It would be a premature to write off a $200 billion industry - fashion. Bigger than books. Bigger than movies and even bigger than music. Global sales of luxury brand, not surprisingly reached more than 106 billion Euro.
Fashion is not limited to high street brand dresses or clothing lines. Take into account accessories like handbags in which contribute at least $5 billion in sales.
The embodiment of characteristic representation makes fashion appealing to the masses. Cultural theorists may claim that fashion reflects on the ideal social status representation.
Economists attempt to define their assumptions of fashion demand or even better to come out with the consumption and conformity - an economic theory of fashion.
However, for investors, fashion is just another business to acquire, buy out, merge, consolidate, grow and sell. Too often, the business cycle of fashion is longer considering the building up of the goodwill and branding. Even so, the mechanism is still the same. Get in, grow it and get out.
Needless to say, the risk is as subjective as the industry itself.
Little that 'we' know many fashion brands are actually backed by private equity investors. British's New Look was backed by Permira and Apax Partners. German's Frontline has Acton Capital Partners on the board.
You have to mention 'the economy of Milan'.
Permira, in 2007, completed the buyout of Valentino Fashion Group for $3.5 billion. One of the most talked-about acquisition in the fashion industry. The acquisition included labels Valentino, M Missoni and MCS Marlboro Classics as well as 51% stake in +HUGO BOSS. Of course, Valentino Garavani resigned afterwards.
The buyout or acquisition is usually taking place on more established and luxury consumer products. Others are more on finding the underexposed or emerging brands into global phenomena. Focus is more on the brand expansion, increased product breadth and depth, and the penetration of new distribution channels.
The acquisition of Warnaco Group, Inc, the maker of the largest global branded lifestyle apparel companies by PVH Corp proved the investment of fashion should not be taken lightly. Warnaco Group has +Calvin Klein and +Tommy Hilfiger under its roof including +Van Heusen, +IZOD, ARROW, Bass, +Speedo USA, Olga and Warner's. You know the pro-forma revenue of those brands? Over $8 billion.
Yes it is all about business, strategy and investment of fashion. Nothing much about haute couture or pret-a-porter. Not even a single clue about garment or material. One needs to understand the areas of fashion design and the market segmentation of fashion first so hence you could deductively indulge in more details about investment in fashion.
Often we treat the business of fashion as closely related to retailing and supply chain. But the truth is, retailing or marketing comes later after the production or manufacturing stage. Fashion or style is merely the value proposition to the customers about the acceptable appearance given that period of time. You would notice the segmentation is divided to women, men, kids, girls, boys, sportswear, jeans, knitwear, bridal and accessories. Then, to serve specific market segmentation, you would have a line of evening dresses, lingerie, shoes, bags and perfume.
In general, across socio-economic spectrum, fashion is very influential in defining status. Unconsciously, fashion is adopted for various purposes including seasonal and special occasions as well segregating social groups. The social elite and the upper classes are more in favor to adopt new fashion trend in attempt to be the trendsetters and increased the distinction of disposable income. Hence, you would notice the mass market is also disintegrate to several classes such as fast fashion, no frill, luxury or even bundle. More importantly, the fashion trend is being observed by general consumers via the ways of wealthy, certain group of public figures like celebrities and elite people present themselves. Fashion and lifestyle magazines like +Vogue, +Cosmopolitan Magazine , +ELLE, +Harper's BAZAAR , +Marie Claire and +NYLON Mag have cemented the correlation of fashion and status.
Coping with the fast changing trend in fashion is not a straight forward proposition. That's why in most cases investors or private equity firms prefer to put their money in more established fashion label that have a substantial growth potential. Risk is intolerably subjective. Investors are more likely to target successful companies that own fashion labels such as Inditex's Zara, +Rocket Internet's Zalora, Stefan Persson's +H&M, +Louis Vuitton and PVH's +Calvin Klein and +Tommy Hilfiger.
