Byline: Dianne M. Pogoda
Deals and dot-coms, group this and groupe that: It has been the year of building fashion empires and merging to form megabrands and multitiered companies.
From the first days of the last year of the millennium, the fashion business was consumed by a power play among international giants: LVMH and Prada, PPR and Gucci. It was the dominant story for months, and singly symbolic of what was going on in the industry at large.
Suddenly, consolidation wasn’t a dirty word. It was not merely a survival strategy used by the small and weak — team up or face extinction — but a way to build powerful conglomerates.
Joint ventures, mergers and acquisitions, at a pace reminiscent of the Eighties, were epidemic throughout all price ranges.
The biggest — Liz Claiborne buying Segrets and increasing its deals with Donna Karan and Kenneth Cole; Warnaco buying ABS, among other enterprises; all of LVMH’s voracious activities; Prada gobbling stakes in Helmut Lang and Jil Sander while teaming with LVMH to buy a majority of Fendi; Kasper buying Anne Klein; Ralph Lauren buying Club Monaco — captured the most dramatic headlines, but numerous smaller and midsize firms wed as well.
New retail formats also emerged, again changing the already fluid nature of selling. These include two offerings from Bernard Arnault — Sephora, for beauty, and Synchrony, for watches.
This year also marked the official debut of the euro, the multicountry currency now used in about a dozen nations in Europe and expected to be picked up by more.
E-commerce grew exponentially, and most observers think it has barely scratched the surface. Hundreds of existing fashion companies added the Internet suffix as they got their Web sites up and running. A host of firms emerged that do business strictly in cyberspace, and companies were linking through common carriers all over the Web.
Here are some of the year’s notable fashion moments.
The business world woke up from its holiday slumber in January to the news that LVMH Moet Hennessy Louis Vuitton had bought a 5.38 percent stake in Gucci, a company on which LVMH chairman Bernard Arnault has had his eye for some time, particularly since its remarkable turnaround under the stewardship of Domenico De Sole and Tom Ford. Speculation began immediately as to Arnault’s intentions — strictly investment or the first step in a takeover? Whatever the future, Arnault immediately extended an olive branch, reportedly assuring top Gucci management that he would do whatever was necessary to make them happy.
Events developed quickly, and within a few days, LVMH bought out the 9.5 percent stake that Prada’s Patrizio Bertelli had acquired between the end of 1997 and June 1998, making LVMH Gucci’s largest single shareholder. LVMH then revealed it had upped its stake yet again to 26.7 percent, buying shares from various investment funds. The “Smart Investment Move” award goes to Bertelli, who saw a capital gain of $140 million on his shares of Gucci. Prada had purchased Gucci last year at an average of $46 a share, and sold at more than $70.
Finally, by the end of the month, LVMH had increased its stake in Gucci to 34.4 percent.
As if Gucci weren’t enough, Arnault and Ford attended Giorgio Armani’s men’s wear show in Milan, adding more fuel to the inferno of speculation about what companies might be next on LVMH’s menu. And, so the spirits side of Arnault’s business wouldn’t feel slighted, LVMH bought Krug champagne.
Liz Claiborne, another giant with acquisitions on its mind, bought an 84.5 percent stake in sportswear maker Segrets, which is the parent of Sigrid Olsen and which has been building a branded group of its own. Last year, it bought certain assets of Mezzanotte Design, which markets the Gruppo Americano bridge line and a number of private labels.
If he’s not buying one fashion or beauty house or sitting in the front row at the fashion show of another, Bernard Arnault can’t seem to let a week go by without making headlines. In February, LVMH bought a one-third stake in Michael Kors rapidly growing company, with plans to launch lots of licenses and freestanding stores, expand in Europe and Asia and mount a large-scale ad campaign. Kors already had ties to Arnault, as creative director for LVMH’s Celine unit.
Then war was declared. Gucci’s Domenico De Sole was having none of Arnault’s plans for peaceful coexistence, and said he wanted the LVMH chairman to either make a bid for the whole company or go away. And Gucci established an Employee Stock Ownership Plan that gave its workers voting rights with no cash value or impact on the company’s actual share price — in effect, a poison pill — as another safeguard against takeover. Gucci’s creative heartbeat, Tom Ford, would be the winner in any event. He clearly aligned himself with De Sole, but if LVHM wins controlling ownership, his contract provides for enough financial security that he would never have to pick up a sketchbook again.
