Tom Ford Seeking At Least $50 Million
Tom Ford International is on the hunt for financial backers, two sources familiar with the situation told peHUB. The New York-based fashion house entered the market within the past two weeks seeking a $50 million or greater investment, the sources said. Credit Suisse is managing the process.
The capital would be used to expand the company’s line into women’s apparel, as Tom Ford currently offers meanswear, eyewear, beauty, fragrances, and men’s and women’s accessories.
Tom Ford is famous for implementing the turnaround of the House of Gucci, which is owned by the French luxury goods company, PPR. In 2004, he left to launch Tom Ford International. The company’s products are carried at luxury retail chains worldwide, as well as in four freestanding Tom Ford stores.
That a luxury brand would enter the market seeking financing is a sign of either optimism or foolishness. Luxury apparel brands have been battered by the recession as consumer trade down for less extravagantly-priced clothing. According to Time, luxury department store sales are down 25% to 30% on average from their peak in early 2008. Luxury retailers like Saks Fifth Avenue, Neiman Marcus, and Bloomingdale’s have reduced inventories and slapped giant discounts on their goods. Saks in particular has sought out ways to reverse a years worth of double digit declines in same-store sales. One way is price cuts. From the Associated Press:
Gucci and other European designer brands would have bristled a year ago about lowering prices. Now, they are working with Saks and other luxury stores to reduce prices on some goods.
Then again, Ben Bernanke recently declared the recession to be over. If the Tom Ford deal generates excitement from investors, it would back up Bernanke’s recovery talk, which right now sounds a lot more like wishful thinking.
Young designer apparel companies often sell minority stakes to investors before selling to a luxury conglomerate such as LVMH or PPM. But the capital hasn’t flowed quite as easily since the onset of the recession. Earlier this year luxury goods designer Tory Burch went all the way to Mexico City to find an investor after a long search that included at least one false start. In July the company sold a 20% to 25% stake in itself to Tresalia Capital, a private equity firm run by the heiress to Corona.
Press representatives for Tom Ford have not responded to requests for comment.
Earlier: Tory Burch Reopens Stake Sale Process
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George said on September 24, 2009
I stongly disagree with the comment “that a luxury brand would enter the market seeking financing is a sign of either optimism or foolishnes”. The editor who’s flapping his or her gums is either coming from outside the industry, or hasn’t been around long enough to experience the ebb and flow of recessionary cycles. Smart investors know that recessions are full of opportunities.
This recession has been the great equalizer in that the playing field has been in effect, leveled. While the recession may have bottomed out, we are still going to see even more brand fall-out and bankruptcies in the weeks, and months to come. Many of the “me too” brands, or tired brands, or brands who never really had a branding strategy to begin with and were merely riding the luxury wave will probably go away. Innovators (dare I say that Tom Ford is innovative?) seize opportunities like the present to get there ducks in a row because they know the next wave is coming.
A big mistake right now are aquisitions of “distressed” brands which seem desirable among the investment community right now. Some investors believe they can “work their magic” on old names which can be aquired at bargain prices. They often fail to fully see the reasons these brands are distressed to begin with, and they believe (with their team of MBA’s) that they can turn around a brand which has negative momentum. They also tend to overlook the fact that quite often these brands have such a negative image in the market that no amount of marketing dollars will ever change the perception of these brands in the eyes of the consumer.
Exciting new start-ups, or young brands are exactly where smart investors should be looking right now. Ton Ford is a young brand. Tory Burch is a young brand. This article makes it sound as though Tory Burch was desperate for cash. Tory Burch is not desperate for anything.
As for Tom Ford, he’s just getting his ducks in a row.
PEHub Administrator said on September 24, 2009
George – Thanks for your comment. Naturally investors understand cyclical markets, but all buyout pros know that right now it’s difficult to finance ANY deal, let alone one in an industry that has seen major declines in the past year and shows no signs of turning around. If he finds a backer, it will be a sign that investors are becoming more optimistic. I brought up Tory Burch as an example of a similar deal that was difficult to get done. After one failed process, the company secured backing but only after shopping itself for almost a year, which is a sign of difficulty in an M&A deal.