Meet fashion’s new power couples.
At an unprecedented rate, established accessories players are forming partnerships through mergers and acquisitions with independent accessories labels, and industry experts said the trend shows no signs of slowing anytime soon. Such marriages will remain seductive as long as items such as handbags, belts, jewelry, fine watches, sunglasses and hosiery continue to create buzz and bucks on the retail floor, especially in the lucrative luxury segment.
“Traditionally, as we saw in the Nineties, there were bigger ready-to-wear brands being acquired through conglomerates like the Gucci Group or LVMH, but this is very different because it’s smaller accessories businesses,” said Robert Burke, founder of Robert Burke Associates, a consulting firm in New York, and a former senior vice president of fashion at Bergdorf Goodman. “I think we’ll continue to see more of these acquisitions, because there is so much more opportunity for growth in the category with these types of businesses right now.”
Over the past few months, companies with a strong luxury accessories portfolio have forecast continued momentum in the category for the second half of the year on top of strong growth in the first six months. American accessories brand Coach reported a 23 percent rise in net sales over last year; Tod’s SpA saw a 15.4 percent increase in consolidated sales; LVMH Moët Hennessy Louis Vuitton reported a 46 percent increase in net profit, and PPR, the French owner of Gucci Group, announced that its first-half profits surged ahead 27 percent. A gem in its luxury stable was Bottega Veneta, which saw profits increase more than eightfold to $22.1 million.
“We’re in a very supportive marketplace for accessories at this time,” said James Hurley, managing director and luxury goods analyst at the Telsey Advisory Group, an independent consumer research firm in New York. “We have a plethora of businesses today that have excess cash due to the strong economic cycle, and they need to put it to good use to reinvest the money for potential new growth. And if you look at accessories firms, there’s just less risk attached to them now. Accessories more than ready-to-wear have much more robust profit margins. There is definitely less inventory risk because there is no sizing and fit issues. They take up less space, and for most accessories, they are less subject in a lot of ways to fashion’s whims.”
Hurley added that Telsey estimates gross margins on a handbag are in the mid-70 percent range, while they are in the 50- to 55-percent range for rtw, with factors including markdowns creating the difference.
“There are locations throughout the world where you can see sales in excess of $5,000 per square foot per year in a high-traffic area that features accessories,” said Hurley. “At a typical mall-based apparel retailer, the best you can hope for is $500 per square foot. Even Coach, which introduced eyewear in their stores a while back in a discreet manner, still saw a single-digit increase in sales by using up very little space.”
Oakley, which produces performance and lifestyle apparel, accessories, footwear, watches, various electronics and eyewear, is banking on the latter category to expand its reach. In February, the company acquired Oliver Peoples, a Los Angeles-based luxury eyewear brand that makes frames under its own name and for Paul Smith and Mosely Tribes. In March, Oakley acquired Optical Shops of Aspen, which designs, distributes and owns licenses for the high-end Blinde, Chome Hearts, Hiero, Kieselstein-Cord and Matsuda eyewear brands. Oakley’s plans are to retail its new assortment of premium spectacles alongside Oakley silhouettes in a network of stores it will call Sunglass Icon.
Samsonite saw similar potential when it acquired a majority stake in the eight-year-old New York-based luxury firm Lambertson Truex in July. The world’s biggest luggage maker acquired the designer of high-end handbags and shoes featuring exotic skins like alligator and karung, with its intention to open Lambertson Truex stores around the world, as well as expand wholesale distribution.
Marc Fisher LLC is addressing retail expansion and a full lifestyle rollout for Sigerson Morrison, in which it acquired a majority stake last month. Marc Fisher, the Greenwich, Conn.-based footwear firm headed by Marc Fisher, a former executive at Nine West, produces and distributes shoes for Guess and its own eponymous collection, priced between $60 and $90. Sigerson Morrison, a 15-year-old New York label, offers its main line of footwear that opens at $300, a diffusion line of footwear called Belle that retails around $200 and handbags crafted from luxurious Italian leathers.
