Love is still in the air in the world of luxury—investors are just being choosy.
This story first appeared in the April 14, 2014 issue of WWD. Subscribe Today.
And right now, investors are expanding their fashion portfolios and lavishing attention on newer and, in some cases, unexpected names.
At the top of the hot list is the somewhat unusual pairing of Ted Baker and Michael Kors Holdings Ltd.—firms headed by executives with very different approaches that nonetheless tickled traders in all the right ways over the past year.
Ray Kelvin, perhaps surprisingly, has become something of an enduring crush. The camera-shy founder and chief executive of Ted Baker has quietly courted investors with prospects for international expansion and growth at home in the U.K. And his company led the luxe pack over not just the last year (the stock jumped 74.1 percent for the 12 months ended April 4), but over the past decade, with growth of 563 percent. That adds up to a market capitalization of 936 million pounds, or $1.6 billion—not the biggest by any means, but certainly proof of a very long and abiding attraction.
“We always try to maintain the stature of being twice the product at half the price,” says Kelvin, who assiduously avoids having his portrait taken, preferring to pose with props covering his face. “I think luxury has become so expensive. [Ted Baker] is three times the product at a third of the price. Just keep it nice and quiet, get on and do a good job.”
Who needs flash if a quieter workaday approach is winning?
“A lot of retail companies quoted are mature and not desperately exciting,” says John Stevenson, a retail analyst at Peel Hunt in London. “What [investors] want is companies that have access to international growth, and Ted Baker is absolutely in that sweet spot.”
He’s not alone.
There’s also the still-hot romance of Michael Kors, who—unlike Kelvin—plays the very visible front man, living the jet-set lifestyle. Fueled by a head-on assault of the affordable luxury bag market and backed operationally by the canny ceo John Idol, the company’s stock has risen 63.8 percent over the past year, leaving it with a market cap of $18.2 billion.
That somewhat astronomical-seeming valuation—Kors’ market cap surpasses that of Ralph Lauren Corp. ($14.2 billion) and Coach Inc. ($13.8 billion)—has been spurred by what many see as the brand’s continuing potential. Kors opened about 100 doors in 2013, and sales are projected to have jumped 47 percent to $3.2 billion this fiscal year ended March 29.
Both Ted Baker and Michael Kors tell a simple and clean story based on an established business and anchored by an easy-to-understand brand with plenty of room to reach out globally and into new product areas.
It’s an appealing strategy and one that many are trying to follow, but it also comes with pitfalls.
“Clarity in today’s world can be an asset, it can also be a problem,” says Jean-Marc Bellaïche, senior partner at The Boston Consulting Group. “When you have a clear brand, you can hammer on a message. Consumers are overwhelmed with [so many different] messages.”
The danger is that too simple a branding statement can become dull.
“I like the brands that have some simplicity, but also keep some richness,” Bellaïche says, declining to name favorites. “Brands that are clear, but at the same time have multiple points of entry for the consumer, whether it comes from a distinct aesthetic, a powerful marketing message or recognizable packaging.”
Another example of this might be Tiffany, a brand that is readily accessible and easily recognizable in product, marketing and packaging, with its famous blue boxes. Shares of Tiffany rose 25.3 percent over the past 12 months, giving it a market cap of $11.3 billion as the company tweaked its business.
“On the horizon are a lot of interesting product innovation opportunities with a new design director [Francesca Amfitheatrof], more focus on specific collections and marketing,” says Oliver Chen, an analyst at Citigroup, of Tiffany.
And investors want growth more than anything else, and they want their lives to be easy. Besides a simple brand, they also want a plain road map showing how a business they already love will get bigger.
“The market is slowing down. It’s driven by economic factors, it’s driven by what’s happening in China and the demand for luxury,” says Hana Ben-Shabat, a partner in A.T. Kearney’s retail practice. “But when you look inside, there are these gems that are doing extremely well. There is also a newness about them. They have great earning potential because they have not yet maximized their footprint.”
That potential, or very clear path forward, can help a company compete with the big, established players when it comes to chasing investors.
For any brand on the rise, or rising once again, and wanting to catch the attention of Wall Street, they’re going to have to contend with a long list of blue chips that could rally at any time, given a turn in the market or the next big acquisition. There’s LVMH Moët Hennessy Louis Vuitton with a market cap of 66.9 billion euros (or $91.7 billion), Compagnie Financière Richemont at 43.2 billion Swiss francs ($48.4 billion) and Kering at 18.6 billion euros ($25.5 billion).
“It’s not smooth sailing for anyone,” says Chen. “You either compete or die or you won’t grow; it’s just competitive right now. Retail is brutal. I don’t think any brand can rest on its laurels.”
Especially not with so fickle a dance partner as today’s growth-obsessed investor.