Entrepreneurs and co-owners Carlo and Ennio Capasa have recently announced their quitting of the company they founded 30 years ago. They decided to leave their quotas to Sedquedge, the Japanese fund that already owned a minority quota since 2009. Is this the destiny of all companies opening their doors to external investors? Are fund participations effectively helping brands and small-medium enterprises in their growth or might they end up damaging them?
S.I. has asked insiders, brands, investors and experts how these processes can evolve considering some sportswear market dynamics. Despite very few companies and insiders commented on the matter we present some key aspects of the market situation.
Each brand is a different story
The fashion market is a vast universe and each company can be so different from the other regarding target, identity and problem solving strategies. “Each case is different from the other and all depend upon the company involved, its own financial status and the investor entering,” commented a manager expert in collaborations with funds. “One thing is for sure. When funds enter a company they aim at earning money from the operation. When they see no results they take new steps in order to change the situation: they might want to change management, designer, or...both within a company. In other cases the presence of the founder inside the enterprise can represent an obstacle for its growth. For this he might also have to leave.”
More funds than acquisitions
Generally always less acquisitions are happening in the market while more funds and partners acquire companies’ quotas in recent times, according to Carlo Pambianco, owner of the Italian company specialized in consulting Italian fashion and luxury brands. “Until a few years ago fashion and luxury were extremely fragmented sectors and there was a need to consolidate companies’ assets in order to become more competitive at global level. Today’s needs are different: on the one hand big groups have to finish integrating all the different brands they bought in their portfolios and on the other small and medium enterprises prefer to collaborate with financial partners rather than selling their company,” he explains considering that merging and acquisitions of Italian companies were 74 in 2015 - 17% less than in 2014. While in 2015, 25 operations of fund acquisitions happened, a noteworthy result.
All is planned
Marco Bortoletti, expert manager, whose past experiences include roles such as CEO of Fashion Box and consultant for the Sixty Group, is convinced that when a fund enters a company all steps are agreed since the beginning: “I think such agreements follow precise business plans,” he comments. “In any case a fund entering a company wants to give new life and energy to that brand. It’s not in their interest killing it. And when deciding their investment they choose according to a brand's own identity, DNA and original creative spirit,” he adds.
A new approach
Other experts believe that in the past when big investor groups started stepping in the fashion market they had little knowledge of the fashion market, of its rhythms and characteristics. They agree on a new breed of funds – or a changed attitude in approaching the fashion market – is now moving ahead. For this some investors are taking a different approach and recognize that a brand’s own identity and specific know-how needs to be supported and preserved rather than expecting to register immediate vertical growth results.
Stephan Schneider, founder and owner of the eponymous brand, sees things differently: “I would never bring an investor on board. I received offers to sell my brand so that I would remain the creative head but the production and distribution process would have been taken care of by the new owner.” Despite he felt tempted because he could have had the freedom to concentrate on design only and avoid most stressful or frustrating parts of his work, he understood that the whole process - from design over production up to distribution - is all connected. “When you pass these important steps into someone else’s hands the product will never be the one you had in mind, because of course an investor thinks much more about efficiency and profit,” he continues. “You need to be aware that when processes change, your product will change too and that might even lead to a change in your customer base – and that might not fit to the brand anymore.” An entrepreneur risks to destabilize one's own brand and company rather than stabilizing it.”
Some companies and luxury brands such as Valentino and Boglioli have benefited from funds participations, though others are not. The Capasa experience is one example. Other brands that belong to the sportswear and jeanswear market didn't experience significant speeding up of sales. Among funds and partners' participations – more and less recent ones - there are, for instance, Mustang, Frontlineshop, Dondup, Golden Goose, North Sails, Scotch &Soda and Vintage 55. They relate to different market segments and are aimed at different consumer types, therefore, despite each of them reached different performances, none of them can be listed among record beating cases.
An interesting exception could be made when referring to Pepe Jeans London. As reported by Dechert LLP (an international law firm consulting group specialized in legal consultancies in different fields including investment fund acquisitions) Pepe Jeans Group is majority owned by L Capital Asia (Asian private equity fund of luxury brands group LVMH), and M1 Fashion (Lebanese investment firm) since July 2015. According to what was published so far, Pepe Jeans’ global expansion plans seem to be working successfully in countries such as India, where they bought the local filial and now aim at becoming the number one jeans brand - surpassing Levi’s - by establishing large format family stores across the country.
What's the secret for success?
Despite exceptions why aren’t jeanswear brands reaching success despite investors entered their capitals? The real reason shall be found in a whole present suffering moment that the entire medium-high jeanswear and sportswear market is facing. Jeans brands have to deal with the strong concurrence of vertical chains offering trendy, fast evolving and highly profitable price-quality ratio products that young consumers are buying more easily than branded ones.
This calls to mind a whole different order of problems that is asking the sportswear market to take new steps such as, for instance, start offering some real innovation, products rich in quality and R&D and expressing some irresistible young lifestyle and young-at-heart consumers cannot do without. Great brand value and content can win consumers’ hearts. And the challenge has just started!