Other firms that have announced mergers and acquisitions over the last few months include Links of London, the British jewelry brand known for its cuff links, charms and gold and silver designs, which sold 100 percent of its firm to Greek fashion jewelry company Folli Follie for $85 million in July. Gold Toe Investment Corp. and Moretz Inc., two sock manufacturers, joined together last month as part of a deal involving their acquisition by private equity firm The Blackstone Group, and Tourneau, the New York-based watch retailer that is one of the largest in the world, last week entered into an agreement to be acquired for more than $300 million by an investor group led by Green Equity Investors, an affiliate of Leonard Green & Partners.
Tourneau executives said one of the key reasons Leonard Green was selected to gain a majority stake in the firm was because of its hands-off management style, but for most of the recent unions among established players and independent accessories labels, the partnerships are viewed as more strategic than financial.
“We believe financial investors want to see fixed returns in a definite time period,” said Miranda Morrison, who founded Sigerson Morrison with Kari Sigerson. “They often want to blow the business up and then sell it. So there are not as many options as there are with a strategic partner, especially if your intention is still to be involved. When we were looking for a partner, we were looking for somebody as nimble as us who could make us more efficient. For example, for us to go out and buy a database to run this company up to a higher standard for future growth, it would cost us a lot of money. But Marc Fisher already owns this database. So there are a lot of efficiencies that can be created if you find the right fit.”
Scott Olivet, Oakley’s chief executive officer, told WWD in July that partnering with Oliver Peoples and Optical Shops of Aspen not only enables all the firms to leverage design, prototyping, sourcing and manufacturing capabilities but also to cross over to new markets it didn’t necessarily reach before, such as Oakley appealing to a luxury consumer.
Ken Wasik, head of the consumer products group at Houlihan Lokey Howard & Zukin, an international investment bank that advises clients on mergers and acquisitions, said this is a wise consideration that is crucial with the changing landscape of the department store business, enabling companies to weather fluctuations in the market by not putting all their eggs in one basket, or handbag.
“The landscape is changing, which is why things are becoming more consolidated,” said Wasik. “The volume isn’t there like it used to be in the traditional department store. The real growth is coming from the upper end of department stores, as well as specialty stores. However, this can make being acquired difficult for some brands that walk that fine line between mass and luxury. Either a luxury group will buy the firm, take a year and raise its price points to fit in the luxury channel, or somebody like VF [Corp.] will…bring it down to the mass channel.”
Paul Charron, chairman and ceo of Liz Claiborne Inc., said the firm has focused all its acquisitions on accessories over the last five years, but he said acquiring an accessories-focused firm can be tricky.
“I would say it’s a lot easier to go from apparel, which is a very diverse and large category, into accessories, than it is to go the other way around,” said Charron, noting brands like Juicy Couture, which Claiborne acquired in 2003 and has grown from offering mostly terry-cloth tracksuits into offering a full accessories range, including handbags, cold-weather goods, jewelry, eyewear and watches.
“The first thing we do when we buy a company is to take it into accessories. Accessories flesh out the lifestyle of that brand. But it first has to have developed a competitive advantage in a core area.”
Andrew Jassin, managing director of the Jassin O’Rourke Group consulting firm in New York, said some acquisitions can turn sour if the acquirer isn’t savvy enough to recognize what is necessary to create, say, the next Bottega Veneta success story or a Juicy Couture hit.
“The acquirers need to do due diligence to make sure the brand they are acquiring has the potential to grow and that, if they put the appropriate money and time forward, they will see that growth,” said Jassin. “Many acquirers get bored or frustrated if they look at them in the short range.”
Kate Spade and upscale accessories brand Ghurka have been on the auction block for several months — Spade after being put up for sale by Neiman Marcus Group, which was acquired by equity firms Texas Pacific Group and Warburg Pincus in May 2005, and Ghurka, which Accessory Network Group announced it was seeking to unload in July. Andy Spade, Kate Spade’s ceo and husband of designer Kate Spade, said the two are still in talks for a new partner and are taking their time because they want to make sure any acquisition is a good fit.
“It’s obviously a very personal choice,” said Spade. “There are a lot of factors to consider, and we believe we are first and foremost an accessories firm, so we’re very focused on being an accessories company and not jumping into things like ready-to-wear too quickly. But if you have a strong point of view, I think the potential for an accessories firm is enormous. Take Gucci and Prada. They both started out as accessories brands and look at them now.”