When you’re looking to take over the world, it’s good to have some heavy-hitting friends.
Jamie Salter’s remarkable run at Authentic Brands Group, which has stakes in brands that draw $12 billion in retail sales, has included not just a model that breaks companies down into their constituent parts, but partners that can help him do that effectively.
Landlords, including the David Simon-led mall giant Simon Property Group, have been key to some of ABG’s dealmaking, and most recently the company’s bid to buy Brooks Brothers out of bankruptcy (a judge is expected to sign off on the deal on Friday). Simon is also riding shotgun with ABG as the stalking horse, or the default bidder, in the Lucky Brand bankruptcy, through the firms’ 50-50 joint venture Sparc.
ABG linked with Simon before on big deals, teaming with the landlord and another real estate giant, Brookfield Property Partners, to buy Forever 21 last year.
The partnership between a branding specialist and a landlord makes sense because everybody has something to gain.
ABG knows brands and has tons of them across the spectrum — from Barneys New York to Vision Street Wear — and is ready and able to put the names to work in new markets or on new products with the help of its 933 partners. The company, with the aid of Simon, General Growth Properties and two liquidators, bought Aéropostale in 2016 and used the specialty chain as the backbone of an operating business that can now help execute on big branded visions.
By partnering with ABG now, Simon gets a piece of the action and also helps safeguard brands that fill space in its malls, but have missed a step or two as the consumer landscape evolved and the coronavirus pushed businesses to their limits. (Simon seems to be taking a similar approach with the bankrupt J.C. Penney and is said by sources to be in the lead to buy the company, but not with ABG. Instead, the company, as reported by WWD, seems to be in talks with Amazon, which could then use some of the stores as distribution centers).
Financially, the dealmaking expected to bring Brooks Brothers and Lucky into the fold could amount to a little extra buffer for Simon, which has a market capitalization of over $21 billion and managed to stay profitable even as it lost a collective 10,500 shopping days to the COVID-19 shutdown in the second quarter.
On a conference call with analysts late Monday, David Simon, who is chairman, chief executive officer and president of the property group, said simply: “It’s not material. It’s a sideline business.” That means Simon plans on sticking to its main business of being a real estate developer and landlord. Even if the company is dabbling more and more in retail, it is not necessarily making big bets. The landlord’s capital contribution to Brooks Brothers and Lucky combined would be under $50 million. (A Penney’s deal would be considerably bigger).
But Simon also stressed that sideline or not, getting into retail in this way is good business.
“We’re not buying the inventory at a retail cost to the consumer, we’re buying it at basically the cost that the retailer has, and then we sell it,” Simon said. “So there’s profit in there.
“I don’t buy into this…discussion that we’re buying into these retailers to pay us rent,” he said. “We’re doing it for one reason only – we believe in the brand, and we think we can make money. If we didn’t believe in the brand and we didn’t think we could make money, we wouldn’t do it.”
And Simon thinks he’s found the right partner for his adventure into retail.
“Authentic Brands Group is a fantastic intellectual property group, does business throughout the world and has a ton of brands,” he said. “They provide a lot of value on sourcing, marketing, international operations, etc. So normally … we work with them. They’re very, very good about understanding where there is value in the brand because they know how they can monetize that intellectual property. Obviously, we have a point of view because we know what the consumer likes. So you put the two of us together in the room, and that’s how we do it.”
Authentic Brands’ Broad Portfolio
The intellectual property specialist, on its own and with partners, has taken on a large swath of the fashion world, building a portfolio of investments that together generate $12 billion in annual sales. Here, the company’s many and varied brands.
Above The Rim
Barneys New York
CC Corso Como
Frederick’s of Hollywood
Hart Schaffner Marx
Jones New York
Louise et Cie
Vision Street Wear