LVMH went to court, calling the plan a sham designed merely to prevent the French luxury group from gaining majority control.
More upheaval surrounding another LVMH property: After some 12 years at Christian Lacroix, Jean-Jacques Picart, Lacroix’s longtime business partner, called it quits. Although the fashion house was undergoing some restructuring involving a number of layoffs and upgrading its boutiques, an LVMH spokeswoman stressed that Picart and LVMH chairman Bernard Arnault were on good terms, and that Picart had decided he was ready to take his career in another direction.
And, in what was a very busy day for Giorgio Armani, the house admitted it has had talks with none other than Arnault, and Armani said it was finally taking its Le Collezioni women’s license in-house. The talks with LVMH were about “possibilities for the future,” although no one from either entity was elaborating. As for the women’s line, Armani was pulling the license from GFT and said it would produce the fall/winter 2000 collection on its own. GFT, however, would most likely distribute the line in the U.S.
Speculation about major acquisitions is not limited to Europe, although it might seem that way. The Jones Apparel Group was bandied about as the top suitor for the Nine West Group, which was in need of a turnaround and said to be up for sale. Jones did buy the Todd Oldham trademark, including rights to the apparel, footwear, cosmetics and accessories, as well as the Todd Oldham stores in New York and Miami Beach. Jones, through its acquisition of Sun Apparel in September 1998, already held the license for Oldham’s jeanswear. The Sun subsidiary said it plans to use Oldham’s appeal to build a new junior megabrand.
Federated Department Stores had a busy month. It acquired Fingerhut, the third-largest catalog company in the country, for $1.7 billion. The move propelled Federated deep into cyberspace and cataloging, with Fingerhut’s 25 titles. It also pulls the department store company into the lower-moderate and budget arenas, which it abandoned years ago.
Neiman Marcus bought a 56 percent stake in hot accessories firm Kate Spade. It’s part of Neiman’s strategy to acquire brands.
Beware the Ides of March. A Dutch court ruled that Gucci must open “serious talks” with LVMH, which upped its offer to $81 a share in a bid to gain full control of the fashion house. But the head and heart of Gucci, De Sole and Ford, reportedly told sources they would walk out if LVMH gained control.
LVMH extended an olive branch, saying it would cap its shareholder stake in Gucci at just under 35 percent. It was part of a deal designed to reassure Gucci management that it wouldn’t launch a full takeover and would guarantee Gucci’s independence.
Then, just when it seemed the European intrigue couldn’t get any more complex, Gucci found its white knight. Tycoon Francois Pinault, as in French mail-order giant Pinault-Printemps-Redoute, allied with the De Sole-Ford team and by the end of the month, he had collected 41.97 percent of Gucci Stock. PPR’s shares totaled just under 43 million.
On the same day as PPR’s Gucci stake was announced, Sanofi Beaute was sold to Artemis, a holding company owned by Pinault, for about $1 billion. That alone would have been front-page news, had it not just a portion of the entire LVMH imbroglio. This includes the Yves Saint Laurent beauty and fashion businesses as well as Sanofi’s beauty lines: Oscar de la Renta, Van Cleef & Arpels, Roger & Gallet, Krizia and Fendi.
LVMH wasn’t confining its deal-making activities to Europe, however. The company bought a 70 percent stake in Bliss, a hot, hip American spa in SoHo owned by 30-year-old entrepreneur Marcia Kilgore, who, sources speculated, could wind up with about $30 million. if Bliss meets certain targets over the next few years. It was LVMH’s first American beauty buy.
And to keep deal watchers’ heads spinning, Prada and Helmut Lang announced a joint venture to build the Lang name worldwide. The move was seen as Prada owner Patrizio Bertelli’s next stab at building a large luxury goods group, after having sold his stake in Gucci at the beginning of the year to LVMH. Lang, meanwhile, said he was happy about the deal, which was considered the best way for his business to grow. And Bertelli revealed ambitious plans to that end: tripling Lang’s sales to $139 million by 2001.
While he had his checkbook out, Bertelli was also said to be looking at Jil Sander’s business for a possible investment. And, Prada signed a lease for a 24,500-square-foot SoHo flagship
Another of the year’s hot topics — the Internet — was the object of Bernard Arnault’s affections, as the LVMH chief, a devoted Internaute (French for Web surfer) turned out to be a key investor in Boo.com, one of the largest and most ambitious e-commerce businesses in fashion. After a series of delays, Boo.com would finally launch in the fall.
