Sonia Rykiel Resort 2020

PARIS — A Paris commercial court has decided to liquidate Sonia Rykiel after the struggling fashion house failed to secure a new buyer, ending a four-month period of negotiations and extended deadlines and prompting immediate store closures.

The decision throws a spotlight on the challenges facing smaller labels at a time when larger, luxury companies and their megabrands are better equipped to grab consumers’ attention with high marketing budgets and leverage for negotiating prime real estate. Strong heritage, popularity with fashion critics and resonance in its home market — along with hundreds of millions of euros in investments — have not proven enough to keep the Rykiel brand afloat.

“It’s a very tough environment because basically nowadays to be relevant with the consumer the bar is getting higher and higher,” noted Mario Ortelli, managing partner of Ortelli and Co., a strategy and M&A adviser for the luxury goods sector.

“Asian Millennials are one of the faster consumer clusters and if you are not relevant to them…the future is, for sure, challenged,” he added.

But cracking the Chinese market is complicated, even for a company with a Chinese owner.

The label’s plight also highlights a further challenge and adds to the rocky track record for Chinese companies when it comes to investments in Western brands. Brands such as Cerruti 1881 and Gieves & Hawkes are other examples.

Uncertainty has loomed over the famed striped knitwear label and its 130 employees since it entered receivership in April. Its owner, First Heritage Brands, had mandated investment bank Compagnie Financière Edmond de Rothschild in January to seek an investor or outright buyer for the brand, which it acquired in 2012.

As reported, two proposals had emerged as front-runners over the past several months — one led by former Balmain chief executive officer Emmanuel Diemoz and another involving a wealthy French family with industrial holdings in other sectors, but no experience in the fashion business. According to sources, the bid from Diemoz hinged on the lowering of rent costs for the label’s emblematic Left Bank flagship, while the other bid lacked a convincing financial strategy.

A Chinese player also showed interest during a later stage of the process, the sources said, suggesting that the context of diminishing Chinese investment abroad and jitters about yellow vest protests in France might have weighed on the process.

Sonia Rykiel owners, who have invested some 200 million euros in the brand over seven years, intend to assist employees with training or finding new jobs, these people said.

At a time when larger brands and luxury conglomerates have deep pockets and are investing heavily in marketing — including heavyweights like LVMH Moët Hennessy Louis Vuitton — it is becoming increasingly difficult for smaller labels to maintain their footholds.

Sonia Rykiel has struggled to find its footing since its founder passed away in 2016.

Rykiel’s revenues had dwindled from 83.7 million euros in 2011 to 35 million euros in 2018. Over the same period, losses rose from 1.4 million euros to 20 million euros, not including a 10 million euro investment in events marking the house’s 50th anniversary.

In 2012, the founding family sold an 80 percent stake to Fung Brands, an investment company backed by Hong Kong billionaires Victor and William Fung that is now known as First Heritage Brands.

The owners sought to revive the business by capitalizing on its identity, anchored by founder Sonia Rykiel, who was dubbed the “Queen of Knits” by WWD.

The house let its creative director Julie de Libran go in March. De Libran, who had been recruited in 2014, had moved the collections upscale.

Rykiel counts 10 freestanding boutiques, most of them in France, including its historic flagship on Boulevard Saint-Germain, after closing locations in New York, London, Brussels and Luxembourg. It has around 200 points of sale worldwide, with partners including Lane Crawford and Net-a-porter.