Back then, private equity firms are used to unearth fashion lines that are not very good in term of distribution and market reach. Building up start ups were such a noble cause. However, as the industry is getting tougher and globally competitive, they tend to focus on managing the growth, acquisition and the exit or re-structuring strategies. The hot topic now is the merger of PVH Corp and Warnaco Group. Well, it is quite normal to see the selling of brands nowadays like back in 2008 I had a chance to witness the acquisition +Yves Saint Laurent Beaute by +L'Oreal.
In the same time, I could not agree more on the notion that the old business model of fashion is under threat. Typically, too much focus on designing dresses without additional complementary accessories hurt the cash line. The cycle of selling a dress, for instance, is very long and potentially may take than a year to realization. The prices for design-rich dresses are also hindering the quicker turnover on the line. Brands like Republic, Jaeger, +Christian Lacroix, Charming Shoppes, British's Viyella and Adams Kids as well as Escada had a tough time to stay alive.
Nevertheless, fashion is still a business and investors treat fashion as another investment in their portfolio. The business cycle is also applicable and certainly fashion does have its own fashion cycle since the trend changing is a lot quicker than before. The legal and intellectual property issues have been accelerated as the demand, style and trend are becoming global. So, what's next?
Subsequent to investment and entertainment article, I think I should describe a little bit on entertainment.
Investment in entertainment or 'showbiz' focuses on the mass media, music and lately electronic entertainment (games). Exhibition and live entertainment like theme parks, wax museums, circus, comedy clubs, theatre and performance arts are usually at the bottom of the list.In entertainment, investors would look at film, commercial broadcasting, music, new media, fashion and video games (online or offline).
Take-over or merger and acquisitions between film studios in the States is particularly fierce and normal to certain extent. For example +Miramax. It was a leading independent film motion picture before it was acquired by Walt Disney in 1993 for $60 million. 17 years later, Miramax was sold for $663 million to +FilmYard Holdings, a joint-venture between Colony Capital (an international investment firm based in Santa Monica, Los Angeles), Tutor-Saliba Corporation and Qatar Investment Authority. They have 700 film titles including +Reservoir Dogs, +Pulp Fiction, Good Will Hunting, Shakespeare in Love and The Talented Mr. Ripley. Almost tenfold return within 17 years? Awesome!
In commercial broadcasting, the focus is more on television and radio. Based on the business models like free-to-air or Pay TV, the pulling power is the content. The royalties, licensing and franchising streams like Simon Fuller's 'American Idol', 'America Got Talent' or 'So You Think You Can Dance' have been providing a steady flow of income to investors or television network operators for more than 10 years. Imagine the advertising rate for the prime-time series of 'American Idol' was sold more than $700,000 for a 30-seconds slot. The estimated revenue for Season 6 was $870 million and the series was the TV's biggest moneymakers according to Forbes Magazine.
With hindsight, investment in commercial radio, unfortunately, is still relevant. The infrastructure and initial investment setup are relatively cheaper than television and it still spews money like +SiriusXM does. SiriusXM, listed on NASDAQ, broadcasts 135 channels in the United States. Their contents are impressive with the leading figures like Howard Stern, Martha Stewart, Oprah Winfrey and Jamie Foxx.
In fashion, big names such as +Ralph Lauren, Tiffany & Co, Coach and +Michael Kors are the favourites to the investors. Top performing fashion retails like JCPenny and +Nordstrom Rack nevertheless are also offering a good return for investors. Investors like PPR, home to Gucci, YSL, Stella McCartney and +Balenciaga, look for companies that have significant growth potential with a dynamic and focused business strategy.
Online and offline game developer companies are enjoying a phenomenal growth across the globe. You could expect many private equity firms to support the start-up or growth companies. +Zynga games, +Gameloft, Foldit, +Tapjoy, Warner Bros Interactive and +Electronic Arts (EA) have an impressive run in the industry. Needless to say, the successful Twitter, Facebook, Tumblr, Foursquare and LinkedIn would offer investors more venue to put their money in.
In reality, the scope of entertainment industry is quite huge. From film to gaming, the industry offer a handful of investment venues to the savvy investors. Each sub-industry have a different level of risk that you might need to take into considerations. And the return of investment (R-O-I) or payback period is a bit longer compared to other industry though.
So, do you think investment and entertainment relevant?
