Donatella Versace and family took the plunge — who’s next?
In agreeing to a $2.1 billion deal to sell their in-your-face brand and link Versace’s star to Michael Kors Holdings Ltd.’s dreams of empire, the family came to the end of a long, but relatively straightforward calculation: It’s hard to go it alone in luxury today.
That is a reality all too familiar to certain family- or designer-owned companies. Analysts at HSBC have pointed to the likes of Armani, Max Mara Fashion, Ermenegildo Zegna, Dolce & Gabbana, Tory Burch, Longchamp and Furla as strategic fits for the multibrand umbrella companies, whether or not the owners are looking to sell.
Each brand, and others standing on their own, have their own internal dynamics, growth potential and ownership issues that would figure into any sale. But they all face the same pressures in their businesses.
The shift away from wholesale, the rise of digital and the sudden influence of street culture, requires that brands spend — and big time.
To go direct-to-consumer today, companies need to speak to consumers with the right voice, they need to spend to build stores and keep them exciting and they need to develop a digital business that can keep up with the logistical expectations set by Amazon.
The leading groups — LVMH Moët Hennessy Louis Vuitton, Kering and Compagnie Financière Richemont — as well as their American challengers like PVH Corp., Kors — soon to be Capri Holdings — and Tapestry Inc., have the money and infrastructure to do all that and they are pressing their advantage.
That has made sizable, but still independent, businesses like Versace vulnerable and more willing to partner up as they move into the future.
In a fast-changing world, it also helps to have friends.
A luxury goods report from HSBC this month noted that grouping brands together creates synergies beyond financial cost savings.
“Having several brands in the same group means you have a mirror,” the report said. “If one brand excels at a particular topic, e.g. digital, retail, training, [customer relationship management]), others can learn from it. If a specific brand has exceptional managers, some may step up to run others in the portfolio. In other words, the presence of ‘sounding boards’ can be very powerful.”
The big groups are also flush with cash and ready to spend. Gucci parent Kering, for instance, was said to be prominent among the other bidders for Versace, but lost out to the more aggressive Kors, which paid very handsomely for the company: 22 times earnings before interest, taxes, depreciation and amortization, to be exact.
Just which fashion brand will look at the competitive calculus and sell depends on many things, but the scene is being set for bigger strategic deals — if for no other reason than there are willing buyers and plenty of good reasons to sell.
Consultant Bill Lewis, a director at AlixPartners’ retail practice, said the deal cycle was moving away from the financial players as interest rates rise and the cost of capital goes up.
“Operational transformation and operational efficiency is getting renewed emphasis,” Lewis said. “It used to be the brands felt they needed to be a billion dollars to effectively compete and now you’re seeing the multibillion-dollar brands get purchased and these large brands are feeling that they want to be part of a portfolio to either have greater resources or to protect against a downturn.”