TheChek News Flow

Fashion investors and M&A bankers get ready. A lot of brands are going to be on the market over the course of the next few months.

Fashion is in a perfect storm. Global demand is down. MatchesFashion’s collapse is threatening to put dozens of brands out of business. Saks is still delaying payments to brands. China, once the biggest growth engine, has become a tough place for business. This week, Richemont’s Yoox-Net-A-Porter announced that it was pulling out of China and that its joint venture with Alibaba, Feng Mao, was in liquidation.

China used to be seen as an untapped reservoir of demand. Not anymore. Demand for luxury goods having fallen off a cliff, brands are rethinking their strategy. Stella McCartney recently closed all of its boutiques in China, as Miss Tweed reported earlier this month.

And the United States is not doing well either. Business with major luxury brands such as Burberry or Kering’s Gucci and Balenciaga is down since the beginning of the year at many US department stores, industry sources say. Saks.com is committed to paying brands but the online fashion retailer is still delaying payments by several months after securing $60 million of extra liquidity at the end of April. Saks.com operates independently but works closely with Saks Fifth Avenue stores through a series of agreements. Both businesses are under the umbrella of Hudson’s Bay Co.

Rival online fashion retailer Moda Operandi has also been looking for extra funding since the beginning of the year and is understood to be close to reaching a deal, industry sources say. Based in New York, Moda Operandi sells designer clothes and many small fashion brands. It has burned through hundreds of millions of dollars in the past five years and it’s still searching for a path towards profitability.

YOOX-Net-A-Porter (YNAP) is also looking for buyers. Richemont is hopeful of clinching a deal before the end of the year even though most major private equity firms have walked away after seeing the amount cash YNAP continues to burn, estimated to be more than €300 million a year, as Miss Tweed reported last month.

“This is the longest downturn we’ve seen in years,” one manager of a US-based wholesale business said. “We don’t know how long it’s going to last but we all hope that things should improve towards the back end of the second half.”

Online fashion retailers have been hit by the double whammy of low consumer demand and brands becoming direct competitors, focusing on growing their own e-commerce businesses. Fashion and luxury brands have been squeezing the margins they give third-party retailers, keeping their best-sellers for their own websites and boutiques. A significant number of mega brands have been ending ties with online and bricks-and-mortar wholesalers altogether to better control image and price.

Second-hand retailer Vestiaire Collective is also not doing great, market sources say. The company is finding it tough to convince enough people to sell their clothes, handbags and shoes to cover its high operating costs. Most affluent shoppers are not that keen on selling their belongings over the Internet, it turns out. The second-hand market is here to stay but it’s not an easy business to be in.

YNAP and Farfetch, which was bought in a distressed sale by South Korea’s Coupang in December, officially say that they are doing their best to pay for stock within the agreed timeframe, around 45 days. However, some brands have complained about delays.

“Farfetch is fully committed to brands and boutiques and understands the importance of cash flow for their business,” a spokesman for Farfetch told Miss Tweed. “Through our longstanding Farfetch Capital program, they even have the option to access their monthly net proceeds early should they wish to do so.” YNAP and Richemont never reply to Miss Tweed’s emails.

Brands should be happy to get any money at all. At MatchesFashion, they get zero. More than 500 fashion and luxury brands have been told that they were unlikely to get any money for the products they shipped to Matches before the online distributor went into administration in early March. The amounts represent paltry sums for big labels such as Burberry, Gucci and Prada, but for hundreds of much smaller brands it’s a huge hit. Many are getting ready to find new investors and take out loans to survive, industry sources say. They are preparing their data sheets and prospectuses for potential investors and will be marketing themselves starting this summer, industry sources predict.

Some brands have already gone under. Last month, The Vampire’s Wife, known for its Gothic romantic dresses, ceased trading. The brand said the “upheaval in the wholesale market” was to blame, but Matches’ administration must have contributed to the brand’s financial problems.

Designer Roksanda Ilincic found a white knight in retail entrepreneur Damian Hopkins, who purchased the fashion label she founded in 2005. Roksanda’s financial woes stemmed not only from Matches’ non-payment but also from having to pay rent arrears that it had accumulated since the pandemic. Just before the deal was signed with Hopkins, Ilincic had filed a notice of intent to appoint an administrator.