The pressures of Wall Street keep companies looking for growth wherever they can find it. Ralph Lauren found it in Canada. He bought Club Monaco, a trendy contemporary chain based in Toronto, as a way to expand into new markets and reach a new consumer.
Warnaco also did some spending, acquiring 70 percent of the British toiletries Penhaligon Ltd. and the Canadian distribution rights for Calvin Klein Jeans. Warnaco watchers will recall that the giant maker already holds the license to produce Calvin Klein Jeans.
In another huge deal, Jones Apparel Group bought Nine West. It’s all part of Jones chairman Sidney Kimmel’s plan to make the company the country’s prime resource for women’s apparel, footwear and accessories over the next decade. “This completes the outfit for us,” he said.
Also from the “building a megabrand” file, Kasper ASL bought Anne Klein Co., a celebrated sportswear house that had been struggling for a decade to recover its former glory. Designers Ken Kaufman and Isaac Franco, recruited amid much hoopla from Emanuel/Emanuel Ungaro, went along with the deal.
And J.C. Penney bought the Genovese Drug Stores chain, merging its 141 stores into Penney’s Eckerd chain, bringing the division to 2,900 units in 20 states.
The merger mill churned out a new area of speculation, this time surrounding Liz Claiborne possibly buying all or part of the Donna Karan Co. To many, the marriage would seem to make sense: Claiborne and Karan were already involved in several licensing deals, and cash-rich Claiborne had said it wanted to buy more properties.
As April arrived in Paris, LVMH pumped up its offer for Gucci to $85 a share after two weeks of negotiations, but Gucci’s supervisory board rejected the proposal, saying the conditions LVMH sought to attach to the offer were “unacceptable.” The two sides claimed their doors were still open, and LVMH eventually came back to the table with an altered proposal for its voting rights, still at $85 a share. Gucci still refused, LVMH sent a letter pleading its case to Gucci shareholders, then named a price of $88 a share for the whole company, no conditions attached. After all this, a Dutch court postponed the decision until June.
The feeding frenzy continued in May. LVMH made more headlines, this time not related to Gucci. The French giant gobbled up Hard Candy, a tiny American beauty brand famous for its blue nail polish and other trendy products, for a reported $30 million.
Liz Claiborne got Lucky — literally. Claiborne said it would buy 85 percent of Lucky Brand Dungarees, a Vernon, Calif.-based jeans house. Claiborne got a jump on its promise to shareholders at the company’s annual meeting the day before to buy lots of companies as a way to achieve growth.
Meanwhile, ShopKo Stores said it would buy Pamida Holdings for about $375 million, adding 147 stores to its existing 158. The mass marketers were expected to remain autonomous operating units.
The month ended on a celebratory note for Tom Ford and Domenico De Sole of Gucci and Francois Pinault, who was victorious in the battle with LVMH for control of the venerable luxury brand.
“We’re all going to get drunk tonight and you can be sure the champagne won’t be from the LVMH vineyards,” said De Sole. A Dutch court ruled against Moet Hennessy Louis Vuitton, the world’s largest luxury group, and gave Gucci and its new partner, Pinault-Printemps-Redoute, the green light to build a rival conglomerate, with Gucci and Yves Saint Laurent at its core.
But LVMH was not to be held at the Italian border for long: its French cosmetics retailing giant, Sephora, bought Laguna, a major Italian-owned perfumery chain, gaining a big foothold in Italy.
Wal-Mart also did some shopping in Europe in June. It bought the British retailer Asda PLC, a major food and general merchandise chain, for $10.8 billion.
It is July, and Bernard Arnault again changed the face of another segment of the business. The luxury mogul plunked down almost $500 million to create a new investment firm for the Internet, called Europ@Web. The new company’s aim is to invest in European and American online ventures, creating a global powerhouse in cyberspace. Arnault also surprised his European colleagues when he named American-born-and-bred Myron Ullman to the post of LVMH Group Managing Director, his second-in-command. Ullman, former chairman of R.H. Macy, was president of LVMH’s selective retailing unit, which includes DFS Group, Sephora and two Paris department stores.
