When Should Fashion Companies Go Public?
Any fashion company that is contemplating going public needs to have not only the product and brand fundamentals right but also a business strategy that can easily be understood by the markets, writes Imran Amed.
Investment bankers, financial analysts and all those who could benefit from the confidence that such a transaction brings to the broader financial markets were paying close attention. Arm’s stock debut was considered a bellwether for an IPO market that has remained subdued this year as interest rate hikes and ongoing uncertainty about the global economy have persisted. The success of Arm’s public listing could mean many more companies dip their toes into the chilly IPO waters.
This growing market confidence may explain why several fashion and beauty companies are considering getting into the IPO game too. This week, Birkenstock, owned by LVMH’s private equity arm L Catterton, filed to go public on the New York Stock Exchange. And, market reports suggest that Puig — the Spanish beauty conglomerate that owns Carolina Herrera, Charlotte Tilbury and Paco Rabanne — and Amer Sports — owners of cult gorpcore brands Arc’teryx and Salomon — are also exploring potential IPOs.
According to Bloomberg, Birkenstock could be valued at more than $8 billion. In a letter accompanying the filing, which disclosed that the company’s annual sales have grown from €292 million in 2014 to €1.24 billion in 2022, CEO Oliver Reichert called the company “the oldest start-up company on earth,” alluding to its founding as a family-run firm.
But IPOs aren’t the right move for all fashion and beauty companies. Going public means being accountable to the same group of sometimes fickle players who are cheering the Arm IPO. Many of these financial analysts and investors don’t understand the fashion industry and the unique idiosyncrasies which make certain brands successful, and other brands not. Investors and portfolio managers overseeing billions of dollars in assets under management don’t have the industry knowledge to decode what is happening with a given company just because so much of what makes a fashion company successful (or not) can’t be explained by even the best financial modelling. Any fashion company that is contemplating going public needs to have not only the product and brand fundamentals right but also a business strategy and financial performance that can easily be understood by the markets.
Compare Lanvin and Zegna. This week Zegna reported a 45 percent increase in first half operating profit, continuing strong performance since the company went public via SPAC in December 2021. Zegna is benefiting from a wider “quiet luxury” boom as its product strategy shifted to softer tailoring and casual dressing even before the Covid lockdowns. But its success in the markets also comes down to a clarification of its business strategy and solid investor communications in terms which even the bro-iest of finance bros can understand.
On the other hand, Lanvin Group Holdings, which in addition to its namesake brand also includes Wolford, Sergio Rossi, St. John Knits and Caruso, went public on the NYSE in a de-SPAC merger in December 2022 but has yet to sufficiently clarify its plans for Lanvin which remains mired in a post-Alber Elbaz funk. The company remains unprofitable and sales at Lanvin are less than half of what they were under the charismatic creative director who left suddenly after a fallout with former owner Shaw-Lan Wang. As a result, anyone who invested in the stock at the end of last year has lost 55 percent of their initial investment.
Established by Jeanne Lanvin in 1889, Lanvin is one of the longest surviving French fashion houses with an incredible heritage. There is so much potential in this brand and the company’s new CEO Siddhartha Shukla is one of the smartest young executives working in the business. But he needs the time and space to drive a new creative and business strategy (the search is on for a new creative director). Trying to bring Lanvin back into the fashion conversation under the gaze of the ruthless financial markets is not an enviable task, as the pressure to perform financially continues relentlessly.
When the time comes, his bosses at China’s Fosun Group will also need a stronger approach to investor communications to convince the markets. I bet they now wish they had waited until the brand was back on its feet before being subjected to such scrutiny.