of a getting a high valuation. Michael Kors stock is down about 42 percent this year, while shares of Ralph Lauren Corp. hit a 52-week low last week before spiking on news that founder Ralph Lauren would cede the chief executive officer’s title to Stefan Larsson.
“Going forward, IPOs are probably going to hang out for a bit, just because of the uncertainty in the market,” predicted Jonathan Eyl, senior specialist of corporate solutions at Nasdaq. “We’re not seeing that many IPOs in the market overall. Once you see IPOs fall in the face of the planet, that’s not good for others [considering an offering].”
The IPO also seems to be less appealing for many companies, which are finding interest from private equity investors wanting to buy into smaller, promising brands and concepts.
So far this year, fashion brands, retailers and beauty companies have logged more than $15 billion in M&A (including both completed and announced transactions) and no successfully completed IPOs, according to Dealogic’s tally.
Then there is the business of selling apparel in the midst of a crush of evolutionary forces: Mall traffic is waning; fast fashion is scooping up more market share, and digital is posing an existential threat to stores while redefining the relationship between brand and consumer.
That might be the sweet spot for some e-commerce companies posting big growth numbers, but it adds up to big trouble for many companies.
Kenneth Cole Productions, which spent 18 of its 32 years as a public company, stepped back from Wall Street in 2012 and has since closed underperforming stores and pulled the plug on the wholesale side of its women’s sportswear collection. Founder, executive chairman and chief creative officer Kenneth Cole said he needed to make some serious changes to revitalize the company.
“You can’t do it in a public arena — and can’t do it with the spotlight of disclosure and scrutiny,” Cole said. “[We] needed to become a nonpublic company.”
The public offering certainly has its benefits: IPOs boost a company’s profile, raise money to fuel expansion or pay out existing shareholders and create a new currency — stock — to pay executives who make acquisitions. But a stock market listing can also bring with it many headaches, from costly legal fees and regulatory disclosures to the Securities and Exchange Commission to intense scrutiny from shareholders.
When things go right and investors scramble to get a piece of a hot property, the gains can outweigh the headaches.
Michael Kors Holdings went public in late 2011 and its stock soared from $25 to more than $101 in just over three years — making plenty of people rich and buying out early investors Silas Chou and Lawrence Stroll. Kors was the offering that launched a thousand dreams. Designers of all stripes said, if only to themselves, that if his business was worth all those billions, then they were worth some fraction — or multiple — of that.
Those dreams are now fading. Some will no doubt stage IPOs in the future, but it will be the best and the brightest.
Marc Jacobs might go to market. He has the brand and the backing of Bernard Arnault and has been moving toward an offering that would still raise some interest in the market, depending on when it hits.
But any company mulling an IPO has to ask itself the question that when a blue-chip luxury retailer like Neiman Marcus finds itself waiting in limbo, what should they do?
Neiman’s, which is owned by Ares Management and the Canadian Pension Plan Investment Board, filed to go public again in early August, just days before China moved to devalue the yuan, sparking a world of handwringing.
“They interviewed all the banks [to handle the IPO] as the world started to fall apart in August and then started to step back and say, ‘We’ve got to watch the market a little more closely and then we’ve got to decide,’” said one financial source, who requested anonymity.
If Neiman’s is waiting, they’re at the front of the line and they could be there for a good long while.