Elsewhere in Paris, Hermes bought a 35 percent stake in Jean Paul Gaultier for $23.4 million.
Things were percolating in the U.S., too. Liz Claiborne took another big step in its multibrand strategy with its purchase of a million shares, or 7.4 percent, of Kenneth Cole Productions and signing a licensing agreement to produce women’s apparel under the Kenneth Cole label.
Kasper ASL Ltd. bought the Anne Klein trademarks, which include Anne Klein, Anne Klein II, A line Anne Klein, and the lion’s head logo. Ken Kaufman and Isaac Franco, formerly the creative team for Emanuel, signed on as designers for the Anne Klein labels.
August brought vacations for some, and big prizes for others. Prada’s Patrizio Bertelli captured one he had been chasing for a long time: Jil Sander AG. The Italian powerhouse acquired 75 percent of Sander’s common shares and 15 percent of its bourse-traded preferred shares. The purchase marked the birth of Italy’s first privately held luxury goods group — Prada already had joint ventures with Helmut Lang and eyewear firm De Rigo, and a small stake in British footwear company Church & Co. — and signaled Bertelli’s continuing aggressive growth campaign.
In another case of big meets little, Estee Lauder bought Stila, the California makeup artist cosmetics brand. LVMH was on the brink of buying the company, but the deal fell apart at the last minute. That didn’t mean LVMH walked away from a week without some sort of acquisition: the luxury behemoth bought a 6.3 percent stake in Inter Parfums Inc., maker of fragrance and cosmetics under such brands as Burberry and S.T. Dupont.
The Warnaco Group got into the act again, announcing it would acquire ABS, by Allen B. Schwartz, the Los Angeles-based dress and sportswear maker and self-proclaimed Academy Award outfit knockoff king. The purchase price was said to be somewhere between $30 million and $40 million. In one of its first moves under the new regime, ABS would announce in November its plans to launch a young contemporary line to appeal to a junior customer and a status collection to compete with the likes of DKNY and Tommy Hilfiger — in stores by April — with the aim of building ABS into a $1 billion business within the next four years. On the smaller side, Warnaco bought Izka, a small, little-known but up-and-coming French innerwear maker and retailer.
In a move to fend off Wal-Mart’s invasion of its home turf, the French retail giant Carrefour SA bought another French megaretailer, Promodes SA, creating the world’s second-largest retailer. With combined annual sales of $57 billion, it still has less than half of Wal-Mart’s volume of $138 billion this year. Wal-Mart has been on an acquisition tear in Europe since 1997, with its latest buy being Asda PLC in the U.K. Observers said its next stop might be France, which was one reason cited for the swift Carrefour deal.
Aris Industries bought Lola Inc., the maker of XOXO. Aris ceo Arnold Simon said the deal should bring total revenues for the company to about $250 million.
In September, Bernard Arnault was back from vacation, and headed straight into a jam-packed month. While most French executives were still collecting their luggage from the baggage carousel, LVMH managed to sew up two deals in two days: It announced a friendly takeover bid for the Swiss watch firm Tag Heuer, for $747 million, and it said it was taking a majority stake in Benefit, a San Francisco-based niche beauty brand. LVMH also said it planned an IPO for Sephora.com, to position it as the leading cosmetics site in cyberspace. Through his other various enterprises, Arnault was said to be making a bid for the watch firm Ebel; he announced a partnership with Formula 1 race car driver Alain Prost, and through his Europ@web, he took a majority stake in Aucland, France’s leading on-line auctioneer, with the aim of making it Europe’s top Internet auction site. And, by the end of the month, lv Capital, the venture capital arm of LVmh, also bought about 75 percent of Thomas Pink, the British shirtmaker, as well as a 10 percent stake in Joseph, a U.K. fashion house.
Elsewhere in the watch world, the giant Swatch Group said it was buying Groupe Horloger Breguet, a maker of luxury watches, from Investcorp.
Elsewhere in the acquisition world, Belgian financier Albert Frere bought 54 percent of the British retailer Joseph for $48.7 million.
Elsewhere in Europe, Ralph Lauren agreed to acquire its European licensee, Poloco SA, based in Paris, including a Polo store in Paris and six outlet stores scattered through France, the U.K. and Austria. It’s part of Lauren’s initiative to take direct control of its European operations and build a strong business there.
