Private Equity Turns its Attention to the Fashion Industry

0
527

The past couple of years have seen some major developments in the fashion industry, particularly e-commerce and custom apparel. Industry experts were startled to note that many financiers from the private equity sector are investing large funds into brands and companies that would normally have never garnered such interest. In December 2017, financing firm L Catterton took the initiative to acquire a 51% stake in the Ganni, a women’s fashion brand based in Copenhagen. This acquisition was only one of the many investments made by the financing company in the preceding months. Some of the most noteworthy included Supreme and menswear company Mizzen+Main.

The year 2017 also saw Apax Partners, a New-York based company successfully engage in and win a bidding war to acquire MatchesFashion, valued at more than $1 billion. Later, in the same year, the private equity firm went on to add Moda Operandi to its portfolio.  

As a rule, private equity avoids investing in the fashion industry because of uncertain trends and uneven growth patterns. In an environment where trends change quickly and display unexpected upswings and dips, investors are understandably wary of sinking their money into uncertain ventures, particularly in wholesale fashion brands. What makes these deals extremely interesting is that they outline growing confidence that e-commerce and custom apparel companies will continue to pose a bigger and bigger threat to traditional clothing retailers.

Finance Companies Now Prefer to Invest in E-Commerce and Retail Businesses in the Fashion Sector 

The current scenario seems to be changing with investors recognizing the potential growth of designing companies offering more than just groundbreaking and innovative custom apparel. 

Like Ron Frasch, operating partner at Castanea Partners reveals to Business of Fashion, “Investment in major fashion houses has softened up. It has heated up for brands that have established themselves in multiple product categories and have an established distribution strategy, meaning direct-to-consumer, wholesale and some level of e-commerce.” 

Frasch goes on to add, “It’s much more difficult for brands that do not have a direct-to-consumer presence. It’s hard if you’re one-dimensional.” 

In other words, traditional fashion companies may find it harder to maintain their edge over the competition if they cannot customize their products and fill orders almost instantly via mobile interfaces.

Some Fashion Companies May Welcome Private Equity and the Managerial Support They Provide 

Several successful fashion companies who are rapidly becoming high-end brands find that combining their creative talents with day-to-day operations is not practical. They would much rather focus on developing and releasing apparel than divert valuable bandwidth toward managing their businesses. For this reason, upcoming clothiers prefer to welcome equity investment. Fashion designers receive much-needed funding for their growing brands while at the same time, get expert managerial assistance leaving them to concentrate on what they do best. 

Getting an influx of funds allows fashion houses to expand and diversify into related lines and products that cater to the tastes and requirements of a wider customer demographic. In an age where the concept of “zeitgeist” can spell the difference between continuing success and oblivion, designers need to constantly innovate and be willing to break the molds they create.

On the Flip Side, Many Direct-to-Customer Businesses Prefer the Personal Touch They Provide 

Interestingly, not all clothing and custom apparel brands think the same way. Many company owners prefer to avoid the financial boost of private equity and instead, continuing to build on the personalized relationship that they’ve established with their customers.  

Kane Posner is the EVP of PrintFly, the parent corporation of RushOrderTees, one of the world’s most popular designers and printers of custom t-shirts and other custom apparel. 

As Posner says, “I’ve worked with private equity firms for the greater part of a decade in their portfolio companies.  While they can certainly add value, it can be difficult to balance the competing interests of value creation with delivering a best in breed experience for both customers and employees.  That’s why RushOrderTees is different – we have no outside capital and every decision is employee/customer first, and bottom line second. I think the value there is we’re thinking for the long term and making investments that in the short term don’t explicitly contribute to growth but in the long term will pay for themselves many times over.”  

Private Equity in the Industry is Not Slowing Down

While the decision to accept private investment remains debatable, several fashion companies have chosen to go public. In fact, Retail Dive revealed that since 2002, $116.5 billion has poured into over 120 acquisitions in the U.S. alone. Some of the well-known names include Gymboree and Burlington bought out by Bain Capital and J. Crew funded by Leonard Green. One of the most famous take-overs making waves in 2019 is Custom Ink, a D.C.-based custom apparel company that has partnered with the private equity firm, Great Hill Partners.

The Coming Years May See a Higher Private Equity Investment in the Custom Apparel Industry 

The fashion industry seems to be struggling in the past few years with many known brands filing for Chapter 11. Some surprising examples include Sonia Rykiel, Diesel, Roberto Cavalli, David’s Bridal, Charlotte Russe, and Pretty Green. All of these brands have received investments from various private equity agencies to remain in business. 

As a survey conducted by McKinsey & Company reveals, the fashion arena is expected to grow exponentially in the coming years with global markets like India and Greater China expected to overtake western countries like U.S. and Europe. And investments from private organizations could be the key factor contributing to that growth.  

LEAVE A REPLY

Please enter your comment!
Please enter your name here