A few weeks ago, designer Roksanda Ilincic found a white knight in retail entrepreneur Damian Hopkins, who purchased the fashion label she founded in 2005. Roksanda’s financial woes stemmed not only from Matches’ non-payment but also from having to pay rent arrears that it had accumulated since the pandemic. Just before the deal was signed with Hopkins, Ilincic had filed a notice of intent to appoint an administrator.

Matches owes brands a total of £36 million, according to documents provided by Teneo, the administrators appointed to manage the business and recover the funds it is planning to receive from selling the stock online and property. Well-known independent labels such as Anya Hindmarch, Self-Portrait, Frame Denim and Joseph have unpaid bills totaling several hundreds of thousands of pounds. Totem, for example, is owed nearly £1 million, Teneo’s documents dated mid-April show.

Miss Tweed wrote to all these brands and others high on the list of Matches creditors. None of them replied. They may be concerned that if they admit they are in trouble, retailers might demand harsher payment terms. “I have tried to talk to other brands like mine that tried to get their stock and their money back from Matches, but they are closing up because they are afraid of the consequences I think,” the CEO of one medium-size brand told Miss Tweed on condition of anonymity. Brands have been told that they are likely to get less than a penny back for every pound owed and that the outcome depends more on the sale of Matches’ property assets than on the sell-through of their stock.

The British Fashion Council (BFC) is trying to come up with solutions to help British brands affected by Matches’ collapse. For some labels, 20-30 percent of their revenue came from doing business with Matches, according to industry sources working with the online fashion retailer. The BFC is talking to several financial institutions and is proposing to raise money from philanthropists and foundations to help them support smaller brands with either low-cost loans or, if brands prefer, equity investment. But the process is taking a lot of time – which brands don’t have.

“We are concerned that many brands are going to face serious financial difficulties,” a spokesperson on behalf of the BFC told Miss Tweed. “At a time of numerous challenges within the UK fashion and retail market, particularly in light of recent high-profile failures within the luxury e-commerce markets, the British Fashion Council is working hard to ensure that UK designers are provided with best-in-class business guidance and support, both directly from the BFC and also from our partner professional advisors, whilst continuing to seek innovative financial solutions.”

The BFC has also been working on trying to find outlets and locations to help brands sell their stock if they are able to reclaim it from Matches at the end of the administration period. They now have a clearer understanding of which brands are likely to see stock returned from Matches and are in talks with several organizations to help brands find routes to monetize the reclaimed stock. Value Retail, the company that runs outlets such as Bicester Village outside London and La Vallée Village near Paris, has been approached to help brands sell their stock. For the moment, nothing has been decided, sources close to the matter say.

According to Teneo, some 190 brands have made retention-of-title claims on stock worth £22.8 million, but as of mid-April it had accepted those titles for only around 15 percent of that amount, or £3.4 million. It’s not clear whether more brands have obtained the right to get their stock back in recent weeks.

What is clear is that, since Matches continues to trade and sell stock, money is being raised, but it will go first into the pockets of Frasers Group. The group is a secured creditor since it owns the company’s debt, and as such it comes before the brands in terms of access to cash.

Frasers Group, which bought Matches in December, last month acquired the intellectual property assets of Matches, including its company name, trademark and database. The move would allow it to relaunch the business on a new platform at a later stage. Financial details of the transaction were not disclosed, and Frasers did not wish to reply to any of Miss Tweed’s questions.

Frasers Group is controlled by founder Mike Ashley, one of Britain’s most colorful and controversial businessmen. Ashley has been on a buying spree in recent years, cornering the sports goods retail market under his Sports Direct retail chain and buying stakes in many different retailers. Frasers Group also owns the fashion luxury multi-brand Flannels and, since 2022, the prestigious Savile Row tailor Gieves & Hawkes. Ashley also has a 36 percent stake in British leather goods brand Mulberry.

Some industry sources think that Frasers may have struck some deals with big brands since it continues to sell their stock via the group’s Flannels retail chain and online platform. It may be able to convince them to work with the new MatchesFashion when it relaunches the retailer – if it does at some point, as industry insiders expect. “Some brands will refuse to talk to Matches after what happened, but others will have no choice but to agree to work with them because they need to sell their stock,” a source close to Matches said.