Secon, the large Dutch apparel group, acquired couture house Louis Feraud. Its designer, Kiki Feraud, daughter of the founder Louis, stepped down as couture artistic director; she had been designing the couture collections for four years. Secon had already owned the house’s rtw business since its 1997 purchase of the Fink group, which held the license for the signature and bridge lines.
October capped months of speculation and a horserace that came down to the wire. The Roman prize — Fendi — was won by the team of Patrizio Bertelli and Bernard Arnault, beating out the Gucci Group. Prada and LVMH teamed up to buy 51 percent from the five Fendi sisters in a deal valuing the company at $950 million. The estimated price? $545 million. When the entire group celebrated the new partnership, the talk for the future was of taking Fendi public.
Through its LV Holdings subsidiary, LVMH bought a 36.4 percent stake in Regina Rubens Holdings. Rubens makes fashionable goods at more accessible prices, such as $400 to $480 for a coat. This was a slight departure from LVMH’s high-profile luxury brand strategy.
LVMH also added the French jeweler Chaumet and the Swiss watchmaker Ebel to its stable of fine watch and jewelry brands, buying the two from Investcorp. Combined with its recent takeover of Tag Heuer and its Fred-Benedom subsidiary, LVMH now ranks third among multibrand purveyors of Swiss watches, behind Swatch and Vendome. LVMH decided it needed a place of its own to sell all these watches, so it started a chain of watch stores called Synchrony. The first of what is expected to be up to 75 locations worldwide opened in California in November. Observers say the concept could do for the watch business what Sephora has been doing for beauty products.
Liz Claiborne and Donna Karan got even closer. After forging a licensing partnership for better-priced jeans, activewear and juniors under the DKNY label, the two companies announced a better career and casual collection aimed at women 18 to 34. It is slated to premiere for spring 2001.
Claiborne had a busy month, as it also bought the sizzling contemporary firm Laundry by Shelli Segal. The purchase price was estimated to be between $40 million and $50 million.
It’s all in the family at Warnaco, which made a bid to buy Authentic Fitness for $525 million. Authentic Fitness had originally spun off from Warnaco in 1990 as a freestanding company, when Linda J. Wachner, who is chairman and ceo of both companies, put up her own assets to support the spinoff.
And Mila Schon was purchased by Mariella Burani Fashion Group, which has the license to produce Calvin Klein’s signature line, while Aeffe bought Moschino. Aeffe had held the license to produce Moschino’s apparel.
Acquisition fever struck again, this time in the factoring field. CIT Group agreed to buy Heller Financial for $650 million. This purchase, along with its acquisition of Congress Talcott in March, makes CIT the biggest factor in the business, with a total factoring volume of about $25 billion — double the size of its nearest competitor, the Bank of New York.
May Department Stores kept growing with its planned purchase of Zions Co-operative Mercantile Institution, or ZMCI, a 4-store chain in Utah and Idaho controlled by The Church of Jesus Christ of Latter Day Saints, with 1998 sales of $247.5 million.
In November, Gucci started on its shopping spree with the aim of building a luxury goods empire. It bought the house of Yves Saint Laurent for $1 billion. Gucci is to finance the company’s couture operation, which was spun off as a separate entity and is being run by Pierre Berge and Yves Saint Laurent, the founders of the legendary house. Gucci will also kick in nearly $2 million a year for six years to preserve the cultural history of YSL. Mark Lee was named president of the YSL rtw business.
Bernard Arnault was at it again. LVMH opened another specialty chain following the open-sell category-killer format of Sephora, this time catering to sunglasses. Solstice opened its prototype in Orlando, Fla., with a computer kiosk that takes a picture of a customer and suggests frames from among its 1,200 stockkeeping units. And, needing to fill its newly launched Synchrony watch specialty chain, LVMH continued on its acquisition streak, buying Zenith, a maker of watches and watch movements, building a power base in the watch and jewelry business. The company, having in the past two months bought Ebel, Tag Heuer and Chaumet, thus created a division with sales of about $670 million.
In November, Charming Shoppes said it would buy Catherines Stores Corp. for $150 million. The merger creates a concern of plus-size stores with revenues of $1.4 billion.
And Claire’s Stores, already the power retailer in moderate-priced accessories, was getting even bigger. The company said it would purchase Afterthoughts, the 768-unit accessories chain, from Venator Group for $250 million.